
    PHILADELPHIA PARK AMUSEMENT CO v. THE UNITED STATES
    [No. 312-52.
    Decided November 30, 1954]
    
      
      Mr. JohnO. Reid for the plaintiff. Mr. J ames S. Y. Ivins and Messrs. I vim, Phillips <& Barker were on the briefs.
    
      Mrs. Elizabeth B. Davis, with whom was Mr. Assistant Attorney General E. Brian Holland, for the defendant. Mr. Andrew D. Sharpe and Mr. Lee A. Jackson were on the brief.
   LaRamoee, Judge,

delivered the opinion of the court:

The taxpayer corporation sues to recover $42,864.50, with interest thereon, representing alleged overpayment of income taxes for the calendar years 1944 and 1945. The taxpayer employed the accrual method of accounting and reported its income on a calendar year basis. The issue presented in this case is whether or not the taxpayer is entitled to include as a part of the cost of its franchise, for purposes of determining depreciation and loss due to abandonment, the undepreci-ated cost of a bridge exchanged for a 10-year extension of the franchise. The facts which have been stipulated by the parties may be summarized as follows: The taxpayer’s predecessor was granted on July 6,1889, by the City of Philadelphia, a franchise to construct, operate, and maintain for 50 years a passenger railway in Fairmount Park at its own cost and expense. Upon the expiration of the 50-year term the franchise was to continue indefinitely for additional successive 10-year terms unless the City gave one year’s written notice of its wish to terminate it at the end of the 50-year term or the 10-year term then in duration. Upon the termination of the license the City had the right to purchase all, but not just part of, the improvements; i. e., railway cars, tracks, bridges, buildings, etc., made by the licensee at the cash value at the time of purchase, or in the event the City did not desire to purchase the assets the licensee had a specified period of time within which to remove them.

Pursuant to the franchise the taxpayer’s predecessor constructed the bridge in question, commonly known as Strawberry Bridge, over the Schuylkill River at a cost of $381,000. The bridge was 79% feet wide and carried pedestrian and vehicular traffic in addition to taxpayer’s streetcars. The taxpayer’s principal business was the operation of an amusement park and the street railway was employed in the transportation of customers to the park. With the increase in automobile transportation the proportion of customers carried to the amusement park by the taxpayer’s streetcars decreased over the years and during the latter years of its operation losses were sustained. Early in 1934 the City, in writing the taxpayer, pointed out that Strawberry Bridge was in need of extensive repairs, that it was taxpayer’s obligation to make the repairs at taxpayer’s expense, and threatened to close the bridge unless the repairs were made promptly. The taxpayer wrote the City explaining that its financial condition prevented the making of extensive repairs to the bridge and offered to transfer the ownership of the bridge to the City in exchange for a 10-year extension of the railway franchise. The City accepted the offer and on August 3,1934, Strawberry Bridge was transferred to the City. The taxpayer reserved its right-of-way over the bridge for the duration of its franchise and agreed to maintain its facilities thereon. On November 14,1934, the City amended the franchise and extended it from July 24, 1939, to July 24, 1949. The adjusted basis, i. e., the undepreciated or unrecov-ered cost of Strawberry Bridge at the time of the exchange was $228,852.74. The taxpayer’s bookkeeper took depreciation on the bridge for the part of 1934 that taxpayer owned it and promptly wrote the asset off the books by a direct debit to surplus of $228,852.74, without reporting any gain or loss on the exchange or adding the undepreciated cost or fair market value of the bridge to the cost of the franchise. From that time until 1946 the taxpayer’s bookkeeper did not record on the taxpayer’s books or claim a deduction on its returns for the amortization of this cost. He also failed to take the undisputed deduction for the amortization of the undepre-ciated portion, $50,000, of the original cost of the franchise.

In 1946 the taxpayer arranged with a bus company to give passenger service to its amusement park, ceased operation of the railway, and abandoned its franchise. In its 1946 tax return the taxpayer claimed a loss due to abandonment of the railroad of $336,380.04, $74,445.89 of which was claimed to represent the undepreciated cost of the franchise. This produced a $128,897.97 net loss for the year 1946, and taxpayer claimed a net operating loss carryback to 1944 and 1945 under section 122 (b) of the Code.

On December 15, 1947, the taxpayer filed a claim for refund of 1944 taxes in the amount of $6,087.28 based on a claimed depreciation deduction of $15,218.21. This claim was founded upon the ground that the undepreciated cost of Strawberry Bridge, $228,852.74, was the cost of the 10-year extension of its franchise and, therefore, should be amortized over the remaining life of the franchise. On December 80, 1948, taxpayer filed a second claim for refund of 1944 income taxes. This claim was in the amount of $58,791.91 and was predicated on the following grounds: (1) net operating loss carryback deduction of $128,897.97 from 1946, (2) depreciation deduction of $3,816.66 as the 1944 proportion of the cost basis of taxpayer’s original franchise, and (3) a repetition of the first claim for refund. On October 26, 1950, the Commissioner of Internal Eevenue allowed $55,036.71 of the net operating loss carryback and $3,333.33 of the $3,816.66 claim for depreciation of the original cost of the franchise, but denied taxpayer’s first claim for refund for 1944 and the repetition thereof in the second claim for a $15,218.21 depreciation deduction based upon the undepreciated cost of Strawberry Bridge. The Commissioner refunded to the taxpayer, on account of its 1944 taxes, $22,014.69 with interest thereon.

On December 30, 1948, taxpayer filed a claim for refund of income taxes for the year 1945 in the amount of $6,087.28, claiming a deduction of $3,816.66 as the depreciation deduction for the amortization of the cost of its original franchise and $15,218.21 as the depreciation deduction for the amortization of the cost of the 10-year extension of its franchise. On October 26, 1950, the Commissioner allowed $3,333.33 of the claimed deduction for the original cost of the franchise and, accordingly, refunded to taxpayer $1,282.05 with interest thereon, but denied the balance of the claim.

In its petition the taxpayer alleged that the Commissioner’s rejection of all of its first claim for 1944, part of its second claim for 1944, and part of its claim for 1945 was erroneous. The defendant raised the question of statute of limitations in respect to the part of the taxpayer’s claim that pertained to the allowance of a deduction for depreciation of the original cost of the franchise for the year 1944. The taxpayer claimed $3,816.16, whereas the Commissioner allowed only $3,333.33. The difference is a result of the Commissioner’s amortization of the original cost of the franchise over the period beginning on the date the franchise was granted as opposed to taxpayer’s desire to have it amortized over the period beginning on the date of the start of operation of the railway. This issue apparently has been abandoned by both parties inasmuch as no mention was made of it in the briefs or on oral argument. Therefore, we are only concerned with the cost basis, if any, of the 10-year extension of taxpayer’s franchise and the tax consequences thereof for the years 1944,1945, and 1946.

It is clear that the cost of this type franchise can be amortized over its life by the taking of depreciation deduction under section 23(1) of the Code. See Regulation 111, section 29.23(1)-3; Cleveland Railway Co. v. Commissioner, 36 B. T. A. 208, and cases cited therein. Therefore, the cost basis, if any, of the 10-year extension of the franchise should be depreciated over the remainder of the old term and over the new term. East Kauai Water Company v. Commissioner, 11 T. C. 1014, and cases cited therein. It is also clear that when a franchise is abandoned prior to the end of its term the owner is entitled to deduct, under section 23(f) of the Code, as a loss in the year of abandonment, the unde-preciated cost of the franchise at that time. Elston Company v. United States, 86 C. Cls. 136, and cases cited therein.

This brings us to the question of what is the cost basis of the 10-year extension of taxpayer’s franchise. Although defendant contends that Strawberry Bridge was either worthless or not “exchanged” for the 10-year extension of the franchise, we believe that the bridge had some value, and that the contract under which the bridge was transferred to the City clearly indicates that the one was given in consideration of the other. The taxpayer, however, has failed to show that the exchange was one that falls within the nonrecognition provisions of section 112 (b) of the Code and, therefore, it was a taxable exchange under section 112 (a) of the Code.

The gain or loss, whichever the case may have been, should have been recognized, and the cost basis under section 113 (a) of the Code, of the 10-year extension of the franchise was the cost 'to the taxpayer. The succinct statement in section 113 (a) that “the basis of property shall be the cost of such property” although clear in principle, is frequently difficult in application. One view is that the cost basis of property received in a taxable exchange is the fair market value of the property given in the exchange. The other view is that the cost basis of property received in a taxable exchange is the fair market value of the property received in the exchange. As will be seen from the cases and some of the Commissioner’s rulings the Commissioner’s position has not been altogether consistent on this question. The view that “cost” is the fair market value of the property given is predicated on the theory that the cost to the taxpayer is the economic value relinquished. The view that “cost” is the fair market value of the property received is based upon the theory that the term “cost” is a tax concept and must be considered in the light of the designed interrelationship! of sections 111, 112, 113, and 114, and the prime role that the basis of property plays in determining tax liability. We believe that when the question is considered in the latter context that the cost basis of the property received in a taxable exchange is the fair market value of the property received in the exchange.

When property is exchanged for property in a taxable exchange the taxpayer is taxed on the difference between the adjusted basis of the property given in exchange and the fair market value of the property received in exchange. For purposes of determining gain or loss the fair market value of the property received is treated as cash and taxed accordingly. To maintain harmony with the fundamental purpose of these sections, it is necessary to consider the fair market value of the property received as the cost basis to the taxpayer. The failure to do so would result in allowing the taxpayer a stepped-up basis, without paying a tax therefor, if the fair market value of the property received is less than the fair market value of the property given, and the taxpayer would be subjected to a double tax if the fair market value of the property received is more than the fair market value of the property given. By holding that the fair market value of the property received in a taxable exchange is the cost basis, the above discrepancy is avoided and the basis of the property received will equal the adjusted basis of the property given plus any gain recognized, or that should have been recognized, or minus any loss recognized, or that should have been recognized.

Therefore, the cost basis of the 10-year extension of the franchise was its fair market value on August 3, 1934, the date of the exchange. The determination of whether the cost basis of the property received is its fair market value or the fair market value of the property given in exchange therefor, although necessary to the decision of the case, is generally not of great practical significance because the value of the two properties exchanged in an arms-length transaction are either equal in fact, or are presumed to be equal. The record in this case indicates that the 1934 exchange was an arms-length transaction and, therefore, if the value of the extended franchise cannot be determined with reasonable accuracy, it would be reasonable and fair to assume that the value of Strawberry Bridge was equal to the 10-year extension of the franchise. The fair market value of the 10-year extension of the franchise should be established but, if that value cannot be determined with reasonable certainty, the fair market value of Strawberry Bridge should be established and that will be presumed to be the value of the extended franchise. This value cannot be determined from the facts now before us since the case was prosecuted on a different-theory.

The taxpayer contends that the market value of the extended franchise or Strawberry Bridge could not be ascertained and, therefore, it should be entitled to carry over the undepreciated cost basis of the bridge as the cost of the extended franchise under section 113 (b) (2) . If the value of the extended franchise or bridge cannot be ascertained with a reasonable degree of accuracy, the taxpayer is entitled to carry over the undepreciated cost of the bridge as the cost basis of the extended franchise. Helvering v. Tex-Penn Oil Co., 300 U. S. 481, 499; Gould Securities Co. v. United States, 96 F. 2d 780. However, it is only in rare and extraordinary cases that the value of the property exchanged cannot be ascertained with reasonable accuracy. We are presently of the opinion that either the value of the extended franchise or the bridge can be determined with a reasonable degree of accuracy. Althougli the value of the extended franchise may be difficult or impossible to ascertain because of the nebulous and intangible characteristics inherent in such property, the value of the bridge is subject to more exact measurement. Consideration may be given to expert testimony on the value of comparable bridges, Strawberry Bridge’s reproduction cost and its undepreciated cost, as well as other relevant factors.

Therefore, because we deem it equitable, judgment should be suspended and the question of the value of the extended franchise on August 3,1934, should be remanded to the Commissioner of this court for the taking of evidence and the filing of a report thereon.

The failure of taxpayer to properly record the transaction in 1934 and thereafter does not prevent the correction of the error, especially under the circumstances of this case. Countway et al. v. Commissioner, 127 F. 2d 69. The taxpayer has lost not only the depreciation deductions for the years 1935 to 1944 of the cost of its original franchise, but also the benefit of the depreciation deduction for the cost of the extended franchise, even though the basis of the former was and the latter will be reduced by the amount of depreciation that should have been taken for this period. See section 113 (b) (1) (B) of the Internal Revenue Code.

In the cases cited by taxpayer relating to losses claimed upon obtaining licenses and leases, or the extension or renewal thereof, the question presented was whether the amount involved was part of the cost of the license or lease and, therefore, should be capitalized and amortized over their life, or whether they were losses or expenses that should be deducted in the taxable year. In those cases either the amount in question was the actual cost, or property was not exchanged, or fair market value was not an issue. Those cases deal with different problems and are not applicable here.

We, therefore, conclude that the 1934 exchange was a taxable exchange and that the taxpayer is entitled to use as the cost basis of the 10-year extension of its franchise its fair market value on August 3,1934, for purposes of determining depreciation and loss due to abandonment, as indicated in this opinion.

Accordingly, judgment will be suspended and the question of the value of the extended franchise on August 3, 1934, is remanded to the Commissioner of this court for the taking of evidence and the filing of a report thereon.

MaddeN, Judge; Whitaker, Judge; Littleton, Judge; and JoNes, Chief Judge, concur.

FINDINGS OE PACT

The court, having considered the evidence, the report of Commissioner W. Ney Evans, and the briefs and argument of counsel, makes findings of fact as follows:

1.Plaintiff is a Delaware corporation with its principal office in Philadelphia. It duly filed its Federal income tax returns (prepared from accounts kept on the accrual basis) for the calendar years 1944,1945, and 1946 with the Collector of Internal Revenue at Philadelphia. Payments were made to him on account of 1944 and 1945 taxes at times and in amounts as follows:

1944 taxes:
March 13, 1945_$18,949. 63
June 8,1945_ 18,949. 63
September 5,1945_ 18,949. 63
December 11, 1945_ 18,949. 64
December 1,1947:
Tax_ 376. 50
Interest_ 31. 98
76,207. 01
1945 taxes:
March 12,1946_$11,352.72
June 5,1946_ 11,352.72
September 4,1946_ 11,352. 72
December 10, 1946_ 11,352.70
July 9,1947:
Tax_ 3,333. 91
Interest_ 241.05
49,005. 82

2. There was refunded to plaintiff on account of 1944 income taxes $22,014.69 and interest by reason of allowance of net loss carryback from 1946 in the amount of $55,036.71. On account of 1945 income tax there was refunded to plaintiff $1,282.05 and interest by reason of allowance of a deduction of $3,333.33 for depreciation of franchise.

3. On July 6,1889, the Commissioners of Fairmount Park, a political subdivision of the City of Philadelphia, granted to William M. Wharton, Jr., a license to construct, operate, and maintain for 50 years a passenger railway in Fair-mount Park at his own cost and expense. Paragraph 17 of this agreement provided:

At the expiration of the said term of fifty (50) years after the date of this license it shall continue in full force for a further period of ten (10) years, together with all provisions and stipulations thereof, and shall be binding upon both parties hereto, unless the said Commissioners shall have given at least one (1) year’s written previous notice of their wish to have it terminate at the end of the said term of fifty (50) years. And so on for successive additional terms or ten (10) years this license and all the provisions and stipulations thereof shall continue in full force until terminated by the said Commissioners, giving, at least one (1) year’s written previous notice of their wish to have it terminated at the end of that term of ten (10) years which may be then in duration.

Mr. Wharton transferred his franchise to the Fairmount Park Transportation Company, a corporation, which constructed a railway including a bridge, known as Strawberry Bridge, over the Schuylkill Kiver at a cost of $881,000. Fairmount Park Transportation Company was succeeded in 1918 by plaintiff, then operating under the name of Fair-mount Park Transit Company. In 1951, Fairmount Park Transit Company and Woodside Keal Estate Company (a wholly owned subsidiary) were merged under the name of Fairmount Park Transit Company. Plaintiff’s name was changed in 1946 to Philadelphia Park Amusement Company.

4. Plaintiff’s principal business (both as sole stockholder of Woodside Keal Estate Company and after the merger in 1941 as direct owner) was the operation of an amusement park. The street railway for some years was operated at a loss in order to transport customers to the amusement park where plaintiff’s profits were earned. With the increase in automobile transportation, the proportion of customers to the amusement park carried by the trolley line decreased over the years. In 1946, plaintiff (1) arranged with a bus company to give passenger service to its amusement park, and (2) ceased operation of the railway and abandoned its franchise. The operation of the amusement park was continued.

5. In 1934, plaintiff was operating streetcars in the City of Philadelphia under the franchise originally granted to Mr. Wharton in 1889. Strawberry Bridge comprised part of plaintiff’s railway. This bridge was not only a railway bridge but a highway bridge and carried pedestrian and vehicular traffic in addition to plaintiff’s streetcars.

6. In 1934, plaintiff negotiated an agreement with the Commissioners of Fairmount Park, a copy of which is included in a Philadelphia ordinance of July 7,1934. This agreement was duly executed on July 9, 1934, by the Fairmount Park Transit Company and the Commissioners of Fairmount Park. The ordinance follows:

AN ORDINANCE
Authorizing the execution, acknowledgment, delivery and recording of a contract between the Commissioners of Fairmount Park and the Fairmount Park Transit Company, its successors and assigns for the transfer of title and ownership to the Strawberry Bridge across the Schuylkill River from the Fairmount Park Transit Company to the City of Philadelphia, providing, inter alia, for the amendment and extension of the license heretofore granted to the Fairmount Park Transit Company to operate its trolley system in Fairmount Park for a period of ten years from the expiration thereof on July 24,1939.
Section 1. The Council of the City of Philadelphia ordains, That the Commissioners of Fairmount Park be, and they are hereby authorized to execute and deliver a contract between the Commissioners of Fairmount Park and the Fairmount Park Transit Company, a Delaware Corporation, its successors and assigns, for the transfer of title and ownership to the Strawberry Bridge across the Schuylkill River from the Fairmount Park Transit Company to the City of Philadelphia, and to procure the acknowledgment and recording of the said contract when delivered between the parties thereto. Said contract shall be as follows:
This Agreement, made the day of , 1934, between the Fairmount Park Transit Company, hereinafter referred to as Transit Company, and the Commissioners of Fairmount Park, hereinafter referred to as Commissioners,
Witnesseth:
Whereas, the Transit Company is the operator of a certain trolley line in Fairmount Park, Philadelphia, Pennsylvania, under a license originally granted under date of July 24, 1889, to William Wharton, Jr., duly assigned, with the consent and approval of the Commissioners, to the Fairmount Park Transportation Company, under date of November 10, 1894, and duly assigned by the Fairmount Park Transportation Company, with the consent and approval of the Commissioners, to the Transit Company, under date of December 11,1918; and,
Whereas, as part of said trolley line, there was originally built by the Fairmount Park Transportation Company, at a cost of approximately $381,000.00, a bridge across the Schuylkill River connecting the East Park and West Park, said bridge being commonly known as the Strawberry Bridge; and,
Whereas, the Transit Company is now. the owner of the property formerly owned by the Fairmount Park Transportation Company, including said bridge; and,
Whereas, 52%. feet of the total width of said bridge, viz., 79% feet, is used by the public exclusively, said 52% feet being occupied by a roadway 40 feet wide and a walk 12% feet wide; and,
Whereas, the public uses said bridge extensively both for vehicular and pedestrian traffic, and said bridge is an essential thoroughfare from the portion of the City of Philadelphia east of the Schuylkill River to that portion of the City ofJPhiladelphia west of the Schuylkill River, and is the only bridge between Girard Avenue to the south and the Falls Bridge to the north; and,
Whereas, said bridge is now in need of extensive repairs, particularly to the roadway and walk; and,
Whereas, the continued use of the bridge is essential for the convenience and welfare of the citizens of Philadelphia; and,
Whereas, without such repairs it will be necessary to close said bridge from use by the public or by the Transit Company; and,
Whereas, the Commissioners have called upon the Transit Company to repair said bridge under the terms of the license; and,
Whereas, the Transit Company, by reason of its present financial condition, finds it absolutely impossible to make the repairs as requested; and,
Whereas, said bridge, together with the other property of the Fairmount Park Transit Company, is subject to the lien of a certain mortgage made by the Fairmount Park Transportation Company, its predecessor in title, to the Girard Trust Company, Trustee, dated April 1, 1912; and,
Whereas, the Transit Company has expressed its willingness to convey the said bridge to the Commissioners of Fairmount Park or to the City of Philadelphia under the terms and conditions as provided in this agreement; and,
Whereas, the Girard Trust Company, as Trustee under the indenture of mortgage aforesaid, has expressed its willingness,to release the said bridge from the lien of said mortgage under the terms and conditions as hereinafter provided:
Now, Therefore, it is Agreed as Follows:
1. The Transit Company agrees to convey the said Strawberry Bridge to the City of Philadelphia free and clear of any and all encumbrances excepting the license herein referred to and any amendments thereto, and agrees to obtain from the Girard Trust Company as Trustee, the release of said bridge from the lien of a certain mortgage made by the Fairmount Park Transportation Company to the Girard Trust Company, as Trustee, dated April 1,1912.
2. The Transit Company agrees to keep in repair during the term of this license, or any extensions thereof, its ties, rails and fastenings and overhead wires and cables and the supports for the overhead wires and cables.
3. Commissioners agree that the following repairs to said bridge shall be made forthwith, namely: The repair or replacement of divers structural members, the repair of the roadways and sidewalks, the painting of the structure, as well as any other repairs which the Director of Public Works of the City of Philadelphia may deem necessary. All of said repairs shall be made by the said Department of Public Works, Bureau of Highways, in which the complete and absolute care and maintenance of said bridge shall hereafter be vested.
4. Commissioners agree that while said repairs are being made, they will keep the bridge open for use by the Transit Company so as not to interfere with the operation by the Transit Company.
5. Commissioners agree that they will amend the license of the Fairmount Park Transit Company, being the license originally granted to William Wharton, Jr., under date of July 24, 1889, as amended by the amendments of November 10,1894, December 8,1894, November 11, 1897, and December 11, 1918, in the following particulars. viz.:
(a) By amendment of Section 17 of the original license to William Wharton, Jr., so that the expiration of said term shall be sixty years after the date of the license, viz.: July 24,1949, instead of fifty years or July 24, 1939, as therein specified. All other terms and conditions of said Section 17 are to remain in full force and effect.
(b) Commissioners agree that the Transit Company shall be relieved from the maintenance of the Strawberry Bridge during the balance of the term of this license, or extension thereof, except insofar as the Transit Company agrees to maintain its ties, rails and fastenings, and overhead wires and cables and the supports thereof.
6. This agreement is subject to the approval of the City of Philadelphia to be evidenced by an Ordinance authorizing the Commissioners of Fairmont Park to execute said agreement.
In Witness Whereof, the parties hereto have hereunto affixed their corporate seals, duly attested by their proper officers the day and year first above written.
Signed, sealed and delivered in the presence of:
FAERMOUNT PARK TRANSIT COMPANY,
By-
Attest_
COMMISSIONERS OF FAIRMOUNT PARK,
By_
Attest_
Sec. 2. The Commissioners of Fairmount Park are hereby authorized and instructed to fill in all blanks for dates and otherwise left in the foregoing agreement or contract. All ordinances and resolutions or parts of ordinances and resolutions inconsistent herewith be, and the same are hereby repealed.
Attest:
Sgd. David W. Harris,
Clerk of City Council.

7. This agreement was executed by plaintiff and the Commissioners of Fairmount Park on July 9, 1934. Pursuant thereto plaintiff did convey Strawberry Bridge to the City of Philadelphia. The physical transfer of the bridge property to the City of Philadelphia took place on August 3, 1934. At the time of such conveyance the cost basis to plaintiff of Strawberry Bridge remaining unrecovered was $228,852.74.

8. (a) On the corporation income and excess profits tax return of Fairmount Park Transit Company for the calendar year 1934 depreciation on Strawberry Bridge in the amount of $5,522.36 was deducted with the following explanation :

Depreciation on Strawberry Bridge is computed from 1/1/34 to 8/3/34, the date on which the City accepted ownership. In writing off this asset 12/31 /34, all depreciation, totalling $146,147.26 was removed from accrued depreciation account.

(b) On plaintiff’s income tax returns for the years 1935 through 1945 no deduction was claimed on account of depreciation of Strawberry Bridge, nor on account of the exhaustion of the plaintiff’s franchise to operate the trolley line.

9. On its income tax return for 1946 plaintiff claimed a loss resulting from abandonment of the railroad in the amount of $336,380.04. The details were shown on Schedule 3 to Schedule K of said return, as follows:

10. On its income tax return for 1946, plaintiff also claimed as a deduction $11,560.59 for amortization of the franchise. These items, including the claimed loss for abandonment of the railroad, resulted in a net loss shown on the return for 1946 of $128,897.97.

11. The Revenue Agent reduced the net loss to $55,036.71 by various adjustments including “(a) decrease in abandonment loss $64,875.07,” and “(c) decrease in amortization franchise deduction $9,259.22.” He explained the $64,875.07 as follows:

SCHEDULE 3-A YEAR 1946
Explanation of Items
(a) Decrease in abandonment loss_$64,875.07
This increase in income was computed as follows:
Part of abandonment loss attributable to abandonment of franchise per return_ 74,445. 89
Less: allowable loss on abandonment franchise: Original cost of fran-chise_$500,000.00
Less allowable amortization to date of extension (7/24/89-7/24/34 — 45 years at $10,000.00_ 450, 000. 00
(Original cost of franchise $500,-000.00-Hby original life 50 years =$10,000.00.)
Less: amortization to date of abandon : 7/24/34 - 7/24/46 — 12 years ($3,333.33 — $39,999.96.) ($50,000.00-j-rem. life 15 yrs.) (7/24/34 - 7/24/49) = $3,333.-33.) (7/24/46-9/9/46 date 47 abandon 7^5x3,333.33=429.27_ ODD 40,429.18 $9,670.82
Decrease in abandonment loss_$64, 875.07

12. The effect of this action by the Bevenue Agent was to disallow any 1946 amortization and any abandonment loss for any cost of franchise attributable to the undepreciated balance of the cost of Strawberry Bridge. The Bevenue Agent’s action was adopted by the Commissioner of Internal Bevenue in determining plaintiff’s net loss carryback referred to above.

13. On December 15,1947, plaintiff filed with the Collector of Internal Bevenue at Philadelphia a first claim for refund of 1944 income taxes on Treasury Department Form 843 seeking refund in the amount of $6,087.28, on the following ground:

Deponent failed to deduct amortization of the cost of its transportation franchise for the year 1944 amounting to the sum of $15,218.21. Such sum is computed as follows:
Cost of property deeded in 1934 to the City of Philadelphia in return for an extension of its trolley operating franchise to July 24, 1949, was $228,852.74. This sum is recoverable equally over the remaining term of 15 years at the rate of $15,218.21 per year.

This claim for refund was rejected in full by the Commissioner on October 26,1950.

14. On December 30,1948, plaintiff filed with the Collector of Internal Bevenue at Philadelphia a second claim for refund of 1944 income taxes on Treasury Department Form 843 seeking refund in the amount of $58,791.91, on the following three grounds:

1. Deponent incurred a net operating loss for the year 1946 in the amount of $128,987.77 [sic.] as shown by its Income Tax return for such year, filed with the Collector of Internal Revenue for the 1st District of Penna. Such net operating loss is a proper deduction under the “carryback” provisions of law from the Net Income of $190,097.89 reported as taxable for the year 1944.
2. This claim is supplemental and/or in addition to the claim heretofore filed on December 15, 1947 for the year 1944, in the amount of $6,087.28 arising from a deduction for amortization of Franchise.
3. Deponent failed to deduct amortization of its Trolley Franchise in the amount of $3,816.66, being the 1944 proportion of cost basis properly allowable in such year.

This second claim for refund of 1944 income taxes was allowed in part by the Commissioner of Internal Revenue, who allowed (1) $55,036.71 of the net loss carryback and (2) $3,333.33 of the $3,816.66 claim for exhaustion of cost of original franchise. He denied the balance of the second claim. Accordingly, there was refunded to plaintiff on account of 1944 taxes $22,014.69 and interest, but the balance of plaintiff’s second claim for refund of 1944 taxes was rejected by the Commissioner of Internal Revenue on October 26,1950.

15. On December 30, 1948, plaintiff filed with the Collector of Internal Revenue at Philadelphia a claim for refund of 1945 income taxes on Treasury Department Form 843 seeking refund in the amount of $6,087.28, on the following grounds:

Deponent failed to deduct amortization of the cost of its transportation franchise for the year 1945 amounting to the sum of $15,218.21. Such sum is computed as follows:
(a) Cost of Property deeded in 1934 to the City of Philadelphia in return for an extension of its trolley operating franchise to July 24, 1949 was $228,852.74. This sum is recoverable equally over the remaining term of 15 years at the rate of $15,218.21 per year.
(b) Original cost of Trolley Franchise in amount of $500,000.00 should be amortized over useful life from start of operations in November 1896 rather than from date of Franchise in 1889. As a result the deduction for amortization thereof for 1945 should be in the sum of $3,816.66 instead of $3,333.33 as shown in the return filed for 1945.

This claim was allowed by the Commissioner to the extent of $1,282.05 by reason of allowance of a deduction of $3,333.33 for depreciation of franchise and was rejected as to the balance.

16. In 1934 plaintiff’s bonded and other indebtedness was approximately $670,000, and in the light of its financial condition it was unlikely that plaintiff would have been able to work out its problems and pay off its bonds by 1939. So it was important to plaintiff to have its franchise extended to give it additional time to work out the payment of its debts.

17. A number of conferences were held before March 14, 1934, between N. S. Alexander, president of plaintiff, and Robert F. Irwin, Jr., a director and general counsel of plaintiff, and W. Kirkwood Dwier, one of the Commissioners of Fairmount Park, with regard to the situation and condition of Strawberry Bridge.

18. As a result of these conferences, under date of March 14,1934, the Commissioners of Fairmount Park addressed a letter to plaintiff’s president, as follows:

On July 6, 1889, the Commissioners of Fairmount Park approved and authorized the granting of a license to William Wharton, Jr.,
“To lay down and construct, operate and maintain for the term of fifty (50) years, from and after the date hereof, a Passenger Railway in Fairmount Park, as follows: . . .”
This license was executed and acknowledged July 24, 1889, by George H. Boker, President of Park Commission, and William Wharton, Jr.
Article 2 of the license provides for:
“The said Passenger Railway beginning at or near the foot of the old inclined plane; thence with double track to the summit at or near the head of said inclined plane; thence with single track to Chamounix . . . also a branch with a double track beginning near the intersection of Huntingdon Street and Ridge Avenue and extending thence westerly to and across the River Schuylkill by a suspension bridge to point in the West Park, where it may connect with the main line single track between Chamounix and the foot of the inclined plane; all as shown and delineated on the plan as designed and submitted by Samuel L. Smedley, Chief Engineer and Surveyor of the City of Philadelphia. . . .”
Article 14 of the license provides that:
“The said William Wharton, Jr., shall, at his own cost and expense, construct and maintain the said Passenger Railway and he shall at all times during the continuance of this license keep the same ... in good order and repair to the satisfaction of said Committee on Plans and Improvements, of said Commissioners.”
Under the terms of this license, included in the general license for the construction of the Passenger Railway in Fairmount Park to William H. Wharton, Jr., the Fair-mount Park Transit Company, successor to Fairmount Park Transportation Company, is required to maintain the said Passenger Railway at all times during the continuance of the license, all property used upon or in connection with the same, in good order and repair, which includes the structure known as the Strawberry Mansion, or Dauphin Street Bridge, over the Schuylkill River. No maintenance work or repairs have been performed by your company in recent years, adequate to keep this structure in good condition, with the result that a detailed examination made by Engineers of the Department of Public Works indicates that the structure is in immediate need of extensive repairs, reinforcement, replacement (including new roadway paving) and painting of all metal.
The Committee on Superintendence, Commissioners of Fairmount Park, on behalf of the President of the Commission, advise you that because of non-compliance with the terms of the license the Strawberry Mansion, or Dauphin Street Bridge, is approaching a dangerous condition.
We, therefore, call on the Fairmount Park Transit Company to make, or begin to make, the necessary repairs to this structure as required by the license, within thirty (30) days from the receipt of this communication.
We further notify you that if such repairs are not made to the bridge by the Fairmount Park Transit Company, the structure will within six (6) months, be closed to all traffic, including that of the Transit Company.
Your prompt consideration and reply to this communication will be appreciated.

19. And, under date of April 11,1984, plaintiff’s president sent a reply thereto, as follows:

I beg to acknowledge receipt of the letter of March 14, 1984 of your Committee on Superintendence and of the Director of Public Works of the City of Philadelphia.
I have submitted your communication to the Board of Directors of the Fairmount Park Transit Company, and I have been authorized by the Board on behalf of the Company to make the following reply.
The bridge was completed by the Company in 1897 at a cost of $381,534.00. Its total width is 79% feet and 52% feet are used exclusively by the public with a roadway 40 feet wide and a footwalk 1% feet wide. The bridge is an essential thorofare and a connecting link between the portion of the City East of the Schuylkill and the portion West of the Schuylkill and is the only bridge between Girard Avenue to the South and the Falls of the Schuylkill bridge to the North.
You have called our attention to certain provisions of the license in comiection with the Strawberry Bridge and the repairs thereto. I think that it is necessary to also consider Article 5, of the Amendments to the original license adopted on November 10, 1894, which provides:
“The said bridge over the Eiver Schuylkill shall be a substantial and ornamental structure, of steel or iron, with stone piers and abutments, and the plans, materials and construction thereof shall be subject to the approval of the Committee of the Commissioners of Fairmount Park on Plans and Improvements. Proper provision shall be made on the said bridge for the passage of carriages and foot passengers, and no charge shall be made for their passage over the said bridge.”
Since 1897 the character of the use of the bridge by the public has changed with the development of the automobile, and although the license only provides for the passage of carriages and foot passengers, thousands of automobiles use the bridge daily. A traffic study made by us during one week in December 1930 showed 41,132 automobiles crossing the bridge carrying 79,127 passengers as against 4,333 passengers using the trolley cars of the Company during the same period. The 4,333 is less than 5%% of the number transported across the bridge by motor vehicles.
The Company’s financial condition at the present time makes it impossible for the Company to make any extensive repairs to the bridge. It has had to request its bondholders to postpone payment for one year of the coupons due October 1, 1938 and April 1, 1934; it has notes payable in excess of $150,000; it has only been able to carry itself through the past winter by loans from its stockholders; it has no credit or source from which it can obtain funds at the present time..
Irrespective of the legal obligation of the Company to make the repairs requested in your letter and without prejudice to the rights of the Company, I am authorized on behalf of the Board of Directors to state that the Company is willing to convey the bridge without cost to the City of Philadelphia providing its license shall be extended from July 24, 1939 to July 24, 1949, and providing the Company shall have the right to use the bridge during this period without any further payments in addition to the 2% of its gross receipts from passengers which it now pays to the Commission.
I am submitting herewith an agreement which has been executed by the Company in order to consummate the arrangement.
It is only by reason of the financial plight of the Company that the Company is willing to make this transfer in view of the fact that paragraph 18 of the license provides as follows:
“18. And at the termination of this license by notice given as aforesaid, the said Commissioners may purchase and pay for and take possession of the whole of the tracks, bridges, buildings, machinery, appurtenances and rolling stock lying within or used within the limits of Fairmount Park in connection with the said passenger railway, at the actual cash value thereof at the time of the purchase; but they shall have no right to purchase only a portion thereof; and in case of such purchase, the purchase money shall be paid to said William Wharton, Jr., in cash within one year after such termination of this license with interest thereon added thereto at the rate of five percent per annum from such termination to the date of payment.”
The transfer of the bridge takes from the Company the one portion of its property which the Commission requires for public use and convenience, and frees the Commission from any obligation to purchase any of the remaining property of the Company upon the termination of the license.

20. Strawberry Bridge was a highway for automobiles, connecting sections of Philadelphia to the east of the Schuylkill River with the western part of Fairmount Park and with the western parts of the city. Of the nearest other bridges across the Schuylkill, one was two miles to the south, and the other, one mile to the north.

CONCLUSION OE LAW

Upon the foregoing findings of fact, which are made a part of the judgment herein, the court concludes that as a matter of law plaintiff is entitled to recover. The entry of judgment is suspended pending further proceedings before a Commissioner of this court. 
      
       Section 23 (1) provides: [In computing net income there shall be allowed as deductions:]; “Depreciation. — A reasonable allowance for the exhaustion, wear and tear (including a reasonable allowance for obsolescence) — (1) of property used in the trade or business, or (2) of property held for the production of income.”
     
      
       Section 23 (f) provides: ,[In computing net income there shall be allowed as deductions:] “Losses by Corporations. — In the case of a corporation, losses sustained during the taxable year and not compensated for by insurance or otherwise.”
     
      
       Section 112 (a) provides: “General Rule. — upon the sale or exchange of property, the entire amount of the gain or loss, determined under section 111, shall be recognized, except as hereinafter provided in this section.”
     
      
       Section 113 (a) provides: “Basis, (unadjusted), of Property. — .The basis of property shall be the cost of such property; except that * *
     
      
       1 Montgomery, Federal Taxes, Corporations and Partnerships (1952-53) 352; 1 P—H ¶ 10, 506, 1954; Budd International Corp. v. Commissioner, 143 F. 2d 784; Forstmann v. Rogers, 128 F. 2d 126; Champlin Refining Co. v. Commissioner, 123 F. 2d 202; Estate of Isadore L. Meyers v. Commissioner, 1 T. C. 100; and the cases there cited. It should be noted that many of the statements made in the above cited authorities were made in connection with exchanges of property where the values were equal, presumed to be equal or the specific question was not disputed and therefore there would have been no difference in result.
     
      
       Moroney and Colgan, Gain or Loss on Sale or Exchange, Fundamentals of Federal Taxation, Practicing Law Institute (1946) ; Rabbin & Johnson, Federal Income Gift and Estate Taxation, S3 Sec. 2; Greenbaum, The Basis of Property Shall Be the Cost of Such Property; How is Cost Defined ?, 3 Tax L. Rev. 351 (194S) ; Bodell v. Commissioner, 154 F. 2d 407; Commissioner v. Lincoln-Boyle Ice Co., 93 F. 2d 26; Hillyer, Edwards, Fuller, Inc. v. United States, 52 F. 2d 742 (E. D. La.) ; Mary Kavanaugh Feathers v. Commissioner, 8 T. C. 376; Estate of Isadore L. Meyers v. Commissioner, 1 T. C. 100 (concurring opinion); and the cases there cited.
     
      
       Compare I. T. 2212, IV-2 C. B. 118 with I. T. 3523, 1941-2 C. B. 124 and the Commissioner’s equivocal acquiescence in Estate of Isadore L. Meyers case, supra, 1943-1 C. B. 17.
     
      
       See footnotes 5 and 6.
     
      
       Section 113 (b) (2-) provides: “Substituted basis. — The term ‘substituted basis’ as used in this subsection means a basis determined under any provision of subsection (a) of this section or under any corresponding provision of a prior income tax law, providing that the basis shall be determined — (A) by reference to the basis in the hands of a transferor, donor, or grantor, or (B) by reference to other property held at any time by the person for whom the basis is to be determined.”
     
      
       On Schedule L of the return, under “other debits to surplus,” there was listed: “Deeding Strawberry Bridge to City,
     