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CMA Intermediate · Direct and Indirect Taxation · Income from Other Sources

Mr. Gupta transferred shares to his friend Mr. Iyer by a transfer that Mr. Gupta can revoke at any time. During the tax year the shares yielded dividends of ₹60,000, received by Mr. Iyer. Under section 97 of the Income-tax Act, 2025, how is the dividend treated?

The ₹60,000 dividend is taxed in Mr. Gupta's hands. Under section 97(1), income arising by virtue of a revocable transfer of assets is chargeable as the transferor's income. The exception for non-revocable transfers does not apply because he can revoke the transfer, so the receipt by Mr. Iyer is irrelevant.

  1. ATaxed in Mr. Iyer's hands, as he received it
  2. BTaxed in Mr. Gupta's hands as the transferor, ₹60,000Correct
  3. CTaxed equally, ₹30,000 each
  4. DNot taxed to anyone until the power to revoke is exercised

Explanation

Section 97(1) makes all income arising to any person by virtue of a revocable transfer of assets chargeable as income of the transferor. The exception in section 97(2) requires the transfer to be non-revocable during the lifetime of the transferee, and this one is revocable. The ₹60,000 is therefore included in Mr. Gupta's total income.

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