Sudhir Narain, J. - (1.) The basic issue in the consolidated appeals is whether the income of the appellant is wholly for charitable purpose as defined under Section 2(15) of the IT Act, 1961 (hereinafter referred to as 'the Act').
(2.) The U.P. Forest Corporation, the appellant, was constituted by notification issued under Section 3 of the U.P, Forest Corporation Act, 1974. The assessment proceedings were taken against it. The appellant claimed exemption on the ground that it is a local authority and was liable for exemption under Section 10(20) of the Act. The AO rejected the claim. The respondents then filed appeal and the CIT(A), following the decision of the High Court in Writ Petn. No. 1568 of 1977 for the asst. yr. 1976-77, held that the appellant was a local authority and as such was exempt from tax. The Tribunal, on appeal, set aside this order on the ground that the appellant was not a local authority. The appellant challenged these orders by filing writ petition in the High Court. The High Court allowed the writ petition on 19th May, 1988, on two grounds--firstly, that the appellant is a local authority and secondly, it was entitled to exemption under Section 11(1)(a) of the Act. The respondents preferred appeals before the apex Court. The appeals were allowed holding that the appellant is not a local authority within the meaning of Section 10(20) of the Act. As regards the exemption claimed under the provisions of Section 11(1)(a) of the Act the assessing authority was directed to consider such claim of the respondent. The AO took the view that the predominant object of the appellant is commercial and, therefore, its income cannot be treated as for charitable purpose within the meaning of Section 2(15) of the Act. The view taken by the AO has been affirmed by the CIT(A) and the Tribunal. These appeals are directed against these orders.
(3.) Section 11(1)(a) of the Act reads as under : "(a) income derived from property held under trust wholly for charitable or religious purposes, to the extent to which such income is applied to such purposes in India; and, where any such income is accumulated or set apart for application to such purposes in India, to the extent to which the income so accumulated or set apart is not in excess of twenty-five per cent of the income from such property;";