Court Opinion

ID: 4475344
Source: CourtListenerOpinion
Date Created: 2020-01-16 21:11:29.347831+00
Date Added: 2024-06-11T14:53:27.148610
License: Public Domain

Black, J., dissenting: The majority opinion states that the only issue for decision in these consolidated proceedings is whether Oxford Paper Co. is entitled to deduct for each of the years in question depreciation on property owned by it and known as Island Division Plant. The majority holds that under the facts which have been stipulated, supplemented by the testimony of one witness, Oxford is entitled to such a deduction in each of the taxable years and that the value to be used in calculating such deduction should be the fair market value of the plant at the time it was acquired by Oxford from Continental in 1936. I do not agree to this conclusion and respectfully record my dissent. The holding of the majority is based in substance on the following statement of law contained in the opinion: * * * Where a lessee desires to be released from the obligations of a lease and pays cash or property or both to the lessor in order to obtain a cancellation, the cash and the fair market value, of the,property are income to the lessor. Walter M. Hort, 39 B. T. A. 922, affd., 112 Fed. (2d) 167, affd., 313 U. S. 28; Hilda Kay, 45 B. T. A. 98. Cf. Helvering v. Bruun, 309 U. S. 461. * * * The majority opinion then goes on to state further: * * * Once the fair market value of property is properly included in income, that property thereafter would have a basis for depreciation and other purposes equal to the value at which it was included in income. Salvage v. Commissioner, 76 Fed. (2d) 112, affd., 297 U. S. 106; Maurice P. O’Meara, 8 T. C. 622, 632. I have no quarrel with the statements of law contained in the foregoing quotations from the majority opinion; I simply do not believe that they have any application to these proceedings. The lessee, which was Continental, paid nothing to the lessor, which was Rumford Falls Power Co., for the cancellation of any lease. In fact, no lease was cancelled. What happened was that Oxford agreed to take over the lease and assume all of its obligations in consideration of Continental transferring to it $100,000 in cash, 60 shares of stock in another corporation and land and buildings known as the Island Division Plant. Under these circumstances, it seems to me that the Commissioner is correct in taking the position that the transaction of December 7, 1936, was fundamentally an acquisition of property which must be treated like a purchase, and a purchase does not give rise to any gain for income tax purposes; consequently, the property acquired does not take as its basis thereafter its fair market value on December 7, 1936. It seems to me that if Oxford is to be allowed depreciation on the Island Division Plant it must be based upon cost to Oxford and not upon the fair market value of the plant at the time of acquisition. That seems to have been the view of the United States District Court for the Southern District of New York in Oxford Paper Co. v. United States, supra. In this latter case the court said in dealing with another taxable year with respect to the same transactions we are here considering, as follows : * * * Oxford bought land, buildings, machinery and equipment and water rights from Continental. It paid therefor by assuming a fixed monetary liability of the seller, and undertook another obligation, to lease to International. The basis for depreciation of property obtained in consideration of the assumption of liabilities is the amount of the liabilities assumed. Consolidated, Coke Co. v. Comm’r, C. C. A. 3, 1934, 70 Fed. (2d) 446 * * * This basis is, of course, the cost to the taxpayer of the property. * * * I think the District Court for the Southern District of New York was correct in the above statement as to the law governing Oxford’s basis for depreciation on the depreciable property which it acquired from Continental. The stipulated facts in the instant case do not, in my opinion, sufficiently identify petitioner’s cost of the property in question to enable us to say what depreciation, if any, petitioner is entitled to have allowed over and above that which respondent has already granted based on the cost of capital additions which Oxford has made to the property since it was acquired from Continental in 1936. I would, therefore, sustain respondent on this issue. Arundell, Hill, Disnet, and Harron, JJ., agree with this dissent.