Harvey Coal Corporation v. United States, 42602

• Decision Date: 02 December 1940
• Docket Number: 43388.,No. 42602,42602
• Citation: 35 F. Supp. 756
• Parties: HARVEY COAL CORPORATION v. UNITED STATES.
• Court: U.S. Claims Court

35 F. Supp. 756

HARVEY COAL CORPORATION v. UNITED STATES.

Nos. 42602, 43388.

Court of Claims.

December 2, 1940.

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George E. H. Goodner, of Washington, D. C. (D. F. Prince, of Washington, D. C., on the briefs), for plaintiff.

John A. Rees, of Washington, D. C., and Samuel O. Clark, Jr., Asst. Atty. Gen. (Fred K. Dyar, of Washington, D. C., on the brief), for defendant.

Before WHALEY, Chief Justice, and LITTLETON, WHITAKER, and GREEN, Judges.

WHITAKER, Judge.

In these two suits plaintiff seeks a judgment for taxes alleged to have been erroneously collected for the years 1925, 1926, 1928, 1929, 1930, and 1931. It alleges (1) that it is entitled to additional depletion for all of the years except 1926; (2) that in all these years it is entitled to depreciation on certain assets known as the Hazard-Jellico assets; (3) that for the years 1929, 1930, and 1931 it is entitled to additional depreciation on certain assets other than the Hazard-Jellico assets; and (4) that it is entitled to a deduction of $2,738.23 in 1929 and $2,914.30 in 1930 on account of certain expenditures held by the Commissioner of Internal Revenue to have been capital expenditures.

The defendant says that this court has no jurisdiction of plaintiff's claim for additional depletion for 1925 because a claim therefor was not filed in time, and the plaintiff admits that this is true. We agree. The defendant also says that while the claim for 1929 was filed within two years after the payment of both of the deficiency assessments for this year, it was filed more than two years after payment of the original tax, and that the plaintiff is, therefore, not entitled to recover any part of the original tax. This is also admitted by the plaintiff, and we agree. The defendant admits that the plaintiff is entitled to the deductions of $2,738.23 in 1929 and $2,914.30 in 1930 treated by the Commissioner of Internal Revenue as capital expenditures, but it says that the depreciation allowed on these assets should now be restored to income. We think this is correct. This leaves for consideration plaintiff's claim for additional depletion for the years 1928, 1929, 1930, and 1931, and its claim for depreciation on its buildings, tipple, and furniture and fixtures and on the Hazard-Jellico assets.

The only controversy between the plaintiff and the defendant as to its claim for depletion is over whether or not there is any testimony in the record as to the value of the coal in place. The defendant says that the only testimony is as to the value of the leasehold and is not confined to the value of the coal in place. After a review of the testimony we conclude that this is erroneous. The testimony of some of the witnesses was specifically directed to the value of the coal in place, and we understand that all of them were testifying to this value, although the testimony of some of them is not as clear as it might be. It is not contradicted that this value was $250,000 and that the total amount of recoverable coal on the date in question was 4,824,835 tons. The plaintiff is, therefore entitled to a deduction of 5.18 cents per ton for each of the years 1928, 1929, 1930, and 1931.

The principal controversy between the parties over plaintiff's claim to depreciation of the Hazard-Jellico assets and to additional depreciation on buildings, tipple, and furniture and fixtures is over whether or not a decision of the Board of Tax Appeals in Harvey Coal Corp. v. Commissioner of Internal Revenue, 24 B. T. A. 793, is res judicata.

In the case before the Board, the Commissioner had asserted a deficiency against the plaintiff on account of its tax liability for the last two months of the year 1924, from which plaintiff appealed to the Board of Tax Appeals, first, on the ground that no depreciation had been allowed on certain assets known as the Hazard-Jellico assets; and, second, on the ground that the Commissioner should have allowed depreciation at the rate of 10 percent on its buildings, tipple, and furniture and fixtures, instead of at the rate of 5 percent. The Board found that the petitioner was entitled to a rate of 10 percent. It also held that the proper base for such an allowance on these assets was the cost of the assets to petitioner. Its decision on these questions is said to be binding upon us in this proceeding to recover taxes for later years.

The essential facts follow: The Harvey Coal Company was the lessee of what was known as the Harvey Mine in Perry County, Kentucky. Some years prior to 1924 it had executed a sublease on this mine to the Hazard-Jellico Coal Company. This company during its occupancy of the premises had erected certain buildings and improvements thereon. In 1924 it defaulted in the payment of rent due under the sublease, as a result of which receivership proceedings were instituted. After a vain attempt to sell the properties, the court ordered them returned to the Harvey Coal Company, upon that company's assumption of liabilities of the Hazard-Jellico Company in the amount of $52,086.16. This was done. Thereafter, the Harvey Coal Company, considering that it needed additional capital to operate the mine, caused the plaintiff, the Harvey Coal Corporation, to be organized, and transferred to it all of its assets in return for a portion of the plaintiff's capital stock and the assumption of liabilities of $52,086.16.

In arriving at the amount of depreciation to which the plaintiff was entitled for the last two months of 1924 it was necessary for the Board to ascertain the basis for that depreciation. To do this it was necessary for it to determine whether or not the transaction between the Harvey Coal Company and the Harvey Coal Corporation was a reorganization. The Board of Tax Appeals held that it was not a reorganization, that the plaintiff had acquired the assets in question in return for its stock, but that there was no proof of the value of the stock nor the value of the assets at the time it acquired them. This decision of the Board, it is contended, is res judicata on the question of the proper depreciation base. We think that it is.

The two proceedings, involving taxes for different years, are not the same (Tait v. Western Maryland Railway Co., 289 U.S. 620, 53 S.Ct. 706, 77 L.Ed. 1405), but the parties are the same and the question presented in this suit was before the Board; it was necessary for its decision; and...