Taxation of consortium of contractors formed to implement Engineering, Procurement and Construction (EPC) contracts/turn key projects has been a subject matter of dispute between Income-tax Department and the consortium. This has been particularly so in cases where each member of the consortium has a clear and district role in scope of work, responsibilities and liability of the consortium even though each member is jointly and severally liable to the contractee.

To bring about consistency in approach while handling cases of consortium, the Central Board of Direct taxes has issued Circular No. 7/2016 clarifying the attributes of a consortium arrangement which may not be treated as an Association of  Persons(AOP). The list of attributes is not exhaustive. There may be additional factors which may justify not treating a consortium as an AOP depending on specific facts and circumstances.

The Circular will not apply to cases where all or some of the members of the consortium are Associated Enterprises as defined in section-92A of the Income-tax Act.

This Circular is expected to reduce litigation with consortium of contractors implementing EPC contracts/turnkey projects.