*255OPINION.
Trussell :The taxpayer in this appeal, at the time of its organization, became the owner of a contract for the production and sale of merchandise to be performed over a period of six years, involving more than half a million dollars worth of merchandise at the selling prices, and took this contract into its capitalization at a stated value of $25,000 for which stock shares were duly issued. This contract had been negotiated a few days before it was assigned to the tax*256payer by Charles Howell Cook, who was also the promotor and sole beneficial stockholder of the taxpayer corporation.
. The question for our determination is: Did this contract, at the time it was assigned to the taxpayer corporation, have such a capital value as will warrant its being written off for exhaustion over the term it was to run, under that provision of the Revenue Act of 1918 authorizing a deduction from gross income for the exhaustion of property used in business ?
When men enter into business contracts they expect .that operations under such contracts will prove profitable and beneficial. This expectation is the motive for making the contract and the expectation of profits to be derived from business contracts is the foundation of a large portion of the world’s business.
We have no doubt that in many instances contracts of a character similar to this one do immediately upon their execution possess elements of considerable value and that such value may be established by competent evidence respecting the terms and conditions of operation under the contract. Such value inherent in a contract at the time of its execution, however, must be established by reliable evidence, and we are of the opinion, should also be supported and corroborated by proof of profitable operations under the terms of the contract. The one fact relied upon in this case, the absence of the necessity of paying selling commissions, although an important and favorable factor, is not sufficient to prove value in the absence of evidence showing that profits were reasonably anticipated and that operations under the contract itself produced profits, and it is not even shown in this case that the absence of the necessity of paying selling commissions was not taken into consideration in arranging the terms of the contract.
The deduction from gross income wjhich the law authorizes is for the replacement of capital values as such values gradually become exhausted. The computation of gross income and of deductions therefrom must be made in terms of dollars and it seems to follow that capital values, before they can be subject to exhaustion for the purposes of the income-tax law, must also be expressed in terms of dollars.
The evidence presented in this case shows that the contract under consideration contained terms and conditions which could easily be regarded as warranting the confident belief that operations under it would be unusually profitable to the producer.
The contract provided for the production and sale of $575,000 worth of merchandise over a period of six. years. The buyer was one of the largest dealers in such merchandise in the country. The prices, after the first year, were to be measured by the going prices of other manufacturers for such years, and the goods could oe produced and delivered without any selling expense or other costs, except the cost of production and of shipping. All of these facts combined to make a situation which would no doubt have convinced any business man that this contract was valuable. This value, however, was undetermined and rested wholly upon expectations of profitable operations under the contract.
Following the taking over of this contract the taxpayer organized its production business, produced goods and delivered them under the contract, and produced other goods and sold them to the general *257trade. It appears that for several years its business did result in some annual profits, but whether such profits arose from the goods produced and sold under the contract or whether they arose from goods produced and sold to the general trade does not appear from the evidence, and the record is wholly silent as to whether or not operations under this contract actually resulted in profits. We are, therefore, uninformed as to whether the expectation of realizing profits from this contract, which its maker and the taxpayer relied upon, was ever realized. The mere fact that the goods produced and delivered under the contract were not subject to salesmen’s commissions, and perhaps other selling expenses, is not sufficient, without other evidence, to prove value in the contract, and we are unable to accept the taxpayer’s contention that the then present worth of salesmen’s commissions, which might have been paid upon a volume of sales equal to that described in the contract, is proof of a capital value inherent in the contract. We are also of the opinion that the transfer of this contract from Cook to the taxpayer corporation did not in itself establish a capital value. We take this view for the reason that Cook was himself the promoter and was to become the sole beneficial stockholder of the corporation, and the transaction was not one between independent minds making a sale and purchase upon which a selling value could be predicated.
This leads us to the conclusion that the evidence in this case is insufficient to furnish any basis for computing a definite capital value inherent in this contract as of the day it was taken over by the taxpayer corporation, and that there has been furnished no reliable testimony from which there could, by any possible means, be evolved a formula for translating the initial expectation of profits into terms of dollars, and that there can not be said to have existed any determinable capital value based upon this contract which is capable of having ascribed to it the kind of exhaustion which the taxing statute authorizes to be written off and deducted from gross income. We are, therefore, of the opinion that the taxpayer’s claim for such deduction must fail.