*568OPINION.
MaRquette:The parties hereto appear to be in accord as to the cost of the petitioner’s power plant, the rates that have been used in computing the exhaustion, wear and tear thereof, and the depreciated cost as of December 31, 1918, using those rates. The petitioner contends, however, that the allowance made by the respondent for exhaustion, wear and tear of the plant during the year 1919 is inadequate in that it does not take into consideration the fact that the plant was obsolescent in the year 1919 and became obsolete in the year 1923. The respondent denies that the plant was obsolescent in the year 1919.
Section 234 (a) (7) of the Revenue Act of 1918 provides that, in computing the net income of a corporation subject to tax, there shall be allowed as a deduction “ a reasonable allowance for the exhaustion, wear and tear of property used in the trade or business, including a reasonable allowance for obsolescence,” and it is under the authority of that provision that the allowance involved herein is claimed.
Obsolescence is a state or process of becoming obsolete. It is a process more or less gradual, and a deduction is spread over the years from the time the process begins until the property becomes obsolete. Appeal of Jackson County State Bank, 2 B. T. A. 1100. However, whether or not property belonging to a taxpayer is obsolete is a question of fact to be determined from the evidence in each case. In the Appeal of Columbia Malting Co., 1 B. T. A. 999, we had occasion to pass upon the question of obsolescence of property used in a trade or business and the discussion therein is applicable here. In that appeal we said:
In order tliat the taxpayer may bo entitled to the obsolescence deduction in the years involved, there must have been substantial reasons for believing that the assets would become obsolete prior to the end of their ordinary useful life, and second, it must have been known, or believed to have been known, *569to a reasonable degree of certainty, under all the facts and circumstances, when that event would likely occur. The purpose of the statute is to permit the capital invested in assets to be returned to a taxpayer out of earnings over the life of the property in the business. A reasonable deduction is allowed on account of the exhaustion, wear, and tear of property. This includes obsolescence, if the property is becoming obsolete, so that by the time it reaches that state the entire cost thereof will be restored. While it is known that physical property is ordinarily subject to exhaustion, wear, and tear from use in the business, it may not be known that it is also becoming obsolete. Whether it is, is a question of fact in each case. When it is found that property is becoming obsolete, a deduction on that account can only be determined by ascertaining, as accurately as possible, when the property may be expected, under the circumstances, to be no longer commercially useful notwithstanding its physical condition. In the ease of a deduction on account of exhaustion, wear and tear of property used in the business, if it can not be determined that the property is subject to wear, tear, and exhaustion, or what the approximate life of the property, under all the facts and circumstances, is, there is no basis for determining the deduction. With respect to obsolescence, if it can not be determined that the assets will become obsolete prior to the estimated date of the physical exhaustion thereof, or if a reasonably definite date can not be ascertained, there are no means of determining what is a reasonable allowance on that account.
We are satisfied from the evidence presented herein that the petitioner’s power plant became obsolete in the year 1923, and that the process or state of obsolescence began as early as January 1, 1919, and was known to the petitioner’s officers at that time. During the years 1917 and 1918, the demand for electric current on the part of 111© petitioner’s customers became so great that it was manifest that by the year 1923 the petitioner would either have to acquire more adequate service through the medium of a second high-voltage power line to bo built by the Power Company, or rebuild its own plant. The petitioner’s contract with the Power Company was subject to adjustment or cancellation in the year 1923. If the.Power Company should build a second high-voltage line by that time the petitioner would be assured of current adequate for its needs at a less cost than it could produce current in its own plant, and in that event its plant would be obsolete and worthless. If the Power Company should fail to construct a second high-voltage line by the year 1923, the petitioner would be compelled to generate current to supply its customers and would be under the necessity of constructing an entirely new plant for that purpose, as its existing plant was wholly inadequate and it was not economically feasible to add additional units thereto. In any event, it was known to the petitioner’s officers as early as the year 1919, at least with a reasonable degree of certainty, that the petitioner’s plant would become obsolete in the year 1923, and would have to be sold or dismantled. We are, therefore, of the opinion that the petitioner is entitled in computing its net income for the year 1919, to deduct a reasonable allowance for the obsolescence of its plant.
*570We will not attempt here to determine the rate that should be used in computing the allowance to which the petitioner is entitled on account of the obsolescence of its power plant. It appears that the respondent has determined that the useful life of the unit installed in 1904 will expire in 1927; that the useful life of the unit installed in 1910 will expire in 1939, and that the allowance for exhaustion, wear and tear has been computed on each unit separately. However, as we have stated above, there appears to be no dispute as to the depreciated cost or value of those units at December 31, 1918, and we therefore hold that the allowance for exhaustion, wear and tear, including obsolescence, of these units for the year 1919 should be an amount equal to one-fifth of their depreciated cost or value as of December 31, 1918. An allowance of the same amount and for the same purpose in each of the years 1920, 1921, and 1922, would leave the remaining one-fifth of such depreciated cost to be recovered for the year 1923.
The deduction heretofore allowed by the respondent for the exhaustion, wear and tear of the petitioner’s distribution system for the year 1919 should be increased by the amount of $390.08.
Judgment will be entered on 15 days’ notice, under Rule 50.