I would think that it's rather a macro logic problem than a stored process problem.
When you write a SAS statement like the IF statement, it is not processed by the macro facility.
Hence what you write is either :
IF true = true THEN DO ; etc.
or
IF false = true THEN DO ; etc.
From a SAS (and not macro) point of view, this means you are comparing values for variables named TRUE or FALSE. Not that you're comparing text strings "TRUE" or "FALSE", which would require quotes around the value itself.
As the variables TRUE and FALSE don't exist in your dataset, they are created with missing values (you should see them in the printed output). Your condition, in every case, ends up as :
IF . = . THEN ...
which is always true.
I would transform your program into :
%Global b1;
data fun;
a = 0;
b = 0;
data fun;
set fun;
if "%UPCASE(&b1)"="TRUE" then
do;
a = 1;
b = 1;
end;
proc print;
run;
another solution is to use the macro-IF, for which everything is just plain text and then, no quotes needed anywhere.
%Global b1;
data fun;
a = 0;
b = 0;
data fun;
set fun;
%if &b1=true %then
%do;
a = 1;
b = 1;
%end;
proc print;
run;