Court Opinion

ID: 4599264
Source: CourtListenerOpinion
Date Created: 2020-11-20 19:22:59.411732+00
Date Added: 2024-06-11T07:52:05.357951
License: Public Domain

CUMBERLAND PORTLAND CEMENT COMPANY, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Cumberland Portland Cement Co. v. CommissionerDocket No. 101941.United States Board of Tax Appeals44 B.T.A. 1170; 1941 BTA LEXIS 1222; August 5, 1941, Promulgated *1222  1.  Depletion and depreciation deductions redetermined.  2.  Written contracts not expressly dealing with the payment of dividends held not to justify credit under section 26(c)(1), Revenue Act 1936.  3.  Written contract requiring payment into sinking fund of a stipulated amount for each barrel of cement manufactured and shipped, and in any event a minimum stipulated sum held not within statutory requirement that contract should expressly deal with the disposition of earnings and profits under section 26(c)(2), Revenue Act 1936.  George E. H. Goodner, Esq., Scott P. Crampton, Esq., and Paul E. Schaub, C.P.A., for the petitioner.  John R. Stivers, Esq., for the respondent.  OPPER*1170  These proceedings dispute respondent's assertion of deficiencies of $20,865.12 and $30,493.49 in income tax for the years 1936 and 1937, respectively.  A deficiency of $448.02 in excess profits tax for 1937 is likewise challenged.  Petitioner also claims that it has overpaid its taxes.  The questions presented are whether petitioner is entitled to (1) depletion and (2) depreciation deductions in excess of the amounts allowed by respondent; *1223  and (3) whether it is entitled to a section 26 (c)(1) or (2) credit under the 1936 Revenue Act.  FINDINGS OF FACT.  Issue 1 - Depletion.Petitioner, incorporated in May 1926, is engaged in the manufacture and shipment of Portland cement, with its principal place of business at Cowan, Tennessee.  Its Federal income tax returns for the periods involved were filed with the collector for the district of Tennessee.  On March 1, 1927, it purchased 1,100 acres of land at a cost of $166,000.  *1171  Petitioner carried the $166,000 purchase on its books as a land account and no breakdown of the account was made until Form F was requested by respondent in the fall of 1938.  Form F was filed on May 16, 1939, and showed allocation of the cost, as determined by petitioner's officers, as follows: 1,090 acres surface land at $5$5,45010 acres plant site at $2502,5003,000,000 tons of merchantable limestone at 5.04 1/3 cents151,300450,000 tons of clay at 1 1/2 cents6,750166,000The 1,090 acres consist of rough mountain land from which the timber had been cut and had a fair market value in 1927 of not more than $5 an acre.  The 10 acres of level*1224  surface land used as a plant site, if not so used, would have sold for about $100 an acre.  As a plant site it had a fair market value in 1927 of not more than $250 an acre.  The clay deposit at that time contained approximately 450,000 tons of clay.  Petitioner in 1938 purchased, for $4,400, an adjoining clay deposit of 300,000 tons, which it believed superior to that it already held.  This was at the rate of 1.46 2/3 cents per ton.  The original clay deposit had a fair market value in 1927 of $6,750.  When petitioner made the land purchase for $166,000 in 1927 it had to acquire the entire tract of 1,100 acres in order to obtain the limestone deposit with a contiguous clay deposit advantageously situated near a plant site.  Limestone and clay are the raw ingredients used in the manufacture of cement and are used at a ratio of 4 units of limestone to 1 unit of clay.  The land purchased is located in a section of Tennessee which contains a very large amount of limestone, which is the basic rock all through that section, going to a depth of 300 or 400 feet.  Petitioner's method of operation is to cut the limestone from the side of the hill, down to the ground level, working constantly*1225  back from the face and leaving the established level at the bottom.  The merchantable limestone which petitioner in 1940 could economically recover from its quarry was to be found in a hill of the stone which horizontally was in the shape of a right-angled triangle, with a base of 1,200 feet, a vertical leg of 800 feet, (an average width of 400 feet), or an area of 480,000 square feet.  The average thickness of the stone from the bottom to the top of the quarry was 50 feet.  By computation there were 24,000,000 cubic feet of stone.  Limestone runs 12 1/2 cubic feet to the ton.  In 1940 there were approximately 2,000,000 tons of stone remaining, which, added to the approximate 1,000,000 tons already mined, makes a total of 3,000,000 tons available as of the date of acquisition.  *1172  In 1927 petitioner expended the sum of $32,790.82 in opening its quarry and clay pit preparatory to engaging in business.  This development work was applicable to not more than one-half of the merchantable limestone and two-thirds of the clay acquired in 1927.  For the period from the commencing of operations in about the middle of 1927 through 1938, inclusive, petitioner quarried and consumed*1226  900,707 tons of limestone.  Its plant, during this period, operated at about 40 percent of its capacity.  For 1936 and 1937 petitioner claimed and was allowed depletion on limestone and clay mined and consumed at the rate of 2 cents per ton for limestone and 1 cent per ton for clay.  Respondent has allowed total depletion deductions (for limestone, clay and development) for 1936 and 1937 in the respective amounts of $1,717.96 and $1,978.35.  Issue 2 - Depreciation.In 1927 petitioner constructed and equipped its cement plant at a cost in excess of $1,200,000, not including automobiles and trucks.  Included in the cost were quarry machinery and equipment, $54,506.29; wiring and electrical equipment, $20,937.07; kiln lining and fire bricks, $10,710.51; piping and floors, $10,438.78; water supply, $5,605.95; belting, $1,404.73; engineering and construction fees, $69,915.58; railroad and tracks, $47,963.86; tenant dwellings, $35,953.63; office furniture and fixtures, $4,859.10.  In estimating a useful life of 20 years, petitioner treated the plant as an entirety and did not break it down into an estimate of the useful life of its component parts.  Extensive replacements have*1227  already become necessary.  During 1940 petitioner made replacements in plant machinery and equipment of between $55,000 and $60,000.  Replacement expenditures for 1941 in the sum of $94,000 have been authorized.  Some of the replacements are by reason of obsolescence.  Coal-grinding equipment which originally cost $60,000 and required four men to operate can now be replaced by more efficient equipment costing $15,000, which is automatic and requires no men for its operation.  During its first years of operation petitioner claimed depreciation deduction on a percentage or straight line method.  From 1928 to 1936, inclusive, it claimed it on the unit of production method, adopting a barrel of "clinker" as the unit.  "Clinker" is the name given to limestone and clay after they have been ground, mixed, and burned and before being made into the finished product.  Petitioner manufactures two products, cement and Portland cement.  To one of these both lime and gypsum is added to the clinker; to the other, only gypsum.  A barrel of clinker is a reasonable measure for computing depreciation of petitioner's plant and equipment.  *1173  Petitioner produced barrels of clinker in the*1228  amounts and for the periods indicated as follows: YearBarrels1927 (approx.  last 6 months)187,5611928475,9351929551,4391930413,4121931226,4861932128,0381933129,3991934352,4331935223,0311936330,2571937380,3551938392,8521939471,645Total4,262,843Petitioner's plant had an anticipated useful life of 22 1/2 years from the beginning of its operation.  By the end of the year 1939 the plant had been in operation 12 1/2 years.  During that period there had been produced 4,262,843 barrels of clinker.  Production during the remainder of the 22 1/2-year anticipated life of the plant could be expected to be at a comparable rate.  Depreciation on the plant was sustained in the years 1936 and 1937 at a rate per barrel of clinker which may be computed from the foregoing figures.  From 1928 to 1936, inclusive, petitioner claimed depreciation on a unit of production method at a rate of 12 cents per barrel of clinker produced.  This was on an estimate of production at plant capacity of 800,000 barrels.  In 1937 it claimed depreciation at a rate of 22 cents per barrel of clinker produced.  On April 6, 1938, in a protest*1229  filed with a revenue agent, it claimed depreciation at a rate of 22 cents per barrel of clinker produced, because of "the unexpected decline in cement consumption." On June 2, 1938, in additional matter submitted to the Bureau on the question, petitioner claimed depreciation at a rate of 17 cents per barrel of clinker produced.  This was on an annual average of 323,652 barrels of clinker computed on a 10 1/2-year production history.  On May 16, 1939, on Form F, it claimed depreciation at a rate of 19 cents, computed on an average of 315,000 barrels of clinker computed on a 12-year production history.  In its petition before the Board it claimed depreciation at a rate of 22 cents per barrel of clinker produced.  For the year 1939 petitioner claimed depreciation at a rate of 17 cents and is setting up the same rate for the year 1940.  During 1936 and 1937 petitioner manufactured 330,257 and 380,355 barrels of clinker, respectively.  Respondent allowed a deduction for depreciation, computed at the rate of 12 cents per barrel of clinker produced, or $39,630.84 and $45,642.60, respectively.  Issue 3 - Section 26, Credit.In 1927 petitioner issued its 10-year 7 percent first mortgage*1230  bonds in the amount of $450,000, to secure the payment of which it executed *1174  a trust indenture.  Under the terms of the trust indenture all of petitioner's real property, as well as "all plants, buildings, offices, fixtures, engines, boilers, machinery, implements, apparatus and equipment of every description", was pledged to the Fourth & First National Bank or Nashville as trustee.  By paragraph 4, page 12, of the indenture it was provided that in case of default in payment of principal or interest, such default continuing for 10 days, the "Trustee may, and upon the written request of the holders of 25% in the aggregate principal amount of the bonds then outstanding, shall declare the principal * * * [and] unpaid interest * * * immediately due and payable." Paragraph 5, page 12, of the indenture provided that, in the event the bonds are not paid at maturity or when declared due prior to maturity: * * * then, upon demand of the Trustee, the Company covenants forthwith to surrender to it and the Trustee shall be entitled to take actual possession of the mortgaged property, as for condition broken, and in its discretion may, with or without force and with or without*1231  process of law, and before or after or without declaring the principal of said bonds immediately due, without any action on the part of any bond holder, enter upon, take and maintain possession of all or any part of said mortgaged properties, * * * and may * * * manage * * * the same, and conduct the business thereof, * * * for the benefit of the holders of the bonds, to the fullest extent authorized by law.  * * * Further, in such case, the trustee was given the right to collect and receive all "dividends, earnings, income * * * of the mortgaged properties * * *." Paragraph 8, page 16, of the indenture provided: In the event of the appointment of a receiver, or receivers, of the mortgaged property, and of the rents, issues and profits thereof, or the taking possession of said mortgaged property by the Trustee, or otherwise, under the terms and conditions of this deed of trust, the rents, issues, and profits of said mortgaged property shall be deemed and considered a part of the mortgaged property included in and covered by this deed of trust or mortgage; but not otherwise.  The indenture provided in paragraph 21, page 23, for a sinking fund for the payment of interest and*1232  retirement or purchase of the bonds.  The provision for the interest payment was the monthly deposit of one-twelfth of the amount of interest due annually.  The provision for the sinking fund for the retirement or purchase of the bonds was the deposit on or before the tenth day of each calendar month of a sum equal to 10 cents for each barrel of gray cement and 50 cents for each barrel of white cement manufactured and shipped during the previous calendar month.  It was covenanted that the aggregate of the sinking fund payments would not be less than a specified amount for a named period.  *1175  Paragraph 27, page 29, of the indenture provided: So long as the Company shall not be in default hereunder, to the knowledge of the Trustee, the Company shall be suffered and permitted by the Trustee to remain in full possession, enjoyment and control of all the properties, rights and privileges hereby mortgaged and shall be permitted to manage the same and to receive, receipt for, take, use, enjoy and dispose of all rents, tolls, earnings, profits, revenues and income thereof, in the same manner and with the same effect as if this deed of trust had not been made.  Paragraph 32, *1233  page 31, provides: "The exclusive right of action hereunder is vested in the Trustee until the refusal or omission of the Trustee to act.  * * *" On February 28, 1929, petitioner executed a second mortgage on its properties to the Fourth & First National Bank.  This was to secure notes given by petitioner in the amount of approximately $265,000.  The second mortgage indenture was made expressly subject to all the terms and conditions of the first mortgage and was "not to in anywise impair the security for said bonds therein created." On page 9 of the second mortgage indenture it was provided that the company was to retain possession of the property and "receive and use the rents, issues and profits therefrom until default is made in the payment of the interest or principal of any of said notes." It was further provided "that any default in any of the terms and conditions of said first mortgage whereby or as a result whereof the bonds secured by said first mortgage are declared due and payable shall likewise constitute a default under this second mortgage." On or about January 1, 1931, the Fourth & First National Bank merged with the American National Bank.  Shortly thereafter*1234  petitioner's officers had a conference with the officials of the American National Bank and their attorneys with reference to the drafting of new indentures for the above obligations.  They were assured by the bank's officials that the existing indentures were satisfactory; that they did not necessarily have to be altered; that they fully covered all the terms and conditions of both loans; and that the American National Bank would succeed to the rights of the Fourth & First National Bank.  It was agreed that the present written agreements would continue in their hands.  Petitioner did not pay its second mortgage notes when they became due.  In January or February 1931, petitioner fell behind in its sinking fund payments for the retirement of the principal of the first mortgage bonds.  On February 1, 1933, petitioner was unable to pay the interest which was due on these bonds.  After these defaults a bondholders' protective committee was formed and under date of February 1, 1933, a protective agreement was promulgated in which ultimately the holders of more than 75 percent of the bonds joined.  *1176  The agreement provided, inter alia, that the committee was to have the*1235  power: * * * to request and/or direct the Trustee or Trustees under said mortgage, to take, or cause to be taken, action to foreclose same, and/or to enter and take possession of, operate and/or lease the mortgaged property or to take any other action permitted under the mortgage, to request and/or direct them relative to the taking of any action or filing of any pleading in the matter of any application in bankruptcy to sell free of liens and to make any other request or give any other directions to the Trustees under said mortgage; * * * The bondholders' protective committee met with petitioner and advised with it on company policies.  Petitioner and the bondholders' committee worked in close cooperation.  None of the members on the committee were engaged in the cement business.  No legal process was entered into to take over the plant and equipment for the benefit of the bondholders.  Although default in payment occurred in 1931, the trustee did not at that time or any time thereafter take over the property.  On May 30, 1934, the bondholders' protective committee, being the holders of the majority of the outstanding bonds, appointed the American National Bank as successor*1236  trustee under the first mortgage indenture.  This was pursuant to the provisions of the first mortgage indenture granting a majority of the bondholders the right to appoint a successor trustee.  On June 5, 1934, a supplemental agreement was made between petitioner and the bondholders' protective committee, whereby petitioner's sinking fund payments were reduced to 10 cents per barrel for all types of cement, and it was provided: If the payments based upon the number of barrels of its manufacture shipped during any six months period aforesaid does not equal or exceed the sum of $12,500.00, then the Company out of other funds shall add thereto a sufficient sum to make such payment equal said amount of $12,500.00, provided, however, that the Company may at its option purchase bonds in the open market and tender same to the Trustee in lieu of cash, and all bonds so tendered by the Company shall be received and credited by the Trustee to Sinking Fund Account at the face amount of such bonds as if an equal amount of cash had been paid.  All bonds, however, so tendered, shall have affixed thereto, all unmatured coupons, and immediately upon receipt of any such bond or bonds by the Trustee*1237  the same shall be immediately cancelled, and thereafter returned to the Company on its request as herein provided for other bonds cancelled by the Trustee.  The first payment for the account of Sinking Fund shall be made on August 1, 1935, for the period beginning January 1, 1935, and ending July 1, 1935, and thereafter payments shall be made as hereinabove provided.  The terms of this supplemental agreement were carried out.  At the beginning of the calendar year 1936 there were $281,000 of petitioner's first mortgage bonds outstanding.  Payments were made thereon as follows: Jan. 31, 1936$12,500Aug. 1, 193619,600Feb. 1, 193725,000July 31, 1937225,000*1177  The sinking fund payments due for 1936 amounted to $35,742.80, 357,428 barrels of cement shipped at 10 cents per barrel.  In the latter part of July 1937, petitioner borrowed $100,000 from the Union Planters' National Bank & Trust Co. and $100,000 from the American National Bank.  Petitioner, in a letter dated July 28, 1937, confirmed an agreement with the banks.  The letter in part stated: That, continuing the agreement which has existed between the officials of Cumberland Portland*1238  Cement Company and officers of The American National Bank since the year 1931, no payment of dividends or distribution of earnings will be made by the said Cement Company until the loans mentioned in Clause 1.  have been paid in full or reduced to amounts satisfactory to officials of both The American National Bank and Union Planters National Bank & Trust Company.  Shortly after the letter of July 28, 1937, petitioner took all the current funds it could possibly spare from its financial structure and, together with the $200,000 loans from the banks, on August 1, 1937, retired both the second and first mortgage bonds and notes.  Petitioner did not pay any dividends in 1936 and 1937.  It sought and obtained permission from the banks to pay a dividend in 1938.  Respondent has determined petitioner's income for 1936 and 1937 to be $108,790.06 and $137,698.48, respectively.  Petitioner was a deficit corporation throughout 1936 and 1937.  OPINION.  OPPER: Considering first the related issues of depletion of minerals and of development expense, we have found the facts in petitioner's favor as to the disputed extent of the limestone deposit apparently available for profitable removal. *1239  The result has been reached not so much through acceptance of petitioner's contention that mineral deposits not subject to extraction within a 40-year period are valueless as on categorical evidence of the actual quantity of limestone present.  That this appears to coincide approximately with the amount of anticipated use in 40 years, we must regard as accidental.  Facts or estimates as to total cost, as to the value of surface land, of plant site, and of clay deposit, and as to the quantity of clay, being undisputed or not seriously contested, the allocation of the proportion of the investment applicable to the limestone and the ascertainment for purposes of measuring depletion of the cost applicable to each ton of mineral consumed is a matter of mere mathematical calculation.  As its measure of depletion of development costs, petitioner advances an allocation of these costs as between limestone and clay which is undisputed, and then computes annual deductions upon the same assumptions *1178  as to mineral quantities as it used in figuring depletion of the mineral.  For the same reasons it is our view that these figures may be accepted.  Petitioner's computation of depletion*1240  deductions is accordingly approved.  We have accepted petitioner's figures in the main on the depreciation question also.  The parties are in agreement that the use of the "unit of production" method in arriving at the depreciation figure for each year was proper; and apparently respondent does not question petitioner's selection of a barrel of "clinker" - a mixture of clay and limestone - as an appropriate unit.  The parties are in dispute as to the probable life of the plant and as to the number of units which it should be assumed that the plant will produce during that life.  The finding which we have made as to the anticipated life of the plant as a whole is a conclusion drawn from the entire record.  Testimony on behalf of petitioner was given by one of its officers.  It was to the effect that "from our experience and the replacements that have been made and those that are planned for the immediate future, we have knowledge that we could not expect more than 20 years for the life of that plant." That is a somewhat less than satisfactory factual basis for a finding by the Board.  *1241 ; . On the other hand, respondent's witness, an engineer apparently familiar with plants of the general type to which petitioner belongs, had worked in plants where the equipment used "is quite old, in fact it varies probably between 25 and 30 years." In a document filed earlier with respondent petitioner assumed for the useful "Entire Life" of its plant "1927-1951 - 23 1/2 years." On all the evidence the figure which we have adopted, 22 1/2 years, seems to us a reasonably conservative estimate of probable useful life.  The apparently inadvertent use by petitioner of a full year for its operations at the time it commenced production, instead of the half year (or less) indicated by the facts, requires some change in the length of the period of past experience upon which the total units which the plant is capable of producing are to be estimated.  We have used for that purpose all of the company's history which appears in the record, thus adopting a 12 1/2-year period instead of the 12 years used by petitioner.  The total number of units produced during that time of course*1242  likewise varies somewhat from the figure employed by petitioner.  However, ascertainment of the average annual unit production in the past and multiplication of that figure by the years of anticipated life will give the figure which seems to us most nearly to approximate the total unit production which is reasonably to be expected from the plant.  The cost of the plant being undisputed, the portion *1179  thereof attributable as depreciation to each unit is likewise merely a problem in arithmetic.  And there being no dispute as to the number of units produced in each taxable year, the depreciation to be allowed for the years before us may readily be fixed.  On the last issue petitioner claims to be entitled to a credit under either section 26(c)(1) or 26(c)(2).  Its contention under the former section is that the first and second mortgages to which its property was subject were contracts preventing it from declaring and paying dividends out of its earnings and profits.  It constructs that conclusion as follows: The mortgages excepted earnings from the operation of the indentures until possession should be taken by a receiver, by the trustee or otherwise under the first mortgage; *1243  and until default, under the second.  Petitioner argues that the functioning of a bondholders' committee constituted the equivalent of the action necessary to bring the earnings and profits within the scope of the mortgaged property, and thereby to preclude their use for distribution as dividends.  For the sake of the argument we may assume that to be true, although, as respondent points out, the bondholders' committee did not take possession of the property, but acted in a purely advisory capacity, leaving the corporation and its officers to manage and operate petitioner.  But, in any event, the action relied on is insufficient to satisfy the statutory requirement that the contract should in the first instance "expressly" deal "with the payment of dividends." There is nothing in the contract making any reference to the declaration of dividends either before or after possession of the corporate property is relinquished by the debtor.  Such action, of course, could have the practical effect of foreclosing the corporation from the ability to operate; and, among other things, incidentally, to declare dividends.  But the statute requires that the contract expressly deal with the payment*1244  of dividends and no language in it has been or can be pointed out by petitioner which fulfills that condition.  There are many other situations where as a practical matter a corporation is prevented from the declaration of any dividend, but, unless Congress has seen fit to include such a case within the carefully limited language of the sections authorizing the credit, it has been repeatedly held that the credit is not available.  See, e.g., ; affd. (C.C.A., 8th Cir.), ; affd., . Thus, when petitioner asks the rhetorical question: "Will any one seriously argue that this [bondholders'] committee would allow petitioner to pay dividends while it was in default as to principal and interest on its bonds?", it is voicing what is perhaps the inevitable practical effect of the situation in which it found itself.  But, as the *1180  Board pointed out in : It is probably true that, under the circumstances and consistently with the spirit of the trust agreement and the contract extending the time for payment of the notes, *1245  no dividends would be declared by petitioner because the controlling trustee-creditors would not permit it; and that a request for such permission "would have been a vain and purposeless thing." . But petitioner never agreed to refrain from declaring a dividend.  * * * Even though its financial condition was an effective obstacle to any such payment, the statute provides only for a contractual inhibition.  * * * The directors, however, had full power to declare a dividend if the petitioner's condition warranted it.  It was the financial condition and not a contractual prohibition that prevented the payment of a dividend.  Section 26(c)(1) provides for no credit in such case.  There is a further attempt to rely on a contract in writing executed by the corporation in 1937, by reason of the inclusion therein of the phrase "continuing the agreement which has existed." Since we have concluded that no such agreement existed or that, if it did, it was oral and not written, no arrangement made after the event can supply the missing requirement of a written agreement executed prior to May 1, 1936.  Otherwise the meticulous care used by Congress*1246  in limiting the scope of the credit provisions could be completely frustrated.  Petitioner also claims that the sinking fund provisions of the indentures require the allowance of a credit under section 26(c)(2) for portions of petitioner's earnings paid or set aside to discharge indebtedness incurred prior to May 1, 1936.  The amended agreement required deposit in a sinking fund of stipulated amounts for each barrel of petitioner's product "manufactured and shipped." In order to comply with the statute it must be found that this provision "expressly deals with the disposition of earnings and profits of the taxable year." The Board has in several instances proceeded to great lengths in imputing to contractual provisions the intention expressly to deal with earnings and profits, and even went so far in , as to meet with the disapproval of the Circuit Court on review (. However, in that case and in *1247 , the Board was able to find in other provisions of the contract evidence that the parties intended that the payments in question should be made from earnings and profits of the taxable year.  In , the Board said (p. 87): The paragraph of the trust agreement set out in our findings does expressly deal with the disposition of earnings and profits of the taxable year even though the provision * * * taken from its setting, makes no specific reference to earnings and profits.  It is apparent, however, the parties intended that *1181  petitioner's net earnings and profits should be applied * * * toward the payment of the bonds * * *.  In , certain payments were to be made to a sinking fund "based upon the sand produced and sold during the preceding month.  As showing that the payments were to be made out of the proceeds of sale", the Board said (p. 513): * * * it was provided that in case the company had not received payment for the sand sold, it might defer payment to the trustee until it had received such payment, but for not more than*1248  60 days.  It further provided that at such times as the trustee requested, petitioner must render an account of all sand sold and payments received therefor.  * * * In , and , the provision required application to the indebtedness of all of the debtor's receipts.  It was concluded that the greater must include the less and that within the receipts would be found all of the year's earnings and profits; It is impossible to discover any such aids to leniency in the present record; The amount to be paid was measured not by sales, but by shipments.  There is no showing that the two coincided.  For all we know, shipments could have been made to warehouses, to consigness, or for purposes entirely unconnected with sale.  Payments may have borne no relationship whatever to quantity shipped, either because of credit terms, uncompensated losses in transit, or a host of other possibilities.  The minimum payment was required, regardless even of any manufacture or of any shipment.  We see no tenable foundation for a determination that payments to the sinking fund were so associated with earnings, profits*1249  or even receipts, either in theory or in practice, that it can be inferred that the parties intended the payments to be made out of earnings and profits, and that accordingly there is an express reference thereto.  On the contrary, it is entirely evident that the payments in question were called for even though there were no receipts, much less earnings and profits; and, conversely, the sums due could rightfully be paid out of any source within the company's command.  As the Board said in : * * * Payments will comply with the provisions of the notes regardless of the source from which the payments are made.  Thus, the petitioner could have made payments on the notes from any source whatsoever and could have distributed all of its earnings of the taxable years without in any way violating provisions of the notes.  * * * We are accordingly compelled to reject petitioner's claim under both subsections.  Decision will be entered under Rule 50.