*4230 1. Rate of depreciation on building and machinery determined.
2. Evidence in this proceeding is not sufficient to warrant the Board in holding that contributions totaling $390 to three churches, a school, the Boy Scout organization and Red Cross, constituted an ordinary and necessary business expense.
*1360 The Commissioner determined a deficiency in income and profits tax of $8,490.24 for the calendar year 1920 and an overassessment of $2,139.54 for the year 1919. An order dismissing the proceeding for lack of jurisdiction insofar as it related to the year 1919 was entered April 21, 1927. Petitioner claims that for the year 1920 the Commissioner erred in reducing the deduction claimed by it for exhaustion, wear and tear of buildings and machinery and that he erred in refusing to allow as an ordinary and necessary business expense, contributions to three churches, totaling $280, and contributions to a school, the Boy Scout organization and the Red Cross, totaling $110.
FINDINGS OF FACT.
The petitioner is*4231 a North Carolina corporation with place of business at Burlington. Its mill building is of brick construction. Petitioner owns upon its premises, 75 tenement houses of wood construction, in which 75 per cent of its employees live. Petitioner's manufacturing operations consist of weaving, dyeing and finishing cloth made from cotton and rayon. During 1920, petitioner had 400 looms, all of which, except 24, were purchased secondhand. Seventy-five per cent of its dyeing machinery and 95 per cent of its finishing machinery were purchased secondhand. All machinery was carried on petitioner's books at cost and that figure formed the basis for the computation of the allowance for depreciation. Throughout the entire year 1920, petitioner operated its machinery full time during *1361 the day. For the first four months of the year, 50 per cent of the machinery and equipment was operated day and night and during the second four months of the year, 25 per cent of the machinery and equipment was operated both day and night. Petitioner claims an allowance for exhaustion, wear and tear for 1920, computed at the rate of 3 per cent on its mill building, and 11 1/4 per cent on its machinery*4232 and equipment. The Commissioner computed the depreciation allowance on the brick building at 2 1/2 per cent and on the machinery and equipment at 10 per cent.
During the year 1920, petitioner contributed a total of $280 to three churches, namely Presbyterian, Baptist and Reformed, located outside the petitioner's mill village in the town of Burlington and within five or ten minutes' walk from petitioner's mill village. These churches were attended by the residents of Burlington and the surrounding communities, including the residents of the mill village of the petitioner and other corporations. The petitioner's employees constituted approximately 35 per cent of the membership of the Presbyterian Church, 25 per cent of the Baptist Church and about 20 per cent of the Reformed Church. Petitioner's directors believed that the making of these contributions would result in petitioner's employees being more contented in their situations, which would result in their rendering better service. In addition, petitioner made a contribution of $50 to a school clinic, $25 to the school library, $10 to the Boy Scout organization, and $25 to the Red Cross. It claims that all of these contributions*4233 were deducted as ordinary and necessary business expenses.
OPINION.
LITTLETON: We have carefully considered the evidence submitted by the petitioner and from it we are of the opinion that the Commissioner's allowance for depreciation on the brick mill building at 2 1/2 per cent per annum is correct and that the allowance for exhaustion, wear and tear of machinery and equipment should be computed at the rate of 11 1/2 per cent, as claimed by the petitioner. The evidence submitted in support of petitioner's claim that the contributions mentioned should be allowed as a deduction from gross income as an ordinary and necessary business expense is very general and does not in the opinion of the Board establish that the contributions were ordinary and necessary expenses of carrying on the business of the petitioner. It has not been shown that the making of these contributions resulted in any direct benefit to petitioner in carrying on its business. Little more than the fact that the contributions were made is shown. The statute does not authorize the deduction by corporations of contributions of this character, and they *1362 should be allowed only upon a clear showing of*4234 a direct benefit to the corporation so as to clearly come within the term ordinary and necessary business expenses. Contributions of this character are not ordinary expenses as that term is used in the statute, and we can not say from the evidence that these contributions were necessary expenses. None of the churches were located in the petitioner's mill village. They were located in the town of Burlington and were attended and maintained by the residents of the town and surrounding communities. Although petitioner's employees attended these churches, it has not been shown that these contributions were necessary in order to afford petitioner's employees church facilities. What has been said with reference to the contributions to the churches is also true of the other contributions mentioned. The evidence submitted does not bring this case within the rule laid down by the Board in . We think the Commissioner correctly denied the deductions as ordinary and necessary expenses in carrying on petitioner's business.
Judgment will be entered on 10 days' notice, under Rule 50.