diff --git a/src/ng/compile.js b/src/ng/compile.js
index 639b220ba959..d82a11f5c044 100644
--- a/src/ng/compile.js
+++ b/src/ng/compile.js
@@ -830,7 +830,7 @@ function $CompileProvider($provide, $$sanitizeUriProvider) {
               compileNodes($compileNodes, transcludeFn, $compileNodes,
                            maxPriority, ignoreDirective, previousCompileContext);
       safeAddClass($compileNodes, 'ng-scope');
-      return function publicLinkFn(scope, cloneConnectFn, transcludeControllers){
+      return function publicLinkFn(scope, cloneConnectFn, transcludeControllers, parentBoundTranscludeFn){
         assertArg(scope, 'scope');
         // important!!: we must call our jqLite.clone() since the jQuery one is trying to be smart
         // and sometimes changes the structure of the DOM.
@@ -852,7 +852,7 @@ function $CompileProvider($provide, $$sanitizeUriProvider) {
         }
 
         if (cloneConnectFn) cloneConnectFn($linkNode, scope);
-        if (compositeLinkFn) compositeLinkFn(scope, $linkNode, $linkNode);
+        if (compositeLinkFn) compositeLinkFn(scope, $linkNode, $linkNode, parentBoundTranscludeFn);
         return $linkNode;
       };
     }
@@ -968,10 +968,6 @@ function $CompileProvider($provide, $$sanitizeUriProvider) {
 
     function createBoundTranscludeFn(scope, transcludeFn, previousBoundTranscludeFn) {
 
-      // If there is a previous boundTransclude function and it has a transclusionScope then
-      // use this instead of the current scope
-      scope = previousBoundTranscludeFn && previousBoundTranscludeFn.transclusionScope || scope;
-
       var boundTranscludeFn = function(transcludedScope, cloneFn, controllers) {
         var scopeCreated = false;
 
@@ -981,16 +977,13 @@ function $CompileProvider($provide, $$sanitizeUriProvider) {
           scopeCreated = true;
         }
 
-        var clone = transcludeFn(transcludedScope, cloneFn, controllers);
+        var clone = transcludeFn(transcludedScope, cloneFn, controllers, previousBoundTranscludeFn);
         if (scopeCreated) {
           clone.on('$destroy', function() { transcludedScope.$destroy(); });
         }
         return clone;
       };
 
-      // Store the transclusionScope for nested transclusions
-      boundTranscludeFn.transclusionScope = scope;
-
       return boundTranscludeFn;
     }
 
@@ -1767,7 +1760,7 @@ function $CompileProvider($provide, $$sanitizeUriProvider) {
               // Copy in CSS classes from original node
               safeAddClass(jqLite(linkNode), oldClasses);
             }
-            if (afterTemplateNodeLinkFn.transclude) {
+            if (afterTemplateNodeLinkFn.transcludeOnThisElement) {
               childBoundTranscludeFn = createBoundTranscludeFn(scope, afterTemplateNodeLinkFn.transclude, boundTranscludeFn);
             } else {
               childBoundTranscludeFn = boundTranscludeFn;
diff --git a/test/ng/directive/ngIfSpec.js b/test/ng/directive/ngIfSpec.js
index 771e264a9a73..c4c253cca893 100755
--- a/test/ng/directive/ngIfSpec.js
+++ b/test/ng/directive/ngIfSpec.js
@@ -199,6 +199,28 @@ describe('ngIf and transcludes', function() {
       dealoc(element);
     });
   });
+
+
+  it('should use the correct transcluded scope', function() {
+    module(function($compileProvider) {
+      $compileProvider.directive('iso', valueFn({
+        link: function(scope) {
+          scope.val = 'value in iso scope';
+        },
+        restrict: 'E',
+        transclude: true,
+        template: '<div ng-if="true">val={{val}}-<div ng-transclude></div></div>',
+        scope: {}
+      }));
+    });
+    inject(function($compile, $rootScope) {
+      $rootScope.val = 'transcluded content';
+      var element = $compile('<iso><span ng-bind="val"></span></iso>')($rootScope);
+      $rootScope.$digest();
+      expect(trim(element.text())).toEqual('val=value in iso scope-transcluded content');
+      dealoc(element);
+    });
+  });
 });
 
 describe('ngIf animations', function () {