Appeal of Gauley Mountain Coal Co.

dissenting: The 25 cents per ton under the market price for coal which the taxpayer gave up to the Railway Company, in consideration for the railroad facilities and rights, was in substance the payment for those facilities and rights. Instead of receiving that money, it allowed the railroad to retain it and received the intangible asset in lieu thereof. This, in my opinion, is the acquisition of the intangible asset, that is, the rights in the railroad facilities, for the consideration paid out of earnings. That part of the earnings used in acquiring that asset should be included in earned surplus.

*657OPINION.

: The petition in this appeal contains two allegations of error, one of which was disposed of by stipulation, in accordance with which the taxpayer’s invested capital should be increased in the amount of $234,381.33, as set forth in the findings of fact.

The basis of the other alleged error is the contention of the taxpayer that it should be permitted to include in invested capital the amount of $250,000, representing the difference between the market price of coal and the price at which it supplied coal to the Chesapeake & Ohio Railway Co. during the 10 years following the year 1889.

Section 326 of the Revenue Act of 1918 provides for the inclusion in invested capital of (1) cash paid in for stock; (2) tangible property paid in for stock; (3) paid-in or earned surplus and undivided profits; and (4) intangible property paid in for stock. *658These provisions are surrounded by circumstances with which we are not immediately concerned. Our problem is to determine under which of the above provisions, if any, the taxpayer is entitled to have the amount of $250,000 included in its invested capital. Clearly, it can not be included as cash paid in, as there was no cash involved in the transaction.

Can it be included under the second provision, which relates to tangible property paid in for stock or shares? We think not. The contractual rights which afforded the taxpayer the means for marketing its coal.can, at best, only be considered as an intangible right. Even though these rights operated to the advantage of the taxpayer, they do not come within the provisions of section 326 (a) (4) of the 1918 Act, because they were not paid in for stock or shares.

The principal contention of the taxpayer as to this item is that it should be included in invested capital as earned surplus, on the theory that the sacrifice made in the reduction in price at which it delivered coal to the Railway Company represents a value to be capitalized. The actual result of the contract was that the taxpayer obtained a customer, which, in consideration of the low price which it obtained, constructed a road to receive delivery of coal at the mine. The taxpayer thus gained a certain purchaser for its product and a means of shipping surplus coal mined. What it obtained was really a service and not a capital asset. If any gain accrued to the taxpayer from the construction of the railroad, it was reflected in an increase in the value of its property, and this can not be included in invested capital. LaBelle Iron Works v. United States, 256 U. S. 371.

From the evidence in this appeal, we can not find that the taxpayer embarked anything in the construction of the railroad or risked any of its capital in the enterprise, and we accordingly approve the action of the Commissioner in excluding the claimed amount of $250,000 from the invested capital of the taxpayer,