American South African Line, Inc. v. COMMISSIONER OF INTERNAL REVENUE, Docket No. 62955

• Decision Date: 17 May 1934
• Docket Number: 70701.,68830,Docket No. 62955
• Citation: 30 BTA 753
• Parties: AMERICAN SOUTH AFRICAN LINE, INC., PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
• Court: U.S. Board of Tax Appeals

30 B.T.A. 753 (1934)

AMERICAN SOUTH AFRICAN LINE, INC., PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Docket Nos. 62955, 68830, 70701.

Board of Tax Appeals.

Promulgated May 17, 1934.

Frank V. Barns, Esq., and Luke D. Stapleton, Jr., Esq., for the petitioner.

Henry A. Cox, Esq., for the respondent.

Respondent determined deficiencies of $2,710.91, $8,304.97, and $9,789.40 in petitioner's income taxes for 1929, 1930, and 1931, respectively. Petitioner assails the recomputation of depreciation on its ships, based on a determined life of 33 1/3 years, and contends that the total useful life of the vessels is 20 or 24 years.

FINDINGS OF FACT.

Petitioner, a New York corporation with principal office in New York City, is engaged in the operation of freight and passenger vessels between New York City and South African ports. In 1926 it acquired for this service the West Isleta, West Cawthon, Eastern Glen, and Eastern Glade, and Western Knight. The Western Knight was lost in 1929, and the Chincha was purchased in that year to replace it. In January 1930 petitioner acquired a new vessel, the City of New York.

The West Isleta, West Cawthon, Eastern Glen, and Eastern Glade are cargo vessels of about 5,600 gross tons, equipped with reciprocating triple expansion engines and Scotch boilers of about 200 pounds pressure. They are of the three-island deck type, with two decks, two masts, and one smokestack. The United States Shipping Board built the West Cawthon in 1918 and the West Isleta in 1919; they have a 24-hour fuel consumption of 135 and 150 barrels of Bunker C oil, respectively. The Eastern Glen and Eastern Glade were built in Japan in 1920, and have respective 24-hour fuel consumptions of 36 and 34 tons of coal. The Chincha is a cargo vessel of 6,348 gross tons, built in England in 1913; it is equipped with a reciprocating quadruple expansion engine and Scotch boilers of 220 pounds pressure. It has two flush decks and one orlop deck, two masts, and one smokestack. All five ships have an average speed of 10 knots an hour. They each have accommodations for 12 passengers.

The City of New York is a twin-screw motor ship of 8,272 gross tons, and carries freight and passengers. It was built at Chester, Pennsylvania, at a cost of $1,918,158.88. It is equipped with two Sun-Doxford Diesel engines of 2,700 horsepower each, has two solid propellers, three flush decks, and accommodations for 60 passengers. Its average speed is 13½ knots, and its fuel consumption 140 barrels of Diesel oil in 24 hours.

All of petitioner's vessels are classed with the American Bureau of Shipping, and have been insured since acquisition for the following amounts: West Isleta, $318,000; West Cawthon, $310,000; Eastern Glen, $312,000; Eastern Glade, $318,000; Chincha, $355,000; City of New York, $1,200,000, but from June 1930 until 1932, $1,266,667. Upon the loss of the Western Knight petitioner collected about $450,000 in insurance; the Chincha was purchased for $146,521.91.

Petitioner's cargoes from New York to South Africa consist of farming and mining machinery, automobiles, foodstuffs, lumber, baled piece goods, stockings, tobacco, hardware, structural steel rails, locomotives, and household goods. Its return cargoes consist of chrome, corundum and copper ores, mica, asbestos, fluorspar, hides, skins, mohair, wool, and tanning bark. Several of the South African ports have little harbor protection and inadequate docking facilities, so that cargo must often be landed by lighter.

On its trade route petitioner has to meet the competition of eight foreign lines, mostly British, which have large fleets. Some of these vessels are more modern in design and faster than petitioner's by several knots. An agreement among the competitive lines prevents the simultaneous sailing of vessels on this route.

During the past 10 years there has been a tendency to construct cargo vessels abroad with finer hulls and to equip them with improved turbine or Diesel engines capable of developing a speed of 12 or 14 knots an hour. Vessels laid during the period of the World War were designed for great cargo capacity rather than speed, and...