Depreciation

K C Sharma in Bridging the gap (May 11) begins on the right note by endorsing the logic of maintaining a distinction between the rates of depreciation provided for company accounts and for income tax purposes. But he ends up by suggesting a formula for reducing the difference between the two.

Quite independently of the actual rates, there is no merit in trying to link or harmonise the two. The rationale for accelerated write-off for income tax purposes is different from what determines the pace of amortisation of assets in company accounts.

There may indeed be a case for 100 per cent write-off of certain types of capital expenditure to stimulate investment; matching that for accounting purposes could mean erosion of distributable surplus. That will disable the company from raising fresh equity and defeat the very purpose for which a higher rate of depreciation is allowed for income tax purposes.

 

Amortisation of fixed assets for company accounting and depreciation allowance for computation of tax-assessable income should be regarded as two separate provisions sharing the same nomenclature (depreciation).