Lease premium as capital receipt where deed separately provides premium and rent, despite instalment payment and default clause.

Under a lease deed that separately provides for premium and rent, an instalment described as premium is capital in nature when it represents the price for parting with the lessor's interest and conferring the leasehold right. Rent remains a recurring payment for continued enjoyment of the property and is revenue in nature. The character of the premium is not changed merely because it is payable in instalments or because the deed contains a default clause. Read as a whole, the document and surrounding circumstances supported the contractual description, and the premium was treated as a capital receipt rather than disguised rent, in favour of the assessee.

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Issues: Whether the instalment of Rs. 11,250 received under the lease deed was a capital receipt as premium or a revenue receipt as rent.

Analysis: Premium or salami is a single consideration paid for acquisition of the right to enjoy the leasehold and is ordinarily capital in nature, whereas rent is a periodical payment for the continued enjoyment of the property and is revenue in nature. Under section 105 of the Transfer of Property Act, the distinction is between the price paid for the transfer of the right to enjoy property and the recurring money payable for such enjoyment. The lease deed, read as a whole, showed a transfer of substantive interests in the tea estates for a fixed period, with separate stipulations for premium and annual rent. The use of different expressions by commercially experienced parties, the structure of the payments, and the surrounding circumstances did not support the inference that the premium was merely disguised rent. The default clause did not alter the true character of the premium, and the revenue failed to produce material to displace the contractual description.

Conclusion: The amount received as instalment of premium was a capital receipt and not revenue receipt; the question was rightly answered in favour of the assessee.

Ratio Decidendi: Where a lease deed separately provides for premium and rent, the premium paid for parting with the lessor's interest and conferring the leasehold right is capital receipt, and its character is not altered merely because it is payable in instalments or the document contains a default clause.

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