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Hill v. Smith.

decided: October 4, 1950.

MINE HILL & SCHUYLKILL HAVEN R. CO.
v.
SMITH.



Author: Kalodner

Before MARIS, GOODRICH and KALODNER, Circuit Judges.

KALODNER, Circuit Judge.

These are appeals from judgments for the defendant entered by the District Court in two actions brought by the Mine Hill & Schuylkill Haven Railroad Company ("taxpayer") for the recovery of income taxes.

The cases involve a common question, but different tax years. They were consolidated for trial in the Court below and for argument in this Court.

The facts as stipulated and found by the District Court may be summarized as follows:

Taxpayer owns certain railroad lines in eastern Pennsylvania which are leased to the Reading Company under a 999 year lease entered into in 1896. The lease required the Reading Company to maintain the lines in good order and repair, but expressly excepted from this requirement any lines or portions thereof "which are or may be from time to time used exclusively by any one colliery which is now or may hereafter be abandoned, or the working thereof may be discontinued, or which does not furnish and supply sufficient traffic to pay the needful repairs and expenses of the portion of said railroad leading to said colliery."

No. 10,171

In 1941 taxpayer and the Reading Company jointly filed an application with the Interstate Commerce Commission for a certificate of public convenience permitting taxpayer to abandon certain branch lines of a total distance of 5.89 miles. The application and Return to Questionnaire stated that these lines had not been operated or maintained since 1933, that practically all the ties were decayed and a substantial part of the rails and track materials had been stolen, that there had been no train service or traffic over them for many years, and that the colleries which these lines were constructed to serve had been abandoned for some years.*fn1

In 1942 the Interstate Commerce Commission granted the application on the grounds requested and issued a certificate of convenience authorizing taxpayer and the Reading Company to abandon the lines.*fn2

In its income tax return for 1942 taxpayer claimed a loss deduction of $95,078.05, on the theory that the lines had been abandoned in that year. The amount of loss claimed represented taxpayer's investment in the lines less salvage value. The Commissioner disallowed the claim. The taxpayer then paid the resulting deficiency and when its claim for refund was rejected brought suit in the District Court.

No. 10,172

In 1943 taxpayer and the Reading Company jointly filed another application with the Interstate Commerce Commission for a certificate of public convenience permitting taxpayer to abandon a certain branch line of a total distance of 2.06 miles. The application and Return to Questionnaire stated that the line had not been operated or maintained for the past 12 years, the track proposed to be abandoned was in a poor state of maintenance with some of the rails and ties missing, that there had been no train service or traffic over it for many years, and that the colliery served by it had long since been abandoned.*fn3

Within the same year the Interstate Commerce Commission granted the application on the grounds requested and issued a certificate of convenience authorizing taxpayer and the Reading Company to abandon the line.*fn4

In its income tax return for 1943 taxpayer claimed a loss deduction of $69,324.28, on the theory that the line had been abandoned in that year. The amount of loss claimed represented taxpayer's investment less estimated salvage value. Actual salvage exceeded the estimated salvage, reducing the claimed loss to $68,060.22. The Commissioner disallowed the loss. Taxpayer paid the ...


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