it would seem that the Commissioner's determination of the value in use was based upon sound reasoning. It will be remembered that some of the twelve boilers were installed subsequent to the close of the war.
The next matter for comment is seemingly complicated by the fact that the plaintiff's testimony as to replacement cost was based upon the theory that the value in use of plaintiff's boiler house was 58 1/3 per cent., not 72 1/2 per cent., and we therefore have no definite testimony of the replacement cost in the post-war period of a plant which had a 72 1/2 per cent. value in use. The dearth of such testimony is immaterial, however, in view of our conclusion that plaintiff is not entitled to an amortization allowance based upon value in use and to an additional allowance based upon replacement cost in the post-war period.
Congress, by section 234 (a) (8), of the Revenue Acts of 1918 and 1921 (40 Stat. 1077; 42 Stat. 254), conferred wide powers upon the Commissioner of Internal Revenue in respect to the amortization of war facilities. Pursuant to those powers, among others, the Commissioner has, with proper approval, established article 184, regulations 62 (article 184 of regulations 45 being substantially the same). That article, as it relates to the present claims, provides that the amortization allowance is the difference between the original cost of the property and the value of the property on the basis indicated by its subsection (2), which is as follows: "(2) In the case of property not included in (1) above, the value shall be the estimated value to the taxpayer in terms of its actual use or employment in his going business, such value to be not less than the sale or salvage value of the property and not greater than the estimated cost of replacement under normal post-war conditions less depreciation and depletion. * * *"
The subsection (1), referred to in the subsection (2) quoted, relates to property which has been sold by the taxpayer or entirely discarded by him. The taxpayer, in the instant case, is endeavoring to apply both subsections to its advantage.Although still using the facility, and intending to continue the use, it seeks to have the court treat the matter as though the boiler house had been discarded in part. As stated, Congress has given the Commissioner great power in the matter of amortization, and, since originally conferring that power, has taken no action to curb or confine it. For ten years the regulations of the Commissioner have been established, and for that period his interpretations of them have been known. During that period he has applied the regulations in the same manner as in the amortization allowance to the plaintiff. This application of the law has been accepted and followed by the Board of Tax Appeals and by various courts, during the existence of the regulations, as being a correct observance of the statute providing for amortization. Under such circumstances, it is not for this court to undertake to establish a new regulation, or to interpret the existing regulation in another way than that in which it has been construed by its author, and as universally accepted.
By section 184 of both regulations 45 and 62, the Commissioner of Internal Revenue reasonably exercised the power conferred upon him by statute; and by such sections it is provided that the allowance for amortization, where the property has not been sold or abandoned, shall be the amount of the difference between the actual cost of the property and the post-war residual value, where (as here) such value in less than the replacement cost.
Plaintiff has also contended that the amortization allowance, whatever it may be, should have been credited to income for 1918, instead of being spread over the years 1918, 1919, and 1920. The claim is based upon the fact that the contract for the boiler plant had been made in 1918. The costs therefor, however, were not expended in 1918, but in the years over which the allowance was spread. The spread was in accordance with prior practice and followed article 185, regulation 62, which provides: "The amortization allowance shall be apportioned * * * and (b) in cases where the property was not completed in time for use in the production of articles contributing to the prosecution of the war, on the basis of the expenditures made on account of which amortization is allowed."
As was article 184, so article 185 has been established by the Commissioner pursuant to general powers conferred upon him, and what has been said in respect to article 184 is equally applicable to article 185. We see no error in the apportionment of the amortization allowance to the incomes for the three years in which the cost of the property was expended.
Judgment will be entered for the defendant in each case.
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