The Chief Justice of India Sarosh H Kapadia will complete his eventful tenure at the helm of the apex court later this week. Coming with an economics background and expertise in revenue laws, Kapadia has presided over a period when several critical judgments related to business were made by the apex court.
In these 28 months, the court has delivered several landmark judgments that have brought more clarity to laws governing international taxation (Vodafone case), government appointments (CVC PJ Thomas case) and even media reporting of court cases. His presence at the helm has also inspired the court to ensure a fair and free investigation in the high profile 2G spectrum case, which led to landmark judgments, say legal experts.
Kapadia ensured that millions of depositors don’t lose their hard-earned money in the Sahara case by first fast-tracking it by putting time-lines for the lower courts, regulators and tribunal and then by ensuring the company secured enough assets to cover its liabilities.
As he entered the final week, Kapadia also made a significant contribution to discussions on the allocation of natural resources. Kapadia reportedly said, “Sometimes, we see certain (TV) programmes and we build our perceptions. How many of us know the basic principle of valuation? Today, a number of controversies on valuation are discussed, but the basic principle of valuation is loss is a matter of fact and profit is a matter of opinion.”
Some people are even trying to sell this remark as an endorsement of the government’s ‘Mother Earth’ argument. In my opinion, the CJI’s limited point, as is clear from the above quote, was that people should understand these concepts before building castles on numbers.
According to the principle of conservatism, a prudent accountant has to provide for all losses, both present and future, as and when he comes to know about these, whereas profits are booked only when they are actually realised. The motive is to present a “true and fair” picture of the financial position of the enterprise. While all going concerns should ideally follow this principle, tax authorities are not very comfortable with its blanket application as indefinite postponement of profits may hit the revenue.
Interestingly, the much quoted, misquoted and abused “Report no 7 of 2012-13”, more famously known as the Coalgate report, does not use the words “profit or loss”. The report said, “The financial impact of the benefit to the private allottees has been estimated to the tune of Rs 1,85,591.34 crore as on March 31, 2011, for open cast mines/open cast reserves of mixed mines.”
Now, what is “financial impact of benefit” to private allottees? In the hands of private companies, these are profits, therefore, it is just a matter of opinion. They can book it today, they can book it on the day they dig the coal or the day they sell it or they may use a mechanism to distribute it over years. The report added, “The government could have tapped a part of this financial benefit by expediting decision on competitive bidding for allocation of coal blocks.”
In this sentence, lies the devil — the part of this financial benefit, which the government could have tapped. Is this not a fact? If this is a fact, then is it not a loss? What is your opinion?
