*136 Decision will be entered for the respondent.
*809 OPINION.
The Commissioner notified the petitioner that its applications for relief under
The argument of the petitioner is that its officers, during the latter part of the base period, decided that an enlargement of its selling space was necessary in order to increase its sales; a leading firm of store*139 designers assisted its officers in studying this problem; it employed an architect in 1939 to prepare plans and specifications for enlargement of the store; it notified a tenant in 1939 to vacate, at the end of its lease on March 31, 1940, property on which a part of the new building was to be erected, and the tenant agreed, prior to January 1, 1940, to vacate; a contract was signed in February 1940 for work in connection with the enlargement of the store; the work was begun on April 1, 1940, and the new areas were completed and open to the public on October 30, 1940; the construction increased the floor space 20.4 per cent and the selling space 25.95 per cent; and these changes represented a change in its capacity for operation within the meaning of
Such a commitment may be proved by a contract for the construction, purchase, or other acquisition of facilities resulting in such change, by the expenditure of money in the commencement of the desired change, by the institution of legal action looking toward such change, or by any other change in position unequivocally establishing the intent to make the change and commitment to a course of action leading to such change. * * *
*811 The facts show that the officers had definitely decided prior to January 1, 1940, to make some changes which would add floor space and selling space to the store building. The notice which they gave to a tenant occupying part of the existing premises which they intended to demolish in order to build additional store space was a "legal action looking toward such change." The employment of an architect unequivocally led to "the expenditure of money in the commencement of the desired change." Furthermore, these acts and the decisions which led to them represent a "change in position unequivocally establishing the*141 intent to make the change." The evidence as a whole justifies the conclusion that the petitioner was committed to a course of action prior to January 1, 1940, leading to substantial changes which actually took place beginning early in 1940. Cf.
Once it appears that the petitioner has changed the character of its business, the next questions are whether the average base period net income does or does not reflect the normal operation for the entire base period of the business, what the earning level would have been at the end of the base period if the change had been made 2 years earlier, and, finally, what would be a fair and just amount to represent constructive average base period net income.
The petitioner, proceeding along these lines, claims that its actual earnings for the base period should be increased by 12 per cent to arrive at constructive average base period net income. It recognizes that mathematical accuracy in such computation is not possible and approximations must be made. The opinion evidence on which it relies involves improper use of events occurring after December 31, 1939. The record as a whole does not justify any such optimistic conclusion and, in fact, leaves grave doubt as to whether the base period earnings would have been substantially greater if additional space had been available for the operation of the business during that period.
Additional selling space during the base period might have enabled the petitioner to make additional sales and earnings, but not necessarily. An increase in space brings increased depreciation, upkeep, and other expenses, so that any resulting increase in sales must first offset these deductions and others before increased earnings develop. *812 The petitioner's sales from 1925 through 1930 ranged from $ 2,642,000 to $ 2,839,000*143 despite the fact that it did not have in any of those years the additional space on which it bases its present claim for relief. Sales did not approach those amounts during the period 1936 through 1940 and for 1941 they were only $ 2,562,601.40. The implication from those figures is that its sales and earnings during the base period were limited and affected by factors other than insufficient floor space. Cf.
The evidence does not justify a finding that the average base period net income does not reflect the normal operation of the petitioner's business for the entire base period, that its earning level would have been greater at the end of that period if the changes made in 1940 had been completed on December 31, 1937, or that a fair and just amount to represent constructive average base period net income would exceed the amount of $ 176,129.81, to which the petitioner is entitled under section 713 (e).
Reviewed by the Special Division.
Decision will be entered for the respondent.