Spousal gift-tax exemption applies to a trust settlement transferring beneficial interest to the wife under the Gift-tax Act.

A voluntary settlement creating a trust in favour of a spouse is treated as a gift because it transfers existing property, including a beneficial interest in property, without consideration. The creation of the trust itself is a transfer of property for Gift-tax Act purposes, and the fact that legal title vests in trustees does not prevent the spouse from receiving the beneficial interest. The spousal exemption under section 5(1)(viii) applies to that transfer, and section 5(3) does not require the spouse to have a disposing power over the gifted property for the exemption to operate.

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Issues: Whether the assessee was entitled to exemption of Rs. 1,00,000 under the Gift-tax Act in respect of the settlement made in favour of his spouse.

Analysis: The settlement created a trust in respect of existing property and transferred the beneficial interest in the trust fund to the wife for her lifetime. Under the statutory definitions, a gift includes a voluntary transfer of existing property without consideration, property includes an interest in property, and transfer of property includes the creation of a trust. The beneficiary under a trust acquires a beneficial interest in the trust property, and that interest is not excluded merely because the legal title vests in trustees. The spouse exemption under section 5(1)(viii) is available where the gift is to the spouse, and section 5(3) does not limit that exemption by requiring the spouse to have a disposing power over the gifted property.

Conclusion: The assessee was entitled to exemption under section 5(1)(viii) to the extent of the value of the gift involved in the settlement in favour of his wife.

Ratio Decidendi: A voluntary settlement creating a trust in favour of a spouse transfers a beneficial interest in property and constitutes a gift for the purposes of the Gift-tax Act, so the spousal exemption applies to that transfer.

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