Quito Electric Light & Power Co. v. Commissioner

*538 The taxes in controversy are income and profits taxes for the year 1919 in the amount of $9,694.79.

The following errors on the part of the respondent are alleged in the computation of taxes for the year in question: (1) The rate of depreciation allowed, whereby respondent added to net income reported a determination of excessive depreciation in the sum of $18,060.61; (2) the use by respondent, for computing depreciation, of the amounts of the taxpayer's book values, in sucres, of the property, and the conversion of said sucre amounts into United States dollars at some rate of exchange; (3) the addition to net income reported of the sum of $13,896.56, *4085 representing a claim of petitioner against the Government of Ecuador and the disallowance thereof as a deduction from income.

FINDINGS OF FACT.

The petitioner is a New Jersey corporation, with its principal office at No. 43 Cedar Street, New York City. It is stipulated between *539 the parties that the proper rates of depreciation upon the properties of the taxpayer for the year 1919 are as follows:

Dams and canals - 3% on 50% of the total investment in this account.

Pipe lines, penstocks, transformer stations, etc. - 6 1/2% and 50% of the total investment in the account for dams and canals.

Hydraulic and electric machinery - 6 1/2%.

Office furniture, fixtures and tools - 10%.

Buildings - 4%.

Transmission line - 6 1/2%.

It is further stipulated that the cost in dollars of the assets of the petitioner upon which depreciation is to be figured is the cost in dollars as set forth and as used by the respondent in his 60-day letter dated October 23, 1925, such cost being as follows:

*4086 The petitioner instituted a law suit against the Government of Ecuador before the Justice of the Third District in the year 1911, alleging that in 1911, during a revolution, certain property of the petitioner, located in or around Quito, Ecuador, was damaged or destroyed by armed parties, and that the Government of Ecuador was liable. The court appointed a committee to ascertain the damage sustained by the petitioner and the report of said committee showed that the damage was as follows (in terms of sucres and centavos):

The court rendered a decision in favor of the petitioner in this amount, but upon appeal to the Superior Court of Quito, the judgment was reversed on March 10, 1913.

OPINION.

SIEFKIN: In view of the fact that the value of the property of the petitioner upon which depreciation should be taken and the rates of such depreciation have been stipulated between*4087 the parties, as set forth in the findings of fact, the amount of such allowance for depreciation should be computed in conformity therewith.

*540 The only remaining question to be determined is whether a claim of petitioner against the Government of Ecuador should be deducted from income for the year 1919.

It was shown that damage to property to the extent of 27,016 sucres, 58 centavos was sustained by the petitioner as a result of a revolution in Ecuador in 1911. Suit was entered against the Government of Ecuador, but the case was finally disposed of in favor of the Government of Ecuador on March 10, 1913.

Section 234(a) of the Revenue Act of 1918 states:

That in computing the net income of a corporation subject to the tax imposed by section 230 there shall be allowed as deductions:

* * *

(4) Losses sustained during the taxable year and not compensated for by insurance or otherwise.

In this proceeding the evidence shows that the loss occurred in 1911, and that the petitioner's law suit against the Government of Ecuador culminated adversely to the petitioner in 1913. No evidence is adduced to show that the loss was sustained in 1919, nor is there any evidence*4088 to show that any debt was owing to the petitioner which would justify a charging off as a bad debt. See . We, therefore, hold that it was not deductible from income in the year 1919.

Judgment will be entered on 15 days' notice, under Rule 50.