Jewett & Co. v. Commissioner of Internal Revenue

• Decision Date: 17 October 1932
• Docket Number: No. 3.,3.
• Citation: 61 F.2d 471
• Parties: JEWETT & CO. v. COMMISSIONER OF INTERNAL REVENUE.
• Court: U.S. Court of Appeals — Second Circuit

61 F.2d 471 (1932)

JEWETT & CO. v. COMMISSIONER OF INTERNAL REVENUE.

No. 3.

Circuit Court of Appeals, Second Circuit.

October 17, 1932.

Charles C. Marsh, of New York City (Rolph Thayer Marsh, of New York City, of counsel), for appellant.

G. A. Youngquist, Asst. Atty. Gen., and Sewall Key and Carlton Fox, Sp. Assts. to Atty. Gen., all of Washington, D. C., for appellee.

Before MANTON, L. HAND, and SWAN, Circuit Judges.

L. HAND, Circuit Judge.

The taxpayer, a stove manufacturer, claimed certain deductions in its income tax returns for the years 1924 and 1925, due to obsolescence of its patterns for casting. On March 1, 1913, the cost or value of the patterns owned by it was $101,297.04, to which was added, up to and including 1923, $22,786.22, making $124,083.26 in all. The additions of 1924 and 1925 were $2,299.95 and $1,371.78, respectively. The Commissioner computed a deduction of ten per cent. as depreciation for obsolescence, each year, beginning with 1913, which left nothing after 1923 as a base for deduction except the additions from 1914 onward. He therefore allowed as deductions ten per cent. only upon the additions. The taxpayer, which had taken no deductions before 1917, protested against this method. It asserted that there had been no obsolescence before 1917 and only six per cent. for each of the years 1917 and 1918. For the years 1919 to 1922, inclusive, it claimed, and eventually got, an allowance of ten per cent. upon the whole amount. The facts as to 1923 do not appear. As the rate of depreciation after 1918 is not in dispute the result is that if all the patterns were in 1924 and 1925, "used in the business" (section 214 (a) (8), Revenue Act of 1924, 26 USCA § 955 (a) (8), their cost or value was still the base upon which a depreciation of ten per cent. might be calculated. The taxpayer attempted to prove this before the Board, but unsuccessfully, though one member dissented. The question — one of fact alone — is whether its evidence was so compelling that the Board should have found that all the patterns were still "used in the business."

The witnesses were the taxpayer's president and a cost accountant for the National Association of Heating & Cooking Appliance Manufacturers, whose testimony we may ignore. The president testified that until 1916 there had been little change in fashion in stoves, and, as the patterns did not wear out in use, no depreciation for either wear or obsolescence, though there was a breakage of about one per cent. yearly. Thereafter the existing patterns began to be superseded; and the critical question was whether the whole assortment continued in use, for it is plain that the older ones might still be necessary, if only for repairs. As to this the witness said that a "great many" of the patterns used in 1913 were still in use in 1924 and 1925, and immediately thereafter that none of them had been "entirely" discontinued. While the first answer, taken alone, certainly implied that some had been abandoned, the second, if true, contradicted any such conclusion. The upshot of both was that all the patterns still...