Judgment :- THANIKKACHALAM, J. Thanikkachalam J.- In this tax case petition, the Department requires this court to direct the Tribunal to refer the following question of law for the opinion of this court under section 256(2) of the Income-tax Act, 1961 : "Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is right in law in holding that income derived from Sri Lanka cannot be taxed in India ?" During the previous year relevant to the assessment year 1984-85, the assessee entered into a joint venture with the National Textiles Corporation owned by the Government of Sri Lanka. By an agreement dated June 22, 1980, the assessee was to provide technical know-how for producing textiles. During the previous year relevant to the assessment year 1984-85, the assessee received Rs. 2, 80, 838 as technical service charges and Rs. 2, 10, 629 as management service charges totalling Rs. 4, 91, 467. The assessee claimed that the amount received from Sri Lanka under the agreement and repatriated to India was exempt from income-tax in India because of the provisions of the agreement of avoidance of double taxation between India and Sri Lanka. This claim was negatived by the assessing authority by order dated March 24, 1988, the since the income had not suffered tax in Sri Lanka there will be no question of any double taxation. The Commissioner of Income-tax (Appeals) held that the assessee will be entitled to appropriate abatement of tax by granting credit for the Sri Lankan tax payable on the income received in Sri Lanka. He, however, did not agree with the claim of the assessee that it had a permanent establishment in Sri Lanka and, hence, the entire income was exempt. Aggrieved the Department filed further appeal before the Tribunal. The Tribunal gave the following reasons for accepting the case put forward by the assessee. Under article 5 of the double taxation avoidance agreement a permanent establishment has been defined to include a factory. Paragraph 4 of that article further states that a person acting on behalf of an enterprise in a Contracting State shall be deemed to be permanent establishment if he has and habitually exercise in that State an authority to contract in the name of the enterprise. Paragraph 4 of that article further states that a person acting on behalf of an enterprise in a Contracting State shall be deemed to be permanent establishment if he has and habitually exercise in that State an authority to contract in the name of the enterprise. The Pugoda factory was established in Sri Lanka and in the joint venture agreement the assessee was fully in management with a permanent resident manager representing it. Under article 12(4) where royalties arise through a permanent establishment it is treated as business profits falling within article 7. That article provides that the profits of an enterprise of the Contracting State shall be taxable only in the State unless the enterprise carries on business in the other Contracting State through a permanent establishment situated therein. In that event, the profits have to be taxed in the other State but only so much of them as is attributable to that permanent establishment. In the present case, the Sri Lankan Government has accepted that the assessee had a permanent establishment is Sri Lanka. In the decision reported in the case of CIT vs Visakhapatnam Port Trust (1983) 1983 (144) ITR 146, 1984 (38) CTR 1, 1983 (15) TAXMAN 72 the Andhra Pradesh High Court has held that where the Government has accepted that an assessee has a permanent establishment in a particular State, that decision will be binding on the other Government. Therefore, the Revenue cannot dispute the fact that the assessee had a permanent establishment in Sri Lanka and that the entire income accruing from Pugoda Textile Mills in Sri Lanka arose only in Sri Lanka and could be taxed only in Sri Lanka. The fact that it was exempted by the Sri Lankan Government would not give rise to tax the same under the Indian Income-tax Act. Under article 24(1) when income or capital is subject to tax in both Contracting States, relief from double taxation is to be given in accordance with paragraph (2). In the present case, the income arose in Sri Lanka and it is taxable only in Sri Lanka. The fact that it was not taxed in Sri Lanka would not give risk to taxing the same by the Indian Government especially when the Sri Lankan Government itself declared that the assessee is having a permanent residence in that country. In the present case, the income arose in Sri Lanka and it is taxable only in Sri Lanka. The fact that it was not taxed in Sri Lanka would not give risk to taxing the same by the Indian Government especially when the Sri Lankan Government itself declared that the assessee is having a permanent residence in that country. In view of the foregoing facts, we consider that there is no infirmity in the order passed by the Tribunal in accepting the case put forward by the assessee. Accordingly, we see no referable questions arising in this case. In the result, the tax case petition is dismissed. No costs.