Section 281 of the Income-tax Act, 1961, is declaratory in nature and does not provide for any mode of enforcement of the rights created under it. It does not contemplate any adjudication or passing of any order thereunder without a properly constituted proceeding.

( 1 ) THE primary issue involved in this writ proceeding is the nature of power of the income-tax authorities under Section 281 of the Income-tax Act, 1961 (referred to hereafter as "the Act" ). The issue arises in the following manner : the petitioner claims to be a relative of one Vishwanath More who gifted a relief bond to the petitioner. The relief bond was for Rs. 2 lakhs bearing interest at nine per cent. per annum payable annually from July, 1988, and was repayable on July 1, 1993. Vishwanath More executed a document on July 27, 1988, which stated, inter alia :"that the transfer formalities of the said relief bonds could be completed only after receipt of the said bonds from the said bank. When I shall execute deed of gift and hand over possession of the said bond to Mrs. Preeti Rungta. That I have divested myself from all the title, rights and interest on the said bonds and Mrs. Preeti Rungta shall be the absolute owner from this date and no person whatsoever has any right, title and/or interest of any kind whatsoever thereon. "

( 2 ) UNDER cover of a letter dated April 11, 1989, addressed to the Reserve Bank of India, the petitioner enclosed the certificate of the bond as well as the form of transfer executed by Vishwanath More in her favour as well as the interest warrants issued in the name of Vishwanath More. The name of the petitioner has been noted by the Reserve Bank of India on the certificate as a transferee, the date of transfer being given as March 23, 1989. According to the petitioner, she has been paid interest on the said bond up to the year 1991 by the Reserve Bank of India.

( 3 ) ON February 16, 1992, Vishwanath More died. On February 18, 1992, an order was issued by respondent No. 1 under Section 281 of the Act in respect of Vishwanath More stating that Vishwanath More had made an absolute irrecovable gift of Rs. 2 lakhs to the petitioner on July 27, 1988, and that Vishwanath More was in default in making payment of income-tax/wealth-tax and penalties to the tune of Rs. 18,79,773 which had been lying unpaid since 1978. This order (which has been impugned in these proceedings) concludes with the following sentences :"it is thus clear that the assessee parted with his aforesaid assets in hand without discharging his liability to pay tax, interest and penalty due from him at the time of making the above gift. In exercise of the powers under Section 281 of the Income-tax Act, 1961, I do hereby hold the aforementioned gift dated July 27, 1988, made by Shri Vishwanath More to Mrs. Preeti Rungta as void. "

( 4 ) AN attachment notice under Section 226 (3) was enclosed with the copy of the impugned order addressed to the Reserve Bank of India for attachment of the bond and to restrain the Reserve Bank of India from paying all the maturity amount as well as interest to the petitioner. Copies of the impugned order were also sent to the petitioner and to Vishwanath More for information.

( 5 ) IN wealth-tax proceedings for the assessment year 1989-90, the petitioner disclosed that she had received the gift of the nine per cent. relief bond for Rs. 2 lakhs from Vishwanath More. The Wealth-tax Officer disbelieved the petitioner and passed an order on March 2, 1992, saying :"it is strange to see that the alleged donor did not file the 'return for the last few years including this year and moreover there was a proposal to write off huge outstanding demand. It is definite that such a person cannot make any gift when he did not have sufficient fund to meet his outstanding demand. As such the alleged gift was nothing but an investment out of undisclosed income of the assessee. "

( 6 ) ON March 2, 1992, notice under Section 148 of the Act was issued to the petitioner with respect to the assessment year 1989-90 on the ground that income chargeable to tax had escaped assessment for the assessment year in question.

( 7 ) ON April 27, 1992, a notice of demand was issued under Section 30 of the Wealth-tax Act,