Morrison, Gross & Co. v. Commissioner

*685OPINION.

The petitioner contends that the respondent erred in disallowing as a deduction from gross income for the year 1920 the amount of $2,470.29 of the total amount of $4,205.44, taken as depreciation on a tractor owned by it and used in its business. In sup*686port of its contention the petitioner urges that the tractor had in fact depreciated in the amount of $4,205.44, during the seven months of the year 1920, while it was used in its lumber business, and it further urges that, if the tractor had not in fact depreciated to the extent alleged, then the petitioner suffered in the year 1920 on account of the loss of useful value of the tractor, a loss in the amount of $4,205.44, being the difference between the cost thereof and the estimated salvage value of $1,000.

With respect to the petitioner’s claim that the tractor had in fact depreciated to the extent of its alleged salvage value, we -must hold that the facts do not substantiate that contention. The amount of $2,000 expended for repairs on the tractor during 1920, the year of purchase, was of course, a proper deduction as a business expense. According to the undisputed facts in the year 1922, the amount of $1,100 if expended for repairs would have put the tractor in proper operating shape. If, then, this amount would have restored it to proper shape in 1922, two years after it is claimed that the tractor had depreciated in the amount alleged, we can not agree that it had depreciated in an amount of approximately four-fifths of its cost-in the first year of use. There is nothing to show that, in connection with the repairs made on it, its life would have been less than three years, the life placed on it by the respondent for the purpose of depreciation. The mere fact that the then market value of the tractor had decreased materially does not in any way substantiate the contention that the tractor had in fact depreciated to its estimated salvage value. We therefore approve the action of the Commissioner in this respect.

Considering the petitioner’s contention that by reason of the loss of useful value of the tractor it suffered a loss in 1920 of the amount of $4,205.44, if depreciation was not sustained in that amount, we must hold that, in our opinion, the facts do not support that contention.

We have heretofore held that when capital assets of a business are discarded as a result of changes in business conditions, the petitioner may deduct in such year the difference between the depreciated cost and the salvage value of the assets discarded. Appeal of Dilling Cotton Mills, 2 B. T. A. 127; Appeal of Automatic Transportation Co., 3 B. T. A. 505; Appeal of Sheridan Coal Co., 4 B. T. A. 563. In each of those appeals, the Board found it to be a fact that such capital assets were discarded permanently.

As stipulated in this proceeding the tractor alleged to have been abandoned in the year 1920, was again used m the succeeding year as a stationary power plant. The facts conclusively show that the tractor had not become obsolete, as that term is accepted, but that on account of a decline in the price of lumber in 1920 it was no *687longer profitable to use the tractor for hauling logs. The subsequent use of the tractor in 1921 for a purpose for which it was properly fitted, precludes us from holding that it had lost its useful value in the year 1920.

The determination of the respondent in allowing depreciation at the rate of 33% per cent annually on the cost of the tractor is therefore approved.

Judgment will be entered for the respondent.