CBDT Clarifies Taxability Of Consortium Members

Just to bring ease of doing business and reducing litigation in Engineering, Procurement and Construction (EPC) contracts Turn Key projects Central Board of Direct taxes (CBDT) has come forward to clear the air in the matter of consortium members, who work to complete some contract. In fact to bring about consistency in approach while handling cases of consortium, CBDT has come out with a new circular clarifying the attributes of a consortium arrangement, which may not be treated as an Association of Persons (AOP).

As per CBDT communiqué; 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. Also it will not apply to those cases where all or some of the members of consortium are Associated Enterprises as per income tax act. Turn Key Contractors are expecting that new provisions will reduce the litigation in the matters of EPC contracts and turnkey projects. Importantly taxation of consortium of contractors formed to implement EPC contracts turn key projects has been a subject matter of dispute between Income-tax Department and the consortium. Major bone of contention is in the 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.

CBDT also clarified about the Tax Deduction at Source (TDS) on payments made by television channels, broadcasters and newspapers. It has been clarified that in a situation, where the content and programme is produced as per the specifications provided by the broadcaster/telecaster and the copyright of the content and programme also gets transferred to the telecaster or broadcaster, such contract is covered by the definition of the term ‘work’ in section 194C of the Income-tax Act and, therefore, subject to TDS under section 194C at 2%,  rather than at a rate of 10% under section 194J as payment for ‘professional or technical services’.