Court Opinion

ID: 4487647
Source: CourtListenerOpinion
Date Created: 2020-01-17 22:00:53.286835+00
Date Added: 2024-06-11T15:04:30.122841
License: Public Domain

Phillips :
I d,issent from the prevailing opinion so far as it holds that the amounts expended by the petitioner in rearranging its plant for peace-time production may not be deducted as an ordinary and necessary expense of .its business in the year when the plant was rearranged.
In the instant case it appears from the findings of fact that the plant of the petitioner was enlarged and rearranged for the purpose of handling war contracts; that new buildings were constructed and new machinery and equipment purchased and installed. The emergency having ended, petitioner found it necessary to restore its plant to the condition in which it was prior to the emergency. The cost of so doing appears to me to be not only an ordinary and necessary expense of the business but, in my opinion, added nothing to the capital value of the plant as it already appeared in the financial structure of the petitioner.
The Board has heretofore held, and it seems to me properly so, that the cost of installing machinery is properly to be capitalized as a part of the cost of such machinery and recovered by an allowance for the exhaustion thereof, or otherwise, as are other costs. To require the petitioner to include in its capital, as a part of the cost of its plant, the original cost of installing the machinery, the cost of tak*1311ing this same machinery out or rearranging it for war-time production, and the cost of reinstalling the same machinery or rearranging it for peace-time production appears to me to be not only a misapprehension of the situation but a distortion of asset values which is contrary to the facts and which can not be justified.
While it may be that in some circumstances the cost of rearranging an entire plant is an extraordinary rather than an ordinary expense, we must look to all of the surrounding circumstances in each particular case. What may be an extraordinary expense under ordinary circumstances may well be an ordinary expense under extraordinary circumstances. The situation which arose out of the war called upon the industries of the country to abandon peace-time production for the manufacture of the necessities of war. It was generally recognized that production under war-time contracts would be temporary. The expense to which a manufacturer, such as the petitioner, was put in rearranging its machinery to meet the situation and in restoring its plant after the emergency for its normal peacetime pursuits, seems to me properly to be classified, in view of all the circumstances, as an ordinary and necessary expense of the business properly chargeable against the income from war contracts. I can conceive of no basis upon which such expenses can properly be considered as adding to the capital value.