Court Opinion

ID: 4605241
Source: CourtListenerOpinion
Date Created: 2020-11-20 19:35:57.137431+00
Date Added: 2024-06-11T07:53:09.264488
License: Public Domain

PEOPLES ICE & COLD STORAGE CO., PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Peoples Ice & Cold Storage Co. v. CommissionerDocket No. 14365.United States Board of Tax Appeals10 B.T.A. 16; 1928 BTA LEXIS 4214; January 19, 1928, Promulgated *4214  1.  Useful life of machinery and rate of depreciation determined.  2.  Repairs to machinery and building allowed as an expense deduction.  3.  Loss sustained through abandonment of machinery allowed.  Charles H. Garnett, Esq., and E. R. Willson, C.P.A., for the petitioner.  Shelby S. Faulkner, Esq., for the respondent.  MILLIKEN *16  This proceeding results from the determination by respondent of a deficiency in income and profits taxes for the calendar year 1921, in the amount of $1,474.66.  Three errors are assigned: (1) The respondent refused a reasonable allowance for depreciation of machinery owned by petitioner and used in its business during the year; (2) the respondent refused to allow as a deduction the cost of repairs made during the year; (3) the respondent refused to allow as a deduction a loss sustained through the abandonment of machinery.  FINDINGS OF FACT.  Petitioner is an Oklahoma corporation, with its principal office at Claremont, and is engaged in the ice and cold storage business.  On May 1, 1911, petitioner purchased machinery for $20,100, to be used in its business.  The March 1, 1913, value of the machinery*4215  was its depreciated value.  The machinery, when purchased, had a useful life of 15 years.  In 1920, petitioner removed a 15-ton generator and replaced it with a 25-ton generator.  This action was necessary to insure larger capacity for the plant.  The generator removed was not worn out and the only purpose of removing it was to replace it with one of larger capacity to meet the growing needs of the business.  The portion of the $20,100 cost of machinery attributable to the generator removed was $3,736.  For the same reason as above, a 20-ton absorber, with coolers and condensers, was removed, in 1921, and replaced with one of larger capacity.  The portion of the $20,100 cost of the machinery attributable to the absorber removed was $2,880.  Nothing whatever was realized by way of salvage from the removed generator and absorber.  The type and size of both were no longer in use by the trade and no buyer could be found for them after their removal.  The depreciated value of the absorber, when removed in 1921, was $1,024.  In the early part of 1921, petitioner purchased and installed a rectifier at a cost of $1,040.85.  The rectifier blew out in August, *17  1921, but was repaired*4216  and used in the business until the end of the ice season in the fall of 1921, when it was taken out, junked and replaced with a new rectifier.  When removed, the rectifier had no salvage value.  During the year 1921, incident to the yearly repairing, overhauling and rearranging of the plant and machinery, petitioner expended for labor the sum $777of, and same was charged to expense.  OPINION.  MILLIKEN: The testimony in this proceeding relative to the useful life of the machinery was given by a witness who personally inspected the machinery, observed its working condition, as well as facility of operation, and had been engaged continuously in the business of petitioner since 1911.  We are convinced, from a consideration of the evidence, that petitioner is entitled to depreciation for the year 1921, at the rate of 6 2/3 per cent.  The portion of the original cost of the machinery attributable to the machinery discarded in 1920 and 1921, was $6,616.  Deducting this sum from the purchase price of $20,100, leaves $13,484 as the portion of the purchase price attributable to the other machinery and petitioner is entitled to a deduction for depreciation during the year 1921, on the*4217  latter sum.  The second issue relates to the deduction claimed for ordinary and necessary repairs made to the plant and machinery during the year 1921.  The sum of $777, expended in the year, was an expense item and should be allowed as a deduction.  The third error relates to a loss sustained through the abandonment of machinery.  Petitioner is entitled to a deduction represented by the depreciated value of the absorber, which became obsolete in the year 1921, was replaced, and which had no salvage value.  It is also entitled to a deduction of the cost of the rectifier, which was installed in the year 1921, removed in that year, and which had no salvage value.  Judgment will be entered on 15 days' notice, under Rule 50.