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CMA Intermediate · Direct and Indirect Taxation · Clubbing of Income

Mr. Prakash Menon transfers listed shares to his friend, Mr. George, by an arrangement that cannot be revoked during Mr. George's lifetime. Mr. Menon derives no direct or indirect benefit from the income. Dividend of Rs 25,000 is received by Mr. George. Under section 97, the dividend is:

The Rs 25,000 dividend is not included in Mr. Menon's income under section 97(1). The transfer is irrevocable during the transferee's lifetime and Mr. Menon gets no direct or indirect benefit, so section 97(2) removes it from the clubbing rule and the dividend is taxed with Mr. George.

  1. AIncluded in Mr. Menon's income, because the transfer was without consideration
  2. BIncluded in Mr. Menon's income, because shares were transferred to a non-relative
  3. CIncluded in Mr. Menon's income, as the arrangement is a transfer of shares
  4. DNot included in Mr. Menon's income under section 97(1), because the transfer is not revocable during the transferee's lifetime and he derives no benefitCorrect

Explanation

Section 97(2) takes a transfer outside section 97(1) when it cannot be revoked during the transferee's lifetime and the transferor derives no direct or indirect benefit from the income. Both conditions are met, so the Rs 25,000 is taxed in Mr. George's hands. A lack of consideration alone does not trigger section 97(1).

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