*1084 1. Certain petitioners claimed title to certain lands below low-water line in front of lands owned by them fronting upon the Atlantic Ocean. A municipality in the State of New York, through condemnation proceedings, in 1925 took title to and in 1931 paid for the land and underwater rights. The condemnation decree of the state court considered the matter of title by determining that the former shore line of the property had been changed by avulsion and that the foreshore rights of petitioners had not been lost by erosion as claimed by the municipality. The final decree, and payment of awards incident thereto, were pursuant to stipulation of parties as to acceptance of awards in full settlement. Held, the judgment of the court in condemnation proceedings awarding damages to petitioners was an adjudication of title in petitioners' favor which respondent here can not contest.
2. Condemnation proceedings of lands upon the ocean, for purposes of a public beach and boardwalk, took portions of lands and beach of petitioners from a certain line, approximately high-water line, outward to the ocean, leaving petitioners' remaining lands easements of light, air, and access over, under, *1085 along, and across the boardwalk and beach. The judgment in condemnation indicated no amount for consequential damages, but the final decree or award itemized the amount as to land, and, in some cases, improvements, and further itemized the amounts of interest on the award. Held, that no consequential damages were awarded to, or suffered by, petitioners.
3. Basic values of property condemned and taken determined under the evidence.
4. Condemnation awards were paid in the taxable year 1931, except certain moneys withheld by agreement for application upon prospective assessments provided for by the applicable law with respect to condemnation proceedings, and contemplated by the condemnation proceedings. The assessments were not made in the taxable year when the awards were received, but were made about three years later, when the moneys withheld were applied on the assessments and balances returned to petitioners. Held, following Christian Ganahl Co. v. Commissioner, 91 Fed.(2d) 343; certiorari denied, 302 U.S. 748">302 U.S. 748; Carrano v. Commissioner, 70 Fed.(2d) 319; Wolf v. Commissioner, 77 Fed.(2d) 455;*1086 and Central & Pacific Improvement Corporation v. Commissioner, 92 Fed.(2d) 88, that the amounts withheld for application upon assessments, and applied upon such assessments, were not income to petitioners in the taxable year.
5. Property of petitioners was condemned and title taken by condemning municipality as of 1925. Awards therefor were paid in 1931, to which were added interest at the legal rate from 1925. Held, the interest was compensation, not for property taken, but for use of money due, and was therefore income taxable to petitioners in 1931.
6. Interest paid upon one of the above awards was received by an executor of the estate and was then distributed to petitioner pursuant to provisions of decedent's will. The will provided in general terms that the residue of decedent's estate should be held in trust for, and the income paid to, decedent's son (petitioner) and another, with power in the trustee to sell the property in furtherance of the trust and that in case of sale 50 percent of the proceeds should be divided between the petitioner and another. Held, that the interest upon the award, so distributed to petitioner, was proceeds*1087 of a sale by operation of law through condemnation proceedings, and was received by petitioner free from tax as a devise of the proceeds of the land condemned.
7. Petitioner owned shares of stock in a national bank which failed and a receiver was appointed. The United States Comptroller of the Currency in 1931 made an assessment upon the stockholders for par value of their stock. Petitioner, who was upon the accrual basis, paid 25 percent of such assessment within the taxable year, 1931, and the remaining 75 percent in 1932. Held, the full liability was deductible in the taxable year.
8. A question submitted for the first time upon brief, but as to which no error is alleged and no issue raised in the petition, will be disregarded. D.N. & E. Walter & Co.,10 B.T.A. 620">10 B.T.A. 620, 632.
*94 The proceedings as orginally instituted involved the following deficiencies in income tax for the year 1931.
| Docket No. | Deficiency | |
| Jamieson Associates, Inc | 75717 | $2,144.92 |
| Estate of Margaret Wainwright, John W. Wainwright, Executor | 76899 | 8,280.74 |
| Seaside Improvement Co | 77018 | 14,991.92 |
| John W. Wainwright | 77019 | 2,561.64 |
| Wainwright and Smith Co | 77212 | 2,314.62 |
| Wainwright, Remsen & Tator Corporation | 77213 | 5,824.07 |
*1088 The above stated deficiencies arise mainly from the determination by the respondent that the petitioners realized profits as a result of the condemnation by the city of New York of certain realty claimed to have been owned by them in Rockaway Beach, New York, and payment of the awards made therefor.
The above proceedings were consolidated for hearing and decision.
In Docket Nos. 75717, 76899, and 77018 leave was granted to the respondent at the hearing to file amended answers praying for increased deficiencies, and by such amended answers respondent asks increased deficiencies on the ground that the amounts of $46,001.47, $66,353.10, and $44,600, respectively, were erroneously deducted from awards made to the respective petitioners. The argument relied upon is that the properties as to which the awards were made did not belong to the respective petitioners, and that therefore awards received by them constituted gain in their entirety.
FINDINGS OF FACT.
Jamieson Associates, Inc., is a New York corporation, organized in October 1923. The Wainwright & Smith Co. is a New York Corporation, organized in 1908. The Wainwright, Remsen & Tator Corporation is a domestic corporation, *1089 organized in 1909. All three of said petitioners keep their books and render their returns on an accrual basis.
Petitioner, the estate of Margaret Wainwright, is represented by John W. Wainwright as executor. The Seaside Improvement Co. is a New York corporation. John W. Wainwright is an individual, residing at Seaside, Rockaway Beach, New York. The three last named petitioners keep their books and render their returns on a cash receipts and disbursements basis.
Petitioners Seaside Improvement Co., John W. Wainwright, Wainwright & Smith Co., and Wainwright, Remsen & Tator Corporation all owned Atlantic Ocean water front property upon Rockaway Beach, affected by the condemnation proceedings herein considered, *95 and owned said property so affected from prior to March 1, 1913, to the date of condemnation, July 15, 1925. Petitioners, the estate of Margaret Wainwright and Jamieson Associates, Inc., acquired the water front properties involved in the year 1923; Jamieson Associates, Inc., in October 1923; and the estate of Margaret Wainwright on September 10, 1923, the date of her death.
Rockaway Beach is a long narrow peninsula, a part of Long Island, New York, about*1090 seven miles in length, with a width ranging from one-third of a mile to about one mile. It is bounded on the north by Jamaica Bay and on the south by the Atlantic Ocean. The Long Island Railway tracks and, south of the tracks, Rockaway Beach Boulevard, running east and west, intersect the streets, which run north and south, and which are numbered consecutively from east to west (as well as named in some instances).
The section at or about Beach 103d Street (also called Remsen Avenue or Seaside Avenue) is known as Seaside. The section about Beach 70th Street was known as Arverne. There was a boardwalk there, from Beach 56th Street to Beach 74th Street, on March 1, 1913. The section about Beach 84th Street was called Hammel. The section about Beach 92d Street was called Holland. The section about Beach 32d Street was called Edgemere. There were railroad stations at Seaside, Hammel, Holland, and Rockaway Park, the latter station being between Beach 115th and Beach 116th Streets. At the north end of Holland Avenue (Beach 92d Street) on Jamaica Bay, there was a landing called Holland's Landing, and that avenue corresponded in the Holland section with Seaside Avenue in the Seaside*1091 section. It was the main street of that section. A good many people got off the railway at Holland Avenue and walked along the boardwalk and did not come down Seaside Avenue.
From prior to 1907 a private street 30 feet in width, known variously as Ocean Avenue, Ocean Walk or Brick Walk, ran east and west from about Beach 101st Street to Beach 106th Street, ranging from about 250 to 400 feet north of the ocean, and about 350 or 400 feet south of Rockaway Beach Boulevard. In 1907 Ocean Avenue terminated with dead ends both at Beach 101st Street and Beach 106th Street.
Prior to 1907 other owners of water front property east of Beach 100th Street had constructed a private boardwalk running east and west parallel with the Atlantic Ocean and about 150 feet north thereof. This boardwalk covered a distance of approximately eight blocks, running from Beach 92d Street (Holland Avenue) to Beach 100th Street. In 1907 the Seaside Improvement Co. built an incline walk to connect Ocean Avenue and the private boardwalk.
*96 On March 1, 1913, the high water line at Rockaway Beach, Seaside section, was about 300 feet farther south than it was in 1925.
On March 1, 1913, Rockaway*1092 Beach was reached usually in either of two ways - by the Long Island Railroad or Brooklyn Rapid Transit over the Long Island Railroad tracks, or by way of excursion steamers. Some people came by carriages and a few by automobiles. The majority of the people came by boat. There were various boat lines that came into several piers along the Jamaica Bay side. There were many excursion boats every day during the summer. The boats continued to run up to 1934.
The Seaside section was the only section in the whole shore front where amusement of every kind could be had. The best public bathhouses were there and the finest restaurant and theatres. There was no difficulty renting property on those streets. Both sides of Ocean Avenue were utilized for rentals of concessions.
The rentals received on Ocean Avenue and Incline Walk in 1913 were from $20 to $60 per front foot, for a space approximately 15 to 20 feet in depth. Property in that section fronting on the beach rented for about the same.
Seaside Avenue (Beach 103d Street) was the principal artery through the section involved in these proceedings and hereinafter discussed. The farther property lay (to the east) from Seaside*1093 Avenue, the less valuable it was. Property on Beach 106th Street and from there west had a lower value than property farther east.
Various unimproved lots 25 feet by 100 feet were sold by the Seaside Improvement Co. in 1913 for $2,500 each between Rockaway Beach Boulevard and the Long Island Railway tracks. Two lots of that size sold for $4,500. In 1914 the northwest corner of Rockaway Beach Boulevard and Beach 101st Street, 100 feet by 100 feet, sold for $16,000. In 1925 the northwest corner of the same boulevard and Beach 100th Street, 98 feet by 200 feet, sold for $70,000. The beach enjoyed only about twelve weeks of business per year, while around the Rockaway Beach Boulevard it was a year round business.
In 1917 the Brooklyn Rapid Transit discontinued running its trains over the Long Island Railroad tracks. Thereafter the only train service available was the Long Island Railroad, which ran only according to schedule. In 1918 daylight saving was adopted, which affected the business section of Rockaway Beach by keeping people in bathing longer. In 1919 prohibition came into existence, which also affected the Seaside section of Rockaway by cutting down the number of*1094 outings of various kinds that had come to Rockaway.
*97 Subsequent to 1913 the use of the automobile as a mode of transportation increased. New automobile roads were built and existing streets were widened. The Cross Bay Boulevard entered Rockaway at Beach 95th Street and brought Rockaway seven miles nearer to Brooklyn and New York. Other public improvements and boulevards were erected. As a result of these developments, other parts of Rockaway developed. The development of the automobile and new streets and automobile roads distributed the business. The automobile brought more people to Rockaway. They were of a transient nature. It helped the business houses, concessions, and amusement devices. The more that transient people came in the better the business would be. A great many more people came to Rockaway in 1925 than in 1913. The crowds in 1925 were much larger than in 1913. Shortly prior to 1925, jetties were started. Business in the Seaside section up to 1925 was fair, about the same as in 1914, had not dropped off in 1925, and was fairly good up to 1928 or 1929. With the increase in population and consequent increase in demand for bathing facilities, *1095 the tendency was for beach front to increase in value. Values of beach property had increased on July 15, 1925, over values on March 1, 1913.
There was little change in the value of the property owned by Jamieson Associates, Inc., and by the estate of Margaret Wainwright, between the middle of 1923 and July 1925. Land under water, upon which petitioners' lands faced, was on March 1, 1913, of a fair market value of $25 per linear foot on the ocean. It was not feasible to erect improvements upon the land under water.
The city of New York, as of July 15, 1925, condemned and took, for purposes of a public beach and boardwalk, portions of the water front property belonging to the petitioners. The city determined that 65 percent of the cost would be borne by the city, and 35 percent provided by assessments upon the property in Rockaway Beach. The condemnation covered all property southward from the inland edge of the boardwalk, about 90 to 135 feet south of Ocean Avenue. This line was called the taking line. Thereafter, and for the purpose of having the compensation due to the owners of the property affected ascertained and determined, the city of New York prepared a damage*1096 map as of July 25, 1925. The parcels taken were assigned numbers known as damage map numbers. The boardwalk was started between 1925 and 1928, and was completed, in front of the properties here involved, in the autumn of 1928. It was about seven or eight feet above the street.
*98 Under date of June 4, 1930, the Supreme Court of New York fixed tentative awards of compensation in the total sum of $12,596,282.40 for the entire improvement. As a result of further hearings, such awards were revised and a decree fixing new and revised awards was promulgated on June 9, 1931, in the total amount of $9,251,550. In said decree the court, in part, stated:
Matter of Public Beach (Jacob Riis Park to Beach 2d St.) - Upon the hearing of objections to the tentative decree there was offered additional evidence as to values, and after hearing such evidence and the arguments upon the objections I am of the opinion that such evidence warrants a revision of the awards heretofore made herein. To sustain the claim of title by avulsion to the land lying within the public beach I have included in my awards compensation for the taking of such submerged lands. While it appears that the submergence*1097 of land on this coast was due to some extent and in some places to erosion rather than to avulsion, in my opinion the claim of title upon the theory of avulsion has been sustained. * * *
The decree then sets forth the damage parcel or lot numbers and the awards therefor. The amounts awarded were separated between land and, in many cases, improvements. A "final decree" prepared in pursuance of the decree of June 9, 1931, itemizes land and improvements, and adds the computation of interest.
Pursuant to recommendation of municipal counsel who suggested that awards were in many instances too large because of use of incorrect legal principles, but suggested acquiescence in the awards because of increasing interest charges and financial distress, the board of estimate and apportionment of the city of New York adopted a resolution authorizing the Supreme Court of New York to file decrees in such cases where the property owner filed a stipulation agreeing to the amount of the award as set out in the decree, provided that, pending the final decree as to benefit, such property owners consented to the withholding by the comptroller of so much of the award as he should determine to be*1098 necessary. During the year 1931 all the petitioners herein executed the agreements called for by the aforesaid resolution.
After deducting the amounts due the petitioners' attorneys and after deducting and withholding pursuant to said agreements such sums as the said comptroller deemed advisable, the amounts remaining were paid over to the petitioners. The condemnation did not affect the value of property north of Ocean Avenue.
The names of the petitioners, the damage map numbers assigned by the city of New York to the condemned property of each, the amount of the award made to each by the court's decree promulgated June 9, 1931, the amount thereof withheld pursuant to stipulation of the parties, the amount of legal fees paid by each petitioner and charged *99 against the respective award, the balance of the award, and the amount of interest, paid on each award, are as follows:
| Petitioner | Damage map numbers | Award | Amount withheld | Legal fee paid | Balance of award | Interest on award |
| Seaside Improvement Co. | 246,247 | $49,447.60 | ||||
| 251,252 | (1 Land) 76,406.00 | |||||
| 125,853.60 | $31,481.70 | $9,093.68 | $85,278.22 | $47,937.28 | ||
| John W. Wainwright | 222,222-A, | |||||
| 223,223-A, | ||||||
| 224,224-A, | 63,015.80 | |||||
| 228,228-C | 6,509.12 | 3,150.79 | 53,355.89 | 22,738.20 | ||
| Wainwright & Smith Co. | 228-B, 228-F, | |||||
| 229, 229-A, | (Land) 138,600.00 | |||||
| 230, 230-A | (Imp.) 25,000.00 | |||||
| 231, 231-A, | 163,600.00 | |||||
| 232 | 18,407.03 | 8,180.00 | 137,012.97 | 59,032.33 | ||
| Wainwright, Remsen & Tator Corporation. | 225, 225-A, | |||||
| 225-B, 226, | ||||||
| 226-A, 226-B, | ||||||
| 227, 227-A, | 112,714.00 | |||||
| 227-B, 228-A, | ||||||
| 228-D, 228-E | 17,721.40 | 5,635.70 | 89,356.90 | 40,670.97 | ||
| Estate of Margaret Wainwright. | 192-197, incl., | 95,587.80 | ||||
| 200,201 | 23,675.40 | |||||
| 208, 209 | 14,005.20 | |||||
| 133,268.40 | 24,409.29 | 6,668.37 | 102,190.74 | 46,687.94 | ||
| Jamieson Associates, Inc. | 281, 282 | 52,677.80 | ||||
| 52,662.40 | ||||||
| 105,340.20 | 16,999.30 | 7,203.36 | 81,137.54 | 11,000.00 |
The amounts listed in the above tabulation as "balance of award" and "interest on award" were paid to petitioners in 1931.
Special improvement assessments for the public beach at Rockaway were made against the petitioners in 1934, and the respective sums which had been withheld from the awards under agreements were applied so far as necessary to the payment of such assessments, and any excess was refunded to the respective petitioners.
There is now under consideration a resolution before the board of estimate and apportionment for the city of New York, for the city to assume the special assessments in whole or in part, which resolution has not been finally acted upon.
All the petitioners, other than the Seaside Improvement Co., reported interest in their respective 1931 Federal income tax returns as ordinary interest income. Petitioner Seaside Improvement Co. did not include such interest in income at all.
Under date of December 31, 1906, petitioner Seaside Improvement Co., at a cost of $216,000, acquired by deed three adjacent and contiguous*1100 parcels of land at Seaside, Rockaway Beach, running north and south from Jamaica Bay to the Atlantic Ocean, approximately 300 feet in width, including the interest of the grantors in and to the land lying under the waters of Jamaica Bay and the Atlantic *100 Ocean, in front of and adjacent to said three parcels of land. Through this Seaside Improvement Co. property, a public right of way, approximately 50 feet in width, later known as Beach 101st Street, ran from the Atlantic Ocean to Jamaica Bay. Excluding the public thoroughfare, the Seaside Improvement Co. had a frontage along Ocean Avenue and the Atlantic Ocean of approximately 250 feet.
For the year 1918 the Seaside Improvement Co. filed its capital stock tax return, valuing its entire capital stock and surplus at $118,525.85, and its real estate at $200,000.
The property of Seaside Improvement Co. lying eastward from the main business section was of less value, proportionately, than the properties of petitioners Wainwright & Smith Co., Wainwright, Remsen & Tator Corporation, and John W. Wainwright. A portion of the property of the Seaside Improvement Co. was condemned and taken. Such portion had on March 1, 1913, a*1101 front foot value of 82,5 percent of the Wainwright & Smith Co. land condemned, and had a fair market value of $226.87 per foot for 250 feet front upon the Atlantic Ocean, making a total of $56,712.50. The record does not show the cost of the lands condemned and taken.
On October 1, 1907, petitioner John W. Wainwright acquired by deed land on the westerly side of Beach 104th Street, approximately 120 feet in width and running southerly from Ocean Avenue to the Atlantic Ocean. The deed also conveyed the grantor's right, title, and interest to the land lying under water in the ocean in front of said premises. The record does not disclose the cost of said property. A portion of the land was condemned and taken, being 71,269 square feet under water and 26,400 square feet above water. The land condemned and taken from John W. Wainwright had on March 1, 1913, a fair market value of $275 per front foot for 120 feet upon the ocean, making a total of $33,000.
Petitioner Wainwright & Smith Co., upon incorporation in April 1908, acquired certain land on the easterly side of Beach 103rd Street running from the Atlantic Ocean north to Rockaway Beach Boulevard. Upon formation of the corporation*1102 a value of $100,000 was placed on the property and stock in the amount of $50,000 was to the former owners in proportion to their respective interests, and a $50,000 mortgage was placed on the property likewise for their benefit. The deeds conveyed all interests and title of the grantors in certain land fronting the Atlantic Ocean, including all interests the grantors had in the land lying under water in the ocean in front of the land described and conveyed, the frontage along Ocean Avenue and the ocean being approximately 264 feet. A portion of the land was condemned and taken, being 173,900 square feet *101 under water and 52,800 square feet above water, south of Ocean Avenue. The record does not disclose the cost of the property condemned and taken. It had, on March 1, 1913, a fair market value of $275 per front foot for 264 feet upon the ocean, making a total of $72,600.
Petitioner Wainwright, Remsen & Tator Corporation acquired upon its incorporation under date of May 20, 1909, title by deeds to certain realty in Rockaway Beach, issuing stock to the grantors according to their proportionate interest, and also gave a mortgage thereon in payment. Part of said property, *1103 designated in deeds as parcels 2, 3, and 4, consisted of an irregular plot fronting both the west side of Beach 103d Street and the east side of Wainwright Place or Beach 104th Street, beginning approximately 150 feet south of Rockaway Beach Boulevard and running southerly to the Atlantic Ocean, with frontage of about 214 feet on the ocean. Ocean Avenue crossed the property, separating parcel 2 from parcels 3 and 4. The deeds conveyed the grantors' interest and title to the land under water under the Atlantic Ocean directly in front of parcels 3 and 4. A portion of this land was condemned and taken, being 106,200 square feet under water and 47,080 feet above water, south of Ocean Avenue. The record does not disclose the cost of the property condemned. It had on March 1, 1913, a fair market value of $275 a front foot for 214 feet upon the ocean, making a total of $58,850.
In October 1923, after its incorporation in that year, the petitioner Jamieson Associates, Inc., in exchange for its capital stock of the par value of $95,000, acquired six parcels of land in Rockaway Beach. Only two of these tracts are involved herein - one parcel being on the east side of Beach 96th Street*1104 (formerly Bond Avenue), approximately 100 feet in width, beginning from a point approximately 600 feet south of Rockaway Beach Boulevard, running southerly to the Atlantic Ocean and to the low water mark thereof; another parcel on the west side of Beach 96th Street, approximately 100 feet in width, beginning from a point approximately 615 feet south of Rockaway Beach Boulevard, running southerly to the Atlantic Ocean and as far oceanward as the title of the grantor extended. The transferor, John Jamieson, was not in control of the corporation immediately after the transfer. The frontage on the Atlantic Ocean was approximately 200 feet. A part of this property was taken in the condemnation proceedings. It is situated several blocks eastward from the nearest part of the other tracts involved in these proceedings.
The parcel on the east side of Beach 96th Street was at the time of incorporation set up on the books of Jamieson Associates, Inc., at $20,000. This amount was reduced by an award of $5,985.70 received on account of a 1926 condemnation of Jamaica Bay property owned by *102 Jamieson Associates, Inc., and it was increased by the amount of an assessment in the sum*1105 of $4,732.80 applied against said property on account of such Jamaica Bay condemnation, leaving a book value of $18,747.10.
The other parcel on the west side of Beach 96th Street was set up on the books of Jamieson Associates, Inc., at $4,000, which was decreased by an award in the sum of $4,990.09, received in 1926 on account of condemnation of Jamaica Bay water front property owned by Jamieson Associates, Inc., and was increased by $4,039.80. representing a special assessment applied against said property, leaving a book value of $3,049.71. Another of the parcels received by Jamieson Associates, Inc., for said stock was valued on the books at $21,000. It was conveyed in the same deed with the two parcels herein involved, and the deed bore canceled revenue stamps in the amount of $45. The two parcels on Beach 96th Street varied greatly in value.
The sum of the two values as set up on the books, stated as $21,798.81, was the basis used by Jamieson Associates, Inc., in computing the profit on the condemnation award received as set forth in the income tax return of said petitioner.
The board of directors of Jamieson Associates, Inc., on October 5, 1923, adopted a resolution*1106 reciting that the board was of the opinion that all the property the corporation was then acquiring (which was acquired subject to a mortgage of $50,000) was of the fair market value of $95,000, and the company issued its stock of the par value of $95,000 in payment therefor. Each of the six tracts acquired was separately valued on the corporate books, the total being $145,000. There is no evidence in the record of the fair market value of the stock issued for the property, but it was all of the company's stock then outstanding.
The two tracts had a fair market value of $24,000, being $120 per front foot on the date of acquisition in October 1923, and as of that date the portion thereof condemned had a basis of $21,796.81. Respondent adduced no testimony as to value of this property.
At the time of her death in September 1923, Margaret Wainwright was seized of certain property in Rockaway Beach fronting on the ocean and including any rights to land under water, which was by the executor under oath, supported by sworn appraisal, listed for Federal inheritance tax purposes in the estate tax return of the estate of Margaret Wainwright as of the total actual value of $79,500. *1107 The respondent, as a result of investigation of the estate tax return in question, accepted the property valuations set by the estate tax return as to the lots herein involved. A portion of this property was taken upon condemnation. It is situated in the vicinity of a Negro neighborhood. The respondent determined *103 $60,353.10 as the value of the portion condemned. The property condemned and taken had a fair market value on September 10, 1923, of $60,353.10. Respondent adduced no testimony as to value of this property.
There was no substantial variance in value in the property between September 10, 1923, the time of its acquisition, and July 15, 1925, the date of condemnation.
The values above found include rights to land under water.
The erection of the boardwalk did not decrease the value of the land remaining to petitioners.
The usual method of calculating values of property fronting on the beach is according to foot frontage on the ocean.
Petitioner Jamieson Associates, Inc., purchased 175 shares of Rockaway Beach National Bank stock in 1924, par value $100 per share, for $21,000. The bank failed and a receiver was appointed, and in October 1931 the*1108 United States Comptroller of the Currency made an assessment upon the shareholders for the par value of their stock. Jamieson Associates, Inc., paid one-fourth of the assessment in 1931, and the remaining three-fourths in the sum of $13,125 in 1932.
During 1931 Jamieson Associates, Inc., received $3,420.87 as a refund of an improvement assessment paid by the taxpayer in prior years, and capitalized when paid.
During 1931 John W. Wainwright received from the executor of the estate of Margaret Wainwright $16,117.34 out of the interest received by the estate on the condemnation award. The will of Margaret Wainwright, in the fifteenth clause thereof, provides that in the event of the sale of the property as to which the award was received, "fifty per cent of the proceeds * * * shall be divided equally between my said son [John W. Wainwright] and daughter * * *"; and provides in general for her son to share the income from her residuary estate.
OPINION.
DISNEY: There are numerous issues involved in these proceedings, some of them being common to all the cases and others having application only to some of the cases.
In considering and discussing the issues, if the same*1109 are only applicable to one or more but not all of the cases, we shall so indicate; otherwise, it will be understood that the issues discussed are applicable to all of the proceedings and petitioners.
It is first necessary to consider as a preliminary proposition the contention of the respondent that the petitioners, the estate of Margaret Wainwright, Jamieson Associates, Inc., and Seaside Improvement *104 Co., had no title to the part of their lands constituting the foreshore condemned and taken in 1925, and therefore have no basis for a value as of March 1, 1913, or date of acquisition, for purposes of computing profit or loss.
The deficiency was originally computed by the Commissioner upon the assumption that the petitioners were the owners of the property condemned, and the question as to title arises because of increased deficiency asked by amended pleadings filed at the time of the hearing. The respondent adduced evidence to show such lack of title, and said petitioners contended that the question is not open here, for the reason that the judgment in the condemnation proceeding was conclusive in that respect.
*1110 Ordinarily and primarily, title is not the question in condemnation proceedings, but it is equally true that a condemner can not deny the title of the condemnee whose lands he condemns. In ; , the Court of Appeals of New York had before it a case wherein the village sought to condemn certain property of the defendants. It also sought to raise the question that the property had been dedicated to the public use. The court said:
* * * But the municipality waived any such claim, if it existed, by proceeding under the charter to condemn the landowner's right, and to asses his damages for what was proposed to be taken from him. Manifestly, the village conceded his right when it instituted a proceeding to take it away, and under a provision of the charter having no application except where there is an owner other than the village and whose title is to be divested. To say that there is not such owner, and that the easement sought to be condemned belongs to the municipal corporation by he act of the owner, is to deprive the proceeding of all foundation and invite its dismissal for that reason. * *1111 * *
To the same effect are ; ; affd., ; and .
In ; , the issue of the ownership of the fee was raised in a condemnation proceeding not unlike the proceeding involved herein in that the land was situated on the west shore of Seneca Lake, a navigable water, and the question of the ownership in riparian lands as between the state and the claimant thereof was involved. The city in its petition alleged its ownership, which was denied by the defendants and the question was referred by consent to a referee. It was held that the municipality could not contest the defendant's ownership, the existence of which it assumed as the basis of its proceeding, and the parties having tried out the question of title, the decision was binding on them.
*105 In *1112 , the situation was similar to that herein. The city of Buffalo condemned land for park purposes. It developed that determination of title as affected by erosion or constant recession of the shore line of a lake was necessary, and it was assumed by all parties that the determination of such claims was essential in order to fix compensation to be awarded to the owner. It was held that the defendants, having joined in consenting to the determination of such question, could not thereafter object to such decision. See also .
The judgment in the condemnation proceeding involved herein shows on its face that the question of title was considered. The final judgment was entered pursuant to agreement in that the awards were paid only to those who filed stipulation accepting the amount of the respective awards in full settlement of their respective claims and permitting reservations for assessments. It is apparent, therefore, that in its final consummation the condemnation award involved herein was essentially based upon agreement involving a determination of title in much*1113 the same manner as in the cases just above cited. We consider, therefore, that the parties to the condemnation proceedings are in the same position as if the question of title had been in every respect a proper one before the court. From this it follows that we will and do consider and hold that the Board is bound by an adjudication as to title, under the principles laid down in , and , a state court having determined the question of title. Respondent contends, however, that an adjudication as to title in 1925, at time of condemnation is no adjudication as to March 1, 1913, or other date, for basic value. (This argument as to March 1, 1913, value, of course, is applicable only to the Seaside Improvement Co., since the date of acquisition of property as to Jamieson Associates, Inc., and the estate of Margaret Wainwright is 1923.) But we think the contention will not stand. The local court did consider not only title as of 1925, date of condemnation, but previous title as well, as is evidenced by the journal entry wherein it refers to "Claim of title by avulsion", and sustains*1114 "Claim of title upon the theory of avulsion." Had there been no contention between city and condemnees as to title, no occasion would have arisen for considering avulsion or erosion. The condemnation judgment is a finding, binding on us, that the foreshore, including land condemned and taken, had not been lost to the previous owners because the physical loss of land was by avulsion. The evidence is that the Seaside Improvement Co., and the predecessors in title of the Margaret Wainwright estate and Jamieson Associates, Inc., had, prior to such avulsion, owned this part of the seashore, which was *106 taken upon condemnation; therefore, after the avulsion, and at time of acquisition by the Margaret Wainwright estate and Jamieson Associates, Inc., title thereto passed to these two petitioners; and as to the Seaside Improvement Co., it remained owner. We conclude that the condemnation judgment was adjudication of title in petitioner, Seaside Improvement Co., on March 1, 1913, and in September and October 1923 as to the Margaret Wainwright estate and Jamieson Associates, Inc., respectively, and hold that the abovenamed petitioners held title to the foreshore on the respective*1115 dates for basic values. It therefore follows that the above-named petitioners are in a position to set up, as a basis against the condemnation money received, such values as we conclude are shown as of the respective basic dates. The other petitioners in these proceedings held grants from the State of New York and, as to them, there is no contention as to title to foreshore, and therefore no question as to right to deduct proper values at basic dates.
1. Having decided the preliminary question of title, the next question requiring our attention is as to consequential or severance damages which all petitioners seek to subtract from the condemnation moneys received. The condemning court, they say, did not specify as to whether such severance or consequential damages were allowed, but that they were required to be allowed, and therefore must be ascertained by evaluation of the properties taken and not taken. We agree that in general it was necessary for the condemning court to consider not only the value of the property taken, but the amount of severance or consequential damages, if any, to the remainder not taken; but we do not agree that because no consequential damages were*1116 awarded it therefore follows that the court did not consider such damages in this instance. A requirement that the court must consider the question of such damages is by no means the same as requirement that it award such damages - for the obvious reason that in the opinion of the court there may be no such damages to award. We think that this was the conclusion of the trial court in the matter here at hand and think, moreover, that the judgment of condemnation on its face so shows, for the judgment is not as silent on this question as petitioners urge. It does not simply award a lump sum, without more, in each case, but in two cases among he petitioners here involved, to wit, the Seaside Improvement Co. and Wainwright & Smith Co., a certain amount is awarded for land and a certain amount for improvements. The Wainwright & Smith Co. was awarded for land, $138,600, for improvements $25,000; while the Seaside Improvement Co. was awarded for certain lands $76,406, and for improvements $7,000. The judgment in condemnation involved not only the property in which these petitioners are interested herein, but a very large number of other tracts. The journal *107 entry of judgment*1117 is before us in full, and we find a great many other instances where, just as above stated, an amount is awarded for land with a separate amount for improvements. This indicates that "land" meant land actually taken, as distinguished from land with improvements upon it. "Land" in general means real estate, not damages to other land or property. This careful particularization of "land" precludes the idea that it is a general term including consequential damage for land not taken. Title to land and improvements taken passed to the municipality. It could not be said that the designation as to improvements indicated merely damage to them, and that they were retained by the owner; no more can it be said that "land" designates mere damage done. In one instance the judgment refers to an "award of $25,000 made for improvements." The court refers to "evidence as to values" and not to damages. The "final decree" prepared pursuant to the judgment, and giving more detail, likewise itemizes land and improvements and adds the amounts of interest computed in each case. Such itemization is inconsistent with tacit inclusion of consequential damages. We conclude that the condemning court considered*1118 that there was no consequential or severance damage, and if we were free to examine the correctness of its conclusion, as we are not, we having concluded that the opinion designates the elements of the award, we could not say, in the face of the form of the condemnation judgment, that the conclusion of the condemning court was incorrect, for the reason that the condemnation proceeding, as well as the statutes upon which it was based, preserved to the remaining property of condemnees the rights of "easements of light, air, and access over, along, and across" the boardwalk. The condemnees were left substantially, if not technically, in the position of riparian or littoral owners. The condemnation was for purposes of a public beach and title was taken for that limited purpose.
Littoral or riparian rights are real and valuable, and such rights were expressly reserved to the remaining lands by the condemnation. , defines a riparian owner's rights as "easement of passage and the transportation of merchandise, to and fro, between the navigable water and his land; to fish and draw nets; to land boats and to load and unload the same. *1119 " In that case they were held to be violated by the erection of a street to which riparian owner had no access, a veritable "Chinese Wall." The case states that it is unnecessary to inquire as to the right to compensation if "a general street open to commercial traffic" had been opened in the tideway. ; affd., , holds that riparian rights are not destroyed by the existence of a public street between riparian lands and the water. To the same effect is , which also defines riparian rights, including *108 therein right of access, of accretion, right to reasonable use of the water for all legitimate purposes, and right to have the shores of the owner's land washed by the adjacent waters. , decides that a riparian owner is entitled
* * * only to a reasonable use of his easement, consistent with the state's right to make such use of the tide land under water as the public interest may require.
This is a fair statement of the general law on the subject. To the same effect*1120 is ; . Herein the petitioners, so far as the land not taken and paid for is concerned, were merely shut off from the beach to the extent only that the boardwalk interfered. Otherwise they retained their original right to access to the sea. Such interference, as above seen, not calling for compensation because not a compensable invasion of riparian or littoral rights as properly defined, and petitioners having had preserved to them rights of access, light, and air across the boardwalk, we conclude that the construction of the boardwalk can not be said to, and in the opinion of the court did not, cause consequential or severance damages. It is our opinion, upon the record herein, that the boardwalk did not decrease the value of the remaining land, and, considering the easements left to it over the land taken, we believe that the condemning court intended to award none. The land above Ocean Avenue, being separated by a street from the property facing upon the boardwalk, can not be regarded as affected in value by its erection.
We hold, therefore, that no consequential or severance damages were*1121 awarded by the condemning court and that there was no severance or consequential damage suffered by any of the petitioners herein. Petitioners, therefore, can not deduct any amounts as consequential or severance damages from the amounts awarded, and the bases herein involved are only as to the lands condemned and taken.
2. This brings us to consideration of the proper bases as to the various properties involved in these consolidated proceedings.
The petitioners, the estate of Margaret Wainwright and Jamieson Associates, Inc., argue that the value of the properties involved was the same at the date of condemnation and taking on July 15, 1925, as of the date of acquisition in September and October, respectively, 1923; while the other petitioners argue that the value on July 15, 1925, was less than the value on the basic date, March 1, 1913. Obviously, the fact of value on July 15, 1925, is not directly material, since we have merely the question of value upon basic dates as against the awards received in 1931, and gain or loss is to be computed accordingly. The value as of July 15, 1925, therefore, is to be regarded only upon the idea that the awards are to be presumed to be*1122 the same as the actual *109 value of the properties condemned and taken. We think, however, there is, under the circumstances herein involved, little strength in any presumption that the awards determine actual values as of July 15, 1925, for the record shows that the awards as a whole in the general condemnation proceedings were reviewed and cut down from approximately $12,000,000 to approximately $9,000,000, and that even at this figure acquiescence therein was recommended to the city of New York by its counsel in order to put an end to litigation and avoid expense of interest charges and because of financial distress.
Petitioners adduced much detailed evidence in an attempt to demonstrate that real estate values on March 1, 1913, were, because of an alleged monopoly, so to speak, upon the amusement business at Rockaway Beach, greater than values on July 15, 1925, and greater than the awards made. As above stated, it would be largely immaterial if such values were greater than those of July 15, 1925, the direct question being whether they were greater than the awards made. In spite of some evidence of rental values being higher in 1913, we are unable to believe that*1123 the values of these properties were not less on the basic dates involved than the amounts of the awards involved herein. Rentals did not, in our opinion, in these circumstances, determine fair market value of realty. They are a circumstance to consider, but not exclusively. The testimony as to rental values was to a considerable extent rendered by interested persons and is, we think, offset by that of less interested parties, and by expert testimony that values of property had increased on July 15, 1925. In particular, the evidence as to rental values in 1913 can not, in our opinion, prevail over that as to actual sales. The Seaside Improvement Co. in 1913 made various lot sales at prices which amount to one dollar per square foot, above Rockaway Boulevard, south of the Long Island Railway tracks, and the record convinces us that the values there were not far different from those nearer and upon the beach, because of the seasonal character of the beach business and the permanence of that transacted farther away from the beach. Yet, evidence offered by petitioners values the beach land condemned up to $5 per square foot, and land under water at 50 cents per square foot, being*1124 half the value of land near Rockaway Beach Boulevard at the same date. Such disparity is too great for our credulity. Moreover, the idea of monopoly of amusement business by the particular section where petitioners' properties lay is affected by evidence that in 1913 a boardwalk connecting with Ocean Avenue by an incline walk near Beach 100th Street extended eastward to Beach 92nd Street, or Holland Avenue, at which there was a railroad station. At the north end of Holland Avenue on Jamaica Bay, there was a landing called Holland's Landing and that avenue corresponded in the Holland section *110 with Seaside Avenue, or Beach 103d Street in the Seaside section. It was the main street in the Holland section. Obviously, such boardwalk connecting with Holland Avenue as well as Seaside section had a tendency to equalize the possibilities of advantage from bathing and beach amusements over the beach in front of it, and this is too much of a spread for acceptance of the idea of a monopoly along Beach 100th Street to Beach 104th Street, the location of those petitioners affected by March 1, 1913, values.
In addition, the idea of monopoly of amusement business in the Seaside*1125 section of Rockaway fails to be convincing when it is considered that at Arverne, from about Beach 56th Street to Beach 74th Street, there was on March 1, 1913, another boardwalk. Petitioners' contention that this boardwalk was very short and only privately used is not borne out by the evidence. This extensive boardwalk at Arverne, and the several stations on the railroad in close proximity to Seaside, such as the Rockaway Park station between Beach 115th and Beach 116th Street stations, together with the fact that most of the business came by boat, coming to several piers along Jamaica Bay (obviously including the landing at Holland Avenue), tend to negative, we think, petitioners' contention that the Seaside section was highly valuable in 1913 because of a monopoly on amusement business. Also, we are not impressed greatly with the contention that business had so deteriorated by 1925 as to make values far less than in 1913. It is true that there is evidence of effect of daylight saving, prohibition, and discontinuance of the Brooklyn Rapid Transit service from the Long Island Railroad tracks, but it is apparent from the evidence that any effect of this discontinuation was replaced*1126 by the augmented automobile traffic. The evidence is positive that the automobile did increase business for the business men, the amusement devices, and the concessions, and that the more that transient people came in the better business would be. Yet, these businesses are the distinctive feature of Seaside. A factor assisting these types of business could not fail to assist other businesses such as restaurants, etc. - which may indeed well be included in the term business men as used. Moreover, the evidence that most of the pleasure seekers came to Rockaway by boat, which continued to run up to 1934, tends to refute the idea of serious recession of business by 1925. There is no substantial contradiction in the record that more business, more people, came to the peninsula in 1925, and the only question is as to whether the diffusion of business to some extent over the whole beach was sufficient to cause decline in prices in the Seaside section by 1925. The evidence does not so demonstrate. There were in Rockaway in 1913 several railway stations, several piers, another long boardwalk, and at least some diffusion of business *111 at that time. We are not convinced that*1127 Seaside section did not receive, from the uncontroverted increased patronage of Rockaway Beach by 1925, ample business to cause values not to deteriorate. The less interested testimony is that business in the Seaside section was fair in 1925, was about the same as in 1914, was good until 1928 or 1929, had not dropped off by 1925, and changed markedly after the building of the boardwalk (which was finished in the autumn of 1928). We are unable, under all the evidence, to believe that realty values in 1913 were greater than in 1925, or greater than the awards made. The idea that the boardwalk diffused business is wholly immaterial here, since it was not begun until after date of vesting of title, July 15, 1925, and not completed until 1928. Its erection in no wise demonstrates diffusion of business in July 1925, or that at that time 1913 values had decreased. The tendency, as expressed by John W. Wainwright, one of the petitioners, was for beach front property to increase in value with increase in population and consequent increase in demand for bathing facilities. We conclude that petitioners' property that was condemned and taken was more valuable in 1925 than in 1913.
Considering*1128 now more particularly the properties here involved: The various properties differed greatly in value, as is indicated not only by the evidence, but by statements in briefs. The properties of the Wainwright & Smith Co., John W. Wainwright, and Wainwright, Remsen & Tator Corporation, however, adjacent to Beach 103rd Street and Beach 104th Street, the principal business section in Seaside, had not greatly different values. The front footage involved in the properties herein is not shown with exactness by the evidence, but upon briefs the petitioners and respondent adopt the same figures, and they are therefore adopted by us, in the absence of exact information. No distinction is made between footage on the ocean and on Ocean Avenue. Property north of Ocean Avenue was not affected by the condemnation.
It is impossible to reconcile the highly conflicting evidence offered by the contending parties as to values, the petitioners' witnesses valuing the property appraised generally speaking, as several times as valuable as respondent's witnesses concede, and two or three times the amount of the awards. Respondent's witnesses appraised according to footage upon the ocean or on Ocean Avenue, *1129 while those for petitioners placed value upon a square foot basis. Under all the circumstances and evidence shown in the proceedings, we do not believe that the values were as high as contended by petitioners' witnesses. Their estimates often vary so much as to be impossible of acceptance. Thus, one witness valued the Wainwright and Smith properties at more than twice as much as did another witness - a *112 difference of $310,800 on the same property; and a witness valued the John W. Wainwright property as worth $214,000 as against another's estimate of $119,978.50. Again, a witness set the value of the property of the Wainwright, Remsen & Tator Corporation at $363,400 as against $196,596 set by another - little more than half as much. These figures included all damages. We conclude that the basis of front footage upon the ocean is the usual, and sounder and more reliable method of appraising value. The value of land under water we find under the evidence to be $25 per linear front foot on the ocean. We can not believe under all the evidence, that it was worth half as much as land in the neighborhood between Rockaway Beach Boulevard and the Long Island Railway tracks*1130 - which is the effect of petitioners' figures compared with actual sales made in 1913.
After consideration of all of the evidence, we have arrived at the following conclusions: Considering the property southward from Ocean Avenue, and including all rights under the ocean, we find and hold that the property of John W. Wainwright, condemned and taken, Docket No. 77019, with a frontage of 120 feet upon the ocean, had on March 1, 1913, a fair market value of $275 per front foot, making a total of $33,000. This is shown by the fact that the whole property before the condemnation had a fair market value of $700 per front foot, and that the property left after condemnation had a fair market value of $425 per front foot. We find and hold that the property of the Wainwright & Smith Co., condemned and taken, Docket No. 77212, with a frontage of 264 feet upon the ocean, had a fair market value on March 1, 1913, of $275 per front foot, making a total of $72,600; this is borne out by the fact that the whole property had a fair market value as of March 1, 1913, of $775 per front foot, and that the land left after condemnation had a fair market value on March 1, 1913, of $500 per front foot. *1131 The property of the Wainwright, Remsen & Tator Corporation, condemned and taken, Docket No. 77213, with a frontage of 214 feet upon the ocean, had a fair market value on March 1, 1913, of $275 per front foot, making a total of $58,850; this is shown by the fact that the whole property had a fair market value of $725 per front foot, and that the property left after condemnation had on March 1, 1913, a fair market value of $450 per front foot.
As to the properties of the Seaside Improvement Co., Docket No. 77018; estate of Margaret Wainwright, Docket No. 76899; and Jamieson Associates, Inc., Docket No. 75717, we, having rejected respondent's contention as to lack of title, have likewise left for consideration only the proper bases. As to the Seaside Improvement Co., Docket No. 77018, we find that the March 1, 1913, value of the property *113 taken was less than that of the Wainwright & Smith Co., the nearest property herein involved to the west. The evidence is clear that Remsen Avenue, or Beach 103rd Street, was the main business artery in the Seaside section, and that values decreased eastward therefrom. We have found the condemned portion of the property of the Wainwright*1132 & Smith Co. to have had a value on March 1, 1913, of $275 per front foot. Evidence adduced by the petitioner ascribes to the front foot value on the Atlantic Ocean and Ocean Avenue of the beach land lost by (i.e., condemned and taken from) the Seaside Improvement Co. a value of 82.5 percent of that ascribed to the Wainwright & Smith Co. We accept and adopt this proportion, consistent with other evidence, and applying it to the value of $275 per front foot already found for the Wainwright & Smith Co. property, we find that the Seaside Improvement Co. property condemned and taken had a fair market value on March 1, 1913, of $226.87 per front foot for 250 front feet on the ocean, or a total of $56,717.50.
As to the estate of Margaret Wainwright, Docket No. 76899: The value of the properties involved herein (including the entire lots, and not merely the property condemned and taken) was on September 10, 1923, the date of acquisition by petitioner by death of the decedent, $79,500, according to the estate tax return filed by the executor, and introduced in evidence by petitioner. This value in the estate tax matter was agreed to by the Government. The presence of Negroes affected*1133 the value of this property. Petitioner contends that the basic value of the property condemned and taken was, on September 10, 1923, not less than the amount of the award, $133,268.40. Upon this basis the entire lots would at date of acquisition obviously be worth a far greater amount. Such a value is so much greater than the value solemnly represented in the estate tax return that we are unable, with evidence also before us that this property is worth less, in part because of encroachment of Negro population, than the other properties involved in these proceedings, to accept such high figures. The respondent in the deficiency notice determined a basic value on the property actually condemned and taken of $60,353.10. Being unable to accept the values offered by the petitioner for this property, and believing that the evidence fails to overcome the presumption of the correctness of the respondent's determination, which is borne out by and consistent with the valuations returned in the estate tax return, we sustain the respondent's determination in the deficiency notice of a fair market value of $60,353.10. The respondent, having adduced no testimony as to the value of this petitioner's*1134 property, can not be said to have abandoned the determination set in the deficiency notice.
*114 As to the Jamieson Associates, Inc., Docket No. 75717: The board of directors of this company on October 5, 1923, passed a resolution expressing their opinion that all of the property then being acquired was of the fair market value of $95,000, and later issued stock of the company of the par value of $95,000 in payment therefor. This was all of the then stock of the company. The transferor was not in control of the corporation immediately after the transfer. In the absence of any evidence as to the fair market value of the corporation's entire capital stock which was exchanged for the property, the basis of the property is the fair market value of the property received in exchange. ; ; . Merely as par value of the stock issued, the figure $95,000 offers no criterion, but that amount as the fair market value of the properties then purchased provides a measure of value, which in turn represents the basis*1135 (cost) of the property. Said valuation was subject to and should have added to it $50,000, the amount of a mortgage subject to which the property was purchased, giving a total valuation of the then acquired properties of $145,000. Six tracts of land were acquired in the exchange for the $95,000 in capital stock, but only two of them are here involved, and the record shows that these two properties were entered upon the books of the corporation at time of acquisition at a total of $24,000. Moreover, these two tracts, and another valued at $21,000, were transferred in a single deed which bore revenue stamps of $45 - indicating an actual value of $45,000 for the three tracts, or $24,000 for the two here involved. This value for the two tracts was reduced to a base of $21,798.81 because of awards received in connection with the particular properties. These figures were represented as basic value in petitioner's income tax return. We can not accept the value entailed in the evidence of the petitioner which is so wholly out of line with the valuation as set in the books of the corporation, with the records of the opinion of its board of directors at the date of interest here, with*1136 the value used for stamp tax purposes, and with the figures used by petitioner in its return. It was not until much later that petitioner contended for a higher figure. We conclude that the fair market value was as shown upon the corporate books, which amount represents cost; and that, the respondent having valued at the same figure the portion condemned, the presumption of correctness of respondent's determination has not been overcome by petitioner, and it should be, and is, approved. The cost to petitioner in October 1923 of the condemned portion of the petitioner's property is found to be $24,000, and the basis as of that date is found to be $21,796.81. Such basis, amounting to $120 per front foot on the ocean, is consistent *115 with that of the properties of other petitioners several blocks westward, the evidence being that values decreased with the distance eastward from Beach 103rd Street. The respondent offered no testimony on the value of this property, and is not in the position of abandoning his determination of deficiency.
3. The next issue is whether that part of the award which was withheld from each of the petitioners by the comptroller of the city of*1137 New York should be treated as income in 1931.
The facts have been fully set forth. Although the assessments were not made until 1934, we find no distinction in principle between the situation herein involved and that in ; , and ; certiorari denied, , wherein assessment and award are, in effect, offset, and only the difference regarded as income. In Central & Pacific improvement , there was in part involved, as here, an assessment made in a year later than that of the award, yet the cases last above cited were followed, and the same conclusion reached. The assessments herein involved were provided for by the same law governing the condemnation and contemplated in the condemnation proceedings. We therefore conclude and hold that the amounts withheld from the awards herein for purposes of meeting assessments, so far as used for that purpose, did not constitute income to petitioners in the taxable*1138 year when withheld.
4. The fourth issue, which we will now consider, is involved in all six cases and is with respect to the proper treatment of the amounts designated as "interest" and allowed petitioners in 1931 as part of the compensation to which the petitioners were entitled on account of the condemnation and taking of their property as indicated in our findings of fact.
The petitioners contend that the amounts constitute a part of the awards proper, whereas the respondent insists that the amounts designated as "interest" and set out in items separate from the awards proper are really interest on the awards and are ordinary income, taxable as such, and not taxable merely as capital net gain. Numerous authorities are cited by counsel of the respective parties to sustain their contentions.
In the case of ), the court, in part, said:
The theory of the law is that, where land is taken from a private owner by right of eminent domain for a public use, payment of the value thereof should be coincident with the taking, and if for any reason payment is postponed the *116 *1139 right to interest, from the date of the taking of the property until the date of payment, follows as a matter of strict constitutional right. People ex rel. Central Trust Co. * * *
A similar attitude is taken by the Federal courts, as is shown in , wherein claim was made for just compensation for the value of the use of a wharf, on which petitioners had a lease and which was taken over for military purposes by the United States, the Supreme Court saying:
* * * Plaintiffs' property was taken before its value was ascertained or paid. Judgment in 1926 for the value of the use of the property in 1918 and 1919, without more, is not sufficient to constitute just compensation. * * * The Government's obligation is to put the owners in as good position pecuniarily as if the use of their property had not been taken. They are entitled to have the full equivalent of the value of such use at the time of the taking paid contemporaneously with the taking. As such payment has not been made, petitioner is entitled to the additional amount claimed. * * *
It is held, therefore, by both state and Federal courts that the party*1140 whose property is condemned and taken is entitled to and should receive full compensation therefor, paid contemporaneously with the taking.
In the instant proceedings the values found for the petitioners' properties as at July 15, 1925, when their properties were taken and title thereto passed to the city, are set out in the opinion of June 9, 1931, and these are the amounts which petitioners would have received if payment to them had been made contemporaneously with the taking or passing of title; but payment was not made them until after June 8, 1931.
Section 976 of the Greater New York City Charter provides that, where property is condemned by the city, "Interest at the legal rate upon the sum or sums to which the owners are justly entitled * * * shall be awarded * * * as part of the compensation to which the owners are entitled." This interest is compensation, but not compensation for the property itself, not for the capital. It is interest upon and compensation for use of money due. If petitioners had, on July 15, 1925, when their properties were taken by the city, been actually paid the then value, there would have been no interest paid them, but they were not paid anything*1141 until 1931. The judgment of June 9, 1931, does not mention interest, but merely itemizes the amounts awarded. The "final decree" prepared in accordance with the judgment adds interest to the awards already computed. We hold that such interest was taxable income to petitioners in 1931 at ordinary rates, and that the respondent did not err in so determining. As to those petitioners on an accrual basis, the interest could not be accrued earlier than 1931, since prior to 1931 the amounts were not known.
*117 5. This point has to do with John W. Wainwright, Docket No. 77019, and the issue to be considered, as stated in assignment of error in his petition, is as follows:
The Commissioner erred in including in petitioner's income the sum of $16,117.34 fiduciary income received from the Estate of Margaret Wainwright representing petitioner's share of interest received by the Estate on account of condemnation award. If such interest is taxable, Commissioner erred in not holding it subject to tax at capital rates.
The facts relied on to support said assignment of error are stated in the petition as follows:
The Estate of Margaret Wainwright distributed to petitioner and*1142 petitioner reported in his return as income subject to normal and surtax rates the sum of $16,117.34 interest on the award received by the Estate of Margaret Wainwright so distributed to him.
The respondent objects to the consideration of the petitioner's contentions on this point, arguing that the question of whether John W. Wainwright received corpus of the trust estate was not raised by the pleadings of petitioner. Obviously, of course, the exact point now urged by petitioner was not set forth in his petition, yet in general he did plead that the sum of $16,117.34 was not income and furthermore, in the alternative, alleged that if income, it was not subject to tax at capital rates. We hold that this pleading is not insufficient to raise the question, particularly when it is considered in connection with a colloquy between counsel on that subject at the time of making the opening statements at trial, the result of which colloquy seems to have been an assumption by both counsel that the question was involved in the proceeding. We are not limited by the theory advocated by either party. *1143 . We proceed, therefore, to consider the question as to whether the amount was received as income from the trust estate or as legacy.
We have held above that the interest upon the amounts of the awards is not compensation for the property itself. Does this call for a conclusion that the interest on the awards is not "proceeds" of the sale of the property by operation of law, i.e., condemnation proceedings, within the meaning of the word "proceeds" as used in the will of Margaret Wainwright? We note that the same paragraph which makes provision for the payment of the proceeds of sale to John W. Wainwright also provides that the residue of her estate shall be held in trust by the executor, and the income paid to John W. Wainwright and his sister Margaret; and it is in connection with the management of the trust that the executor is authorized to sell and devote the proceeds to the son and daughter of the testatrix. The connotation of the word "proceeds" may be broad or narrow, depending upon the context in connection with which it is used, but *118 in general its meaning is by no means narrow. Considering the fifteenth clause*1144 of the will of Margaret Wainwright as a whole and in connection with the particular expression "proceeds" of sale, we conclude and hold that the amount in question was received by John W. Wainwright fee from tax, as a devise of the proceeds of the land condemned.
6. As to the next question for decision, it is stated in brief of counsel for petitioners, in behalf of John W. Wainwright, that he was a stockholder in the Rockaway Beach National Bank, rendered his return on a cash basis, and in 1931 paid the amount assessed against him and was allowed a loss deduction in 1931 both for the cost of his stock and assessment paid, but that the loss allowance was limited to 12 1/2 percent, being treated as though it were a loss on the sale of capital assets. It is insisted in brief that such loss limitation was erroneous.
The petition of John W. Wainwright, however, assigns no such alleged error - the pleadings raise no such issue. Petitioners' brief so agrees. The prayer of the petition is limited to the issues raised. Under such circumstances, we are of the opinion and hold that the alleged error, asserted only in brief and wholly omitted from petition and not supplied by amendment, *1145 should be disregarded. ; ; ; .
7. The next point for decision has to do with Jamieson Associates, Inc., Docket No. 75717, and the issue raised by the assignment of error is as follows:
The Commissioner erred in not allowing as a deduction against income for 1931, the sum of $13,125 assessment levied against petitioner by the Superintendent of Banks of the State of New York on account of its liability as stockholder of an insolvent bank.
The record shows that petitioner purchased 175 shares of Rockaway Beach National Bank stock, par value $100 per share, for $21,000 in 1924, that the Rockaway Beach National Bank failed and a receiver was appointed, and that in October 1931 the United States Comptroller of the Currency made an assessment upon the shareholders of the Rockaway Beach National Bank of New York of the par value of their stock.
Jamieson Associates, Inc., claimed and was allowed as a deduction on its 1931 return the cost of its stock*1146 and the one-fourth of the assessment which was paid in 1931, and this petitioner insists that the remaining liability of the assessment, $13,125, paid in 1932, which was not allowed as a deduction in 1931, should have been then allowed. *119 This contention is based on the fact that Jamieson Associates, Inc., was on an accrual basis and that the full assessment liability, though not paid in 1931, nevertheless was a liability that accrued then and therefore the full amount was deductible from income. The claimed deduction, in our opinion and we so hold, is, in the light of the facts shown in the record and above referred to, authorized. The action of the respondent in disallowing same was error.
Our determination is in accord with the rulings on section 43 of the Revenue Acts of 1928, 1932, and 1934, as they appear in C.B. XIV-1, p. 17, and is sustained by the decision of the court in the case of . Cf. .
8. This point is with respect to error assigned by Jamieson Associates, Inc., as follows:
The Commissioner erred in including in income a sum*1147 of $3,420.87 part of an improvement assessment paid by the taxpayer in prior years and refunded to petitioner in this year. [1931]
That the Commissioner erred as above set out appears to be conceded in his brief, it being there very briefly stated: "This point is probably sustained by the evidence received to sustain assignment 4(f) in the petition, Docket No. 75717." However, be that as it may, we are of the opinion and hold that the Commissioner in this instance did err as above asserted by the petitioner, the issue being raised by the pleadings and there being sufficient competent evidence, not contradicted, sustaining petitioner's assignment of error. The improvement assessment having been capitalized when paid, was not income when refunded.
Decision will be entered under Rule 50.
Footnotes
1. $7,000 was also awarded the Seaside Improvement Co. for improvements, but there seems to be no issue in that regard. ↩