1. Under § 234(a)(7) of the Revenue Act of 1918, which
provides that, in computing the net income of corporations, there
shall be allowed as a deduction "a reasonable allowance for the
exhaustion, wear, and tear of property used in the trade or
business, including a reasonable allowance for obsolescence," a
brewing company is not entitled to a deduction for the fiscal year
ending May 31, 1919,
Page 280 U. S. 385
on account of "exhaustion" or "obsolescence" of its goodwill,
although it became certain prior to that period that the goodwill
of the company would be destroyed by January 16, 1920, because of
prohibition legislation. P.
280 U. S.
386.
2. When a business is extinguished as noxious under the
Constitution, the government incur no liability for compensation to
the owners. P.
280 U. S.
386.
3. It will not be presumed that Congress intended to provide
partial compensation to the owners of a business extinguished as
noxious under the Constitution by an allowance to them, under
§ 234(a)(7) of the Revenue Act of 1918, of deductions on
account of the "exhaustion" or "obsolescence" of the goodwill of
the business. P.
280 U. S.
386.
30 F.2d 219 reversed.
Certiorari, 279 U.S. 832, to review a judgment of the circuit
court of appeals which reversed a judgment of the district court,
20 F.2d 540, dismissing the complaint in a suit to recover money
exacted and paid as income taxes.
MR. JUSTICE HOLMES delivered the opinion of the Court.
A writ of certiorari was granted in this case on May 13, 1929 on
account of a conflict between the judgment below, 30 F.2d 219
(reversing 20 F.2d 540) and
Red Wing Malting Co. v.
Willcuts, 15 F.2d 626 (
cert. denied, 273 U.S. 763),
the latter case having been followed by
Landsberger v.
McLaughlin, 26 F.2d 77, and
Renziehausen v.
Commissioner, 31 F.2d 675, now pending here.
Page 280 U. S. 386
This is a suit brought by the respondent to recover income and
profits taxes paid under protest on the ground, as stated by its
counsel, that it was not allowed to deduct from gross income
"a reasonable allowance for the exhaustion, including
obsolescence, of its goodwill . . . , it having become certain
prior to that period that the useful life of the goodwill would be
terminated by January 10, 1920, because of prohibition
legislation."
The question turns of the Revenue Act of 1918 (Act of February
24, 1919), c. 18, § 234(a)(7), 40 Stat. 1057, 1078, allowing
as deductions,
inter alia,
"A reasonable allowance for the exhaustion, wear and tear of
property used in the trade or business, including a reasonable
allowance for obsolescence."
The good will was that of a brewery, and is found to have been
destroyed by prohibition legislation. The deduction claimed is for
the fiscal year ending May 31, 1919, it having been apparent early
in 1918 that prohibition was imminent, and the officers having
taken steps to prepare for the total or partial liquidation of the
company. The amount of the deduction to be made is agreed upon if
any deduction is to be allowed.
We shall not follow counsel into the succession of regulations
or the variations in the law before the date of the Act that we
have to construe. In our opinion, the words now used cannot be
extended to cover the loss in this case, and it is needless to
speculate as to what other cases it might include. It seems to us
plain, without help from
Mugler v. Kansas, 123 U.
S. 623, that, when a business is extinguished as noxious
under the Constitution, the owners cannot demand compensation from
the government, or a partial compensation in the form of an
abatement of taxes otherwise due. It seems to us no less plain that
Congress cannot be taken to have intended such a partial
compensation to be provided for by the words "exhaustion" or
"obsolescence." Neither word is apt to describe
Page 280 U. S. 387
termination by law as an evil of a business otherwise
flourishing, and neither becomes more applicable because the death
is lingering, rather than instantaneous. It is incredible that
Congress, by an Act approved on February 24, 1919, should have
meant to enable parties to cut down their taxes on such grounds
because of an amendment to the Constitution that it had submitted
to the legislatures of the states in 1917 and that had been
ratified by the legislatures of a sufficient number of states the
month before the present Act was passed.
Judgment reversed.
MR. JUSTICE McREYNOLDS and MR. JUSTICE STONE concur in the
result.
