*806OPINION.
Koener : The record in this appeal clearly warrants the conclusion that the items $3,804.68 and $627.78, expended in 1918 and 1919, respectively, were for improvements and betterments to leased properties and as such constitute capital expenditures which should be charged off ratably over the life of the lease. Appeal of National City Bank of Seattle, 1 B. T. A. 139.
The Supreme Court of the United States has made it clear that expenditures for additions and betterments are properly chargeable to capital account. In Illinois Central R. R. Co. v. Interstate Commerce Commission, 206 U. S. 441, at page 462, the court, in distinguishing between “ capital expenditures ” and “ ordinary and necessary expenses,” said:
The findings show that the old rates were profitable and that dividends were declared even when permanent improvements and equipment were charged to operating expenses. But may they he so charged? Appellants contend that the answer should he so obviously in the affirmative that it should be made an axiom in transportation. On principle it would seem as if the answer should be otherwise. It would seem as if expenditures for additions to construction and equipment, as expenditures for original construction and equipment, should he reimbursed hy all of the traffic they accommodate during the period of their duration, and that improvements that will last many years should not he charged wholly against the revenue of a single year.
Again at page 463 it is said:
We think it is clear that instrumentalities which are to be used for years should not be paid for hy the revenues of a. day or year; and this is the principle of returns upon capital which exists in durable shape. (Italics ours.)
The same court, in Union Pacific R. R. Co. v. United States, 99 U. S. 402, page 420, said:
Theoretically, the expenses chargeable to earnings include the general expenses of keeping up the organization of the company, and all expenses incurred in operating the works and keeping them in good condition and repair; while expenses chargeable to capital include those which are incurred in the original construction of the works, and in the subsequent enlargement and improvement thereof. (Italics ours.)
The case of Central Railroad Company of New Jersey v. Duffy, 289 Fed. 354, was called to our attention by the taxpayer. That case is now befoie the Supreme Court of the United States for review upon writ of certiorari. But in any event the decision of the Circuit *807Court of Appeals therein is not authority for taxpayer’s position in this appeal. In that case the leases stipulated for certain performances by the lessee as a condition to the tenancy of the lessee. The expenditures made by the lessee in so performing were construed by the Circuit Court of Appeals to be ordinary and necessary expenses paid as a condition to the continued use and possession of the properties, under the Revenue Act of 1916. There is no hint in the record here that the lease of the taxpayer contained any such provision. The taxpayer made these enlargements, additions, and alterations on its own initiative and not in performance of a condition necessary to hold its lease. The case just referred to is clearly distinguishable.
The item $1,268.20, representing the cost of improvements made to property occupied by taxpayer as a tenant at will, is conceded by the Commissioner in his answer to the petition to be a proper deduction.
In our opinion the purchase and resale of 94 shares of its outstanding capital stock by the taxpayer constituted a capital transaction. To the extent of the par value of the 94 shares ($9,400), the capital account of the taxpayer was reduced. To the extent the price paid for these 94 shares exceeded par, there was a reduction in the surplus account of the taxpayer, and a distribution of surplus to the seller of the stock resulted. While it may be true that the purchase of this stock by the corporation did not in fact constitute a retirement of the stock, yet, in so far as such treasury stock was treated by the corporation as an asset, it could have an asset value per share equal only to the remaining assets of the corporation divided by the shares of stock outstanding. Since there had been a diminution of surplus in acquiring this stock, the stock had a relatively less value in the hands of the corporation.
The record discloses that the average price per share paid by the corporation for the 94 shares was $222.84 per share. There is no evidence but that the stock so acquired had that value at the time of its purchase. At this value per share, the total outstanding 323 shares had a value of $71,977.32. When $20,947.01 had been paid for these shares, the value of the whole issue was reduced by that amount and the total value of the issued and outstanding stock (323 shares) was reduced to $51,030-31, or $158 per share. It follows, therefore, that as to the difference between $222.84 per share and $158 per share, this treasury stock did not have an asset value— unless speculative. It is well settled that this transaction of purchase of its own stock did not result in a loss to the corporation.
But the taxpayer contends that the resale of this treasury stock was a separate transaction and resulted in a realization of loss in the amount of difference between $222.84 per share, at which purchased, and $110 per share, at which sold. We have shown above that there was not a realization of loss to the extent of the difference between $222.84 and $158 per share. The query remains: Was there a realized loss of the difference between a value of $158 per share and the price at which the stock was sold, viz, $110 per share ? That is, was there a realized loss of $48 per share on 94 shares?
In our opinion, there was not. The corporation held shares of its own capital stock having an asset value of $158 per share. To *808the extent of their par value the capital liability of the corporation was reduced and the assets of the corporation gave a correspondingly greater value to the remaining shares outstanding. This is true although it be conceded that there remained a liability on the corporation for these shares of treasury stock, because such liability was to the corporation itself and upon liquidation inured to the benefit of the shareholders holding the remaining shares. When these shares were resold the capital liability of the corporation was restored to its original liability on 323 shares at par. If, then, the corporation had received $158 per share from the purchasers of these 94 shares, there would have been no disturbance of the balance— both assets and liabilities would have been increased in an equal amount.
But the sale was made for $110 per share instead of $158 and, although the capital liability of the corporation was thei*eby increased $9,400, its surplus account was not increased proportionately, the difference being $48 per share. What was the practical effect of this transaction under these circumstances? As we view it, it constituted merely a further distribution of surplus to the extent of $48 per share to the purchasers of this stock. By acquiring these additional 94 shares of stock, Simmons and Hammond increased their proportionate share in a distribution of the corporate assets without contributing proportionately to the asset account in their purchase of the shares. The loss, if any, under these circumstances, resulted to the remaining stockholders who held 41 shares out of a total of 323. A corporation can not be said to be the loser when it distributes its surplus by agreement of the stockholders. It may be that by such a distribution certain of the stockholders suffer dimimition in the value of their holdings, but this is not a loss to the corporation.
It was urged upon us that shares of its issued and outstanding stock repurchased by a corporation, representing treasury stock, are in as full a sense an asset as would be Liberty Bonds or commercial securities. An analysis of this position discloses its fallacy. Such bonds and securities have an asset value totally divorced from any liability thereon of the corporation holding them. The capital liability of such a corporation remains undisturbed by the purchase of such securities. It is readily apparent that such is not the case where a corporation purchases shares of its own stock. Irrespective of how the corporation may choose to treat such stock, there is nevertheless a very real shifting and adjustment of assets and liabilities which takes place perforce. There may be such a treatment of the transaction by the corporation as to show a bookkeeping loss or gain (as was the case here), but it is not actual and real. For that reason we hold that there was in the instant appeal no actual or realized loss. We are of opinion that the method used in this transaction by the corporation was in truth and fact a distribution of surplus to Simmons and Hammond. Much could be said in support of this view upon an analysis of the manner in which the sale was made to Simmons and Hammond, but we are satisfied that our conclusion is correct on principle and does not require the support of such analysis. The determination of the Commissioner in this respect is approved.