India: Taxability Of Consortium In EPC Contracts Gets Much Needed Clarity


The increase in the number of large infrastructure projects in the country to meet the demand for development of infrastructure has led to a significant increase in the number of Equipment Procurement and Construction (EPC) contracts. These EPC contracts typically involve various entities across the globe. Due to the requirement of expertise, and specialised resources in each specific area of such EPC contracts and turnkey projects, entities participating in EPC contracts usually form a consortium to represent a single point of contact for the client.

Typically, in EPC contracts and turnkey projects, each member of the consortium would be jointly and severally liable to the client despite having a clear distinction in role, scope of work, responsibilities and labilities inter se the consortium members. This has given rise to a number of tax disputes, where the tax authorities have mooted that a consortium constitutes an 'Association of Persons' (AoP) and should be chargeable to tax as such. This creates an exposure for the consortium AoP i.e. the joint venture, to be treated as a person 'resident in India' in which case global income of such joint venture would be taxed as its 'business income' in India, in certain cases at the rate applicable to a non-resident entity, i.e. 40% (plus applicable surcharge and cess). This results in higher tax incidence on the income of the consortium and its resident and non-resident members. No treaty benefit reduces this tax incidence. AoP is not defined under the Income Tax Act, 1961 (IT Act) and judicial precedents have some overlapping and conflicting guidance on determination of AoP. With a view to address this issue and bring certainty to the taxability of EPC contracts, the Central Board of Direct Taxes (CBDT), apex body governing the direct taxes under the Ministry of Finance, has now issued a circular 07/2016 (dated 7 March 2016) (Circular).

Circular issued by the CBDT

The Circular clarifies that if a consortium arrangement has certain attributes such as the following, it may not be treated as AoP:

Clear demarcation of scope of work and associated costs: Each member of the consortium is independently responsible for executing its part of the work through its own resources. The consortium members should also bear the risk  and expenses related only to such specified scope of work i.e. a clear demarcation in the work and costs between the consortium members;

Profits/loss based on scope of work: Each member earns profits/ incurs losses based on performance of the contract strictly falling within its scope of work, the consortium members may however share a contract price for the purpose of facilitating convenience in billing;

Risk and control of resources: The labour and materials used for any area of work are under the risk and control of the respective consortium members;

No unified control and management of the consortium: The control and management of the consortium is not unified and common management is only for coordination between the consortium members for administrative convenience.

The Circular also recognises that there may be additional attributes which may demonstrate that the consortium is not an AoP, depending on the specific facts and circumstances.

Further, the Circular will not apply to consortiums where all or some members are 'Associated Enterprises' (AE). AE, for this purpose, would be the same as that under transfer pricing regulations. This would inter alia include a situation where a consortium member participates directly or indirectly in the control, management or capital of other member of the consortium. In such cases, the tax authorities will rely on the provisions of the IT Act and judicial precedents to decide whether or not an AoP is constituted.


The Circular brings welcome clarity and it reinforces the Government's commitment towards a non-adversarial tax regime in India. It provides a breather to the infrastructure sector, especially non-resident companies who are members of a consortium, as the risk of AoP always loomed over the parties forming a consortium to undertake EPC contracts and turnkey projects. The clarification contained in the Circular would serve as a guiding light to the income tax authorities, and thus reduce inconsistency in the approach adopted by them while evaluating consortium structures.

Majority of the large EPC contractors have Indian subsidiaries. Hence, not excluding related parties/AE would have brought much more clarity to this vexatious issue of AoP exposure on EPC contracts.

The content of this document do not necessarily reflect the views/position of Khaitan & Co but remain solely those of the author(s). For any further queries or follow up please contact Khaitan & Co at

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.