Meneely Bell Co. v. Commissioner , 14 B.T.A. 694 ( 1928 )

MENEELY BELL CO., PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Meneely Bell Co. v. Commissioner

Docket No. 20874.

United States Board of Tax Appeals

14 B.T.A. 694; 1928 BTA LEXIS 2941;

December 12, 1928, Promulgated

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">*2941 1. At the beginning of the calendar year 1921, the petitioner had on hand contracts totaling $59,896.38, representing 20 different orders for its products. These orders were received in ordinary course of business and they were not paid in to the corporation in exchange for shares of capital stock. Held, that no part of the amount thereof may be included in invested capital.

2. Held, further, that the petitioner is not entitled to have its tax determined under the provisions of section 328 of the Revenue Act of 1921.

W. R. Meneely for the petitioner.

Jas. A. O'Callaghan, Esq., and P. A. Bayer, Esq., for the respondent.

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SMITH

">*694 This is a proceeding for the redetermination of a deficiency in income tax for 1921 of $3,172.07. The questions in issue are (1) whether the petitioner is entitled to include in invested capital $59,896.38 representing the value of contracts for its products on hand at the beginning of the taxable year; and (2) whether it is entitled to have its excess-profits tax determined under the provisions of section 328 of the Revenue Act of 1921.

FINDINGS OF FACT.

The petitioner filed an income-tax">*2942 return for 1921 upon which it claimed certain deductions from gross income which were disallowed by the Commissioner. The disallowance of these deductions resulted in the determination of a deficiency in income and profits tax for 1921 of $3,172.07.

The petitioner had on hand at January 1, 1921, contracts totaling $59,896.38, which represented 20 different orders ranging from $260 to $14,000, shipments of which were made during the first and second years following January 1, 1921. These orders had been obtained at considerable expense to the petitioner but they were obtained in the ordinary course of business and not by the issuance of shares of capital stock.

">*695 OPINION.

SMITH: Petitioner claims the right to include in invested capital the value of certain contracts which it had on hand at the beginning of the taxable year. These contracts were received in the ordinary course of business. They were not paid in for shares of capital stock. The petitioner claims the right to include the value of these contracts in invested capital. But section 326 of the Revenue Act of 1921 particularly defines what may be included in invested capital. It does not provide for">*2943 the inclusion in invested capital of the value of contracts obtained in the ordinary course of business. The determination of the Commissioner that the claimed value of these contracts may not be included in invested capital must be and is sustained.

The petitioner further claims that by reason of the exclusion from invested capital of the value of these contracts and by reason of the fact that owing to a large surplus on hand it was not compelled to borrow money to carry on its business, its invested capital and its income for 1921 was abnormal, and that by reason of these facts it should be entitled to have its tax determined under the provisions of section 328 of the taxing statute.

The abnormality claimed for invested capital is all in favor of the petitioner. There is no evidence that such abnormality works any hardship upon the petitioner. The excess-profits tax determined for 1921 is $2,793.44. This was upon an income of $29,138.32. The petitioner has not proven any abnormality of either invested capital or income which would apparently "work upon the corporation an exceptional hardship evidenced by gross disproportion between the tax computed without benefit of this">*2944 section [327] and the tax computed by reference to the representative corporations specified in section 328." By reason of lack of proof of an abnormality in income or capital, the action of the respondent in denying petitioner's claim for assessment under section 328 of the statute must be and is sustained.

Judgment will be entered for the respondent.