HELVERING, Commissioner of Internal Revenue, v. ST. LOUIS SOUTHWESTERN RY. CO.; ST. LOUIS SOUTHWESTERN RY. CO. v. HELVERING, Commissioner of Internal Revenue, 66 F.2d 633

STONE, Circuit Judge. No. 9641 is a petition by the Commissioner to review a determination by the Board of Tax Appeals that the sum of $21,461,397.-, 23, representing a part of compensation to respondent during federal control, should be allocated to the years 1918, 1919, and the', first two months of 1920, instead of being re-J garded as income for the year 1923. Case No. 9645 is a petition for review by the railway company from a companion decision ftl locating $192,967.54, representing rental interest on betterments and additions.

The purpose of this petition of the company is purely protective to avoid double taxation in case the determination of the Board of Tax Appeals in 9641 is reversed. If 9641 is affirmed, it will govern 9645. The main controversy is within narrow limits and is whether the sum involved “accrued” in the years to which it was allocated, or in the year 1923, when the amount was first determined. The governing facts are as follows. On January 1, 1918, the government took over control of respondent and retained such until the end of February, 1920.

The amount certified by the Interstate Commerce Commission to the President as representing the annual income during the test period, provided in the Federal Control Act (40 Stat. 451), was $3,905,514.29. Before this amount had been determined however, and on November 26,1918, the railway made claim for compensation, of $5’,339,109.94 per annum, which it knew was in excess of what the test period would show.

It based this claim of reasonable compensation over the test period upon recent expenditures for additions and betterments, additional facilities provided, as well as having made large expenditures for new and improved types of equipment, and other unusual conditions prevailing during the test period which would make, it contended, the income in the test period an unfair measure of its compensation. On January 1, 1922, it made another claim which covered the entire period, then past, of federal occupation and totaled $12,-820,701.66.

After extended negotiations, the railway and the government finally agreed upon an annua] compensation of $5,000,000 during the period of occupation. This agreement was made July 20, 1923. The total resulting from this agreement exceeded the estimate of the test period, during the time of occupation, by the more than $2,000,000 involved in this main controversy. During this entire time there was never any question of the liability of the government to pay a reasonable compensation, but the entire controversy was over the amount to be paid.

Apparently, the government admitted and was contending for the result shown by the test period earnings so that the controversy really was over any excess beyond such allowance. The taxpayer’s books wore kept upon the accrual basis. The government contends that this two million odd :exeess cannot bo regarded as accruing before it was definitely determined by the agreement of July 20, 1923, and, therefore, it should be regarded as accrued income for the year 1923'.

The respondent contends that the Federal Control Act contemplated annual compensation during the period of occupation, and as the right to the compensation accrued during each of the years of occupation and as this excess is merely a part of that compensation, it should be regarded as having accrued in those years, and; therefore, to be allocated to them as was determined by the Board.

Stated in general terms, the legal question is whether, where there is no contest over liability, and where the amount of that liability does not depend upon future events or contingencies, the income accrues during the period the liability became fixed, although the exact amount is not determined until later. This same matter has been directly ruled, in accordance with the determination here of the Board, in Commissioner v. Midland Valley R. Co., 57 F.(2d) 1042 (C. C. A. 10), and Commissioner v. Old Dominion Steamship Co., 47 F.(2d) 148 (C. C. A. 2).

Also, it receives some support from the reasoning in Continental Tie & Lumber Co. v. United States, 286 U. S. 290, 52 S. Ct. 529, 76 L. Ed. 1111. There are some eases which contain expressions to the effect that it is necessary for the amount to be liquidated before the item can “accrue,” either as income or deduction, but such expressions occur in connection with some dispute as to any liability or where the liability or, the amount of liability is contingent upon future happenings. Such decisions are North American Oil Consolidated v. Burnet, 286 U. S. 417, 52 S. Ct. 613, 76 L. Ed. 1197; Lucas v.

North Texas Lumber Co., 281 U. S. 11, 50 S. Ct. 184, 74 L. Ed. 668; Lucas v. American Code Co., 280 U. S. 445, 50 S. Ct. 202, 74 L. Ed. 538; Block & Kohner Mercantile Co. v. United States, 37 F.(2d) 877 (C. C. A. 8); Commissioner v. R. J. Darnell, Inc., 60 F.(2d) 82 (C. C. A. 6); Lucas v. Providence Coal Min. Co., 60 F.(2d) 86 (C. C. A. 6); J. N. Pharr & Sons v. Commissioner, 56 F.(2d) 832 (C. C. A. 5); Commissioner v. Southeastern Express Co., 56 F.(2d) 600 (C. C. A. 5); Bauer Bros. Co. v. Commissioner, 46 F.(2d) 874 (C. C. A. 6), certiorari denied Bauer Bros. Co. v. Burnet, 283 U. S. 850, 51 S. Ct. 560, 75 L.

Ed. 1458; Price Iron & Steel Co. v. Burnet, 60 App. D. C. 3, 45 F.(2d) 921; Ewing-Thomas Converting Co. . McCaughn, 43 F.(2d) 503 (C. C. A. 3), certiorari denied 282 U. S. 897, 51 S. Ct. 181, 75 L. Ed. 790; Vang v. Lewellyn, 35 F.(2d) 283 (C. C. A. 3); Highland Milk Condensing Co. v. Phillips, 34 F.(2d) 777 (C. C. A. 3), certiorari denied 280 U. S. 608, 50 S. Ct. 158, 74 L. Ed. 652; Naitove & Co. v. Commissioner, 59 App. D. C. 53, 32 F.(2d) 949, certiorari denied Naitove & Co. v. Lucas, 280 U. S. 582, 50 S. Ct. 34, 74 L. Ed. 632; Desco Corp. v. United States, 55 F.(2d) 411 (D. C. Del.), and John R.

Lankenau Co. v. United States, 46 F.(2d) 158 (D. C. Mass.). • The situation here is essentially different from those involved in the eases in the next preceding paragraph. The Midland Valley R. Co. and the Old Dominion Steamship Company Cases, supra, are directly in point. We are satisfied with the reasoning of those two opinions and see no reason to repeat the substance thereof here. On the same reasoning, we think the Board correctly determined this matter. Appeal No. 9645 is an appeal by the taxpayer from a decision in its favor.

The purpose of this appeal is purely protective to take care of the contingency of a reversal of No. 9641. If No. 9641 had been reversed, then the income found taxable by the Board for 1920 would have been included also in the entire income for 1923’, thus resulting in double taxation as to the above income for 1920. This is the situation guarded against by No. 9645. Automatically, the. affirmance of the Board leaves the tax for 1920 undisturbed and the company has no desire to so disturb .it.

However, the Commissioner contends that the amount of this tax for 1920 is erroneous and, irrespective of the disposition of No. 9641, the case should be remanded to the Board for correction as to this matter. Such matter is not covered by any assignment of error made by the Commissioner, and we see no sufficient reason for considering the matter, although unassigned. An affirmative reason for not noticing this unassigned error is that the findings of the Board show an agreement between the parties as to the tax for 1920, if the entire income is not taxable in 1923.

The petitions to review in each case will be dismissed.