Benton v. Commissioner of Internal Revenue

• Decision Date: 20 June 1952
• Docket Number: No. 13641.,13641.
• Citation: 197 F.2d 745
• Parties: BENTON et al. v. COMMISSIONER OF INTERNAL REVENUE.
• Court: U.S. Court of Appeals — Fifth Circuit

197 F.2d 745 (1952)

BENTON et al. v. COMMISSIONER OF INTERNAL REVENUE.

No. 13641.

United States Court of Appeals Fifth Circuit.

June 20, 1952.

Arthur Glover, Amarillo, Tex., for petitioners.

Robert M. Weston, Ellis N. Slack, Helen Goodner, Carlton Fox, Sp. Assts. to Atty. Gen., Theron Lamar Caudle, Asst. Atty. Gen., Charles Oliphant, Chief Counsel, Bureau of Int. Rev., W. Herman Schwatka, Sp. Atty., Washington, D. C., for respondent.

Before HUTCHESON, Chief Judge, and BORAH and RIVES, Circuit Judges.

RIVES, Circuit Judge.

The petitions for review involve deficiencies for the calendar year 1945 in income taxes of H. T. Benton (sometimes hereafter referred to as taxpayer) in the sum of $12,646.19, and Elizabeth Benton, taxpayer's wife, in the sum of $12,536.19. A single question is presented for decision, viz:

Whether the sum of $45,000 consisting of the payment of $5,000 per month for each of the last nine months of the taxable year 1945, made by the taxpayer under a so-called rental agreement, is deductible in that year as a business rental expense, as he contends, or represents a capital investment, as the Commissioner contends and the Tax Court found.

The opinion of the Tax Court is not officially reported, and while its findings of fact are lengthy, we see no way adequately to present this case except to quote substantially the full text of those findings

"Petitioners H. T. Benton and Elizabeth Benton are husband and wife, residing at Amarillo, Texas. The income and deductions here in issue were those of the marital community and were so reported by petitioners in their tax returns for 1945 filed with the collector of internal revenue for the second district of Texas. The husband, H. T. Benton, is hereinafter referred to as petitioner. He was born in 1911, quit school after the seventh grade, and from 1928 to 1936 was employed as a cab driver in Amarillo.

"In 1936 he operated a cab of his own. In 1937 he had a small cab operation in Childress, Texas, but in 1939 sold out and returned to Amarillo. He continued in the taxicab business in Amarillo, first with the City Cab Company and then with Safeway Cab Company, operating on a `kick-back\' basis around $1.50 a day. During this time he bought two new automobiles, financing them through Plains City Finance Company (hereinafter called Finance Company) a partnership composed of W. A. Mays and three associates (hereinafter called Mays, et al.). In October, 1943, he left the Safeway Cab and was in the used car business for two months. In 1943 he netted $923.78 from his cab operations and $500 from used car business.

"In January, 1944, he bought four cars in Kansas City, financing them through the Finance Company. Later in the month he purchased the Rainbow Taxicab for $3,000, paying $500 cash and borrowing the balance from the Finance Company, thereby acquiring three more cabs and seven permits. During 1944 he netted $12,049.99 from his operation of the Rainbow Taxicab. He owed the Finance Company $5,500 in January, 1944, but had paid same by the end of the year. For the first three months of 1945 he netted $3,854.85 from his Rainbow Taxicab business. His then net worth was $7,931, plus an equity in a duplex he bought in 1943.

"On March 28, 1945, he entered into a written agreement with Mays, et al., the owners of the Yellow Cab & Baggage Company of Amarillo (hereinafter called Yellow Cab), under which agreement the petitioner paid them in 1945 the $45,000 here in controversy.

"The agreement in substance was as follows:

"The preamble designates it a `Lease Contract\' and Mays et al. are termed the `lessors\' and petitioner, `lessee\'. It then proceeds:

"Whereas, Lessors are the owners of the following described motor vehicles, viz:

"(Here follows an itemized list of 13 motor vehicles, the motor number of each being given, and included therein were 2 Chevrolet school busses, 2 Chevrolet sedans, 1 Buick Fordor, 2 Dodge sedans, 1 Plymouth sedan, 1 Chevrolet truck, 2 Ford buses, 1 International bus, 1 Dodge Fordor sedan.)

"together with contracts under which fifteen (15) additional motor vehicles are operated in taxi service under ODT and City permits belonging to lessors, together with ODT and City permits and franchises authorizing lessors to operate the motor vehicles above described belonging to lessors, together with certain transportation contracts between the three railways and two airlines serving the City of Amarillo, Texas, together with a month to month only rental agreement covering that certain building now occupied by lessors located at the northeast corner of the intersection of Third and Taylor Streets in the City of Amarillo, Texas, together with one or more taxicab stands and locations in the City of Amarillo, Texas, together with telephone numbers 5242, 5243, 5244, together with the exclusive right to use the trade name of `Yellow Cab & Baggage Company\' in the City of Amarillo, Texas; and,

"Whereas, lessee is the owner of the following described motor vehicles, viz:

"(Here follows an itemized list of 9 motor vehicles, the motor number of each being given, and included therein were 5 Chevrolet Fordor sedans, 1 DeSoto sedan, 1 Chevrolet sedan and 2 Ford Fordor sedans.) together with ODT and City permits and franchises to operate the same, which motor vehicles lessee has heretofore operated under the name and style of `Rainbow Taxi\'; and,

"Whereas, said lessee desires to lease all of the above described equipment from lessors for a period of ten (10) months and to procure an option to purchase such equipment at the end of ten months, and in order so to do is agreeable to giving said lessors security for the compliance by lessee of the terms and conditions of the Lease Contract hereinafter contained, therefore, it is agreed and contracted by and between the parties hereto as follows:

I.

"For the purpose of guaranteeing lessors in the full and faithful performance by lessee of all of the terms and provisions of this Contract * * * (Here follows lessee\'s transfer and assignment to lessors of above motor vehicles).

"In consideration of the premises, lessors have this day and do by these presents lease and let unto lessee for a period of ten months commencing with the date 1st day of April, 1945 ending at midnight on the 28 day of February, 1946, each and every item of the above described personal property including the motor vehicles and other equipment belonging to lessors and first described herein as well as the motor vehicles and equipment this day conveyed unto lessors by lessee, which motor vehicles and the permits, franchises and contracts in connection therewith will be used by lessee solely for the purpose of carrying on and conducting a taxicab and light transfer business under the name and style of `Yellow Cab & Baggage Company\'.

"The consideration which the lessee shall pay the lessors for the use of the above described equipment and privileges is as follows:

"(1) The sum of $50,000.00 shall be due and payable to lessors at Amarillo, Texas, as follows:

"(1) The sum of $5,000.00 on the 1st day of May, 1945, and a like sum of $5,000.00 on the 1st day of each consecutive calendar month hereafter during the term of this Lease Contract.

"(2) Said lessee shall at all times keep and maintain in taxicab and transfer service not less than twenty-six (26) motor vehicles (either by ownership of such vehicles himself or under lease arrangement with the owners thereof similar to the lease arrangements under which lessors are now operating the fifteen (15) motor vehicles hereinbefore mentioned) and shall keep and maintain such motor vehicles covered with public liability and property damage insurance * * * and lessee shall keep the ODT and City permits authorizing the operation of all such twenty-six motor vehicles in good standing.

"(3) (Here lessee is required to keep the equipment in good working order, keep the licenses and permits in good standing and pay all taxes of every kind, including ad valorem taxes.)

"(4) (Here lessee is to pay all rents, utilities, telephone bills, etc.)

"(5) Lessee shall at his sole cost and expense replace any item of the above described items of equipment which may be destroyed or taken out of service for any reason.

"(6) (Here lessee is to conduct the business in an efficient manner and hold lessors harmless for damages from its operation.)

"(7) Any equipment purchased by lessee to replace any of the above described items of equipment shall be acquired in the name of and as the property of Yellow Cab & Baggage Company and shall be and become the sole and absolute property of lessors, it being the intention of all parties hereto that lessee is and shall be obligated to keep a like amount of vehicles belonging to lessors in such taxicab service at his own cost and expense.

"(8) Lessee shall discontinue the operation of Rainbow Cabs and use the name `Rainbow Cabs\' during the tenure of this Lease Contract.

"Lessee shall be and is hereby given the exclusive right and option to purchase all of the above described equipment belonging to lessors together with lessors ODT and City permits, lessors\' rights to use and occupy the building and stands now occupied by lessors above described together with the exclusive right to use the name `Yellow Cab & Baggage Company\' in the City of Amarillo, Texas, together with the above described telephone numbers at any time within a period of five days after the expiration of the term of this Lease Contract upon the following terms and conditions, viz:

"Lessee shall pay unto lessors the total sum of $35.000.00 at Amarillo, Texas, in the following manner:

"The sum of $5,000.00 on or before thirty (30) days from the date that lessee exercises his option to purchase such property, and the sum of $5,000.00 shall be due and payable to lessors on or before the same day of each consecutive month thereafter until said total sum of $35,000.00 shall have been paid lessors; such

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