Chillicothe Bottling Co. v. Commissioner

APPEAL OF CHILLICOTHE BOTTLING CO.

Chillicothe Bottling Co. v. Commissioner

Docket No. 2140.

United States Board of Tax Appeals

2 B.T.A. 340; 1925 BTA LEXIS 2435;

July 14, 1925, Decided Submitted May 26, 1925.

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W. J. Hogan, Esq., for the taxpayer.

Robert A. Littleton, Esq., for the Commissioner.

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Before TRUSSELL and LITTLETON.

This is an appeal from a determination by the Commissioner of a deficiency in income and profits tax for the calendar year 1918 in the amount of $3,532.08. The appeal is based entirely upon the refusal of the Commissioner to compute the profits tax for the calendar year 1918 under the provisions of section 328 of the Revenue Act of 1918.

In support of its claim that the profits tax should be computed under section 328, the taxpayer contends that, due to the extraordinary demand for its product during the year 1918, the plant equipment, utensils, auto trucks, wagons, etc., were used to such an extent that the usual allowance for exhaustion, wear and tear was insufficient to cover the depreciation which the plant and equipment sustained during the taxable year 1918; that it was compelled, in order to be in a position to sell its output to, and supply the demand of, an Army cantonment located at Chillicothe, to make expenditures of a capital nature in the sum of $20,000; that the expenditures for machinery were made necessary because of the war situation, which was unproductive to a great extent after the cessation of war activities, and that the apparent extraordinary profits during the year 1918 represent a realization in one year of the earnings of capital unproductively invested or employed through a period of years.

FINDINGS OF FACT.

Taxpayer is an ohio corporation engaged in the business of manufacturing ice, ice cream, and soft drinks at Chillicothe.

During the month of July, 1917, construction was begun on an Army cantonment, afterwards known as Camp Sherman, on the outskirts of Chillicothe. From July, 1917, to January, 1918, the population of Chillicothe increased about 20,000 persons. In the early part of 1918 soldiers, numbering about 40,000 enlisted men and officers, were stationed at this camp, as a result of which the taxpayer's business greatly increased. In order to be in a position to supply the Army camp with ice, ice cream and soft drinks, taxpayer was compelled to comply with certain specific requirements prescribed by the military authorities, which involved expenditures of large sums of money of a capital nature - namely, the installation of a new and complete distilling plant - without any corresponding relief by way of appropriate reduction from gross income. Further, in order to supply the demand for its product taxpayer installed additional bottling machinery and other equipment at an approximate cost of $17,000.

For the calendar year 1918 taxpayer had an invested capital amounting to $119,123.27, and after an allowance by the Commissioner of $20,088.41 for exhaustion, wear and tear of the property used in the business it had a net taxable income of $71,651.13, upon which a total income and profits tax of $45,155.50 was due.

DECISION.

The determination of the Commissioner is approved.