*1910 1. A railroad having defaulted in payment of interest on its outstanding bonds, its property was decreed to be sold as an entirety to discharge the bonds, and compliance with the decree was effected through a reorganization. The property was sold to a committee representing bondholders, creditors, and stockholders, and the committee conveyed it to several corporations organized to operate the property for a fixed price payable in stock and notes. The latter corporations were in turn consolidated and their stock, which was held by the committee, was exchanged par for par for the stock of the consolidated company, and the stock of the latter was distributed among the participating stockholders of the old corporation. The consolidated company thereupon issued to the committee its mortgage bonds secured by the property acquired, in satisfaction of such part of the purchase price as was not paid in stock of the underlying corporations, and the committee distributed new bonds to some of the old bondholders of a par value in excess of the par value of the old bonds surrendered. All of these steps were taken pursuant to a plan of reorganization formulated before actual sale of the property*1911 under decree of court. The evidence did not disclose whether the old bonds were issued at a discount or whether there was, at the time of the transaction, any unamortized discount, or whether the new bond issue was greater in face amount than the value of the property would justify as principal. Held, that the difference between the par value of the new bonds distributed to the old bondholders and the par value of the old bonds surrendered was not discount, and the consolidated company, which was on the accrual basis, was not entitled to deduct any part thereof by way of amortization. Western Maryland Railway Co. v. Commissioner, 33 Fed.(2d) 695, distinguished.
2. The new corporation which purchases some of the aforesaid bonds for less than their face value, realizes no taxable gain.
3. Where rentals from property are received, apparently contemporaneously with the tenants' occupancy, and the evidence casts no doubt on the recipient's ownership of the rentals when received beyond its own uncertainty about a possible claim of ownership of part of them by another, no part of such rentals may be regarded as income for a later year in which they were*1912 transferred from a suspense account to profit and loss and reported in the return as income.
*178 The respondent determined a deficiency in income tax for 1917 in the amount of $3,562.26. The petition alleges error of the respondent as follows: (1) The disallowance of a deduction of $15,433.96, representing amortization of a portion of the discount resulting from the sale at less than par of petitioner's bonds of 1906, which was charged to profit and loss. This issue has been eliminated by respondent's concession. (2) The disallowance of a deduction of $38,196.60, subsequently modified to $35,045.38, representing a proportionate part of alleged discount incurred in connection with the issuance of its first mortgage bonds of 1887. (3) The inclusion in income of $16,958.34, representing alleged gain involved in the purchase by petitioner of some of the aforesaid first mortgage bonds of 1887 at less than par. (4) The inclusion in income of $41,738, representing rentals which accrued to the petitioner prior to the taxable year. (5) The disallowance*1913 of a deduction of $9,620.35, representing the net expense of operating petitioner's ice houses during the taxable year. This issue has been eliminated by respondent's concession. The facts have been stipulated as follows:
STIPULATION OF FACTS.
1. The petitioner is a railroad corporation organized September 27, 1887, under the laws of the States of New York, Pennsylvania, Ohio, and Indiana, with its principal office at Cleveland, Ohio. It was created by a consolidation of The New York, Chicago & St. Louis Railroad Company, a corporation existing under the laws of the States of New York and Pennsylvania, The Cleveland & State Line Railroad Company, a corporation existing under the laws of the State of Ohio, The Ft. Wayne & Illinois Railroad Company, a corporation existing under the laws of the State of Indiana, and The Erie & State Line Railroad Company, a corporation existing under the laws of Pennsylvania.
*179 2. The petitioner keeps its books on an accrual basis and in accordance with rules prescribed by the Interstate Commerce Commission, and rendered its return for the calendar year 1917 on an accrual basis.
3. Omitted because it relates to a question no*1914 longer in issue.
4. On January 4, 1887, a receiver having been theretofore appointed for The New York, Chicago & St. Louis Railway Company, hereinafter called Railway Company, and the payment of interest due on its first and second mortgage bonds being in default, the Circuit Court in and for the County of Cuyahoga, State of Ohio, ordered, adjudged and decreed that the condition contained in the mortgages securing the aforesaid bonds having been broken, the principal of said bonds thereby became due and payable together with all accrued interest thereon remaining unpaid. Thereafter, on or about April 4, 1887, the Railway Company was ordered to pay to the clerk of the court within ten days the amount of the principal and interest due on the aforesaid bonds and that in default of such payment an order of sale should be issued to the special master commissioner who was therein appointed, commanding him to sell the properties of the Railway Company as an entirety and without appraisal in accordance with law for not less than $16,000,000 of which not less than $100,000 should be paid in cash and the balance as directed by the court. It was also provided that the purchaser of the said*1915 Railway Company's properties at such sale should have the right to satisfy the remainder of the purchase price, over and above the amount which was required to be paid in cash, by paying over and surrendering certain indebtedness of the receiver, and first and second mortgage bonds and interest thereon in default, at such price or value as was equivalent to the amount that the holders thereof would be entitled to receive if the amount of the purchase price was paid in cash. It was provided that the purchaser of the properties at such sale should hold said properties free and discharged from the liens and incumbrances of the mortgages securing the first and second mortgage bonds. The Circuit Court further ordered that a special mandate be sent to the Court of Common Pleas to carry this judgment into execution.
On February 4, 1887, an agreement was entered into for the purchase and reorganization of the Railway Company as follows:
Agreement made this fourth day of February, 1887, by and between the undersigned, holders of the First Mortgage Bonds and overdue coupons thereon, of the New York, Chicago and St. Louis Railway Company (hereinafter, for brevity, designated as "said Railway*1916 Company"), holders of the Second Mortgage Bonds of said Railway Company and overdue coupons thereon, and holders of the capital stock, preferred and common, of said Railway Company, who have assented on behalf of themselves and those who shall hereafter join in *180 and assent to this agreement by depositing their securities as hereinafter provided, parties of the first part; the Lake Shore and Michigan Southern Railway Company, and other creditors of said Railway Company in like situation, who have assented on behalf of themselves and those who shall hereafter join in and assent to this agreement by depositing their evidences of debt and transferring their claims as hereinafter provided, parties of the second part; James A. Roosevelt, John S. Kennedy, Adrian Iselin, Jr., D. Willis James and Oliver Harriman as a committee heretofore appointed by an agreement dated November 21, 1885, of holders of First Mortgage Bonds of said Railway Company, parties of the third part; and Frederic P. Olcott, William K. Vanderbilt, James A. Roosevelt and John S. Kennedy, as a committee appointed by said parties of the first and second parts for the purpose of securing a sale of the property of*1917 said Railway Company, and its conveyance to a new corporation hereinafter provided for, and for other purposes, and hereinafter described and designated as the "Purchasing Committee," parties of the fourth part.
The said parties, for and in consideration of the agreements hereinafter contained, and the sum of one dollar by each one of said parties to the other in hand paid, the receipt whereof is hereby acknowledged, each signer agreeing for himself and not incurring any obligation for any other thereby, agree as follows, to wit:
First. - That the said Frederic P. Olcott, William K. Vanderbilt, James A. Roosevelt, and John S. Kennedy be and they are hereby appointed a Purchasing Committee, to exercise the powers and perform the duties hereinafter set forth, and they consent to act in that capacity.
Second. - The said Purchasing Committee shall have power, from time to time to add to the number of its members and to fill any vacancy occasioned by death, resignation, or otherwise. They may act by a majority of their number either at a regular or special meeting convened on notice, or by writing, signed by such majority, without a formal meeting.
Third. - They shall, by any*1918 and all legal and proper means, procure or cause to be procured a sale of all the property of said Railway Company as an entirety under the decree or decrees of a Court or Courts of competent jurisdiction, and for the purposes of this agreement they may assist in the prosecution of or become parties to all suits now pending or which may hereafter be brought, or commence and prosecute all such other suite or proceedings as they may deem necessary in the premises, and at any sale of the said property of said Railway Company, or any part thereof, they may purchase and bid in the same, and they are hereby authorized and empowered to bid and pay for the said property and premises such amount as in their judgment may be necessary to protect the interests of the parties hereto.
Fourth. - The Purchasing Committee shall cause a new corporation to be formed and incorporated under the laws of the several States of Ohio, Indiana, Illinois, New York and Pennsylvania, or any one or more of said States, having power to acquire all the property and franchises which the said Purchasing Committee may purchase at such sale. In case said Purchasing Committee shall determine to organize such new corporation*1919 as a consolidated company, then, in the preliminary organization of the several constituent companies to form and be merged in the new consolidated company, the said Purchasing Committee shall have the right to appoint such associates and cause to be subscribed for and actually paid in cash all such amounts as shall be necessary to complete the valid organization of the said corporation in conformity to the laws of the said several States; and in any event to take all such steps and do such acts, including the selection and qualification of such *181 associates, as they shall be advised by counsel are requisite and necessary to effect a valid organization of the said new corporation.
Fifth. - The purchasing Committee shall have power and authority to convey the franchises and property to be purchased by them as aforesaid to such new company, or, in such appropriate parcels as shall be requisite, to the several constituent companies to be organized by them for the purposes aforesaid, and shall accept and receive in payment therefor the following amounts and descriptions of the stock and bonds of such new company, that is to say:
| First Preferred Stock | $5,000,000.00 |
| Second Preferred Stock | 11,000,000.00 |
| Common Stock | 14,000,000.00 |
| First Mortgage Bonds | 20,000,000.00 |
*1920 The said First Mortgage Bonds are to be payable in gold coin in fifty years from their date, with interest at the rate of four per cent. per annum, payable in like gold coin, semi-annually. A sinking fund of $100,000 per annum is to be provided for, to be used for the purchase of such bonds at not more than 102 per cent. and accrued interest, and the cancellation of the bonds so purchased; but in any year, when, after advertisement, such bonds cannot be purchased for 102 per cent. and accrued interest, or in any year when the company shall not have earned at least $900,000 over operating expenses, such sinking fund shall not be provided; said sinking fund is to be the first fixed charge in each year after payment of the interest on all the outstanding First Mortgage Bonds.
The mortgage securing said bonds shall be in such form and contain such provisions as the Purchasing Committee shall approve, including a provision authorizing the trustee thereunder to enforce the rights of the bondholders by taking possession or by suit after three months default in payment of any semi-annual installment of interest, or in appropriation of sinking fund if earned, and making the principal*1921 of all the bonds thereupon immediately due and payable, with interest at the rate of six per centum from the time of such default, and shall convey to the Central Trust Company of New York as trustee, all the property and franchises to be conveyed to the new company as aforesaid, including all the rolling stock and equipment of said Railway Company, and all property and franchises to be thereafter acquired.
The first preferred stock of said new company shall be entitled to a non-cumulative dividend of not more than five per cent. per annum, after payment of the fixed charges, the second preferred stock to a non-cumulative dividend of not more than five per cent. per annum, after payment of fixed charges and the dividend on said first preferred stock, and the common stock to a non-cumulative dividend of not more than five per cent. per annum, after payment of the fixed charges and said dividends on the first and second preferred stock. If there shall be any net earnings remaining in any year after the payments above provided for, they shall be applicable to payment of dividends on all the stock, first preferred, second preferred and common, without discrimination between classes*1922 of stock.
Neither the first nor second preferred nor common stock shall be increased, except by the concurrent consent of a majority of each of the three classes then outstanding; and no lease of the main line of railway of said new company shall be made without the consent of three-fourths of each of the said three classes of stock.
Sixth. - At the time of signing this agreement, the parties of the first and second parts will deposit with the Central Trust Company of New York the *182 securities to the amounts respectively owed by them and the evidences of debt held by them, that is to say:
The holders of First Mortgage Bonds and Second Mortgage Bonds of said Railway Company shall and will deposit their bonds with said Trust Company, and hereby agree to accept in lieu thereof transferable certificates of the said Central Trust Company of New York, in such form as shall be approved by the Purchasing Committee, which certificates shall describe the securities deposited, and provide on their face that the holders thereof shall be entitled to receive all the securities, benefits and advantages provided for in this agreement, pertaining to the securities so deposited hereunder.
*1923 The holders of the transferable certificates of the Central Trust Company of New York, heretofore issued and delivered under and in pursuance of the agreement of First Mortgage Bondholders, dated November 21, 1885, assenting to this agreement, shall present their said certificates, representing bonds heretofore deposited with said Trust Company under said last mentioned agreement, and shall accept in lieu thereof certificates signed by said Trust Company, in such form as the Purchasing Committee may adopt and determine upon, or, if the said Purchasing Committee so determine, such old certificates shall be stamped by the Central Trust Company with a suitable device showing the assent of the holder thereof to the terms and provisions of this agreement, and thereafter the holders of such certificates so stamped shall be entitled to participate in the benefits and advantages of the said purchase as in this agreement provided, and the bonds and coupons theretofore deposited by them shall be held and considered as deposited under this agreement and be subject to the terms thereof.
The holders of the stock of the said Railway Company assenting to this agreement, shall present the certificates*1924 representing such stock, and upon the payment of the assessment hereby required, such certificates shall be stamped by the Central Trust Company with a suitable device, showing the date and amount of such payment; or, if the Purchasing Committee so determine, such stock certificates shall be deposited with the Central Trust Company of New York, and certificates shall be issued by said Trust Company in lieu thereof in such form as the Purchasing Committee may adopt; and thereafter the holder of such stock certificates so stamped or such new certificates issued in exchange for stock shall be entitled to participate in all the benefits and advantages of the said purchase as provided in this agreement.
The parties of the second part hereto shall and will at the time of signing this agreement, deposit with said Central Trust Company of New York the evidences of indebtedness of said Railway Company held by them respectively, together with all securities held as collateral thereto, and shall and will execute and deliver to said Trust Company due, proper and sufficient instrument or instruments in writing assigning and transferring to said Purchasing Committee their respective claims and*1925 demands against said Railway Company for the purposes of this agreement; and shall accept and receive in consideration thereof a certificate or certificates of said Trust Company in a form to be approved and adopted by the Purchasing Committee, describing the claim and demand so assigned and transferred and the evidence of indebtedness so deposited, and setting forth that the holders of such certificates shall be entitled to receive all the benefits and advantages of this agreement pertaining to claims and demands of that description.
Seventh. - The Purchasing Committee shall make due provision for the deposit of all matured and unmatured coupons pertaining to said First and Second Mortgage Bonds, and may fix and determine such penalties or conditions *183 as the interests of the parties may, in their judgment, require for any failure to deposit with the bonds any such matured or unmatured coupons, and shall also have full power, in their discretion, to make equitable provision for any case of lost or destroyed bonds or coupons.
Eighth. - The said purchasing committee shall invite, by proper publication, to be determined by them, the holders of all classes of the securities*1926 of and claims against said Railway Company herein provided for, to assent to and become parties to this agreement by depositing their securities and transferring their claims and receiving the certificates above provided for, and shall fix a time within which it may be done, and after the expiration of the time so to be fixed and limited, no holder of any of said securities or claims of any class who shall not, within the time so fixed and limited, have complied with the provisions of this agreement by depositing his securities or transferring his claims, as the case may require, shall have, or be entitled to have any of the rights or privileges herein provided for, nor be entitled in any way to participate in the benefits of this agreement.
Provided, however, that the said Purchasing Committee shall have the power in their discretion to extend the time so fixed and limited, but such extension shall be held and construed to apply only to the advantage and benefit of such persons as shall actually deposit their securities or transfer their claims within the time so extended. And provided further, that the said Purchasing Committee shall at any time have the power in their discretion*1927 to admit to a participation in the said purchase and the new securities to be issued thereunder, and in the benefits hereof, any security holder or creditor belonging to any or either of the classes entitled to participate in such benefits, upon such just terms and conditions and under such penalties as the Purchasing Committee shall, in their discretion, see fit to impose; but such action of the said Purchasing Committee shall under no circumstances be taken to confer or establish any right or privilege upon or in favor of any other non-assenting security holder or creditor.
Ninth. - All assenting holders of capital stock of said Railway Company shall, at such time or times, and in such manner and installments as may be determined by the Purchasing Committee, pay to the Central Trust Company of New York, for and to the credit of the Purchasing Committee, and subject to its order, an amount equal to ten per centum upon the par value of the stock, whether common or preferred, represented by their certificates which payment shall be noted upon the certificate representing such stock as hereinbefore provided.
Tenth. - All the securities and evidences of indebtedness, deposited or*1928 transferred under the provisions hereof and all moneys, securities and evidences of indebtedness which may come into the possession or control of the Purchasing Committee under this agreement, shall be subject to the order and control of said Purchasing Committee, and be used by them in carrying out the provisions and purposes of this agreement.
Eleventh. - In case it shall be found by the Purchasing Committee to be necessary or expedient for the purpose of completing the purchase of the property and franchises of the said Railway Company to raise money beyond the amount at the time in the hands or under the control of the Purchasing Committee under the provisions hereof, for the purpose of paying in cash the proportion of the bid which may be required by the decree, or under the orders of the Court, or any part thereof, the Purchasing Committee shall be and are hereby authorized to raise and provide such funds, by means of temporary loans for such times and at such rates of interest as the Purchasing Committee shall *184 find to be necessary, and for the purpose of securing the payment of such temporary loans to be raised for the purposes aforesaid, or any of them, the said*1929 Purchasing Committee are hereby authorized and empowered to pledge as security for the moneys so borrowed, all or any part of the securities, stock, evidences of debt, or claims, so deposited or transferred by the parties of the first and second parts, or any of them, and the indebtedness for moneys so borrowed, and the security therefor, shall be evidenced by certificates of the Central Trust Company, with the approval of the Purchasing Committee; and the said depositary and the said Purchasing Committee shall have the power to make and execute all such instruments as they shall deem necessary to carry into effect the provisions of this paragraph.
Twelfth. - For the purposes mentioned in the Eleventh paragraph hereof, for the repayment of such temporary loans, or to raise money for the payment in cash of the proportionate amount of the bid needed for distribution to the non-assenting security holders or creditors, or for the purchase or payment of claims of non-assenting security holders or creditors of the classes entitled to become parties hereto; for the payment of the amount of the contribution of non-assenting stockholders, or for any of the purposes of this agreement, where*1930 the provisions hereof prove to be deficient, the said Purchasing Committee are hereby authorized to raise moneys by the organization of a syndicate or syndicates, for such purpose or in such other way as the Committee may deem best. The syndicate or syndicates so formed, or other parties furnishing the money under agreement with the Purchasing Committee, shall be entitled to all the rights, privileges and benefits which would have appertained to any such non-assenting security holder, stockholder, or creditor, had he elected to become a party to this agreement.
In case the Purchasing Committee deem it advisable, the stock and other securities which shall be issued and delivered to said Committee by the new company, and which shall not required for distribution by reason of the failure to assent to the above plan on the part of any stockholders, bondholders or creditors, may be sold by the Committee, either at public or pricate sales, and at such prices as may seem reasonable to the Committee, and the Committee is authorized to issue temporary certificates representing such new stock or securities, if it deem it advisable to sell such stock or securities before the same and issued.
*1931 Thirteenth. - The Purchasing Committee are hereby authorized and empowered to negotiate and compound with the holders of claims against the said Railway Company, and to make due provisions for the payment and adjustment of the same, upon such terms as they shall find to be reasonable and proper, to the end that the new company shall be free and clear from the obligations thereof.
Fourteenth. - All moneys received by the said Purchasing Committee from the contribution to be paid by the stockholders, and all earnings in excess of the operating expenses which shall have accrued from the operation of the railway and which may come into the possession of said Committee, shall be used and disbursed by said Committee for the purpose of making betterments and improvements of the railway and its property, and acquiring rolling stock and equipment; for the settlement or purchase of any claims against or liabilities of the said Railway Company, including any or all Receiver's certificates which may at any time be issued, and which the Committee may deem it advisable to settle or purchase; for the expenses of the various foreclosure or other suits; for the expenses and compensation of the*1932 committee and its agents, counsel and employees; for the purchase of the property of the Railway Company to be *185 acquired by said Committee; for such other payments as may be required under the decree of sale or other orders of the Court in the progress of the suit or suits, which may be necessary for the protection of the interests of the parties hereto; and for the purposes specified in the Fifteenth and Sixteenth paragraphs hereof respectively. The Purchasing Committee is also authorized and directed to assume and pay the expenses and compensation of the parties of the third part.
No money shall be expended, however, for any of the aforesaid purposes by said Purchasing Committee, except on a voucher approved in writing by a majority of the Committee, and after the incorporation and formation of the new company the Purchasing Committee shall pay over any balance of money remaining in their hands and not required for the purpose of carrying out any of the provisions of this agreement, to said new company, under such trusts and conditions, so far as its expenditure by said new company is concerned, as said Purchasing Committee shall determine.
Fifteenth. - The said*1933 Purchasing Committee is hereby authorized and empowered to make such arrangements for the purchase and acquisition of the title to the rolling stock and equipment embraced in and covered by the existing car trust agreement of said Railway Company as it may deem advisable and prudent, whether for cash or for Receiver's Certificates to be issued under the orders of the Court.
Sixteenth. - After the completion of the purchase of the property and franchises of said Railway Company and the organization of the said new company, and the receipt by the Purchasing Committee of the new securities to be received by them in payment for the said property, the said Purchasing Committee shall dispose of such new securities as follows:
1. There shall be issued and distributed to the holders of the said certificates to be issued by the Central Trust Company representing the said deposit of First Mortgage and Second Mortgage Bonds, and to the holders of certificates issued under the Agreement of November 21, 1885, stamped as hereinbefore provided, upon the surrender and cancellation of such certificates, an amount of the new First Mortgage Bonds of said new company, the principal of which shall*1934 be equal to one hundred and twelve per cent. of the principal of the old First Mortgage Bonds and one hundred and ten and one-half per cent. of the principal of the old Second Mortgage Bonds; and there shall be paid to such holders, in cash, at the time of the delivery of the new bonds, interest at the rate of four per cent. per annum, on the bonds represented by such surrendered certificates, from December 1, 1886, to the date of such new bonds; and the Purchasing Committee shall give such notice, by publication, as it shall deem reasonable, of the time when the new securities will be ready for delivery.
2. To the holders of said certificates of deposit of old Preferred Stock, or of certificates of old Preferred Stock, duly stamped under the provisions of this agreement, an amount of said new First Preferred Stock, equal, par value, to the cash assessment paid in on said old Preferred Stock, and an amount of said new second Preferred Stock equal, par value, to fifty per cent. of the par value of the said old Preferred Stock so deposited or stamped.
3. To the holders of certificates of deposit of old Common Stock, or of certificates of old Common Stock duly stamped under the*1935 provisions of this agreement, an amount of said new First Preferred Stock, equal, par value, to the cash assessment paid in on said old Common Stock, and an amount of said new Common Stock, equal, par value, to fifty per cent. of the par value of the said old Common Stock so deposited or stamped.
*186 4. To the holders of claims against said Railway Company of the class represented by the parties of the second part hereto, who shall have deposited their evidences of debt and transferred their claims as in this agreement provided there shall be delivered, upon the surrender of the certificates issued by the depositary therefor, either First Mortgage Bonds of the new company to an amount of principal equal to the amount of the face of such claim and interest, or the Purchasing Committee may, at its option, pay the same in cash.
Any balance of the said new securities not used in the manner above provided, or not disposed of under any of the other articles or paragraphs of this agreement, shall be delivered by the Committee to the new company for the proper used and purposes of the company.
The said Purchasing Committee shall, in the distribution of the said new securities, *1936 have power to provide for and make such issues of convertible scrip as shall be necessary to appropriately represent any fractional interest in the said new securities.
Seventeenth. - This agreement shall become irrevocable and binding upon all parties thereto and their successors in interest, when and as soon as the holders of three-fourths in amount, par value, of the transferable certificates heretofore issued by the Central Trust Company of New York, under the Agreement of November 21, 1885, and now outstanding; the holders of $550,000 par value of the Second Mortgage Bonds of said Railway Company now outstanding; the holders of a majority in amount, par value, of stock of said Railway Company; and the holders of claims and demands against said Railway Company of the class represented by the parties of the second part, to the amount of $2,250,000, shall all have assented to this agreement and become parties hereto by making the deposits and payments provided for in the sixth paragraph hereof, as may be evidenced by their acceptance and holding of the certificates to be issued or stamped as provided in said sixth paragraph. As soon as this agreement shall have so become operative*1937 and binding, the said parties of the third part shall be entitled to a full release of and from all the duties, obligations and responsibilities imposed upon them by the terms of said Agreement of November 21, 1885; and the said Purchasing Committee is hereby authorized and empowered to make, execute and deliver to said parties of the third part, an instrument of release accordingly, and thereupon said parties of the third part shall be under no further liability or responsibility arising in any manner out of said Agreement of November 21, 1885.
The holders of certificates issued under said agreement of November 21, 1885, who become parties hereto, do hereby severally constitute and appoint the said Purchasing Committee, and any three of them, their attorneys to attend at any general meeting of certificate holders called or held under the provisions of said Agreement of November 21, 1885, and to vote on their behalf and as their representatives on any question arising at such meeting in the same manner and with like effect as if such holders were personally present.
In the event that the said Purchasing Committee, after making reasonable efforts to carry out the plan contemplated*1938 by this agreement, shall not succeed in securing control of the number and amount of securities, stock and claims necessary to render this agreement operative, it shall return all the stock, securities, evidences of debt and instruments of transfer above referred to, to the parties who may mave deposited the same, upon the surrender of the certificates of deposit issued hereunder, and where the assent to this agreement has been evidenced by stamp upon any certificate issued under the Agreement of November 21, 1885, or any stock certificate, shall upon the presentation thereof cancel such stamp; but in either case, the parties shall *187 first pay their pro rata of the expenses incurred by the Committee, which pro rata shall not exceed one-half of one per cent. of the par value of the stock, securities, and evidences of debt returned, and certificates on which the stamp shall be cancelled as aforesaid. The bonds heretofore deposited under the said agreement of Novebmer 21, 1885, shall not, however, be surrendered, but said last-mentioned agreement shall, in the event of the failure of the present agreement to become operative, continue in full force and effect.
Eighteenth. *1939 - If by reason of legal or other objection any of the provisions of this agreement cannot be strictly performed by said Purchasing Committee, then said Committee shall conform as near as may be to such provisions in the execution of this agreement. The said Committee shall have power to modify the above plan. It shall give notice of any proposed modification by filing a copy thereof with the Central Trust Company of New York, and by advertising the substance thereof in at least three daily newspapers published in the City of New York, at least twice a week and during two weeks, and such advertisement shall be considered to have the full effect of personal notice. All parties of the first and second parts who do not express in writing their dissent from such modification, and deliver such written dissent to said Trust Company within two weeks from the date of the last publication, shall be considered to have assented to such modification. The parties of the first and second parts who may express such dissent, shall be entitled to the return of the stock, bonds or evidences of debt which they may have deposited, any contributions which they may have paid, upon the surrender of their*1940 certificates issued hereunder, or the cancellation of the stamp indicating assent to this agreement, and on payment of their pro rata of expense incurred up to the date of the return or cancellation, which shall not exceed one-half of one per cent. of the par value of such stock, securities, or evidences of debt.
Nineteenth. - The Purchasing Committee shall have the sole power to construe this agreement, and its construction thereof shall be final. It is the intent of the parties of the first and second parts to give to the Committee full and absolute control, and all powers necessary or proper for the exercise of such control of the reorganization of said Railway Company, and all powers requisite, or in the opinion of the Committee desirable to accomplish such reorganization are hereby conferred upon it in addition to those specially enumerated. The Committee, however, shall have no power or right to obligate any of the subscribers to or for the payment of any sums of money other than those provided for in this agreement.
Any member of the said Purchasing Committee may at any time resign by giving notice in writing to the other members, and the Committee may settle all transactions*1941 with a member who shall cease to be such, and with the representatives of a deceased member, and may give a complete release and discharge. The Committee may appoint counsel, agents and servants, and fix the compensation for their services. The members of the Committee shall also be entitled to a fair compensation for their own services, provided that the plan herein provided for, or any part thereof, be executed. It is agreed that the present or future members of the Committee may be or become pecuniarily interested in any of the property or matters which are the subject of this agreement. It is expressly understood that the Committee assumes no responsibility for the execution of the above plan or any part thereof; its members, however, will in good faith endeavor to execute the same.
Twentieth. - The said Purchasing Committee shall keep a record of its proceedings. No member shall be liable for the misconduct, omission or fault of *188 any other member, nor for his own, except in case of willful neglect or malfeasance; nor for the misconduct of any agent or employee of the Committee. The Committee may delegate any necessary authority or discretion to any subcommittee*1942 or agent.
Twenty-First. - The Purchasing Committee shall be entitled at any time to a settlement and discharge in respect to prior action. Richard King, President of the National Bank of Commerce, W. E. Corlies, Vice-President of the Bank of America, and George F. Baker, President of the First National Bank of New York, are hereby constituted the irrevocable representatives of the parties of the first and second parts, for the purpose and with full authority to fix the compensation of the members of the Purchasing Committee, and to pass upon, and to finally adjust its accounts and thereupon to give its members a full discharge. Either of such representatives may resign by giving notice in writing to the others and to the members of the Purchasing Committee. In the event of the death, resignation or refusal to act, or removal of either of such representatives, those who remain may, in writing, appoint successors, so as at all times to keep the number up to three, upon giving a written notice to the members of the Committee; the action of any two of such representatives shall have the same effect as would the action of the entire number.
Twenty-Second. - This agreement shall*1943 be printed, and copies thereof may be signed; all of said copies so signed shall be deemed and taken as constituting one original paper. The deposit of securities, stock or claims and the receipt of certificates issued therefor, or the stamping of certificates as herein provided, shall have the same effect as if the holder of such certificates had actually subscribed this agreement.
IN WITNESS WHEREOF the said parties have hereunto set their names, or affixed their corporate seals, and have written opposite their respective names or seals the amount of the bonds, stock or claims held by them, and the classification of such securities and claim.
The Railway Company failed to make the payment to the Clerk of the Court in ten days as directed by the aforesaid decree, and on April 14, 1887, the Court of Common Pleas ordered the Special Master Commissioner to carry out the order of sale. Accordingly, on May 19, 1887, the properties of the Railway Company were sold by the Special Master Commissioner in accordance with the Court's decree for the sum of $16,000,000 to the purchasing committee named in the agreement of February 4, 1887. The purchasing committee paid $100,000.00 in*1944 cash to the Special Master Commissioner and elected to pay the balance of the purchase price by paying over and surrendering certain indebtedness of the receiver and the first mortgage bonds of the Railway Company as permitted by the order of the Court.
On May 21, 1887, the Court of Common Pleas ratified, approved, and confirmed the sale of the Railway Company's properties. It further ordered that upon the payment of the balance of the purchase price the Special Master Commissioner should execute a deed conveying the properties of the Railway Company to the purchasing committee. The Special Master Commissioner was also ordered to cancel receiver's certificates of indebtedness which should be received *189 on account of the balance of the purchase price and also to stamp upon the bonds and coupons paid over and surrendered to him by the purchasing committee the amount or percentage of their par value at which so taken, and to thereupon return the same to the purchasing committee to be held by them solely for the portion thereof not paid through the sale and purchase of the Railway Company's properties.
On July 2, 1887, the purchasing committee by deeds conveyed to The*1945 Ft. Wayne & Illinois Railroad Company the properties of the Railway Company purchased which were located in the State of Indiana, for the sum of $14,350,000.00; to The Chicago & State Line Railroad Company the properties of the Railway Company located in the State of Illinois for the sum of $1,500,000.00; to Daniel W. Caldwell, Jeptha H. Wade, George A. Garretson, John C. Hale, and Harvey H. Brown the properties of the Railway Company located in the State of Ohio for the sum of $23,550,000; to The Erie and State Line Railroad Company the properties of the Railway Company located in the State of Pennsylvania for the sum of $4,800,000.00; and to The New York, Chicago & St. Louis Railroad Company the properties of the Railway Company located in the State of New York for the sum of $7,300,000.00.
The Fort Wayne & Illinois Railroad Company was organized under the laws of the State of Indiana by the purchasing committee and their associates on June 27, 1887, for the purpose of maintaining and operating the properties of the Railway Company located in that state. The Chicago & State Line Railroad Company was organized under the laws of the State of Illinois by the purchasing committee*1946 on June 16, 1887, for the purpose of acquiring the properties of the Railway Company located in that state. The Cleveland & State Line Railroad Company was organized under the laws of the State of Ohio on August 13, 1887, by the aforesaid D. W. Caldwell, J. H. Wade, G. A. Garretson, J. C. Hale, and H. H. Brown for the purpose of acquiring the properties of the Railway Company purchased by them from the purchasing committee. The Erie & State Line Railroad Company was caused to be organized under the laws of the State of Pennsylvania by the purchasing committee on June 24, 1887, for the purpose of maintaining and operating the properties of the Railway Company located in the State of Pennsylvania; and The New York, Chicago & St. Louis Railroad Company was organized on June 16, 1887, by the purchasing committee and their associates for the purpose of acquiring the properties of the Railway Company located in the State of New York.
The purchase price of $14,350,000.00 was paid by The Ft. Wayne and Illinois Railroad Company by promissory notes drawn to the *190 order of F. P. Olcott, Chairman of the purchasing committee. The Chicago & State Line Railroad Company gave a promissory*1947 note for the purchase price of the properties acquired by it in the sum of $1,500,000.00. For the properties acquired by The Cleveland & State Line Railroad Company its entire capital stock, preferred and common, of a par value of $13,950,000 was issued to the purchasing committee and a promissory note in the sum of $9,600,000.00 was given for the balance. The Erie & State Line Railroad Company issued promissory notes to the purchasing committee in the sum of $4,800,000.00 in payment of the purchase price of the properties acquired by it. The New York, Chicago & St. Louis Railroad Company gave promissory notes to F. P. Olcott, chairman of the purchasing committee, for the entire purchase price of the properties acquired by it in the sum of $7,300,000.
On July 7, 1887, a joint agreement was entered into between the aforesaid The New York, Chicago & St. Louis Railroad Company and The Erie & State Line Railroad Company, whereby it was agreed to consolidate the said corporations into a corporation to be known as The New York, Chicago & St. Louis Railroad Company pursuant to the laws of New York and Pennsylvania. This consolidation was duly effected pursuant to the statutes of the*1948 respective states of New York and Pennsylvania on August 15, 1887.
On August 18, 1887, a joint agreement was entered into by and between the aforesaid consolidated The New York, Chicago & St. Louis Railroad Company, The Cleveland & State Line Railroad Company, and The Ft. Wayne & Illinois Railroad Company, whereby it was agreed to consolidate the aforesaid corporations into a corporation to be known as The New York, Chicago & St. Louis Railroad Company, pursuant to the statutes of the respective states of New York, Pennsylvania, Ohio, and Indiana. This consolidation was duly effected in accordance with the laws of the various states on September 27, 1887.
The authorized capital stock of the consolidated The New York, Chicago & St. Louis Railroad Company (the petitioner) consisted of three hundred thousand shares having a par value of $30,000,000.00. Of this $5,000,000.00 was first preferred, $11,000,000.00 second preferred, and $14,000,000.00 common. The entire capital stock was exchanged par for par for the capital stock of the underlying corporations and was issued to the purchasing committee who held the capital stock of the said underlying corporations. This capital stock*1949 was then disposed of by the purchasing committee as shown in its final report as follows:
| FIRST PREFERRED | |||
| Received by the Reorganization | |||
| Committee, 50,000 shares | $5,000,000.00 | ||
| Delivered by the Committee, viz: | |||
| To holders of old common stock who have | |||
| paid assessment of $10. per share - | |||
| to Nov. 12th, 1902 | 278,667 shrs. | $2,783,800.00 | |
| to July 1st, 1908 | 1,126 shrs. | 10,900.00 | |
| To be reserved for 30 shares old | |||
| Common Stock assessment paid but not | |||
| yet surrendered for new stock | 30 shrs. | 300.00 | |
| For old stock outstanding | |||
| No assessment paid | 177 shrs. | 1,770.00 | |
| 280,000 shrs. | |||
| To holders of old Preferred Stock who | |||
| have paid assessment of $10. per share- | |||
| to Nov. 12th, 1892 | 219,587 shrs. | 2,195,200.00 | |
| to July 1st, 1908 | 410 shrs. | 4,100.00 | |
| Outstanding stock assessment unpaid | 3 shrs. | 30.00 | |
| 220,000sh | |||
| Due Central Trust Co | 38 shrs. | ||
| 1 share sold | 1 shrs. | 3,900.00 | |
| $5,000,000.00 |
| SECOND PREFERRED | ||
| Received by Reorganization Committee, | ||
| 110,000 shares | $11,000,000 | |
| Delivered by Committee, viz: | ||
| To holders of old preferred stock assessment | ||
| $10. per share paid - | ||
| to Nov, 12th 1892 | 219,587 shs. | $10,978,700 |
| to July 1st 1908 | 410 shs. | 20,500 |
| Due on old stock outstanding no assessment | ||
| paid | 3 shs. | 150 |
| 220,000 shs. | ||
| Due Central Trust Company | 6 1/2 shs. | 650 |
| 11,000,000 |
| COMMON | |||
| Received by the Reorganization Committee, | |||
| 140,000 shrs | $14,000,000 | ||
| Delivered by Reorganization Committee, viz: | |||
| To holders of old Common Stock who paid | |||
| assessment of $10 per share - | |||
| to Nov. 12th 1892 amounting to | 278,667 shs. | $13,930,700 | |
| To July 1st 1908 amounting to | 1,126 shs. | 56,200 | |
| Assessment paid by the following named | |||
| holders of Common Stock of the old Company | |||
| who have not yet surrendered their | |||
| certificates for stock of the new Company, | |||
| viz: | |||
| No. 872 name Josephine M. Parsons | 10 shs. | ||
| No. 630 name Geo. Sturges | 15 shs. | ||
| No. 349 name A. J. Trunky | 5 shs. | ||
| To be reserved | 30 shs. | $1,500 | |
| Due on old stock on which no assessment has | |||
| been paid outstanding | 177 shs. | 8,850 | |
| 280,000 shs. | |||
| Due Central Trust Company | 25 1/2 shs. | ||
| Shares sold | 2 shs. | ||
| 27 1/2 shs. | 2,750 | ||
| $14,000,000 |
*192 On September 1, 1887, the properties of The Chicago & State Line Railroad Company were leased in perpetuity to The Ft. Wayne & Illinois Railroad Company. The lease provided that the lessee should have full right and power to merge and consolidate its properties with those of any other corporation or corporations*1951 pursuant to law and that in such event all right, title, and interest vesting in it under the lease should vest in such consolidated corporation.
When the properties of the aforesaid underlying corporations were taken over by the consolidated corporation, The New York, Chicago & St. Louis Railroad Company (the petitioner in this proceeding), they were indebted to the purchasing committee in the aggregate sum of $20,000,000.00, such sum being a part of the purchase prices of their several lines of railway and other property, the balance of such purchase prices having previously been paid by the issuance of such corporations' capital stock. The New York, Chicago & St. Louis Railroad Company became liable for the payment of this indebtedness, and in order to meet its obligations thereon its board of directors by resolution duly adopted September 28, 1887, authorized the issue of its First Mortgage 4% Coupon Gold Bonds dated October 1, 1887, maturing in 50 years in the par value of $20,000,000.00 to be delivered to the purchasing committee in payment of the said indebtedness. This action of the board of directors was duly approved by the stockholders at a meeting held on the same*1952 date. The bonds were thereupon delivered to the purchasing committee in satisfaction and payment of the indebtedness. On October 31, 1887, the bonds were set up on the corporation's books by a *193 charge to cost of road and equipment in the full par value thereof of $20,000,000.00.
The purchasing committee disposed of the aforesaid bonds as follows:
| To holders of old First Mortgage Bonds of the Railway Company | |
| in the par value of $15,000,000 at $1,120.00 per bond | $16,800.00 |
| To holders of old Second Mortgage Bonds of the Railway Company | |
| of a par value of $1,046,000 at $1,105.00 per bond | 1,155,830 |
| Delivered to and for the use of the new company | 2,044,000 |
| Surplus under the plan of reorganization to the new company | 170 |
| Total | 20,000,000 |
The petitioner claims that it should be permitted to set up as discount on its first Mortgage 4% Coupon Gold Bonds the difference between the par value of $17,955,830.00 which were issued by the purchasing committee to the holders of Railway Company first and Second Mortgage Bonds in the par value of $16,046,000.00, and the said par value of $16,046,000, or a total discount of $1,909,830.00, and amortize this amount*1953 over the life of the bonds. On the basis of a 50-year life the aliquot portion of the total discount applicable to each year is $38,196.60. Since $116,000 par value of the bonds outstanding on December 31, 1916, were retired during the year 1917, the amount claimed as a deduction from gross income for said year is $35,045.38. The respondent has refused to allow any deduction for amortization of discount, on the ground that no discount was sustained by the petitioner upon the issue of its aforesaid bonds to the purchasing committee.
5. During the year 1917 petitioner purchased for retirement its aforesaid First Mortgage Bonds amounting to $116,000.00 par value at a cost of $99,041.66, the difference between par value ($116,000) and the price at which they were purchased by petitioner ($99,041.66) amounts to $16,958.34, which respondent has included in taxable net income.
6. By ordinance No. 33723 passed by the City of Cleveland, Ohio, the petitioner was required to eliminate certain grade crossings located in that City. On August 21, 1914, the president of the petitioner, by letter, accepted on behalf of the corporation the terms of the aforesaid ordinance. In connection*1954 with the elimination of said crossings certain properties were acquired the cost of which was borne under the terms of the ordinance, 35 per cent by the City of Cleveland, and 65 per cent by the petitioner.
During the years 1914, 1915 and 1916 the petitioner received rentals from various tenants of property which had been acquired in connection with the grade elimination project. Said rentals amounted to $26,862.29, $9,786.09, and $5,090.46, respectively. Because of uncertainty *194 as to whether or not the City of Cleveland was to share in the rentals collected, these amounts were currently credited on the petitioner's books to a suspense account and remained in said account until December, 1917, at which time the entire amount, aggregating $41,738.84, was transferred to petitioner's profit and loss account and reported as taxable income in its return for the year 1917. An entry was made by petitioner in December, 1923, debiting profit and loss account and crediting investment account in said amount. The respondent has refused to eliminate from taxable income, for the year 1917, the amount in question.
7. Omitted because it relates to a question no longer in issue.
*1955 OPINION.
STERNHAGEN: 1. The petitioner claims a deduction of $35,045.38 in 1917 as discount accrued in that year upon its first mortgage 4 per cent fifty-year bonds issued in 1887. The only question raised is whether there actually was any discount involved in the issuance of petitioner's bonds; for respondent concedes that if there was discount in 1887, when the bonds were issued, its amortization may be recognized and an aliquot part thereof, admittedly $35,045.38, deducted. ; ; .
The petitioner was organized in 1887 as the result of a compulsory reorganization of the ownership an financial structure of the railroad properties. Being newly organized and incorporated, there can be no question as to its separate legal existence, distinct from the old Railway Company. We may, for our present purpose, disregard the several intermediate local corporations and, without inquiry, treat them as if the petitioner stood in their shoes. The old Railway Company, being in*1956 default upon the interest obligation of its first and second mortgage bonds, was required to submit to a sale of its properties and to bring about a discharge of the said bonded indebtedness. It does not appear when these old bonds were issued; what were the terms of their issuance, that is, whether they were sold for cash at par, a discount or a premium or issued for property or as refunding bonds; whether they had matured or were about to mature; how they had been treated on the accounts, or whether amortization in respect of them had been an adopted practice. It appears only that they were outstanding; that interest was in default, and that $16,046,000 par value thereof were turned in by the holders and discharged. There was no assumption by the petitioner of the old liability. From the default had sprung the remedy of discharge and the court had required that such remedy be enforced. Whatever may *195 have been the terms of the old bonds, the financial means for performing them, or the method of accounting in respect of them, they necessarily came to an end with the discharge of the bonds. While to the bondholder it may perhaps have been of little practical moment*1957 whether there was a continuation of the old debt or a substitution of a new, this does not serve to wash out the legal steps and results which it required all of the machinery of the law to bring about.
The situation is, in this respect, quite different from that in , cited by petitioner, where the reorganization successor assumed the predecessor's obligation of the old bonds and the court held that in the detailed circumstances the tax deduction for amortization ran with the obligation despite the substitution of the new obligor. Because the discounted bonds carried through the reorganization, it was held that the effect of the discount went with it. Whether the court was right or wrong in the weight and effect to be given to the reorganization and in its selection of the features to be emphisazed (see ), the scope of the decision is not broad enough to comprehend a situation like this, where so far as appears, the original bonds were not sold at a discount, no amortization was accounted for or remained unaccounted for, and new bonds of*1958 the company were issued when the old were discharged. Unlike the Western Maryland, this petitioner is not seeking to deduct the remaining amortization of any discount on the original bonds, but claims to amortize ratably the excess ($1,909,830) of par value ($17,955,830) of its own bonds over the par value ($16,046,000) of the old bonds discharged. If it is to succeed, therefore, it can not be by virtue of the Western Maryland decision, upon which it almost wholly relies, but by virtue of a wider reason which neither that court nor any other has announced.
The amortization of discount and premium upon the issuance and sale of bonds has in various aspects been considered. 1 However elaborately we might now analyze it, since the amortization of discount has been openly recognized by the Treasury Department and sustained by this Board, and since it is not controverted here, we need only consider whether the facts of the present case are within the rule
*1959 When we speak of discount, in the present connection, it is important that we think of substance and not let the word itself run away *196 with us. The recognition of amortization of discount is justified, not by the use of the word discount, but by the circumstances of the original issue to which the word is applied. It would be gegging the question to assume from the fact of amortization the existence of discount, because the question for decision is the propriety of the amortization. We must settle the major premise that this is discount before we can apply the minor that its amortization is deductible, to complete the syllogism.
Discount is a variable term, but the meaning which is clearly intended in this connection is, the difference between the face amount of the debt which, it is assumed, will be paid at maturity, and the actual lower amount which is received from the lender at the time of the creation of the debt. Colloquially, it is the difference between the face amount of the bonds and the lower cash sale price. The amortization of this discount imports a theory that the discount is an adjustment of the difference between the interest prescribed and the*1960 going market rate for money. It is sometimes metaphorically called deferred interest. To a taxpayer on the cash basis, amortization is not deductible, ; , because whether this quasi-interest be treated as if paid at the time of the issuance of the bonds or at the time of their maturity, there is no room for a non-cash deduction at any other time when no actual disbursement takes place. On the accrual basis, the theory being that the discount is quasi-interest on a loan, it is treated as if accruing ratably year by year in enlargement of the actual interest expressed in terms in the bond. It seems plain, therefore, that this amortization is but a concept devised for accounting convenience and is limited by the resemblance to interest. Were the discount regarded as a variation in the amount of the principal of the loan either at the time it was made or at the time of repayment, it may be questioned whether even an accrual system could recognize it at intermediate times. It is only as quasi-interest that its amortization*1961 is given deductibility.
The respondent argues that the $17,955,830 bonded obligation was part of the purchase price assumed for the railroad properties; and that irrespective of the actual value of the properties acquired, their purchase price is not deductible whether by a process of amortization or otherwise. This is but another way of saying that the characteristics of the interest theory of discount are entirely absent and invoking affirmatively the more particular doctrine of nondeductibility of cost of property until its realization through sale or other disposition.
We see nothing in the stipulated facts to indicate discount. The bond issue may, for all that appears, have been no greater in face *197 amount than the value of the property would justify as principal. The fact that the bonds were issued to the former bondholders by agreement in proportion to their holdings of old bonds does not, as to the issuer, amount to an exchange, since the old bonds were discharged and not acquired; nor does it establish any reason for treating part of the face amount as quasi-interest. There was nothing above 4 per cent by way of compensation for the use of money; and, in*1962 any event, the going rate is not in evidence. There was no cash received and no loan made. There was only an acquisition of encumbered property and a promise to pay for it.
The petitioner says that "the effect is the same as if the petitioner had sold $17,955,830 of its first mortgage bonds for cash of $16,046,000 and with such proceeds paid off the old bonds. Had this been done there would be no doubt that petitioner had sustained a discount of $1,909,830. The same purpose has been accomplished by refunding the bonds and disposing of the old obligations in that manner just as effectively as had the old bonds been redeemed for cash." But in the decision of the case, the facts and their legal significance are more important than the similarity between their practical effect and that of a hypothetical situation. ; ; ; . The clear intendment of the decree and the agreement was a sale of the property and a discharge of the old bonds, and this was carried out in fact and in law. *1963 This carried with it numerous incidents, and in the absence of fraud or other overwhelming reason, the legal significance of this deliberate conduct may not be brushed aside to afford relief from the onerous incident of income tax. .
We are of opinion that, accepting as we do for the purpose of this case the propriety of deducting amortization of discount in a proper case, the evidence does not establish such discount; and we therefore sustain the respondent in his disallowance of the deduction claimed on that account.
2. Out of the total issue of the aforesaid first mortgage bonds, the petitioner in 1917 purchased for retirement bonds having a face obligation of $116,000 and paid therefor $99,041.66. Reverting to what we have already said as to the origin of these bonds, it will be seen that $116,000 was part of the purchase price which the petitioner assumed to pay for the railroad property. Now, however, it is enabled to discharge this much of the purchase price for $99,041.66. The respondent calls the difference of $16,958.34 a gain. So far as this Board is concerned, the question is settled by numerous decisions that*1964 no gain results under such circumstances. Independent*198 ; ; ; . Respondent's determination on this point is reversed.
In considering this point, we have assumed the soundness of our decision on the previous point as to amortization. If, however, our view on that point be not sustained, further consideration would be required of the present issue. For it may be doubted whether, after enjoying deductions of amortization predicated upon a promise to pay par, a taxpayer who pays less and thus belies the hypothesis upon which its deductions have been founded may say no gain has been realized. Cf. ; 50 Fed.(2) 487.
3. In 1914, 1915, and 1916, petitioner received $41,738.84 rental for properties acquired in the crossing elimination. Beyond the petitioner's own uncertainty about a possible claim of the city, there is nothing in the evidence to cast doubt on petitioner's ownership*1965 of the rent when it was received. The bookkeeping credit to suspense account when received and subsequent inclusion in income of 1917 does not change the fact of receipt. Nor does petitioner's mere doubt of its ownership. As rent it was received apparently contemporaneously with the tenant's occupancy, and there is no problem of accrual. From the evidence, we find that no part of the $41,738.84 was income of 1917 and the respondent is reversed. , affirming ; ; ; cf. .
Reviewed by the Board.
Judgment will be entered under Rule 50.
SMITH, ARUNDELL, and MCMAHON concur in the result only.
TRAMMELL, dissenting: Even conceding that assets were acquired or paid in for bonds, in my opinion, it does not necessarily follow that the bonds were not issued at a discount. Clearly, if the owner of the property had agreed to take the bonds for the property at a discount we could not say that there was*1966 no discount and it would have been amortizable, but instead of agreeing specifically to receive the bonds at a discount, the question is, Did not what actually occurred amount to the same thing? In other words, were not the bonds actually taken at a discount? I think so. What actually occurred, it seems, was that the bonds were issued and taken at less than their face value. I do not consider that it is important that *199 property was received instead of cash. If the owner of the properties had said that they would give their property for the bonds at a discount of a certain per cent, the case would be clear. Instead of doing so, it was agreed to give bonds for property worth less, the same result as if cash less than the face of the bonds had been received. I see no reason why discount on bonds is limited to borrowed money. If a person had property to sell and agreed to take $9,500 cash for it or $10,000 par value of bonds to be issued and taken at 95, it seems to me that if the bonds were taken it could not be said that there was no discount on the bonds simply because property was acquired instead of cash borrowed. As said in the prevailing opinion, we should not*1967 let the word "discount" run away with us, but should consider the facts in the present case.
Footnotes
1. ; ; ; ; ; ; ; affirming ; ; ; . ↩