lector of internal revenue, to whom any payment of any taxes other than the tax represented by an adhesive stamp or other engraved stamp is made under the provisions of this Act, to give the person making such payment a full written or printed receipt, expressing the amount paid and the particular account for which such payment was made; and whenever such payment is made such collector shall, if required, give a separate receipt for each tax paid by any debtor, on account of payments made to or to be made by him to separate creditors in such form that such debtor can conveniently produce the same separately to his several creditors in satisfaction of their respective demands to the amounts specified in such receipts; and such receipts shall be sufficient evidence in favor of such debtor, to justify him in withholding the amount therein expressed from his next payment to his creditor; but such creditor may, upon giving to his debtor a full written receipt, acknowledging the payment to him of whatever sum may be actually paid, and accepting the amount of tax paid as aforesaid (specifying the same) as a further satisfaction of the debt to that amount, require the surrender to him of such collector's receipt. SEC. 72. All Acts and parts of Acts incon

sistent with the provisions of this Act are hereby repealed, but the repeal of existing laws or modifications thereof embraced in this Act shall not affect any act done, or any right accruing or accrued, or any suit or proceeding had or commenced in any civil cause before the said repeal or modifications; but all rights and liabilities under said laws shall continue and may be enforced in the same manner as if said repeal or modifications had not been made. Any offenses committed and all penalties or forfeitures or liabilities incurred prior to the passage of this Act under any statute embraced in or changed, modified, or repealed by this Act may be prosecuted or punished in the same manner and with the same effect as if this Act had not been passed. All Acts of limitation, whether applicable to civil causes and proceedings or to the prosecution of offenses or for the recovery of penalties or forfeitures embraced in or modified, changed, or repealed by this Act shall not be affected thereby; and all suits, proceedings, or prosecutions, whether civil or criminal, for causes arising or acts done or committed prior to the passage of this Act, may be commenced and prosecuted within the same time and with the same effect as if this Act had not been passed.

ACT OF AUGUST 5, 1909

An Act To provide revenue, equalize duties and encourage the industries of the United States, and for other purposes.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

CHAPTER 7.

SEC. 38. That every corporation,522 joint-stock company523 or association, organized for profit and having a capital stock represented by shares,52 and every insurance company, now or

522 Sec. 38, Act of 1909, did not apply to corporations in receivership. U. S. v. Wh.tridge et al., (1913) 231 U. S. 144, affirming Penn. Steel Co. v. N. Y. City Ry. Co., Morton Trust Co. v. Metropolitan St. Ry. Co., Guaranty Trust Co. of N. Y. v. Metropolitan St. Ry. Co., and Central Trust Co. v. Third Ave. R. R. Co., et al., (C. C. A., Second Cir. 1912) 198 Fed. 774, and Id., (D. C., S. D. N. Y. 1912) 193 Fed. 286, and Id., (C. C., S. D. N. Y. 1910) 176 Fed. 471.

523 (a) Joint stock companies and associations were properly classified with corporations under Sec. 38, Act of 1909. Flint v. Stone-Tracy Co., (1911) 220 U. S.

107.

523 (b) An unincorporated association or partnership, formed by agreement of its members under the common law of the State of New York and not under a statute of any state, receiving no charter from the state, but enjoying certain privileges under the stat

utes of the State of New York which were not enjoyed by such organizations at common law, was taxable as a joint stock company under the Act of 1909. Roberts v. Anderson (Col.), (C. C. A., Second Cir. 1915) 226 Fed. 7.

524 A public utility corporation "organized for profit and having a capital stock represented by shares" is not distinguishable from other business corporations under Sec. 38, Act of 1909. Union Hollywood Water Co. v. Carter (Col.), (C. C. A., Ninth Cir. 1917) 238 Fed. 329.

525 To be taxable under Sec. 38, Act of 1909, it was necessary that an association be organized under a statute of the United States, State or Territory thereof; therefore, a real estate trust created by deed under the common law of the State was not taxable. Eliot v. Freeman, (1911) 220 U. S. 178.

526 (a) The uniformity required by the Federal Constitution in the laying of excise taxes is a geographical uniformity. Flint v. Stone-Tracy Co., (1911) 220 U. S. 107; Camp Bird Ltd. v. Howbert (Col.), (C. C. A., Eighth Cir. 1918) 249 Fed. 27; N. Y., N. H. & H. R. R. Co. v. U. S., (C. C. A., Second Cir. 1920) 269 Fed. 907.

526 (b) The tax imposed by Sec. 38, Act of 1909, did not take property without due process of law." Flint v. Stone-Tracy Co., (1911) 220 Ù. S. 107.

526 (c) The tax imposed by Sec. 38, Act of 1909, was not a direct tax on the franchise or the property of the corporation, but an excise on the privilege of doing business in a corporate capacity. Flint v. StoneTracy Co., (1911) 220 U. S. 107; U. S. v. Whitridge, et al., (1913) 231 U. S. 144, affirming Penn. Steel Co. v. N. Y. City Ry. Co., (C. C. A., Second Cir. 1912) 198 Fed. 774, and Id., (D. C., S. D. N. Y. 1912) 193 Fed. 286; Stratton's Independence, Ltd. v. Howbert (Col.), (1913) 231 U. S. 399, affirming Id., (C. C. A., Eighth Cir. 1914) 211 Fed. 1023, and Id., (D. C., D. Colo. 1912) 207 Fed. 419; Anderson (Col.), v. Morris & E. Ry. Co., (C. C. A., Second Cir. 1914) 216 Fed. 83; Nat'l Bank of Commerce v. Allen, (C. C. A., Eighth Cir. 1915) 223 Fed. 472; Phila. Traction Co. v. McCoach (Col.), (D. C., E. D. Penn. 1915) 224 Fed. 800; Blalock (Col.) v. Georgia Ry. & Electric Co., (C. C. A., Fifth Cir. 1915) 228 Fed. 296; Anderson (Col.) v. Forty-two Broadway, (1915) 239 U. S. 69; Biwabik Mining Co. v. U. S., (C. C. A., Sixth Cir. 1917) 242 Fed. 9; Hays (Col.) v. Gauley Mountain Coal Co., (1918) 247 U. S. 189; U. S. v. Oregon R. & Navigation Co., (C. C. A., Second Cir. 1918) 251 Fed. 211; Doyle (Col.) v. Mitchell Bros. Co., (1918) 247 U. S. 179; U. S. v. Phila. B. & W. Ry. Co., (D. C., E. D. Penn. 1920) 262 Fed. 188.

526 (d) The tax imposed by Sec. 38, Act of 1909, which differentiated between certain classes of corporations and individuals by exempting some was "uniform" within the meaning of the Federal Constitution, that requirement being a geographical uniformity. Flint v. Stone-Tracy Co., (1911) 220 U. S. 107; Camp Bird Ltd. v. Howbert (Col.), (C. C. A., Eighth Cir. 1918) 249 Fed. 27; N. Y., N. H., & H. R. R. Co. v. U. S., (C. C. A., Second Cir. 1920) 269 Fed. 907.

527 (a) A corporation which leased its property to another, to be operated and maintained by the lessee, the lessor discontinuing activities, and only maintaining its corporate existence, was not thereafter "doing business" under Sec. 38, Act of 1909, although (1) it collected rents from the lessee and distributed dividends to its stockholders, or (2) the lessee paid the rents directly to the stockholders of the lessor corporation in accordance with the terms of the leasing agreement. Zonne v. Minneapolis Syndicate, (1911) 220 U. S. 187; McCoach (Col.) v. Mine Hill & S. H. R. R. Co., (1913) 228 U. S. 295, affirming Id., (C. C., E. D. Penn. 1912) 192 Fed. 670; U. S. v. Nipissing Mines Co., (C. C. A., Second Cir. 1913) 206 Fed. 431; WilkesBarre & W. Va. Traction Co. v. Davis (Col.), (D. C., M. D. Penn. 1914) 214 Fed. 511; Anderson (Col.) v. Morris & E. Ry. Co., (C. C. A., Second Cir. 1914) 216 Fed. 83; Maxwell v. Abrast Realty Co., (C. C. A., Second Cir. 1914) 218 Fed. 457, affirming Id., (D. C., E. D. N. Y. 1913) 206 Fed. 333; N. Y. Cent. & H. R. R. Co., et al. v. Gill (Col.), (C. C. A., First Cir. 1915) 219 Fed. 184; Public Service Ry. Co. v. Herold, (D. C., D. N. J. 1915) 219 Fed. 301; U. S. v. Emery, Bird, Thayer Realty Co., (1915) 237 U. S. 28, affirming Id., (D. C., W. D. Mo., W. D. 1912) 198 Fed. 242; Lewellyn (Col.) v. Pittsburgh, B. & L. E. R. Co., (C. C. A., Third Cir. 1915) 222 Fed. 177; Miller (Col.) v. Snake River Valley Ry. Co., (C. C. A., Ninth Cir. 1915) 223 Fed. 946; Traction Cos. v. Collectors, (C. C. A., Sixth Cir. 1915) 223 Fed. 984;

McCoach (Col.) v. Continental Pass. Ry. Co. of Phila., (C. C. A., Third Cir. 1916) 233 Fed. 976, affirming Phila. Traction Co. v. McCoach (Col.), (D. C., E. D. Penn. 1915) 224 Fed. 800; Cambria Steel Co. v. McCoach (Col.), (D. C., E. D. Penn. 1915) 225 Fed. 278; Public Service Gas Co. v. Herold, (D. C., D. N. J. 1915) 227 Fed. 496; Public Service Ry. Co. v. Herold, (D. C., D. N. J. 1915) 227 Fed. 500; Waterbury Gas Light Co. v. Walsh (Col.), (D. C., D. Conn. 1915) 228 Fed. 54; State Line & S. Ry. Co. v. Davis, (D. C., M. D. Penn. 1915) 228 Fed. 246; Public Service Ry. Co. v. Herold, (C. C. A., Third Cir. 1916) 229 Fed. 902, reversing [Public Service Electric Co. v. Herold, (D. C., D. N. J. 1915) 227 Fed. 486; Public Service Ry. Co. v. Herold, (D. C., D. N. J. 1915) 227 Fed. 490; Public Service Electric Co. v. Herold, (D. C., D. N. J. 1915) 227 Fed. 491; and Public Service Ry. Co. v. Moffett, (D. C., D. N. J. 1915) 227 Fed. 494]; Jasper & E. Ry. Co. v. Walker (Col.), (C. C. A., Fifth Cir. 1917) 238 Fed. 533; West End Street Ry. Co. v. Malley (Col.), (C. C. A. First Cir. 1917) 246 Fed. 625, Certiorari denied, Id., (1918) 246 U. S. 671; Old Colony Ry. Co. et al. v. Gill and Malley (Cols.), (D. C., D. Mass. 1916) 257 Fed. 220; U. S. v. Phila. B. & W. R. Co., (D. C., E. D. Penn. 1920) 262 Fed. 188.

527 (b) Where a foreign corporation sold its property to a domestic company on partial payments, retained title as security, maintained an agent and attorney in compliance with State law but no office in the U. S., and received remittances in London directly from the vendee, such corporation thereafter was not "doing business'' under Sec. 38, Act of 1909. Bryant & May Ltd. v. Scott (Col.), (D. C., N. D. Calif., S. D. 1914) 226 Fed. 875.

527 (c) Mining corporations engaged solely in mining upon their own premises were doing business" under Sec. 38, Act of 1909. Stratton's Independence, Ltd. v. Howbert (Col.), (1913) 231 U. S. 399.

527 (d) A corporation which was organized for the purpose of doing business, and actually engaged in such activities as leasing property, collecting rents, managing office buildings, making investments of profits, leasing ore lands, collecting royalties, managing wharves and dividing profits, was doing business' under Sec. 38, Act of 1909. Flint v. Stone-Tracy Co., (1911) 220 U. S. 107.

66

527 (e) A corporation which did business through the taxable year could not avoid the tax imposed by Sec. 38, Act of 1909, by dissolving prior to the time of making return. U. S. v. General Inspection & Loading Co., (D. C., D. N. J. 1911) 192 Fed. 223.

527 (f) A corporation which did business during a part of 1912 was subject to the tax imposed by Sec. 38, Act of 1909. Blalock (Col.) v. Georgia Ry. & Electric Co., (C. C. A., Fifth Cir. 1916) 228 Fed. 296; also Id., (C. C. A., Fifth Cir. 1917) 246 Fed. 387.

527 (g) A Canadian corporation which employed solicitors to sell its paper produce in the U. S., paid their expenses, maintained desk room, paid rent, used storage rooms, kept funds, and entered into contracts in the United States through its agents, subject to the approval of the corporation in Canada, was "doing business' in the United States under Sec. 38, Act of 1909. Laurentide Co. Ltd. v. Durey (Col.), and Id. v. Irwin (Col.), (D. C., N. D. N. Y. 1916) 231 Fed. 223. 527 (h) A corporation which was formed for the sole purpose of building and leasing a junction railway and which collected and distributed rental, was doing business" under Sec. 38, Act of 1909. Rio Grande Junction Ry. Co. v. U. S., (1916) 51 Ct. Cl. 274.

527 (i) A corporation, lessee of ore lands, which subleased the same for mining purposes, received royalty, explored for oil, and supervised the operation of the sub-lease was "doing business'' under Sec. 38, Act of

Gulf & I. Ry. Co., (C. C. A., Fifth Cir. 1921) 269 Fed. 885.

530 Under Sec. 38, Act of 1909, the test of whether an association engaged in the insurance business was a fraternal beneficiary society lay in the fraternal nature of the work and the objects which it was organized to promote rather than the fact that it made no profit. Commercial Travelers' Life & Accident Ass'n v. Rodney, (D. C., N. D. Ohio, E. D. 1913) 235 Fed. 370.

531 (a) A building and loan association which loaned money to non-members and issued preferred or interest paying stock that shared on dissolution, was not exempt from taxation under Sec. 38, Act of 1909. Pacific B. & L. Assn. v. Hartson, (D. C., W. D. Wash., S. D. 1913) 201 Fed. 1011.

531 (b) A building and loan association is not excluded from the exemption allowed "mutual" associations solely from the fact that it issued prepaid and installment stock, the prepaid stock being limited to a fixed dividend, payable only out of profits. Suit arose under Sec. 38, Act of 1909. Herold (Col.) v. Park View B. & L. Assn., (C. C. A., Third Cir. 1914) 210 Fed. 577.

531 (e) An organization formed solely for making building loans to its members, who were entitled to vote according to membership and not by virtue of stockholdings, was a "mutual building and loan association, and, hence, exempt under Sec. 38, Act of 1909. Park View Bldg. and Loan Assn. v. Herold (Col.), (D. C., D. N. J. 1913) 203 Fed. 876.

or

532 The expression "no part of the net income of which inures to the benefit of any private stockholder or individual" found in Sec. 38, Act of 1909, applies as a limitation only to the class of corporations ganized and operated exclusively for religious, charitable, or educational purposes."' Herold (Col.) v. Park View Bldg. and Loan Assn., (C. C. A., Third Cir. 1914) 210 Fed. 577.

533 (a) As used in Sec. 38, Act of 1909, "'income' may be defined as the gain derived from capital or from labor, or from both combined." Conn. General Life Ins. Co. v. Eaton (Col.), (D. C., D. Conn. 1914) 218 Fed. 188.

533 (b) The term "income'' used in the Act of 1909, has the same meaning that it had in prior laws imposing a tax on income. Cleveland C., C. & St. L. Ry. Co. v. U. S., (C. C. A., Sixth Cir. 1917) 242 Fed. 18. 533 (c) Where a corporation was "doing business" a part of the year, the measure of the tax under Sec. 38, Act of 1909, was the net income received during the entire year, including income received after it discontinued business. Blalock (Col.) v. Georgia Ry. & Electric Co., (C. C. A., Fifth Cir. 1916) 228 Fed. 296.

533 (d) Money paid by consumers of water to a publie utility corporation for service connections and pipe extensions were a part of its gross income under Sec. 38, Act of 1909. Union Hollywood Water Co. v. Carter (Col.), (C. C. A., Ninth Cir. 1917) 238 Fed. 329.

533 (e) Where a corporation rented its property to a lessee, and the latter (1) paid the rental directly to the stockholders of the lessor, or (2) paid the interest on outstanding bonds of the lessor directly to the mortgagor, such payments were income to the lessor under Sec. 38, Act of 1909. Blalock (Col.) v. Georgia Ry. & Electric Co., (C. C. A., Fifth Cir. 1917) 246 Fed. 387; Houston Belt & Terminal Ry. Co. v. U. S., (C. C. A., Fifth Cir. 1918) 250 Fed. 1.

533 (f) Payments made by a lessee to a lessor at a certain rate per ton for ore removed were royalties or rentals, and, hence, income to the lessor under Sec. 38, Act of 1909. Von Baumbach (Col.) v. Sargent Land Co. et al., (1917) 242 U. S. 503, reversing Id., (C. C. A., Eighth Cir. 1914) 219 Fed. 31, and Id., (D. C., D. Minn. 1913) 207 Fed. 423, which held that the transaction amounted to a sale of capital assets and that the profit therefrom was not income.

533 (g) Under Sec. 38, Act of 1909, the measure of returnable income realized from the sale of capital assets acquired prior to Jan. 1, 1909, was the difference between the selling price and the fair market value thereof on said date. Hays (Col.) v. Gauley Mountain Coal Co., (1918) 247 U. S. 189; U. S. v. Cleveland C. C. & St. L. R. Co., (1918) 247 U. S. 195, affirming Id., (C. C. A., Sixth Cir. 1917) 242 Fed. 18; Doyle (Col.) v. Mitchell Bros. Co., (1918) 247 U. S. 179, affirming Id., (C. C. A., Sixth Cir. 1916) 235 Fed. 686, and Id., (D. C. W. D. Mich., S. D. 1915) 225 Fed. 437; Great Northern Ry. Co. v. Lynch (Col.), (D. C., D. Minn. 1921) 292 Fed. 903.

533 (h) Under Sec. 38, Act of 1909, a corporation which derived a profit from the sale of capital assets owned for a number of years was required to return as income, in the year received, the amount of such gain that accrued subsequent to Jan. 1, 1909. Doyle (Col.) v. Mitchell Bros. Co., (1918) 247 U. S. 179, affirming Id., (C. C. A., Sixth Cir. 1916) 235 Fed. 686, and Id., (D. C., W. D. Mich., S. D. 1915) 225 Fed. 437; Hays (Col.) v. Gauley Mountain Coal Co., (1918) 247 U. S. 189, reversing Id., (C. C. A., Fourth Cir. 1915) 230 Fed. 110; Cleveland C. C. & St. L. R. Co., v. U. S., (1918) 247 U. S. 195, affirming Id., (C. C. A., Sixth Cir. 1917) 242 Fed. 18; Scott (Col.) v. Schwab, (C. C. A., Ninth Cir. 1919) 255 Fed. 57.

533 (i) Although the amount of interest deductible from gross income as an expense was limited under Sec. 38, Act of 1909, all interest received was a part of the gross income. Altheimer & Rawlins Inv. Co. v. Allen (Col.), (C. C. A., Eighth Cir. 1918) 248 Fed. 688, affirming Id., (D. C., E. D. Mo., E. D. 1917) 246 Fed. 270, Certiorari denied, (1918) 248 U. S. 578.

533 (j) In determining net income received as gain from the sale of property, interest on investment may not be added to purchase price to obtain cost. Hays (Col.) v. Gauley Mountain Coal Co., (1918) 247 U. S. 189.

533 (k) Under Sec. 38, Act of 1909, dividends declared subsequently to Jan. 1, 1909, and based on earnings made prior to that date, are income to the stockholder in the year received. U. S. v. Philadelphia B. & W. R. Co., (D. C., E. D. Penn. 1920) 262 Fed.

188.

533 (1) Obligations of the taxpayer which accrued prior to Jan. 1, 1909, and on becoming outlawed in 1910, were entered on its books as a profit, were required to be returned as income, in the year written off, under the Act of 1909. Great Northern Ry. Co.

v. Lynch (Col.), (D. C., D. Minn. 1921) 292 Fed. 903. 533 (m) Where a corporation purchased stock in 1899 for $300,000, entered the same on its books in 1908 for $75,000, and in 1909 sold the same for $95,000, the difference of $20,000 was income required to be returned under the Act of 1909. Great Northern Ry.

v. Lynch (Col.), (D. C., D. Minn. 1921) 292 Fed. 903. 533 (n) Appreciation in value of assets which were not disposed of did not represent income under Sec. 38, Act of 1909, although the corporation made such an adjustment on its books. McCoach (Col.) v. Bald. win Locomotive Works, (C. C. A., Third Cir. 1915) 221 Fed. 59, affirming Id., (D. C., E. D. Penn. 1914) 215 Fed. 967; Industrial Trust Co. v. Walsh (Col.), (D. C., D. Conn. 1915) 222 Fed. 437. The basis of the decision in the last case seemed to be the fact that the appreciation accrued over a period of years, and that the taxpayer was not a trader.

533 (o) In determining income under Sec. 38, Act of 1909, a corporation was permitted to show that the book value did not represent the actual value of assets sold. U. S. v. Guggenheim Exploration Co., (D. C., S. D. N. Y. 1917) 238 Fed. 231.

533 (p) Debts released to a corporation by its stock

holders are capital contributions and not income to the corporation under Sec. 38, Act of 1909. U. S. v. Oregon-Washington R. & Nav. Co., (C. C. A., Second Cir. 1918) 251 Fed. 211.

533 (q) A corporation pursuant to a scheme of recapitalization, organized another corporation, conveyed all of its assets to the new corporation, receiving therefor all the stock of the new corporation, except directors' qualifying shares, of greater par value than it originally paid for the assets. It formally valued them at par, and distributed them among its own stockholders, immediately effecting a merger between the two corporations. There was no income under Sec. 38, Act of 1909. Alpha Portland Cement Co. v. U. S., (C. C. A., Third Cir. 1919) 261 Fed. 339.

533 (r) Stock dividends were not a part of the gross income of the stockholders under Sec. 38, Act of 1909. U. S. v. Philadelphia B. & W. R. Co., (D. C., E. D. Penn. 1920) 262 Fed. 188.

534 (a) Ordinary annual replacement of furniture and office equipment was deductible as "ordinary and necessary expenses" under Sec. 38, Act of 1909. Mutual Benefit Life Ins. Co. v. Herold (Col.), (D. C., D. N. J. 1912) 198 Fed. 199.

534 (b) Payments made by a corporation on the basis of stockholdings to its stockholding officers, not being compensation for services rendered, were not deductible as ordinary and necessary expenses'' under Sec. 38, Act of 1909. Jacobs & Davies, Inc. v. Anderson (Col.), (C. C. A., Second Cir. 1915) 228 Fed. 505.

534 (c) Under Sec. 38, Act of 1909, "maintenance means the upkeep or preserving the condition of the property to be operated" and "includes the cost of ordinary repairs necessary and proper from time to time for that purpose. San Francisco & P. S. S. Co. v. Scott (Col.), (D. C., N. D. Cal., S. D. 1918) 253 Fed. 854.

534 (d) An amount fixed by the board of directors as salary is presumptively valid as ordinary and necessary expenses" under Sec. 38, Act of 1909; and while the Government can not say that such amount is too large as salary, it can show that all or a portion thereof is not salary at all, but that it is in fact profits diverted to a stockholding officer under the guise of salary. U. S. v. Philadelphia Knitting Mills Co., (C. C. A., Third Cir. 1921) 273 Fed. 657, affirming Id., (D. C., E. D. Penn. 1920) 268 Fed. 270, on the principle of law involved, but reversing judgment on its application to the evidence adduced.

534 (e) Under Sec. 38, Act of 1909, bad debts charged off and contributions to charity were not "ordinary and necessary expenses" actually "paid within the year." Neither were they specifically mentioned in the statute as otherwise deductible. Baldwin Locomotive Works v. McCoach (Col.), (D. C., E. D. Penn. 1914) 215 Fed. 967.

534 (f) Amounts expended by a corporation in enlarging or making improvements in its offices or premises, not in the nature of permanent improvements to the property but merely to facilitate the transaction of growing business, were deductible as "ordinary and necessary expenses'' under Sec. 38, Act of 1909. Conn. Mutual Life Ins. Co. v. Eaton (Col.), (D. C., D. Conn. 1914) 218 Fed. 206.

erties, including all charges such as rentals or franchise payments, required to be made as a condition to the continued use or possession of property; (second) all losses535 actually sustained within the year and not compensated by insurance or otherwise, including a reasonable allowance for depreciation536 of property, if any,

534 (g) Sums expended on additions and betterments are capital expenditures, and, hence, not deductible as an "ordinary and necessary expense, "' under Sec. 38, Act of 1909. Grand Rapids & I. Ry. Co. v. Doyle (Col.), (D. C., W. D. Mich., S. D. 1915) 245 Fed. 792.

534 (h) Money expended by a public utility corpora tion for service connections and pipe extensions, although not permitted to be included in the valuation of the company's plant under the regulations of the Railroad Commission of the State, were capital expenditures, and hence, not deductible as "ordinary and necessary expenses" under Sec. 38, Act of 1909. Union Hollywood Water Co. v. Carter (Col.), (C. C. A., Ninth Cir. 1917) 238 Fed. 329.

534 (i) Money advanced by one corporation to another which it organized and controlled is not deductible as "ordinary and necessary expenses, "under Sec. 38, Act of 1909. Walker (Col.) v. Gulf & I. Ry. Co., (C. C. A., Fifth Cir. 1921) 269 Fed. 885.

535 Under Sec. 38, Act of 1909, a corporation which sustained a loss through the sale of capital assets was permitted to deduct the same from gross income. Conn. Mutual Life Ins. Co. v. Eaton (Col.), (D. C., D. Conn. 1914) 218 Fed. 206.

536 (a) Under Sec. 38, Act of 1909, "depreciation" is the lessening in value of property due to obsolescence, inadequacy, decay, gradual decline from natural causes, and wear and tear, which cannot be overcome by ordinary current repairs. San Francisco & P. S. S. Co. v. Scott (Col.), (D. C., N. D. Cal., S. D. 1918) 253 Fed. 854.

536 (b) Exhaustion of ore through mining was not deductible as "depreciation" under Sec. 38, Act of 1909. Stratton's Independence Ltd. v. Howbert (Col.), (1913) 231 U. S. 399, affirming Id., (C. C. A., Eighth Cir. 1914) 211 Fed. 1023 and Id., (D. C., D. Colo. 1912) 207 Fed. 419; Von Baumbach (Col.) v. Sargent Land Co., (1917) 242 U. S. 503; U. S. v. Biwabik Mining Co., (1918) 247 U. S. 116, reversing Id., (C. C. A., Sixth Cir. 1917) 242 Fed. 9; Goldfield Consolidated Mines Co. v. Scott (Col.), (1918) 247 U. S. 126; Camp Bird Ltd. v. Howbert (Col.), (C. C. A., Eighth Cir. 1919) 262 Fed. 114, Certiorari denied, (1920) 252 U. S. 579. Contra: U. S. v. Nipissing Mines Co., (D. C., S. D. N. Y. 1912) 202 Fed. 803; Forty Fort Coal Co. v. Kirkendall (Col.), (D. C., M. D. Penn. 1915) 233 Fed. 704.

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536 (c) Amortization of premiums on bonds purchased was not deductible as depreciation" under Sec. 38, Act of 1909. Fink (Col.) v. N. W. Mutual Life Ins. Co., (C. C. A., Seventh Cir. 1920) 267 Fed. 968.

536 (d) Under Sec. 38, Act of 1909, an insurance company, the greater portion of whose assets consisted of stock, bonds and other securities, was entitled to a deduction of the amount of the market depreciation of such securities during the taxable year. New York Life Ins. Co. v. Anderson (Col.), (C. C. A., Second Cir. 1920) 263 Fed. 527, reversing Id., (D. C., S. D. N. Y. 1919) 262 Fed. 215.

536 (e) The measure of depreciation of railroad property under Sec. 38, Act of 1909, is the difference in the intrinsic value of the property as a whole at the