dissenting in part: I must disagree with the conclusion of the majority regarding the deductibility of the taxes paid by the taxpayer. I agree that the payment of these taxes is a form of additional rent and that the answer to the question turns on the interpretation of the lease. However, I disagree with the majority’s interpretation of the lease.
Since this taxpayer used the accrual method of accounting, the question is when did it incur the liability to pay the taxes — not when were such taxes to be paid. There are pertinent portions of the lease that were not quoted in the majority’s opinion. The full paragraph 7 provides:
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, and -which shall tee due and payable during the term of 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.
It seems clear to me that this paragraph imposed a liability upon the taxpayer when the taxes were assessed. The obligatory part of the paragraph states that the lessee shall pay all real estate taxes “which shall or may during the term of the lease be charged, laid, levied or assessed on said demised premises.” Thus, under this language, the obligation arose when -the taxes were assessed during the lease. Such interpretation is reinforced by the provision that the obligation applies to real estate taxes “insofar as and to the extent that, the same pertains to the period of this lease.” In addition, the real estate taxes are treated in tie same manner as the payments for “water rents, gas and electric light and power bills.” If our question concerned the water rents or the gas and electric bills to be paid by the lessee, it seems clear that the lessee’s obligation applied to the water, gas, and electricity that it used during the lease — and not to those bills which happened to come due during the lease. Finally, the lease as originally drawn apparently restricted the lessee’s obligation to those amounts “which shall be due and payable during the term of this lease”; however, this phrase was stricken from the lease, and the modification was initialed by the parties. This change in the terms of the lease makes it abundantly clear that the parties considered the question and decided that the obligation did not apply merely to those payments which became due during the lease. Taking all these circumstances into consideration, I am convinced that the lessee’s liability arose when the taxes were assessed.
The majority’s interpretation rests in part on the provision relating to what happens if the lessee does not make the required payments. In my opinion, this provision merely sets forth a procedure under which the lessor can protect his interest in the property by making the payments when the lessee fails to perform his obligation. This provision did not establish the lessee’s liability, nor fix the time when such liability was incurred.
There is some evidence that during the first year of the lease, the parties understood the obligation to apply to the taxes that became due at that time. Although this understanding of the parties is pertinent in interpreting the lease, it does not overcome what I consider to be the clear meaning of the terms of the lease.
Tietjens and Hott, //., agree with this dissent.