Lease premium for long-term leasehold rights is capital consideration, not rent, so TDS under section 194-I does not apply.

A lump sum lease premium paid to acquire leasehold rights in land for a long term was treated as consideration for transfer of a substantive and enduring interest, not as periodic rent. Applying the distinction between premium for transfer of the right to enjoy property and rent for continuous enjoyment, the payment was held to be capital in nature. The restrictive covenants in the lease deed did not change its character into rent. Accordingly, the amount did not fall within section 194-I, no tax deduction at source was required, and liability under sections 201(1) and 201(1A) did not arise.

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Issues: Whether lease premium paid by the assessee for acquisition of leasehold rights in land and related rights was "rent" within the meaning of section 194-I of the Income-tax Act, 1961 so as to require deduction of tax at source and attract liability under sections 201(1) and 201(1A).

Analysis: The payment was found to be made for acquiring a bundle of leasehold rights in land for a long term and not merely for the use of land. Applying the distinction under section 105 of the Transfer of Property Act, 1882 between premium paid for transfer of the right to enjoy property and periodic rent for continuous enjoyment, the payment was treated as a price for obtaining the leasehold interest. The authorities relied on the settled principle that lease premium representing transfer of a substantive interest in land is capital in nature, whereas rent is a periodic revenue payment. On the facts, the restrictive covenants in the lease deed did not convert the premium into rent.

Conclusion: The lease premium was not rent under section 194-I, no obligation to deduct tax at source arose, and the demand under sections 201(1) and 201(1A) was unsustainable.

Final Conclusion: The Revenue's challenge failed and the deletion of the TDS demand was sustained.

Ratio Decidendi: A lump sum lease premium paid for acquisition of leasehold rights in land, conferring a substantive and enduring interest, is capital consideration and not income by way of rent for the purposes of section 194-I.

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