Lump-sum lease premium is capital receipt unless facts show it is really advance rent.

A lump sum paid at the inception of a building lease is prima facie a capital receipt when it represents consideration for parting with the landlord's rights or for acquiring the leasehold interest. It becomes taxable as income only if the surrounding facts show that it is really rent paid in advance. The character of the payment depends on whether it was made before the tenancy came into existence and whether the transaction indicates a capital transfer rather than a periodic return. On the stated lease terms, the single non-recurring payment was received before the tenancy was created for letting the tenant into possession and granting the lease, so it was treated as capital and not taxable.

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Issues: Whether the sum of Rs. 20,000 received at the grant of a building lease was a capital receipt or an advance rent liable to tax.

Analysis: Salami or premium paid at the inception of a lease is prima facie a capital receipt when it represents consideration for parting with the landlord's rights or the price of the leasehold interest. It is taxable as income only where the facts show that it is really rent paid in advance. The nature of the payment depends on the character of the right conveyed, whether the payment was made before the tenancy came into existence, and whether the surrounding circumstances show a transfer of a capital asset rather than a periodical return. On the lease terms and the absence of evidence that the monthly rent was understated, the payment was a single non-recurring amount received before the tenancy was created for letting the tenant into possession and for granting the lease.

Conclusion: The sum of Rs. 20,000 was a capital receipt and not advance rent, and therefore was not taxable.

Ratio Decidendi: A lump sum paid at the inception of a lease as consideration for being let into possession and for acquiring the right to enjoy the leasehold is a capital receipt unless the revenue proves that it is in truth rent paid in advance.

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