Haberle Crystal Spring Brewing Co. v. Clark

• Decision Date: 29 June 1927
• Citation: 20 F.2d 540
• Parties: HABERLE CRYSTAL SPRING BREWING CO. v. CLARK, Collector of Internal Revenue.
• Court: U.S. District Court — Northern District of New York

20 F.2d 540 (1927)

HABERLE CRYSTAL SPRING BREWING CO. v. CLARK, Collector of Internal Revenue.

District Court, N. D. New York.

June 29, 1927.

Welch & Welch, of Syracuse, N. Y., for plaintiff.

Oliver D. Burden, U. S. Atty., and H. V. S. Groesbeck, Asst. U. S. Atty., both of Syracuse, N. Y., Floyd F. Toomey, Solicitor Treasury Dept., of Washington, D. C., Frank B. Hudson, Inspector 21st Dist., N. Y., of Syracuse, N. Y., and A. W. Gregg, Solicitor of Internal Revenue, of Washington, D. C., for defendant.

COOPER, District Judge.

This is a motion for confirmation of the report of the special master to whom the trial of the issues involved was referred by consent of the parties to take the proof and report his findings of fact and conclusions of law, subject to the approval of the court.

The plaintiff brought this action against the collector to recover income profits taxes in the sum of $15,530.92, paid for the fiscal year ending May 31, 1919, together with $1,087.16 interest, all of which plaintiff claims was illegally exacted from it, because of the failure of the collector to allow a deduction from the plaintiff's income for that year for obsolescence of the good will of the plaintiff's business during that year.

Prior to prohibition plaintiff was conducting a brewing business in central New York, with two brewing plants located in the city of Syracuse, in which business it made substantial profits by the sale of its products under certain trade-names filed in the office of the secretary of state of New York. The plaintiff corporation was dissolved in December, 1920, with the coming in of prohibition, and another corporation, known as the Haberle Beverage & Products Company, was organized in 1920, which took over one of the two brewing plants, called the "Haberle plant," and engaged in the business of manufacturing and selling soft drinks and cereal beverages, and is still carrying on the same business at the Haberle plant. With one exception, the stockholders of the new corporation are identical with the stockholders of the plaintiff corporation.

On the trial before the special master, the defendant contended (1) that the plaintiff was without legal capacity to sue, having been dissolved pursuant to the statutes of the state of New York; (2) that good will is not property that is taxable separate and apart from the business to which it is an appurtenance; (3) that, even if good will is property, it is not the kind of property meant by section 234a, subdivision 7, of the statute, as the same was amended in 1919, which statute is conceded to govern the case at bar. The special master found in favor of the plaintiff on all these grounds, and found a judgment in favor of the plaintiff for the full amount of the claim.

Inasmuch as this court refuses to confirm the report of the special master, and finds that the plaintiff's complaint should be dismissed, because the court disagrees with the special master and upholds the defendant's third contention above stated, this memorandum will not discuss the defendant's contentions 1 and 2, above set forth. Section 234a of the Statute (Act Feb. 24, 1919, c. 18 40 Stat. 1077, 1078, being Comp. St. § 6336 1/8pp) reads in part as follows:

"That in computing the net income of a corporation subject to the tax imposed by section 230 there shall be allowed as deductions: * * * (7) a reasonable allowance for the exhaustion, wear, and tear of property used in the trade or business, including a reasonable allowance for obsolescence."

The special master construed this section to cover obsolescence of good will, and held that the collector of internal revenue should have allowed the...