*389OPINION.
Marquette :Two questions are presented for decision on this appeal; first, whether the amounts paid by the taxpayer to the City Dairies Co. and the Wilco Farms Dairies for customers of said companies required by it under the contracts for the sale of the respective retail dairy businesses of those companies were capital expenditures or ordinary business expenses, and second, whether certain inventory losses were properly deducted.
With respect to the first question, it is the contention of the taxpayer that amounts paid by it for customers of its vendors under the contract by which it acquired their dairy routes and business were essentially ordinary business expenses, and not capital expenditures. The Commissioner held such amounts to have been paid for good will and has charged the same to capital account and disallowed the deduction thereof as an expense.
The taxpayer entered into a formal contract with the City Dairies Company whereby it specifically purchased the good will of the City Company in its retail business in the sale of milk, cream, and dairy products in St. Louis. Provisions were inserted in the contract binding the vendor to use its best efforts to induce its customers to become and continue customers of the taxpayer, and restraining the vendor from engaging in the business for a period of ten years. The consideration for the transfer of the good will and retail trade was fixed by the contract at a certain price per customer for all customers who should receive products continuously from *390day to day for fifteen days, and in any event the taxpayer was bound to pay such price per customer for 75 per cent of all former customers who should deal with it for one day. Under the terms of this contract the taxpayer paid to the City Dairies Company for customers obtained the sum of $20,980.50.
We think this contract was intended to and did transfer to the taxpayer the good will of the City Dairies Co. in its retail trade in the territory purchased, and that the amount to be paid for such good will and trade was to be determined by the number and kind of customers retained and the length of time they were served by the taxpayer. The retail business of the vendor in the particular territory was the thing which this taxpayer sought to acquire, and the principal asset of value in such business was the good will which had been built up over a period of time; in fact, almost the entire value of the business was good will, and the tenor of the entire contract strongly emphasizes this fact, and seeks to make it effective to this taxpayer.
The Wilco agreement was likewise a proposal to sell its St. Louis milk routes on the basis of payment in accordance with the number of customers served continuously for fifteen days, with the privilege of using the Wilco trade name for a period of two years or longer. The proposal made no mention of good will other than the right to use the name, but we think this is of little importance. The thing sold was the milk routes and as we have said, the principal thing of value in connection with the routes was the good will pertaining to the business. In these circumstances we think the rule should apply that where a contract for the sale and transfer of a business omits to mention the good will, the presumption is that it was the intention of the parties that the good will should pass, and this presumption should be even stronger when the principal asset of value is the good will of the business. This results from the fact that the good will can not exist except in connection with the business. Didlake v. B. F. Roden Grocery Co., 49 So. 384 (Ala.), 22 L. R. A. (N. S.) 907. Under this agreement we think the payment for milk routes, the price of which was measured by the number of customers obtained and retained for a specified period, resulted in the acquisition of a capital asset the principal element of which was good will.
The basis of the taxpayer’s contention is that good will does not exist by itself and must be attached, or incident to something tangible, and can be sold only in connection with the thing to which it is attached. This is no doubt true when properly understood, but we think the taxpayer’s conception of good will is too narrow. It is true that it can exist only as an incident of a business, but it is not necessary that it be connected with a place of business, or a particular article, although that is sometimes the fact. The old definition of good will as “the probability that the old customers will resort to the old place ” has long since been superseded and the term now includes all that good disposition of one’s customers based upon reputation for skill, punctuality, or other incidental circumstances, which constitute the good reputation one enjoys in a particular business as an incident thereof. (12 Ruling Case Law 977.) In this sense it is attached to the business and is subject to *391sale as a part of tbe business. To say it must be attached to something tangible is to deny that good will can be acquired in the conduct of a retail dairy business where the delivery is to the customer. In such case there is no place to which good will could attach, and if it arises at all it must result from the product or the service rendered, and we think where the business consists of service it is capable of sustaining good will as an incident. Good will is not something which can be delivered like merchandise, but as recognized in all the definitions, it is the probability or expectation of retaining the old customers and that probability or expectation is all a purchaser can acquire. Its value is problematical and the purchaser in this case realized that fact to such an extent that the amount to be paid therefor was made to depend upon the number of customers obtained. We have no doubt that the purchases under both the contracts herein were of businesses the principal assets of which were good will and as such constituted capital expenditures rather than ordinary business expenses.
The second question results from the disallowance of certain inventory losses claimed by the taxpayer in the calendar year 1921. The taxpayer’s books showed purchases of cattle in October, 1921, at an aggregate cost of $31,070, and the inventory of the cattle was written down at December 31, 1921, to $9,465 as the result of an appraisal, showing a decrease in market value of approximately 70 per cent in three months. The commissioner disallowed the loss and deducted depreciation at the rate of 20 per cent per year based upon cost.
The facts disclosed by the testimony show that the contract for the purchase of 145 head of the cattle at $200 per head was made in September, 1920, at which time taxpayer reserved the right to have the cattle appraised. The taxpayer exercised this right, and about October 1, 1920, caused the cattle to be appraised and notified its vendor that the appraisal was satisfactory. No part of the cattle was delivered until September, 1921, and payment was completed on October 26, 1921, but the product of the cows was delivered to taxpayer from the time of sale and the cattle were at its risk. The testimony shows to our satisfaction that it was the intention of the parties that the title should pass upon the appraisal proving satisfactory, and that the title to this herd passed to the taxpayer in October, 1920. The testimony shows that the market for cattle had been falling for some time prior to this sale and has since continued to fall, and that at December 31, 1920, the value of the cattle in this herd had decreased $25 per head. We are further satisfied, from the evidence, that the market value at December 31, 1921, due to the condition of the cattle, was approximately that at which it was returned by the taxpayer.
We are of opinion that the loss in value from the time the title passed should follow the title and that the cattle should have been included in taxpayer’s inventory in October, 1920, and should be written down at the end of that taxable period to represent the market on December 31, 1920, and the loss to that time absorbed in that period. We think further that the inventory should show all increases or losses in inventory in each period since October, 1920, and the inventory loss on cattle adjusted accordingly in the calendar year 1921.