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Payment towards 'premium' for the lease (even if paid annually) is a capital payment

In Rajesh Projects (India) Pvt. Ltd vs. CIT, the issue before the Delhi High Court was the nature of the payments made towards lease. Do they constitute rent so as to attract Section 194-I? The court is of opinion that clearly these payments are not “rent”. That they are annual payments cannot be doubted. Yet, part of the payment is clearly capital in nature. Clause 1 of the lease deeds entered into in each of the cases, clearly points to the fact that a small percentage of the agreed amounts were paid as part of the lease premium and were towards acquisition of the asset; they fell, consequently in the capital stream and were not “rents”. The balance of such premium payments were spread over a period of 8 to 10 years, in specified annual or bi-annual installments. Here, distinction between a single payment made at the time of the settlement of the demised property and recurring payments made during the period of its enjoyment by the lessee is to be made. This distinction is clearly recognized in Section 105 of the Transfer of Property Act, which defines both premium and rent. Such payments were held to constitute capital and not “rent” or advance rent,
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