Opinion · United States Court of Claims
Cumberland Glass Mfg. Co. v. United States
44 F.2d 433
- Type
- Opinion
- Court
- United States Court of Claims
- Jurisdiction
- Federal
- Date
- 1930-11-03
- Topic
- general
WILLIAMS, Judge. The plaintiff brings this suit to recover the sum of $54,032.94, income and excess-profits taxes, with interest thereon, which, the plaintiff alleges, is an overpayment of its taxes for the fiscal year ended June 30, 1918. Three issues are involved: (1) The cost of the plaintiff’s plant as of June 30, 1917, for depredation purposes, with the amount of accrued depreciation for the period from June 30, 1910, to June 30, 1917; (2) the .amount plaintiff is entitled to deduct as depreciation as a reasonable allowance for exhaustion, wear, and tear of its property for the fiscal year ended June 30, 1918; (3) whether or not the plaintiff is entitled to deduct from income interest paid within the fiscal year 1918 which had accrued in prior years. The issues involved are identical with those presented in the case of Cumberland Glass Manufacturing Company v. United States (Ct.
Citator
UpLaw has not yet analyzed Cumberland Glass Mfg. Co. v. United States. The absence of a flag is not a finding that it is good law.
- Cited by
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CUMBERLAND GLASS MFG. CO. v. UNITED STATES,44 F.2d 433(Ct.Cl. 1930)
CUMBERLAND GLASS MFG. CO. v. UNITED STATES.
No. J-315.
Court of Claims.
November 3, 1930.
Judgment for plaintiff.
See, also,44 F.2d 455.
This is a suit to recover the sum of $54,032.94, an alleged overpayment of income and excess-profits taxes by the plaintiff for the fiscal year ending June 30, 1918.
Three questions are presented for determination, to wit: (1) The cost of plaintiff's plant as of June 30, 1917, for depreciation purposes, with the amount of accrued depreciation for the period from June 30, 1910, to that date; (2) the amount of depreciation plaintiff is entitled to deduct as a reasonable allowance for exhaustion, wear, and tear for the fiscal year ending June 30, 1918; and (3) whether or not the plaintiff, in the computation of its taxable income for the fiscal year ended June 30, 1918, is entitled to deduct interest on indebtedness paid by it during that year which had accrued in prior years.
The case having been heard by the Court of Claims, the court, upon the report of a commissioner and the evidence, makes the following special findings of fact:
1. The plaintiff, Cumberland Glass Manufacturing Company, is a corporation organized in 1884 under the laws of the state of New Jersey. During the period from July 1, 1916, to June 30, 1918, inclusive, the plaintiff corporation owned all the capital stock of More-Jonas Glass Company, Minotola Glass Company, and Bridgeton Glass Company, corporations organized under the laws of the state of New Jersey. During said period the accounts of the plaintiff company and the subsidiary companies were kept on an accrual basis. The fiscal year of said companies ended on June 30. The income and excess-profits tax returns of said companies were made on an accrual basis and on a fiscal-year basis, and a consolidated excess-profits tax return was filed for the said four companies.
2. During the period from 1910 through June 30, 1918, the Cumberland Glass Manufacturing Company and its subsidiary companies were engaged in the business of manufacturing a miscellaneous line of bottles, jars, insulators, and pharmaceutical bottles. They had three plants located in Bridgeton, N.J., and one located in Minotola, N.J. They were operated as one enterprise. The equipment used in this manufacturing consisted of glass furnaces, hand-operating tools and equipment, machines, leers, and annealing ovens, and various kinds of equipment generally used in such manufacture. This equipment and the raw material were housed in frame buildings.
3. During the period from June 30, 1910, to June 30, 1918, inclusive, the officials of the company determined the amount to be written off each year as representing wear and tear on the buildings, equipment, and physical properties of the company in the following way: There were certain officials who kept close contact with the business from day to day and who were familiar with the usage to which all the buildings and equipment had been put. At the end of the fiscal year these officials would go about the plants and discuss the depreciation that should be taken on the various items which might be depreciated and would decide how much to write off for wear and tear. In doing this they would consider the different items of the building and equipment separately. In the case of the Cumberland Glass Manufacturing Company there were thirty-six distinct items, twelve for More-Jonas, five for Bridgeton, and thirty for Minotola. There was a considerable difference in the nature of the different items. One class would wear out much more rapidly than another. In the case of the furnaces the life of some would be very short and the life of others would be two or three times as long, owing to the type of furnace and the use that it would receive. The same was true as to glass-making machinery, some types of which would last five or six years and others but two years. In determining the amount to be written off for wear and tear these officials gave consideration to the actual use and operation of the plant, the cost, age, and useful life of the various types of assets and the repairs and improvements made thereto.
Prior to June 30, 1916, improvements and additions to the companies' machinery and equipment were made chiefly by day laborers of the companies, and the amount paid thesePage 434day laborers was charged as general expense and was not capitalized.
4. As a result of such examination these officials determined an amount to be written off each year for wear and tear sufficient in their opinion at the time to take care of wear and tear actually sustained by the articles in question, and this amount was put upon the books of the company. In some cases the amount so taken was set up in a depreciation reserve, and in other cases was simply taken as a deduction from the cost at which the asset in question was carried, the charge in both instances entering the expense of the company as a deduction from income for wear and tear in the year in question. The amounts written off upon the books for wear and tear by the company for the fiscal years June 30, 1911, to June 30, 1917, inclusive, were as follows:
------------------------------------------------------------------- | Cumberland | | | | Glass | More-Jonas | Minotola | Bridgeton | Manufacturing | Glass | Glass | Glass Co. | Co. | Co. | Co. | ---------------|---------------|------------|-----------|---------- June 30, 1911. | $32,211 17 | $2,598 09 | $4,571 67 | $700 00 June 30, 1912. | 61,159 35 | 2,728 60 | 5,717 78 | 700 00 June 30, 1913. | 23,168 06 | 3,158 85 | 7,366 34 | 700 00 June 30, 1914. | 24,226 75 | 3,282 15 | 11,581 21 | 700 00 June 30, 1915. | 25,308 57 | 3,753 54 | 19,602 71 | 700 00 June 30, 1916. | 26,144 96 | 3,591 19 | 24,969 41 | 700 00 June 30, 1917. | 51,182 92 | 14,758 63 | 35,242 60 | 7,259 62 ------------------------------------------------------------------
It is the position of the plaintiff that the foregoing amounts, totaling $397,784.17, for exhaustion, wear, and tear of property, represent the amount which should be included in its depreciation reserve and applied against earned surplus in determining invested capital for the fiscal year ended June 30, 1918.
For the taxable year ended June 30, 1918, the plaintiff, following the same method in determining the amount of exhaustion, wear, and tear of property to be written off, computed, and entered upon its books as such exhaustion, the amount of $68,130.57 in respect of the property of the Cumberland Glass Manufacturing Company; $22,880.01 in respect of the property of the More-Jonas Glass Co.; and $60,835.29 in respect of the property of the Minotola Glass Co.; totaling $151,845.87. No depreciation was taken for the Bridgeton Glass Company owing to the fact that the plants of the said company had been sold during the year.
5. Thereafter, in 1919, an internal revenue agent made an investigation of the plaintiff's books and records and recommended to the commissioner that plaintiff's depreciation charges for the period June 30, 1910, to June 30, 1918, inclusive be recomputed upon a basis different than had been used by the plaintiff and its subsidiaries and at uniform percentage rates for each year. Subsequently the Commissioner of Internal Revenue upon consideration and final audits of the returns for 1918 followed recommendations of the internal revenue agent, declined to accept the depreciation determined and charged off by the plaintiff and its subsidiaries, and determined depreciation reserve to June 30, 1917, and the allowance for depreciation as deductions from income for the taxable year ending June 30, 1918, by applying the following rates: Buildings, 5 per cent.; machinery, 10 per cent.; equipment, 7½ per cent.; automobile trucks, 20 per cent.; horses and wagons, 10 per cent.; and molds, 10 per cent. The Commissioner of Internal Revenue thus determined depreciation reserve to June 30, 1917, of $590,499.86, as follows:
-------------------------------------------------------------------- | Cumberland | | | | Glass | More-Jonas | Minotola | Bridgeton | Manufacturing | Glass | Glass | Glass Co. | Co. | Co. | Co. | ---------------|---------------|------------|------------|---------- June 30, 1911. | $48,493 74 | $10,929 18 | $12,885 11 | ......... June 30, 1912. | 50,734 12 | 11,030 08 | 13,579 10 | ......... June 30, 1913. | 51,383 80 | 11,257 57 | 16,365 26 | ......... June 30, 1914. | 52,081 34 | 11,352 79 | 21,453 93 | ......... June 30, 1915. | 52,489 74 | 11,577 34 | 24,507 83 | ......... June 30, 1916. | 53,231 35 | 11,775 82 | 26,688 20 | ......... June 30, 1917. | 52,291 66 | 12,565 91 | 30,647 30 | $3,178 69 --------------------------------------------------------------------
He made an allowance as deduction for depreciation for the taxable year ended June 30, 1918, as follows: Cumberland Glass Manufacturing Company, $45,888.55; More-Jonas Glass Company, $13,269.02; Minotola Glass Company, $31,384.54; or a total depreciation for the year of the sum of $90,540.11.
Depreciation for Bridgeton was included in Cumberland for years prior to 1917.
6. On account of war conditions during the fiscal years 1917 and 1918, the plaintiff's plant was operated to a greater capacity than in former years. Eighty-five per cent. of the work of the plant for those years was on war contracts and the plant was operated day and night. Many of its employees had gone to the war and it was not possible to secure competent help to fill their places. Owing to the operation of the plant at a greatly increased capacity and because of inexperienced help, there was greater wear and tear of the plant and its equipment than in former years. Also because of increased business there was not the opportunity to make proper and prompt repairs for wearPage 435and tear as had been the company's practice in former years. The amounts determined and written off by plaintiff and its subsidiaries for exhaustion, wear, and tear of property for the years 1911 to 1918, inclusive, were reasonable.
During the fiscal year ending June 30, 1918, there was a marked disuse of the bottles that were being manufactured. Before that time the companies were making private mold bottles for pharmaceutical houses and condiment houses which used private mold bottles distinctive of their own. During the war period all the glass manufacturers were so busy on war work that they were obliged to use standardized type bottles and discontinue using the private mold bottles. As a result of this the companies were obliged to abandon a great many types of their molds, since their customers had adopted the standard type of bottle. In determining depreciation for the fiscal year ending June 30, 1918, the officials of the companies considered the same matters that had been considered for 1917 and prior years, and in addition to that had in mind obsolescence in their molds caused by the change of use of the bottles.
7. Both the plaintiff and the defendant used cost in determining accrued depreciation and the depreciation allowance as deductions for the taxable year. The total cost of the assets of the plaintiff and its subsidiary corporations to June 30, 1917, was as follows: Cumberland Glass Manufacturing Company, $809,560.98; More-Jonas Glass Company, $179,382.31; Minotola Glass Company, $430,302.09; Bridgeton Glass Company, $51,882.56; totaling, $1,471,127.94; and the accrued depreciation to June 30, 1917, was $397,784.17.
8. The cost of the plant assets of plaintiff's consolidated companies as of June 30, 1917, as determined by the Commissioner of Internal Revenue, was $1,462,200.08, and the reserve for depreciation to that date was $590,499.86.
The cost of the plant assets of the companies as shown on the plaintiff's books as of June 30, 1917, was $1,471,127.94, and the accrued depreciation to June 30, 1917, was $397,784.17.
9. As of June 30, 1917, the Cumberland Glass Manufacturing Company had outstanding bonds in the total sum of $428,950, of which $424,000 were series A bonds and $4,950 were series B bonds. The series A bonds were 5 per centum bonds with no unusual interest provisions. The series B bonds were also 5 per centum bonds but contained a provision as follows:
"The company may at its option defer the payment of any and all interest accruing upon all of the bonds of this series until the date of the maturity of said bonds and shall not be liable to pay interest upon such interest payments so deferred."
As of June 30, 1917, the Cumberland Glass Manufacturing Company had unpaid interest on the series B bonds totaling $179,987.50, which had been deferred under said provision. During the fiscal year ending June 30, 1918, the Cumberland Glass Manufacturing Company paid interest on series A bonds and series B bonds as follows:
Coupon No. 12, series B bonds, dated Nov. 10, 1908 ............................ $10,587.50 Coupon No. 13, series B bonds, dated May 10, 1909 ............................. 10,587.50 Coupon No. 14, series B bonds, dated Nov. 10, 1909 ............................ 10,587.50 Coupon No. 15, series B bonds, dated May 10, 1910 ............................. 10,587.50 Coupon No. 16, series B bonds, dated Nov. 10, 1910 ............................ 10,587.50 Coupon No. 17, series B bonds, dated May 10, 1911 ............................. 10,587.50 Coupon No. 18, series B bonds, dated Nov. 10, 1911 ............................ 10,587.50 Coupon No. 19, series B bonds, dated May 10, 1912 ............................. 10,587.50 Coupon No. 20, series B bonds, dated Nov. 10, 1912 ............................ 10,587.50 Coupon No. 21, series B bonds, dated May 10, 1913 ............................. 10,587.50 Coupon No. 22, series B bonds, dated Nov. 10, 1913 ............................ 10,587.50 Coupon No. 23, series B bonds, dated May 10, 1914 ............................. 10,587.50 Coupon No. 24, series B bonds, dated Nov. 10, 1914 ............................ 10,587.50 Coupon No. 25, series B bonds, dated May 10, 1915 ............................. 10,587.50 Coupon No. 26, series B bonds, dated Nov. 10, 1915 ............................ 10,587.50 Coupon No. 27, series B bonds, dated May 10, 1916 ............................. 10,587.50 Coupon No. 28, series B bonds, dated Nov. 10, 1916 ............................ 10,587.50 Interest on series B bonds for the period from May 10, 1917 to June 30, 1917 .. 2,940.97 Coupon No. 30, series A bonds, dated Nov. 10, 1917 ............................ 10,600.00 Coupon No. 31, series A bonds, dated May 10, 1918 ............................. 10,600.00 __________ Total interest paid during year ending June 30, 1918 ...................... 204,128.47
Page 436
The total interest thus paid during the year ending June 30, 1918, was $204,128.47. This interest was paid on $424,000 series A 5 per centum bonds, and on $423,500.00 series B 5 per centum bonds, making a total interest-bearing indebtedness of $847,500 on which this interest was paid. The entire amount of the paid-in capital stock of the company at the close of the fiscal year was $619,900. One-half of the interest-bearing indebtedness then outstanding was $212,000. The Commissioner of Internal Revenue allowed as a deduction for interest payments only $24,140.97, representing the interest on two coupons of series A bonds and interest on series B bonds from May 10, 1917, to June 30, 1917.
10. The Cumberland Glass Manufacturing Company and its subsidiary companies have made payments of income and excess-profits taxes for the fiscal year ending June 30, 1918, on the dates and in the sums as follows:
The Cumberland Glass Mfg. Co.: Payments and credits — Dec. 4, 1918, cash ................................................. $6,739.46 ¹Mar. 19, 1919, tentative tax, cash ................................ 1,463.90 June 13, 1919, cash ................................................ 7,468.12 Jan. 7, 1921, cash ................................................. 51,734.69 ___________ 67,406.17 Overpayment of Minotola Glass Co. for the year 1917, applied to 1918 27.33 ___________ 67,433.50 ¹Deduct: Credit transferred to the year ended June 30, 1919 ........ 1,463.90 ___________ 65,969.60 Overpayment transferred from More-Jonas Glass Co. .................. 113.05 ___________ 66,082.65 ----------- -----------
More-Jonas Glass Co.: Payments and credits — Dec. 4, 1918, cash ................................................. 5,672.47 ²Mar. 19, 1919, tentative tax, cash ................................ 1,222.65 May 7, 1923, cash .................................................. 1,243.63 May 7, 1923, interest, cash ........................................ 248.73 __________ 8,387.48 Less: Transfer to year ended June 30, 1917 ......................... 1,467.18 __________ 6,920.30 Overpayment of More-Jonas Glass Co., taxes for the year 1917 applied to 1918 ........................................................... 87.87 __________ 7,008.17 ²Deduct: Credit transferred to the year ended June 30, 1919 ........ 1,222.65 __________ 5,785.52 Less: Overpayment transferred to the Cumberland Glass Mfg. Co. ...... 113.05 __________ 5,672.47 Minotola Glass Co.: No payments. Bridgeton Glass Co.: No payments.
11. The following waivers were filed by the Cumberland Glass Manufacturing Company and its subsidiary corporations for the fiscal year ending June 30, 1918:
More-Jonas Glass Co.: Payments and credits — Dec. 4, 1918, cash ................................................. 5,672.47 ²Mar. 19, 1919, tentative tax, cash ................................ 1,222.65 May 7, 1923, cash .................................................. 1,243.63 May 7, 1923, interest, cash ........................................ 248.73 __________ 8,387.48 Less: Transfer to year ended June 30, 1917 ......................... 1,467.18 __________ 6,920.30 Overpayment of More-Jonas Glass Co., taxes for the year 1917 applied to 1918 ........................................................... 87.87 __________ 7,008.17 ²Deduct: Credit transferred to the year ended June 30, 1919 ........ 1,222.65 __________ 5,785.52 Less: Overpayment transferred to the Cumberland Glass Mfg. Co. ...... 113.05 __________ 5,672.47 Minotola Glass Co.: No payments. Bridgeton Glass Co.: No payments.
On January 19, 1923, for determination, assessment, and collection, irrespective of any period of limitations.
On February 28, 1924, for determination, assessment, and collection, "for a period of one year after the expiration of the statutory period of limitation or the statutory period of limitation as extended by any waivers already on file with the bureau."
On April 3, 1925, for assessment, expiring December 31, 1925.
On December 5, 1925, for assessment, expiring December 31, 1926.
12. Two claims for refund, each in the sum of $71,635.72, or such greater amount as was legally refundable, were filed by the Cumberland Glass Manufacturing Company forPage 437the fiscal year ending June 30, 1918, on March 13, 1924, and on March 30, 1925, respectively. These two claims were allowed by the Commissioner of Internal Revenue on October 28, 1926, to the extent of $6,119.82, and were rejected for the balance. The amount of $6,119.82, so allowed, has never been paid.
13. Plaintiff has always borne true allegiance to the United States and has never voluntarily aided, abetted, or given encouragement to rebellion against the United States. The plaintiff is the sole owner of this claim and has not made any transfer or assignment thereof. No part of said claim has been paid.
R.C. Williamson, of Washington, D.C., and Charles B. Rugg, Asst. Atty. Gen., for the United States.
Before BOOTH, Chief Justice, and GREEN, LITTLETON, and WILLIAMS, Judges.
Three issues are involved: (1), The cost of the plaintiff's plant as of June 30, 1917, for depreciation purposes, with the amount of accrued depreciation for the period from June 30, 1910, to June 30, 1917; (2) the amount plaintiff is entitled to deduct as depreciation as a reasonable allowance for exhaustion, wear, and tear of its property for the fiscal year ended June 30, 1918; (3) whether or not the plaintiff is entitled to deduct from income interest paid within the fiscal year 1918 which had accrued in prior years.
The issues involved are identical with those presented in the case of Cumberland Glass Manufacturing Company v. United States (Ct.Cl.)44 F.2d 455, decided today.
In the opinion in that case these issues are fully discussed and determined. A restatement of the views therein expressed is not deemed necessary in this case.
The plaintiff is entitled to have its tax liability for the year computed on the basis of cost of its plant assets, and accrued depreciation, as of the date of June 30, 1917, as shown on its books of account and as the same has been determined by the court in Finding No. 7.
It is entitled to a deduction for depreciation as a reasonable allowance for exhaustion, wear, and tear for the fiscal year 1918 the sum of $151,845.87.
It is entitled to a deduction for interest paid during the year the sum of $24,140.97. It is not entitled to a deduction of interest paid within the year which had accrued in prior years.
The plaintiff is entitled to recover the sum in which the total tax paid for the year exceeds its tax liability computed in accordance with this opinion.
Entry of judgment will be withheld pending the filing herein, by the parties, of a stipulation as to plaintiff's tax liability for the year, computed as aforesaid.