author: Kern:

text:
    Vertex Investment Co., a Corporation, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 103675.
    Promulgated July 2, 1942.

      Philip 8. Ehrlich, Esq., JuMen B. Bauer, Esq., and Robert 8. Buchanan, Esq., for the petitioner.

      T. M. Mather, Esq., for the respondent.
   OPINION.

Kern:

As stated above, the main issue is whether 80 percent of peti-

tioner’s gross income in 1937 was personal holding company income as that term is defined in section 353 (a) of the Revenue Act of 1937. The facts disclose that over a period of years the deceased ex-president and ex-treasurer of petitioner had commingled the funds of petitioner with his own by depositing them together in his individual bank account and had used for his own purposes the sum of $140,124.01 from petitioner’s funds without any corporate authority and without the knowledge of petitioner’s other stockholders. After his death in 1935 the unauthorized use of petitioner’s funds was discovered and petitioner filed a claim against the officer’s estate. The other stockholders of petitioner were brothers and sisters of the deceased. Upon his death one of the brothers was elected president of petitioner. This brother was also one of the coexecutors of decedent’s estate. As a result of conferences between this brother, the other coexecutor (the deceased’s widow), and an attorney who was acting for the estate and was considered by the new president of petitioner to be also acting for petitioner, a settlement was finally reached which proved at that time to be agreeable to all parties involved, and gained the necessary approval from the Superior Court of California. This was in 1937, at which time the principal liability of the estate to petitioner had been reduced to $134,479.78, by virtue of a cash payment of $5,644.23 from decedent’s bank account. The settlement called for the transfer of certain securities and surrender of dividends, the aggregate value of which was set by the parties at $173,650, an amount $39,170.22 in 'excess of the principal liability. By agreement, however, $320.65 was refunded to the estate. The parties in their settlement agreement and in their application to the Superior Court designated the amounts to be received by petitioner in excess of $134,479.78 as interest, and that court sanctioned the settlement as proposed.

Petitioner now claims that none of this amount was, in fact, “interest” as that term is used in the revenue acts, but was return of lost capital or damages for loss of capital. Petitioner therefore contends that this amount did not constitute taxable income and, accordingly, asks a refund of that part of its Federal income taxes paid for the taxable year on account of the receipt of this item.

In support of this contention the petitioner advances two arguments. The first is to the effect that its settlement with the estate of Louis Schwabacher was for a sum far less than that to which it was entitled, in that it could have recovered, in an action for an accounting, the profits made by Louis by the use of petitioner’s funds. The short answer to this contention is that we are concerned with what petitioner did rather than with what it could have done. Petitioner brought no action for accounting and nothing in the record indicates that petitioner even contemplated the possibility of such an action during the taxable year and prior to the settlement above outlined. It filed a claim against Louis’ estate predicated upon advances made by petitioner to Louis as shown by its books and in the principal amount shown therein as an indebtedness. In addition to this amount petitioner claimed certain amounts as interest and was paid certain amounts as interest. No reference was made to profits made by Louis as the result of his use of the unauthorized advances. Even if a claim has been made for such profits and a settlement payment had been made therefor, the amounts so paid would have constituted taxable income to petitioner and not a return of lost capital. Arcadia Refining Co. v. Commissioner, 118 Fed. (2d) 1010.

The second argument advanced by petitioner in support of its contention that the amounts received by it as interest did not constitute taxable income is to the effect that such amounts, in reality constituted damages and must be considered as damages for loss of capital. The argument that these amounts must be considered as damages and not as interest is also relied upon by petitioner in its contention that the amounts in question did not constitute personal holding company income within the meaning of section 853 (a) of the Eevenue Act of 1937, and therefore 80 per centum of its gross income for the taxable year was not personal holding company income and petitioner is not subject to the personal holding company surtax imposed by section 351 of that act.

Broadly stated, petitioner’s contention is that amounts to which a taxpayer is entitled as damages can be considered neither as “income” nor as “interest” within the meaning of the revenue acts. That “damages” may in certain circumstances constitute taxable income is well established. Liebes & Co. v. Commissioner, 90 Fed. (2d) 932; Charles S. Davis, Trustee, 35 B. T. A. 1001. That “damages” may constitute “interest” is also a conclusion warranted by the authorities, if the so-called damages represented a payment imposed by law for the use or detention of money. In Josef W. Bettendorf, 3 B. T. A. 378, 383, we said: “Interest is the compensation allowed by law, or fixed by the parties, for the use or forbearance of money, or as damages for its detention”, citing 33 Corpus Juris 178. And in the more recent case of Elverson Corporation, 40 B. T. A. 615, 644, in defining “interest, as generally understood” we used, among others, the same definition. See, also, 33 Corpus Juris 182. If the amounts received by petitioner in the instant proceeding in excess of the principal amount claimed are to be considered as damages for the detention of money, they will come under the definitions given above and will constitute interest. In so1 far as they may be considered damages for the detention of money, the receipts in question differ materially from awards of damages qua damages rendered in legal actions arising from the conversion, either voluntary or involuntary, of property. See Seaside Improvement Co. v. Commissioner, 105 Fed. (2d) 990; N. V. Koninklijke Hollandische Lloyd, 34 B. T. A. 830; Francois Lang, 45 B. T. A. 256. But cf. Commissioner v. Kieselbach, 127 Fed. (2d) 359. Since the amounts here involved, if considered as such damages, come within our definition of “interest”, and since there are no cases involving similar facts which require a holding to the contrary, we question the validity of petitioner’s contention that amounts to which petitioner might be entitled as damages can not be “interest” within the meaning of section 353 (a), sufra.

However, as we view the facts shown here by the record, and particularly the acts of petitioner itself, it is not necessary to consider the question of whether damages in the ordinary sense can be considered as interest. In all cases of conversion, the tort may be waived and the wrongdoer may be sued ⅛ contract. 1 C. J. 1033; Bechtel v. Chase, 156 Cal. 707; 106 Pac. 81. Even in the case of embezzlement “the embezzler incurs an equivalent debt as surely as if he had borrowed with the consent of the owner”, the law fixing upon him “the duty to account for and to repay the value of what is taken.” McKnight v. Commissioner, 127 Fed. (2d) 572. See, also, concurring opinion of Magruder, J., in Boston Consolidated Gas Co. v. Commissioner, 128 Fed. (2d) 473. Where an officer of a corporation appropriates or uses its money for his own purposes he is chargeable with interest thereon. 19 C. J. S. 132, citing Miller v. Youmans-Burke Oil & Gas Co., 278 Mich. 647; 270 N. W. 819. „An unauthorized loan or advance to an officer may be ratified by the corporation by unanimous action of its stockholders, and after such ratification it will be considered a debt. Dredger Co. v. United States, 37 Fed. (2d) 775. See Fletcher on Corporations, vol. 4, § 2507.

Our analysis of the facts indicates that the deceased was the president and treasurer of petitioner corporation, the other stockholders of which were his brothers and sisters, who left the conduct of its affairs in his hands. As in other corporations having a small and intimate group of stockholders, the business and corporate records of petitioner were on an informal basis. The deceased over a long period of time had made a practice of causing the corporation to make advances to him, which he recorded in the corporate books of account as a debt owing by him to the corporation. While there were no efforts on his part as disclosed by the records to keep these advances secret, they appear to have been unknown to the other stockholders and were unauthorized at the time when they were made. The fact that he kept the funds of petitioner in his own account should have been known to the other stockholders, since they were paid dividends from time to time by checks drawn on his personal account. Upon the death of the deceased the other stockholders learned of the unauthorized advances made to and by their dead brother. They, at that time, and as the remaining stockholders and directors of petitioner, were faced with the problem of how petitioner should treat these unauthorized advances. Motivated by feelings of family sentiment and solidarity, they took the course which was calculated to cause no family scandal. Instead of advancing a claim which was based upon tort and would impute the crime of embezzlement to their dead brother, it was decided to advance a claim predicated upon book advances which were to be treated as a debt which the deceased brother owed to the corporation. In the claim filed against the deceased’s estate petitioner included a claim for interest on the account “from the respective dates of the advances.” The claim of petitioner was allowed and paid in the total principal amount claimed, plus interest on this total principal amount at 5 percent from August 1931 to and including the date of payment.

Petitioner thereby waived any tort on the part of the deceased, ratified the advances, and proceeded on the theory of contract. In all of its actions it treated the account as a valid indebtedness and treated as interest the excess of payments received over principal amount claimed. We see no reason to treat it differently.

The $38,849.57 was interest within the scope of section 353 (a) of the Revenue Act of 1937 and, inasmuch as petitioner admits 'that more than 50 percent in value of its stock was owned during 1937 by not more than 5 individuals, we conclude that petitioner should have filed a personal holding company return, and we sustain respondent’s determination of deficiency.

The sole remaining issue is in regal’d to the 25 percent delinquency penalty asserted by respondent. Petitioner makes no argument on this point, nor do the facts reveal any mitigating circumstances in its favor. We therefore sustain respondent on this point. See Seaboard Loan & Savings Association, Inc., 45 B. T. A. 510.

Decision will be entered imder Bule 50.

       SEC. 353. PERSONAL HOLDING COMPANY INCOME.
      For the purposes of this title the term “personal holding company income” means the portion of the gross income which consists of:
      (a) Dividends, interest, royalties (other than mineral, oil, or gas royalties), annuities»


source: Caselaw Access Project

author: Arundell:

license: Public Domain

text:
    Estate of A. E. Staley, Sr., A. E. Staley, Jr., Executor, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 103754.
    Promulgated July 2, 1942.

      Charles C. LeForgee, Esq., for the petitioner.

      Franklin F. Korell, Esq., and David Altman, Esq., for the respondent.
   opinion.

Arundell:

The single question raised in this proceeding is whether the $150,000 paid to decedent out of the income of the five trusts created by him for the benefit of his five children is to be taxed as ordinary income or is to be treated as a return of capital. The provision in the trust instruments for this payment was inserted, according to the testimony, to provide money to assist decedent in the payment of a very large gift tax on the transfers in trust.

Petitioner argues that each trust instrument has a provision requiring the payment to decedent of a consideration of $30,000 and that as the payment was made pursuant to this provision, it follows that the sum received was not income but must be regarded as “consideration.” But this is an over-simplification. It does not follow that all money received in consideration for the transfer of property, whether in trust or otherwise, is a return of capital. The record in this case is completely barren of any testimony disclosing the basis of the shares of stock in the A. E. Staley Manufacturing Co. which were transferred to the several trusts. The necessity for this proof was repeatedly pointed out to counsel for the petitioner, both at the outset of the hearing and during the course of the trial of the case. Thus, if we accept the approach of petitioner that the $150,000 was paid decedent in consideration for making the transfer, there is a complete failure of proof in establishing how much, if any, of this sum represented a return of capital to him. Nor do we think there is any merit in 'petitioner’s argument, suggested for the first time in his reply brief, that, assuming the full $150,000 to be profit on the transfers in trust, this profit was realized in 1934, when the trusts were created, and not in 1935, when the money was paid over. The stated consideration was to be paid solely out of income if, as, and when received by the trusts and not otherwise. The decedent did not treat the transaption as a sale of securities in the making of his 1934 income tax return and in fact made no mention of having sold any shares to the several trusts. The income tax law and regulations have always required an identification of the shares sold, a statement of their cost or other basis, the time of their acquisition, and the length of their holding. Regulations 86, art. 22(a)-8; Norman Cooledge, 40 B. T. A. 110; Lakeside Irrigation Co. v. Commissioner, 128 Fed. (2d) 418. The testimony in this proceeding is that the decedent rejected the idea of a sale of these shares to the several trusts but adopted instead the plan already described.

At one point in the presentation of this case petitioner’s counsel seemed to advance the argument that the $150,000 was consideration for the execution of the trusts as distinct from a payment for the shares transferred. If this were true, the $150,000 would necessarily be taxed to decedent in full, since there clearly was no cost or other basis shown for the execution of the trusts.

While in our opinion the record would not support a decision in petitioner’s favor even on his own hypothesis, we are not disposed, however, to rest our decision on a failure of proof on the part of petitioner.

The treatment of the money received by decedent as a return of capital from the sale of securities seems to us entirely artificial. Petitioner was making a gift of property to his children. He was not selling them shares of stock. One does not sell over $2,000,000 worth of shares for $150,000. It is equally artificial to treat the transactions as in part a sale and in part a gift. The property transferred was for shares of stock and if it had been decedent’s intention to sell some of those shares he could have easily designated the ones he intended to sell as distinct from those that he was giving away. Since there was no bona fide sale of stock, the case of Reginald Fincke, 39 B. T. A. 510, relied upon by petitioner, is clearly distinguishable. The simple fact is that decedent was providing a means of securing $150,000 from the first income of the trusts, and this income he received. The fact that payment of the $150,000 was to be made out of income is indicative of decedent’s retention of a right to income in that amount. See Bettendorf v. Commissioner, 49 Fed. (2d) 173. Whether we say decedent made himself a preferred beneficiary of the trusts to the extent provided, Annie Louise Van Aken, 35 B. T. A. 151, or that he reserved $150,000 of the income of the trusts when he made the gifts, Michael Fay et al., Executors, 34 B. T. A. 662, is of no particular importance in determining the fundamental question of whether or not the sum received was taxable income. Nothing more nor less than gifts of the shares was involved and the $150,000 was received by decedent as income rather than return of capital.

Decision will be entered for the respondent.


author: Disney:

text:
    B. D. Phillips, Incorporated, Petitioner, v. Commissioner of Internal Revenue, Respondent. B. D. Phillips, Transferee, Petitioner, v. Commissioner of Internal Revenue, Respondent. B. D. Phillips, Incorporated, Petitioner, v. Commissioner of Internal Revenue, Respondent. B. D. Phillips, Transferee, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket Nos. 106075, 109433, 109434, 109435.
    Promulgated July 3, 1942.

      Holland L. Ehrman, Esq., for the petitioners.

      J\. Harrison MUler, Esq., for the respondent.
   OPINION.

Disney:

These proceedings, duly consolidated, involve personal holding company surtaxes for the calendar year 1937 in the amount of $90,026.46 and for 1938 in the amount of $38,482.40. The question at hand is whether the petitioner, B. D. Phillips, Inc., may deduct certain amounts, as used or irrevocably set aside to pay or retire indebtedness incurred prior to January 1, 1934. All facts have been stipulated. The stipulation is by reference adopted as our findings of fact, which will therefore be referred to herein only so far as necessary to examination of the issue. The income and excess profits tax returns and the returns of the personal holding company here involved were filed with the collector of internal revenue at Pittsburgh, Pennsylvania. It is stipulated that petitioner B. D. Phillips was at all dates material herein the sole stockholder of B. D. Phillips, Inc., and that as transferee of the entire assets of that corporation he is liable for any deficiencies in tax determined to be due from it, for tbe taxable years, plus interest as by law provided.

Summarized, the facts amount to this: that at the beginning of 1937 B. D. Phillips, Inc., hereinafter sometimes called the company (a personal holding company entirely owned by B. D. Phillips, herein called Phillips), owed $250,000 to Guaranty Trust Co., upon a note of $200,000 executed November 30, 1934, increased by $50,000 by an additional loan and new note on December 2, 1935. Upon that indebtedness there was paid $121,000 in 1937 and $53,000 in 1938 and in those amounts the company claimed, and was by the Commissioner denied, in the deficiency notice, deduction from adjusted net income, under section 1 of the Kevenue Act of 1937, adding section 355 (b) by amendment to the Revenue Act of 1936, and under section 405 (b) of the Revenue Act of 1938. Since subsection (b) is the same in both acts, we show in the margin only section 355 (b). Petitioner’s theory is of course that the $250,000 was “indebtedness of any kind incurred prior to January 1,1934,” under the language of the revenue acts. The $250,000 borrowed was not directly used to discharge company indebtedness incurred prior to January 1, 1934, but was expended as follows: The first $200,000 was paid to T. W. Phillips Gas & Oil Co. on a note of B. D. Phillips, individually, to that company; and of the $50,000 later borrowed $33,000 was paid the same company on a note owed to it by B. D. Phillips, individually, and $17,000 was paid to Sun Life Assurance Co. on a note owed to it by B. D. Phillips, individually. These amounts so paid by the company for B. D. Phillips, individually, were debited to him on a running account kept against him on the books of the company, which account, on December 31, 1933, showed the company indebted to him in the amount of $259,821.80, and upon which a large number of debits and credits appeared during 1935-1938, inclusive. That account showed, on December 31, 1936, that B. D. Phillips owed the company $30,882.33. On January 1, 1934, the company also owed, to others than its sole stockholder, Phillips, a total of $572,000, including $197,000 to T. W. Phillips Gas & Oil Co., upon a note executed December 30, 1933. That note was, on January 5, 1934, assumed by Phillips as to $173,000 balance unpaid. All of the indebtedness of the company had by January 1,1937, been discharged, except the $250,000 note to Guaranty Trust Co., in part by numerous transactions between Phillips and the company appearing as debits or credits upon his running account kept by the company. The running account also contains other items, such as credits to Phillips for $17,000 on May 9, 1934, for paying for New York Central bonds for the company, a debit of $500 for an advance to Mrs. B. D. Phillips on March 26, 1934, a credit of $21,000 on December 27, 1934, for purchase from B. D. Phillips of notes and mortgages of one Colonel Ileeter; also a credit of $4,000 on December 10, 1935, on account of payment by the company of purchase price of Allis-Chalmers bonds purchased by Phillips, and a debit of $96,320 because of sale to Phillips of Cement Co. bonds. The note of Phillips to T. W. Phillips Gas & Oil Co., upon which all of the $200,000, and $33,000 of the $50,000, was paid, appears from the record, and we find, to be a note other than that to T. W. Phillips Gas & Oil Co. which. Phillips assumed on January 5, 1934, to the amount of $173,000; for prior' to the $200,000 loan $106,500 had been paid on the $173,000 note assumption.

The petitioner’s view, on the result of the above described transactions upon the present problem, is stated on brief as follows :

* * * It is the Petitioners’ contention that the indebtedness of B. D. Phillips, Incorporated, to B. D. Phillips, individually, on which the proceeds of said note were applied, represented indebtedness incurred prior to January 1, 1934, and that its aforesaid note to Guaranty Trust Company of New York was in effect a renewal of this indebtedness.

It is seen from the facts above that the $250,000 was not in form and directly applied upon any of the company’s indebtedness incurred prior to January 1, 1934, but that it was applied upon the debts of Phillips to others, almost entirely upon a note to T. W. Phillips Gas & Oil Co. and $17,000 upon a note to an assurance company upon notes not shown to have had their inception prior to January 1, 1934. If we disregard form as petitioner suggests, does it none the less appear, as a matter of substance and fact, that application was made upon “indebtedness of any kind” incurred prior to the basic date?The petitioner in effect says that this is so because the payments were made' for and on behalf of Phillips and debited to him on his account on the books of the company. The respondent contends that this does not satisfy the statute, and points out that on the account of Phillips with his company the company’s indebtedness had been discharged prior to the beginning of 1937 and on January 1, 1937, he owed the company $30,882.33.

In Sun Pipe Line Co., 42 B. T. A. 1413; affd., 126 Fed. (2d) 888, we held that where a bond issue was existing on January 1,1934, and, after that date, was refunded by borrowings from others, payments made to retire the refunded bonds came within the language of section 355 (b), Revenue Act of 1936. The petitioner urges that we have a parallel problem here. After much analysis of the running account herein relied upon as representing the pre-1934 indebtedness discharged by the new borrowing of $250,000, and of the law involved, we have come to the conclusion that the situation is not parallel with the Sun Pipe Line Co. case, supra. Thereunder an actual, though not a technical, continuance of an indebtedness identified as surviving from prior to the basic date, and identified as that of the taxpayer, logically demanded allowance of the deduction.

Here the new loan, upon which the payments in dispute were made, was applied upon the debt of another, and its inception is not shown, i. e., it is neither identified as that of the taxpayer nor as antedating January 1, 1984. The petitioner’s burden of showing error on the part of the Commissioner seems thus to become more difficult. Does the running account, involving debts originating prior to 1934, answer the petitioner’s quest? We think it does not. Certainly large amounts, about $111,000 of the original indebtedness to Phillips, had been paid before the $200,000 was borrowed. Though there were other debts which the company’s sole stockholder, after the crucial date, in large part assumed or discharged as the result of a running account of debits and credits, we do not believe that such a situation was within the intent of Congress in the language of its acts. The sole stockholder after the vital date assumes and discharges the taxpayer’s old debts, particularly that to T. W. Phillips Gas & Oil Co.; then later his company, in its turn, borrows $250,000 and pays off notes of his to the same creditor, and another to still another creditor. Further, other items, new since the date of importance, enter into the balance between the company-taxpayer and its sole stockholder; and the running account relied upon to show old debt' dwindles prior to the taxable years to no debt owed by, but a debt owed to, the company. Under such circumstances we think it plain that the petitioner has failed to identify the new loans upon which the questioned payments were made, as true continuants of the old indebtedness. To pay a debt (perhaps a new debt) of a sole stockholder, and to charge it as a debit on a running account against him which entails many items both of debit and credit, seem to us far from proof of reality of old debt. No evidences of debt, such as notes or mortgages, appear to be executed to the sole stockholder when he assumes or discharges his company’s old debts. This causes mere book entries in his favor; and may it not be equally as easy to consider that he was making capital contributions to his corporation as to assume, without proof of any of the usual concomitants of debt, such as promises to pay, that a pecuniary burden was by him imposed on his company? This situation, as we see it, does not present the situation Congress had in mind in providing deductions for old debts paid; on the contrary, it appears to bear resemblance to the incorporated pocketbook, prevention of which was sought.

We note, moreover, that of the payments of $121,000 sought as deductions in 1937, only $19,000 was made directly to the payee, Guaranty Trust Co., by the company. The remainder was made by the company, by payments on a note made by it to T. W. Phillips Gas & Oil Co., which had made payments to Guaranty Trust Co.; and by Phillips, individually, in part directly and in part by payments on the company’s note to T. W. Phillips Gas & Oil Co.: and these payments were entered on the running account of Phillips with the company. The same conclusions to which we have come above, therefore, in part, apply to the payments made on the debt to Guaranty Trust Co. in 1937.

We conclude and hold that the Commissioner did not err in denying the deductions claimed and in assertion of liability against the transferee.

Decision will be entered for the respondent.

       SEC. 355. UNDISTRIBUTED ADJUSTED NET INCOME.
      For the purposes of this title the term “undistributed adjusted net income” means the adjusted net income (as defined in section 356) minus—
      *******
      (b) Amounts used or irrevocably set aside to pay or to retire indebtedness of any kind incurred prior to January 1, 1934, if such amounts are reasonable with reference to the size and terms of such indebtedness.


author: Turner:

text:
    L. R. Teeple Company, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket Nos. 105051, 107676, 107895.
    Promulgated July 7, 1942.

      8. J. Bischof, Esq., and Robert T. Jacob, Esq., for the petitioner.

      T. M. Mather, Esq., for the respondent.
   OPINION.

Turner:

The respondent has determined deficiencies against the petitioner for the years 1937, 1938, and 1939 under section 102 of the Revenue Acts of 1936 and 1938. These deficiencies were based on findings and a determination that during the years in question the petitioner’s earnings or profits were permitted to accumulate beyond the reasonable needs of its business and that it was availed of for the purpose of preventing the imposition of surtax on its shareholders. The petitioner denies that its earnings or profits were permitted to-accumulate beyond the reasonable needs of its business or that it was availed of for the purpose of preventing the imposition of surtax on its shareholders.

Since its organization in 1921 the petitioner has enjoyed a very profitable and growing business. Its business is that of manufacturing automatic devices and controls and, since 1924, 98 or 99 percent of its entire output has been sold to the Iron Fireman Manufacturing Co. which is engaged in the manufacture and sale of combustion coal stokers. The relationship between the petitioner and Iron Fireman is solely that of manufacturer and customer and the business between them is conducted by oral agreement and on a year to year basis. The requirements of Iron Fireman are generally determined and arrived at through conferences at the beginning of the business year. The petitioner up to the date of the hearing has been able to retain the Iron Fireman’s business and to realize thereon a very large and satisfactory profit. In so doing, however, it has been required to meet substantial and aggressive competition and in recent years the margin of profit on its devices has noticeably failed to keep pace with its costs. Over the period of its existence the petitioner has accumulated a substantial surplus, ranging from $846,433.61 at January 1, 1937, to $456,070.09 at December 31,1939. The major portion of this surplus has not been required or used in the operations actually carried on. The facts show, however, that the market and principal manufacturing plants of Iron Fireman are located in the eastern part of the United States, while petitioner’s manufacturing is all done in Portland, Oregon, and, further, that the competition in petitioner’s field has been growing from year to year, with the competitors much more advantageously located than petitioner. By reason of these facts and circumstances there is and has been present for a number of years the possibility that petitioner might lose its only customer, and it is the claim of petitioner that the surplus in question has been accumulated to meet that contingency and that it is not excessive in amount nor beyond the reasonable needs of the business.

We thus have a situation where a taxpayer has a substantial surplus which is not used and is not required in the business as it has been operated from year to year and will not be needed or required so long as the business continues in its present state. It is the claim of the respondent that, since the contingency did not happen in any of the taxable years and has not since happened, it must be regarded as too remote to take the petitioner outside the provisions of section 102, supra, so as to relieve it of liability for the deficiencies determined. While much of petitioner’s brief is devoted to matter which would be pertinent only in support of a motion for rehearing and to other matter of no importance here, it does advance the proposition that, even though the facts as to the current use of the accumulated surplus are generally true as stated and the business is still profitable, the dependency of the business upon the good will and continued patronage of one customer over which petitioner has no control, the disadvantageous location of petitioner’s plant in meeting the requirements of that one customer, and the growing competition from competitors in better locations constitute an ever present danger and existing threat to its business. It is argued that sound business policy required the accumulation of a surplus sufficient to meet the happening of such contingencies and that meeting of those contingencies would require petitioner to go into the open market for customers, to enter fields in which it now has no good will or standing, and most likely to remove its plant to the eastern part of the United States, whether it be for the purpose of retaining the business of its present customer or supplying the needs of new customers. It is further argued and contended that the surplus accumulated and existing during the taxable years was not in excess of that reasonably required, due regard being given to the contingencies outlined.

It is our opinion that the record adequately shows the need of some reserve or surplus, as the petitioner contends. While it is true that petitioner has continuously and profitably operated and has succeeded in retaining its one customer, and there is no indication that it intends voluntarily to make any change, in its business, it is also true that the contingencies in question are real, they are and have been continuously present, and the exercise of sound business judgment would not permit their being ignored. They are not remote and unproven as in the case of Wilkerson Daily Corporation, Ltd., 42 B. T. A. 1266; affd., 125 Fed. (2d) 998, and William C. DeMille Productions, Inc., 80 B. T. A. 826. Neither, as in those cases, has the conduct of the petitioner or its stockholders furnished any basis for the conclusion that the real purpose for the accumulation was in any way different from that now claimed. See and compare National Grocery Co. v. Commissioner, 304 U. S. 282; Almours Securities, Inc. v. Commissioner, 302 U. S. 765; and Reynard Corporation, 37 B. T. A. 552. To the contrary, we have here a situation comparable to that dealt with in Cecil B. DeMille, 31 B. T. A. 1161; affd., 90 Fed. (2d) 12, and Fisher & Fisher, Inc., 32 B. T. A. 211; affd., 84 Fed. (2d) 996. It is our opinion, and we so conclude, that a reasonable business need did exist for the accumulation of a reserve to meet the contingencies outlined.

As to the reasonableness of the amount of surplus accumulated, the record is not so clear. A number of witnesses were called by the petitioner to give opinion testimony, and, while opinion testimony at its best is not too impressive, the witnesses were all in accord in the opinion that the accumulations during the taxable years were not excessive when the facts outlined herein are considered. The respondent relied on his cross-examination of the petitioner’s witnesses and the testimony of the revenue agent. After careful consideration of the testimony offered, we conclude that the surplus accumulated during the years 1937, 1938, and 1939 was not beyond the reasonable needs of the petitioner’s business and hold that the petitioner was not availed of for the purpose of preventing the imposition of the surtax upon its stockholders within the meaning of section 102 of the statute.

Decisions will Toe entered under Bule 50.


author: Leech:

text:
    Fides, A. G., Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 102738.
    Promulgated July 7, 1942.

      Robert T. Woodruff, Esq., for the petitioner.

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

Leech:

Petitioner contends that it is not subject to the provisions of section 351 of the Revenue Act of 1936, supra, because of the fact ■that all of its stockholders are nonresident aliens who would not be subject to surtax by the United States on any dividend distributions made to them by petitioner.

It is argued that the intent and purpose of Congress in the enactment of that section was to force distributions of earnings by personal holding companies so that surtax might be laid upon and collected from such distributions upon their receipt by the stockholders. Upon this premise it is urged that the application of this section to a corporation whose stockholders are not subject to surtax is to extend the meaning of the section beyond the Congressional intent.

Petitioner admits that it is within the definition of a personal holding company, as set out in subsection 351 (b) (1), supra, because (1) its earnings are of the character there specified and (2) more than 50 percent of its capital stock was owned during the described period by not more than five individuals. It is obvious, concededly so, that petitioner is included in the unrestricted purview of “any corporation” as provided by that subsection. In short, petitioner in effect admits it is within the taxed class if the language of the statute is controlling. It is urged, however, that in order to stay within the manifest purpose and policy of the legislation, as established by its history, the term “any corporation” must be construed to mean “any corporation whose stockholders would be subject to surtax on distributed corporate earnings.” It is contended that the ascertainment of the Congressional intent by reference to the history and purpose of the legislation which points to this construction, is justified by reason of the injustice and hardship of a literal application of the statute. Such application places on a foreign corporation, which could have no purpose in its organization or operation of avoiding surtax upon its nonresident foreign stockholders, a burden greater than that imposed on one organized and operated for that purpose.

It is undoubtedly true that the literal application of section 351 in the present situation is harsh. Despite that harshness we do not feel justified, in view of the plain and unambiguous language of that section, to restrict its meaning. As the Supreme Court announced in Caminetti v. United States, 242 U. S. 470, that language “* * * must be taken as the final expression of legislative intent and * * * lisl not to be added to or subtracted from by considerations drawn from titles or designating names or reports accompanying their introduction, or from any extraneous source.” See also Phanor J. Eder, 47 B. T. A. 235.

Moreover, although the question has not been presented upon similar facts before, we have had occasion to consider the propriety of a literal application of section 351, supra, in the face of an attack upon the ground of harshness of result. In each such instance we refused to restrict the construction of “any corporation.” Thus, in O'Sullivan Rubber Co., 42 B. T. A. 721, we held that section 851 included a dissolved corporation in process of liquidation. In affirming the decision, the Court of Appeals for the Second Circuit said (120 Fed. (2d) 845):

Being a corporation for the purpose of Title I, petitioner is also one for the purpose of Title IA, which imposed the personal holding company surtax in issue here. Section 851 refers to “any corporation” and by section 351 (b) (4) this term “shall have the same meaning as when used in Title I.’” Petitioner does not suggest, nor can we find, any justification in the language for exempting it under Title IA without also exempting it under Title I.

Our decisions in Foley Securities Corporation, 38 B. T. A. 1036 (affd., C. C. A., 8th Cir., 106 Fed. (2d) 731), and Porto Rico Coal Co., 44 B. T. A. 221 (affd., C. C. A., 2d Cir., 126 Fed. (2d) 218), approved the literal application of this statute despite the harshness of the result. So, in the last cited case a foreign corporation was held to be a personal holding company under the definition of the statute and subject to the provisions of that section with respect to its income from sources within the United States although, by reason of losses incurred in its foreign business, it sustained a net operating loss for that year and had no net current income to distribute.

In support of its position petitioner cites T. D. 4791, C. B. 1938-1, p. 83, amending Regulations 94 to accord with changes effected in the 1936 Act by the Revenue Act of 1937. However, the cited change in the regulations is expressly there made effective only for years subsequent to 1936. The basis for that amendment was subsection 352 (b) of Title IA of the Revenue Act of 1937, which changed, as of that year, the definition of personal holding companies to include within those companies excepted from surtax a foreign personal holding company situated as was the petitioner here.

That subsection reads:

(b) Exceptions. — The term “personal holding company” does not include * * * or, except with respect to a taxable year ending on or before the date of the enactment of the Revenue Act of 1937, a foreign personal holding company, as defined in section 331, [Footnote ours.]

The Revenue Act of 1987 was enacted August 26, 1937. Clearly the •quoted provision, in so far at least as it affects petitioner, was new legislation affecting only taxable years beginning on and after that ■date, and may not be applied retroactively. Schwab v. Doyle, 258 U. S. 529; Smietanka v. First Trust & Savinas Bank, 257 U. S. 602.

In the light of the above cited decisions and the unambiguous language of subsection 351 (b) (1), we must and do hold the petitioner liable to the contested surtax as a personal holding company under -section 351 (a) of the Revenue Act of 1936.

In view of that conclusion, supplemented by the facts that the required return was not filed until long after the expiration of the •period fixed by the act and the absence of evidence of reasonable cause for the delay, respondent is sustained in the imposition of a delinquency penalty of 25 percent. Revenue Act of 1936, secs. 291 and 351 (c). Likewise, we approve respondent’s action in denying deductions and credits in computing petitioner’s net income from •sources within the United States for purposes of the surtax. Revenue Act of 1936, secs. 233 and 351 (c). Respondent has determined that the belated return did not contain the information required by section 233, supra. Neither is that return in evidence nor is there •other proof indicating error in respondent’s determination that such return was thus faulty. Cf. Taylor Securities, Inc., 40 B. T. A. 696.

Since the stipulation provides that certain corrections be made in the computation of net income for purposes of the surtax,

Decision will be entered, wader Rule 50.

       Supplement P — Foreign Personal Holding Companies
      SEC. 331. DEFINITION OF FOREIGN PERSONAL HOLDING COMPANY.
      (a) General Rule, — For tbe purposes of this title and of Title IA the term “foreign personal holding company” means any foreign corporation if—
      (1) Gross income requirement. — At least 60 per centum of its gross income (as defined in section 334 (a)) for the taxable year is foreign personal bolding company income as defined in section 332; but if tbe corporation is a foreign personal holding company with respect to any taxable year, then, for each subsequent taxable year, tbe minimum percentage shall be 50 per centum in lieu of 60 per centum, until a taxable year during the whole of which the stock ownership required by paragraph (2) does not exist, or until the expiration of three consecutive taxable years in each of which less than 50 per centum of the gross income is foreign personal holding company income. For the purposes of this paragraph there shall be included in the gross income the amount includible therein as a dividend by reason of the application of section 334 (c) (2) ; and

        (2) Stock ownership requirement. — At any time during the taxable year more than -■50 per centum in value of its outstanding stock is owned, directly or indirectly, by or for not more than five individuals who are citizens or residents of the United States, Siereinafter called “United States group”.
      (b) Exceptions. — The term “foreign personal holding company” does not, include a •corporation exempt from taxation under section 101.


author: Harron:

text:
    I. B. Dexter and Edna R. Dexter, Petitioners, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 104537.
    Promulgated July 7, 1942.

      Clark J. Milliron, Esq., for the petitioners.

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

Harron:

The petitioners claim that the amount of the credit for income tax paid and accrued to the Government of the Philippine Islands in 1936 should be the entire amount of that tax, $16,542.60. If that contention is sound, the total United States income tax in the amount of $9,073.01 will be offset by the Philippine tax and there will be no deficiency. The respondent argues that under section 131 (b) of the Revenue Act of 1936 the amount of the credit for the Philippine tax is less than the amount of the United States tax, under his original formula, and that his arithmetical formula involves a correct and reasonable application of the statutory limitation. The pertinent provisions of section 131 of the Revenue Act of 1936 are set forth in the margin.

Substantially all of petitioners’ income was derived from profits from the sale of capital assets in the Philippines. The income tax of the Philippines was greater than the income tax of the United States, on the same income, because of the difference in the income tax laws of the two Governments, whereby all of the capital gains and losses are taken into account in computing “total income” in the Philippine law, and only certain percentages thereof are taken into account in computing “total income” under the revenue acts of the United States. Petitioners did not have any income from sources within the United States. The only income in question is the income from sources within the Philippines. That income has been taxed by each government. The question is whether, under the provisions of section 131 (b), the credit shall be the amount of the tax paid to the Philippines.

Section 131 provides that the income tax computed under Title I shall be credited with the amount of any income tax paid or accrued during the taxable year to any foreign country or possession of the United States, subject to the limitation on the credit imposed by subsection (b). Paragraph (2) of subsection (b) was written, perhaps, to meet situations where the taxpayer has income from sources within more than one foreign country or possession. For the purposes of this case, there is no material difference whether the question is considered in connection with paragraph (1) or paragraph (2) of subsection (b). Under both paragraphs the same result is reached. For convenience, the question is considered in connection with paragraph (1).

The wording of subsection (b) (1) is clear, unambiguous, and plain. Whether or not the result reached here is one which the Congress envisioned in drafting the statutory provision which it enacted, there is but one choice, namely, to decide the question under the statute as written.

The language of subsection (b) (1) limits the credit to an amount not in excess of the same proportion of the tax against which the credit is taken which the taxpayer’s net income from sources within a foreign country or possession bears to his entire net income. The taxpayer’s net income from said sources outside the United States becomes the numerator and his entire net income becomes the denominator of the fraction used in determining the proportion set forth in the section. See Hugh C. Wallace, 17 B. T. A. 406, for the above paraphrasing of the statute. (The cited case, otherwise, is not in point). That is, assuming that a taxpayer’s income tax under Title I of the revenue act is $1,000; that his net income from sources outside the United States is $5,000; and that his entire net income is $10,000, the credit under section 131 (a) (1), limited by subsection (b) (1), is computed by taking one-half of $1,000, the tax against which the credit is taken. The amount of the credit is $500. If the entire net income of $10,000, to continue the example, and the income from sources outside the United States are the same, both being $10,000, the amount of the credit is 100 percent of the tax against which the credit is taken, or $1,000. Then, subsection (b) does not operate as an effective limitation on the credit.

The situation in this case is practically the same as the situation in the last part of the above example. In a sense, it may be said that part of petitioners’ net income from sources within the Philippines is exempt from fax under the United States revenue law, referring to net capital gains which are not taken into account in computing net income under the provisions of section 117 (a). We need not, and do not, decide the point, but see and compare I. T. 2294, Internal Revenue Cumulative Bulletin V-2 (1926), pp. 62, 63. And, arguendo, if that is so, and gross income means, in the case of the income from sources outside the United States, the same income that is taken into consideration in gross income under Title I of the revenue act, then the “gross income” from sources within the Philippines, for purposes of subsection (b), is $54,251.38 ($41,556.18 net capital gains recognized under our law, plus other income of $12,694.60). The gross income taken into consideration in computing the “entire net income” referred to in subsection (b) is $53,081.38 ($54,251.38 less net loss on items within the United States of $1,170). Also, the “net income” from sources outside the United States, without deduction for any income tax paid to the Philippines, is $51,686.17 ($54,251.38 less deductions aggregating $2,565.21) and the “entire net income” is $50,516.17, as is shown in the facts. The fraction under subsection (b) (1) then is and that fraction of the tax against which ' ' w 50,516.17 the credit is taken, $9,073.01, yields more than 100 percent.

For all practical purposes petitioners’ contentions are fully sustained if the credit for the tax paid to the Philippines is in the amount of $9,073.01. It is held, therefore, that petitioners are entitled to a credit in the amount of $9,073.01 at least. The credit equals the tax against -which the credit is taken and there is no deficiency.

The piran wording of subsection (b) (1) compels this result. The 'respondent has trespassed into the realm of legislation in developing the formula he applied in determining the deficiency. We find nothing in the legislative history of the provision limiting the credit which is in conflict with the result reached. Petitioners’ income from sources “within” the United States is not escaping United States tax. They did not have, in fact, any income from sources within the United States. The result reached avoids double taxation, that is, taxing the same income twice, which admittedly was the purpose of Congress in enacting section 131.

It is not unusual for a United States citizen to have income from sources outside the United States and no income from sources within the United States, and Congress took that into consideration. It enacted the original provision, which was substantially the same as section 131 (a) of the Revenue Act of 1936, to give relief to American citizens earning income abroad so that they would not have to pay •double tax on the same income, namely, income received from sources within a foreign country. The policy involved the giving of support to our foreign trade. An example which was taken in the discussion in Congress was that of an American citizen abroad who earned income in a foreign country and received no income from sources within the United States. He was to be permitted to deduct the amount of the tax paid to the foreign country from the tax levied by the United States on the same foreign income, so that he would not pay two taxes to two governments on the same income. The situation of such taxpayer did not involve any such problem as section 131 (b) was ■designed to overcome, namely, assurance that the United States would be protected in collecting fully the tax due on the portion of income from sources within the United States.

Decision will be entered for petitioners.

       SEC. 131. TAXES OE FOREIGN COUNTRIES AND POSSESSIONS OP THE UNITED STATES.
      (a) Allowance of Credit. — If the taxpayer signifies in his return his desire to have the benefits of this section, the tax imposed by this title shall be credited with:
      (1) Citizen and domestic corporation. — In the. ease of a citizen of the United States and of a domestic corporation, the amount of any income, war-profits, and excess-profits taxes paid or accrued during the taxable year to any foreign country or to any possession of the United States ; and
      *******

        (b) Limit on Credit. — The amount of the credit taken under this section shall be subject to each of the following limitations :
      (1) The amount of the credit in respect of the tax paid or accrued to any country shall not exceed the same proportion of the tax against which such credit is taken, which the taxpayer’s net income from sources within such country bears to his entire net income for the same taxable year; and
      (2) The total amount of the credit shall not exceed the same proportion of the tax against which such credit is taken, which the taxpayer’s net income from sources without the United States bears to his entire net income for the same taxable year.

       Seidman's Legislative History of Federal Income Tax Laws, p. 374:
      “Section 131 of the present law provides for the crediting of foreign taxes against the Federal income tax under certain limitations. The maximum benefit under the provision for the tax paid each foreign government is never greater than an amount that will relieve that portion of the income from foreign sources from the total domestic tax burden. The present credit, therefore, does not operate to relieve domestic income from tax, but ■does relieve the taxpayer from a double tax upon his foreign income.”
      “[P. 480] Mr. Hawley. It was my purpose in rising to insist that we were getting our •full American tax in every instance under the amendments proposed in the bill before us, and in some instances a larger amount. If the foreign rate was lower than ours, we were ■getting an additional amount based upon tiie difference in the rates; and if there is no foreign tax, we get the tax on the income earned here and the tax on the income earned abroad. We are protecting the revenue of the United States. * * * To require that there be paid to the United States the full tax on both the income earned here and •earned abroad, when the income earned abroad is taxed in the foreign country would be indefensible double taxation.”


text:
    W. H. Tompkins Co., Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 109250.
    Promulgated July 10, 1942.

      I. R. Sclmhnan, Esq., and Albert B. Maloney, O. P. A., for the petitioner.

      John R. Stivers, Esq., for the respondent.
   OPINION.

Kern:

This case comes before us on respondent’s finding of a deficiency in petitioner’s income tax for the year 1939 in the amount of $399.72, of which $397.60 is now in controversy. The sole question is whether respondent erred in disallowing the deduction as expense of $2,840 representing the value of tires on trucks bought in 1939. The-facts were stipulated and may be summarized as follows:

Petitioner is a Tennessee corporation with its principal ofiice at. 908 Third Avenue, North, Nashville, Tennessee. It filed its return-for the year involved with the collector of internal revenue for the district of Tennessee. Petitioner is engaged in the transportation of commodities as a “Class I Common Carrier” of property under the authority of the Interstate Commerce Commission.

Petitioner claimed a deduction of $2,840 representing the value of truck tires on trucks purchased during the calendar year of 1939, the cost of the tires being charged to operating expenses. It was disallowed by the Commissioner, who held that, inasmuch as the tires were purchased with the trucks and as an integral part of them, the entire-cost of the trucks fully equipped should be capitalized.

Pursuant to sections 204 (A) and 220 (A) of the Motor Carrier Act of 1935, the Interstate Commerce Commission issued an order dated November 29,1937, setting up a uniform system of accounts prescribed for “Class I, Common and Contract Motor Carriers of Property,’” effective as of January 1, 1938. This Board takes judicial notice of the act in question, and orders and regulations issued under it. The Commission’s “Uniform System of Accounts” was in effect during the year 1939. Section 222 (G) of the act defined as a misdemeanor the failure to keep accounts, records, and memoranda in the form and manner approved or prescribed by the Commission and affixed a penalty of a fine of not less than $100 and not more than $5,000 for each offense.

The cost of the tires was charged to operating expenses (and later deducted) pursuant to a letter of December 15, 1939, received by petitioner from W. Y. Blanning, director of the Commission’s Bureau of Motor Carriers, after an audit of accounts made by B. J. Dickson, an agent of the Commission, on November 14, 1939, in which the following statement was made:

You have included the cost of original tires and tubes acquired in the purchase of revenue equipment in account 1221. The text of that account specifically provides for the exclusion of the cost of tires and tubes therefrom. On all revenue equipment acquired subsequent to December 31, 1938, such costs should he accounted for as provided in Paragraph B of account 4160 — Tires and Tubes— Hevenue Equipment.

The average life of a tire used on trucks operated by the taxpayer does not exceed ninety days and in no event do they last longer than six months. When the Commissioner disallowed the cost of the tires as a deduction for expenses, petitioner claimed depreciation on them and was allowed $394 in the taxable year, the restoration of which to income the taxpayer agrees to, should the present appeal be adjudged in its favor.

It will be seen that the question is a narrow one, whether petitioner is entitled to deduct as expense incurred in the year the cost of the original pneumatic tires and tubes with which its trucks are fitted, as required by the Interstate Commerce Commission’s system of accounting, or must treat them as a capital expenditure, subject to depreciation, as contended by the respondent. Respondent concedes that all later tires than those with which the trucks are originally fitted may be treated as a deductible expense. The other salient facts are that petitioner is required as a common carrier to follow the Interstate Commerce Commission’s system of accounting under a penal statute, and that the tires and tubes in question seldom last more than three months and never more than six under petitioner’s conditions of wear. This last fact is highly significant, for it shows that, apart from the trucks of which the tires were a necessary accessory, the tires need not have been depreciated at all. They were a constantly recurring expenditure within the year.

Petitioner contends that the system of accounting enforced upon it under pain of a heavy statutory penalty by the Interstate Commerce Commission requires the same treatment for Federal income tax purposes. This is not so. Old Colony Railroad Co. v. Commissioner, 284 U. S. 552. The Supreme Court there said:

* * * Moreover, the rules of accounting enforced upon a carrier by the-Interstate Commerce Commission are not binding upon the Commissioner, nor may he resort to the rules of that body, made for other purposes, for the determination of tax liability under the revenue acts. Kansas City Southern Ry. Co. v. Commissioner, 52 F. (2d) 372; certiorari denied, post, p. 676. Compare Chicagor R. I. & P. Ry. Co. v. Commissioner, 13 B. T. A. 988, 1027; Fall River Electric Light Co. v. Commissioner, 23 B. T. A. 168.

Nor need we concern ourselves with petitioner’s plea that requiring it to depreciate the cost of its tires over the life of its trucks instead of allowing it to deduct their cost as expense, in accord with the Interstate Commerce Commission’s method, would impose undue hardship in keeping two sets of books. We are concerned only with the question, which method more accurately reflects income ?

Eespondent’s plea that the capitalization of tires as a part of the truck, or put otherwise, that the capitalization and corresponding compensation by way of annual deductions for depreciation of the entire truck, fully equipped, is the normal income tax method of accounting to apply, can not be ignored and deserves serious consideration. He suggests that if original tires are treated as an expense, it would be as reasonable to treat the horn of the truck or any other easily separable part of its mechanism so. This argument, it is true, if pursued to its logical end, would bring petitioner’s claim to a reductio ad dbsurdum. But logic must give way to practical considerations and a practical line must be drawn. Kespondent’s contention that the truck as an integral whole should be depreciated has the merit of consistency with a general rule of accounting practice. On the other hand, we are concerned here with finding a method which will best reflect petitioner’s income and not with the logic of accounting except as it affects that problem. Obviously, to depreciate tires which will be worn out in six months over a period of seven to ten years, which, at a rough guess, is the possible life of the trucks, seems a manifest absurdity, and by denying the full deduction of their cost in the year of purchase as an expense, we should, in effect, distort petitioner’s • income for that year.

But, as we have already said, it is obvious that we can not allow as an expense every part of the mechanism of the trucks which might wear out within less than a year. When this is said, the line of demarcation begins to emerge. Tires are ordinarily considered as a rapidly consumable part of a commercial truck. In the instant proceeding it is stipulated that petitioner’s tires will not last longer than six months. They are easily separable and are not a part of the truck’s mechanism, closely interrelated with other parts and affected by those parts in their wear and tear. This being so, we can see no basic objection to excepting tires from the respondent’s usual rule of accounting, and treating them, when consumable within the year, as an expense fully deductible in the year of purchase.

Decision will Toe entered under Bule 50.