Court Opinion

ID: 4621530
Source: CourtListenerOpinion
Date Created: 2020-11-21 02:44:51.583486+00
Date Added: 2024-06-11T07:56:01.213928
License: Public Domain

SHINER OIL MILL & MANUFACTURING CO., PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Shiner Oil Mill & Mfg. Co. v. CommissionerDocket No. 2875.United States Board of Tax Appeals11 B.T.A. 805; 1928 BTA LEXIS 3717; April 24, 1928, Promulgated *3717  1.  For want of evidence in regard to vital elements in the computation, a computation of depreciation based on unit of production of an oil mill can not be used, and the determination of the Commissioner is approved.  2.  Where mote boards were purchased in the taxable year for a specific purpose and were discarded in the same year because they were of no further use to taxpayer, and they had no salvage value, held that the total cost was deductible as a loss from gross income of the taxable year.  Charles F. Byers, Esq., for the petitioner.  Bruce A. Low, Esq., for the respondent.  LOVE *805  This is a proceeding for the redetermination of a deficiency in income and excess-profits tax for the fiscal year ended April 30, 1919, in the amount of $6,637.41.  The assignments of error are: (1) The Commissioner erred in refusing to allow accelerated depreciation for the taxable year on machinery and fixtures.  (2) The Commissioner erred in refusing to allow a reasonable deduction for amortization of facilities acquired and installed in the taxable year, and then later abandoned in the same year.  FINDINGS OF FACT.  The petitioner is*3718  a Texas corporation with its principal office in Shiner.  Its business consists of crushing cotton seed and manufacturing cotton seed oil, linters, meal, and hulls, as products from the cotton seed.  In years prior to the year here involved the petitioner claimed and was allowed depreciation on a composite or "straight line" basis at a rate of 8 per cent on cost of its machinery and fixtures.  For the year in question it first filed its original return on the calendar year basis, and subsequently filed an amended return on the fiscal year basis for the year ended April 30, 1919, which amended return was accepted by the Commissioner.  In the amended return it claimed and was allowed depreciation on its buildings at 5 per cent, and on machinery and fixtures at 8 per cent.  In the taxable year, by reason of the fact that some of the neighboring mills did not operate, the petitioner purchased a larger tonnage of cotton seed than it purchased in prior years, which necessitated the operation of the plant day and night and extended the operating season from a four-month normal period to a period *806  of about six months.  Also, on account of the scarcity of skilled labor brought*3719  about by war conditions, it was necessary to use labor not well skilled in operating that kind of machinery.  By reason of such abnormal conditions, depreciation was accelerated in the taxable year to some extent.  In the year 1918, and within the fiscal year and prior to the beginning of operation, petitioner installed some mote boards designed to improve the quality of its linters, which mote boards cost $1,000.  During the same fiscal year, those mote boards became of no further use to petitioner and they were discarded.  They had no salvage value.  Petitioner, in its amended return for the taxable year, claimed amortization in the amount of $1,189.77, which was disallowed by the Commissioner on the ground that "amortization allowance all deductible in the calendar year 1918, and therefore can not be allowed as a deduction from gross income for the year 1919." Five hundred dollars of the claim for amortization on the mote boards has been allowed.  OPINION.  LOVE: The record in this case is very unsatisfactory.  All the books of petitioner pertaining to the taxable year had been destroyed.  But few of the necessary facts were obtainable in a definite form.  The Commissioner*3720  had in prior years allowed 8 per cent depreciation on a straight-line basis on machinery and fixtures.  Whether or not 8 per cent average depreciation was excessive we can not determine from the record.  The evidence shows that the engine in use had a normal life of over 30 years; the boiler 8 to 12 years; cotton press 30 to 40 years; other units whose life was designated ranged from 4 to 10 years.  No length of life was indicated for several of the units.  At the close of the hearing counsel for the respondent moved to increase the deficiency on the ground that the evidence disclosed the fact that the Commissioner, in allowing an 8 per cent depreciation, had allowed too much.  From the evidence in the record we can not say that the 8 per cent average depreciation in normal seasons was excessive, though it may have been so.  However, we are now dealing with the fiscal year of 1919, which the evidence clearly shows was an abnormal year and in which depreciation was accelerated.  Petitioner sought to compute the depreciation for the year in question by the production-unit method, by ascertaining what rate per unit had been taken in prior years, when computed on the 8 per cent average*3721  basis, and then applying that same rate per unit to the number of tons of seed crushed in the year in question, thus arriving at the amount of depreciation claimed by it in this case.  In considering such a method, we are confronted with two obstacles in this case: *807  (1) We can not determine that, normally, 8 per cent average depreciation is the correct rate.  (2) While we know from the evidence the number of tons of seed crushed in the year in question, the record fails to disclose the number of tons crushed in prior years.  It may be noted further that in the computation of depreciation by the unit method, it seems necessary to know the number of units of production of which the plant is capable during its entire life, to render such a method applicable.  This information was not disclosed and, in the very nature of things, could not be estimated with any degree of accuracy for the reason that the several units of the plant had verying length of life.  With reference to the claim for amortization, it was satisfactorily established that petitioner installed its mote boards in the spring of 1918, at the instance of the Government, at a cost of $1,000, and the plant*3722  was operated that year under Government supervision.  There is no evidence in the record with reference to items claimed to be amortizable other than the mote boards.  Neither is there any evidence to show that petitioner's products contributed, or were manufactured for the purpose of contributing, to the prosecution of the war.  They were sold to mattress factories, and for making cushions for automobile seats.  After the close of the 1919 season of operation, but within the fiscal year, petitioner discarded the mote boards.  The evidence is clear that the mote boards cost $1,000.  It is also clear that they were discarded in the taxable year and thereafter were worthless, and that only $500 was allowed as a deduction.  Petitioner is entitled to a further deduction of $500 as a loss in the fiscal year ending April 30, 1919.  The action of the Commissioner with reference to depreciation is sustained.  Judgment will be entered on 15 days' notice, under Rule 50.