Nokomis Cotton Mills v. Commissioner , 2 B.T.A. 1205 ( 1925 )

APPEAL OF NOKOMIS COTTON MILLS.

Nokomis Cotton Mills v. Commissioner

Docket No. 4557.

United States Board of Tax Appeals

2 B.T.A. 1205; 1925 BTA LEXIS 2119;

November 6, 1925, Decided Submitted September 24, 1925.

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P. D. Hutchinson, C.P.A., for taxpayer.

R. P. Smith, Esq., for the Commissioner.

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Before TRAMMELL, GRAUPNER, and PHILLIPS.

This is an appeal from the determination of a deficiency of $10,850.75 in income and profits taxes for the year 1918. Only $6,215.91 of the deficiency is in controversy, and it arises from the disallowance of part of the deduction claimed by the taxpayer for exhaustion, wear, and tear of its machinery for the year 1918.

FINDINGS OF FACT.

The taxpayer is a corporation, organized about the year 1900, with its principal office at Lexington, N.C., and it is, and has been since the year 1901, engaged in manufacturing cotton cloth.

The looms, spinning frames, speeders, spoolers, and slubbers in the taxpayer's mill were installed during the years 1901 to 1906 and they were still in use in the year 1918. However, in order to keep this machinery in operation, it was necessary for the taxpayer by the year 1919 to replace 15,296 spindles which it had originally installed during the years 1901 to 1908, inclusive. The normal working period of the mill was 55 hours per week, but during the year 1918 the regular working period was increased to 60 hours per week. In addition, the mill was operated on an average of 10 hours' overtime per week for the regular employees, and was also operated an additional 10 hours per week for piece workers. Also, during the year 1918, the looms in the mill were run at a speed about 10 per cent greater than the speed at which they were operated under normal conditions.

The taxpayer and the Commissioner agree that under normal conditions the exhaustion, wear, and tear of the machinery in the taxpayer's mill occurs at the rate of 5 per cent per year. In its income-tax return for the year 1918 the taxpayer claimed as a deduction from gross income an allowance for the exhaustion, wear and tear of the machinery involved herein, computed at the rate of 12 1/2 per cent. The Commissioner upon the audit of the return reduced the allowance for exhaustion, wear, and tear of machinery to an amount computed at the rate of 5 per cent and disallowed the remainder of the deduction claimed. The taxpayer and the Commissioner are in accord as to the value upon which the allowance for exhaustion, wear and tear is to be computed.

A reasonable allowance on account of the exhaustion, wear and tear of the machinery in question for 1918 should be computed at the rate of 7 per cent.

DECISION.

The deficiency should be computed in accordance with the foregoing findings of fact. Final determination will be settled on 10 days' notice, under Rule 50.