Opinion
Nos. 42602, 43388.
December 2, 1940.
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.
Actions by the Harvey Coal Corporation against the United States for taxes alleged to have been erroneously collected for the years 1925, 1926, 1928, 1929, 1930, and 1931.
Order in accordance with opinion.
These cases having been heard by the Court of Claims, the court, upon the evidence and the report of a commissioner, makes the following special findings of fact:
1. On October 30, 1917, the Harvey Coal Company held a lease on certain coal mining property known as the Harvey Mine. It was obligated to pay the lessor a royalty of eight cents per ton and to pay one-half the taxes on the leased premises and all the taxes on the improvements and the coal mined. On that date it executed to the Hazard-Jellico Coal Company a sublease on the premises, which was later extended to October 31, 1929. It was agreed that all improvements made on the premises should become the property of the Harvey Coal Company at the termination of the lease.
2. On April 16, 1924, the Hazard-Jellico Coal Company went into receivership. On September 25, 1924, an order was entered by the court directing the receivers to offer the property for sale and, if no bids were received, to deliver the premises to the Harvey Coal Company upon the assumption by that company of the liabilities of the Hazard-Jellico Coal Company. No bids were received and, accordingly, on November 6, 1924, the sublease to the Hazard-Jellico Coal Company was cancelled and the premises, together with all improvements thereon, were returned to the Harvey Coal Company, and that company assumed the liabilities of the Hazard-Jellico Coal Company, amounting to $52,086.16.
3. On November 1, 1924, the Harvey Coal Corporation, the plaintiff, was organized under the laws of Tennessee, with an authorized capital stock of $500,000. All the assets of the Harvey Coal Company were transferred to it in consideration of $400,000 of its capital stock and its assumption of the liabilities of the Harvey Coal Company. The stockholders of the old company were given stock in the new company in the same proportion they had held stock in the old.
4. No profit or loss was reported on the acquisition of the assets of the Hazard-Jellico Coal Company nor on the transfer of the assets of the Harvey Coal Company to the Harvey Coal Corporation.
5. The assets were carried on the books of the new company at the same figure they had been carried on the books of the old, except the leasehold, the value of which was written up from $23,568.92 to $392,464.65. The assets as set up on its books and additions in later years are as follows:
Buildings:
November 1, 1924, cost ...... $53,247.17 November 1, 1924, to December 31, 1924, additions ........ 208.59 1925 additions .............. 24,837.57 1927 additions .............. 9,188.42 1928 additions .............. (4.55) 1929 additions .............. 55.51 1930 additions .............. 35.50
Equipment:
November 1, 1924, cost ...... 76,185.37 1925 additions .............. 38,304.27 1926 additions .............. 37,727.39 1927 additions .............. 3,820.88 1928 additions .............. 16,236.17 1929 additions .............. 21,151.31 1930 additions .............. 1,442.69 1931 additions .............. 22,075.00
Tipple:
November 1, 1924, cost ...... 18,150.07 1925 additions .............. 950.82 1928 additions .............. 763.83 1930 additions .............. 2,995.24
Railroad:
November 1, 1924, cost ...... 23,160.91 1925 additions .............. 598.50 1928 additions .............. 897.49
Furniture and fixtures:
November 1, 1924, cost ...... 1,047.37 November 1, 1924, to December 31, 1924, additions ........ 282.78 1925 additions .............. 1,113.71 1926 additions .............. 578.00 1927 additions .............. 4,683.78 1928 additions .............. 942.00 1930 additions .............. 1,473.89
Buildings ..................... $23,444.90 Mine equipment ................ 70,076.09 Tipple ........................ 17,952.15 Railroad ...................... 18,244.40 Furniture and fixtures ........ 422.25 ___________ $130,139.79
In 1925 the plaintiff discarded certain mine cars which had cost $10,000.
6. The assets received by the Harvey Coal Company from the Hazard-Jellico Coal Company, hereinafter referred to as the Hazard-Jellico assets, were not recorded on the books of the Harvey Coal Company, nor on plaintiff's books, nor was depreciation on them claimed in the income-tax returns of either company. Their cost to the Hazard-Jellico Coal Company was $185,606.58, and they had an average life from the date of their acquisition of twenty years. Their depreciated cost and their fair market value on November 1, 1924, was $139,204.93, and at this time they had a remaining useful life of fifteen years.
Plaintiff discarded $24,020 of these assets in 1925, $12,617.50 in 1926, and $10,137.50 in 1927.
No depreciation has been allowed by the Commissioner of Internal Revenue on the Hazard-Jellico assets for any of the years involved in these proceedings.
7. At the time plaintiff acquired the Harvey Mine on November 1, 1924, the amount of coal which it was reasonable to expect could be recovered was 4,824,835 tons. The average annual production to be expected after November 1, 1924, was 320,000 tons, and on this basis the remaining life of the mine was about fifteen years. The value of the coal in place on November 1, 1924, was $250,000.
8. For each of the years here involved the plaintiff reported net income, and the Commissioner determined its net income, as shown below:
Reported by Determined by plaintiff Commissioner Year: 1925 .......... $26,593.29 $10,821.46 1926 .......... 81,941.00 81,376.57 1928 .......... 50,752.07 59,367.36 1929 (amended return) ..... 80,049.30 83,519.94 1930 .......... 56,714.88 63,842.85 1931 .......... 10,772.06 14,986.81
9. The Commissioner allowed depreciation on plaintiff's depreciable assets in amounts as follows:
1925 ......................... $14,949.53 1926 ......................... 13,982.48 1928 ......................... 14,800.67 1929 ......................... 14,382.18 1930 ......................... 15,740.26 1931 ......................... 16,429.79
He allowed depreciation on its buildings, tipple, and furniture and fixtures at 5 per cent in amounts as follows:
------------------------------------------------- | | | Furniture | | | and Year | Buildings | Tipple | fixtures ----------------|-----------|---------|---------- 1929 .......... | $1,770.49 | $ 85.73 | $849.01 1930 .......... | 1,726.72 | 160.61 | 833.72 1931 .......... | 1,726.72 | 235.49 | 907.42 -------------------------------------------------
No depreciation was claimed by plaintiff in its returns on the Hazard-Jellico assets, nor was any allowed by the Commissioner, but the plaintiff did file claims for refund claiming depreciation thereon.
10. The Commissioner allowed depletion with respect to plaintiff's interest in the Harvey Mine as follows:
1925 .......................... $5,426.68 1926 .......................... 2,541.13 1928 .......................... 7,350.75 1929 .......................... 7,361.49 1930 .......................... 6,816.75 1931 .......................... 6,095.19
The tons of coal produced by plaintiff in each of the years in question were as follows:
1925 ........................... 307,825 1926 ........................... 338,818 1928 ........................... 378,690 1929 ........................... 379,243 1930 ........................... 351,180 1931 ........................... 314,007
11. In the years 1929 and 1930 plaintiff spent $2,738.23 and $2,914.30, respectively, for mine rails to extend its tracks in the mine. The plaintiff claimed deductions therefor as expenses, but the Commissioner disallowed them and treated the two items as capital expenditures, allowing depreciation thereon in subsequent years. These expenditures did not prolong the life of the mine nor add to its value; they were expenses of operation.
12. The liabilities assumed by plaintiff on account of the repossession of the leasehold from the Hazard-Jellico Coal Company was $52,086.16. The Commissioner spread this so-called expense over the remaining life of the Hazard-Jellico Coal Company's lease, which was fifty-five months, and allowed a deduction for each of the years 1925, 1926, 1927 and 1928 of $11,364.24, and the balance of $4,735.10 in 1929.
13. The Commissioner assessed a deficiency against plaintiff for its tax liability for the last two months of 1924. From this assessment the plaintiff appealed to the United States Board of Tax Appeals alleging that the rates of depreciation allowed by the Commissioner were inadequate and that no depreciation had been allowed on the Hazard-Jellico assets. It claimed depreciation on its buildings, tipple, and furniture and fixtures at the rate of 10 per cent. The Board held that the plaintiff was entitled to a rate of 10 per cent. It also held that the transaction in which the plaintiff had acquired all of the assets of the Harvey Coal Company was not a reorganization and, accordingly, that the depreciation to which it was entitled should be based on the cost to it of the assets; but, it held that no proof had been introduced as to the cost of these assets to it and, therefore, it held, "In such a situation we are precluded from allowing petitioner any deduction for depreciation upon such assets."
14. Plaintiff paid the original tax and deficiencies and interest as follows:
-------------------------------------------------------------------------- | Original | | | Amount | Year | tax | Deficiency | Interest | paid | Date paid ---------|-----------|------------|----------|------------|--------------- 1925 ... | $3,457.13 | .......... | ........ | $900.00 | Mar. 15, 1926 | | | | 900.00 | June 12, 1926 | | | | 900.00 | Sept. 15, 1926 | | | | 757.13 | Dec. 14, 1926 1926 ... | 11,062.03 | .......... | ........ | 3,000.00 | Mar. 17, 1927 | | | | 3,000.00 | June 11, 1927 | | | | 3,000.00 | Sept. 15, 1927 | | | | 2,062.03 | Dec. 15, 1927 1928 ... | 6,090.25 | .......... | ........ | 1,590.25 | Mar. 15, 1929 | | | | 1,500.00 | June 15, 1929 | | | | 1,500.00 | Sept. 16, 1929 | | | | 1,500.00 | Dec. 14, 1929 | | $2,397.54 | ........ | .......... | Apr. 21, 1930 | | | $153.78 | .......... | Apr. 21, 1930 1929 ... | 8,805.42 | .......... | ........ | 1,725.42 | Mar. 15, 1930 | | | | 495.00 | Mar. 20, 1930 | | | | 2,195.00 | June 14, 1930 | | | | 2,200.00 | Sept. 15, 1930 | | | | 2,190.00 | Dec. 15, 1930 | | 362.03 | ........ | .......... | Apr. 14, 1931 | | 614.94 | ........ | .......... | May 19, 1933 | | | 1.58 | .......... | June 14, 1930 | | | 23.22 | .......... | Apr. 14, 1931 | | | 121.90 | .......... | May 19, 1933 1930 ... | 6,805.79 | .......... | ........ | 1,705.79 | Mar. 13, 1931 | | | | 1,700.00 | June 13, 1931 | | | | 1,700.00 | Sept. 14, 1931 | | | | 1,700.00 | Dec. 14, 1931 | | 855.35 | ........ | .......... | June 4, 1932 | | | 65.31 | .......... | June 4, 1932 1931 ... | 932.65 | .......... | ........ | 257.65 | Mar. 11, 1932 | | | | 233.00 | June 15, 1932 | | | | 233.00 | Sept. 15, 1932 | | | | 209.00 | Dec. 14, 1932 | | 505.77 | ........ | .......... | Feb. 23, 1934 | | | 58.24 | .......... | Feb. 23, 1934 --------------------------------------------------------------------------
15. The Commissioner determined over-assessments and allowed refunds or credits as follows:
--------------------------------------------------------------------------------------- | Overassessment | Refunded | | |---------------------|-----------------------| Interest | Date of allowance Year | | | | | paid | | Tax | Interest | Credit | Check | | -----------|----------|----------|----------|------------|----------|------------------ 1925 ..... | $832.99 | ........ | $832.99 | .......... | $186.96 | July 19, 1932 | 1,477.35 | ........ | 564.01 | $913.34 | 670.57 | Feb. 10, 1934 1926 ..... | 76.19 | ........ | ........ | 76.19 | 28.43 | Feb. 10, 1934 1928 ..... | 1,363.71 | $87.47 | ........ | 1,451.18 | 336.87 | Feb. 10, 1934 1929 ..... | 74.34 | 4.77 | ........ | 79.11 | 1.56 | Aug. 3, 1931 | 516.09 | 91.16 | ........ | 607.25 | 28.82 | Feb. 10, 1934 --------------------------------------------------------------------------------------- 16. (a) March 14, 1929, plaintiff filed a claim for refund of $2,624.14 for 1925 and assigned as grounds therefor the following: "That it is entitled to refund of the above taxes because its properties were leased under certain contract and the lessee having made large additions and extensions to property and under this contract they became the property of this corporation and therefore subject to depreciation."(b) June 25, 1932, plaintiff filed a second claim for refund for 1925 of $4,056.99 in which it set out substantially the same ground as that in the previous claim filed for that year, and also sought to amend the first claim by adding thereto the following: "Deponent is also entitled to any adjustment of its depletion account that may be legally allowable by reason of increased valuation at date of acquisition, which may reduce the tax liability."
(c) In the allowance of the overassessment of $832.99 for 1925 on July 19, 1932, referred to in finding 15, the Commissioner denied the contention advanced by plaintiff in the claim for refund of $2,624.14 filed March 14, 1929, but made the allowance on other grounds.
(d) The second claim filed for 1925 referred to in sub-paragraph (b) above was treated by the Commissioner as a request for reopening the rejected claim of $2,624.14, and that request was denied November 29, 1932. However, these claims were further considered by the Commissioner and were rejected on February 10, 1934, but, as shown in finding 15, a further overassessment for 1925 of $1,477.35 was allowed February 10, 1934, on account of the adjustment set out in finding 12.
17. February 10, 1930, plaintiff filed a claim for refund of $2,000 for 1926 on the same ground as that set out in finding 16 (a) for 1925. The Commissioner rejected that claim February 12, 1932. However, subsequent to the rejection of that claim the Commissioner allowed an overassessment for 1926 of $76.19 on February 10, 1934, for the same reason as that set out in finding 12.
18. February 8, 1932, plaintiff filed a claim for refund of $2,551.32 for 1928 on the following ground: "That it is entitled to refund of the above tax because its properties were leased under certain contracts, and the lessee having made large additions and extensions to said property, and under this contract they became by ruling of the court the property of this corporation, or its successor, and therefore subject to depreciation within said taxable year for which refund is claimed. The taxpayer is also entitled to any adjustments of its depletion account that may be legally allowable by reason of increased valuations at date of acquisition, which may reduce the tax liability."
The Commissioner rejected that claim April 11, 1933. However, subsequent to the rejection of that claim the Commissioner on February 10, 1934, allowed a further overassessment of tax for that year of $1,363.71 and of interest in the sum of $87.47 on the grounds set out in finding 12.
19. (a) February 8, 1932, plaintiff filed a claim for refund of $9,167.45 for 1929 on the same ground as that set out in the claim for refund for 1928 referred to in the previous finding.
(b) December 23, 1932, plaintiff filed a second claim for refund of $9,700 for 1929 on the ground that plaintiff was entitled to additional depreciation and depletion deductions on the depreciable and depletable assets acquired at the time of its organization and formerly owned by its predecessor, the Harvey Coal Company, to depreciation on the Hazard-Jellico assets, and to a deduction from income of $2,738.23 representing expenditures of plaintiff in 1929 for rails, frogs, and switches.
(c) The Commissioner rejected the first claim on March 8, 1933, and the second claim on February 10, 1934. However, in connection with action on the latter claim an overassessment of tax in the amount of $516.09 and interest of $91.16 was allowed February 10, 1934, for the reason set out in finding 12.
20. March 11, 1933, plaintiff filed a claim for refund of $7,661.14 for 1930 on grounds generally similar to those set out in finding 19(b) for 1929 except that amount claimed on the last ground referred to in that finding was for a deduction in the amount of $3,484.69 on account of an expenditure for rails, switches, and copper wire. The Commissioner disallowed that claim on a schedule dated March 6, 1934.
21. March 12, 1934, plaintiff filed a claim for refund of $1,438.42 for 1931 on the ground generally that plaintiff was entitled to additional depreciation and depletion deductions on the depreciable and depletable assets acquired at the time of its organization and formerly owned by its predecessor, the Harvey Coal Company, and also to additional depreciation on the Hazard-Jellico assets. The Commissioner rejected that claim July 26, 1934.
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 it was decided by the Board. In such case, it is well settled that the Board's decision is res judicata in this proceeding. Tait v. Western Maryland Railway Co., supra.
It is also said the Board's decision on the rate of depreciation is res judicata. The Board found the assets had a useful life of ten years. This means, of course, if subjected to the use such as that to which they were put in the period in question. Obviously, if during the period now before us they were put to a more intensive use, the depreciation would be greater. But there is no proof before us that the use in one period differed from that in the other. In such case it is to be presumed that the degree of use was the same. The Board has determined that based on this use the life of the assets was ten years. We are bound in this proceeding by that determination.
The Board disallowed the plaintiff's claim for depreciation on the Hazard-Jellico assets for the last two months of 1924, because it said that there was no evidence before it as to the cost of these assets to petitioner, and it was not shown that the petitioner was in fact the owner of the assets. "In such a situation," said the Board, "we are precluded from allowing petitioner any deduction for depreciation upon such assets." This also is said to be res judicata, and to preclude the plaintiff in this proceeding from introducing evidence to show that it owned the assets and their cost.
Had the Board determined in the prior proceeding plaintiff's base for depreciation, and were the causes of action before us the same as the one before the Board, this proposition would be correct. It is incumbent on plaintiff in a proceeding to advance all grounds and to introduce all evidence necessary to support its claim, and its failure to do so does not relieve it of the estoppel of the former judgment in a subsequent suit on the same cause of action. Baltimore Steamship Co. v. Phillips, 274 U.S. 316, 47 S.Ct. 600, 71 L. Ed. 1069; Chicot County Drainage District v. Baxter State Bank, 308 U.S. 371, 60 S.Ct. 317, 84 L.Ed. 329; George H. Thompson v. Washington National Bank, 68 Wn. 42, 122 P. 606, 39 L.R.A., N.S., 972, and note to this case. But where the causes of action are different, although the parties are the same, the former judgment is res judicata only as to questions presented and decided in the former proceeding; nor is the plaintiff precluded in the second action from furnishing additional evidence to support its demand, at least where the question presented has not been determined on account of the absence of necessary proof.
In Twin Cities Properties, Inc., v. United States, 90 Ct.Cl. 119, we had before us a suit for rent under a lease for the period from July 1, 1935, to December 31, 1938; and we had formerly had before us a suit for rent under the same lease for a prior period, for which we had given judgment. We held that the defendant was not precluded from raising defenses in the second suit which it had not raised in the first, since the causes of action were different, citing, among other cases, Cromwell v. County of Sac, 94 U.S. 351, 24 L.Ed. 195, where this question is fully discussed.
In Tait v. Western Maryland Railway Co., supra, a tax suit involving amortization of discount on bonds, the court discussed the petitioner's suggestion that he was not bound by a former decision on the same question for a prior year, because "significant facts were stipulated in the present case which were not made to appear in the former proceeding." [ 289 U.S. 620, 53 S.Ct. 708, 77 L.Ed. 1405.] The Court found that the facts in the two proceedings were the same, but clearly indicated that had they been different, the former judgment would not have been res judicata. It said: "The petitioner may not escape the effect of the earlier judgment as an estoppel by showing an inadvertent or erroneous concession as to the materiality, bearing or significance of the facts, provided, as is the case here, the facts and the questions presented on those facts were before the court when it rendered its judgment." [Italics ours.]
Where the causes of action are the same, plaintiff on the second trial will not be permitted to introduce additional or even newly discovered evidence, because, this would be in effect a rehearing of a case already tried by a tribunal of concurrent jurisdiction. But where the causes of action are different, and the question presented has not been decided on account of a failure of proof, the plaintiff has not had its day in court and, therefore, may present any additional evidence it may find to support its claim.
It is evident from a reading of the opinion of the Board of Tax Appeals in this case that the plaintiff in introducing its proof proceeded upon the theory that the transaction between it and the Harvey Coal Company was a nontaxable reorganization, because proof seems to have been introduced as to the cost of these assets to its predecessor, the Harvey Coal Company, but no proof was introduced as to the cost of them to the plaintiff. The Board, however, held that the transaction was not a reorganization and, therefore, that the question was the cost of the assets to the plaintiff, and not their cost to its predecessor. The plaintiff, having taken a different view of the transaction, had introduced no such proof and, therefore, and for this reason only, its claim for depreciation was denied. It would be manifestly inequitable to hold that under such circumstances this would preclude it from introducing proof of such cost in a suit to recover taxes for later years.
We hold, accordingly, that the decision of the Board of Tax Appeals is not res judicata as to the cost of these assets to petitioner. Depreciation on them will be allowed based on a cost of $139,204.93 and a remaining useful life of fifteen years.
The defendant says that the plaintiff abandoned certain assets in 1925, 1926, and 1927, and that the depreciation subsequently allowed on these assets should now be restored to income. We think this is correct.
As stated above, the plaintiff acquired the assets of the Harvey Coal Company in return for its stock and the assumption of liabilities amounting to $52,086.16. The Commissioner pro rated this sum over the fifty-five months remaining of the Hazard-Jellico Coal Company lease and allowed plaintiff a deduction accordingly in each year. This was erroneous. Whatever amount has been deducted for the years in question on account of the assumption of these liabilities of $52,086.16 will be restored to plaintiff's income for the proper year.
Entry of judgment will be delayed until the filing of a stipulation by the parties, or in the absence of a stipulation, until the incoming of a report by a commissioner as to the correct amound due plaintiff, if any, computed in accordance with this opinion. It is so ordered.