CBDT Circular Provides Important Clarification On When Consortium Members Executing EPC Contracts Can Be Taxed As An AOP

The CBDT has issued Circular No. 07/2016 dated 07.03.2016 in which it has pointed out that a consortium of contractors is often formed to implement large infrastructure projects particularly in Engineering, Procurement and Construction (“EPC’) contracts and Turnkey Projects. The tax authorities, in many cases have taken a position that such a consortium constitutes an Association of Persons (‘AOP’) i.e. a separate entity for charging tax The claim of taxpayers, on the other hand, is contrary to this view. This has led to tax disputes particularly in those cases where each member of the consortium, although jointly and severally liable to the contractee, has a clear distinction and role in scope of work responsibilities and liabilities of the consortium members. With a view to avoiding disputes, the CBDT has issued clear-cut guidelines on the attributes that a consortium arrangement for executing EPC/Turnkey contracts must possess for it not to be treated as an AOP.