Rather, they represent nondeductible capital expenditures incurred by petitioner to improve his property and as such must be added to his basis in the property. Sec. 263(a)(1); see Mt. Morris Drive-In Theatre Co. v. Commissioner, 238 F.2d 85, 86 (6th Cir. 1956), affg. per curiam 25 T.C. 272 (1955). Therefore, to the extent petitioner improved his own property by installing the box culvert and related facilities, his expenditures must be capitalized; to the extent that petitioner gratuitously benefited the City by providing permanent rather than temporary drainage facilities in Shook's Run, and by conveying the easements, he is entitled to a charitable contribution deduction.
The foregoing rationale is equally dispositive of petitioner's further claim that such expenditures constitute an ordinary and necessary business expense under section 162(a). Compare Mt. Morris Drive-In Theatre Co., 25 T.C. 272 (1655), affirmed per curiam 238 F.2d 85 (C.A. 6, 1956); Hotel Sulgrave, Inc., 21 T.C. 619 (1954). In this connection, we note, without expressing an opinion with respect thereto, that petitioner offered no evidence as to its prior practice or the practice of the industry with respect to expenditures such as are involved herein.
The decisive test is the character of the transaction which gave rise to the payment. American Envelope Co., supra; Colony Coal & Coke Corporation, 20 B.T.A. 326, affd. 52 F.2d 923; Hales-Mullaly, Inc. v. Commissioner, 131 F.2d 509; Mt. Morris Drive-In Theatre Co., 25 T.C. 272, affirmed per curiam 238 F.2d 85. It is undisputed that during the years involved television licenses were granted for 3-year periods.
Petitioner accepts the rule that the decisive test is the character of the transaction which gives rise to the payment. Colony Coal & Coke Corporation, 20 B.T.A. 326, affd. 52 F.2d 923; Hales-Mullaly, Inc. v. Commissioner, 131 F.2d 509, 512; Mt. Morris Drive-in Theatre Co., 25 T.C. 272, affirmed per curiam 238 F.2d 85. The record establishes that petitioner and Sandy Hill entered into a contract whereby the latter was to rebuild and reconstruct a paper machine.