text:
    1380.
    Kimberly v. The State.
   Russell, J.

1. The trial judge may properly overrule a motion for a continuance, even where all the statutory requirements for procuring the presence of a witness who is absent have apparently been complied with, if a counter-showing has been made by which it is satisfactorily made to appear to him that the real purpose of the continuance is merely to secure delay. The credibility of witnesses introduced in sup-' port of a motion for continuance, and upon a counter-showing thereto, respectively, is to be determined by the trial judge, and his discretion in refusing a continuance, where a counter-showing is made, will not be controlled, unless manifestly abused.

Accusation of assault and battery, from city court of Eastman - — Judge Griffin. Augtst 33, 1908.

Submitted October 8,

Decided October 13, 1908.

John F. DeLacy, for plaintiff in error.

W. M. Morrison, solicitor, contra.

2. In a ease in which it appeared that the accused relied, for his defense, upon the right of a parent to protect his child, and in which it appeared, from the evidence,' that his son and another young man were quarreling, it was not reversible error to charge the jury, that “in order for the parent to be justified in taking the part of his child, the child would have to be justified in what it was doing; in other words, if the child was justified in it, the parent would be justified; but if the contrary appear, he would not be justified,” where this instruction was immediately qualified by the statement: “provided the parent knew of the want of justification in the child.” As a general rule, a parent has the right to protect his child from any assault; but under the evidence in this case, even the instruction given was as favorable as the defendant was entitled to receive.

3. The charge upon the subject of opprobrious words as a justification was erroneous, because not justified by evidence that opprobrious words were used. Threats of personal violence are not necessarily opprobrious oif abusive, and the language used by the court, though inappropriate, suggested a defense to which the defendant was not entitled.

4. Where the jury, after having been charged by the court,- returns into court and requests an instruction upon a specific question, it is not error for the judge to confine his instruction to the specific point suggested by the jury’s inquiry. ' Judgment, affirmed.


source: Caselaw Access Project

author: Russell, J.

license: Public Domain

text:
    1396.
    Williams v. The State.
   Russell, J.

1. A motion in arrest of judgment is not the proper mode of presenting to the attention of the court errors in overruling a motion for continuance, or in allowing a separation of the jury. A motion in arrest of judgment must be predicated upon some defect appearing on the face of the record or pleadings.

2. The overruling of a demurrer is not a proper ground of a motion for new trial. The objection to the overruling of a demurrer to an indictment or accusation must be preserved by exceptions pendente lite, unless the main bill of exceptions, containing this assignment of error, be certified within twenty days after the demurrer is overruled.

3. It is not error to overrule a ground of a motion for new trial which is predicated upon newly discovered evidence merely impeaching in its character. Even if the affidavits in support of this ground had not been merely impeaching, it does not appear but that the exercise of ordinary diligence would have secured the evidence alleged to have been newly discovered, inasmuch as the affiants had been subpoenaed by the movant, and were present in court during the trial.

Accusation of unlawful sale of liquor, from city court of Fitzgerald — Judge Jay. July 12, 1908.

Submitted October 8,

Decided October 12, 1908.

E. Wall, Bull & Reid, for plaintiff in error.

O. H. Elkins, solicitor, McDonald & Quincey, contra.

Judgment affirmed.


text:
    1112.
    ATLANTIC COAST LINE RAILROAD COMPANY v. COHN & CO.
    1. An exception in a petition for certiorari, that the lower court erred in. refusing to continue the trial of the cause, presents nothing for the consideration of the reviewing court, when it appears that no motion was-made at the trial to continue the case; and if the petition for certiorari contains no other assignment of error, it should be dismissed.
    2. The fact that a magistrate or a judge has extra judicially granted a. party’s sole counsel leave of absence, or has personally agreed to continue the trial of the case, does not require the grant of a continuance,, and especially is there no abuse of discretion in proceeding to try the cause, where the personal extrajudicial statement or promise that the cause would be continued is made, not by the judge presiding at the time of the trial, but by his predecessor in office, and no motion for a continuance is presented to the court.
    3. A magistrate, when not presiding in court, does not act judicially; and. one who absents himself from court,-upon a promise made by the magistrate when not actually presiding, that a leave of absence will be-granted, or that the cause will be continued, does so at his own risk.
    Certiorari, from Decatur superior court — Judge Spence. February 26, 1908.
    Submitted June 10,
    Decided October 21, 1908.

      Pope & Bennet, R. G. Hartsfield, for plaintiff in error.

      Russell & Hawes, contra.
   Russell, J.

Tbe plaintiff in error excepts to tbe dismissal of its certiorari. It appears from tbe allegations of tbe petition for certiorari, as admitted in tbe answer to be true, that Cohn & Company filed a suit in tbe justice’s court, against tbe Atlantic CoastLine Eailroad Company, returnable to the February term, 1907. The suit was filed and the summons was issued by W. G. D. Tonge, N. P. and ex-officio J. P. The defendant filed its defense at the first term, and the ease was appealed, by consent, to a jury in tbe justice’s court. Thereafter the case seems to have been continued, at the March, April, May, and June terms of the' court. At the-. May term, 1907, of the superior court of Decatur county, J. H.. Boyett was, upon the recommendation of the grand jury, appointed notary public and ex-officio justice of the peace, in place of WV GD. Tonge. Boyett was commissioned prior to the July term, 1907,. of the justice’s court, and presided at the trial and at the rendition of the verdict sought to be reviewed and set aside by the certiorari. The case was tried, and verdict rendered in favor of the plaintiff on July 22, 1907. On that day, before the call of the docket, Boyett, the notary public and ex-officio justice of the-peace, was informed, that B. G. Hartsfield, Esq., the counsel for the Atlantic Coast Line Bailroad Company, was sick and under-treatment; that he was not to be present on that day, and that he had leave of absence applying to the case of Cohn & Company v.. Atlantic Coast Line Bailroad Company. To this statement, made-by Perry,-an assistant in Hartsfield’s office, Boyett replied that, as Hartsfield had no leave of absence from him, he would call the case and have it tried; and thereafter, in the absence of petitioner’s attorney and of its witnesses, the magistrate did call the case for trial, and had a jury empaneled and sworn, who, after hearing the testimony in behalf of the plaintiff, returned a verdict against the petitioner in-certiorari. It is uncontradicted that on the-18th of July, two weeks before the July term, 1907, of the justice’s court at which the verdict was rendered, Hartsfield, who was the sole attorney for the defendant, the petitioner in certiorari, went to W. G. D. Tonge, who was still holding the position of notary public and ex-officio justice of the peace' (Boyett not having been qualified), and stated to him, that he was in bad health, that his' physician had advised him to leave his business and go away for awhile, and that his physical condition was such that he would not be able to attend the trial of tbe case, and, for this reason, he asked a leave of absence from the July term of the court, to apply to said case, and that the case be continued for the term.' Tonge granted the attorney the leave of absence requested, and agreed to continue the case. TJpon the hearing in the superior court, the judge dismissed the certiorari, upon the ground that “the leave of absence granted by W. G. D. Tonge was not binding on the plaintiffs in this case, for the reason that said magistrate, Tonge, was without any authority to grant leave of absence from the term of the justice’s court after his term of office had expired.”

We think the judge properly dismissed the certiorari. Even if Tonge, by reason of Boyett’s failure to be qualified, had still been presiding justice at the July term of the justice’s court, the party to whom leave of absence had been granted could have relied upon it only at his peril, and certainty Boyett, the magistrate who succeeded Tonge, was not bound by the extrajudicial leave of absence granted by his predecessor. Furthermore, the judge of the superior court could not review the exercise of judicial discretion by the magistrate, Boyett, because ho motion had been made to continue the case when it was called in its order for trial. Boyett’s statement that he had not given Mr. Uartsfield any leave of absence, and that thereafter the case would be tried, was itself an extrajudicial utterance, but the party who gave Boyett the information that Mr. Uartsfield was relying upon a leave of absence was thereby at least put Upon notice of the necessity of making a legal showing for the continuance of the case, if such showing realty existed. If, after Boyett’s statement that the case when called would be tried, a showing had been made, when the case was called, that Mr. Uartsfield was absent, that his absence was due to providential cause, and that he was sole counsel for the defendant company, and if, after this showing, the justice’s court had overruled the motion for continuance, the superior court would have had something to review. Nothing is better settled than that a reviewing court can only review actual occurrences in the lower court; and, therefore, a motion for continuance must have been made in the justice’s court, before the judge of the superior court could determine whether there was an abuse of discretion in refusing a continuance.

The assignment of error in the petition for certiorari assumes that what transpired between magistrate Tonge and Mr. Harts-field, and between magistrate Boyett and Mr. Perry, was equivalent to a- motion for continuance, and that, therefore, the trial of the case in Mr. Hartsfield’s absence, after Tonge had granted the leave of absence on account of sickness, and after magistrate Boyett had been informed of that fact, was equivalent to the overruling of a motion for continuance actually presented to the justice’s court. All of the authorities forbid our concurring in this view. In the first place, as we have stated above, the supeTior court, in hearing certioraries, is restricted to the errors alleged to have been committed on the trial in the lower court, and the record fails to show that (even after the expression made by Boyett of his individual views) any motion was made to continue the case. See Marchman v. Todd, 15 Ga. 25 (6); Knowles v. Coachman, 109 Ga. 356 (34 S. E. 607); Harrison v. State, 83 Ga. 129 (9 S. E. 542); Camp v. Morgan, 81 Ga. 740 (8 S. E. 422).

Furthermore, neither the fact that Tonge, out of court, had .granted the attorney leave of absence or that that fact was communicated to his successor, Boyett, afforded legal ground for continuance of the case. An exception in a petition for certiorari that the lower court erred in refusing to continue the trial of the cause presents nothing for the consideration of the reviewing court, when it appears that no motion was made at the trial to continue the case; and should the petition for certiorari contain no other' assignment of error, it should be dismissed. The violation of a leave of absence extrajudicially granted out of court is not, however, such an abuse of discretion as could be reviewed by the superior court or by this court, even if a showing had been made and a motion for continuance had been predicated upon this ground.

A magistrate, when not presiding in court, does not act judicially, and one who absents himself from court upon a promise made by the magistrate when not actually presiding, that a leave of absence will be granted or that the cause will be continued, does so at his own risk. Civil Code, §4133. In Ballard Transfer Co. v. Clark, 91 Ga. 234 (18 S. E. 138), it appears that the magistrate, while seated on the bench, informed counsel that his case had not been called’ and set for hearing for a named day. As a matter of fact the case had been called and set for the 12th of September. The defendant’s counsel was misled by the statement of the magistrate and stayed away from court on the 12th of September, when the ease was tried and disposed of. Passing upon this state of facts, Chief Justice Bleckley says: “A magistrate, when not presiding in court, does not act judicially in answering questions put by a counsel on court day, whether or not a given case hag that day been’ called, and counsel shaping his conduct by such answer-must take the risk of its being correct.” In Watkins v. Ellis, 105 Ga. 797 (32 S. E. 131), the party contended that the magistrate had actually told him that he need not attend court, that, the-case would be continued, and he relied on this statement and did. not attend, and judgment was rendered against Mm. The only" difference between the Watkins case and this case, even conceding: that Tonge had the right to bind the conduct of his successor, Boyett, is, that in the Watkins case the magistrate did not admit, as is done in this case, all of the allegations of the petition, and a traverse was'filed to his answer. In regard to this difference, however, Judge Cobb, delivering the opinion, says: “It is unnecessary to determine whether the traverse was properly stricken on: demurrer, as we propose to deal with the case just as if the answer of the justice had contained what was contended by the defendant to be the truth of the case. Dealing thus with the case, we are. clear that no other judgment than the one overruling the certiorari should have been rendered. The code declares that ‘All cases before a justice of the peace stand for trial at the time and place* designated in the summons, and shall be then and there tried, unless continued according to law/” He then cites the cases off Ballard v. Clark, supra, and Bostain v. Morris, 93 Ga. 224 (18 S. E. 649), and says: “It would seem, therefore, that, for a stronger reason, a statement made by a magistrate when not. actually presiding in court, and not even on a court day, would not be such a judicial act as would authorize a party to absent himself from a term of the court thereafter held, and that if he relied upon the-statement of the magistrate he would do so at his peril. The plaintiff would have a right to insist upon the trial of his case at. the term at which it was returnable, notwithstanding the.statement by the justice, made out of court on a day other than a. court day, that a continuance would be allowed the defendant.”’ The fact that in the Watkins case the promise to continue was made to a party and leave of absence was granted him, and that in the case at bar the leave of absence was granted to the counsel, can not in any wise affect the principle. There was no error in. overruling the certiorari, and the judgment is Affirmed.


author: Powell, J.

text:
    1273.
    JENKINS, alias JINKS, v. THE STATE.
    1. The phrase “at their place of business,” appearing in the general prohibition statute of 1907, includes in its meaning the immediate room or place in which the business in question is conducted, also any near-by room or place used by the proprietor in connection with the business or in such a relation to the actual place of business as to indicate that the near-by room, compartment, etc., is a convenient place which the proprietor would probably use for keeping therein such liquors as he might desire to furnish others for the purpose' of inducing trade, or for keeping therein liquors intended -for unlawful sale under cover of the business carried on in the main place.

      (a) The preposition “at” has a great relativity of meaning, conforming readily to the nature of the thing which constitutes its grammatical object and to the principal notion in the mind of the person using it. It generally includes in its meaning all that “in” would, but not quite as much as “in and near” would.
    (b) “A place of business,” within the purview of the State prohibition law, means a place devoted by the proprietor to the carrying on of some form of trade or commerce.
    2. An officer who discovers a person keeping intoxicating liquor at his.. place of business may arrest him without a warrant, and may seize-the liquor for the purpose of using it as evidence.
    3. Where a defendant is indicted under two names, alleged by an alias dictus, it is necessary only that the State should show that he is commonly known by either of them.
    Accusation of violating liquor law; from city court of La-Grange — Judge Harwell. May 25, 1908.
    Argued October 5,
    Decided October 21, 1908.

      M. U. Mooty, Gaffney & Greer, for plaintiff in error.

      Henry Reeves, solicitor, contra.
   Powell, J.

Jenkins, by his friends familiarly called Jinks, had' a little store in La Grange; and to the rear, partially cut off by a. partition wall, was a smaller room, in which no goods were usually-bought and sold, but in which he kept coca-cola and stored “plun- • der.” Eor some reason — he doesn’t explain why, but then some-officers are naturally suspicious of some folks — the chief of' the-police of the city suspected that Jinks was occasionally selling a little liquor. So on a certain Saturday afternoon the chief of police, sauntering leisurely in the neighborhood of the store, was. “given the wink” by some one who had been stationed to watch, and immediately thereafter, going into the store and into the-back room, found a man and two women standing in the presence-.of a two-gallon jug and some whisky glasses. The jug was empty, but the mouth of it was still wet and smelled of the corn whisky which had just passed through it. The glasses, too, were moist, and in the bottom of one of them remained about a teaspoonful of corn whisky. Upon the interruption of the policeman the party explained that they were drinking eider. The suspicious gaze of the officer fell also upon a closed box, the contents of which were guarded with a lock; so he asked Jinks if he might see inside the box, to which Jinks replied that he might. When Jinks unlocked the box another small bottle of whisky was found therein. There was also in the store a trap-door, leading into a cellar. In the cellar was found a number of empty jugs. The officer had no warrant for the defendant’s arrest and no search warrant for his premises. The testimony of the defendant’s witnesses was to the effect, that he,' together with a party of friends, had ordered some whisky on joint account; that on the night before, it had arrived in the defendant’s absence, and they had divided it and had left the defendant’s share in his back room. The defendant himself explained the presence of the liquor in the box, by saying it was a little he was beeping for his wife. We may say, in passing, that the wives of this country must be hard drinkers if all the explanations of husbands as to their possession of liquors is to be taken as true. The defendant was put on trial for violating the prohibition act of 1907, by having and keeping liquor on hand at his place of business.

Counsel for the plaintiff in error contends that the having of the liquor in the back room, especially so far as it was kept in the lock-box, did not constitute a having or keeping on-hand of liquor at the defendant’s place of business. Indeed, to quote directly from his brief, he says: “The jury evidently proceeded upon the idea that to keep on hand at one’s place of business means simply to have at one’s place of business, or around one’s place of business, or near one’s place of business; which is not the law.” He further contends, that the law is not violated unless the keeping is a public keeping at a public place of business, and that to have it locked in a box is not so to keep it; that before the law is violated, the liquor must be accessible to the customers of the place of business. The definition of what is a place of business is a matter of law, for the determination of the court; the finding as to whether any particular place falls within the definition is a matter of fact, for the determination of the jury, except in those eases where the facts necessary to constitute the particular place a place of business are conceded to exist. Tooke v. State, 4 Ga. App. 495 (61 S. E. 917); Roberts v. State, 4 Ga. App. 207 (60 S. E. 1082). The same is true of the word “at,” as employed in the phrase of the prohibition act, “keep on hand at their place of business.” “At” is not a word of precise and accurate meaning or of clean, clear-cut definition. It has a great relativity of meaning, shaping itself easily to varying contexts. The standard authorities say that it sometimes means “in” or “within,” and sometimes “in and near.” See Words & Phrases, vol. 1, pp. 595 et seq; vol. 8, p. 7585. The Supreme Court, in Minter v. State, 104 Ga. 753 (30 S. E. 992), said: “The word ‘at’ is somewhat indefinite; it may mean ‘in’ or ‘within,’ or it may mean ‘near.’ Its primary idea is nearness, and it is less definite than in or on. At the house may be in or near the house. Webst. Die. The word at is used ‘to denote near approach, nearness or proximity.’ Kichardson’s English Diet. It is a relative term, and its signification depends largely upon the subject-matter in relation to which it is used and the circumstances under which it becomes necessary to apply it to surrounding objects. 3 Am. & Eng. Ene. L. 168, and cases cited in note 1.” We think that in the context before us it means more than “in” and less than'“in and near.” It includes all that “in” would include, and includes less than all that “in and near” would include. That which would be designated if the word “near” were used is not designated by the word “at,” unless it is associated in some relationship with that which would be thought of if the word “in” were used; but where between what is near and what is in there is an .association and a relationship to the principal notion in the mind of the user of the language, the things so associated and related are properly referred to by the use of the word “at.” The phrase “at their place of business,” as used in the prohibition statute, includes the immediate room or place in which the business is conducted; also all the near-by surroundings, so far as they are connected with that room or place in any of those associations or relationships which have reference to the principal notion which was in the legislative mind. One of the notions in the legislative mind was that to allow persons-to keep liquors at their places of business would afford them the opportunity of using the liquors to induce trade — a thing already forbidden by law. Another notion, we infer, was that the maintenance of an apparently legitimate business might be used as a cloak to conceal the carying on of an unlawful traffic in liquors. Of course a place of business is also a quasi public place; and those considerations which led the legislature to forbid the having of liquors in other public places and which were referred to in Tooke’s case, supra, were likewise presumably in contemplation when the phrase in question was employed. So that to progress further toward a practical definition, we may say that the phrase “at their place of business,” as used in the prohibition statute, includes in its meaning the immediate room or place in which the business is conducted; also any near-by room or place owned or used by the proprietor in connection with the business, or in such a relationship to the actual place of business as to make the near-by room, apartment, etc., a convenient place which the proprietor would probably use for keeping such liquors therein as he might desire to furnish others to induce trade, or for keeping therein liquors intended for unlawful sale under cover of the business carried on in the main place. The reasonableness and the probability of the near-by room or place being used for either or both of the purposes indicated is to be judged (usually by the jury) from all the surrounding circumstances, and especially from the manner in which it is actually used, if that fact be shown.

That the foregoing definition is not evolved factitiously, or by refining beyond due and legitimate refinement, will be apparent to any one who takes the pains to call to mind a few examples of the use of the word “at.” As showing how this preposition varies in range of meaning, according to the nature of the thing which constitutes its grammatical object and of the principal notion in the speaker’s mind, we give the following examples. It is correct to speak of a young man as being “at” the University of Georgia not only when he is in the buildings or on the campus, but when he is in or near Athens, the seat of the University, and is connected with the school in any of the usual relations. It --would not be correct to speak of one having no relationship to the school as being “at” the University of Georgia, unless he were at least upon the campus. The word “at” in the statement “The view at Mount Yonah is magnificent" is broad enough to compass .a wide range of territory. We say he lives “at New Hope Church" of a man who lives not in the church, but somewhere in the community in which the church is located. But if we say, “He took communion at New Hope Church” we mean in the very church-house itself, unless something else, known or assumed to be contained in the principal notion in connection with which'the statement is made, otherwise limits its meaning. So we conclude that it would be unnatural and unreasonable for us to catch in the phrase “at their place of business,” found in the prohibition statute, no other meaning than we would catch if the phrase “within their place of business” had been used.

We wish to say further that the foregoing approach to a definition is provisional only. It may need future extension or limitation. The law is of too recent enactment and the illustrative cases have been too few for us to believe that our judicial comprehension of the many new questions naturally arising under it has become sufficiently developed to compass the whole field, and to evolve a final definition. It is our whole desire to arrive at an •open-minded, unbiased interpretation of the law and of every part •of it; such an interpretation as will be judicial and intelligent and as will give the legitimate effect to the legislative will, without either limitation or extension on account of the personal views •of ourselves, or of anybody else, or of any class of persons.

Lawyers and trial judges, in making application of the definition announced, should be careful to remember that it is to be taken in connection with the other provisions of the prohibition law itself and with the previous decisions of this court on the name and cognate subjects. It should be kept in mind that we are now dealing with the phrase “at their place of business,” and not with the other phrase found in the act, “at any other public place.” The underlying considerations for prohibiting the keeping of liquors at places of business are broader than the reasons for prohibiting their being kept or had at other public places. It must be remembered, too, that the “business” referred to in the phrase now under contemplation means, as its context shows, trade or some form of commerce. The Roberts case, supra, makes this distinction clear.

The present defendant was clearly guilty of keeping the intoxicating liquors at his place of business. It was not necessary for the State to show, as he contends it should have shown, that the liquor was publicly kept. Usually less harm is likely to result from a public than from a secret keeping of liquor at a place" of business. .

Exception is taken to the admission in evidence of the testimony of the chief of the police as to finding the liquor in the-lock-box, on the ground that the arrest, search, and seizure were-unlawful. The arrest and seizure were legal, though made without warrant. Smith v. State, 3 Ga. App. 326 (59 S. E. 934). At least as to the liquor which was in the jug and in the glasses-, the crime was committed in the officer’s presence. Besides, evidence is not rendered inadmissible merely because it is obtained by an unlawful search. Ivey v. State, ante, 828 (62 S. E. 565) ; Thompson v. State, ante, 649 (62 S. E. 99); Williams v. State, 100 Ga. 511 (28 S. E. 624, 39 L. R. A. 269).

The third headnote needs no elaboration. See Stinchcomb v. State, 119 Ga. 442 (45 S. E. 639). Judgment affirmed


author: Blacx :

text:
    Armstrong Cork Company, Petitioner, v. Commissioner of Internal Revenue, Respondent. Armstrong Cork & Insulation Company, Petitioner, v. Commissioner of Internal Revenue, Respondent. Armstrong Cork Products Company, Petitioner, v. Commissioner of Internal Revenue, Respondent. R. W. McCready Company, Petitioner, v. Commissioner of Internal Revenue, Respondent. Armstrong Cork Company of Spain, Petitioner, v. Commissioner of Internal Revenue, Respondent. Armstrong Development Company, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket Nos. 23617, 36395-36399.
    Promulgated September 2, 1931.

      Frank 8. Bright, Fsq., and George P. P. Bonnell, Esq., for the petitioners.

      T. G. Histon, Esq., for the respondent.
   ORINION.

Blacx :

The only issue for us to decide in this proceeding is whether the amount of income taxes paid to the French Government by the Armstrong Cork Company of France in the calendar year 1922 may be taken as a deduction from gross income in a consolidated return filed for 1923, the year in which the parent company claims it was first definitely notified that the payments had been made.

Petitioners urge, as reasons why they should be permitted to take this deduction from consolidated income' in 1923, substantially the following state of facts: That in 1922 the Armstrong Cork Company of France was organized to take over the various pur chasing agencies previously operated by Bucknall, Scholtz & Company, a partnership; that a French accountant was employed to supervise the bookkeeping of the Armstrong Cork Company of France and that he was to prepare a statement each month showing the financial operations of the French company and mail a copy thereof to the parent corporation at its principal office in Pittsburgh, Pa.; that this was not done and the parent corporation, which was furnishing the funds, had no statement of the details of the operation of the French company for 1922; that in 1923 the parent company employed the Paris offices of the firm of Price-Waterhouse & Company, certified public accountants, to make an audit of the Armstrong Cork Company of France, and this firm, after making an inspection, reported that no audit was possible until the records were sorted out and a system of bookkeeping installed; that the firm was thereupon employed to do this work and that it was not until September, 1923, that it received information and proper papers showing payment by the Armstrong Cork Company of France of the amount of taxes paid to the French Government and it was then that it, the parent corporation, gave its subsidiary credit on its books for the payment of these taxes, and that the transaction, because of the facts stated, was not handled on its books until 1923, and hence the deduction from gross income in 1923 is proper.

The pertinent provisions of the Eevenue Act of 1921 read as follows:

Seo. 324. (a) That in computing the net income of a corporation subject to the tax imposed by section 230 there shall be allowed as deductions;
*$$**«*
(3) Taxes paid or accrued within the taxable year except * * * (d) so much of the income, war-profits and excess-profits taxes imposed by the authority of any foreign country * * * as is allowed as a credit under section 238. * * *
Section 200 of the Eevenue Act of 1921 reads in part as follows:
That when used in this title—
* * * * * « *
(4) The term “paid,” for the purpose of the deduction and credits under this title, means “ paid or accrued ” or “ paid or incurred,” and the terms “ paid or incurred ” and “ paid or accrued ” shall be construed according to the method of accounting upon the basis of which the net income is computed under section 212.

The Armstrong Cork Company and its subsidiaries kept their books and filed their returns for the years 1918 to 1923, inclusive, on an accrual basis of accounting, and the Commissioner accepted the accrual basis as properly reflecting the taxpayer’s net income for those years. This being true, petitioners would not be entitled to deduct, from 1923 gross income, taxes which were paid in 1922 to the French Government and which accrued for the years 1918, 1919, and 1920. It seems to us that the Supreme Court of the United States, in Aluminum Castings Co. v. Routzahn, 282 U. S. 92, and United States v. Anderson, 269 U. S. 422, has settled the question contrary to the contention made by the petitioners. Counsel for petitioners in their brief cite in support of their contention article 111 of the Treasury Department’s regulations, relating to when charges are deductible, which reads in part as follows:

It is recognized, however, that particularly in a. business of any magnitude there are certain overlapping items both of income and deduction, and so long as these overlapping items do not materially distort the income they may be included in the year in which the taxpayer, pursuant to a. consistent policy, takes them into his accounts.

It seems clear to us that the above quoted regulation has no application to such a situation as we now have before us. Under authority of Aluminum Castings Co. v. Routzahn, supra, and United States v. Anderson, supra, we hold that respondent committed no error in refusing to allow petitioners to deduct, from consolidated gross income in 1923, taxes paid to the French Government in 1922 for the years 1918, 1919, and 1920. Accordingly, decision will be entered for respondent and the deficiency will be assessed against and collected from the parent corporation, Armstrong Cork Company, in accordance with the written agreement on file. Decision will be entered in Dockets 36395, 36396, 36397, 36398, and 36399, respectively, that there are no deficiencies.


author: Lansdon :

text:
    Frank W. Elliott, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket Nos. 32632, 42454.
    Promulgated September 11, 1931.

      G. E. Brammer, Esq., and L. Cadi Dickinson, Esq., for the petitioner.

      B. M. Coon, Esq., for the respondent.
   opinion.

Lansdon :

These consolidated appeals have been submitted for our determination upon a stipulation of facts which we adopt and make a part of this decision by reference. In Docket No. 32832, the petitioner appeals from the respondent’s determination of a deficiency in income tax for 1924 of $28,930.56, and in Docket No. 42454 a similar deficiency of $911.32 for 1925 is challenged.

Prior to May 10, 1924, and during all of the years involved, the petitioner was vice president and business manager of the Palmer School of Chiropractic, a corporation, located at Davenport, Iowa. At some prior time in 1924, he acquired through purchase from one D. D. Evins, an inventor, a one-half interest in a device used by practitioners of chiropractic, known as a “ neurocalometer.”

On the 19th day of June, 1924, the petitioner and Evins entered into an agreement in writing with the Palmer School of Chiropractic, in which they purported to give to that school the exclusive rights to manufacture, sell, lease or rent neurocalometers, for a period of ten years. Pertinent provisions of the contract we quote as follows:

The licensee hereby agrees on their part to place said Neurocalometer and its method oí use on the market for sale, rent or lease, to protect the patent rights and to advertise it to the best of its ability, and to manufacture instruments in sufficient quantities to supply the market, all of which it agrees and in good faith binds itself to do.
Upon failure on part of licensee to comply in good faith with these conditions, the undersigned, D. D. Evins and Erank W. Elliott, their heirs or assignees at their option, and upon six months’ notice, shall have the right to cancel and declare null and void this license after which the licensee shall no longer manufacture, place on the market, lease, rent or sell Neurocalomebsrs.
It is mutually agreed by the parties hereto that in the event of the cancellation or termination of this contract, all deferred income for rentals of such instruments in the hands of licensee at the date of such cancellation or termination shall be immediately transferred and paid to the undersigned, D. D. Evins and Erank W. Elliott, and during the life of this contract all such deferred income shall be deemed to be held in trust by licensee for the undersigned, D. D. Evins and Erank W. Elliott, to carry out the terms of the contracts between the licensee and its lessees.
And in consideration of the above and foregoing, the licensee hereby agrees to pay to D. D. Evins and Erank W. Elliott a royalty of twenty per cent (20%) of the gross amount of the sales price as received in cash, or lease price or rental charges and monthly upkeep, and that is, twenty per cent (20%) of all revenue derived in any and every way on account of this lease, upon each and every Neurocaloheteb and Neurocalometer method sold, manufactured or leased or rented, which payment shall be made upon monthly statements furnished by the licensee to the said D. D. Evins and Frank W. Elliott, their heirs or assigns, and agreed to and accepted by them as correct.
It is further agreed by the parties hereto, that, of the twenty per cent (20%) gross royalty received by E. D. Eyins and Erank W. Elliott, as paid by licensee, the same percentage as determined by licensee on its books to be deferred or unearned income, shall apply as the proportion of such royalty received by licensors to be also considered as deferred or unearned income, to secure the performance by licensors of the terms of the agreement with licensee to insure the continuation of patents, payment of refunds to lessees, payment of taxes, working fees, and other expenses and establishment of factories where necessary.

During the year 1924 the Palmer School of Chiropractic manufactured a large number of neurocalometers under this agreement, the use of which it licensed to practitioners for periods of ten years, under uniform contracts which provided that said licensees should each pay to the school a rental for the full term of $1,200. Of this amount, $600 was payable at the signing of the contract, and the balance monthly in advance at the rate of $5 per paonth, beginning at the date of the agreement. These contracts stated that the full sum agreed upon as rental was “ on basis of Ten Dollars ($10.00) per month ” for the ten-year term; and, in respect to the down payment of $600, provided further that:

Said payment of Six Hundred Dollars ($600.00) being a deposit for the purpose of guaranteeing the faithful performance of the terms of this contract by said Lessee and to protect Lessor against any loss and contingencies involved in replacements, improvements, repairs, traveling expenses, and other costs in connection with examinations and inspections of the instrument, and the uses and technique employed by the Lessee according to the terms of this contract; * * *

The contracts further provided that in case the lessee failed to make any of the monthly payments or to perform all other requirements the lessor should have the right to terminate the same upon 30 days’ notice, but that such termination should not entitle any lessee to repayment of any sum paid by him thereunder.

During 1924 the Palmer School of Chiropractic received $1,592,-803.72 from lessees under the terms of its leasing contracts, $40,559.48 of which it reported as gross income and the balance as “ unearned ” income. In this year the Palmer School of Chiropractic paid to the petitioner, under its leasing contract with him, the sum of $105,930.91, of which amount the petitioner reported as taxable income to him for that year the sum of $2,597.91. In 1925 the petitioner received the sum of $26,096.47 from the Palmer School of Chiropractic as payments under this lease. For this year the petitioner reported $18,651.60 as taxable income from “ earned royalties ” under this lease. The respondent holds that for each of these years the petitioner should have reported, as a part of his gross income, the whole of the amounts received under his contract with the Palmer School of Chiropractic, to wit, the sum of $105,930.91 for 1924 and the full sum of $26,096.47 for 1925, and has recomputed his tax for those years upon that basis.

The petitioner contends that the respondent erred in such determination, for the reason, as alleged in his petitions, that:

The money on which the tax in controversy was computed was received by the taxpayer subject to substantial limitations and conditions within the meaning (Article 51, Keg. 65), and hence is not income.

We see no merit in the contention thus made. The payments involved were made to the petitioner under specific terms of a written contract, which required the lessee to pay the agreed 20 per cent of its gross receipts from rental charges, in cash to him as received. There were no restrictions or limitations in respect to these payments, and, had the lessee failed or refused at any time to make such payments after receipt of its rentals, clearly, the lessors could have successfully maintained an action at law for their recovery, or a suit in equity for an accounting.

In these circumstances title to these payments vested in the petitioner upon their receipt, and they constituted taxable income as and from such date. Shepard v. Northwestern Life Ins. Co., 40 Fed. 341; Eisner v. Macomber, 252 U. S. 189; S. W. Harris, 2 B. T. A. 933; Marion Stone Burt Lansill, 17 B. T. A. 413. The petitioner’s theory of so-called trust, which he argues was impressed upon these funds in favor of his lessee as soon as they came into his hands, is likewise without foundation, and the cases cited by him fall far short of supporting his theory of a trust under the conditions here. In none of the cases cited was the amount of the trust fund in doubt, but at all times was known or readily determinable by reference to the fixed percentages agreed upon in the contract. In the case at bar, whether or not any funds were ever to be “ considered ” as subject to the so-called trust; or, if so, how much, was left entirely to the election of the petitioner’s lessee; who could, by the mere entry in its books of an amount it might determine to be “ deferred or unearned income ” from payments made to it under another contract, impress funds in the hands of the petitioner with a trust in its favor. When we further consider that, in this case, the benefits of the so-called trust, were entirely under the control of the beneficiary, the novelty of the situation becomes all the more marked.

The respondent correctly held that the disputed payments made to the petitioner were taxable income to him in the years received and his determination is sustained.

Decision wiM be entered for the respondent.


author: Lansdon:

text:
    D. D. Evins, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 32630.
    Promulgated September 11, 1931.

      G. E. Brammer, Esq., and L. Call Dickinson, Esq., for the petitioner.

      Byron M. Goon, Esq., for the respondent.
   OPINION.

Lansdon:

This appeal is companion to the case of Frank W. Elliott v. Commissioner, decided by us this date, to which reference is made for a more complete discussion of the facts, issues, and reasons for our decision. The petitioner seeks relief from an alleged deficiency of $26,287.87 in income tax which the respondent has asserted against him for 1924, on account of his having failed to report as taxable income for that year receipts, amounting to $103,233.49, which he collected from the Palmer School of Chiropractic under circumstances as follows:

The petitioner is the inventor of a certain device used by practitioners of chiropractic known as a “ neurocalometer,” for which, in 1924, he had applications for a patent pending in the United States Patent Office. Early in that year he sold a one-half interest in his rights in said invention to Frank W. Elliott; and in June, following, he and Elliott joined in a leasing contract to the Palmer School of Chiropractic of Davenport, Iowa. Under the terms of this lease the school was given exclusive rights to manufacture, sell and lease neurocalometers in the United States and elsewhere, in consideration of payments to the petitioner and Elliott of 20 per cent of the gross receipts derived by the school from such manufacture, sales or leases “ as received in cash.” In 1924 the school paid to the petitioner, as his one-half of the royalties under said contract, the sum of $105,930.91, of which the petitioner returned as taxable income for that year but $2,597.91, claiming that because of certain restrictions in the lease agreement the unreported balance was impressed with a trust in favor of their lessee. We have studied carefully the contracts involved in these proceedings and considered the collateral matters affecting these payments at some length in the companion case of Elliott v. Commissioner, supra, and find no bases for the exemptions here claimed by this petitioner respecting these funds. In the above mentioned case we held that the payments made to Elliott in 1924 under this contract passed title to him as and when made; and that the whole of said sum constituted taxable income to him in said year. Consistent with that finding, we now sustain the action of the respondent in this proceeding.

Decision will be entered for the respondent.


author: GOODRICH:

text:
    Bankers Trust Company, as Trustee under Trust Indenture dated December 23, 1922, by and between George Marshall Allen and said Bankers Trust Company, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 32459.
    Promulgated September 11, 1931.

      Henry Maavn/ix, Esq., Bussell D. Morrill, Esq., and A. G. Newlin, Esq., for tbe petitioner.

      Harold Allen, Esq., for the respondent.
   OPINION.

GOODRICH:

Before considering this case upon its merits, let us dispose of two preliminary issues raised by petitioner. By amendment to its petition and by motion to dismiss petitioner challenges the jurisdiction of the Board, objecting to the misnomer in the deficiency notice and asserting that, because of his failure to address said notice to petitioner under its correct name and address, respondent has not complied with the statutory requirements in that regard. We attach no importance to this complaint. Petitioner was not misled by this misnomer. It is not alleged that the notice was not delivered to petitioner, or that its delivery was delayed, or that any of petitioner’s rights have been transgressed. The name used was sufficiently similar to petitioner’s correct title to put it on notice that the letter related to its pending controversy with the Treasury Department, and the body of the letter,- and the descriptive words, “ Trustee of George Marshall Allen Trust,” established the identity of the intended recipient beyond all doubt. Moreover, from what it knew to be its deficiency notice, petitioner took a timely appeal, captioned it by its correct title, coupled with descriptive words of its own choosing, raised no issue of misnomer, and prosecuted that appeal to its conclusion. By thus accepting the deficiency notice for its own petitioner has cured any error of which it might previously have complained. Cf. Kay Manufacturing Co., 18 B. T. A. 753; Fidelity Storage Corporation, 18 B. T. A. 517.

With respect to petitioner’s assertion that section 202 (a) (2) of the Revenue Act of 1921 is unconstitutional, suffice it to point out that the constitutionality of that provision has been sustained in Taft v. Bowers, 278 U. S. 470.

This brings us to the main issue in this case. The amount received by petitioner upon liquidation of the W. A. Gaines Company is taxable as a dividend under section 201 of the Revenue Act of 1921, which dividend should be reduced by the amount of the “cost basis” of the stock of the liquidating corporation. Cf. Eric A. Pearson, 16 B. T. A. 1405; Northern Trust Co., Trustee, 20 B. T. A. 866.

Respondent has made his computation upon the theory that under section 202 (a) (2) of the Revenue Act of 1921 the cost basis of the stock to the trustee is the cost or other basis thereof in the hands of the grantor. This theory requires that the transfer of the stock by Allen to petitioner be held to be an ordinary gift inter vivos. Respondent relies upon the decision in May v. Heiner, 281 U. S. 238. Petitioner contends that the computation should be made upon the theory that, under section 202 (a) (3) of the same act, the cost basis of the stock to the trustee was the value thereof as of date of acquisition by the trustee, and, since that value is equivalent to the amount received in liquidation, petitioner derived no taxable income therefrom in 1922. This theory requires that the transfer be held to be intended to take effect in possession or enjoyment at or after the death of the grantor. In short, petitioner contends that the term “ gift,” as used in section 202 (a) (2), does not include a transfer in trust upon the terms here established; that since it acquired this stock in trust, and not by gift, it is excepted from the provisions of section 202 (a) (2); and that, in any event, it is so excepted by paragraph (a) (3) of the same section. The statutory provisions mentioned are set out herein in footnotes.

Clearly, this transfer in trust was not a gift inter vivos. The trustee (petitioner) did not take the property as a present or donation, but only under a contract to assume certain duties of management in exchange for certain commissions. Nor was the transfer a present gift to the beneficiaries named in the indenture, for they, except the grantor himself, took absolutely nothing until the grantor’s death, and even then would receive nothing in case their deaths occurred prior to his. The final reversionary interest was to the grantor’s estate. From an examination of the House and Senate reports reflecting the legislative history of section 202, particularly as pertaining to the later enlargement of that section in the Revenue Act of 1924 (by section 204 (a) (3)) we conclude that it was not the intention of Congress that the word “ gift ” as used in paragraph (a) (2) should include a transfer in trust such as made in the case at bar. See Report, February 11, 1924, House Ways and Means Committee, and Report, April 10, 1924, Senate Finance Committee, both accompanying H. R. 6715. This precise question was fully considered in Francis Francis, Guardian, 15 B. T. A. 1332, and our conclusion herein is in accord with the opinion in that case.

In ¿he light of the opinion of the Supreme Court of the United States in May v. Heiner, 281 U. S. 238, and the amendment to section 302 (c) of the Revenue Act of 1926 (which section corresponds to the provisions of the 1921 Act here under consideration), adopted in consequence thereof on March 3, 1931, it is apparent that section 202 (a) (3) of the 1921 Act is not applicable to this transfer in trust.

Since neither paragraph (a) (2) nor paragraph (a) (3) of section 202 of the 1921 Act is applicable to this transfer in trust, the .act fails to specifically prescribe a cost basis to the trustee for the stock acquired by it as aforesaid. That being so, the cost basis to the trustee is the value of the property at the time acquired. Francis Francis, supra; Rice v. Eisner, 16 Fed. (2d) 358. That value in this case was $327,140, as set out in our findings of fact, which was exactly the amount of the liquidating dividend received. Therefore, petitioner derived no taxable income in the year 1922 from the receipt of said dividend and, having no other income, is liable for no tax. It is therefore unnecessary to determine whether petitioner may properly deduct the amount paid as acceptance commission upon the trust. The deficiency having failed, the penalty falls.

We conclude that the trust here created is not a dry or invalid trust where the legal title at once merges with the equitable so as to immediately vest complete ownership in the beneficiaries, but is a valid and continuing trust, taxable as a distinct entity under the provisions of section 219 of the Revenue Act of 1921.

Judgment will be entered for petitioner.

       Sec. 202. (a) That the basis for ascertaining the gain derived or loss sustained from a sale or other disposition of property, real, personal, or mixed, acquired after February 28, 1913, shall be the cost of such property; except that—
      * ⅜ ⅜ * ⅜ * *
      (2) In the case of such property, acquired by gift after December 31, 1920, the basis shall be the same as that which it would have in the hands of the donor or the last preceding owner by whom it was not acquired by gift. If the facts necessary to determine such basis are unknown to the donee, the Commissioner shall, if possible, obtain such facts from such donor or last preceding owner, or any other person cognizant thereof. If the Commissioner finds it impossible to obtain such facts, the basis shall be the value of such property as found by the Commissioner as of the date or approximate date at which, according to the best information the Commissioner is able to obtain, such property was acquired by such donor or last preceding owner. In the case of such property acquired by gift on or before December 31, 1920, the basis for ascertaining gain or loss from a sale or other disposition thereof shall he the fair market price or value of such property at the time of such acquisition.
      (3) In the case of such property, acquired by bequest, devise, or inheritance, the basis shall be the fair market price or value of such property at the time of such acquisition. The provisions of this paragraph shall apply to the acquisition of such property interests as are specified in subdivision (c) or (e) of section 402.


author: Van Fossan:

text:
    Matson Navigation Company, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 36126.
    Promulgated September 16, 1931.

      Herman Phleger, Esg., Gregory A. Harrison, Esq., and A. Dewitt Alexander, Esq., for the petitioner.

      John D. Kiley, Esq., for the respondent.
   OPINION.

Van Fossan:

Early in the experience of the Board, in Thomas Shoe Co., 1B. T. A. 124, the fundamental proposition was announced that “ to be deductible as a business expense, a contribution, charitable or otherwise, must have in a direct sense some reasonable relation to the business of the taxpayer.” This test of the law has been uniformly applied throughout all succeeding cases and should be followed here in passing on the allowability of the contribution to Californians, Inc.

The evidence shows that Californians, Inc., was a nonprofit corporation pursuing the primary purpose of cooperatively advertising the advantages of California. It requires no demonstration other than the statement of the fact that the growth of a State or community is not an abstract thing. .It is but the collective growth of the people and industries resident in the State. As the individuals and industries of the State expand, so the State grows. It is also easily demonstrable by experience that an individual activity is more likely to succeed if located in an aggressive and successful community. Thus it might with considerable weight be argued that petitioner would be fully justified as a business proposition in contributing to a cooperative advertising program such as that of Californians, Inc., even though it was unable to point to concrete monetary results. Here petitioner can go much further. The program here in question included direct presentation of petitioner’s facilities by pictures and written articles urging travel to Hawaii. Californians, Inc., collected various valuable data and received many inquiries in response to its publicity in reference to ocean travel which were handed to petitioner. These inquiries resulted directly in increased business for petitioner. Petitioner’s business was peculiarly adapted to provide effective travel advertising of the kind featured. Had petitioner

not been a contributor it would not have received the direct advertising, nor would it have been furnished with the travel inquiries and other data. We are convinced that petitioner’s contribution was motivated primarily by business consideration; that it received definite tangible advantages therefrom; and that it was by every test a proper business expense. Hirsch-Weis Manufaxturing Co., 14 B. T. A. 796.

The second item in controversy is the payment made to American Factors, Ltd., as petitioner’s share of attorney fees and court costs incurred in defending a suit in tort charging fraud and asking damages in the sum of $10,000,000 in connection with the purchase of certain German-owned sugar interests in Hawaii. The defense was entirely successful and defendants’ judgment was affirmed by the Supreme Court of California. We believe the facts bring this item clearly within the scope of ordinary and necessary business expenses. See Kornhauser v. United States, 276 U. S. 145; Richard Crocker, Jr., 12 B. T. A. 408; E. L. Potter, 20 B. T. A. 252; H. M. Howard, 22 B. T. A. 375.

Judgment will he entered under Rule 50.


author: Muedock:

text:
    American Feature Film Company, Petitioner, v. Commissioner of Internal Revenue, Respondent. Maurice Tobey, Petitioner, v. Commissioner of Internal Revenue, Respondent. Edward A. Golden, Petitioner, v. Commissioner of Internal Revenue, Respondent. Louis Rosenberg, Petitioner, v. Commissioner of Internal Revenue, Respondent. David Stoneman, Petitioner, v. Commissioner of Internal Revenue, Respondent. Albert A. Ginsberg, Petitioner, v. Commissioner of Internal Revenue, Respondent. Nathan A. Ginsberg, Petitioner, v. Commissioner of Internal Revenue, Respondent. David A. Lourie, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket Nos. 27623-27630.
    Promulgated September 16, 1931.

      Frank J. Albus, Esq., for the petitioners.

      B. ¶. Steele, Esq., for the respondent.
   OPINION.

Muedock:

Section 602 of the Revenue Act of 1928 amends Title IX of the Revenue Act of 1924 as amended by adding a provision that, in transferee proceedings before the Board, the burden of proof shall be upon the Commissioner to show that a petitioner is liable as a transferee of property of a taxpayer. In these cases the counsel for the Commissioner has submitted certain proof for the purpose of sustaining this burden. The only question is, Has he succeeded? He argues that the Metro Pictures Corporation of New England, the taxpayer, by the agreement of June 26, 1920, sold all of its assets to Metro of New York in exchange for Loew, Inc., stock and then distributed this stock in complete liquidation to the petitioners, its stockholders. One fatal defect in this argument is that it is not supported by the facts in evidence.

The respondent suggests no reason why the American Feature Film Company should receive any share in a distribution of the assets of the taxpayer. Although there is a statement in the respondent’s brief that Golden received 300 shares of the Loew, Inc., stock on September 20, 1920, that fact does not appear from the evidence. Golden was one of the respondent’s witnesses, and he was permitted to make a number of loose answers, some of which are contradicted by more reliable documentary evidence. One such statement was that he, as owner of 45 per cent of the American Feature Film Company stock, received 45 per cent of the Loew, Inc., stock. We might assume that he received some of the latter stock, but we still would not know the value of what he received at the time he received it. Cf. Angier Corporation, 17 B. T. A. 1376; Guy W. Renyx, 21 B. T. A. 1248; Ludwig Vogelstein, 16 B. T. A. 947; Annie Temoyan et al., 16 B. T. A. 923.

The taxpayer and the American Feature Film Company seem to have been closely associated, but there is no evidence of bad faith in any of the transactions material hereto. Cf. Joseph A. Steinle, Administrator, 19 B. T. A. 325. We do not know what the latter paid for the former’s rights in the leased films, but we can not assume that the transfer was without adequate consideration. The evidence does not disclose whether or not the taxpayer had any other assets or what was done with any that it might have had. But it clearly appears that the Loew, Inc., stock was delivered to the American Feature Film Company as part consideration for the transfer by it of certain of its assets to Metro of New York and all but 100 shares of the stock was distributed by the American Feature Film Company to various persons, including some of the individual petitioners. All of these petitioners were stockholders of American Feature Film Company. There is no justification for inferring from this state of facts that the distribution was of the assets of the taxpayer, to its stockholders, and in complete liquidation. Even if the distribution had been made by the taxpayer, we could not hold that it was thereby left insolvent. It never paid the tax and it did dissolve, but these facts do not prove insolvency immediately after the alleged distribution. Cf. Samuel Keller et al., 21 B. T. A. 84; Kinnett-Odom Co., 19 B. T. A. 1124; Frances W. Haines, 20 B. T. A. 721.

Judgment of no transferee liability uñll be entered in each proceeding.


author: Smith:

text:
    Anita Owens Hoffer, Petitioner, v. Commissioner of Internal Revenue, Respondent. T. R. Hoffer, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket Nos. 33374, 33375.
    Promulgated September 16, 1931.

      J. 8. Y. Ivins, Esq., and Harold G. Anderson, O. P. A., for the petitioners.

      F. B. Shearer, Esq., and E. L. Gorlin, Esq., for the respondent.
   OPINION.

Smith:

The first allegation of error raises issues relating to the basic value of four oil leases and the manner in which these leases were acquired. No proof as to the value of the leases was offered and the petitioners concede the correctness of the respondent’s affirmative allegation that, in computing the profit upon the sale of the leases, the Barnes lease had been erroneously valued at $30,225 instead of $30,000, as claimed by the petitioners and determined by the respondent. With this correction, the respondent’s determination of the value of the four leases is sustained.

The petitioners alleged that these four leases were acquired by petitioner T. B. Hoffer by gift. The respondent admitted that the Eobinson lease was so acquired. At the hearing no proof was offered on this point and counsel for the respondent disclaimed “ any intention to increase Mr. Hoffer’s income on account of receipt by gift of any of these leases.” No affirmative issue having been raised on this point, we will not disturb the respondent’s treatment of the entire profit realized upon the sale of these leases as community income.

The remaining allegations of error put at issue the fair market value of the shares of the Fensland Oil Company stock received upon the sale of certain properties to the Fensland Oil Company and others. The petitioners claimed that the stock had a fair market value of $4 per share. The Commissioner has determined a fair market value of $13.50 per share, but concedes that since the transaction with Johnston was not consummated and the 300 shares of stock were not received until September, 1920, the quoted price on the stock at that time indicates a value of only $12.50 per share. The petitioners agree that “ the Curb Market quotations were unquestionably fair indications of the market value of the 300 share block,” but insist that such quotations do not indicate the fair market value of the 12,000 share block. Further, with reference to the value of the stock given to Mrs. Hoffer, the petitioners take the position that the “ Curb Market quotations reflecting prices for small blocks probably came much nearer a true index of the value of 1,500 shares than it did of a value for 12,000 shares.” The petitioners apparently are willing to accept tbe Curb Market quotations as indicative of tbe fair market value of the 300 and 1,500 shares of this stock, but contehd that these quotations are not indicative of the fair market value of a block of 12,000 shares.

In disposing of the issue as it relates to the 12,000 shares of stock, we must first determine the basic date for valuing that stock. The respondent has based his determination upon August 3, 1920, the date when Hoffer received the certificates for these shares of stock. We think this was in error. At or about June 19, 1920, the taxpayer vendor transferred the property sold to the vendee, completing his part of the transaction, and thereafter was entitled to receive the consideration. There is nothing in the record to indicate that thel vendor could not have obtained delivery of the entire consideration; at or about that time. The fact that the certificates for the 12,000" shares of the Fensland Oil Company stock were not delivered to Hoffer until August 3, 1920, does not affect his ownership of the stock. His interest vested prior to the delivery of the certificates. Galbraith v. McDonald, 123 Minn. 208; 143 N. W. 353; Richardson v. Shaw, 209 U. S. 365. The certificates were only evidence of the ownership of the shares, Jellenick v. Huron Copper Mining Co., 177 U. S. 1, and of a capital interest in the corporation, Eisner v. Macomber, 252 U. S. 189, 208. As the Supreme Court said in Harriman v. Northern Securities Co., 197 U. S. 244, 294, the certificates are but “ a muniment of the holder’s title to a proportionate interest in the corporate estate vested in the corporation.” Kegardless of when the taxpayer received the stock certificates, the sale was made on or about June 19, 1920, and the stock, a part of the consideration for the property sold, should be valued as of that date. Cf. Clara Brunton, Executrix, 15 B. T. A. 348; affd., 42 Fed. (2d.) 81; certiorari denied, 282 U. S. 889; Charles W. Dahlinger, 20 B. T. A. 176; affd., 51 Fed. (2d) 662; Lucas v. North Texas Lumber Co., 281 U. S. 11.

The fair market value of stock at a basic date is a question of fact, to be determined from all the circumstances of the case. In Walter v. Duffy, 287 Fed. 41, 45, the Circuit Court of Appeals for the Third Circuit said:

Now, what is the market price? What is the fair market price of the statute? We say “ fair,” since every word used by Congress must be given due effect in the construction of this widely applicable statute, for obviously, while a stock might be bought and sold — and so marketed — and might thus be said to evidence some market price, yet it is obvious that Congress by the addition of the words “ fair market price,” certainly meant that not only must the market price be ascertained by sales, but that sales so made, the circumstances under which they were made, the subject-matter of the sales, all the attendant circumstances, were to be considered to determine whether such sales served to evidence not alone a market sale, but the fair price which Congress said should be the statutory start o'r base from which subsequent “gain derived” should be determined.

In Heiner v. Crosby, 24 Fed. (2d) 191, 193, is the following:

The fair market price or value of stock at a particular time is a question of fact, to be determined from all the circumstances. Market price implies the existence of a market, of supply and demand, of sellers and buyers. Sales are always evidence of a market price, but the statute requires that, in “ ascertaining the gain derived from the sale,” there must be not simply a “ market price,” but a “ fair market price.” Sales made at a particular time and place may be significant, but the price paid is not necessarily decisive of fair market price o'r value. The fact of sales, in itself and without regard to the circumstances under which the sales were made, does not conclusively establish either statutory fair market price or value. Sales made under peculiar and unusual circumstances, such as sales of small lots, forced sales, and sales in a restricted market, may neither signify a fair market price or value, nor serve as the basis on which to determine the amount of gain derived from the sale. In such cases resort must be had to' evidence to determine “ fair value.” Offers made in good faith and opinions of intelligent men experienced in the business are admissible to show fair value. Louisville & Nashville R. R. Co. v. Western Union Telegraph Co. (C. C. A.) 249 F. 385; North American Telegraph Co. v. Northern Pacific Railway Co. (C. C. A.) 254 F. 417; Walter v. Duffy (C. C. A.) 287 F. 41; Boom Co. v. Patterson, 98 U. S. 403, 25 L. Ed. 206; United States v. Chandler-Dunhar Co., 229 U. S. 53, 77, 33 S. Ct. 667, 57 L. Ed. 1063.

See also Phillips v. United States, 12 Fed. (2d) 598.

The petitioners attacked the value determined by the respondent from quotations of sales on the New York Curb Market and offered testimony to show that these quotations of sales in small blocks were not indicative of the fair market value of the block of 12,000 shares. This witness was connected with the brokerage firm that organized the Fensland Oil Company and was conversant with the condition of that company in 1919; for many years he had dealt in oil stocks. In his opinion a block of 12,000 shares could not have been sold for more than $5 per share. There were no sales of this stock near the basic date at such a price. In addition to those reported on the New York Curb Market, there were sales of 6,000 shares at $6.75 per share in May, 1920, to Smithers & Company, and 3,000 shares at prices ranging from $13.50 to $14.125 per share in October, 1920, by Mrs. Hoffer through Smithers & Company.

While the opinion evidence offered is entitled to weight and must be given consideration, we are not concluded thereby. Boggs & Buhl v. Commissioner, 34 Fed. (2d) 859. The opinion as to value is based on a consideration of assets behind the stock, which were much more valuable in the summer of 1920 than in the fall of 1919, when there were sales of this stock at $5 per share on the New York Curb Market. These sales were in comparatively small blocks of stock, but unlike the sales involved in the cases cited by the petitioners (Francis E. Smith, 1 B. T. A. 868; Fruen Investment Co., 2 B. T. A. 542; Automatic Transportation Co., 3 B. T. A. 505; Kennedy Construction Co., 4 B. T. A. 276; Stollwerck Chocolate Co., 4 B. T. A. 467; Charles F. Ayer, 7 B. T. A. 324; Frederich H. Zeigen, 10 B. T. A. 844; C. A. Bryan, 19 B. T. A. 111) were fairly constant over a long period of time and at gradually ascending prices, perhaps reflecting the development of the assets behind the stock.

As we said in James Couzens, 11 B. T. A. 1040, 1165:

* * * The facts and circumstances must be fully known in each case, together with any available evidence of their interrelation and importance, and from this in its entirety the independent judgment of the Board must be derived.

The record indicates a value for this stock greater than that claimed by the taxpayers. There were sales over a long period of time at greater prices. The petitioners’ witness stated that the assets behind the stock had more tangible value in the summer of 1920, when the lowest quoted price was $8 per share on sales in the month of June, than in the fall of 1919, when there were sales at the price claimed. Under the circumstances we believe that the reported sales more nearly reflect the fair market value of this stock than does the opinion evidence. With due allowance for the number of shares involved, we are of the opinion that the fair market value of the 12,000 shares of Fensland Oil Company stock at the basic date was $8 per share.

The parties are in agreement that the transaction with Johnston was consummated in September, 1920. The taxpayers apparently accept the Curb Market quotations as indicative of the fair market value of the 300 shares of stock received at that time, and the respondent concedes that, based upon those quotations, the value should be $12.50 per share instead of $13.50 per share as originally determined. We hold accordingly.

In October, 1920, Mrs. Hoffer sold 3,000 shares of the Fensland Oil Company stock, upon which the respondent has determined a profit of $11,880. This stock had been acquired by Mr. Hoifer as community property and on July 15, 1920, he transferred his undivided one-half interest therein to Mrs. Hoffer by gift. In determining the deficiencies the respondent treated the profit upon this sale as community income, but now affirmatively alleges that the profit was the separate income of Mrs. Hoffer. The stock was the separate property of Mrs. Hoffer when sold and the gain realized therefrom was her separate income. See Oscar Chesson, 22 B. T. A. 818; and G. C. M. 8209, Cumulative Bulletin IX-2, p. 326. It will not be necessary to discuss the respondent’s alternative allegation on this point. Judgment will he entered under Rule 50.


author: Black :

text:
    Mrs. Lena Brown, Petitioner, v. Commissioner of Internal Revenue, Respondent. W. E. Brown, Petitioner, v. Commissioner of Internal Revenue, Respondent. Mrs. Hazel McDonald, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket Nos. 16807-16810, 24216.
    Promulgated September 16, 1931.

      A. B. Freyer, Esq., for the petitioners.

      W. Frank Gibbs, Esq., for the respondent.
   OPINION.

Black :

In accordance with the stipulation, we hold that the tax liability of Mrs. Lena Brown for 1920 in Docket No. 16808 is $5,174.13, and that of W. E. Brown for 1920 in Docket No. 16810 is $5,774.13.

The deficiency notices attached to each of the petitions in the above dockets show a total asserted tax liability against each of the petitioners of $16,121.92, with $2,803.60 theretofore assessed and paid in each case, leaving a deficiency claimed against each petitioner in said dockets of $13,318.32. The stipulation, which has been agreed upon, will materially reduce the amount of each deficiency, and therefore the deficiences, if any, in Docket Nos. 16808 and 16810 will be recomputed in accordance with the stipulation which has been filed herein. This leaves for our consideration the issues raised by the pleadings and not settled by stipulation in Docket Nos. 16807, 16809, and 24216, as follows:

(1) Petitioners contend that the instrument of settlement marked Exhibit D at the hearing, which has been set out in detail in our findings of fact, did not pass any title from petitioners to Heinz covering petitioners’ interest in any oil under said property whatever, but said Pleinz acquired, so far as petitioners were concerned, only the right to reduce that interest in the oil under the land to possession and under the terms of the agreement was to pay to petitioners and their coheirs the pro rata share of each in the proceeds of such oil as and when produced, to the extent stipulated in the agreement, and accordingly the proceeds from such oil constituted income subject to depletion claimed.

(2) The respondent contends that not only should no depletion be allowed as to these two items of income accruing under the agreement to Mrs. Lena Brown and Mrs. Hazel McDonald, but that the income in question was derived from the separate estates of the wives and therefore did not constitute community property, and should have been reported as income solely by the wives, and that therefore the deficiencies claimed against Mrs. Lena Brown and Mrs. Hazel McDonald should be increased and the deficiency claimed against W. E. Brown decreased.

It should be explained at this point that although Mrs. Hazel McDonald, one of the petitioners herein, did not sign the instrument of conveyance set out in our findings of fact and her name does not appear therein, nevertheless, she had an interest in the oil royalties conveyed by said instrument, the same as the other children of George T. Shaw. Her interest had been previous^ conveyed, while she was a minor, to her sister, Lessie Yada Gandy, for purposes of convenience, it being difficult and inconvenient to get the approval of the court every time an oil lease was negotiated. Her beneficial interest in the property as one of the children of George T. Shaw and wife, deceased, as between the parties, was in no wise diminished by the prior convej^ance of her interest to Lessie Yada Gandy. On this point there was no contest.

As to petitioners’ contention that the instrument of conveyance was not a sale of oil in place, but merely a grant of the right to Heinz to go upon the premises and extract oil from beneath the surface of the earth and remove it therefrom and therefore petitioners were the owners of the oil until it was extracted from the ground and have the right to deduct depletion from the amounts which they received under the agreement, it is sufficient to say that this contention has been passed'upon adversely to the contention now made by petitioners in numerous decisions by the Board and the courts. Some of these cases are: L. T. Waller, 16 B. T. A. 574; affd., 40 Fed. (2d) 892; S. L. Herold, 17 B. T. A. 933; affd., 42 Fed. (2d) 932; Mrs. J. C. Pugh, Sr., Executrix, 17 B. T. A. 429; affd., 49 Fed. (2d) 76. In the latter case, after setting out in the opinion the material parts of the instrument of conveyance, in affirming the Board’s decision, the court said:

* * * We construe this to be a conveyance, operative from its date, of a half interest in the royalty right for a total consideration of $250,000.00, $50,000.00 being paid in cash, and a special arrangement being made for the payment of the remainder. The arrangement did not involve Eastham in personal liability, but appropriated the proceeds of his royalty oil to the payment until the $200,000.00 should be paid. It is specially referred to as the half belonging to said. JSasthmi. As the oil was produced, that due to this half of the royalty right was Eastham’s oil. The risk of market price was his. When the proceeds were paid over to Pugh they were paid not because the oil was Pugh’s but because it was pledged to Pugh. The money went to discharge the price due on Eastham’s purchase, and to pay for the right which he had bought “ operative from August 1st, 1919.” After that date it was Eastham’s royalty right which was being depleted by the removal of oil, and he, and not-Pugh, was entitled to the depletion allowance, although Pugh was to get and did get the proceeds of the oil when sold. The same principle was applied in Waller v. Commissioner, 40 Fed. (2d) 892, and Herold v. Commissioner, 42 Fed. (2d) 942, in which a lease interest was transferred instead of a royalty. Our decision in United States v. Looney, 29 Fed. (2d) 884, is cited as to the contrary, but that case did not directly involve any question of depletion. The question was to whom certain royalties belonged as income. Nor did it really involve any sale of a royalty, for the parties were claiming under adverse titles, and made a compromise agreement which effected a division of the disputed royalty.

The instrument of conveyance involved in the instant case is substantially the same as that which was involved in Mrs. J. G. Pugh, Sr., Executrix, supra. Following the above cited authorities, we hold that the respondent did not err in refusing to allow depletion deductions from the $55,526.32 received by Mrs. Lena Brown in 1921 from the sale of mineral rights, and from the $56,491.23 received by Mrs. Hazel McDonald in 1921 from the sale of mineral rights.

We now take up respondent’s contention that the above stated amounts received by petitioners, Mrs. Lena Brown and Mrs. Hazel McDonald, in 1921 were from the sale of their separate property and the amounts were therefore separate income and that petitioners erred in returning these amounts on their income-tax returns as community income, and that the deficiencies should be recomputed on the basis that such income was the separate income of Mrs. Lena Brown and Mrs. Hazel McDonald and not the community income of themselves and husbands. This contention of respondent must be sustained. The same question was recently before the U. S. Circuit Court of Appeals for the Fifth Circuit in the case of Lucas v. Baucum, 50 Fed. (2d) 806, and the court there held that where land inherited by a wife in Louisiana was administered by her husband, who in 1921 negotiated oil leases and sold part of the retained royalty interest, profit from such sale is separate property of the wife, and not community income, pursuant to Louisana statutes. The court said: “We think it perfectly plain that upon no reasonable theory can a sale, as here, by the wife of a part of her mineral interests operate to convert separate into community property.”

Following the above quoted authority, we sustain respondent on this issue.

Decision will be entered u/nder Rule SO.


text:
    John A. Davis, Petitioner, v. Commissioner of Internal Revenue, Respondent. C. Dickson Titus, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket Nos. 20703, 20705.
    Promulgated September 16, 1931.

      A. Gadder Mackay, Esq., for petitioner John A. Davis.

      J. A. Lyon, Esq., and E. L. Updike, Esq., for the respondent.
   OPINION.

Lansdon :

These appeals, which have been consolidated for hearing and decision, involve the liability of the petitioners for assessment under section 280 of the Revenue Act of 1926, for the unpaid taxes of the Mountain Stores Company, a dissolved corporation of Denver, Colo.

During its brief existence the Mountain Stores Company was engaged in the retail mercantile business. In March, 1920, it sold all of its physical assets to the Piggly-Wiggly Company, and was dissolved in November, following. For the taxable periods respectively ended August 31, 1919, and January 31, 1920, the Mountain Stores Company filed income and profit-tax returns; the first • on March 29, 1920, and the second on November 6, following. The respondent determined that this corporation understated its taxable income for each of these periods in said returns, and has asserted a deficiency in tax for the first period of $5,918.36, together with a penalty of $1,479.46; and, for the second, a deficiency of $16,272.01, making a total in deficiencies and penalties for the two periods of $23,669.83. These totals the respondent has separately asserted against each of these petitioners in letters mailed toi them, dated August 24, 1926, holding them to be distributees of the assets of this defaulting corporation and subject to such process in virtue of section 280, supra.

In the amended pleadings, upon which these appeals are submitted, the parties have joined issue on these questions of law and fact: First, the petitioners challenge the constitutionality of section 280, supra; second, they deny the basis of the liability against the corporation; third, they individually deny personal liability for the tax; and, fourth, they plead the statute of limitations against assessment. At the close of the hearing petitioner Davis moved for judgment on the record, which motion we took under advisement pending our final study of the record. That motion is now denied.

Upon the first and second of the above issues, in the order stated, we must hold against the contentions of the petitioners. This Board and the courts have repeatedly sustained the validity of section 280, supra, and, since we are bound by such holdings, no good purpose would be served by a discussion of that issue in this opinion. Phillips v. Commissioner of Internal Revenue, 283 U. S. 589.

On the second issue, no evidence was offered at the hearing to impeach the finding of the respondent in respect to the obligation of the original taxpayer, so his determination to that extent must be approved. ^Respecting the third issue, there is nothing specific in the record to show that petitioner Titus (Docket No. 20705), although a stockholder and officer, received anything whatever, by way of money or property, in the liquidation of the defaulting corporation. It is true that petitioner Davis, while on the witness stand, reluctantly conceded that he, himself, received the sum of $9,864, which he supposed ” was from the liquidation of his stock in that corporation; and, that later, when it was suggested to him that the other stockholders “ received money on the same proportionate basis,” he answered, “ as far as I know, yes.” Yet that, we hold, is not sufficient proof to sustain a finding against Titus. Nor is this proof strengthened by the photostatic copy of the return filed by Titus for 1920, which the respondent introduced in evidence. That return showed the receipt by Titus of the $11,483.07 from the sale of stock in that year; but the identity of the stock is not shown; and the purchaser named is the Piggly-Wiggly Company, which, if proof of anything in reference to the Mountain Stores Company stock, indicated a direct sale of it to that company and not its liquidation as claimed by the respondent. We think the respondent has wholly failed to sustain the burden of proof showing Titus to be a transferee of the assets of the defaulting taxpayer, and therefore hold in respect to his appeal (Docket No. 20705), that this assignment of error must be sustained.

In respect to the petitioner, Davis, we think the admissions made by him on the witness stand are sufficient to show that he received the sum of $9,864 realized from the sale of the assets of the dissolved corporation in liquidation of his stock and is, therefore, liable for that much of the deficiency asserted; provided, however, that the deficiency letter mailed to him on August 24, 1926, was so mailed within one year after the expiration of the five-year period allowed for assessment against the original taxpayer under section 250 (d) of the 1918 Act; as provided for in making assessments against transferees in the Act of 1926.

Returns for the periods involved were filed respectively on March 29 and November 6, of 1920. The bar of the statute for assessment against the corporation, therefore, fell as to the first of these on March 29, 1925, and as to the last on November 6 of the same year. The deficiency letter, then, which was mailed August 24, 1926, was within the time limit as to the last, but after the bar had fallen as to the first. The respondent introduced in evidence two waivers, purporting to have been executed by the corporation more than four years after it was dissolved, which he claims extended the time for assessment in both of these periods. Whether or not these waivers were effective for the purposes intended, becomes immaterial to the decision we are bound to make under the facts shown, since the assessment as to the last period was timely’made without the waiver and must be sustained. It being conceded that Davis received $9,864 in liquidation of his stock in the Mountain Stores Company, he is liable to that amount for the unpaid tax assessed for that period against such company.

In Docket No. $0705 judgment of no deficiency will he entered. In Docket No. £0703 a judgment for a deficiency in the sum of will he entered.


text:
    W. A. Franken, Petitioner, v. Commissioner of Internal Revenue, Respondent. Scott R. Timmons, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket Nos. 32042, 32044.
    Promulgated September 17, 1931.

      S. J. Jones, Esq., W. A. Franken, Esq., and Soott B. Timmons, Esq., for the petitioners.

      L. A. Luoe, Esq., for the respondent.
   OPINION.

Lansdon :

The identical question raised in these proceedings as to the compensation received by each of the petitioners for legal services rendered to the Norborne Land Drainage District Company has been decided by the Circuit Court of Appeals for the Eighth Circuit in Burnet v. Jones, 50 Fed. (2d) 14, where the compensation received by S. J. J ones, who was also one of the attorneys for such company, was held to be taxable. A similar question is presented as to the compensation received by each of the petitioners for legal services rendered to the Egypt-Prairie Drainage District, under a contract of employment almost identical in its terms with the Norborne contract. Upon authority of the Jones case, sufra, which we think is controlling as to both items of income, the respondent’s determination is approved.

As to the compensation of $100 received by each of the petitioners for legal services rendered to the city of Norborne, Mo., the record is insufficient for us to determine whether the petitioners were employees of the city, in accordance with our holding in W. B. Matthews, 13 B. T. A. 1133, or independent contractors. We must, therefore, approve the determination of the respondent.

Decision will be entered for the respondent.


text:
    Milby & Dow Coal and Mining Company and Ennis Ice Company, Petitioners, v. Commissioner of Internal Revenue, Respondent.
    Docket Nos. 22021, 22022, 26259, 42184.
    Promulgated September 17, 1931.

      Chas. H. Garnett, Esq., for the petitioners.

      Elden McFarland, Esq., for the respondent.
   OPINION.

Lansdon:

The petitioner contends that the Board has jurisdiction over the years 1917 and 1918, since the respondent has partially rejected claims for abatement covering those years. It alleges in its brief that the facts shown come squarely within the provisions of section 283 (e) of the Revenue Act of 1926, and cites as controlling our decision in Miami Metals Co., 10 B. T. A. 421. We do not agree with petitioner that section 283 (e) is applicable here. That section deals with the determination of a deficiency, while here no deficiencies exist. We are of the opinion that the Board has no jurisdiction as to the years 1917 and 1918, since the tax shown on the returns has not been increased by the respondent. Estate of John Ballot, 3 B. T. A. 583.

The petitioner claims deductions for depreciation of its plant, equipment and development for each of the years, based upon a figure determined by adding to the depreciated value of an inventory and appraisement of February 28, 1911, the depreciated cost of additions thereafter. The respondent has reduced the inventory and ap-praisement value of $249,060.85 as determined by the petitioner to $211,387. Based upon the inventory and appraisement the petitioner now claims a March 1, 1913, value of $244,003.82 and contends that depreciation should be computed upon a unit-of-production basis.

We do not agree with petitioner’s method of arriving at the March 1, 1913, value claimed or with the conclusion reached. There is nothing in the record to establish that all of the property shown in the inventory of February 28,1911, existed on March 1,1913. Neither do we agree with petitioner that depreciation should be computed on a unit-of-production basis. We have allowed depreciation on such basis in a number of cases where the useful life of the depreciable assets was practically coextensive with the life of the mine (Kehota Mining Co., 3 B. T. A. 885; and Grand River Gravel Co., 22 B. T. A. 1124), but here there is no showing as to the remaining useful life of the assets or the salvage value, if any. The respondent’s determination as to depreciation is approved.

The petitioner attempts to establish its invested capital for each of the years 1919, 1920 and 1921 by adding to the total of the inventory and appraisement of its plant, equipment and development made on February 28, 1911, the cost of additions thereto and depreciating the total down to the taxable year. It contends that such figure represents actual cost of its plant, equipment and development and that it is entitled to have its invested capital determined in such amount.

Section 326 of the Bevenue Act of 1921, which is the same as section 326 of the 1918 Act, provides that invested capital for any year means: (1) Actual cash paid in for stock; (2) actual cash value of tangible property other than cash paid in for stock; (3) paid-in surplus or earned surplus and undivided profits; and (4) intangible property paid in for stock (subject to certain restrictions and limitations). Even granting that the figure contended for by the petitioner represents cost of its assets, we still have no basis for computing invested capital. Petitioner was organized about 1900, and if we are to determine invested capital we must know the amount placed at risk in petitioner’s business at that time, additional capital contributions, if any, and the earnings accumulated and left in the business thereafter. Proof merely that development and equipment of petitioner’s leases cost a certain amount does not determine any item of invested capital. A mere conversion of cash paid in for stock of petitioner into mine equipment would have no effect on statutory invested capital.

Furthermore, we are not convinced that the figure shown on the inventory and appraisement of February 28, 1911, represents cost of the property. To the extent that such figure may represent an appraisement of the value at that time, it certainly may not be considered in determining invested capital. La Belle Iron Works, 256 U. S. 377. The respondent’s' determination of invested capital must be approved.

The respondent has determined depletion for each of the years involved on the basis of a March 1, 1913, value of $20,921.76. The petitioner contends that the value of its leases was at least $250,000. The evidence as to the March 1, 1913, value of the leaseholds consists of the opinions of several expert witnesses called by the parties; proof of the sale of two-thirds of petitioner’s capital stock in 1912 for $200,000, and statements as to value supported by affidavits submitted by petitioner to respondent during negotiations for settlement of the tax liability here in controversy, which continued from 1920 until 1925.

The petitioner’s witnesses testified that in their opinion the leases had a value at March 1, 1913, of from $250,000 to $300,000. The two experts called by the respondent testified that the leases had no value, or, at most, a value of $50,000 at March 1, 1913. The sale of two-thirds of the petitioner’s capital stock was made in 1912, after a disagreement among the three stockholders. We do not know what other assets were owned by petitioner nor what liabilities were charged against such assets. The price of $200,000 paid for the capital stock may have represented values other than leaseholds. The price paid for the stock would also depend on the amount of liabilities outstanding to be subtracted from the value of the assets and would be influenced by the nature of the disagreement among the stockholders.

At various times between November 15, 1920, and July 18, 1925, the petitioner submitted statements, reports and affidavits to the respondent in which it claimed a value for its leaseholds of from $88,000 to $100,000. Affidavits of several experts who were acquainted with the property were submitted during such time, all of which agree on a value of from $88,000 to $100,000.

After careful consideration of all the evidence we are of the opinion that petitioner’s leaseholds, including the known right to acquire an additional 640 acres without cost, had a fair market value on March 1, 1913, of $100,000. Depletion deductions for each of the years should be computed on the basis of such value, using the figures for production and estimated reserves set forth in our findings of fact above.

The record discloses that for 1925 the respondent computed a statutory net loss of $10,761.84, which was carried forward and deducted from income for 1926. The petition in Docket No. 42184 asks that the amount of such net loss be redetermined to include any additional allowance by the Board for depletion or depreciation and that such amount as redetermined be carried forward and deducted from income for 1926. It is obvious that the net loss heretofore determined by the respondent must be adjusted by the application thereto of the results of the recomputation of depletion on the basis herein determined.

Decision will be entered under Rule 50.