Lead Opinion
OPINION.
While the specified factual distinction
That Court takes occasion to issue what we can not but view as a warning when it notes that “As material amounts of capital were investеd in stock, we need not consider the effect of extreme situations such as nominal stock investments and an obviously excessive debt structure.” (
The maturity date of the present dеbenture also constitutes an element distinguishing it from Kelley Co. The latter is characterized in the Supreme Court opinion as “a definite maturity date in the reаsonable future.” (321U. S. at p. 526.) But we are dealing here with a 99-year obligation issued by a corporation whose principal asset is urged by petitioner, in a diffеrent connection, as having an anticipated life at the time of acquisition of less than a third of that span. It must be seriously doubtful, to say the least, whether suсh a maturity date, definite though it may be, can be thought of as falling “in the reasonable future.”
But there is, in addition, a compelling reason why this security should be treated as comparable to stock rather than indebtedness. Subsequent to its decisions in the Talbot Mills and Kelley Co. cases, this Court decided Broadway Corporation,
* ⅜ * No loan was made to the corporation by the owners, either оf property or of money *"" * *. The entire contribution was a capital contribution rather than a loan * * *. The distribution of the rent income, whether callеd interest or principal on debentures or dividends on shares, would go to the same persons * * *.
* * * these securities are more nearly like preferred stock than indebtedness * * *. It is idle to argue that the debentures were transferable and must therefore be judged separately from the shares, for they were issued tо the same persons as held the shares, and in the same proportions, and they were not in fact transferred * * * Interest is payment for the use of anothеr’s money which has been borrowed, but it cannot be applied to this corporation’s payment or accruals, since no principal amount had been borrowed from the debenture holders and it was not paying for the use of money, [pp. 1165,1166.]
Except taxwise, every advantage said to have been sought from the security in the proceeding at bar could have been attained through an equivalent issue of preferred stock. See Ticker Publishing Co., 46 B. T. A. 399. In all but nаme this was redeemable preferred stock and nomenclature is not controlling. Charles L. Huisking & Co.,
On the second issue, respondent is now “willing to concede * * * that some depreciation is allowablе. Charles Bertram Currier, et ux. (1946),
The third issue involves the abnormality for excess profits tax purposes of a payment received by petitioner upon cancellation by its tenant of a lease with a subtenant. Petitioner’s consent was required and the payment in question was the price of that consent. The precise question is the applicability of section 721 (a) (2) (E), referring to “abnormal income” of the “class”: “In the case of a lessor of real property, income included in gross income for the taxable year by reason of the termination of the lease.”
The insuрerable objection to allowance of this claim seems to us to be petitioner’s failure to show either that “it is abnormal for the taxpayer tо derive income of that class” or that the amount received in the tax year was abnormally high. One or the other is necessary. See Rochester Buttоn Co.,
It is, finally, insisted by petitioner that borrowed capital may be increased to include the “debenture” discussed under the first issue. What we said there disposes of that contention, the issues being comparable, as is virtuаlly conceded by petitioner. But, although not so presented by either party, it seems to us that equity invested capital may be correspondingly increаsed. In Broadxoay Corporation, cited supra, first issue, it was ruled that:
* * * The present decision * * * requires the inclusion in equity invested capital of the value of the property paid in for the pseudo debentures as if such payment had been in form as well as substance paid in for preferred shares. [Emphasis added.]
And respondent, in his deficiency notice, increased this amount from $200 to $52,500, apparently fixing that amount as the figure because “you have not established a value in excess of $52,500.00 for the property * * (Emphasis added.) Since the parties now agree that the equity turned in to the corporation for the issuаnce of its securities had a value of “at least $250,200,” it seems that an appropriate further adjustment should be made.
Reviewed by the Court.
Decision will he entered under Rule 50.
Notes
“Although the obligations of the two taxрayers had only one striking difference, the noncumulative in one and the cumulative quality in the other of the payments reserved under the characterization of interest, the Tax Court « * * held that the payments under the former, the Kelley Company, case, were interest and under the Talbot Mills were dividends.” [