Project completion method in joint development agreements upheld where landowner retains title and does not undertake construction.

In a real estate joint development arrangement, a landowner that merely grants development rights, does not itself undertake construction, and retains ownership and possession until registration of the sale deed may follow the project completion method. The revenue's attempt to apply the percentage completion method was rejected because the accounting guidance relied on was inapplicable where legal title and associated risks and rewards had not passed on execution of the arrangement or agreement to sell. Consistent prior adoption of the project completion method also supported deferral of income recognition, and taxing the receipts earlier would create impermissible double taxation.

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Issues: Whether, in a joint development arrangement involving a landowner, the revenue was justified in applying the percentage completion method and taxing the landowner's share of receipts in the relevant year, or whether the assessee was entitled to follow the project completion method and defer recognition until sale deeds were registered.

Analysis: The assessee was only a landowner and had granted development rights to the developer while continuing to retain ownership and possession of the land until completion. The agreement showed that the developer was responsible for construction and marketing, while the assessee's share arose from sale proceeds realised from ultimate purchasers. The accounting standard and real estate guidance note relied upon by the revenue were found inapplicable on these facts, because the assessee did not itself undertake the construction activity and the legal title and corresponding risks and rewards were not transferred merely on execution of the joint development arrangement or agreement to sell. The Court also noted that the assessee had consistently followed the project completion method and had offered the income in later years, so taxing the same receipts in the earlier year would result in impermissible double taxation.

Conclusion: The revenue could not compel the assessee to adopt the percentage completion method, and the assessee was entitled to recognise income under the project completion method; the addition made by the Assessing Officer was rightly deleted.

Ratio Decidendi: In a real estate joint development arrangement, a landowner who does not itself undertake construction and who retains ownership until registration of the sale deed may follow the consistently adopted project completion method, and income cannot be taxed on a percentage completion basis merely because the developer follows that method.

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