Lease premium for leasehold rights was treated as transfer consideration, not rent, so no TDS applied under section 194-I.

Lease premium paid for grant of leasehold rights in land was analysed on a substance-over-form basis and held not to be rent within section 194-I. The payment was treated as consideration for transfer of substantial leasehold rights, not a periodic amount for use of land, having regard to the lease structure, the developer's obligations, and the way the premium was computed. On that footing, no tax was deductible at source on the amount, and the demand under sections 201(1) and 201(1A) was deleted.

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Issues: Whether lease premium paid for grant of leasehold rights in land constituted rent within the meaning of section 194-I of the Income-tax Act, 1961, so as to attract deduction of tax at source and sustain demand under sections 201(1) and 201(1A).

Analysis: The payment was examined in substance and not merely by its nomenclature. Rent under section 194-I is of wide amplitude, but it does not extend to a transfer of a capital asset or of leasehold rights in the land itself. A token or nominal annual rent, the structure of the lease, the developer's obligations, and the manner in which the premium was worked out were taken as indicating that the amount represented the price for transfer of substantial rights in the land. The arrangement was treated as conferring leasehold rights for consideration, not as a periodic payment for use of land.

Conclusion: The lease premium was not rent under section 194-I and no tax was deductible at source on that amount. The deletion of the demand under sections 201(1) and 201(1A) was upheld.

Final Conclusion: The Revenue's challenge failed because the impugned payment was held to be consideration for transfer of leasehold rights, not a payment for use of land.

Ratio Decidendi: A payment described as lease premium is outside section 194-I where, on a substance-over-form analysis, it represents consideration for transfer of leasehold rights or a capital asset rather than rent for use of land.

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