*1933 Where it is necessary to tear down certain portions of the interior of a building in order to alter and improve the property, the cost of demolition may not be deducted from gross income.
*71 In its petition seeking the redetermination of a deficiency of $1,377.67 in income tax for 1923 the petitioner assigns as error the respondent's disallowance as a deduction of the sum of $10,929.23 expended for alterations to its banking room. At the hearing items amounting to $3,555.89 were abandoned, leaving in controversy the sum of $7,373.34.
FINDINGS OF FACT.
The petitioner is a corporation with its principal place of business at 4500 University Way, Seattle, Wash.
In 1923 the petitioner remodeled its banking room in order to provide additional lobby and counter space to meet the needs of its expanding business, at an approximate cost of $20,000. The alterations consisted of enlarging the banking room, demolishing a safedeposit valut and stationery vault and constructing them at new locations, constructing a consultation room and coupon booths, removing*1934 a pair of steps at the side entrance to the petitioner's offices *72 and filling up the space to the level of the banking room floor and raising the floor of the new stationery vault seven inches.
The work, the cost of which is in controversy here, consisted principally of removing two reenforced concrete walls 18 feet high, from 10 to 14 inches thick, and 60 and 12 feet long, respectively, separating part of the banking room from the remainder of the building, moving conduits and electrical equipoment from one of the walls torn down, constructing a temporary partition, moving certain plumbing, hauling debris from the building and wrecking equipment to the building and tearing up a section of the banking-room floor.
The following amounts were expended by the petitioner in connection with the work:
| 1. Supervising the demolition of the parts of the building torn down | $957.17 |
| 2. Labor incident to above work | 3,174.65 |
| 3. Watchman service during the time the old valuts | |
| were being demolished and the building was not closed in with | |
| windows and doors | 299.50 |
| 4. Lumber and labor for erection of temporary partition between | |
| banking room and adjoining room in course of being remodeled | 756.07 |
| 5. Grinding equipment, nails, shovels, etc. necessary to demolish | |
| reenforced concrete walls | 250.08 |
| 6. Moving conduits and other electrical equipment located in one | |
| of the reenforced concrete walls torn down, and | |
| maintaining service while the alterations were being made | 502.06 |
| 7. Moving plumbing located under the side entrance to the bank and | |
| maintaining such service while the alterations were being made | 301.59 |
| 8. Rental for use of a machiner to provide electrical power to | |
| drill walls demolished | 276.70 |
| 9. Hauling debris from building and demolishing equipment to | |
| building | 362.41 |
| 10. Removing onyx from one of the walls torn down | 75.00 |
| 11. Insurance on laborers to comply with State statute | 7.25 |
| 12. Advertising sale of steps removed from side entrance to | |
| banking room | 1.55 |
| 13. Repairs to jack rented for use in holding up building during | |
| the course of making the alterations | 12.00 |
| 14. Electricity for light and power while the alterations were | |
| being made | 30.59 |
| 15. Tearing up and relaying a section of the banking room floor | |
| incident to moving a vault | 74.02 |
| 16. Torch work cutting some of the rods in the reenforced | |
| concrete walls | 5.34 |
| 17. Designing steel beams and supervising their installation | 300.00 |
| 18. Moving burglar alarm on safe deposit valut and money vault | 1399.20 |
| 19. Moving doors to safe deposit vault and money vault | 272.00 |
| Total | 7,797.18 |
| Recoveries from salvaged material | 423.84 |
| Net expenditures | 7,373.34 |
*1935 *73 All of the above work was done by day labor. The balance of the alterations was done by contract, no part of the cost of which is included in the above list. Neither do any of the items in the list include any amount for furniture and fixtures purchased for the enlarged banking room nor any sum for used furniture, steel and marble recovered from the building and sold.
The banking room was altered several times prior to 1923 and has been remodeled twice since then.
In its return for 1923 the petitioner claimed as ordinary and necessary business expenses the sum of $10,929.23 ($11,353.07 less $423.84 recovered from salvaged material) paid out in enlarging its offices. The respondent disallowed the claimed deductions on the ground that the amount was a capital expenditure.
OPINION.
ARUNDELL: Petitioner has expended approximately $20,000 for enlarging its banking facilities. In order to accomplish its plan of improvement it found it necessary to tear out a staircase, remove two partitions, provide temporary lighting and plumbing facilities, etc., as set forth in our findings of fact. The cost of this portion of the work it seeks to take as a deduction. It*1936 makes no claim based on a loss of useful value by reason of this work.
It seems to us that the removal of the walls, staircase, etc., was but an incident to enlarging the bank's floor space, and increasing its facilities and it can not be separated therefrom. It was all part of one plan and one improvement and as it was distinctly a betterment and not an expense, the entire cost must be capitalized. Cf. .
Decision will be entered for the respondent.