Capital expenditure vs rent: payment to secure office premises was treated as premium, not deductible revenue outlay.

Commission paid to secure office premises was treated as capital expenditure, not deductible rent or revenue outlay, because it was consideration for obtaining the premises rather than a recurring payment for their continued use. Drawing the distinction under section 105 of the Transfer of Property Act, 1882, the analysis states that premium or salami is a capital payment made for parting with an interest in property, while rent is a periodical payment for enjoyment of the premises during the lease term. On those principles, the payment was held to be in the nature of premium and not an admissible business deduction as rent.

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Issues: Whether the amount paid as commission for securing office premises was deductible as rent or revenue expenditure, or was a capital expenditure in the nature of premium or salami.

Analysis: Rent is allowable only to the extent it is paid or payable for the period during which the premises are used for business. Under section 105 of the Transfer of Property Act, 1882, a distinction exists between rent and premium under a lease: premium or salami is a price paid for parting with an interest in the property and is capital in nature, whereas periodical payments for continued enjoyment of the premises are rent and revenue in nature. Applying these principles to the facts, the payment in question represented consideration for obtaining the premises and not recurring rent.

Conclusion: The payment was capital expenditure and not an admissible deduction as rent or revenue expenditure; the question was answered in favour of the Revenue and against the assessee.

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