This is appeal filed against order dated 21-2-1980 of learned Commissioner (Appeals) by U.P. Forest Corporation---the assessee (' corporation ') for assessment year 1976-77. 2. corporation was constituted by UP State Government under Gazette Notification dated 25-11-1974 under section 3(1) of U.P. Forest Corporation Act, 1974 (' 1974 Act '). It is body corporate having perpetual succession and common seal capable of suing and being sued in its corporate name. It has power to acquire, hold and dispose of property. Act was brought into existence to provide for better preservation supervision and development of forests and better exploitation of forest produce within State and for matters connected therewith. Section 3(3) provides that corporation shall, for all purposes, be local authority. Section 14 of 1974 Act enumerates its functions, they being:---- (a) to undertake removal and disposal of trees and exploitation of forest resources entrusted to it by State Government; (b) to prepare projects relating to forestry within State; (c) to undertake research programmes relating to forest and forest products and render technical advice to State Government on matters relating to forestry; (d) to manage, maintain and develop such forests as are transferred or entrusted to it by State Government; and (e) to perform such functions as State Government may from time to time require. Section 15 of 1974 Act enumerates powers of corporation. Section 16 of 1974 Act empowers corporation to undertake projects at t h e instance of others, with previous approval of State Government. Section 17 of 1974 Act provides that corporation will have its own fund which shall be local fund to which all moneys received by it shall be credited. Section 18 of 1974 Act empowers it to borrow money subject to such conditions as State Government may determine. Section 19 of 1974 Act provides that State Government shall make subventions to corporation after due appropriation by law of State. Section 20 of 1974 Act provides that State Government may advance loans to corporation and section 21 o f 1974 Act empowers corporation to establish sinking fund for purposes of repayment of any loan. Section 22 of 1974 Act relates to preparation of budget of corporation. Section 23 of 1974 Act provides that accounts of corporation, shall be audited by examiner of local fund accounts and that State Government shall lay annually before each of House of Legislature account and audit report of corporation. Section 25 of 1974 Act provides that corporation shall be guided on questions of policy by directions of State Government. Section 29 of 1974 Act provides that Chairman, managing director or other members and employees of corporation shall be treated as public servants for purposes of section 21 of Indian Penal Code. Section 33 of 1974 Act empowers State Government to make rules and similarly section 34 of 1974 Act empowers corporation to make regulations. Since corporation has been constituted as local authority, it is precluded from having share capital. 3. In pursuance of notice under section 139(2) of Income-tax Act, 1961 (' Act '), corporation filed its return for assessment year 1976-77 on 24-3-1977 under protest. Therein, corporation declared total net profit of Rs. 8,82,402.86 as per profit and loss account and claimed exemption of entire income under section 10(20) of Act as ' local authority '. 4. corporation filed writ petition No. 1568 of 1977 before Lucknow Bench of Hon'ble High Court under article 226 of Constitution of India for quashing proceedings and notices under sections 139(2) and 142(1) of Act. However, that writ petition was dismissed on 27-1-1978 as premature. Hon'ble High Court held that corporation was ' local authority ' and could show before ITO that particular income earned by it fell within section 10(20) and was, therefore, exempt. 5. ITO held that corporation was engaged purely in trade activity relating to exploitation of forests, that its income did not qualify for exemption under section 10(20) and that its income was taxable. Accordingly, assessment was completed by ITO on total income of Rs. 39,58,920. 6. In appeal, learned Commissioner (Appeals) originally passed remand order dated 31-12-1979 in pursuance to which remand report dated 17-1-1980 was submitted by IAC (Assessment). learned Commissioner (Appeals) upheld ITO's finding that corporation was not entitled to exemption under section 10(20). However, he allowed some relief regarding certain disallowances and claim of depreciation with which we are not concerned. corporation had also filed revised return on 20-1-1979 in course of proceedings under section 144B of Act. Since corporation's ground of appeal regarding non-consideration by ITO of this revised return had not been dealt with, corporation moved application before learned Commissioner (Appeals) under section 154 of Act. learned Commissioner (Appeals), therefore, passed order under section 154 on 20-3- 1980. He held that revised return was not valid as original return had been filed under section 139(1) after expiry of time limits prescribed under sub-sections (1) and (2) of section 139. He, therefore, rejected ground taken on behalf of corporation. 7. corporation, being aggrieved, has come up in appeal before us. 8. So far as assessability of corporation is concerned, two contentions were raised on its behalf before us. first contention and which is preliminary contention, was that income made by it, was in reality income of State Government of U.P. and was, therefore, exempt under article 289(1) of Constitution of India. In that connection, it was argued that corporation was only agent or instrumentality of State Government. second contention and which was purely alternative contention was that income of corporation qualified for exemption under section 10(20). We take up preliminary contention first. 9. Shri S.P. Gupta, learned counsel for corporation, referring to preamble and various provisions of 1974 Act, and submitted that corporation was limb, agency of instrumentality of State and that all its funds belonged to State. Referring to para 14 at page 559 of Volume 18 of American Jurisprudence and to Notes No. 18 to 22 at page 201 of Palmer's Company Law (23rd edition), he submitted that veil of corporate structure could be lifted to find whether its income belonged to State. He also submitted that if Government/Sovereign functions were delegated to corporation, they would fall under article 289(1) of Constitution of India. In this connection, reference was also made by him to article 48A of Constitution of India relatable to Directive Principles of State policy as also to entries 7, 43, 44 and 52 of List 1, entry 19 of List II and entry No. 17A of List III of Seventh Schedule of Constitution of India. He also referred to following decisions: Andhra Pradesh State Road Transport Corpn. v. ITO [1964] 52 ITR 524 (SC), Ramtanu Co-operative Housing Society Ltd. v. State of Maharashtra AIR 1970 SC 1771, Patel Premji Jiva v. State of Gujarat [1971] 3 SCC 815, Ramana Dayaram Shetty v. International Airport Authority of India AIR 1979 SC 1628 and State of U.P. v. Vijay Bahadur Singh AIR 1982 SC 1234. He submitted that corporation was created as third arm or limb of Government only for some functional advantage. He sought to argue that State Legislature could not create corporation otherwise than for discharging i t s functions Governmental as well as those incidental to Governmental functions. He also submitted that if functions which were being carried on by corporation had been carried out by department of Government, there would have been no tax and that, therefore, why would State Government have invited taxation by constituting corporation. Referring to section 3(3) of 1974 Act, wherein it is provided that corporation shall be local authority, Shri Gupta argued that income was earned by local authority, but that for purposes of tax liability, it was State's income. Shri Gupta particularly relied upon observations of Supreme Court in case of Vijay Bahadur Singh in para 3 at page 1237 to effect that it was wholly State owned corporation and that its profits were in truth profits of State itself. On other hand, Shri K.K. Roy, learned departmental representative, submitted that though definition of ' State ' under article 12 of Constitution of India included local authority, that definition was confined to Part III of Constitution of India and could not be imported for purposes of article 289 of Constitution of India. Besides referring to provisions of 1974 Act, reference was also made by him to provisions of Damodar Valley Corporation Act, 1948, Road Transport Corporation Act, 1950. State Finance Corporations Act, 1951 and Food Corporation Act, 1964, and on their basis he submitted that corporation was not agency or instrumentality of State. He submitted that though Government exercised some control over corporation. functions of corporation were neither Governmental nor incidental to Governmental functions. Referring to annual report of corporation, Shri Roy submitted that there was no monopoly of corporation and that it was being run as commercial undertaking with profit motive. He submitted that there was no diversion of income to State Government by overriding title and that royalty was being paid by corporation to State Government. Reliance was also placed by him on opinion of legal remembrancer to Government of UP as contained in his D.O. letter dated 28-4-1975 wherein it was stated that corporation was not subordinate department of State Government but independent legal entity, though subject to control of State Government. Reliance was also placed by him on following decisions -- - CIT v. Thakar Das Bhargava [1960] 40 ITR 301 (SC), CIT v. Imperial Chemical Industries India (P.) Ltd. [1969] 74 ITR 17 (SC), Kerala Financial Corpn. v. WTO [1971] 82 ITR 477 (Ker.) (FB), Sabhajit Tewari v. Union of India AIR 1975 SC 1329, Calcutta State Transport Corpn. v. CIT [1977] 108 ITR 922 (Cal.), Mahavir v. State of UP AIR 1979 All. 3, Ishwari Khetan Sugar Mills (P.) Ltd. v. State of UP AIR 1980 SC 1955, Ajay Hasia v. Khalid Mujib Sehravardi AIR 1981 SC 487, 497, Union of India v. R. C. Jain AIR 1981 SC 951, State of Punjab v. Raja Ram AIR 1981 SC 1694 and Western Coalfields Ltd. v. Special Area Development Authority AIR 1982 SC 697. 10. We have considered rival submissions as also decisions referred to above. Section 3(3) clearly provides that corporation shall, for all purposes, be local authority. In view of this specific provision and in view of decision dated 27-1-1978 of Lucknow Bench of Hon'ble High Court in writ petition filed by assessee and referred to above, it is clear that corporation is local authority. decision of Supreme Court in case of Patel Premji Jiva that market committee constituted under Gujarat Agricultural Produce Markets Act, 1963, is local authority would, therefore, not help us. Similar would be position of decision in case of Mahavir where mandi samity was held to be local authority and decision in case of R. C. Jain where Supreme Court held that Delhi Development Authority was local authority. However, in latter case it was held by Supreme Court that local authorities must have separate legal existence as corporate bodies and that they must not be mere Governmental agencies but must be legally independent entities. Also not of assistance to us is decision of Hon'ble Supreme Court in case of Andhra Pradesh State Road Transport Corpn. which was held to be not local authority. In fact, under section 2(31)(vi) of ' local authority ' is distinct assessable entity which is included in definition of ' person '. In case of Kerala Financial Corpn. word ' individual ' in section 3 of Wealth-tax Act, 1957, was held to include corporation. 11. No doubt, article 12 of Constitution of India defines ' State ' to include local authority for purposes of Part III dealing with Fundamental Rights. On behalf of corporation no assistance was sought to be derived and rightly so, from article 12 as this definition of ' State ' is not relevant for purposes of article 289 of Constitution of India which deals with exemption of property and income of State from Union taxation. Therefore, decision of Supreme Court in case of Sabhajit Tewari where it was held that Council for Scientific and Industrial Research was not authority under article 12, is not of assistance to us. So also is other decision of Supreme Court in case of Ajay Hasia where question examined was whether society registered under Societies Registration Act is authority filling within definition of ' State ' under article 12. 12. Article 285 of Constitution of India relates to exemption of property of Union from State taxation and is, therefore, not relevant for our purposes. Article 289 which deals with exemption of property and income of State from Union taxation is in following terms. " Exemption of property and income of State from Union taxation--- (1) property and income of State shall be exempt from Union taxation. (2) Nothing in clause (1) shall prevent Union from imposing, or authorising imposition of, any tax to such extent, if any, as Parliament may by law provide in respect of trade or business of any kind carried on by, or on behalf of, Government of State, or any operations connected therewith, or any property used or occupied for purposes of such trade or business, or any income accruing or arising in connection therewith. (3) Nothing in clause (2) shall apply to any trade or business, or to any class of trade or business, which Parliament may by law declare to be incidental to ordinary functions of Government." drive of article 289, so far as it is material for purposes of this case, is that unless trade or business or class of trade or business is declared by Parliament to be incidental to ordinary functions of Government, Union can impose or authorise imposition of any tax by Act of Parliament in respect of trade or business of any kind carried on by or on behalf of Government of State or any operations connected therewith or any income accruing or arising in connection therewith. In annual report of corporation (November 1974 to September 1975), it is clearly mentioned that it is commercial undertaking. In advice dated 28-4-1975 of legal remembrancer to UP Government also it has been accepted as trading corporation. Thus decision of Supreme Court in case of Ramtanu Co- operative Housing Society Ltd. that Maharashtra Development Corporation established under Maharashtra Industrial Development Act, 1961, is not trading corporation is not strictly relevant. It is not case of corporation that its trade or business has been declared by Parliament to be incidental to ordinary functions of Government. Therefore, in terms of article 289 there would be no bar to imposition of income-tax under Act, in respect of trade and business carried on by corporation even if it be on behalf of U.P. Government. Therefore, article 289 also does not assist corporation. 13. cases of Thakar Das Bhargava and Imperial Chemical Industries (India) (P.) Ltd. which deal with rule of overriding obligation and diversion of income by overriding title would not be of assistance to us on established facts and averments made on behalf of corporation which has only claimed t o be agent or instrumentality of U.P. State Government and has not taken up case that there was overriding obligation or title in respect of State Government with reference to income derived by corporation. 14. Next comes question of corporation being department of Government. corporation has rightly not taken up this stand. Even in advice of legal remembrancer it has been clearly stated that corporation is not subordinate department of State Government. Therefore, reference to case of Raja Ram para 5 whereof deals with question as to what is Government department, is not relevant. In that case, it was held that Food Corporation of India is not Government department. 15. Then we come to crucial question of alleged agency or instrumentality which corporation has claimed for itself on behalf of U.P. State Government. In this connection, decision of Supreme Court in case of Ramana Dayaram Shetty is very relevant. In para 14 of that judgment Supreme Court observed that where corporation is wholly controlled by Government not only in its policy-making but also in carrying out functions entrusted to it by law establishing it, there can be no doubt that it would be instrumentality or agency of Government. But ordinarily where corporation is established by statute, it is autonomous in its working subject only to provision, often times made, that it shall be bound by any directions that may be issued from time to time by Government in respect of policy matters. Addressing itself to question as to when does such corporation become instrumentality or agency of Government, Supreme Court noticed various features. It held that if entire share capital of corporation is held by Government, it would go long way towards indicating that corporation is instrumentality or agency of Government. However, it observed that as is quite often case, corporation established by statute may have no shares or shareholders in which case it would be relevant factor to consider whether administration is in hands of board of directors appointed by department, though this consideration also may not be determinative department, though this consideration also may not be determinative because even where directors are appointed by Government, they may be completely free from governmental control in discharge of their functions. In present case, as we have already seen, there is no share capital since corporation has been constituted as local authority. Supreme Court held that it was not possible to formulate all inclusive or exhaustive test which would adequately answer this question and that there was no cut and dried formula which would provide correct division of corporations into those which are instrumentalities or agencies of Government and those which are not. Examining matter further in paras 14 to 19 of said decision, Supreme Court observed that where financial assistance of State is so much as to meet almost entire expenditure of corporation, it would afford some indication of corporation being impregnated with governmental character. It was also held that if functions of corporation were of public importance and closely related to governmental functions, it would be relevant factor in classifying corporation as instrumentality or agency of Government. Then Supreme Court enumerated in para 19 of said decision several factors which may have to be considered in determining whether corporation is agency or instrumentality of Government. They were summarised as under: (i) whether there is any financial assistance given by State, and if so, what is magnitude of such assistance, (ii) whether there is any other form of assistance, given by State, and if so, whether it is of usual kind or it is extraordinary, (iii) whether there is any control of management and policies of corporation by State and what is nature and extent of such control, (iv) whether corporation enjoys State conferred or State protected monopoly status, and (v) whether functions carried out by corporation are public functions closely related to governmental functions. Supreme Court observed that particularisation of above factors was not exhaustive and that it was not possible to make exhaustive enumeration of tests which could invariably and in all cases provide unfailing answer to question whether corporation is governmental instrumentality or agency. Supreme Court also cautioned that even amongst above mentioned factors, no one single factor will yield satisfactory answer to question and that cumulative effect of these various factors will have to be considered and then decision arrived at on basis of particularised enquiry into facts and circumstances of each case. This decision, therefore, is of importance for judging nature of corporation under consideration. Here it may be also noticed that nature of Andhra Pradesh State Road Corporation constituted under Road Transport Corporations Act, 1950, came up for consideration before Supreme Court in case of Andhra Pradesh State Road Transport Corpn. It was held by Supreme Court that though majority of its shares were owned by Andhra Pradesh Government and its activities were controlled by State, corporation had separate personality of its own, trading activities were trading activities of corporation and profit and loss arising therefrom were profit and loss of corporation. It was also held that income derived by that corporation from its trading activities could not be said to be income of Andhra Pradesh State under article 289. In that case, before formation of corporation road transport was department of Andhra Pradesh Government. Its net income went to State under section 30 of Road Transport Corporations Act. It was trading corporation. In that case, Advocate General had conceded that transport activity carried on by Andhra Pradesh State Road Transport Corporation was strictly not incidental to ordinary functions of Government. Under section 23(3) of Road Transport Corporations Act, State was one of shareholders of corporation and under section 23(1) capital contribution by Central and State Government was in proportion of 1:3. Supreme Court referred to its own decision in case of Akadasi Padhan v. State of Orissa AIR 1963 SC 1047 where it was held that there may be cases of some trades or business in which it would be open to State to employ services of agents, provided agents worked on behalf of State and not for themselves. Supreme Court in para 19 of judgment in case of Andhra Pradesh State Road Transport Corpn. recorded incidents of corporation and after examining provisions of Road Transport Corporations Act, it held in para 21 that income derived by that corporation from its trading activity was not income of State under article 289(1) due to following: (i) There was no provision making income of corporation income of State. (ii) All relevant provisions emphatically brought out separate personality of corporation and fact that trading activity as also profit and loss were of corporation. (iii) Section 28 providing for payment of interest and dividend brought about duality between corporation and State, Central Government. (v) Section 38(2)(c) showed that property vested in corporation. It was only during supersession that it was to vest in State Government Section 39(2) relating to distribution of assets on liquidation also showed same. (v) utilisation of fund as under sections 28 to 30 did not show it as income of State. (vi) It was not suggested or shown that when income is made over to State under section 30 it becomes part of general revenue of State. It was income impressed with obligation for specific purpose. (vii) absence of provision similar to section 43 of State Financial Corporation Act, 1951 and Damodar Valley Corporation Act, 1948, did not show that no tax will be payable. It only showed that tax was payable as company. We may now examine decision of Supreme Court in case of Vijai Bahadur Singh. In that case corporation was not party. question involved there in related to Government's power to reject highest bid at auction of various lots. It was held that power of rejection of highest bid was not restricted to bid being inadequate and that there was no illegality since subsequent to provisional acceptance of bids, Government had revised its policy and had decided to get work done through assessee- corporation. mention by Supreme Court in para 3 of that decision that corporation was wholly Government owned corporation dedicated to better preservation and development of forests and better exploitation of forest produce and that its profits were in truth profits of State itself, was not made in same context as in cases of Andhra Pradesh State Road Transport Corpn. and Ramana Dayaram Shetty and, therefore, they do not help corporation. particular features of present corporation are that it has been constituted as local authority for which reason it is precluded from having share capital. It can borrow money from State Government and it can issue debentures or stock. It was launched with loan of Rs. 15 lakhs from Government. If it were agency or instrumentality of State Government, question of borrowing any money could not have arisen. corporation indisputably pays royalty to State Government. financial assistance given to corporation is not in its entirety. There is also no extraordinary assistance referred to by Supreme Court in case of Ramana Dayaram Shetty. There is some control of State Government over corporation but corporation is autonomous body. corporation cannot be said to enjoy State conferred or State protected monopoly status. Section 16 of 1974 Act enables corporation to undertake execution of any forest project of State Government or with previous approval of State Government at request of any other person on such terms and conditions as may be agreed upon. No doubt, section 43 of State Financial Corporations Act, 1951 and Damodar Valley Corporation Act, 1948, provide that those corporations shall be liable to pay tax on income levied by Central Government in same way and to same extent as company but it only shows that tax was payable as company and absence of similar provision in 1974 Act could not mean that it was to be free from taxation. There is no provision making income of corporation income of State. These moneys cannot go to consolidated fund of State. It has separate fund under section 17 which is designed ' local fund '. It has separate budget. perusal of relevant provisions of 1974 Act also bring out separate personality of corporation and show that trading activity and profit and loss are those of corporation. It is unnecessary for us to examine legislative entry under which 1974 Act was enacted. Equally unnecessary is also consideration of article 48A relating to Directive Principles of State Policy regarding safeguard of forests. lifting or piercing of veil or corporate structure of instant corporation also does not reveal face different from one discussed above. Also, we are not concerned with wisdom of State and Legislature in enacting 1974 Act. We have only to see if on basis of corporation as established, it is exigible to income-tax or not. Therefore, having regard to features of corporation in question and provisions of 1974 Act and examining them in light of judgments of Supreme Court, referred to above in which tests were given and applied, we are clearly of view that corporation cannot claim for itself agency or instrumentality of State of U.P. This preliminary objection taken on behalf of assessee-corporation, therefore, fails. 16. next question relates to claimability of exemption under section 10(20), by corporation. Shri Gupta referred to remand order dated 31-12-1979 of learned Commissioner (Appeals), assessment order passed by ITO for assessment year in question, directions dated 22- 9-1979 given by IAC (Assessments) to ITO order dated 27-1-1978 and of Hon'ble High Court in corporation's writ petition supra and para 2 of order dated 21-2-1980 of learned Commissioner (Appeals) impugned before us and submitted that income-tax authorities as also Hon'ble High Court had clearly held that corporation was local authority. Referring to section 10(20) of 1961 Act and section 1(2) of 1974 Act, read with this preamble, he pointed out that jurisdictional area of corporation was its territorial area. For this purpose, reference was also made by him to decision of Hon'ble Allahabad High Court in case of City Board v. CIT [1962] 46 ITR 1214. He also submitted that place where supply of commodity was made was relevant and not fact that corporation dealt with parties outside State of U.P. In this connection reference was made by him to another decision of Hon'ble Allahabad High Court in Municipal Board v. CIT [1951] 19 ITR 21. He also referred to sections 14 and 15 of 1974 Act and pointed out that operational area of corporation could be larger than forest area entrusted to it by State Government for purposes of supervision, development and exploitation. Referring to decision of Hon'ble Supreme Court in case of Ramtanu Co-operative Housing Society, he reiterated that State Legislature had no jurisdiction to create corporation purely for trading activities though such activities could be incidental to main activity of corporation. He, therefore, said that main activity of corporation was that given in preamble to Act and, therefore, trading activity was only incidental thereto. Referring to requirements of section 10(20), Shri Gupta argued that corporation was entitled to exemption of income from trade or business carried on by it which accrued or arose from supply of forest produce within its own jurisdictional area. 17. On other hand, Shri K.K. Roy, learned departmental representative, firstly, sought to argue that corporation was not local authority. He sought to refer to decision of Hon'ble Gujarat High Court in Arundhati Balkrishna v. CIT [1982] 138 ITR 245 and of Hon'ble Supreme Court in R.C. Jain's case. Reference was also made by him to fact that in assessment order status of corporation was shown as ' company '. Next, he argued that functional test had to be applied in terms of decision of Hon'ble Allahabad High Court in case of City Board. He also argued that if forest produce was sold or supplied outside UP, it would amount to trade or business carried on by it outside its own jurisdictional area. According to him, supply should be only in forest area which was entrusted to corporation. Next, he submitted that there was no statutory duty cast on corporation to sell or supply any commodity. He next, pointed out that there was no concept of mutuality involved in corporation and that in order to be able to take advantage of exemption under section 10(20) there should be no profit motive, whereas corporation had such motive. Reference was also made by him in this connection to decision of Hon'ble Supreme Court in case of Addl. CIT v. Surat Art Silk Cloth Mfrs. Association [1980] 121 ITR 1. Next, he referred to decision of Hon'ble Andhra Pradesh High Court in Andhra Pradesh State Road Transport Corpn. v. ITO [1963] 47 ITR 101, wherein it had been held that Andhra Pradesh State Road Transport Corporation constituted under Road Transport Corporations Act was not local authority and was not immune from taxation under Indian Income-tax Act, 1922. Reference was also made by him to another decision of Hon'ble Supreme Court in case of Ishwari Khetan Sugar Mills (P.) Ltd. referred to by him earlier. Lastly, he referred to corporation's reply for assessment year 1978-79 filed before IAC (Assessments). Summing up his arguments, Shri Roy submitted that corporation was not entitled to exemption under section 10(20). 18. We have considered rival submissions as also decisions referred to above. Firstly, fact that corporation is local authority having been accepted by income-tax authorities and by Hon'ble High Court and there being express provision in section 3(3) that corporation shall, for all purposes, be local authority, department cannot be permitted to challenge this position before us and seek to argue that corporation is not local authority. fact that in assessment order, ITO had shown status of corporation as company cannot be conclusive. In fact, it appears to be mere mistaken mention or typographical error because we find from photostat copies of return that return was filed by corporation declaring its status as that of local authority. In any view, ITO could not have assessed corporation in status other than that in which return had been filed by it. result is that as already held by us, we have to proceed on basis that corporation is local authority. 19. Section 10(20) provides that in computing total income of previous year of any person, any income falling within any of following clauses, shall not be included: " (20) income of local authority which is chargeable under head ' Interest on securities ', ' Income from house property ', ' Capital gains ', or ' Income from other sources ' or from trade or business carried on by it which accrues or arises from supply of commodity or service (not being water or electricity), within its own jurisdictional area or from supply of water or electricity within or outside its own jurisdictional area;" analysis of above provision shows that following incomes of local authority would not be includible in total income:--- (i) income under head ' Interest on securities ', (ii) income from house property, (iii) capital gains, (iv) income from ' other sources ', (v) income from trade or business carried on by it which accrues or arises from supply of commodity or service (not being water or electricity) within its own jurisdictional area, and (vi) income from supply of water or electricity within or outside its own jurisdictional area. For purposes of this case, it is item (v) above which is relevant. So far as meaning of expression ' own jurisdictional area ' is concerned it is clear from decision of Allahabad High Court in cases of Municipal Board and City Board that it means territorial limits of local authority. preamble to 1974 Act refers to better exploitation of forest produce within State [Emphasis supplied]. Section 1(2) of 1974 Act, provides that it extends to whole of UP. Sections 14 and 15 of Act, which provide for functions and powers of corporations, show that territorial limit and functions are inter-connected and that operational area of corporation may be larger than forest area or forest resources, exploitation of which is entrusted by State Government to corporation. Therefore, argument made on behalf of revenue that forest produce sold or supplied to outside UP, parties could not be said to be income from trade or business accruing or arising within its own jurisdictional area, cannot be accepted. Having regard to wordings and analysis of provisions of section 10(20) extracted above, there is no room for importing any considerations of mutuality or absence of profit motive. existence of statutory duty on part of corporation to sell or supply forest produce can also not be insisted upon. It is sufficient if local authority in question carries on trade or business in supply of forest produce within its jurisdictional area. If such thing happens as in this case, income of local authority which accrues or arises from such activity would be exempt under section 10(20). We also find that auctions are held by corporation in its jurisdictional area and there is nothing on record to show that income from trade or business carried on by corporation from sale or supply of forest produce is outside its own jurisdictional area. reference on behalf of revenue to decision of Hon'ble Supreme Court in case of Surat Art Silk Cloth Mfrs. Association is misplaced as section 10(20) of 1974 Act does not exclude activity for profit. No doubt, in cases of Hira Mills Ltd. v. CIT [1965] 57 ITR 103 and Keshav Mills Ltd. v. CIT [1953] 23 ITR 230 Hon'ble Bombay High Court and Hon'ble Supreme Court dealt with question as to where income can be said to accrue or arise. But ITO does not say that in present case income accrued or arose to corporation from supply of forest produce outside its own jurisdictional area. In fact, for assessment year in question, there was no supply of forest produce even to purchaser outside State of UP. ITO was not right in being influenced by fact that corporation does not remove or dispose of trees at request of general public and in observing that it was not supplying anything. corporation was certainly dealing with sale and supply of forest produce on basis of public auction and by negotiations as letters on record show. As already observed above, observation of learned Commissioner (Appeals) that business of corporation could not be held to be business of supply of commodity or services, was not correct. In case of sales made to Hindustan Copper Ltd., Rajasthan, order of learned Commissioner (Appeals) records fact that timber was despatched by corporation. There is nothing to show that in that case contract for supply of forest produce or income accrued or arose outside corporation's own jurisdictional area. Again, learned Commissioner (Appeals) has ,referred to order dated 3-7-1975 addressed by Hindustan Copper Ltd. to corporation and at same time it is mentioned that that order was not acted upon and later it was amended and superseded by another order and that eventually supply was made after end of year under appeal in accordance with order placed on 9-12-1975, i.e., in subsequent year. At any rate, even if on facts any particular income would have been established by ITO to have accrued or arisen from supply of forest produce outside own jurisdictional area of corporation, it would not nullify activity of corporation as whole but it could only take it outside exemption provided under section 10(20). On facts, therefore, we are clearly of view that for assessment year in question, income of corporation fell within exemption provided under section 10(20). 20 to 24. [These paras are not reproduced here as they involve minor issues]. *** U.P. FOREST CORPORATION v. INCOME TAX OFFICER