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Interpretation of section 5(1)(xii) of the Gift-tax Act regarding the treatment of income derived from gifted properties in determining the reasonable gift amount for educational purposes. Analysis: The case involved a dispute regarding the treatment of income derived from gifted properties in determining the reasonable gift amount for educational purposes under section 5(1)(xii) of the Gift-tax Act. The assessee had gifted properties to his children for educational needs, claiming exemption under the Act. The Gift-tax Officer considered the income from the gifted properties while allowing deductions for educational expenses of the donees. The Appellate Assistant Commissioner disagreed with this approach, stating that income from the gifted properties should not be a factor in determining the reasonable gift amount. The department appealed, arguing that income should be considered for calculating the exemption. The Tribunal agreed with the Appellate Assistant Commissioner, stating that the income derived from the gifted property is an irrelevant consideration in determining the reasonable gift amount. The High Court concurred with this view, emphasizing that once the market value of the property is determined, no further additions such as income derived from the property should be considered for tax computation under the Act. The court analyzed the relevant provisions of the Gift-tax Act, including the definitions of "gift," "property," and the valuation of gifts under section 6. The assessee contended that tax computation should be based on the market value of the property, as determined under section 6, without considering additional factors like income derived from the property. The court agreed with this interpretation, highlighting the discretionary power of the taxing officer under section 5(1)(xii) to determine the reasonableness of gifts based on the circumstances of the case. However, the court cautioned that this power must be exercised with circumspection and care, and the market value of the property should be the primary basis for tax assessment. The court upheld the Tribunal's decision that income from gifted properties should not be factored into the gift-tax calculation, affirming the principle that once the market value is established, additional income considerations are not permissible. In conclusion, the High Court ruled in favor of the assessee, holding that income derived from gifted properties should not be considered in determining the reasonable gift amount for educational purposes under section 5(1)(xii) of the Gift-tax Act. The court emphasized the importance of adhering to the valuation principles outlined in the Act and upheld the decision that income from gifted properties is an irrelevant factor in assessing gift-tax liability. No costs were awarded, and the judgment was communicated to the Tribunal as required by law.
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