What is the time in your watch?
What is the time by your watch?
Which one of tha above is correct?
It depends on what level of information you require. If you are just asking someone for the current time, you'd just say:
"What time is it?" or more politely "What time is it please?".
If you are wanting to ask about a specific watch, (for instance if you were comparing the time showing on YOUR watch to the time showing on someone else's watch) you'd say:
"What time does your watch say?"
"What is the time on your watch?"
"What time does your watch have?"
"What time does your watch show?"
"What time does your watch give?"
You'd never say "in your watch" and the phrase "by your watch" is such an old way of talking that no one would ever use that in modern English.
Where the saurce of what you offer?
Harry - "Source"
Here's another way of telling the time, which no one has mentioned before in this thread:
What's the (exact) time(, please)?