*384OPINION.
Geeen :The petitioner is here seeking to take as a deduction' as a business expense in the year 1921 the amount expended by him in procuring the cancellation of a lease with an unexpired term of six years on property owned by him. This cancellation he procured in order that he might make a new lease at an advance in rental of $410 per month. In deciding whether' the petitioner is correct in his contention, we must first determine whether the expenditure made by him was made in the ordinary course of business or was made in the acquisition of a capital asset, for if made in the acquisition of a capital asset, the cost thereof may not be deducted as an ordinary and necessary business expense in the year of payment.
It seems unnecessary to cite authorities for the principle that a lessee under and by virtue of the terms of his lease acquires an interest in real estate. Likewise it seems unnecessary to cite authorities for the principle that amounts expended in the acquisition of real estate, and consequently an interest therein as well, are capital expenditures and that such amounts, in the computation of net income may not be deducted as ordinary and necessary business expenses of the year.
The more difficult problem is that which involves the return, to the person who thus acquires a leasehold interest, of the amount of his capital expenditure. It may be well argued that, since the law presumes a merger where the lessor acquires the interest of his lessee, the cost to the lessor is deductible in the year of the expenditure, since by reason of the merger the asset which he thus acquired is entirely wiped out. It seems to us however that the contrary view is the better. Prior to the acquisition of the outstanding leasehold by the lessor, his rights to the use and possession of the premises so leased were limited by the lease. As the result of the expenditure he acquired for himself the six-year leasehold right theretofore vested in the lessee and by so doing he, for a sufficient interval of time, became his own lessee. True, the law presumes a merger of the two interests, but before that can occur the lessee’s interest must vest in the lessor. The amount thus expended is a capital expenditure made in order to obtain possession of premises for a period prior' to the time the petitioner would have come into possession under the terms of the lease and affords to him no benefits beyond the period for which the payment is made. The amount so expended was paid for the right to enjoy the possession of the premises for the unexpired term of the lease — that is to say, it is an amount expended in the acquisition of a capital asset having a life of a definite number of years. The petitioner’s right to spread the cost of the acquisition of the capital asset over its life and deduct annually an aliquot part thereof is not affected by the subsequent merger of the interest thus *385acquired with the fee interest theretofore held by him. We think the respondent’s action in allowing the petitioner herein to deduct annually only an aliquot part of the cost of the leasehold interest is correct and his action in so doing is accordingly affirmed. Appeal of Mandel Brothers, 4 B. T. A. 341.
The conclusion here reached is contra to our conclusion in Higginbotham-Bailey-Logan Co. v. Commissioner, 8 B. T. A. 566.
Reviewed by the Board.
Judgment will be entered after 15 days’ notice, under Bule 50.