have been derived had Charles remained at the helm. Such proof is crucial to relief under (b) (4). Robertson Factories, supra. The precise date of William's rise to power has not been pinpointed. By any interpretation, such ascension must be deemed to have been completed by 1938 when, upon Anton's death, William became titular as well as actual head of petitioner. Yet, this event was not paralleled or followed by any unusual increase in earnings or production beyond what might be attributable to the general economic recovery. National Screw & Manufacturing Co., supra at 510. In fact in 1939 petitioner's recovery was slower than that of the industries most comparable to it as revealed by the indices set forth in our findings. Only the advent of World War II and the concomitant large increase in repetitive quantity orders from Government agencies and contractors enabled petitioner to restore its growth rate to equal that of the general economy. (See discussion under "Change in Capacity.") 4. Change in Capacity-722 (b) (4).—We have no doubt that petitioner's extensive improvements contributed to a general increase in plant efficiency. Their major purposes were to permit quicker handling of materials with consequent savings in time and labor; to enable better temperature control in the furnaces, thereby reducing internal rupture and cracking; to permit finer machining in order to meet the specifications of customers who were continually demanding closer tolerances. These changes were imperative if petitioner was to maintain its competitive position.13 The record supports the conclusion that this consideration furnished the motivation for the improvements. Whether or not these improvements effected any absolute cost saving or profit increase is, to say the least, conjectural,' and relief could well be denied simply upon petitioner's failure to adduce such proof. 14 However, we may here place our denial of relief upon a more fundamental ground. The statute is concerned with increases in "capacity for production" rather than with routine changes or mere improvements in efficiency. Suburban Transportation System, 14 T.C. 823, 833 (1950); Newburgh Transfer, Inc., 17 T.C. 841 (1951); Triangle Raincoat Co., 19 T.C. 548, 566-567 (1952); Napco Industries, Inc., 30 T.C. 198 (1958). The two concepts of course are often interrelated. For example, here the labor and timesaving devices, princi 13 This position was of course enhanced by the near monopoly which the special patents and their renewals enabled it to enjoy in the die block field. However, there was keen competition with Heppenstall, the licensee of the same patents, and of course always the possibility of competition with producers of other types of die blocks from inferior quality alloy steels. 14 We observe that despite generally rising prices (per pound) for petitioner's production, the cost-price squeeze prevented petitioner from increasing its profit margin during the base period. Thus, petitioner's operating profit per pound in 1939 was identical to that earned in 1935 even though (1) 1939 production was higher, and (2) petitioner's product mix was more favorable in 1939 because it included a greater percentage of the high-profit die blocks and a smaller percentage of the unprofitable locomotive forgings. These observations lead us to doubt whether the plant improvements actually resulted in better profits. pally the manipulators, permitted petitioner to bring its production from the processing departments to the hammers and presses for forging more expeditiously. We therefore agree with petitioner that such improvements could increase capacity. The difficulty with petitioner's position, however, is that there is no proof that actual capacity was increased. In 1929 petitioner produced more pounds than in any year during the base period. It may be that due to increased finishing in the later year, the production in terms of number of units was greater in, say, 1937 than in 1929 but petitioner has not furnished us with any ratio or table of equivalents by which we can convert pounds into units for any period.15 In this aspect the case resembles Farmers Creamery Co. of Fredericksburg, Va., 18 T.C. 241 (1952), where we had occasion to observe with reference to the taxpayer's claimed increase in capacity (p. 253): And aside from any inferences we may draw from the "changes" themselves little remains in the record as a possible source of support for petitioner's claim. It introduced no evidence whatever in quantitative terms, based on some acceptable standard of measurement, as to the productive capacity of the plant before and after the "changes" were made, and it has failed to show in this manner that actually its productive capacity was affected to a substantial extent. Such evidence can reasonably be assumed to have been available to petitioner, and the omission in its proof in this regard may properly be taken to signify a lack of merit in its position. Cf. Wichita Terminal Elevator Co., 6 T.C. 1158, 1165, affd. (C.A. 10) 162 F. 2d 513. * Thus, the best that we can do is to compare base period pounds with 1929 pounds. Furthermore, we know that most of the increased machining occurred only when Government orders became the major phase of petitioner's business. Thus the significance of the increased machining insofar as it affects the quantity of production is comparatively slight during the base period. By the usual standards, the conclusion that petitioner experienced no increase in capacity during the base period seems inescapable. Moreover, the basic changes alleged to have created the increased capacity were mostly completed by 1937 and yet in 1938 and 1939 production was well behind even the 1936 level. Petitioner's business, owing to its essential characteristics was wont to anticipate general recoveries in business (see, e.g., 1934 and 1935); however, its rate 15 See footnote 7. Petitioner as much as concedes the absence of such proof on reply brief where it states: "We would love to be able to show the loss of weight by increased machining in 1939 over 1935 but cannot do so without indulging in rank fancy. The absence of a source of records that would prove to a mathematical certainty a given figure does not prevent the Court from using its experienced and mature judgment ascertained from the facts available." Apparently petitioner has reference to the doctrine of Cohan v. Commissioner, 39 F. 2d 540 (C.A. 2, 1930), but we are given absolutely no facts or even approximations upon which to base the desired estimates. Any estimate we might make upon such a dearth of information would be sheer guesswork. William himself testified to the effect that base period capacity was almost impossible to estimate, and that ratio of pounds to units was never constant. of recovery after the 1938 recession was considerably slower than might have been expected based upon prior experience.16 These considerations indicate an absence of increased capacity within the meaning of 722 (b) (4). See National Grinding Wheel Co., 8 T.C. 1278, 1285 (1947); cf. National Screw & Manufacturing Co., supra at 510. Nor is a mere theoretical increase in capacity sufficient to entitle a taxpayer to relief under (b) (4). Rather, our task is to ascertain how volume and earnings would have reacted if the alleged capacity increase had been in use 2 years earlier. Stated otherwise, we must decide whether there would have been sufficient demand during the base period to absorb the additional production which would be made possible by the alleged increased capacity. Unless we can supply an affirmative answer to such inquiry, we must deny relief. National Grinding Wheel Co., supra; Green Spring Dairy, Inc., 18 T.C. 217, 238 (1952); Farmers Creamery Co. of Fredericksburg, Va., supra at 255; Patent Button Co. of Tennessee, 27 T.C. 471, 478 (1956); Coats & Clark, Inc., 35 T.C. 113, 134 (1960). On the record before us we are compelled to give a negative answer. As respondent has amply demonstrated on brief, the large upsurge in petitioner's volume (in pounds) occurred only when such customers as Alcoa, Falk Corporation, Kearney Trecker Corporation, and Watervliet Arsenal commenced receiving orders for materials and supplies essential to the war effort. Petitioner argues in rebuttal that respondent has failed to establish that this war-induced demand was the occasion for the upturn in petitioner's volume or even that these named customers were concerned primarily with the war effort. The simple answer to this contention is that the burden falls upon petitioner to prove the contrary and petitioner does not even argue that it has done so. Beyond this, however, from the mass of documentary evidence (corroborated indeed by William's testimony) in this case, we have found much support for respondent's position and nothing to refute it. We here have reference to statements contained: (1) In correspondence between and among petitioner, its customers, and various Governmental agencies; and (2) in various submissions by petitioner to Governmental agencies, including those made in connection with renegotiation of Government contracts. It is undisputed that the erection of Plants 3 and 4 was undertaken solely on account of the war effort. We thus accept the respondent's contentions and observe that these increasing Government orders arose predominantly in the high-profit die-block category. This undoubtedly caused the improving profit picture. 16 For example, petitioner's 1939 index number (based on 1935-1939 = 100) was only 99 compared to its 1936 number, 114.5, whereas the 1039 index numbers for both durable and "all manufactures" exceeded their corresponding 1936 number. 676308-63- -58 Even more convincing than the above analysis is the overwhelming evidence garnered largely from petitioner's own witnesses that the influx of war-stimulated orders (such orders being repetitive, larger in size, more standardized, and requiring a greater degree of machining in contrast to peacetime orders) was the essential factor which permitted petitioner's better utilization of its labor force and machinery. When interrogated, on cross-examination, concerning petitioner's productive capacity, William frankly testified: A. To be on the level within, and square it up, why you-you can't give an accurate estimate. You asked me whether I could give you an accurate estimate. Nobody can say they can give you an accurate estimate,-I told you be fore your product mix and the duplication you get,-to give you an example, in the period you spoke of from '41 on, whereas, one of our main customers in the gear field, we started out making gear production units. And by, during the process of the build-up, the navy came in and said, we'll need five units a month, ten, then, 20, with the same amount of men, the same amount of tools, practically, the same hours of operation. It was astronomical the way we brought that up by developing skill in the men and a little extra attachments here and there in the tooling of these gear units that go into speed production, that go in be tween the terminal and power shaft in the cruiser. Q. So, that, actually your base period production was probably far below the potential production capacity of the plant? A. That is right. That is one reason I say to give an accurate estimate-I could honestly say it is way up there when, in my heart, if I figure I would get up this far, and that would be way above those figures you have there. This testimony from a thoroughly reliable source demonstrates the existence of excess capacity during the base period. We are reinforced in our belief that such excess existed by the circumstance that petitioner operated essentially on but one shift throughout the base period. We believe that the record abounds in affirmative evidence that there would have been no market for any additional production, even assuming it to have been available, throughout the base period. The instant case presents a classic situation for denial of relief under (b) (4) as inconsistent with the stated Congressional purpose in the enactment of the World War II excess profits tax legislation: "the rearmament program should furnish no opportunity for the creation of new war millionaires." H. Rept. No. 2894, 76th Cong., 3d Sess., pp. 1-2; cf. Philadelphia, Germantown & Norristown R.R. Co., 6 T.C. 789, 798 (1946). We are unable to find that there was a change in "capacity for production or operation" during the base period as that concept is employed in the statute. Relief under this aspect of 722 (b) (4) is denied. Reviewed by the Special Division. Decision will be entered for the respondent. L. M. MULDROW AND HELEN B. MULDROW, PETITIONERS, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. Docket No. 79017. Filed September 21, 1962. 1. During the taxable year petitioner, the operator of a cotton warehouse, illegally removed and sold as his own 812 bales of cotton which had been stored by others with him. From such sales, he received $137,642.12, which he deposited as his own in his personal bank account. There is no showing of any recognition, consensual or otherwise, of any obligation to the owners of the cotton for the sales proceeds until after the taking of the cotton was discovered by State warehouse inspectors in 1958. Held, that respondent did not err in failing to exclude the sales proceeds from gross income in his determination of deficiency herein. 2. Held, that petitioner has not shown that his losses from the purchase and sale of cotton futures contracts were ordinary losses, rather than capital losses, as respondent has determined. Maurice F. Bishop, Esq., for the petitioners. William E. McCormick, Esq., for the respondent. The respondent determined a deficiency in income tax against the petitioners for 1955 in the amount of $117,386.81. The questions presented for determination are: (1) Whether the proceeds from the sale of cotton which petitioner illegally removed from his cotton warehouse are includible in his taxable income, and (2) whether a loss of $169,871.78 which petitioner sustained on trading in cotton futures contracts is a capital loss or an ordinary business loss. Several other issues have been settled by stipulation. FINDINGS OF FACT. Some of the facts have been stipulated and are found as stipulated. The petitioners are husband and wife, residing in Jasper, Alabama. They filed a joint income tax return for 1955 with the district director of internal revenue for Alabama. The return was prepared on an accrual basis. L. M. Muldrow will be referred to as petitioner. Helen B. Muldrow is a party to the proceeding only by having filed a joint return with him. In 1955 and for several years prior thereto, petitioner owned and operated a licensed cotton warehouse in Jasper. He operated the warehouse as an individual proprietorship under the name of Jasper Bonded Warehouse. The business consisted of receiving and storing cotton for which he issued negotiable warehouse receipts, under the provisions of Ala. Code tit. 2, art. 34, secs. 504, et seq. (1940). Also, in the course of his operations, he made purchases of cotton for others on a commission basis. During 1955 petitioner operated four separate warehouses. Most of his routine warehouse business, such as receiving, weighing, sampling, |