Revocable transfer rule: gifts cancellable by law fall within section 61 and are taxed in the transferor's hands.

Income arising from a transfer that is revocable by operation of law falls within section 61 of the Income-tax Act, 1961, because section 63 enlarges the meaning of "revocable" rather than restricting its ordinary legal sense. On that reading, gifts made by a husband to his wife were revocable where the governing Portuguese Civil Code allowed such gifts to be freely cancelled by the donor. The gifts were therefore revocable transfers, and the reference was answered in favour of the Revenue.

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Issues: Whether gifts made by a husband to his wife, which were revocable under article 1181 of the Portuguese Civil Code, constituted "revocable transfers" within the meaning of section 61 read with section 63 of the Income-tax Act, 1961.

Analysis: Section 61 brings to tax income arising from a revocable transfer of assets in the hands of the transferor. Section 63 enlarges the meaning of "revocable" by deeming certain transfers revocable, but it does not restrict the ordinary legal meaning of a transfer that is already revocable by operation of law. On a conjoint reading of sections 61 to 63, the statutory scheme includes income arising from transfers that are revocable in law, whether by express terms or by the operation of the governing law. Since article 1181 of the Portuguese Civil Code permitted gifts between spouses to be freely cancelled by the donor, the gifts in question were revocable gifts.

Conclusion: The gifts were revocable transfers within section 61 of the Income-tax Act, 1961, and the answer to the reference was in the affirmative in favour of the Revenue.

Ratio Decidendi: A transfer revocable by operation of law is a revocable transfer for the purposes of sections 61 to 63 of the Income-tax Act, 1961, and section 63 enlarges rather than restricts the ordinary meaning of revocability.

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