Opinion ID: 1472874
Heading Depth: 1
Heading Rank: 2

Heading: Depreciations.

Text: It is, of course, clear that the main taxpayer would not have been entitled to claim these depreciations had it made a separate tax return because the properties did not belong to it and there was no basis for depreciation to it merely because it was the lessee thereof. Weiss v. Wiener, 279 U.S. 333, 49 S.Ct. 337, 73 L.Ed. 720. Whether the lessors-owners were entitled to such depreciation depends here upon the construction of the provision in the lease above quoted. Under that provision the lessee was required to maintain and keep the premises    in good condition, and make all necessary repairs and renewals of the same. It is obvious that the requirements to maintain and keep in good condition and to make necessary repairs would not cover depreciation through obsolescence. The requirement which is of controlling importance here is that of making all necessary    renewals. When the character of this property  particularly some of it which included a bridge across the Mississippi River  is considered and the uncertain term of these leases is kept in mind, renewals can hardly be construed as meaning complete replacements. This conclusion is much fortified by the limitation of the renewals to necessary renewals. The proper construction should be that this provision in the leases requires such renewals as will keep the property in good workable condition for the purposes for which it was constructed and was to be used under the lease. Obviously, this would not include depreciation arising out of obsolescence. Since the Commissioner has failed to show the cost of the property, the probable useful life thereof, or the extent of the actual renewals made by the lessee, there is a failure of proof that depreciation should not be allowed. The Commissioner insists that even though the Board be sustained in finding that depreciations should be allowed, yet the case should be remanded to the Board to determine the exact amounts of such depreciation. This position is erroneous. The matter before the Board was not the abstract legal question as to whether depreciations were allowable. The issue was whether depreciations which had been allowed in specific amounts had been improperly allowed. What the Commissioner and the taxpayer were disputing and what the Board was to determine was whether the deficiencies claimed by the Commissioner existed so that the amount of tax due might be definitely determined. The controversy was not at all in the nature of a declaratory judgment. The determination of the Board should be and is affirmed, and the petition to review dismissed.