15 FIIs get Rs 2,000-cr tax call

The income tax (I-T) department has slapped a Rs 2,000-crore tax claim on 15 large foreign institutional investors (FIIs) for not disclosing all their investments.

The claim relates to assessment year 2008-2009.

The notices were sent at the beginning of the year. The recovery process has been stayed pending a verdict from the commissioner (appeals), who has set September as the deadline for completing the probe and for the FIIs to reply.

“The recovery notices will be sent after September. We have given them time to present their case and clarify why certain investments were not disclosed,” said a department official.

I-T officials said they found discrepancies between the trade data provided by brokers and the reported income of these FIIs. It is believed that some trades were conducted through structured instruments such as multi-class share vehicles (MCVs) and participatory notes, whose ultimate investors are difficult to track.

MCVs, or protected cell companies, are entities with several cells within the same vehicle. Registered in tax havens, they provide cover for investors. Each MCV cell functions as an independent unit with own assets, liabilities, cellular capital, dividends and accounts. So, when an MCV registered with the market regulator as an FII buys shares for a particular cell, it becomes difficult for the regulator to track the owner of each cell. Most such FIIs do not have offices in India and appoint tax consultants as representatives.

The FIIs, on their part, said the transaction data from brokers were not related to them in many cases even if the deals were done using their code and in their accounts.

The department also collected data from stock exchanges. It found that several trades were conducted in particular FII accounts. However, while the FIIs concerned could give the details of some trades of their clients, the details of a large number of trades were not available. Several FIIs did not maintain proper know-your-customer documents, as this was not mandatory during the assessment year in question.