Leasehold transfer consideration treated as capital gains, not advance rent, where lump-sum sub-lease payment reflected alienation of rights.

Consideration received on a sub-lease was treated as premium for transfer of valuable leasehold rights, not as advance rent, because the real nature of the transaction prevailed over its description in the deed. The arrangement was examined against the long-term lease, the right to sub-lease, the lump-sum payment, and the surrounding circumstances, and the amount was found to represent a price for alienation of leasehold interest. The taxing authority's computation, which separated the cost of acquiring the leasehold interest from the transfer proceeds, was accepted, and the resulting surplus was taxable as short-term capital gains.

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Issues: Whether the consideration received on sub-leasing was a premium for transfer of leasehold rights, or merely advance rent, and whether the surplus was chargeable as short-term capital gains.

Analysis: The arrangement was examined in light of the long-term lease, the right to sub-lease, the lump-sum consideration, and the surrounding circumstances. Applying the settled distinction between premium or salami and periodic rent, the Court treated the real nature of the transaction as decisive rather than its description in the deed. On the facts, the assessee had alienated valuable leasehold rights for a price, and the amount received could not be characterised as monthly rent in advance. The computation adopted by the taxing authority, which separated the cost of acquiring the leasehold interest from the amount realised on its transfer, was accepted.

Conclusion: The amount received was held to be consideration for transfer of leasehold rights and not advance rent, and the resulting surplus was taxable as short-term capital gains. The reference was answered against the assessee and in favour of the Revenue.

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