K.C.Agrawal, J. - (1.) This is an application under Sub-section (2) of Section 256 of the Income-tax Act, 1961, moved by the U.P. Forest Corporation for a direction to the Income-tax Appellate Tribunal to refer the following two questions to this court: " (1) Whether the Corporation has been created under the Act as an agent and carries on its activities (including the activities of disposing of trees, exploitation of forest resources which yield profit and income) on behalf of the State and not on its own account ? (2) Whether the income in regard to which the assessment is sought to be made under the Income-tax Act, against the Corporation, is in truth and reality the income of the State of U.P, and is, therefore, exempt from income-tax under Article 289(1) of the Constitution ?"
(2.) For the assessment year 1978-79, the assessee-Corporation submitted a return declaring a loss of Rs. 7,57,800 and that its income is exempt under Section 10(20) of the Income-tax Act. The assessee's plea regarding exemption was not accepted by the Inspecting Assistant Commissioner of Income-tax (Assessment), Lucknow. As against this order, an appeal was filed which was partly accepted but the plea of exemption under Section 10(20) was negatived by giving the following finding : "In my view, the activities of a Corporation which is primarily engaged in profit-earning activities and are not in the nature of activities for supply of commodity or services within a particular jurisdictional area do not come within the purview of Section 10(20) and, therefore, the Inspecting Assistant Commissioner (Assessment) was right in refusing the claim of exemption to the appellant. Therefore, his decision on this issue is confirmed."
(3.) Thereafter, the Forest Corporation filed the second appeal before the Income-tax Appellate Tribunal challenging the finding of the Commissioner, of Income-tax (Appeals) that it was not entitled to exemption under Section 10(20) of the Income-tax Act. On September 4, 1984, the assessee filed an application for addition of an additional ground to the following effect: "Because the income made by the assessee is in reality the income of the State Government of U.P. and is, therefore, exempt under Article 289(1) of the Constitution. ";