*120OPINION.
Lansdon:Since the taxpayer’s first two contentions involve the value of the so-called theatre leases, these points may be regarded as a single issue. No copy of the instruments evidencing the alleged leases was offered at the hearing, but the testimony indicates that the contracts, made for an average term of five years, are of such a nature as to entitle the taxpayer to exhaust or depreciate their cost, if any, for the purpose of ascertaining its invested capital and correct income for the years in question. It is well established that the proved cost of leases, patents, and contracts may, within the statutory limits, be included in the computation of statuory invested capital for excéss profits purposes, that such cost, or March 1, 1913, value, may be exhausted ratably during the useful life of such property, and that such exhaustion is a proper deduction from gross income for each of the years in which it occurs. In the instant appeal, however, there is no evidence of any cost of the so-called leases. On the contrary, the testimony of the president of the taxpayer discloses that such leases were obtained without cost, except that in some instances an advance payment was made which invariably was deducted from the contract amounts specified for services under the lease.
The taxpayer obviously has capitalized its estimate of the earning power of the leases or contracts. The capitalized value of such property is not included in the statutory definition of invested capital, and was properly excluded by the Commissioner in his computation of the taxpayer’s liability for profits taxes. As the so-called leases were acquired without any cost that the taxpayer has established, there is no basis in law or in fact for their inclusion in invested capital for profits tax purposes. The action of the Commissioner in disallowing exhaustion of such leases for the year 1921 must be approved.
The evidence discloses that the Commissioner erroneously added the amount of $6,537.63 to the taxpayer’s income for the year 1919, as such amount was not taken as a deduction from gross income on account of exhaustion of theatre leases, but represents the taxpayer’s own adjustment of the book value that it ascribed to the capitalized earning power of the leases in question. The Board, therefore, holds *121that such amount should not be included in the taxpayer’s gross income for the year 1919.
The record of this appeal is not clear in respect to the taxpayer’s contention as to over-statement of closing inventories and consequent over-statement of profits earned during the taxable years in the respective amounts of $4,596.13 and $4,151.24. The petitioner asserts that its closing inventories for such years were erroneously computed by adding costs of purchases and of production to the opening inventories for the respective years, without making any adjustments for sales and abandonments on account of obsolescence, and that an actual physical inventory at the close of each of such years showed that films in stock at December 31, 1919, December 31, 1920, and December 31, 1921, had cost $23,660, $18,575.25, and $26,294.25, respectively.
The evidence on this point, which we have been able to include in our findings of fact, indicates that some of the inventoried films were capital items, and that some were stock in trade. There is nothing in the record that enables us to distinguish between the two classes of films or to find any definite value for either. Nor is there any satisfactory evidence of the value or cost of such films. The testimony discloses that some of them were purchased from other producers, and that some were manufactured by the petitioner, but there is no evidence that the figures of value on the inventories represent cost or cost or market, whichever is lower, even as to such items as might be properly classified as stock in trade. The Board, therefore, approves the action of the Commissioner in refusing to readjust the figures of the petitioner’s original or book inventories.
Order of redetermination will l>e entered on 15 days' notice, under Rule 50.