Petition for Review of Order of United States Board of Tax Appeals.
Before ALSCHULER, PAGE, and SPARKS, Circuit Judges.
Petitioner is a Wisconsin corporation organized in 1882, and since its organization has been engaged in the business of manufacturing tin and japanned sheet metal, galvanized ware, and metal stampings. Its books of accounts showed its invested capital and surplus, a part of which consisted of physical assets of buildings, machinery, tools and dies, factory fixtures and equipment, and automobiles. The company's investment in these assets was shown, and the accounts also showed depreciation reserves and sinking fund accounts representing the amount of accrued depreciation of these assets as determined by the company. In the years prior to 1918 petitioner charged off depreciation on these physical assets at varying rates. This was done for the reason that replacements of machinery parts, prompt and adequate repairs, and careful attention in various years arrested the ordinary depreciation, and kept the machinery in proper condition and prolonged its useful life. The cost of such repairs and replacements was not charged to capital investment, but, on the contrary, was charged to operating expense; and at the time petitioner made its return, and subsequently at the hearing, it was absolutely impossible to determine how much petitioner had expended for such repairs and replacements during the previous years of the company's existence.
The record of depreciation sustained on buildings was entered in an account called depreciation account; that of machinery, tools, dies, and other equipment, was entered in the sinking fund account. Mr. Frey, petitioner's secretary and treasurer, who had been connected with the company since 1882, fixed the rates of depreciation for the years 1918 and 1919, and also during the years previous to 1918. He also testified to petitioner's capital accounts for the assets in controversy and the depreciation reserves, and his figures are as follows:
Buildings $511,148.37 $38,249.09 7.5%
Machinery 311,730.32 88,347.01 28.3%
Tools and Dies 199,864.77 89,060.83 44.6%
and Equipment 111,674.47 55,842.46 ...