*1184OPINION.
Van Fossan:Petitioner was incorporated for the purpose of taking over the assets and business of a predecessor corporation, but from an examination of the stockholdings of the two corporations it appears that there was not a 50 per cent interest or control in the business remaining in the same persons. In the valuation of its assets for invested capital purposes therefore, petitioner is not limited by the provisions of section 331 of the Revenue Act of 1918.
*1185The principal item in controversy is the valuation of the asset termed “ equipment and agencies’ equipment.” It consisted of some two hundred agencies which supplied petitioner and its predecessor with orders for its product and received a commission as compensation. The bulk of the business was obtained through these agents, to whom the company furnished the necessary equipment. The predecessor company valued this item at approximately $25,000, upon the basis of which it increased its capital stock from $10,000 to $30,000 on June 1, 1917, and petitioner at the time of the reorganization, valued it at $19,776. The basis of these valuations does not clearly appear. Some tangible equipment, the value of which is not shown with definiteness, was supplied, but the bulk of the cost of establishing these agencies consisted of the expenses of the company’s representative incurred in visiting them, which was clearly not a capital expenditure, but rather a current business expense. The real value of these agencies to the company was in the business produced by them. They can not be said to be a tangible asset, but are rather in the nature of good will. It is evident that when the company increased its capital in 1917 upon the basis of its valuation of these agencies, it was attempting to capitalize the good will of the business.
When petitioner acquired the business it set up in its accounts a value for these agencies and equipment in the sum of $19,776. The value of the good will attached to a trade or business, when clearly established, may properly be included as intangible property, with certain limitations, in the computation of invested capital. In this case, however, no adequate proof of the value of these agencies, the good will of the business, is submitted. No evidence was offered that would form a proper basis for a valuation of this asset There is no definite proof of the receipts, expenses, earnings, or other essential facts of either the petitioner or its predecessor over a period of years, which are necessary to any proper valuation of the good will of a business. We have only an approximated figure of what they cost the predecessor to establish.
Even though petitioner had established the value claimed for such agencies, the ultimate relief sought, viz, depreciation thereon, could not be allowed, since they consisted chiefly of the good will of the business, and good will is not a depreciable asset. (See Red Wing Malting Co. v. Willcuts, 15 Fed. (2d) 626; Appeal of Manhattan Brewing Co., 6 B. T. A. 952.) The respondent has allowed a value of $4,813 for equipment and agencies equipment in his computation of invested capital. We are not advised of the basis of this valuation, but since it appears that some tangible property was supplied-to the agents, and since the petitioner has failed to establish a higher *1186valuation than that allowed by respondent, we will not disturb the computations of respondent so far as this item is concerned.
The other item in controversy, the merchandise stock, cost the predecessor company $5,151, which is the amount allowed by respondent, apparently upon the theory that section 331 of the 1918 Act applied. At the time acquired by petitioner the replacement cost of this merchandise was $7,188, at which figure it valued this item in its computation of invested capital. Since we have held that section 331 is not applicable, petitioner is entitled to include the merchandise in invested capital at its actual cash value. (See section 326(a)(2), 1918 Act.) The cost of this merchandise to the petitioner, which Avas paid for in stock, was $7,188, based upon current market prices, and, we think, fairly represents the actual cash value, which should be allowed in the computation of invested capital. The respondent erred in reducing the value of this item in his computation of invested capital.
It is further alleged that the respondent erred in refusing to allow the sum of $3,727.96 for exhaustion, wear and tear (including obsolescence), but this allegation is in reality a corollary of the error assigned in the reduction of invested capital, and is disposed of by our decision of that issue, no question having been raised as to the rate of depreciation applied by respondent.
Petitioner’s invested capital and the alio Avance for depreciation should be recomputed in accordance with this opinion.
Judgment will he entered on 15 days' noUee, wider Rule 50.
Considered by Makqtjette, Milliken, and Phillips.