CERTIORARI TO THE CIRCUIT COURT OF APPEALS FOR THE SECOND CIRCUIT.
Hughes, Holmes, Van Devanter, McReynolds, Brandeis, Sutherland, Butler, Stone, Roberts
MR. JUSTICE BUTLER delivered the opinion of the Court.
Petitioner sued respondent in the District Court for the Southern District of New York and obtained judgment for $22,091.01 on account of income and profits taxes for 1918 and 1919 erroneously exacted. The Circuit Court of Appeals reversed; and, as the right of petitioner to recover $4,128.85 was not contested, ordered that it have judgment for that amount. 42 F.2d 216. This court granted petitioner's application for a writ of certiorari, limited to the question whether petitioner is entitled under § 234 (a) (7) of the Revenue Act of 1918
to any deduction for obsolescence of its tangible property in such years.
Revenue Act of 1918, c. 18, 40 Stat. 1077, 1078, provides:
"Sec. 234. (a) That in computing the net income of a corporation . . . 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; . . ."
A jury having been waived in writing, the case was tried by the court without a jury. The court found:
Plaintiff, from 1879 until October 29, 1919, was engaged at New York City in the business of manufacturing and selling beers, ales and porter and for that purpose erected and installed suitable buildings and equipment. January 31, 1918, it had become common knowledge and was known to plaintiff that prohibition would become effective and that as a result plaintiff and others engaged in that business would suffer obsolescence in the value of their capital assets. Prohibition did become effective January 16, 1920. As found by the Commissioner of Internal Revenue, the depreciated cost of plaintiff's buildings as of that date was $153,932.18. The buildings were constructed especially for the purposes of such manufacture and were not commercially adaptable for any other use. They had no salvage value. As a result of prohibition and beginning January 31, 1918, and ending January 16, 1920, plaintiff suffered obsolescence of such buildings equal to such depreciated cost which should be rateably apportioned over that period. After making provision for allowances for such obsolescence, plaintiff had no net income for 1918 or 1919.
And at defendant's request the court found: With the advent of prohibition it became illegal to manufacture beers, ales and porter having an alcoholic content in excess of one-half of one per cent. Accordingly such manufacture
was discontinued by the plaintiff when the prohibitory law became effective. Subsequently plaintiff to a small extent continued the manufacture of beers, ales and porter having an alcoholic content not in excess of one-half of one per cent. ...