*683 In 1933 the petitioner made an outlay to secure a new breakwater and harbor improvements at the port where it was carrying on business. In making the outlay the petitioner expected that certain shipping business would be anchored to the port and that for a period its lighterage operations would be benefited. About the time of the completion of the new breakwater and harbor improvements in 1935 it became certain that a wharf would be built at the port, that it would be completed in 1939, and that its completion would result in the termination of the petitioner's lighterage business. Held, that petitioner is entitled to deduct ratably such portion of its contribution to the cost of the breakwater as is properly chargeable or allocable to the lighterage business.
*523 The respondent determined a deficiency of $181.84 in income tax against the petitioner for 1937 and the petitioner now claims that the tax has been overpaid. The issues presented by the pleadings are whether the respondent erred (1) in disallowing a deduction of $75 claimed as a contribution*684 to charity and (2) in refusing to allow as a deduction $51,105.52 as amortization of an amount contributed by petitioner toward the cost of constructing a breakwater, entrance channel, and harbor basin at the port where the petitioner was carrying on business. At the hearing the respondent conceded error as to issue (1).
FINDINGS OF FACT.
Petitioner is an Hawaiian corporation, formerly the Kauai Railway Co., and had its principal office in Honolulu. It keeps its books by the accrual method of accounting and filed its 1937 income tax return on that basis. Said return was filed with the collector of internal revenue at Honolulu.
Since the time of its incorporation in 1906 petitioner has conducted a transportation and warehousing business. Its business is centered at Port Allen on Hanapepe Bay, Island of Kauai, and until November 1939 included lighterage to and from vessels loading and unloading in that port. It stores and ships sugar, pineapples, and general merchandise. It carries on a stevedoring and trucking business. It owns a lumber mill and is engaged in the lumber business generally.
Port Allen is and was the principal port on the Island of Kauai, and until*685 completion of the territorial wharf in 1939, as hereinafter *524 set forth, petitioner owned the only wharf and all other facilities at Port Allen for the handling of cargo. The other ports on Kauai are Nawiliwili, about twenty miles distant from Port Allen, and Ahukini, a private port, some four or five miles farther away. Little, if any, sugar has ever been shipped through Nawiliwili. Some pineapples, but not in great quantities, have been shipped through Ahukini by the Lihue Plantation Co., its owner.
There was no natural harbor at Port Allen and during stormy weather the transfer of freight between ocean vessels and lighters was extremely difficult and at times impossible. In 1910 petitioner, at a cost of $22,993, constructed a short breakwater to give smooth water for lighters at its lighterage wharf. Ships calling at Port Allen for the purpose of receiving and discharging cargoes had to anchor approximately 6,000 feet from shore. During southerly and easterly storms it was impossible for lighters to approach the ships off shore and was unsafe for the ships to remain at their moorings. Under such conditions lighterage operations were suspended, but it was necessary*686 in most instances that petitioner have its men available to resume operations as soon as the storm had subsided sufficiently.
In 1930 the petitioner and others undertook to persuade the United States to provide a safe harbor at Port Allen for the efficient and economical loading and unloading of ocean vessels throughout the year and during all kinds of weather. It was represented to the United States Army engineers investigating the project that the construction would result in benefit to the people living in and engaged in business at Port Allen and elsewhere on the Island of Kauai, principally through the reduction in transportation and other costs brought about in economies resulting to the petitioner. After investigation and consideration the United States Government approved the project at an estimated cost of $880,000. Construction was begun in 1933 and on July 10, 1935, a breakwater, harbor basin, and entrance channel were completed by the United States, thus permitting ships to enter the harbor in the lee of the breakwater. The construction of the breakwater eliminated interruptions by storms, reduced the lighterage distance approximately one-half, enabled the petitioner*687 to increase the load of its lighters, and reduced claims for salt water damage.
As a condition precedent to the construction of the new breakwater and harbor improvements the United States required that $200,000 in cash be contributed by local interests and that the existing breakwater which had been constructed by the petitioner in 1910 be conveyed to the United States. The petitioner agreed to contribute the entire $200,000 and on September 26, 1933, paid that sum to the *525 proper authorities. On October 28, 1933, it conveyed its breakwater to the United States as required. The undepreciated cost of the breakwater on that date was $17,517.93. During 1933 the petitioner expended $3,940.20 as preliminary incidents to the project.
In conveying the existing breakwater to the United States and in making the cash expenditures toward the cost of the new breakwater, petitioner's president thought that such outlay would cause shipping to anchor at Port Allen. It was anticipated that at some time after the construction of the new breakwater the Territory of Hawaii would eventually build a wharf at Port Allen at which ocean going vessels could load and unload and that completion*688 of the wharf would put an end to petitioner's lighterage business. Petitioner's officers and its engineer felt that construction of the wharf was unlikely until a second or west breakwater had been built and that, by reason of the savings in lighterage costs after completion of the east breakwater, petitioner would, by continuing the lighterage and landing charges at the existing rates, be able to recover the amount of its outlay before completion of the wharf. They knew, however, that the Army engineers were of the opinion that the wharf could be built upon completion of the east breakwater.
On May 18, 1935, an act of the territorial legislature appropriating $350,000 for the erection of a new terminal and wharf behind the new breakwater was approved by the governor, and on that date the erection of the wharf became certain. It was completed about November 1939 and resulted in the destruction of the petitioner's lighterage and mooring business. The second or west breakwater has not been built. Since completion of the wharf and terminal, oceangoing vessels dock and load and unload at the wharf and petitioner is thereby enabled to carry on its stevedoring, warehousing, and all*689 other activities directly from the wharf.
The undepreciated cost of the physical properties used by the petitioner in its lighterage operations amounted to approximately $200,000 at the time of the completion of the new breakwater in July 1935. The respondent has permitted the petitioner to write off and deduct such cost ratably over the 52-month period from that time to November 1939, when the wharf and terminal were completed.
In its income tax return for 1933 the petitioner deducted as a business expense the outlay of $221,458.13, described above. The respondent disallowed the deduction on the ground that the petitioner received in return a valuable asset, either tangible or intangible, which added to the value of petitioner's property and should be capitalized. Sustaining the action of the respondent, we held at that the outlay was not deductible as an ordinary and necessary business expense.
*526 OPINION.
TURNER: In denying the petitioner's claim at , supra, that its outlay toward the construction of the new breakwater was an ordinary and necessary expense and therefore deductible in full in 1933, when*690 made, we said:
* * * The expenditure was one calculated to result in a long standing direct business advantage to the petitioner, the effect of which was not alone felt in the year when made but was to carry on indefinitely into the future. So far as the taxpayer was concerned, although it did not own the breakwater and had no tangible capital asset as a result of its expenditure, the benefit resulting from the expenditure was as desirable as if the breakwater had become its own (perhaps more so, since the Government was to carry the burden of maintenance); and this benefit was not only immediate but was to extend into the indefinite future. * * *
The petitioner contends here that its expenditures toward construction of the new breakwater were made for a benefit which was not to accrue to its business as a whole and "to carry on indefinitely into the future", but for a benefit which was expected to and did accrue solely to its lighterage business and would continue only so long as the lighterage business continued. Since it was anticipated that the lighterage business would end when the territorial wharf should be completed, it is claimed that the cost of the benefit should*691 be amortized over the period from July 1935, when the breakwater was completed, to November 1939, when the wharf was completed. There is no claim that any deduction in respect of petitioner's outlay toward the construction of the breakwater should be made on any other basis. In keeping with the above mentioned contention, the petitioner now claims a deduction of $51,105.52 for 1937 as the ratable portion of its breakwater expenditures applicable to that year. The respondent denies that the benefit acquired was limited solely to the lighterage business. He takes the position that as a result of the construction of the new breakwater the petitioner acquired a benefit to its entire business which will continue so long as the petitioner continues its business at Port Allen.
If the petitioner is correct in its claim that the benefit flowing to its business from the new breakwater accrued solely to the lighterage business, it would appear that its claim of deduction is well founded and that it should be permitted to deduct the full amount of its contribution ratably over the period extending from the completion of the breakwater to the completion of the territorial wharf. In support*692 of its claim that only the lighterage business was benefited, the petitioner relies on some more or less categorical statements to that effect by some of its officers who were called as witnesses and points to certain advantages accruing to the lighterage business from the *527 new breakwater and to the fact that the lighterage business, a substantial and profitable part of its entire business, did terminate with the completion of the wharf.
From the evidence, we think there is no doubt that a benefit did flow to the lighterage business from the new breakwater, but we think it equally obvious that the benefit therefrom was not limited to the lighterage business. The petitioner was one of if not the prime mover in procuring the construction of the breakwater by the United States Government and it contributed in money and property the entire amount required by the Government from the Island of Kauai toward the cost of constructing the breakwater. From a similar experience at Kahului on the Island of Maui, it knew that the construction of the wharf would follow in due course and that upon construction of the wharf its lighterage business would come to an end. It is true the*693 company engineer and officials did not consider the building of the wharf practical until a second or west breakwater had been constructed, but that they were aware of a contrary view on the part of the army engineer in charge. Certain of petitioner's witnesses testified that they were of the view that the petitioner should be able to recover the amount of its outlay toward the cost of the new breakwater by continuing the lighterage and landing charges at its former rates during the interval between the completion of the breakwater and the completion of the wharf. The fact, however, that the wharf was built sooner than they had expected and that they may not have recovered the full amount of their outlay through additional profits in the lighterage business during the interval does not negative the accrual of benefits from the construction of the breakwater to petitioner's business generally. On the record here, we are wholly unable to reconcile the claim of the petitioner that only the lighterage business could be and was benefited by the construction of the new breakwater with the fact that petitioner was willing to and did promote the construction of the breakwater by the United*694 States Government and contributed to the cost the entire amount required by the United States Government of the Island of Kauai, while knowing full well that the construction of the wharf would follow in due course and that its lighterage business would completely come to an end. It is most unlikely that petitioner would make such an expenditure solely for a benefit of such limited duration, knowing from past experience that through the expenditure it would in a limited time lose not only the benefit, but its lighterage business as well. The business fortunes of the petitioner are inextricably tied to the business fortunes of the Island of Kauai, and business and shipping advantages for the island mean advantages for petitioner's business. Port Allen is the principal port, and, except for the territorial terminal facilities after *528 completion of the wharf, all of the port facilities at Port Allen are still owned and operated by the petitioner. It is the agent on the island for many business interests, among which are the Standard Oil Co., Inter-Island Transportation Co., and the Matson Navigation Co. It ships and stores sugar and pineapples, receives and distributes*695 general merchandise, owns and operates a lumber business, and transports by truck goods so received and shipped. On the facts shown, it is our opinion and we so conclude that in making the contribution to the cost of the new breakwater petitioner was making an investment and acquiring benefits not limited to its lighterage business alone, but an investment which was expected to bring benefits to its entire business for an indefinite time to come.
That the petitioner's officers, in making the outlay, did have in mind the acquisition of some benefit to the lighterage business, is in our opinion definite and clear. Furthermore, the record shows that the lighterage business, through the reduction of operating costs, was greatly benefited or enhanced by the breakwater during the period from July 1935 to November 1939. It is also apparent that whatever benefit accrued to the lighterage business from the construction of the new breakwater ended with the lighterage business. Petitioner is accordingly entitled to deduct ratably over the period from July 1935 to November 1939 that portion of its contribution toward the cost of the construction of the breakwater which is properly allocable*696 to the lighterage business. No evidence has been offered, however, which affords a definite basis for the apportionment of said contribution, and it is incumbent on us under the circumstances to make as close an apportionment as we can, even though speculative and unsatisfactory. . Giving due regard to the facts of record, it is our opinion and we conclude that one-fourth of petitioner's contribution toward the cost of the breakwater, or $55,364.54, is applicable to the expected benefits to the lighterage business and that the petitioner is entitled to deduct for 1937 a ratable portion thereof, or the amount of $12,776.38.
As we have previously noted, there is no claim by the petitioner that any deduction in respect of its outlay toward the construction of the new breakwater should be made on any basis other than that it was expended for a benefit accruing solely to the lighterage business. Furthermore, such facts as there are of record indicate that the benefit acquired and accruing to the business generally is indefinite as to duration and may well, as the respondent contends, continue so long as the petitioner continues*697 its business at Port Allen. The petitioner is accordingly limited with respect to the deduction claimed to the ratable portion of the cost of the benefit applicable to the lighterage business.
Decision will be entered under Rule 50.