Gift-tax exemption is limited to market value of the gifted property; income from the gift cannot be added in computation.

For exemption under section 5(1)(xii) of the Gift-tax Act, the Court held that the gifted property must be valued on its market value under section 6, and the income derived from that property cannot be added when fixing the reasonable amount eligible for exemption. The Tribunal erred in combining the corpus value with income from the gifted land transferred for the donees' education. The exempt amount is confined to the market value of the gift, and the assessee succeeded on that issue.

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Issues: Whether, for exemption under section 5(1)(xii) of the Gift-tax Act, 1958, the income from the gifted property could be taken into account in determining the quantum of the gift eligible for exemption.

Analysis: The gifted land was transferred for the education of the donees. The Tribunal had held that the value of the corpus should be taken together with the income from the property while computing the exempt portion. The Court applied the earlier binding interpretation that, once the market value of the gifted property is determined under section 6, no further addition can be made by including the income derived from the property. The income from the gifted property is not a relevant circumstance for fixing the reasonable amount eligible for exemption under section 5(1)(xii).

Conclusion: The Tribunal was wrong in including the income from the gifted property in the exemption computation, and the answer is in favour of the assessee.

Ratio Decidendi: For exemption under section 5(1)(xii) of the Gift-tax Act, 1958, the taxable value of the gifted property is confined to its market value as determined under the Act, and the income derived from that property cannot be added for computing the exempt amount.

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