*2092 Held that the timber not owned by the petitioner was not under the evidence available to it for the purpose of determining depreciation on its plant by the unit-of-production method.
*560 These proceedings involve deficiencies for the taxable years 1923, 1924, and 1925, in the amounts of $97.77, $2,414.98, and $420.53, respectively. The one question common to all the deficiencies is the depreciation deduction allowable with respect to the plant of the petitioner and this question is further limited to the amount of timber available, the petitioner having used, with the approval of the respondent the unit-of-production method.
FINDINGS OF FACT.
The petitioner is a corporation organized November 1, 1923, under the laws of Alabama, with its principal office at Wagar. It was a successor to a partnership of the same name. At the time of its organization it acquired for stock a sawmill plant which had a remaining cost to the partnership of $80,127.27. It is agreed that the cost*2093 of this plant subject to depreciation in the hands of the petitioner was $80,127.27.
The cost to the petitioner of additions to the plant was as follows:
| 1923 | $5,534.21 |
| 1924 | 36,508.56 |
| 1925 | 9,166.89 |
At the time of organization the petitioner acquired approximately 30,000,000 feet of timber. It cut timber from this acquisition as follows:
| Feet | |
| 1923 | 1,444,429 |
| 1924 | 10,182,544 |
| 1925 | 5,322,041 |
*561 The petitioner carried on its operations of cutting timber and manufacturing it into lumber until July 28, 1925, when it sold its plant to the Bassett Lumber Co. At that time it had 12,500,000 feet of timber left.
During the time of petitioner's operations from organization until it sold its plant on the above date it acquired no other timber. It was organized for the purpose of acquiring the aforesaid plant and timber and manufacturing the timber into lumber.
After the Bassett Lumber Co. acquired the petitioner's plant, it expended the following amounts for additions before the end of 1925:
| Rails | $ 9,183.51 |
| Logging equipment | 9,249.50 |
| Ties, grades and bridges | 17,125.26 |
| Repairs, sawmill and fuel house | 15,943.58 |
| New ramps and runway | 3,000.00 |
| Total | 54,501.85 |
*2094 These expenditures were necessary in order to make the plant and facilities adequate to cut the 60,000,000 feet of timber which it had.
The petitioner in making its income-tax return claimed depreciation on its plant upon the unit-of-production method and used as the quantity of timber available 30,000,000 feet. The respondent did not question the cost of plant of $80,127.27, nor the cost of additions, but used as the quantity of timber available a total of 100,000,000 feet.
There was a tract of timber of about 60,000,000 feet near the petitioner's timber which was owned by Hunter-Benn & Co., which one J. M. Hemphill was under contract to cut, such contract having been made February 7, 1923. This contract required. Hemphill to build a fully equipped sawmill with planers, dry kiln, etc., capable of manufacturing a million board feet of lumber a month.
On December 16, 1924, Hemphill made a contract with the petitioner for the purpose of utilizing petitioner's mill and equipment to cut the Hunter-Benn & Co. timber. Subsequently, in 1925, the Bassett Lumber Co. was organized, Hemphill receiving one-half the stock and the McClure Pine Co. the other one-half. Hemphill turned*2095 in for his stock his contract with Hunter-Benn & Co. In exchange for its one-half of the stock of the Bassett Lumber Co. the petitioner conveyed to the Bassett Lumber Co. its tract of timber land, together with the buildings and machinery thereon, but reserved to itself the standing timber. The contract between the Bassett Lumber Co. and the petitioner provided that when the Hunter-Benn & Co. timber had been completely cut the McClure Pine Co., the petitioner, could either repurchase for $1 the property which it had conveyed to the Bassett Lumber Co. or it could allow *562 the title to remain in the Bassett Lumber Co. and collect from that company $25,000.
The Hunter-benn & Co. tract of timber, consisting of approximately 60,000,000 feet, had been refused the petitioner when it undertook to acquire it.
OPINION.
TRAMMELL: The issue in these proceedings is what is a reasonable deduction allowable on account of the exhaustion, wear and tear of petitioner's plant. It is conceded that the unit-of-production method if properly applied will result in a reasonable allowance. In the use of this method the parties differ only in the determination of the amount of timber available, *2096 and this question is further narrowed to the question as to whether the 60,000,000 feet of timber in the Hunter-Benn & Co. tract was in fact available to the petitioner.
The Commissioner takes the position that this timber, while not owned by the petitioner, was available to it, and that that amount should be added to the timber owned in determining the rate of depreciation on the plant upon the unit-of-production method.
On this question, there is testimony that the petitioner had undertaken to purchase this tract of timber, but had been unable to do so. In 1924 the contract was entered into whereby the petitioner was to sell its plant to another corporation to be organized - the Bassett Lumber Co., to cut the Hunter-Benn tract. In 1925 this contract was carried out, the Bassett Lumber Co. was organized and the petitioner conveyed to that company its plant, and that company from July 28, 1925, carried on the business of cutting the timber. There is no testimony that any other timber was in the vicinity of the petitioner's mill or that it could have acquired any other tract. We think that it is unimportant that the petitioner sold its mill and plant in 1925 to another corporation. *2097 There is no question involved in this proceeding as to any gain or loss on that sale, but that sale does not indicate that the petitioner had available to it any timber other than that owned by it. We think that the preponderance of the testimony in this case overcomes the presumption attached to the respondent's determination that the additional timber was available to the petitioner. On the other hand, the evidence is clear that it was not available to the petitioner. The fact that it was available to a new corporation, and that the petitioner's plant was conveyed to that corporation and was used for the purpose of cutting the timber, does not affect the availability of that timber to the petitioner.
It may well be that the fact that the plant was sold to a new corporation might affect any residual or scrap value which might have been estimated in determining the amount of depreciation on *563 the plant allowable, but this question is not involved. Neither party markes any contention with respect to that question.
Both parties rely upon the question as to the amount of timber available to the petitioner, and we think that no other conclusion can be reached than*2098 that this 60,000,000 feet in the Hunter-Benn tract was not available to the petitioner and should not be used or considered in the determination of the depreciation on its plant.
Judgment will be entered under Rule 50.