Lease premium and FSI charges for capital rights were not rent, so tax deduction at source under section 194-I was not required.

Lease premium and additional FSI charges paid to a development authority for leasehold land were treated as consideration for acquisition of capital rights, not as rent. The decisive test was the real nature of the transaction: the payments secured long-term leasehold and developmental rights, were aligned with the stamp duty ready reckoner value, and were not ordinary recurring payments for mere use of land. The restrictive lease clauses were regarded as regulatory only and did not change the capital character of the payments. On that basis, the sums were not subject to tax deduction at source under section 194-I, and the related demand under sections 201(1) and 201(1A) was unsustainable.

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Issues: Whether lease premium and additional FSI charges paid to the development authority for leasehold land constituted 'rent' liable for tax deduction at source under section 194-I of the Income-tax Act, 1961, and whether the order under sections 201(1) and 201(1A) could therefore be sustained.

Analysis: The dominant test was the real nature of the transaction, not the nomenclature used. The amount paid for lease premium was aligned with the stamp duty ready reckoner value for acquisition of commercial premises, there was no ordinary right of termination and refund, and the payment secured leasehold rights comprising possession, exploitation and long-term enjoyment. The additional FSI charges were also treated as consideration for a capital asset in the form of developmental rights. The restrictive clauses in the lease were held to be regulatory in nature and not determinative of the character of the transaction. On this basis, the payment was found to be for acquisition of capital rights and not a recurring payment for use of land as rent.

Conclusion: The payments did not constitute rent under section 194-I of the Income-tax Act, 1961, and the demand under sections 201(1) and 201(1A) was unsustainable.

Ratio Decidendi: A payment made as lease premium for acquisition of leasehold and developmental rights, determined on a capital basis and not as consideration for mere use of land, is not 'rent' for purposes of tax deduction at source under section 194-I of the Income-tax Act, 1961.

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