Court Opinion

ID: 4591677
Source: CourtListenerOpinion
Date Created: 2020-11-20 19:06:20.028738+00
Date Added: 2024-06-11T07:50:42.990955
License: Public Domain

The President and Managers of the Mill Creek and Mine Hill Navigation and Railroad Company v. Commissioner.President & Managers of the Mill Creek & Mine Hill Navigation & R.R. Co. v. CommissionerDocket No. 7108.United States Tax Court1946 Tax Ct. Memo LEXIS 213; 5 T.C.M. 294; T.C.M. (RIA) 46093; April 22, 1946John E. McClure, Esq., 920 Southern Bldg., Washington 5, D.C., for the petitioner. Ralph A. Gilchrist, Esq., for the respondent.  HILL Memorandum Findings of Fact and Opinion HILL, Judge: The Commissioner disallowed petitioner's application for relief under section 722 of the Internal Revenue Code and claim for refund of the excess profits tax of $1,499.50 for 1942 as shown by its return and paid for the reasons that petitioner had not established (1) that the tax computed under subchapter E of Chapter 2 of the Internal Revenue Code, without the benefit of section 722, resulted in an excessive and discriminatory tax within the provisions of section 722 (a) and (b), and (2) what would be a fair and just amount representing normal earnings to be used as a constructive average1946 Tax Ct. Memo LEXIS 213">*214  base period net income for the purpose of an excess profits tax based upon a comparison of normal earnings and earnings during the excess profits tax for 1942. Petitioner assails the action of the Commissioner as erroneous, and asks for a determination of overpayment of taxes of $1,499.50 for 1942. Findings of Fact The petitioner is a corporation organized under the laws of Pennsylvania on July 15, 1829. Its authorized capital consisted of 12,935 shares of common stock of the par value of $25 a share, all of which was outstanding during the years 1936 to 1942, inclusive. Prior to July 25, 1861, petitioner operated certain railroad properties. Its railroad and that of the Philadelphia and Reading Railroad Company were connected by means of another intervening railroad. On July 25, 1861, a contract and lease was executed by and between the petitioner and Philadelphia and Reading Railroad Company, under which all of petitioner's railroad properties were leased to Philadelphia and Reading Railroad Company, its successors and assigns, for a term of 999 years from and including July 25, 1861. Since July 25, 1861, petitioner's railroad properties have been held and operated by Philadelphia1946 Tax Ct. Memo LEXIS 213">*215  and Reading Railroad Company, its successors and assigns, under such contract and lease. Under such lease and contract the lessee was obligated to pay during each year of the continuance thereof yearly rent of $33,000 in equal portions of $16,500 half yearly, on the first day of the months of June and December each year, and in addition thereto * * * all the taxes which may at any time during the continuance of the hereby demised term be, according to law, laid, levied, or assessed upon or against the said demised railroad and premises, and upon the capital stock thereof heretofore issued, and now outstanding, or upon the dividends thereon. During each of the years 1936 to 1942, inclusive, petitioner's Federal income and excess profits taxes paid by the lessee were as follows: ExcessYearIncome TaxProfits Tax1936$ 4,441.51019374,461.74019386,505.44019396,482.73019409,741.810194112,748.31204.51194215,521.091,499.50Of the amounts of the above taxes paid by the lessee, petitioner under decisions of the Supreme Court in  United States v. Boston & Maine R.R., 279 U.S. 732">279 U.S. 732, and  Commissioner v. Old Colony Trust Co., 279 U.S. 716">279 U.S. 716,1946 Tax Ct. Memo LEXIS 213">*216  was required to include for income tax purposes and did include in its gross income for each of the years 1936 to 1942, inclusive, the following amounts: ExcessYearIncome TaxProfits Tax1936$ 3,917.98019373,929.97019385,466.75019395,447.67019407,345.67019419,228.610194210,721.650Petitioner's excess profits tax net income for each of the years 1936 to 1942, inclusive, and the items entering into the computation thereof, are as follows: Items of GrossBase Period YearsIncome1936193719381939Rental Income$33,000.00$33,000.00$33,000.00$33,000.00Dividends167.08172.70171.15169.60Interest545.00636.39645.00545.00Other IncomeIncome taxes paidby Lessee3,917.983,929.975,466.755,447.67Total Gross In-come$37,630.06$37,739.06$39,282.90$39,162.27Deductions662.50662.50662.50662.50Net Income$36,967.56$37,076.56$38,620.40$38,499.77Less: Dividends Rec'dCredit142.02146.80145.48144.16Normal Tax Net In-come$36,825.54$36,929.76$38,474.92$38,355.61Statutory Adjust-ments: Income TaxBalance of divi-dends rec'd25.0625.9025.6725.44Excess Profits NetIncome$36,800.48$36,903.86$38,449.25$38,330.171946 Tax Ct. Memo LEXIS 213">*217 Items of GrossExcess Profits Tax YearsIncome194019411942Rental Income$33,000.00$33,000.00$33,000.00Dividends169.60156.21149.47Interest545.00545.00545.00Other Income6.00Income taxes paidby Lessee7,345.679,228.6110,721.65Total Gross In-come$41,066.27$42,929.82$44,416.12Deductions331.25662.501,073.75Net Income$40,735.02$42,267.32$43,342.37Less: Dividends Rec'dCredit144.16132.78127.05Normal Tax Net In-come$40,590.86$42,134.54$43,215.32Statutory Adjust-ments: Income Tax9,744.81Balance of divi-dends rec'd25.4423.4322.42Excess Profits NetIncome$30,823.61$42,111.11$43,192.90The petitioner's average base period net income under section 713 without the benefit of section 722 is computed as follows: Excess ProfitsNet Income1936$36,800.48193736,903.86193838,449.25193938,330.17Aggregate of excess profits net in-come for the last 2 years of thebase period$76,779.42Aggregate of excess profits net incomefor the first half of the base period73,704.34Excess of last half over first half$ 3,075.08One half thereof$ 1,537.54Sum of 1/2 the excess and aggregateof the last half of the base period$78,316.9612/24ths thereof$39,158.481946 Tax Ct. Memo LEXIS 213">*218  The petitioner reported on its excess profits tax returns (Form 1121) as income for 1941 and 1942 the amounts of $42,111.11 and $43,192.90, respectively. The excess profits tax shown upon petitioner's gross profits tax return for 1941 was $204.51 and for 1942 was $1,499.50, which amounts were paid to the collector for the first district of Pennsylvania at Philadelphia in four equal quarterly installments on March 15, June 15, September 15, and December 15, in 1942 and 1943, respectively. The income and excess profits taxes assessed against the petitioner were paid direct to the collector by the Reading Company, lessee, successor to Philadelphia and Reading Railroad Company. If for the years 1941 and 1942 petitioner had not been required to include in its gross income the sums of $9,228.61 and $10,721.65, respectively, the excess profits tax liability of the petitioner for each year would have been zero. On June 10, 1943, petitioner filed its application for relief under section 722 of the Internal Revenue Code, (Form 991 (Revrsed Jan., 1943)) for the year 1942 with the Commissioner of Internal Revenue. In the notice of disallowance, dated November 13, 1944, the1946 Tax Ct. Memo LEXIS 213">*219  Commissioner determined that petitioner's excess profits tax for 1942 was $1,499.50 and disallowed the application for relief and claim for refund under section 722. Opinion The facts in this case are comparable to the facts in the case of  Philadelphia, Germantown and Norristown Railroad Company, 6 T.C. 789">6 T.C. 789 (April 22, 1946). Also, the issues presented and the provisions of the Internal Revenue Code and Regulations involved in this proceeding are identical with those in the cited case. Our conclusion is therefore the same as in that case, viz., the evidence fails to show that petitioner is entitled to relief from the excess profits tax for 1942 under section 722 of the Internal Revenue Code. Reviewed by the Special Division. Decision will be entered for respondent.