JUDGMENT

Rajendra Babu, CJI.-These appeals involve following two questions for our consideration although several other questions were considered by the High Court:-

(a) Whether the Malaysian income cannot be subjected to tax in India in the basis of the agreement of avoidance of double taxation entered into between Government of India and Government of Malaysia?

(b) Whether the capital gains should be taxable only in the country in which the assets are situated?

2. The facts leading to these appeals are that the respondent is a firm owning immovable properties at Ipoh, Malaysia; that during the course of the assessment year the assessee earned income of Rs. 88,424/- from rubber estates; that the respondent sold property, the short term capital gains of which came to Rs. 18,113/-; that the Income Tax Officer assessed that both the incomes are assessable in India and brought the same to tax; that the respondent filed an appeal before the Commissioner of Income Tax (Appeals) who held that under Article 7(1) of the Avoidance of Double Taxation of Income and Prevention of Fiscal Evasion of Tax unless the respondent has a permanent establishment of the