dissenting in part: I think the majority opinion correctly sets forth the general test of deductibility but then misapplies it to the facts of this case.
The findings of fact contained only a partial quotation of the applicable provision of the basic lease, which was specifically incorporated by reference in the sublease. The full provision is as follows:
7. Lessee will pay, in addition to the rent above specified, all water rents, gas and electric light and power bills and all real estate taxes, charges, and assessments, and governmental impositions in lieu of or in substitution for real estate taxes, charges, or assessments, which shall or may during the term of this lease be charged, laid, levied or assessed on said demised premises, insofar as and to the extent that, the same pertains to the period, of this lease, or any extension thereof, sad wfeiefe shall fee due aad payable during the terui ef this lease? and in case said water rents, bills for gas, electric light and power and real estate taxes, charges, and assessments, and such governmental impositions shall not be paid when due, Lessor shall have the right to pay the same, which amounts so paid are declared to be so much additional rent and payable with the installment of rent next due thereafter, provided, however, that nothing herein shall prevent Lessee from contesting, protesting or reviewing by legal proceedings, or in such other manner as may be legal, in Lessor’s name or otherwise (which, if instituted, shall be conducted at Lessee’s own expense) any tax, water rent or utility bill or other such governmental imposition. (Emphasis added.)
The words “and which, shall be due and payable during the term of this lease” were obviously stricken from the original draft of the basic lease and such action was initialed by the parties to that lease.
The lien date was April 1. The tax year was the calendar year. By December 31, the petitioner had been in possession of the leased premises for all or part of the calendar year, and the precise amount of the tax attributable to its period of occupancy had been fixed. Thus, the taxes had been “charged, laid, levied or assessed” and they clearly met the requirement that they “[pertain] to the period of [the] lease.” Consequently, all of the events had occurred to fix petitioner’s liability. That the determination of its liability was not postponed until the following year, when the taxes became “due and payable,” is self-evident from the fact that the language specifically providing for such postponement had been excised from the basic lease.1
As far as Denholm & McKay Co., 39 B.T.A. 767 (1939), is concerned, I disagree that it is distinguishable simply on the ground that the petitioner therein was “primarily liable” for the real estate taxes. The fact of the matter is that, in that case, the issue before the Court was capitalization versus expense of the amount representing taxes and the question of the time of accrual of the obligation to pay that amount was not in dispute.
On the basis of the foregoing, I would hold that the petitioner is entitled to deduct, for each calendar year or part thereof, an amount equal to the taxes attributable to the period of petitioner’s occupancy.
TietjeNS and Hoyt,//., agree with this dissent.It appears that, in the first year of the sublease, petitioner paid amounts representing taxes attributable to the presublease period. The record is not clear in this regard and. in any event, it does not seem that such action in and of itself should be deemed sufficient to overcome the clear language of the agreement.