1927 BTA LEXIS 3355 | B.T.A. | 1927
Lead Opinion
From 1895 to 1904 petitioner sold its bonds at a premium. Those bonds are not yet due. It is the contention of the Commissioner that the premium received must be allocated over the life of the bonds and an aliquot part included in income each year during their life. The converse of the instant case, where bonds were sold at a discount and it was sought to amortize such discount over their life, has been passed upon by the courts in several cases, in each of which it was held that no such amortization was allowable as a deduction from income. Baldwin Locomotive Works v. McCoach, 221 Fed. 59; 1 Am. Fed. Tax Rep. 450; Chicago & Alton Railroad Co. v. United States, 53 Ct. Cls. 41; 3 Am. Fed. Tax Rep. 3385. A similar conclusion was reached by the Supreme Court in New York Life Insurance Co. v. Edwards, 271 U. S. 109, where it refused to allow a purchaser of bonds to amortize a premium paid on their purchase. See also Corn Exchange Bank v. Commissioner, 6 B. T. A. 158.
The same principles which governed those cases would appear to govern the decision here. The amortization of the premium on the bonds may be desirable and may be material in keeping accounts for rate-making purposes, but at most it is a matter of accounting and can not give rise to income where no transaction has occurred during the taxable year with reference to the sale, purchase, or payment of the bonds. We therefore reach the conclusion that the Commissioner erred in treating the amount of the amortization as income.
Without objection on the part of counsel for the respondent, counsel for the petitioner introduced evidence with respect to certain matters not within the issues framed by the pleadings, the decision of which issues would be controlled by the decisions of the Board in the Appeals of New York, Ontario & Western Railway Co., 1 B. T. A. 1172, and Providence & Worcester Railroad Co., 5 B. T. A. 1186. While presenting such proof counsel carefully refrained from amending the pleadings to raise any issue with respect to such facts and in their brief counsel for the petitioners state that they reserve their rights under such facts until after the courts have passed upon the decision of the Board in the latter case. We have confined our decision to the issues presented by the pleadings. There is no deficiency.
Decision will he entered accordingly.