United States Cartridge Co v. United States
284 U.S. 511 (1932)

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U.S. Supreme Court

United States Cartridge Co v. United States, 284 U.S. 511 (1932)

United States Cartridge Co v. United States

No. 348

Argued January 15, 1932

Decided February 15, 1932

284 U.S. 511

Syllabus

1. "Obsolescence" may arise from changes in the art, shifting of business centers, loss of trade, inadequacy, supersession, prohibitory laws and other things which, apart from physical deterioration, operate to cause plant elements, or the plant as a whole, to suffer diminution in value. P. 284 U. S. 516.

2. The Revenue Act of 1918 provided that, in computing net income of a corporation, there should be allowed as deductions: (7) an allowance for exhaustion, wear and tear of property used in trade or business, including an allowance for obsolescence; (8) in the case of buildings constructed on or after April 6, 1917, for production of articles contributing to the prosecution of the war, a deduction for the amortization of such part of the cost of such facilities as had

Page 284 U. S. 512

been borne by the taxpayer, but not again including any amount otherwise allowed by that or previous Acts as a deduction in computing net income.

Held:

(1) Subsection (8) does not exclude allowance for obsolescence of buildings erected before April 6, 1917, which were used to produce munitions for the war. P. 284 U. S. 516.

(2) "Obsolescence" and "amortization," as used in the Act, are not synonymous. Id.

(3) The context and legislative history show that subsection (7) was intended to establish a general rule allowing for obsolescence, etc., and subsection (8) was to authorize, in a limited class of cases and, under special circumstances, the amortization of certain costs by deductions not duplicating any other allowed by that or previous Acts. P. 284 U. S. 517.

3. Buildings erected by an ammunition company in 1914 as an extension of its plant on leased land, for the purpose of making ammunition for the World War, and which were so used until the Armistice, thereupon lost their use in the company's business, so that their remaining value to the company was in the nature of salvage. Held that the depreciated cost, less the value of the right to use the buildings after 1918 until the expiration of the lease, should be taken into account in determining the company's 1918 income and profits taxes. P. 284 U. S. 517.

4. Provisions in contracts for production of war munitions for the United States, whereby the Government might stop further production upon the termination of the war and must then reimburse the manufacturer for the cost of materials purchased by it for the performance of the contracts and then on hand, held to have been superseded by another arrangement for suspension of operations and for settlements through further negotiations. P. 284 U. S. 518.

5. An ammunition company, at the close of 1918, had on hand materials purchased for performance of government contracts, but for which the Government was not bound to pay and which were inventoried at market value, below cost. Held that, in determining the company's 1918 income and profits taxes, this inventory value should be used, and not a higher value which the company received from the government under settlements in later years. P. 520.

6. Amounts in excess of the inventory value of one year which are realized from sales in subsequent years are attributable to the years in which they were realized, since gains and losses must be accounted for in the years in which they are realized and the purpose of inventories is to assign to each period its profits and losses. P. 284 U. S. 520.

71 Ct.Cls. 575 reversed.

Page 284 U. S. 513

Certiorari to review a judgment rejecting parts of a claim made on account of an overpayment of income and profits taxes.

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