Court Opinion

ID: 4595955
Source: CourtListenerOpinion
Date Created: 2020-11-20 19:16:06.290323+00
Date Added: 2024-06-11T07:51:32.151678
License: Public Domain

WAIMANALO SUGAR CO., PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Waimanalo Sugar Co. v. CommissionerDocket No. 24879.United States Board of Tax Appeals12 B.T.A. 1241; 1928 BTA LEXIS 3384; July 9, 1928, Promulgated *3384  Decision in Kahuku Plantation Co.,12 B.T.A. 977">12 B.T.A. 977, followed.  W. W. Spalding, Esq., for the petitioner.  M. N. Fisher, Esq., and L. C. Mitchell, Esq., for the respondent.  PHILLIPS *1241  This is one of several proceedings involving the question which was decided June 29, 1928, in Kahuku Plantation Co.,12 B.T.A. 977">12 B.T.A. 977. As to this petitioner, the Commissioner determined a deficiency in income and profits taxes for the calendar year 1920 in the amount of $37,180.99.  Petitioner instituted this proceeding for a redetermination of its tax and alleges that the Commissioner committed error in including as taxable income fot the year 1920, the amount of $54,231.16 received by the petitioner on December 31, 1920, as indemnity for losses to its 1921 and 1922 sugar crops.  FINDINGS OF FACT.  1.  Petitioner is a corporation organized under the Laws of the Territory of Hawaii.  It operates a sugar plantation on the Island of Oahu.  2.  The findings of fact under this paragraph number are identical with the findings of fact of paragraph 2 in Kahuku Plantation Co., Docket No. 19156, and such findings are, by reference, *3385  incorporated herein and made a part hereof.  3.  The petitioner, with the approval of the Commissioner of Internal Revenue, has for many years (before, during, and after 1920) kept its accounts and made its Federal income-tax returns on the so-called "crop basis" as permitted by the Treasury Regulations.  The crop basis of accounting was very generally in use by sugar plantations throughout the Islands.  Under this system of accounts a crop was treated as a venture and an account kept for each crop.  *1242  All expenses incident to the crop, from the preparation of the soil to the harvest and manufacture of the cane into raw sugar, were charged to the crop account, and all receipts from the crop were credited to the crop account.  When the crop was harvested and disposed of the account was closed and it was determined whether there had been a profit realized or a loss sustained from the crop.  4-7.  The findings of fact under these paragraph numbers are respectively identical with findings of fact, paragraphs 4-7 inclusive, in Kahuku Plantation Co., Docket No. 19156, and such findings of fact are, by reference, incorporated herein and made a part hereof.  8.  The strike*3386  was finally broken in July, 1920, but not until the seven Oahu plantations affected by it, including petitioner's plantation, had sustained damages to their growing crops of cane.  During the period of the strike there was in the ground most of the 1920 crop, planted in 1918; the 1921 crop planted in 1919; and the 1922 crop planted in 1920.  The strike caused a shortage of labor.  The strikebreakers were inexperienced men and the hours worked were less than the regular plantation hours.  As a consequence, labor performed on the three crops was less than that which would normally have been performed.  As a result of this shortage in labor and other conditions brought about by the strike, the harvest, and consequently the manufacture and marketing of the 1920 crop, was delayed.  During the period of delay the market price of sugar fell.  The cultivation, irrigation and fertilization of the 1921 and 1922 crops were delayed and irregular.  This stunted the growth of the cane and as a consequence the yield was less than it otherwise would have been.  The planting of the 1922 crop was delayed and the acreage planted was less than that of the 1920 crop which it followed.  When it became apparent*3387  that the strike was likely to continue for some time and that losses were being sustained against which there was no check, the Association decided that steps should be taken to have a record made of the conditions on each of the plantations so there might be some evidence of loss other than the statement of the respective managers.  9.  The findings of fact under this paragraph number are respectively identical with the findings of fact in paragraph 9, in Kahuku Plantation Co., Docket No. 19156, and such findings of fact are, by reference, incorporated herein and made a part hereof.  10.  When the strike had been settled, the Hawaiian Sugar Planters' Association, through its strike claims committee, estimated the net losses sustained by the affected plantations.  The estimated tonnage loss to petitioner's plantation was as follows: loss to 1920 crop, 313.67 tons; to 1921 crop, 113.41 tons; to 1922 crop, 436.18 tons.  11.  On December 29, 1920, the Association empowered the Strike Claims Committee to make a final determination of the amount of *1243  strike loss indemnity to be allowed to the Oahu plantations.  This Committee then took up in detail the matter of determining*3388  the amount of losses occurring on each plantation with respect to each crop affected.  On November 17, 1920, it presented to the Trustees of the Association a detailed form to be employed by the plantations in submitting their claims for strike losses.  It was the purpose of this form to measure losses by the decreased receipts from each crop, with adjustment for increased or decreased costs in the planting, cultivation and marketing of such crop.  The computation of the amount so ascertained and paid to the petitioner was summarized on one of these forms as follows: Losses.Gains.1920 cropExhibit 2(D) (Operations)$51,002.28Exhibit 3(D) (Bonus)$2,433.24Exhibit 4(B) (Receipts)253,141.59Exhibit 5(D)(E) (Rents)Exhibit 6(C) (Miscellaneous)6,268.85Total 1920 crop304,143.878,702.09Subtract gains 1920 crop8,702.09Net losses 1920 crop295,441.781921 cropExhibit 8(C) (Operations)10.70Exhibit 9(M) (Receipts)13,251.64Exhibit 10(D)(E) (Rents)Exhibit 11(C) (Miscellaneous)6,468.58Total 1921 crop19,720.2210.70Subtract gains 1921 crop10.70Net losses 1921 crop19,709.521922 cropExhibit 13(C) (Operations)11,755.82Exhibit 14(M) (Receipts)50,966.41Exhibit 15(D)(E) (Rents)Exhibit 16(C) (Miscellaneous)198.47Total 1922 crop50,966.4111,954.29Subtract gains 1922 crop11,954.29Net losses 1922 crop39,012.12*3389  12-17.  The findings of fact under these paragraph numbers are respectively identical with the findings of fact, paragraphs 12 to 17, inclusive, in Kahuku Plantation Co., Docket No. 19156, and such findings are, by reference, incorporated herein and made part hereof.  18.  The sum of $354,163.42, representing its estimated loss with respect to the three crops, was paid to petitioner by the Hawaiian Sugar Planters' Association in December, 1920.  19.  In its accounts and in its Federal income-tax returns petitioner treated the amount received as indemnity for the estimated losses to its 1920 crop as income for 1920.  It treated the amounts received as indemnity for the losses to its 1921 and 1922 crops as *1244  income for the years 1921 and 1922, respectively, and not as income for 1920.  20.  The respondent, in the determination of the deficiency, treated $54,231.16 of the $58,721.64 received on account of the 1921 and 1922 crops, as taxable income for 1920.  21.  In petitioner's business of running a sugar plantation there are items of expense and income that can not be allocated to any particular crop and are properly applied to the year in which they are incurred*3390  or received.  OPINION.  PHILLIPS: The issues involved in this proceeding are the same as the issues decided by the Board in Kahuku Plantation Co.,12 B.T.A. 977">12 B.T.A. 977. The record in the two cases is substantially the same.  Upon the authority of the decision in that case it is held that the Commissioner erred in including the payment on account of the net losses to the 1921 crop in computing petitioner's taxable income for 1920, and that the action of the respondent with respect to the payment for 1922 losses is approved.  Decision will be entered under Rule 50.