Situs of movable property governs gift-tax exemption where the gift was made and accepted in Srinagar.

A gift of movable property made and accepted at Srinagar was treated as exempt from gift-tax under section 5(1)(ii) because the Act extended to India except Jammu and Kashmir, and the exemption turned on the situs of the gifted property rather than the residence of the donor or donee. The bank certificate showing transfer and acceptance at Srinagar supported the factual basis for the exemption. The arrangement was found to be within the framework of law and not a colourable device, so the addition of the gifted amount was not sustainable.

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Issues: Whether a gift of movable property made and accepted at Srinagar was exempt from gift-tax under section 5(1)(ii) of the Gift-tax Act, 1958, having regard to the territorial extent of the Act.

Analysis: The Act extended to the whole of India except the State of Jammu and Kashmir, and section 5(1)(ii) exempted gifts of movable property situated outside the territories to which the Act extended, subject to the statutory conditions. The exemption depended on the situs of the gifted property and not on the residence of the donor or donee in Jammu and Kashmir. The certificate issued by the Srinagar branch of the bank supported that the amount was transferred and the gift was made and accepted there. The arrangement was held to be within the framework of law and not a colourable device.

Conclusion: The gift was exempt under section 5(1)(ii) and the addition of Rs. 1 lakh was not sustainable.

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