Gould Paper Co. v. Commissioner of Internal Revenue, 368.

• Citation: 72 F.2d 698
• Decision Date: 10 August 1934
• Docket Number: No. 368.,368.
• Parties: GOULD PAPER CO. v. COMMISSIONER OF INTERNAL REVENUE.
• Court: United States Courts of Appeals. United States Court of Appeals (2nd Circuit)

72 F.2d 698 (1934)

GOULD PAPER CO. v. COMMISSIONER OF INTERNAL REVENUE.

No. 368.

Circuit Court of Appeals, Second Circuit.

August 10, 1934.

Barnet D. Golden, of New York City, and Geo. E. H. Goodner, of Washington, D. C., for petitioner.

Frank J. Wideman, Asst. Atty. Gen., and J. P. Jackson and Sewall Key, Sp. Assts. to Atty. Gen., for respondent.

Before MANTON, AUGUSTUS N. HAND, and CHASE, Circuit Judges.

CHASE, Circuit Judge.

The petitioner is a New York corporation, now and for many years past engaged in manufacturing paper from pulp wood usually cut on its own land. Its principal place of business is at Lyons Falls, N. Y. This appeal is concerned with only two parcels of this wood land. Both are located on the westerly side of the Adirondack Mountains in New York. They are known, respectively, as the Moose River and Tug Hill tracts. The Moose River land is about 77,000 acres in extent, and on March 1, 1913, there were about 925,000 cords of merchantable soft wood 10 inches or more in diameter standing upon it. Tug Hill comprised about 30,317 acres with a March 1, 1913 stand of such timber amounting to approximately 155,490 cords. In its amended returns for the three years in issue, the petitioner took depletion deductions of $4.75 per cord as the March 1, 1913, fair market value of the pulpwood as standing timber. The Commissioner allowed only $3.50 per cord, and the Board upheld his valuation.

In 1917 the petitioner cut 36,228.68 cords of pulpwood and used only 13,187.05; in 1918 it cut 41,869.65 cords and used only 19,799.01 cords; while in 1919 it cut only 20,429.52 cords, but used 28,394.38 cords. The Commissioner allowed depletion deductions on the amount of timber used instead of on timber cut and again the Board upheld the Commissioner.

Because of a mistake as to the number of cords used in the years involved, the allowances by the Commissioner were actually $1.269 per cord in 1917, $2.107 per cord in 1918, and $3.8506 per cord in 1919. The Board corrected the mistake and allowed depletion at the rate of $3.50 per cord in each year. This resulted in reducing the allowance for 1919. As the Commissioner made no claim for a reduction of this depletion allowance before the hearing in the Board of Tax Appeals, the petitioner now claims the right to deduct for 1919 at the rate of $3.8506 per cord.

From 1910 until into 1918, the petitioner purchased timber owned by the Adirondack League Club adjacent to its own holdings. In accordance with its contract for such purchases, it advanced money to the club from time to time which drew interest until the timber purchased was cut. Upon an adjustment of accounts in 1916 and 1917, it was discovered that petitioner had been allowed credit for interest to the amount of $2,916.21 in excess of that to which it was entitled. In August, 1919, the petitioner, upon demand of the club, paid to it this amount. The petitioner kept its books on the accrual basis and, in its return for 1918, took the payment as a deduction. The Commissioner disallowed it and was sustained by the Board.

During the years in issue, the petitioner owned one-half of the capital stock of the Glenfield & Western Railroad Company. This railroad had been built primarily to haul timber for the petitioner and another corporation in the same business which also owned one-half of its capital stock. The railroad company had been organized with power to acquire lands by eminent domain, and was subject to regulation by the Public Service Commission of New York which fixed its rates. It did not make operating expenses, and, as most of its business was hauling timber for its stockholders who had no other feasible way to get their timber, the petitioner agreed to advance, and did advance, to the railroad company one-half of its deficit, being $6,348.25 in 1917, $12,750.00 in 1918, and $16,172.00 in 1919. Such amounts were carried on the books of the petitioner, at least until 1921, as debts owed it by the railroad company. The amounts for each year were taken as deductions by the petitioner on the ground that they were ordinary and necessary expenses of its business. The Board sustained the Commissioner in disallowing the deductions.

Logs cut and left in the woods by the petitioner were not inventoried at all, and the Board included them in invested capital at the original cost of the timber. The Commissioner conceded that they were to be treated as part of the capital investment. The petitioner was dissatisfied with the original cost value allowed, however, and claimed the right to include them at March 1, 1913, cost of the standing timber plus the cost of cutting, peeling, or otherwise processing them to the time as of which they were inventoried.

The petitioner employed, and in 1917 paid, an attorney who defended it and its president in proceedings under the anti-trust laws. The Commissioner at first allowed this expense as a deduction for 1917, but raised the issue in his answer in the proceedings before the Board and the deduction was disallowed.

1. Whether or not there was any error in taking the March 1, 1913, value of the standing timber at $3.50 per cord instead of at the higher value claimed by the petitioner depends, of course, upon whether the evidence on that issue supports the finding. It is purely a question of fact. There was evidence to the effect that it was worth less than the Board found and other evidence that it was worth more. This consisted of the testimony of witnesses shown to have special knowledge of the value of standing pulpwood in the vicinity of this timber at that time, of the cost to the petitioner, of the prices at which such timber had been sold both before and after 1913, and of the local appraisals for tax purposes. The Board had a rather comprehensive basis in the testimony for finding the value in fact, and, as that fact as found has substantial support in the evidence, we accept it.

In connection with his proof of value, the respondent introduced in evidence a blank, known as form T of the Treasury Department, which contained questions it was customary to have answered by taxpayers who owned timber. He also introduced the answers this taxpayer had made to such questions. The petitioner now claims that the respondent was conclusively bound by the value the petitioner itself had thus placed upon the timber. Proceedings before the Board are conducted in accordance with the rules of evidence applicable in courts of equity in the District of Columbia, and Lyon v. Bursey, 36 App. D. C. 235, is relied upon by the petitioner to establish its broad contention that its own statement of value was documentary evidence absolutely binding upon the respondent as soon as he introduced it. In the above case, however, the issue was whether or not the plaintiff in an action in ejectment had, by amending his original declaration in a suit to recover possession of all of the north half of a lot and taking judgment for an undivided half of that portion, been barred by estoppel from bringing a subsequent action to recover what he had previously abandoned. In the second suit, he introduced in evidence the record in the former action, and it was held to bar further recovery. A motion by the defendant at the close of the plaintiff's evidence in chief for a directed verdict was held properly granted since the case made by the plaintiff contained the evidence of the record on which the defendant relied and there was no question for the jury in respect to the judgment record which the plaintiff himself had introduced. The court said of the plaintiff, "Having elected to pursue this course, it does not lie in his mouth either to impeach his own evidence, or assert that the record does...