Primas Groves, Inc. v. Comm'r of Internal Revenue
| Decision Date | 05 October 1950 |
| Docket Number | Docket No. 17573. |
| Citation | 15 T.C. 396 |
| Parties | PRIMAS GROVES, INC., PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE RESPONDENT. |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
Petitioner, not having established portion of 1943 abnormal income from citrus fruit orchards which was attributable to other years, or that such abnormal income was not attributable to increased demand, higher prices and improvement in business, held not entitled to excess profits tax relief under section 721(a)(2)(C). George E. H. Goodner, Esq., for the petitioner.
Irene Scott, Esq., and Newman A. Townsend, Jr., Esq., for the respondent.
This proceeding involving a claim for refund for excess profits tax under section 721 of the Internal Revenue Code for the fiscal year ended June 30, 1943.1 The amount of such tax, as paid by petitioner, for that y e ar, was $12,772.39.
Broadly, stated, the issue presented is whether petitioner is entitled to relief under section 721(a)(2)(C) of the Code, because of its claim that it had a abnormal income resulting from the development of tangible property.
Petitioner corporation, with its principal place of business at Dade City, Florida, filed its tax returns and its refund claim for the year herein involved with the collector for the district of Florida. It maintained its books and filed its tax returns on the cash receipts, fiscal year (June 30) basis.
It was organized as a Florida Corporation in 1924 for the purpose of growing citrus fruits and the marketing of those products.
At the time of its organization, petitioner acquired a property known as Primas Grove, on which there were citrus trees, about 14 years of age in good condition, which continued to produce fruit through the fiscal year herein involved.
On September 1, 1935, it acquired another grove of 28 acres, known as the Batchelor Grove. At the time of acquisition, approximately 17 acres were planted in citrus trees which were 8 or 9 years old. These trees, however, were in a rundown, unthrifty condition due to improper cultivation and lack of care. It took petitioner about 2 years of fertilizing, cultivating and spraying to bring these trees to the bearing state of trees of a similar age, which had been properly cared for. About 6 months after the acquisition of the Batchelor Grove, petitioner set out between 700 and 800 young trees on the 11 additional acres. The time consumed in the planting of these young trees was only 3 or 4 days.
Sometime in 1936 or 1937 petitioner acquired 10 acres of citrus land known as the Richley Grove, on which there were about 800 trees, which were 4 years old. These trees, as those in the Batchelor Grove, were in poor condition and needed fertilization and cultivation to bring them to a state of production similar to well-cared-for trees of the same age, and petitioner undertook such activity.
At an undisclosed date, prior to 1937, petitioner acquired some land called the Sumner Hill Grove. In the summer of 1937, the land was cleared and in the late winter of 1938 between 2,800 and 2,900 young fruit trees were planted.
Petitioner did all of the necessary cultivating, spraying, fertilizing, and pruning of all of its groves, bringing the fruit to a stage ready to be picked and marketed. The picking and marketing were done by the Pasco Packing Association, a non-profit cooperative association of which petitioner was a member. The association picked the fruit, hauled it to its packing house, processed it, and sold it. At the end of each year, the total amount received by the association from sales was prorated among its members on the basis of the number of boxes of the various types of fruit produced. Petitioner maintained no record of the boxes of fruit picked from it groves, but relied entirely upon the association to account properly to it.
The Primas and Batchelor groves each grew both Mid-Season and Valencia oranges, as well as grapefruit and tangerines. The Richey Grove grew only tangerines and grapefruit, and the Sumner Hill Grove grew both Mid-Season and Valencia oranges.
Petitioner considered the cost of the fruit trees as a capital expenditure on which it took depreciation. It considered as expense items the fertilization and the cultivation of the young trees in the same manner as these items were considered expense items for the maintenance of the older trees. Replacement of trees that may have died was charged as an expense each year because of the recurring nature of the item.
In order to keep citrus fruit trees in proper condition for bearing it is necessary regardless of the age of the tree, to fertilize, cultivate, spray and prune each year; and the productive capacity of the trees is dependent, to a great extent, on the intensity of these activities.
Production of fruit trees will decrease in one year if there is improper or insufficient cultivation and fertilization. It is, therefore, necessary to carry on an annual program of care in order to insure adequate production for any particular year. To some extent, productive capacity can be controlled by the amount of fertilizer used. A larger crop can be obtained by the use of additional fertilizer. However, there are economic limits, as a point is reached where costs in producing additional fruit exceed the value of the additional fruit produced.
The price of citrus fruit is affected by many factors, and varies from season to season. Weather conditions, quality and quantity of the fruit produced in a particular grove, as well as quality and quantity of fruit produced elsewhere, the availability of other fruits which compete in the market place with citrus fruits, weather conditions in other areas which produce citrus fruit, the demand for citrus products, and the purchasing power of consumers are among the important factors.
During the fiscal years 1938 through 1943, petitioner produced oranges, grapefruit and tangerines by years and groves, respectively, as follows:
+--------------------------------------------------------------+
¦ ¦ ¦ ¦Boxes per grove ¦ ¦
+-----------------+-------------+------+----------------+------¦
¦Fiscal year ended¦Kind of fruit¦Primas¦ ¦ ¦Sumner¦
+-----------------+-------------+------+---------+------+------¦
¦June 30 ¦ ¦ ¦Batchelor¦Richey¦Hill ¦
+-----------------+-------------+------+---------+------+------¦
¦ ¦(Oranges ¦2,649 ¦1,088 ¦ ¦ ¦
+-----------------+-------------+------+---------+------+------¦
¦1938 ¦(Grapefruit ¦3,054 ¦897 ¦ ¦ ¦
+-----------------+-------------+------+---------+------+------¦
¦ ¦(Tangerines ¦47 ¦26 ¦495 ¦ ¦
+-----------------+-------------+------+---------+------+------¦
¦ ¦(Oranges ¦3,136 ¦1,670 ¦ ¦ ¦
+-----------------+-------------+------+---------+------+------¦
¦1939 ¦(Grapefruit ¦14,103¦1,450 ¦ ¦ ¦
+-----------------+-------------+------+---------+------+------¦
¦ ¦(Tangerines ¦ ¦26 ¦1,989 ¦ ¦
+-----------------+-------------+------+---------+------+------¦
¦ ¦(Oranges ¦3,829 ¦2,045 ¦ ¦ ¦
+-----------------+-------------+------+---------+------+------¦
¦1940 ¦(Grapefruit ¦13,048¦2,241 ¦13 ¦ ¦
+-----------------+-------------+------+---------+------+------¦
¦ ¦(Tangerines ¦70 ¦47 ¦1,493 ¦ ¦
+-----------------+-------------+------+---------+------+------¦
¦ ¦(Oranges ¦3,659 ¦2,421 ¦ ¦637 ¦
+-----------------+-------------+------+---------+------+------¦
¦1941 ¦(Grapefruit ¦17,898¦2,747 ¦19 ¦ ¦
+-----------------+-------------+------+---------+------+------¦
¦ ¦(Tangerines ¦ ¦2 ¦1,855 ¦ ¦
+-----------------+-------------+------+---------+------+------¦
¦ ¦(Oranges ¦1,658 ¦1,662 ¦ ¦922 ¦
+-----------------+-------------+------+---------+------+------¦
¦1942 ¦(Grapefruit ¦11,234¦1,746 ¦ ¦ ¦
+-----------------+-------------+------+---------+------+------¦
¦ ¦(Tangerines ¦119 ¦ ¦1,387 ¦ ¦
+-----------------+-------------+------+---------+------+------¦
¦ ¦(Oranges ¦3,697 ¦2,084 ¦ ¦2,136 ¦
+-----------------+-------------+------+---------+------+------¦
¦1943 ¦(Grapefruit ¦17,567¦2,652 ¦31 ¦ ¦
+-----------------+-------------+------+---------+------+------¦
¦ ¦(Tangerines ¦119 ¦25 ¦4,430 ¦ ¦
+--------------------------------------------------------------+
The amounts received from the sales of its fruit through the Pasco Packing Association for the fiscal years 1938 through 1943 were as follows:
+---------------------------------------------------------------+
¦Fiscal year ended June 30¦Primas ¦Batchelor¦Richey ¦Sumner ¦
+-------------------------+---------+---------+--------+--------¦
¦ ¦ ¦ ¦ ¦Hill ¦
+-------------------------+---------+---------+--------+--------¦
¦1938 ¦$2,901.93¦$725.89 ¦$100.48 ¦ ¦
+-------------------------+---------+---------+--------+--------¦
¦1939 ¦2,116.33 ¦1,585.65 ¦44.16 ¦ ¦
+-------------------------+---------+---------+--------+--------¦
¦1940 ¦4,534.77 ¦2,349.84 ¦1,141.67¦ ¦
+-------------------------+---------+---------+--------+--------¦
¦1941 ¦4,940.02 ¦2,453.52 ¦233.43 ¦$381.11 ¦
+-------------------------+---------+---------+--------+--------¦
¦1942 ¦7,375.24 ¦2,919.70 ¦942.24 ¦919.15 ¦
+-------------------------+---------+---------+--------+--------¦
¦1943 ¦15,843.29¦6,872.24 ¦3,827.76¦3,737.82¦...To continue reading
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