*233 These proceedings have been consolidated for hearing and decision. The respondent has determined deficiencies in income taxes for the years and in the amounts as follows:
| Petitioner | Docket No. | Year | Deficiency |
| Gulf, Mobile & Northern Railroad Company | 24887 | 1920 | $14,731.74 |
| 1924 | 9,690.95 | ||
| Gulf, Mobile & Northern Railroad Company | 42150 | 1925 | 15,391.97 |
| 1926 | 1,973.31 | ||
| Jackson & Eastern Railway Company | 38295 | 1924 | 1,275.53 |
| 1925 | 4,030.04 | ||
| Jackson & Eastern Railway Company | 42149 | 1926 | 1,838.02 |
| Meridian & Memphis Railway Company | 35898 | 1922 | 2,603.29 |
Docket No. 24887.
The petitioner, Gulf, Mobile & Northern Railroad Company (hereinafter referred to as Gulf, Mobile & Northern), makes ten assignments of error, six of which are admitted by the respondent Leaving the following for decision by the Board:
(b) In computing taxable net income, the Commissioner has erroneously disallowed as a deduction expenditures in the amount of $3,239.73, on account of "Transportation*2145 for Investment - Credit".
(c) In computing taxable net income, the Commissioner has erroneously included therein $822,813.17, the amount received from the U.S. Government under section 209 of the Transportation Act of 1920.
(f) In computing taxable net income, the Commissioner has erroneously included therein $50,561.95 as the amount returned to petitioner for material and supplies at the end of the Federal Control period, in excess of the amount of material and supplies taken over by the Director General at the beginning of the Federal Control period.
(g) In computing taxable net income the Commissioner has erroneously included therein back mail pay allowed in 1920 for the years 1916 and 1917 in the amount of $4,000.
*234 The six assignments of error admitted by the respondent are as follows:
(a) In computing taxable net income, the Commissioner has erroneously included therein so-called "donations" to the amount of $7,918.02.
(d) In computing taxable net income, the Commissioner has erroneously failed to allow as a deduction the sum of $150,196.34 representing depreciation on equipment sustained during the Federal Control period and charged to the Director*2146 General of Railroads, but which was not allowed by him in the final settlement in 1920.
(e) In computing taxable income, the Commissioner has erroneously failed to allow as a deduction the sum of $82,187.99, representing overmaintenance of equipment charged to petitioner in the final settlement in 1920.
(h) In computing taxable net income, the Commissioner has erroneously disallowed expenses in the amount of $162.06 incurred by petitioner in connection with the authorization and issuance of 30-year Series A Bonds, said amount being the proportionate part of the total expense incurred in connection with said issue which is applicable to the year 1920.
(i) In computing the tax liability, the Commissioner has erroneously computed the income tax at 10 per cent. of the net income for the entire year, whereas for the months of January and February the tax should be computed at 8 per cent.
(j) In computing taxable net income, the Commissioner has erroneously failed to include therein the amount of $2,226.49 representing miscellaneous items of income received by petitioner in the final settlement in 1920.
The respondent in his answer to the amended petition, alleges that the*2147 net income determined in the deficiency notice should be increased, for the following reasons:
That in the final settlement with the Director General of Railroads during the year 1920 the petitioner was allowed the sum of $75,000 as extra compensation for the use of its properties known as the Jackson Extension and the Blodgett Branch during the federal control period, and the sum of $56,521.02 representing rental interest on completed additions and betterments made to its properties during the federal control period; that the foregoing amounts in the aggregate sum of $131,521.02 constitute taxable income for 1920; that the foregoing amount has not been included in taxable net income upon which the deficiency asserted is based and that, therefore, the said amount should be included in taxable net income on determining the correct deficiency due from this petitioner for the year 1920, or in the determination of any overpayment due to the petitioner for said year.
Docket No. 42150.
The petitioner, Gulf, Mobile & Northern, makes six assignments of error, one of which is admitted by the respondent, leaving the following for decision by the Board:
(a) In computing taxable net*2148 income for the year 1924 the Commissioner has erroneously disallowed as a deduction listing fees on capital stock in the amount of $2,400.
(b) In computing taxable net income for the year 1924 the Commissioner has erroneously disallowed as a deduction expenditures in the amount of $3,283.85 on account of transportation for investment - Credit.
*235 (c) In computing the taxable net income the Commissioner has erroneously disallowed amortization of bond discount in the amount of $4,585.32 for each of the years 1924, 1925 and 1926.
(e) In computing the taxable net income for the year 1926 the Commissioner had erroneously disallowed as a deduction depreciation on ways and structures of its subsidiary, the Jackson & Eastern Railway Company, in the amount of $7,374.87.
(f) In computing taxable net income for the years 1924, 1925 and 1926 the Commissioner has erroneously disallowed as deductions amounts paid to Young Men's Christian Associations located at division points on petitioner's railway system in the amounts of $866.67, $1,500 and $750 for the respective years aforesaid.
The one assignment of error admitted by the respondent is as follows:
(d) In computing*2149 taxable net income for the years 1925 and 1926 the Commissioner has erroneously included the estimated additional mail pay in the amounts of $4,280.29 and $10,200.58, respectively.
Docket No. 38295.
The petitioner, Jackson & Eastern Railway Company (hereinafter referred to as Jackson & Eastern), makes the following assignments of error:
(a) In computing the taxable net income for each of the years 1923, 1924 and 1925 the Commissioner has erroneously disallowed as a deduction depreciation on bridges, trestles, culverts, rails, station office buildings, etc., in the following amounts:
| 1923 | $6,938.45 |
| 1924 | 13,219.18 |
| 1925 | 17,153.53 |
(b) In computing the taxable net income for the year 1923 the Commissioner failed to allow as a deduction the amount of net loss sustained in 1921 in excess of the income for the year 1922.
Docket No. 42149.
The petitioner, Jackson & Eastern, makes two assignments of error, one of which is admitted by the respondent, leaving the following for decision by the Board:
(a) In computing the taxable net income the Commissioner has erroneously disallowed as a deduction depreciation on bridges, trestles, culverts, rails, etc. *2150 , in the amount of $12,187.38.
The assignment of error admitted by the respondent is as follows:
(b) In computing the taxable net income the Commissioner has erroneously included estimated additional mail pay in the amount of $750.95.
Docket No. 35898.
The petitioner, Meridian & Memphis Railway Company, (hereinafter referred to as Meridian & Memphis), makes four assignments *236 of error, two of which and part of another are admitted by the respondent, leaving the following for decision by the Board:
(b) In computing consolidated net income the Commissioner has erroneously disallowed expense deductions in the amount of $10,179.69, which he has termed "Transportation for Investment - Credit."
(d) In computing consolidated net income the Commissioner has deducted a consolidated net loss for 1921; but in arriving at said consolidated net loss the Commissioner committed the following errors:
(2) The Commissioner has erroneously disallowed a deduction for expenses in the amount of $4,958.65 which he terms "Transportation for Investment - Credit."
The assignments of error admitted by the respondent are as follows:
(a) In computing consolidated net income for*2151 1922 the Commissioner has erroneously included therein property received by petitioner as a gift, commonly termed "donations," in the amount of $11,327.35.
(c) In computing consolidated net income the Commissioner has erroneously failed to deduct bond expenses in the sum of $648.22.
(d) In computing consolidated net income the Commissioner has deducted a consolidated net loss for 1921; but in arriving at said consolidated net loss the Commissioner committed the following errors:
(1) The Commissioner has erroneously included as income for 1921 the sum of $14,936.56, representing the value of property received by petitioner as a gift, commonly designated "Donations."
(3) The Commissioner has erroneously failed to allow bond expenses in the amount of $648.22
(4) The Commissioner has erroneously included in income the sum of $51,559.52 on account of Federal Control lump sum settlement.
(5) The Commissioner has erroneously deducted from gross income the sum of $150,196.34 as cost of overmaintenance of petitioner's property while under Federal control.
FINDINGS OF FACT.
The petitioner, Gulf, Mobile & Northern, is an Alabama corporation with its principal office at 71*2152 Conti Street, Mobile, Ala.
The petitioner, Jackson & Eastern, is a Mississippi corporation with its principal office at 71 Conti Street, Mobile, Ala. All of the capital stock of this company was acquired by the Gulf, Mobile & Northern on August 15, 1926.
The petitioner, Meridian & Memphis, is a Mississippi corporation with its principal office at 71 Conti Street, Mobile, Ala. It is a subsidiary of the Gulf, Mobile & Northern.
The Gulf, Mobile & Northern and the Meridian & Memphis filed consolidated returns for 1920, 1921, 1922, 1924, and 1926. A single consolidated return was filed by these three petitioners, for 1926, in which there was included the income of the Jackson & Eastern for the period August 16 to December 31, 1926.
*237 TRANSPORTATION FOR INVESTMENT - CR.
Issue (b), Dockets Nos. 24887, 42150, 35898; and (d), Docket No. 35898.
During 1920, 1921, 1922, and 1924 the Gulf, Mobile & Northern and the Meridian & Memphis transported over their own lines men engaged in and materials for construction. As a rule, workmen and materials were transported by regularly scheduled passenger and revenue freight trains. The expenses of operating such trains*2153 are more or less constant and are not appreciably affected by transporting employees and by the additional facilities required to transport materials and supplies.
The "Classification of Operating Revenues and Operating Expenses," prescribed by the Interstate Commerce Commission, contains the following instructions:
General Account VIII, Transportation for Investment - Cr.
This account shall include fair allowances representing the expense to the carrier of transporting in transportation service trains men engaged in and material used for construction. Amounts credited to this account shall be concurrently charged to appropriate property investment accounts.
In compliance with the foregoing instructions, the Gulf, Mobile & Northern and the Meridian & Memphis credited to accounts designated "Transportation for Investment - Cr." and charged to appropriate investment accounts, in 1920, 1921, 1922, and 1924, the sums of $1,906.89, $4,958.65, $10,179.69, and $3,283.85, respectively. Such sums were determined upon the basis of seven mills per ton mile for materials and supplies transported for construction, that being the maximum rate permissible, under the regulations of the*2154 Interstate Commerce Commission, for determining the amount to be credited to "Transportation for Investment - Cr." account.
In the consolidated returns for the years aforementioned, the petitioners claimed as deductions the entire expenses incurred in the maintenance and operation of the businesses and properties. The respondent has reduced said deductions by the amounts credited to "Transportation for Investment - Cr." accounts in those years.
PAYMENT UNDER SECTION 209, TRANSPORTATION ACT OF 1920.
Issue (c), Docket No. 24887.
The Gulf, Mobile & Northern and the Meridian & Memphis accepted the provisions of section 209 of the Transportation Act of 1920, and in pursuance thereof the Gulf, Mobile & Northern received from the United States Government, in 1920, the sum of $822,813.17. The respondent has held that the payment so received constitutes taxable income for 1920.
*238 INVENTORY ADJUSTMENT - FINAL SETTLEMENT WITH DIRECTOR GENERAL.
Issue (f), Docket No. 24887.
The properties of the Gulf, Mobile & Northern were taken over by the President and were operated by the Director General of Railroads throughout the period January 1, 1918, to February 29, 1920. *2155 Among the assets and properties taken over by the Director General was an inventory of materials and supplies which had cost the petitioner $286,664.26. At the conclusion of Federal control, the Director General turned back to the petitioner an inventory of materials and supplies of the market value of $275,912.03. The inventory so turned back included a greater quantity of some materials and a lesser quantity of other materials than were included in the inventory taken over by that official. Much of the materials in the inventory turned back by the Director General was, as to quality and relative usefulness, inferior to the material turned over to that official at the beginning of Federal control.
In 1920 the Gulf, Mobile & Northern and the Director General effected a final settlement of all claims arising out of Federal control and operation of the former's properties, as a result of which the petitioner paid to the Director General, the sum of $100,000. One of the claims asserted by the petitioner, and allowed by the Director General, was for shortages in, and differences in grade and quality of, materials and supplies turned back by the Director General, in comparison with*2156 the materials and supplies turned over to that official at the beginning of Federal control, and amounted to $61,314.18. Thus, the petitioner received from the Director General, in 1920, cash and materials and supplies of an aggregate value of $337,226.21, which exceeded the cost of the inventory turned over to the Director General by $50,561.95. The respondent has held that such excess is income for 1920, and, accordingly, has added $50,561.95 to income for that year.
BACK MAIL PAY.
Issue (g), Docket No. 24887.
On December 23, 1919, the Interstate Commerce Commission made a report setting forth the basis on which the Gulf, Mobile & Northern and other railroads were entitled to certain additional compensation for transporting United States mails. As a result of that report, there was paid to the petitioner, in 1920, the sum of $15,706.62, additional compensation for the period June 30, 1916, to December 31, 1917. The award of the Interstate Commerce Commission was rendered in Railway Mail Pay,56 I.C.C. 1">56 I.C.C. 1, pursuant *239 to the provisions of sections 5 and 6 of the Act of July 28, 1916, Post Office Appropriation, 39 Stat. 412, 425. *2157 The respondent has held that, of the total amount so paid to the petitioner, $4,000 constitutes taxable income for 1920.
ADDITIONAL COMPENSATION - FINAL SETTLEMENT WITH DIRECTOR GENERAL.
Respondent's answer - Docket No. 24887.
Prior to Federal control, the Gulf, Mobile & Northern commenced the construction of a 25-mile branch line, known as the Blodgett Branch, between McLean and Pieve, Miss., and a 40-mile extension of its lines, known as the Jackson Extension, between Middleton and Jackson, Tenn. Both of these projects were completed and placed in operation during the period of Federal control. In the final settlement with the Director General, the petitioner was allowed $75,000 additional compensation in respect of these two projects. Both of these projects had been undertaken for the purpose of removing vast quantities of timber from virgin territories; and the compensation allowed in the final settlement, which was in addition to the compensation based upon the standard return for the test period, was based upon an estimate of the earnings which would have accrued to the petitioner, during that part of the Federal control period after the projects were placed in*2158 operation, had it been permitted to operated the projects itself. No part of the additional compensation of $75,000 has been included by the respondent in income for 1920. If the Board concludes that this additional compensation was earned during, and is properly to be accounted for as income of, the period of Federal control after the projects were completed and placed in operation, the portion thereof applicable to 1920 is $9,375.
RENTAL INTEREST ON COMPLETED ADDITIONS AND BETTERMENTS - FINAL SETTLEMENT WITH DIRECTOR GENERAL.
Respondent's answer - Docket No. 24887.
In the final settlement with the Director General in 1920, the Gulf, Mobile & Northern was allowed rental interest on additions and betterments completed during the period of Federal control in the amount of $56,521.02. The rental interest was computed on each individual project at the rate of 6 per cent per annum from the date the project was completed and placed in operation to the end of Federal control, and was allowed in addition to the compensation based upon the standard return for the test period. No part of this rental interest of $56,521.02 has been included by the respondent in income for 1920. *2159 If the Board concludes that this rental interest *240 was earned during, and is properly to be accounted for as income of, the period of Federal control, the portion thereof applicable to 1920 is $13,439.61.
INCOME FOR 1920 SUBJECT TO TAX RATES OF 8 AND 10 PER CENT.
Issue (i) Docket No. 24887.
At the hearing, the following stipulation was made by the parties:
That the consolidated net income for 1920, as shown by the deficiency notice in Docket No. 24887, the appeal of the Gulf, Mobile & Northern Railroad Company, in the amount of $378,280.05, was earned as follows: For the two months of January and February, 1920 - $18,132.09, for the ten months March 1 to December 31, 1920 - $360,147.96. The purpose of this stipulation is to fix the basis for applying the rate of tax applicable to the ten months.
It is further stipulated that the adjustments which may be made as a result of the appeal in Docket 24887, will not affect the income for the two months, but will affect the income for the ten months, except the Board find that the additional compensation of $75,000 shall be spread ratably to the various control periods, in the amount stipulated, and shall also*2160 find that the rental interest shall be allocated over the fiscal control period in the amounts agreed to, then and in that case, the amounts which apply to 1920 will affect the income for the two months of January and February, 1920.
STOCK EXCHANGE FEE.
Issue (a), Docket No. 42150.
When the Gulf, Mobile & Northern was reorganized in December, 1916, its stockholders entered into a voting trust agreement which was to extend to January 1, 1925. It was agreed that upon the termination of the voting trust, the stock of the company would be listed on the New York Stock Exchange, and this was done in 1924. The respondent has disallowed a deduction of $2,400, claimed by the petitioner in its return for 1924, as the cost of listing its stock on the Exchange.
AMORTIZATION OF BOND DISCOUNT.
Issue (c), Docket No. 42150.
At various dates between 1913 and 1916, the Meridian & Memphis sold its 30-year 5 per cent gold bonds, of a total face value of $675,000, to the Equitable Loan & Mortgage Company of Mobile, at a discount of approximately $131,000. At the time the Gulf, Mobile & Northern acquired the capital stock of the Meridian & Memphis, the bonds of the latter were*2161 pledged as collateral for certain collateral trust notes of the Equitable Loan & Mortgage Company. These notes fell due during the period of Federal control and were taken up by the War Finance Corporation. At the end of Federal control, the Gulf, Mobile & Northern settled with the War Finance Corporation*241 for the notes, and took over the bonds pledged as collateral thereto, at a cost of $636,000. Each year, the Meridian & Memphis has charged off on its books one-thirtieth of the discount on its bonds, and in its returns for 1924, 1925, and 1926 claimed deductions for amortization of bond discount, each in the amount of $4,585.32. These deductions have been disallowed by the respondent in determining consolidated net income.
DEPRECIATION OF WAYS AND STRUCTURES.
Issue (e), Docket No. 42150; and (a), Dockets Nos. 38295 and 42149.
The Jackson & Eastern was organized in 1916 by S. A. Neville for the purpose of constructing a railroad about 71 miles in length between Union and Jackson, Miss. All of the capital stock of this company was owned by Neville until he sold the same to the Gulf, Mobile & Northern Railroad Company, on August 15, 1926.
Neville attempted*2162 to interest several of the large railroad systems in the project proposed to be undertaken by the Jackson & Eastern. The territory which was to be served by the proposed road was approximately 40 miles wide and 70 miles long, and was entirely without transportation facilities. However, none of such systems could be induced to assist in the project and Neville proceeded to build the road with his own limited means. The road was built as cheaply as possible and in a very crude manner. To the fullest extent possible it was constructed from materials along or adjacent to the right of way. The roadbed was a dirt embankment and was not ballasted; secondhand rails, of 60 pound weight, were used; frogs and switches were used which had not been made especially for the rails, with consequent imperfections in fit and looseness of joints; bridges and trestles were constructed of unseasoned oak and pine; culverts were made of boxes built from other unseasoned native woods; office buildings, stations, tool houses and other roadway buildings were constructed of No. 2 common yellow pine and, except for the exteriors of stations, none were painted; water stations consisted of corrugated galvanized*2163 iron tanks supported by native pine timber; fuel stations, for storing coal for locomotives, were just platforms built of native pine timber; and shops and engine houses consisted merely of native oak poles supporting roofs, some of which were made of corrugated iron and the rest were made from No. 2 common yellow pine.
While every effort was made to keep the ways and structures in as good operating condition as possible, deterioration was very rapid because of the crude construction, and was not arrested by maintenance and repairs. On August 15, 1926, when the Gulf, Mobile & Northern acquired the capital stock of the Jackson & *242 Eastern, the ways and structures were in a very poor condition and practically in a salvage stage. Immediately after that date, the Gulf, Mobile & Northern undertook the rehabilitation of the road and entirely rebuilt it during the ensuing ten-month period. During the period of rebuilding, the road was kept open for the operation of trains. None of the materials of the abandoned ways and structures was used in rebuilding - everything except the roadbed was discarded and scrapped.
The following is a statement of the cost of the various items*2164 of ways and structures, as of the close of each of the years 1920 to 1925, inclusive, and as of August 15, 1926:
| Description | 1920 | 1921 | 1922 | 1923 | 1924 |
| Bridges, trestles, | |||||
| and culverts | $2,558.05 | $2,790.85 | $11,306.87 | $13,497.29 | $23,107.79 |
| Rails | 47,740.46 | 47,695.46 | 64,585.34 | 72,654.79 | 93,315.85 |
| Other track | |||||
| material | 8,858.36 | 8,585.36 | 11,392.96 | 12,874.05 | 16,005.40 |
| Station and office | |||||
| buildings | 8,721.50 | 8,950.38 | 9,063.64 | 12,556.62 | 12,872.15 |
| Roadway buildings | 129.70 | 129.70 | 129.70 | 129.70 | 129.70 |
| Water stations | 2,435.45 | 2,519.81 | 2,519.81 | 2,519.81 | 3,628.24 |
| Fuel stations | 257.88 | 257.88 | 257.88 | 257.88 | 257.88 |
| Shops and engine | |||||
| houses | 679.61 | 745.33 | 797.58 | 823.46 | 823.46 |
| Roadway machines | 846.67 | 846.67 | 956.39 | 10,913.60 | 11,406.57 |
| Total | 72,227.68 | 72,794.44 | 101,010.17 | 126,227.20 | 161,547.14 |
| Description | 1925 | August 15, 1926 |
| Bridges, trestles, | ||
| and culverts | $30,783.17 | $32,373.70 |
| Rails | 107,406.99 | 105,914.42 |
| Other track | ||
| material | 21,011.55 | 20,995.62 |
| Station and office | ||
| buildings | 14,447.83 | 14,542.34 |
| Roadway buildings | 620.80 | 654.73 |
| Water stations | 3,585.30 | 3,929.14 |
| Fuel stations | 257.88 | 328.91 |
| Shops and engine | ||
| houses | 4,059.63 | 7,140.84 |
| Roadway machines | 11,645.38 | 12,139.97 |
| Total | 193,818.53 | 198,019.67 |
*2165 The following statement shows the average life of each item comprising the petitioner's investment in ways and structures, when kept up by normal repairs and maintenance:
| Description | Average life |
| Years | |
| Bridges, trestles, and culverts | 8 |
| Rails | 10 |
| Other track material | 10 |
| Station and office buildings | 20 |
| Roadway buildings | 20 |
| Water stations | 10 |
| Fuel stations | 10 |
| Shops and engine houses | 10 |
| Roadway machines | 6 |
The composite average life of petitioner's ways and structures is 10 years.
In computing net income for 1921 to 1925, inclusive, for the period January 1 to August 15, 1926, and for the period August 16 to December 31, 1926, the Jackson & Eastern claimed deductions for depreciation of ways and structures, in the following amounts:
| Year or period | Depreciation claimed |
| 1921 | $1,749.72 |
| 1922 | 1,767.27 |
| 1923 | 6,938.45 |
| 1924 | 13,219.18 |
| 1925 | $17,153.53 |
| 1/1/26 to 8/15/26 | 12,187.38 |
| 8/16/26 to 12/31/26 | 7,374.87 |
*243 The respondent has disallowed the depreciation deductions claimed by the petitioner for the years 1923, 1924, and 1925, and for the two periods January 1 to August 15, 1926, and August 16 to December 31, 1926.
*2166 NET LOSS FOR 1921 - JACKSON & EASTERN.
Issue (b), Docket No. 38295.
The books of the Jackson & Eastern show a loss for 1921 of $6,298.37, and a net income for 1922 of $5,684.86. The petitioner reported an alleged statutory net loss of $1,567.41 in its return for 1921, and a net income of $5,684.86 in its return for 1922. The difference in the net loss reported in the return for 1921 and that reflected by the petitioner's books of account, which is $4,730.96, represents an alleged loss charged off on the books on account of the retirement of certain equipment, but not claimed as a deduction in the return. In arriving at the net loss for 1921 and the net income for 1922, the petitioner made deductions for depreciation of ways and structures in the amounts of $1,749.72 and $1,767.27, respectively. No part of the net loss sustained for 1921 has been deducted by the respondent in determining the net income of 1923.
DONATIONS TO Y.M.C.A.'s.
Issue (f), Docket No. 42150.
During 1924, 1925, and 1926 the Gulf, Mobile & Northern made contributions to several Y.M.C.A.'s located at division terminal points. These institutions were not so-called "Railroad Y.M.C.A.'s*2167 and were not maintained on company property, but were located at central points in towns of 18,000 to 35,000 population and were open to the general public. The petitioner's employees are not dependent upon these institutions for lay-over accommodations, there being other facilities available for such purposes. However, the employees do avail themselves of the facilities of these institutions and are furnished a class of amusement, entertainment, and recreation that is very beneficial to them. The company, also, frequently makes use of such facilities for staff meetings and employees' "get-together" meetings. In its returns for 1924, 1925, and 1926 the petitioner claimed deductions for such contributions in the amounts of $866.67, $1,500, and $750, respectively. The deductions have been disallowed by the respondent.
CONSOLIDATED NET LOSS FOR 1921.
Issue (d), Docket No. 35898.
The respondent determined that the Gulf, Mobile & Northern and the Meridian & Memphis sustained a consolidated net loss for 1921 *244 of $147,753.83, and has deducted such net loss from the consolidated net income for 1922. In arriving at the consolidated net loss for 1921, the respondent*2168 reduced the operating expenses by the amount credited in that year to "Transportation for Investment - Cr." accounts, to wit, $4,958.65.
At the hearing, the following stipulation was made by the parties:
That the net income of the Meridian & Memphis Railway Company, for the year 1922, is $18,461.06, and that none of the adjustments which may be made as a result of this appeal in Docket No. 35898 will affect the income of the Meridian & Memphis.
OPINION.
TRAMMELL: Several assignments of error have been admitted by the respondent, necessitating adjustments in the net incomes determined in the deficiency notices, as follows:
Docket No. 24887.
Net income for 1920 should be reduced (1) by $7,918.02 on account of "so-called 'donations'"; (2) by $150,196.34, on account of "depreciation on equipment sustained during the Federal control period and charged to the Director General of Railroads, but which was not allowed by him in the final settlement in 1920; (3) by $82,187.99, on account of "overmaintenance charged to petitioner in the final settlement of 1920"; (4) by $162,06, on account of amortization of bond discounts; and net income should be increased by $2,226.49, on*2169 account of "miscellaneous items of income received by petitioner in the final settlement in 1920." Also, the respondent admits error in having computed the tax for 1920 at the rate of 10 per cent upon the entire net income, conceding that the tax upon the net income earned during the two months of Federal control, January and February, should be computed at the rate of 8 per cent. The tax will be computed accordingly in the final order of redetermination.
Docket No. 42150.
Net incomes for 1925 and 1926 should be reduced by the amounts of $4,280.29 and $10,200.58, respectively, on account of additional mail pay received in those years for 1916 and 1917.
Docket No. 42149.
Net income for the period January 1 to August 15, 1926, should be reduced by $750.95, on account of additional mail pay received in that period for 1916 and 1917.
*245 Docket No. 35898.
Net income for 1922 should be reduced (1) by $11,327.55 on account of "property received by petitioner as a gift"; and (2) by $648.22, on account of amortization of bond discount. The consolidated net loss for 1921, which respondent has deducted from consolidated net income for 1922, should be increased*2170 (1) by $14,936.56, on account of "property received by petitioner as a gift"; (2) by $648.22, on account of amortization of bond discount; (3) by $51,559.52, "on account of Federal control lump sum settlement"; and decreased by $150,196.34, on account of "overmaintenance of petitioner's property while under Federal control."
TRANSPORTATION FOR INVESTMENT - CR.
Issue (b), Dockets Nos. 24887, 42150, 35898; and (d), Docket No. 35898.
Petitioners, Gulf, Mobile & Northern and Meridian & Memphis, complain of respondent's action in reducing the deductions claimed for operating expenses, for 1920, 1921, 1922, and 1924 by the amounts credited in those years, under regulations of the Interstate Commerce Commission, to accounts designated on their books "Transportation for Investment - Co."
The evidence shows that during the years in controversy, the petitioners transported men and materials over their own lines for construction purposes; that such transportation was accomplished, as a rule, by regularly scheduled freight and passenger trains and did not involve additional equipment and service expense; that the expenses of operating such train facilities are more or less constant*2171 and are not appreciably affected by transporting such workmen and materials; and that the amounts credited, in the years in question, to "Transportation for Investment - Cr." accounts are arbitrary, represent the maximum amounts which could be credited to such accounts under regulations of the Interstate Commerce Commission, and, consequently, may or may not bear a true relation to the cost of such transportation. On these facts, we are asked to set aside the respondent's determination and permit the deduction of the amounts in question, in computing consolidated net income for 1920, 1922, and 1924, and the consolidated net loss for 1921.
The precise question raised here was considered by the Board in Great Northern Railway Co.,8 B.T.A. 225">8 B.T.A. 225. There we held that the cost of transporting men engaged in and materials to be used for new construction constituted a capital expenditure and not a proper *246 deduction in computing taxable net income. In this the Board was affirmed by the Circuit Court of Appeals, Eighth Circuit. *2172 Great Northern Railway Co. v. Commissioner of Internal Revenue, 40 Fed.(2d) 372. Confessedly, some expense was incurred in transporting workmen and materials for construction purposes, and it is admitted by both parties that the amounts credited to "Transporation for Investment - Cr." accounts and charged to capital on account of such transportation are arbitrary and represent the maximum amounts which could be so treated under the regulations of the Interstate Commerce Commission. In this situation, the burden rested upon the petitioners to show that the costs of such transportation are less than the amounts shown on the books of account, but the evidence falls far short of establishing the fact. The evidence does not do more than show that the cost of such transportation, in any particular instance, may be but a negligible factor, in the sense that the more or less constant expenses of operating the facilities by means of which such transportation is usually accomplished are not appreciably affected. A somewhat similar situation was encountered in Great Northern Railway Co., supra, and the Circuit Court, in commenting thereon, spoke as follows:
The appellant*2173 contends that it was put to no additional expense in transporting the few men at a time on a regular passenger train as this involved no additional equipment or service expense because the trains upon which the transportation occurred would have been run in the same way whether these workmen were carried or not. A similar contention is made concerning the carriage of material except that appellant makes a rather grudging concession that the sum of $41,799.45 might be apportioned to this because of the cost of repairs to freight cars, fuel and water for steam locomotives and electric power for electric locomotives. * * * The entire evidence and argument seem merely to show that there is an actual expense for transporting the men and material but that the amount of such expense cannot possibly be ascertained with anything like approximation, but must be estimated rather vaguely. This difficulty is evidently what led the Commission to fix a definite maximum which it would allow, without examination, for such purposes. Unquestionably, that maximum was the result of investigation and intended to represent an estimate of the average for such costs. This appellant adopted that maximum. *2174 According to its own evidence, it did so "as representing reasonable allowances for the value of these services." If there was an advantage in its selection of that basis it got the advantage thereof in its capital account upon which its rates would be based. It cannot now say that such entry in its own books for that purpose is not competent evidence of the facts supposed to be represented thereby. The burden is upon it to show that such were less.
Here the petitioners adopted the maximum amounts which, under the regulations of the Interstate Commerce Commission, could be treated as capital investment, and such amounts must be permitted to stand until it is shown by clear and convincing evidence that the actual costs of transportation incurred are less than the amounts *247 reflected by the books. On this issue, we find no proper grounds for disturbing the respondent's action.
PAYMENT UNDER SECTION 209, TRANSPORTATION ACT OF 1920.
Issue (c), Docket No. 24887.
The petitioner contends that the amount which it received from the United States Government pursuant to section 209 of the Transportation Act of 1920 does not constitute taxable income. It argues that*2175 the amount received does not come within the definition of gross income set out in the statute nor within the scope of the definition of income in the Sixteenth Amendment as laid down by the Supreme Court. The pertinent provisions of section 209 of the Transportation Act are as follows:
The term "guaranty period" means the six months beginning March 1, 1920.
The term "test period" means the three years ending June 30, 1917; and
The term "railway operating income" and other references to accounts of carriers by railroad shall, in the case of a sleeping car company, be construed as indicating the appropriate corresponding accounts in the accounting system prescribed by the Commission.
(b) This section shall not be applicable to any carrier which does not on or before March 15, 1920, file with the Commission a written statement that it accepts all the provisions of this section.
(c) The United States hereby guarantees -
(1) With respect to any carrier with which a contract (exclusive of so-called cooperative contracts or waivers) has been made fixing the amount of just compensation under the Federal Control Act, that the railway operating income of such carrier for the*2176 guaranty period as a whole shall not be less than one-half the amount named in such contract as annual compensation, or, where the contract fixed a lump sum as compensation for the whole period of Federal operation, that the railway operating income of such carrier for the guaranty period as a whole shall not be less than an amount which shall bear the same proportion to the lump sum so fixed as six months bears to the number of months during which such carrier was under Federal operation, including in both cases the increases in such compensation provided for in section 4 of the Federal Control Act;
(2) With respect to any carrier entitled to just compensation under the Federal Control Act, with which such a contract has not been made, that the railway operating income of such carrier for the guaranty period as a whole shall not be less than one-half of the annual amount estimated by the President as just compensation for such carrier under the Federal Control Act, including the increases in such compensation, provided for in section 4 of the Federal Control Act. If any such carrier does not accept the President's estimate respecting its just compensation, and if in proceedings*2177 under section 3 of the Federal Control Act it is determined that a larger or smaller annual amount is due as just compensation, the guaranty under this paragraph shall be increased or decreased accordingly;
(3) With respect to any carrier, whether or not entitled to just compensation under the Federal Control Act, with which such a contract has not been made, and for which no estimate of just compensation is made by the President, *248 and which for the test period as a whole sustained a deficit in railway operating income, the guaranty shall be a sum equal to (a) the amount by which any deficit in its railway operating income for the guaranty period as a whole exceeds one-half of its average annual deficit in railway operating income for the test period, plus (b) an amount equal to one-half the annual sum fixed by the President under section 4 of the Federal Control Act;
(4) With respect to any carrier not entitled to just compensation under the Federal Control Act, which for the test period as a whole had an average annual railway operating income, that the railway operating income of such carrier for the guaranty period as a whole shall not be less than one-half the average*2178 annual railway operating income of such carrier during the test period.
(d) If for the guaranty period as a whole the railway operating income of such any carrier entitled to a guaranty under paragraph (1), (2) or (4) of subdivision (c) is in excess of the minimum railway operating income guaranteed in such paragraph, such carrier shall forthwith pay the amount of such excess into the Treasury of the United States. If for the guaranty period as a whole the railway operating income of any carrier entitled to a guaranty under paragraph (3) of subdivision (c) is in excess of one-half of the annual sum fixed by the President with respect to such carrier under section 4 of the Federal Control Act, such carrier shall forthwith pay the amount of such excess into the Treasury of the United States. The amounts so paid into the Treasury of the United States shall be added to the funds made available under section 202 for the purposes indicated in such section. Notwithstanding the provisions of this subdivision, any carrier may retain out of any such excess any amount necessary to enable it to pay its fixed charges accruing during the guaranty period.
(e) For the purposes of this section*2179 railway operating income, or any deficit therein, for the test period shall be computed in the manner provided for in section 1 of the Federal Control Act.
(f) In computing railway operating income, or any deficit therein, for the guaranty period for the purposes of this section -
* * *
(4) There shall not be included any taxes paid under Title I or II of the Revenue Act of 1917, or such portion of the taxes paid under Title II or III of the Revenue Act of 1918 as by the terms of such Act are to be treated as levied by an Act in amendment of Title I or II of the Revenue Act of 1917; * * *
Pursuant to the proclamation of the President issued December 24, 1919, all railroads and systems of transportation were released from Federal control on the first of March, 1920, and turned back to their respective owners. The guaranty payments under section 209 were no part of the payments made by the Government to the railroads on account of the operation under the Federal Control Act of 1918 as just compensation for the taking of property for public use. Any and all such liability which the Government incurred or was under to the railroads as the result of Federal control was either*2180 adjusted or was subject to adjustment independent of section 209 of the Transportation Act.
Perhaps the best statement of the purpose of the payments contemplated Under section 209 of the Transportation Act is found in *249 the words of Mr. Justice Brandeis in the case of United States v. Guaranty Trust Co.,280 U.S. 478">280 U.S. 478, where he said:
These appropriations were made in order to meet a present need. At the time of the passage of Transportation Act 1920, most of the railroads of the United States lacked funds for necessary improvements, equipment, and expense of facilities. Some of the carriers needed funds, also, to meet maturing obligations. The credit of many carriers was seriously impaired. There was a general reluctance among investors to purchase new railroad securities even on the strongest railroads. Congress deemed it important to preserve for the nation substantially the whole existing transportation system. * * * In order to accomplish this, it was thought necessary that the United States should, to a certain extent, finance the carriers until it would become possible to restore their credits, by increase of rates or otherwise. The*2181 provisions of Title II of Transportation Act 1920 were framed to that end.
The United States Supreme Court in the case of Akron C. & Y. Co. v. United States,261 U.S. 184">261 U.S. 184, with reference to the payments by the Government to the railroad under section 209, stated as follows:
The credit of the carriers, as a whole, had been seriously impaired. To preserve for the nation substantially the whole transportation system was deemed important. By many railroads funds were needed, not only for improvement and expansion of facilities, but for adequate maintenance. On some, continued operation would be impossible unless additional revenues were procured.
The Interstate Commerce Commission, in Finance Docket No. 1176, 70 I.C.C. 115">70 I.C.C. 115, in a decision rendered July 12, 1921, with respect to the nature of the guaranty payments under section 209 said:
The guaranty under Section 209 is wholly independent of any damages which the carriers may have suffered by reason of the temporary taking of their property during the period of Federal control. For all such damages the Government must render just compensation; and by their acceptance of the provisions of Section*2182 209 the carriers have in no way surrendered or abated any claims arising out of Federal operation. The guaranty, therefore, was not founded upon a legal obligation, * * *
The purpose of the payments to the railroads under the above act is also shown by statements of the members of the Committees in Congress in charge of the bill in the course of its passage, and resort may be had to these statements as indicating the purpose of this legislation. Wisconsin Railroad Commissioner v. C.B. & Q.R.R. Co.,257 U.S. 562">257 U.S. 562; Duplex v. Deering,254 U.S. 443">254 U.S. 443; United States v. St. Paul M. & N.R. Co.,247 U.S. 310">247 U.S. 310.
Representative Denison, a member of the Committee in charge of the bill, stated as follows (Congressional Record, vol. 58, pt. 8, p. 8458): "The great thing that the railroads will need in the immediate future is credit and this guaranty provision in the bill is intended largely to reestablish their credit in the markets of the world."
*250 It appears from the history of the legislation, the statements of the United States Supreme Court and the discussions by members of the Committees in charge of the passage of*2183 the bill in Congress, that the primary purpose of the guaranty payments was to reestablish the credit of the railroads. The reestablishment of their credit would enable them to sell securities to obtain funds necessary to their operations, as well as for securing improvements and equipment. As a means of establishing this credit to the railroads their railway operating income was guaranteed to be a certain amount. It is a matter of public knowledge that the expenses of operation of the railroads had been materially increased during the Federal control period on account of the increased compensation of employees and higher costs of supplies; that freight and passenger rates had not been adjusted to meet this additional expense; that under Federal control the routes of carriers had been changed in order to permit the most direct route of transportation; that the cars and other facilities had become scattered; and that other factors existed at the time of the turning the operation of the railroads back to their owners which would materially affect their income-producing power. Congress took into consideration the condition of the roads caused largely by the Federal control. Under*2184 section 209 of the Transportation Act the Government guaranteed a stabilized and certain income to the carriers during the guaranty period, which was the six months beginning March 1, 1920. This was a period of readjustment. It was necessary that something be done by Congress in order to assure the efficient operation of the railway systems. In order to accomplish this purpose their credit had to be reestablished by some means. If, instead of guaranteeing the railway operating income, Congress had increased rates to accomplish the same result, of course no question of taxability of the increased revenue could have arisen.
The establishment of the credit of the railroads through the guaranty payments enabled the railroads to make a certain definite amount of railway operating income. This was for the purpose of establishing credit through the means of enabling the owners of railroad securities to secure a definite return upon their securities. The guaranteed earning power was a stabilizing factor. If the railway operating income was less than a certain amount the Government would make up the difference, so that in any event the railroad's operating income, of which its owners*2185 and securityholders would receive the benefit, would have been not less than its average railway operating income for the test period, that is, for the three years ended June 30, 1917.
The deficiency in railway operating income was made up by the guaranty instead of by the shippers and traveling public. It does *251 not seem to be material from what source the deficiency was made up, if it was in fact the railway operating income which was made up. If the payments by the Government did not form a part of the railway operating income, then the provisions of the statute still have not been met, because the Government guaranteed that that income would be a certain amount. The income received in due course from freight and passenger traffic and the amounts received from the Government together made up the operating income, so that in the end the railroads had their railway operating income in the guaranteed amount.
We do not think that it can be successfully contended that the Government voluntarily made the payments as gifts without any consideration. If they were mere gratuities or bounties there would be serious question as to their constitutionality. See *2186 United States v. Realty Co.,163 U.S. 247">163 U.S. 247; United States ex rel Miles Planting & Mfg. Co. v. Carlisle, 5 D.C. App. 138; Field v. Clark,143 U.S. 649">143 U.S. 649. The benefits flowing to the country as a whole, the recognition of the condition of the railroads brought about largely through Federal control, the equitable and honorary obligation on the part of the Government, the mutuality of the arrangement between the Government and the railroads are factors which can not be ignored. If one person, for considerations deemed by him to be sufficient, agrees with another that such person's income would not be less than a certain amount and makes payments to such person to make good any deficiency, it is difficult to see under what theory such amounts would not be income to the person receiving the payments. If one person's profits are guaranteed by another if not received by a certain source, they are still profits if received from the guarantor.
It is to be observed that section 209 makes no provision that such payments by the Government shall be exempt from income tax. Congress undoubtedly had the option to pay the full amount of*2187 the deficit in railway operating income or any part thereof, considering in this connection such amount of income below the guaranteed amount as being a deficit, and subject said payments to tax the same as any other income, or to pay the railroads a smaller sum less what the tax would have been on a larger sum paid.
It seems clear that Congress chose the former method instead of the latter. The provision in subsection (f)(4) of section 209 that in computing railway operating income or any deficit therein for the guaranty period certain taxes could not be included, is an indication that Congress did not leave out of consideration the question of taxes in determining the railway operating income and apparently intended that any payments by the Government should be governed by whatever statutory provisions might be applicable. While making provision with respect to taxes, if Congress had intended *252 that any payments by the Government were to be exempt it could have made specific provision therefor in unmistakable language. Clearly the language used is not an express exemption, nor can we construe the provision as indicating an intention to exempt the Government payments*2188 from the tax; yet, if there is doubt or ambiguity on the question, statutory exemption from tax should be construed strictly in favor of the Government and against the exemption, see Lewellyn v. Harbison (C.C.A., 3d Cir.), 31 Fed.(2d) 740; Bank of Commerce v. Tennessee,161 U.S. 134">161 U.S. 134, an entirely different rule from that with respect to the imposition of taxes. The method of taxation of railroads and the fact that they were given some concession with respect to taxes imposed by section 230 of the Revenue Act of 1918 in our opinion throws no light on the question. See New York, Ontario & Western Ry. Co.,1 B.T.A. 1172">1 B.T.A. 1172. If it be contended that it was net railway operating income which was guaranteed, that Federal taxes must be deducted before that net income can be determined; and, consequently, that unless the Government in effect bore the tax, the net income had not been made up by the Government, we think that this contention is answered by the provision of the statute that the Federal taxes paid should not be included in determining the income during the guaranty period.
The same argument might be made as to the just*2189 compensation during the Federal control period. It might be contended that the carrier had not received the amount of the just compensation represented by guaranteed or agreed payments unless Federal taxes had been deducted in determining railway operating income. But we think that section 1 of the Federal Control Act, providing that "Every such agreement [between the Government and carrier] shall provide that any Federal taxes under the Act of October third, nineteen hundred and seventeen, or Acts in addition thereto or in amendment thereof, commonly called war taxes, assessed for the period of Federal control beginning January first, nineteen hundred and eighteen, or any part of such period, shall be paid by the carrier out of its own funds, or shall be charged against or deducted from the just compensation * * *," makes it clear that the taxes imposed by section 230 of the Revenue Act of 1918 as it referred to carriers were intended to be paid by them, and section 209(f)(4) of the Transportation Act was apparently put in that act to make it plain that Congress did not intend indirectly to relieve the carriers of that tax by making greater payments under the guaranty provisions*2190 for the six-month period following Federal control, and indicates that it was Railway operating income in a specifically restricted sense which was guaranteed. If taxes are to be deducted in computing Railway operating income under regulations of the Interstate Commerce Commission*253 as a general rule (see New York, Ontario & Western Ry. Co., supra ), in so far as the Government payments to carriers are concerned, Congress saw fit in section 209 to provide otherwise and to make it clear that it was railway operating income less Federal taxes before the guaranty payments were made which the Government was to guarantee. It was a method of determining how much the Government would pay the carriers. We can find no support for the proposition that any language in section 209 intended to exempt any income of carriers from taxes and we tink that the Government payments constituted income.
If the railroad had earned during the guaranty period through its railways operations the amount guaranteed by the Government, there could be no question but that it would be subject to tax as the just compensation was; yet the payments made under section 209 by the*2191 Government to make up the railway operating income to a certain point seem to us to be equally taxable income. The payments were in fact and substance as much railway operating income as any other income. They were in fact income received on account of the operation of the railroads. It is merely received from the United States, that is, all of the people of the United States instead of specifically from the shippers or passengers. It seems that no distinction should be made between those railroads whose actual railway operating income without Government payments equaled the amount guaranteed by the Government and those in which the Government made up the difference. The difference made up was railway operating income. We can find no justification in the legislation or any rule of statutory construction which would warrant one railroad in being relieved from tax liability where its actual income or receipts were the same as another railroad which is required to pay the tax. We do not think that Congress intended payments to the railroads in order to bring their railway operating income up to a certain amount and at the same time to exempt the railroads from tax on the payments. *2192 This would amount in effect to the Government paying to the railroads not only the amount of guaranty payments, but the amount of tax thereon.
On the other hand, if the payments by the Government to the railroads constituted gifts or subsidies free from tax, the question is what would be the nature of the payments made by the railroads to the Government where the railroads had excess income. It would be a strained construction to say that the amounts paid by the railroads to the Government where their income exceeded a certain amount were gifts by the railroads to the Government. Clearly, the railroads did not consider that they were making voluntary contributions to the Federal Government in making such payments, nor do *254 we consider that the Government was making gifts or mere voluntary contributions to the rairoads where the railway operating income did not come up to the guaranteed amount.
It is contended that the payments by the Government did not meet the test laid down by the Supreme Court as to the meaning of income. The United States Supreme Court, in the case of *2193 Eisner v. Macomber,252 U.S. 189">252 U.S. 189, said, "income may be defined as the gain derived from capital, from labor, or from both combined, provided it be understood to include profit gained through a sale or conversion of capital assets."
It is contended by the petitioner that the payments did not come within the scope of this definition. The payments by the Government, however, were dependent upon the operation of the railroad, that is, the use of both capital and labor. The payments were not received for the guaranty period unless the railroads were in operation during that period, and then only in the event that their operating income was less than the guaranteed amount, and we can not overlook the fact that it was railway operating income which was guaranteed and made up. The Government derived a substantial benefit from the payments. It received consideration from the substantial good obtained for or expected to be obtained for the people as a whole on account of the more efficient operation of the railroads and the further establishment of their credit.
It may be perfectly true that Congress was impelled by no legal obligation in enacting this legislation*2194 requiring the Government to make these payments, but it seems to be clear that the Government took into consideration the benefits to be derived by the people of the United States, and that there were obligations of "an equitable, moral and honorary nature" on the part of the Government existing on account of the condition of the railway systems immediately after Federal control and largely as a result thereof. The Supreme Court, in the case of United States v. Realty Co.,163 U.S. 427">163 U.S. 427, said that such considerations were sufficient to authorize Congress "to recognize the equities of the situation and to pay the claims, which while they were not of a legal character, were nevertheless of so meritorious and equitable nature as to authorize the nation through its Congress to appropriate money to pay." Such an obligation on the part of the Government may well be said to take the place of a legal obligation to such an extent that payments thereof were not mere gratuities or subsidies, as the Supreme Court held in the above cited case. That case involved the question of the constitutionality of payments made by the Government to certain sugar manufacturers after repeal*2195 of the sugar bounty statute. It was contended that Congress was without power to pay bounties, *255 but the Court held that while there was no legal obligation to make the payments after the repeal of the law, yet since certain manufacturers had relied on the repealed statute, to their disadvantage, Congress had the right to recognize the equitable and moral and honorary obligation and that the payments based on this condition were not bounties or subsidies, but based on valid consideration. Under the reasoning of that case, the payments here involved were not subsidies or bounties. But in any event, regardless of the obligations of the Government before section 209 became law, after the railroads had accepted its terms the Government was bound by legal obligation to make the necessary payments and the railroads were equally bound to pay certain excess earnings over the specified amounts to the Government. There can be no question of the mutuality of the arrangement. There was a mutuality of benefit as well as a mutuality of obligation.
The railroads, in order to receive the guaranty payments under section 209, had to file a written acceptance of all provisions of that*2196 section within a certain time. One of the conditions of section 209 was that, if the railway operating income exceeded a certain amount, the excess would be paid to the Government. This in fact constituted a contractual agreement between the carrier and the Government and it could not be ascertained until an accounting had been had whether the Government would pay the railroad or whether the railroad would pay to the Government. We think that this feature of the case takes away any basis for holding that the payments by the Government were pure gifts or subsidies to the railroads.
The petitioner relies upon the case of Edwards v. Cuba Railroad Co.,268 U.S. 628">268 U.S. 628. In that case the United States Supreme Court said:
The subsidy payments were proportionate to mileage completed; and this indicates a purpose to reimburse plaintiff for capital expenditures. All - the physical properties and the money subsidies - were given for the same purposes. It can not reasonably be held that one was contribution to capital assets and that the other was profit, gain, or income. Neither the laws nor the contracts indicate that the money subsidies were to be used for the payments*2197 of dividends, interest, or anything else properly chargeable to or payable out of earnings or income. The subsidy payments taxed were not made for services rendered or to be rendered. They were not profits or gains from the use or operation of the railroad, and do not constitute income within the meaning of the sixteenth amendment. See Stratton's Independence v. Howbert (231 U.S. 399">231 U.S. 399, 415); Eisner v. Macomber (252 U.S. 189">252 U.S. 189, 207); Merchants' Loan & Trust Co. v. Smietanka (255 U.S. 509">255 U.S. 509).
In the Cuba Railroad case it is to be observed that the payments to the railroad were not for the payment of dividends, interest or *256 anything else properly chargeable to or payable out of earnings or income, but were capital contributions. They were made in proportion to mileage completed. In this case, however, the payments were made primarily for the purpose of establishing credit of the railroads to enable the owners and securityholders to derive income in the way of dividends or interest or otherwise. It was railway operating income which the Government added to and increased and made up to a certain amount. *2198 It was railway operating income which was guaranteed. The payments were not capital contributions as was the case in the Cuba Railroad case, supra, and the cases decided by the Board. Liberty Light & Power Co.,4 B.T.A. 155">4 B.T.A. 155; Arkansas Compress Co.,8 B.T.A. 155">8 B.T.A. 155; Great Northern Railway Co.,8 B.T.A. 225">8 B.T.A. 225; Texas & Pacific Railway Co.,9 B.T.A. 365">9 B.T.A. 365; Atlantic Coast Line Railroad Co.,9 B.T.A. 1193">9 B.T.A. 1193; Wisconsin Hydro-Electric Co.,10 B.T.A. 933">10 B.T.A. 933, and others.
We think that the entire amount received under section 209 became a part of the railway operating income in every substantial sense of the word. This is a substantially different state of facts from those in the Cuba Railroad case, supra. We think that it is not important that under the Act the carriers were free to use the money received from the Government for any purpose they saw fit. Taxpayers are always free to use their income for capital improvements if they desire, but this does not change its character when received, but the fact that it was not restricted to capital additions or improvements or was on account*2199 thereof is important. We therefore think that the amounts received by the railroad in this case from the Government under section 209 constituted taxable income.
INVENTORY ADJUSTMENT - FINAL SETTLEMENT WITH DIRECTOR GENERAL.
Issue (f), Docket No. 24887.
At the beginning of Federal control, the petitioner turned over to the Director General of Railroads an inventory of materials and supplies which it had acquired at a cost of $286,664.26. At the end of the Federal control period, February 29, 1920, the petitioner received back from that official an inventory of materials and supplies of the market value of $275,912.03. Later in 1920, in its final settlement with the Director General, the petitioner was allowed the sum of $61,314.18 for shortages in, and differences in grade and quality of, materials and supplies turned back by that official, in comparison with the materials and supplies turned over to him by petitioner at the beginning of Federal control. The aggregate value of the cash and materials and supplies received from the Director General in 1920 exceeded the cost of the inventory turned over to that *257 official, at the beginning of Federal control, *2200 by $50,561.95, and the respondent has held such excess is income to the petitioner for 1920. The petitioners contend that such a transaction does not give rise to taxable income, because there was no sale or other disposition of property to the United States and that which was received was not more than sufficient to make it whole against the deficiencies resulting from Government control and operation of its properties.
The question raised here was considered by the Board in Lehigh & Hudson River Railway Co.,13 B.T.A. 1154">13 B.T.A. 1154, in which the facts were identical with those of this case, and was decided adversely to the petitioner. There we held that:
The acts relating to Federal control should be read with the revenue acts in order to determine the intent of Congress, but we do not believe that Congress ever indicated in any act relating to Federal control of railroads that circumstances such as are present in this case could not give rise to income. Particularly is this true when we consider the Commissioner's regulations and certain provisions of the Revenue Act of 1921. Under the revenue acts, if a person parts with his property and, as a result, receives*2201 cash or its equivalent in excess of the cost or, in a proper case, the March 1, 1913, value of the property, he has received income. This is so whether he parted with the property voluntarily or involuntarily.
The order of the Board in the cited case was reviewed by the Circuit Court Appeals, Second Circuit (36 Fed.(2d) 719), and, in affirming the decision of the Board on this question, the Court spoke as follows:
Such a transaction is equivalent for tax purposes to a sale of the supplies at the agreed price. The Act of 1918 did not indeed expressly provide for gains arising from the requisition of property, but Article 49 of the Regulations did: "When the owner of property has lost or transferred title by reason of acquisition or eminent domain * * * if the taxpayer does not elect to replace or restore the property, the transaction will then be deemed to be completed and the income shall be measured by the excess of the amount of the compensation over the cost of the property." This Article and Article 50 prescribed the formalities by which the election should be manifested, with none of which the railway conformed. *2202 Section 234(a)(14) of the Act of 1921 treats such a gain as income and in our judgment it is no more than declaratory of what was implicit before. It can scarcely be necessary to labor the argument that a man may make the same profit out of property which has been requisitioned, as he would out of its sale at the same price. Edwards v. Cuba R.R.268 U.S. 628">268 U.S. 628, touched subsidies which were not given altogether for a consideration moving from the grantor; they were not therefore to be regarded as income paid in advance. Moreover, they were not payments from property taken.
There is no evidence that the petitioner elected to replace or restore the requisitioned property, or that it made application to establish a replacement fund as provided by article 50 of Regulations 45. Under the circumstances, the transaction must be regarded as having been completed in 1920, the year in which compensation *258 was received, and the income arising therefrom measured by the excess of the compensation over the cost of the property. This leaves for decision the question of fact as to the gain derived from the sale or conversion of the requisitioned property, and as*2203 to that it is sufficient to say that there is no evidence upon which we can base a conclusion as to the actual gain. Under the circumstances, we shall not disturb the respondent's determination that the gain was $50,561.95.
BACK MAIL PAY.
Issue (g), Docket No. 24887.
The question here is whether any part of the payment of $15,706.62 received by the petitioner in 1920 as additional compensation for transporting United States mails during the period June 30, 1916, to December 31, 1917, which payment was made to petitioner under the provisions of section 5 of the Act of July 26, 1916, constitutes income for 1920. The disposition of this question is controlled by the principle of our previous decisions in Old Dominion Steamship Co.16 B.T.A. 264">16 B.T.A. 264; affd. 47 Fed.(2d) 148; Illinois Terminal Co.,5 B.T.A. 15">5 B.T.A. 15. See also Western Maryland Railway Co.,12 B.T.A. 889">12 B.T.A. 889. In any event, the order of the Interstate Commerce Commission of December, 1919, which we judicially notice, fixing the rate of compensation, must also be considered in determining whether there was an accrual prior to 1920. We therefore hold that the respondent*2204 erred in including $4,000 of the amount received in income for 1920, the taxpayer being on the accrual basis.
ADDITIONAL COMPENSATION - FINAL SETTLEMENT WITH DIRECTOR GENERAL.
Respondent's answer - Docket No. 24887
The matter at issue here arises from affirmative allegations in respondent's answer to the amended petition, and calls for a decision as to whether the whole amount of $75,000 allowed to petitioner in final settlement with the Director General in 1920 as additional compensation for the use of properties known as the Jackson Extension, and the Blodgett Branch during the period of Federal control, or only a part thereof is income for 1920. The respondent contends that the whole amount received is income for 1920, while the petitioner contends that only $9,375 is income for 1920. The parties have stipulated that if the Board concludes that this additional compensation was earned during, and is properly to be accounted for as income of, the period of Federal control after the projects were *259 completed and placed in operation, the portion thereof applicable to 1920 is $9,375. The respondent concedes that the decision of this question is controlled by*2205 the decisions of this Board in Illinois Terminal Co.,5 B.T.A. 15">5 B.T.A. 15; Cincinnati, Findlay & Ft. Wayne Railway Co.,5 B.T.A. 108">5 B.T.A. 108; New Orleans, Texas & Mexico Railway Co.,6 B.T.A. 436">6 B.T.A. 436; Great Northern Railway Co.,8 B.T.A. 225">8 B.T.A. 225; Old Dominion Steamship Co.,16 B.T.A. 264">16 B.T.A. 264; affd. 47 Fed.(2d) 148; and Kansas City Southern Railway Co.,16 B.T.A. 665">16 B.T.A. 665; although the respondent does not concede the correctness of these decisions. The legal principle announced in the cited cases is that the compensation paid to a railroad company for the use of its properties during the period of Federal control is income for each of the accounting periods for which the compensation was allowed, although not received until a later date. The facts of record in this case clearly require the application of the same principle. Accordingly, the Board concludes that the compensation paid to petitioner for the use of the Jackson Extension and the Blodgett Branch was income for the several accounting periods for which the compensation was allowed, and, in accordance with the stipulation of the parties, the*2206 portion thereof returnable as income for 1920 is $9,375. Since no part of this compensation has been included by respondent in income for 1920, the net income for that year, as determined in the deficiency notice, should be increased by that amount.
RENTAL INTEREST ON COMPLETED ADDITIONS AND BETTERMENTS - FINAL SETTLEMENT WITH DIRECTOR GENERAL.
Respondent's answer - docket No. 24887.
The question at issue here arises from affirmative allegations in respondent's answer to the amended petition, and calls for a decision as to whether the whole amount of $56,521.02 allowed to petitioner in final settlement with the Director General in 1920 as rental interest on additions and betterments completed during the period of Federal control, or only a part thereof, is income for 1920. The respondent contends that the whole amount received is income for 1920, while the petitioner contends that only $13,439.61 is income for 1920. The parties have stipulated that if the Board concludes that this rental interest was earned during, and is properly to be accounted for as income of, the period of Federal control after the several projects were completed and placed in operation, the portion*2207 thereof applicable to 1920 is $13,439.61. The respondent concedes that the decision of this question is controlled by the decision of this Board in Texas & Pacific Railway Co.,9 B.T.A. 365">9 B.T.A. 365; Indiana Harbor Belt Railroad Co.,16 B.T.A. 279">16 B.T.A. 279; and Kansas City Southern*260 Railway Co., supra, although the respondent does not concede the correctness of these decisions. The legal principle announced in the cited cases is that rental interest paid or allowed to a railroad company on additions and betterments completed during the period of Federal control is part of the "just compensation" sought to be paid under section 4 of the Federal Control Act, as amended March 21, 1918 (40 Stat. 451), and is income for each of the accounting periods for which it was allowed, although not received until a later date. The facts of record in this case clearly require the application of the same principle. Accordingly, the Board concludes that the rental interest paid or allowed to petitioner as compensation for the use of additions and betterments completed during the Federal control period was income for the several accounting periods for which allowed, *2208 and, in accordance with the stipulation of the parties, the portion thereof returnable as income for 1920 is $13,439.61. Since no part of this compensation has been included by the respondent in income for 1920, the net income for that year, as determined in the deficiency notice, should be increased by that amount.
INCOME FOR 1920 SUBJECT TO TAX RATES OF 8 AND 10 PER CENT.
Issue (i), Docket No. 24887.
In accordance with the stipulation of the parties, the admissions in the pleadings, and our decisions on the other issues raised in this proceeding, Docket No. 24887, we find that the consolidated net income for the two-month period, January and February, 1920, subject to tax at 8 per cent, is $40,946.70; and that the consolidated net income for the ten-month period, March 1 to December 31, 1920, subject to tax at 10 per cent, is $117,910.04.
STOCK EXCHANGE FEE.
Issue (a), Docket No. 42150.
While there is no proof as to the amount of the fee paid by the petitioner for the listing of its capital stock on the New York Stock Exchange, the respondent makes the admission, in the brief, that the "cost of listing such stock was $2,400." The question of the dedutibility*2209 of an expenditure of this sort in computing taxable net income has been decided by the Board, in Dome Mines, Ltd.,20 B.T.A. 377">20 B.T.A. 377, adversely to the petitioner; and upon authority of that decision, we hold that the respondent committed no error in refusing to allow this expenditure as a deduction from income for 1924.
*261 AMORTIZATION OF BOND DISCOUNT.
Issue (c), Docket No. 42150.
The question whether a corporate taxpayer, having issued its bonds for a price less than their aggregate face value, may deduct a pro rata part of the discount in computing consolidated net income for a year in which such bonds were owned by its affiliated company, has been decided by the Board in New Orleans, Texas & Mexico Railway Co.,6 B.T.A. 436">6 B.T.A. 436, adversely to the petitioner; and upon authority of that decision we hold that the respondent, in computing the consolidated net income for 1924, 1925, and 1926, correctly disallowed the deductions claimed by the Meridian & Memphis for amortization of bond discount.
DEPRECIATION OF WAYS AND STRUCTURES
Issue (e), Docket No. 42150; and (a), Docket Nos. 38295 and 42149.
The respondent has disallowed*2210 the deductions for depreciation of ways and structures claimed by the Jackson & Eastern in its returns for the years 1923, 1924, and 1925, and for the period January 1 to August 15, 1926, and in the consolidated return for the period August 16 to December 31, 1926, on the ground that depreciation was being arrested by maintenance and repairs, renewals, and replacements, which were being expensed and allowed as deductions in computing taxable net income. The evidence presented on this issue leaves no room to doubt that, due to the character of construction of the ways and structures of the Jackson & Eastern, depreciation was not arrested by normal repairs and maintenance, renewals and replacements, and this is now conceded by the respondent in his brief. The costs of the various items comprising the ways and structures have been stipulated by the parties and are set forth in the findings of fact. Witnesses well qualified to give opinion evidence on the subject have testified as to the average life of each of the items included in the classification of ways and structures. Their opinions are supported by evidence as to the fact of abandonment and scrapping of these facilities, because*2211 of having reached the end of usefulness, due to normal wear and tear, after a life of only approximately ten years. On the evidence as a whole, we have found that the composite average life of these facilities was ten years. Accordingly, we hold the following amounts to be reasonable allowances for exhaustion, wear and tear for the years and periods in controversy:
| Year or period | Amount |
| 1921 | $7,251.11 |
| 1922 | 8,190.23 |
| 1923 | 11,361.87 |
| 1924 | 14,388.72 |
| 1925 | $17,768.28 |
| 1/1/26 to 8/15/26 | 12,184.56 |
| 8/16/26 to 12/31/26 | 7,407.35 |
*262 NET LOSS FOR 1921 - JACKSON & EASTERN.
Issue (b), Docket No. 38295.
The books of the Jackson & Eastern show a net loss for 1921 of $6,298.37. The petitioner reported a net loss of $1,567.41 in its return for that year. The difference of $4,730.96 represents an alleged loss charged off on the books in 1921, but not claimed as a deduction in the return for that year. There is no evidence as to when the alleged loss was sustained, and we can not assume that it was sustained in 1921 simply because it was recorded on the books in that year. Indeed, we can not find that there was an actual loss, since there is no evidence*2212 as to the cost of the retired equipment and the depreciation sustained during the period of its use. The alleged loss must be disregarded in computing the net loss for 1921. In computing the net loss, on the books and in the return, the petitioner made a deduction of $1,749.72 for depreciation of ways and structures. We have held that the deduction allowable for 1921 is $6,834.02. Accordingly, we find the net loss sustained by the petitioner for 1921, is $6,651.71.
The net income reported in the return for 1922, and accepted as correct by the respondent, was $5,684.86. In arriving at this net income, the petitioner made a deduction of $1,767.27 for depreciation of ways and structures. We have held that the deduction allowable for 1922 is $6,853.23. Accordingly, we find that the correct net income for 1922 is $598.90. In this connection it should be stated that the year 1922 is not before us for review, and we enter upon this determination solely for the purpose of ascertaining what part of the net loss sustained for 1921 is a proper deduction in computing the net income of 1923.
The net loss sustained for 1921 exceeds the net income for 1922, by $6,052.81, and such excess*2213 should be deducted in computing the net income for 1923.
DONATIONS TO Y.M.C.A.'s.
Issue (f), Docket No. 42150.
The petitioner claimed deductions in its returns for 1924, 1925, and 1926 of $866.67, $1,500, and $750, respectively, on account of contributions to Young Men's Christian Associations located at division terminal points. These institutions are not maintained on the petitioner's properties, and the petitioner's employees are not dependent upon them for any accommodations. They are maintained for, and in the interest of, the general public; and while the petitioner's employees avail themselves of the facilities of these institutions, they do not appear to be accorded any privileges not extended *263 to the general public. The deductions in question were disallowed by the respondent. While there is no proof that the amounts in question were actually expended, the respondent makes the admission, in the brief, that such is the case. The petitioner, relying upon Poinsett Mills,1 B.T.A. 6">1 B.T.A. 6; *2214 Lihue Plantation Co., Ltd.,2 B.T.A. 740">2 B.T.A. 740; Kekaha Sugar Co., Ltd.,13 B.T.A. 690">13 B.T.A. 690; Indiana Harbor Belt Railroad Co.,16 B.T.A. 279">16 B.T.A. 279; Terminal Railroad Association of St. Louis,17 B.T.A. 1135">17 B.T.A. 1135; and American Rolling Mills Co. v. Commissioner, 41 Fed.(2d) 314, contends that these contributions are ordinary and necessary expenses in carrying on its business. Considering all the facts in the case, we agree with the petitioner's contention. The use made of the Y.M.C.A. facilities by the railroad and its employees is sufficient to establish that the donations were ordinary and necessary expenses and are deductible.
CONSOLIDATED NET LOSS FOR 1921.
Issue (d), Docket No. 35898.
The respondent determined that the Gulf, Mobile & Northern and the Meridian & Memphis sustained a consolidated net loss for 1921 of $147,753.83, and has deducted such net loss from the consolidated net income for 1922. In the petition, the petitioner made five assignments of error in the determination of the net loss for 1921, four of which were admitted by the respondent. *2215 The fifth challenged the correctness of the respondent's action in reducing the operating expenses for 1921 by $4,958.65, the amount credited on petitioner's books to "Transportation for Investment - Cr." account and charged to appropriate capital accounts. This action we have already held to be proper in the decision of the first issue considered in this opinion. Accordingly, we find that the consolidated net loss for 1921 is $64,701.79, which should be deducted in accordance with our opinion in the case of Kaiwiki Sugar Co., Ltd.,21 B.T.A. 997">21 B.T.A. 997.
In accordance with the stipulation of the parties at the hearing, we find that the net income of the Meridian & Memphis for 1922, is $18,461.06.
Reviewed by the Board.
Judgment will be entered under Rule 50.
STERNHAGEN, dissenting in part: The few facts available in respect of the back pay received in 1920 for mail transportation performed in 1916 and 1917 do not, in my opinion, justify the decision that it was not income in 1920. Furthermore, it seems to me more practical *264 to treat controverted transportation charges which are in doubt during*2216 a protracted investigation by the Interstate Commerce Commission as income when received at the close of the controversy rather than to readjust the accounts of the year of service, and, since there is no legal obstacle to such a practical rule, I should adopt it rather than the cumbersome one now approved. The rule suggested in the dictum of the Western Maryland case will keep Government revenues and railroad taxes and income in a long state of uncertainty; and, in view of the statute of limitations, will probably be unfair and unsatisfactory to both.
ARUNDELL and MURDOCK agree with this dissent.
PHILLIPS, dissenting: I find myself unable to agree with the majority decision that the amount which the petitioner received from the United States Government pursuant to section 209 of the Transportation Act of 1920 is to be included as a part of its income taxable under the provisions of the Revenue Act of 1918.
The case of the MissouriPacific Railroad Company, decided this day, presents a more complete picture of the extent to which this decision goes than is possible under the meager facts in this case. There the guaranteed amount appears as something less than $7,250,000. *2217 The company was paid over $13,500,000, making it clear that the payment, to the extent of some $6,000,000, was to replace actual losses of operation. The payment was not only to increase operating income to a certain point, it was to make good all losses of operations.
The circumstances which led to the enactment of this legislation are a matter of public record and of general knowledge. The railroads had been under Government operation for more than two years. Costs of labor and materials had reached unprecedented levels, and this was particularly true with respect to railroad labor. The impaired condition of maintenance of the roads and of the equipment had increased operating costs. Increases in rates had not kept pace with the increased costs of operation and, while it was recognized that higher rates would be necessary, it was also recognized that they could not be put into effect at once. Many of the railroads which had been on a paying basis before the period of Federal control were facing large deficits, while the earning powers of all were substantially impaired.
Adequate transportation was recognized as necessary to the well-being of the nation. The railroads*2218 had been operating primarily for the purpose of aiding the prosecution of the war and not for the *265 production of income. Their condition was attributable primarily to such operation and Congress recognized the necessity and the equity of granting some relief during the period of adjustment. The Federal Control Act and the agreements entered into thereunder had provided for the payment of compensation for the use of the roads and gave to the railroads all that they were constitutionally entitled to demand. The aid given them under the provisions of section 209 of the Transportation Act was nothing which they could have demanded and was not in settlement of any legal claim which they had. It was based upon the recognition of a moral or equitable obligation to provide some means by which the railroads might be compensated for the impairment of their earning power, caused by Federal control, until an opportunity had been granted, under private operation, to take the necessary steps to put rates and wages upon a business basis.
The term "income" as used in the Constitution and income tax laws has been defined by the Supreme Court as "the gain derived from capital, from*2219 labor, or from both combined, provided it be understood to include profit or gain from a sale or conversion of capital assets." Stratton's Independence v. Howbert,231 U.S. 399">231 U.S. 399; Doyle v. Mitchell Bros.,247 U.S. 179">247 U.S. 179; Eisner v. Macomber,252 U.S. 189">252 U.S. 189.
I believe that there is a very grave doubt whether such a payment, made to replace a loss of income without any legal obligation to do so, falls within the constitutional provision. Edwards v. Cuba Railroad Co.,268 U.S. 628">268 U.S. 628; Bowers v. Kerbaugh Empire Co.,271 U.S. 170">271 U.S. 170; Rice, Burton & Fales v. Commissioner, 41 Fed.(2d) 339; Edward E. Marshall,10 B.T.A. 1140">10 B.T.A. 1140; H. Sheldon Manufacturing Co.,13 B.T.A. 1296">13 B.T.A. 1296. If this be so, two well established rules of construction apply: the first, that statutes are to be construed to avoid doubts as to constitutionality; the second, that taxing statutes are not to be extended to matters not clearly included. Having these principles in mind, it seems to me that a proper construction of the Transportation Act requires us to reach the conclusion*2220 that the amount paid under its terms is not subject to income tax.
Paragraph (f) of section 209 of the Transportation Act provides the method by which railway operating income is to be computed. Subdivision (4) provides that there shall not be included in such computation such portion of the taxes paid under Title II or III of the Revenue Act of 1918 as by the terms of such act are to be treated as levied by an act in amendment of Title I or II of the Revenue Act of 1917. The effect of this provision can be understood only after reference to several other statutes. These we find quoted *266 and analyzed in the decision in New York, Ontario & Western Railway Co.,1 B.T.A. 1172">1 B.T.A. 1172. The ultimate effect of the provision quoted is, as I understand it, as follows: The operating income for the guaranty period is reduced by a 2 per cent income tax, but is not reduced by the remainder of the income and profits tax imposed by the Revenue Act of 1918. The difference between the amount of the guaranty and the operating revenue as so reduced is to be paid to the carrier. By virtue of this provision the Government is to repay to the carrier a 2 per cent tax upon its*2221 operating income and the carrier is to bear the remainder of the tax upon its operating income. The Transportation Act thus expressly provides the extent to which taxes imposed under the Revenue Act of 1918 shall affect the payment to be made under the Transportation Act and the amount of the payment is dependent upon the amount of the tax. It is not reasonable to suppose that Congress, in thus providing that the amount of the guaranty payment should include a part of the tax levied under the Revenue Act of 1918 and should not include another part of the same tax, intended that such payment should again be reduced by paying a tax thereon under the same revenue act. The provisions of the Transportation Act and of the Revenue Act of 1918 are so interwoven that the two acts must be read together. When this is done a proper application of the rules of construction requires a holding that Congress intended the amount of the guaranty to be reduced by the taxes imposed by the Revenue Act of 1918 only to the extent expressly provided in the Transportation Act.
It seems to me significant that under the Federal Control Act (March 21, 1918) Congress, in providing for the payment of just*2222 compensation for the use of property taken over by the Government, inserted provisions for the taxation thereof and in the Transportation Act failed to provide that the payment by the Government should be taxable, while at the same time it provided in the Transportation Act for a division of the tax upon the actual operating income upon the same basis as was provided in the Federal Control Act for the tax upon all income. Had Congress intended that the basis for taxation prescribed in the Federal Control Act should continue with respect to the payments under the Transportation Act, it seems reasonable to suppose it would have so provided; instead of which, it provided for the continuance of such taxation only with respect to the actual operating income.
I am of the opinion that the Commissioner was in error in including such payment as a part of the gross income of the petitioner.