Turchin
v.
Comm'r of Internal Revenue

This case is not covered by Casetext's citator
Tax Court of the United States.May 29, 1951
16 T.C. 1183 (U.S.T.C. 1951)

Docket Nos. 21250 21251 21271.

1951-05-29

BEN TURCHIN, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.GERTRUDE F. TURCHIN, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.MORRIS SCHWINGER, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

W. G. Ward, Esq., and W. W. Arner, C.P.A., for the petitioners. Percy C. Young, Esq., for the respondent.


W. G. Ward, Esq., and W. W. Arner, C.P.A., for the petitioners. Percy C. Young, Esq., for the respondent.

Petitioners were members of a partnership which owned a resort hotel in Miami Beach, Florida. This hotel was leased to the United States Army for use by troops during parts of 1942 and 1943. By the terms of the lease, the Army was required to restore the premises to the same condition that existed at the time of entering, ‘reasonable and ordinary wear and tear‘ excepted. At the termination of occupancy, the partnership chose to accept a cash settlement, rather than physical restoration. Negotiations proceeded and the amount due the partnership under the lease was agreed to, paid by the Army and accepted by the that the partnership was not at all times, fully indemnified by reason of the restoration provision of the lease for all added or abnormal wear and tear due to Army occupancy, and is not, therefore, entitled to the deduction of any amount as accelerated depreciation.

Respondent determined deficiencies against the petitioners in income tax for the calendar year 1943, as follows:

+------------------------------------------+ ¦Docket No. ¦Name ¦Amount ¦ +------------+-------------------+---------¦ ¦21250 ¦Ben Turchin ¦$1,023.33¦ +------------+-------------------+---------¦ ¦21251 ¦Gertrude F. Turchin¦2,057.64 ¦ +------------+-------------------+---------¦ ¦21271 ¦Morris Schwinger ¦8,831.10 ¦ +------------------------------------------+

The sole question presented is whether respondent erred in increasing each petitioner's distributive share of partnership net income for the taxable year 1942, by reason of his disallowance of a deduction of $30,348.09 as accelerated or abnormal depreciation on hotel property, fixtures and furniture belonging to the partnership. Other adjustments made by respondent have been accepted by petitioners. The question here relates to 1942 income by reason of the ‘foregiveness‘ provision of the pertinent statute.

FINDINGS OF FACT.

During the period of time involved herein, petitioners resided at Miami Beach, Florida, and filed their Federal income tax returns for such period with the collector of internal revenue at Jacksonville, Florida.

Petitioners Ben and Gertrude Turchin are husband and wife, and in 1942 each owned a 25 per cent interest in the co-partnership of Turchin & Schwinger. Petitioner Morris Schwinger owned a 50 per cent interest in the partnership. The partnership owned a seasonal tourist hotel of 136 rooms at Miami Beach, known as the Sea Isle Hotel. The title to the hotel was in the name of Morris Schwinger and Ben Turchin. The hotel was completed, furnished and opened in 1940. Its season of operation was usually from December 1 to May 1.

After the hotel was closed on May 1, 1942, the first year in which the United States was engaged in World War II, an army officer addressed a meeting of property owners as to the importance of cooperating in the war effort. At that time, many men and officers were being brought to the Miami area for training, and necessary facilities were not available. There were no classrooms and classes were being held outdoors, without tables, chairs, or shelter.

After the meeting, Ben Turchin, sometimes referred to as petitioner, offered the public space, or lobby, of the Sea Isle Hotel to the Army Air Corps for classroom purposes during the summer. On May 16, 1942, the owners of the hotel were notified, by letter, that the Commanding General of the Miami Area, First Technical Training Command District, on behalf of the War Department, desired to take possession by May 18, 1943, of the public space of the Sea Isle Hotel, for daytime use only. The letter was signed by H. B. Smith, Colonel, A. C., Executive.

The Army took possession on ar about May 18, 1942, and used the public space of the hotel for class or club rooms. Near the latter part of May, the Army decided to take over the entire hotel and negotiations were carried on to that effect. On June 1, 1942, petitioner, as partner, for Turchin & Schwinger, signed an Occupation Permit, in the form provided by the Office of Chief Engineers, Construction Division, Real Estate Branch, and which, in so far as material herein, provided:

IN CONTEMPLATION of the execution of a lease agreement dated June 1st, 1942 between the undersigned and the United States of America and in consideration of the sum of One Dollar ($1.00) and other valuable consideration, the receipt whereof is hereby acknowledge, the undersigned, hereinafter called the owner, grants to the United States of America, hereinafter called the Government, a permit for the occupation of the premises described below, upon the following terms and conditions.

2. The Owner hereby grants to the Government an irrevocable right to enter upon the premises hereinafter described at any time from the date of this instrument, for the purpose of housing and/or feeding personnel, to store supplies or for other military purposes provided for in the proposed lease, the said right of entry being for the full and complete occupation of the premises described.

5. Full possession, upon formal notification for possession by the Commanding General, Miami Area, FTTCD, is given the Government as of 8 A.M. o'clock, June 3rd, 1942.

7. In the event the proposed lease should not be consummated, the compensation to the Owner for the occupation of said premises by the Government shall be handled as a claim for damages in accordance with AR 30-1430. However, if the proposed lease is consummated, the owner hereby waives and releases any and all claims for damages arising from the activity or inactivity of the Government, its officers, agents, employees, representatives or assigns on said premises, in the reasonable exercise of the occupation permit.

On June 2, 1942, the formal notice was given to the hotel owners of the desire of the War Department to take complete possession of the Sea Isle Hotel, ‘land, improvements, appurtenances and furnishings,‘ as of 8 A.M., the 19th day of June 1942. This notice was signed by H. B. Smith, Colonel, A. C., Executive, for the Commanding General of the Miami Areas, First District, Army Air Forces Technical Training Command.

On June 9, 1942, a memorandum was addressed to Ben Atherton, manager of the Sea Isle Hotel, by John J. Sewell, Project Manager, in which it was stated that it was necessary that the Government erect a temporary structure at the top of the Sea Isle Hotel; that any damages to the building caused by such structure and the use thereof would be restored at the Government's expense, and that it was understood the foregoing would be included in the formal lease. At the foot of the memorandum, and on the same date, there is typed a notation to the Corps of Engineers, Real Estate Project, that ‘Permission requested in the foregoing is hereby granted in accordance with the above terms,‘ which was signed by Ben Atherton. The structure to be built related to placement of anti-aircraft guns on the roof of the building. This action was at a time when Atherton was supervising the removal and storage of items not turned over to the Army and prior to any occupancy by the Army of space other than the public space or lobby.

Pursuant to the above notice, given on June 1, the Army took full possession of the hotel on ar about June 19, 1942. Prior to that time, the hotel had not suffered any abnormal wear and tear due to the Army use. The formal written lease of the hotel was dated June 25, 1942, and covered Army occupancy from June 19, 1942.

During the period from June 15 to and including June 19, Army inspectors examined the hotel throughout and in each instance made a written ‘Statement of Condition‘ covering the property inspected. According to the Statement of Condition covering refrigeration and air conditioning equipment, the inspection was made on June 15. The inspection of kitchen equipment and the inspection of lawns and landscaping were shown as having been made on June 16. The inspection covering building construction was shown as having been made on June 17. The inspection covering plumbing equipment, the inspection covering oil burner equipment and the inspection covering swimming pool were shown as having been made on June 18. The inspection covering electrical equipment and wiring was shown as having been made on June 19. The Statement, in each instance, was subscribed and sworn to on June 30, 1942, before a summary court officer. Sometime between June 30 and October 1, 1942, the Statements of Condition so made were sent to the lessors for approval.

In the written lease, it was provided that Schwinger, Turchin, and their wives leased to the United States of America their ocean-front properties, ‘together with riparian rights; and et cetera, together with all improvements thereon, including swimming pool, cabanas, cabana clubhouse, and cabana porches, and hotel known as Sea Isle Hotel, * * * to be used exclusively for the following purposes: Air Corps housing and other National Defense Requirements of the War Department,‘ for the term beginning June 19, 1942, and ending June 30, 1943, at a rental of $50,000 per annum with the Government having the option to renew the lease from year to year. It was provided that the Government, during its occupancy, should have as a part of the rental consideration the use of ‘Basic furniture now in the hotel, including beds, springs, mattresses, pillows, dressers, tables, chairs, blankets, excluding drapes, bed spreads, pictures, bric-a-brac, antiques, and lobby rugs.‘ Paragraphs 8 and 13 of the lease were as follows:

8. The Government shall have the right, during the existence of this lease to make alterations, attach fixtures, and erect additions, structures, or signs, in or upon the premises hereby leased (provided such alterations, additions, structures, or signs shall not be detrimental to or inconsistent with the rights granted to other tenants on the property or in the building in which said premises are located); which fixtures, additions, or structures so placed in or upon or attached to the said premises shall be and remain the property of the Government and may be removed therefrom by the Government prior to the termination of this lease, and the Government, if required by the Lessor, shall, before the expiration of this lease or renewal thereof, restore the premises to the same conditions as that existing at the time of entering upon the same under this lease, reasonable and ordinary wear and tear and damages by the elements or by circumstances over which the Government has not (sic) control except (sic): Provided, however, That if the Lessor requires such restoration, the Lessor shall give the written notice thereof to the Government 20 days before the termination of the lease.

The copy of the lease appearing in the record is as it was printed on pages 9234 and 9235 of a document entitled ‘Investigation of the National Defense Program‘

13. Immediately after the consummation of this lease, the representatives of the Lessor and the Government shall make a joint survey and inventory setting forth the furnishings and equipment generally described in par. 6 hereof.

Although not specifically excluded from Army use in the written lease, the lessors, proceeding on that theory, stored the kitchen and dining room equipment in locked storerooms. Sometime after the Army had billeted personnel in the hotel, the partnership discovered that some of the storerooms had been broken open and that kitchen equipment and various articles which had been so stored were being used. Negotiations were had with respect thereto, and by a supplemental agreement, dated October 1, 1942, it was

understood and agreed by and between the parties to the said lease, that beginning October 1, 1942, the instrument is changed in the following respects and these particulars only:

The legal description in Article 2 of said lease shall be amended by the addition of the following words: ‘The kitchen and kitchen equipment in this building are specifically excluded from this lease.‘

The whereas clauses recited that the amendment was for and in consideration of certain alterations which had been made by the lessors at their expense, and the further consideration that they absolve the Government from any and all responsibility for any expense in connection with the maintenance of said kitchen and kitchen equipment, and for the reason that it was considered advantageous to the Government that the kitchen and kitchen equipment be excluded from the lease.

At some date not shown, possibly during the period from June 30, 1942, to October 1, 1942, the lessors received from the Corps of Engineers a mimeographed form of memorandum, with the request that it be singed and returned. The memorandum was as follows:

MEMORANDUM TO REAL ESTATE BRANCH— CORPS OF ENGINEERS:

It is my understanding that carpets and rugs contained in the SEA ISLE HOTEL are to be considered similarly to furniture insofar as ordinary wear and tear is concerned and that the Government will not restore carpets and rugs except when damage thereto is greater than ordinary wear and tear. That the use which the Army makes of the carpets by using the hotel as a barracks if ordinary wear and tear as understood herein.

The lessors took exception to the sentence reading, ‘That the use which the Army makes of the carpets by using the hotel as a barracks is ordinary wear and tear as understood herein.‘ Though they signed the memorandum, as requested, it was never returned to the Corps of Engineers and at no time did they ever agree that reasonable and ordinary wear and tear as used in the lease was to be construed as meaning the reasonable and ordinary wear and tear which would result from use of the hotel as barracks.

The reason for the above request by the Corps of Engineers is not readily apparent, since the presence of carpets in the hotel is not shown and it was the testimony of Atherton, manager of the hotel at the time it was taken over by the Army, that all rugs were stored and were not used by the Government.

When the reports of the inspectors, above described, purporting to cover the condition of the properties as of the dates of inspection, ranging from June 15 through June 19, were received by the lessors, they refused to accept the reports as fairly showing the condition of the properties at the time they were taken over for Army occupancy under the lease. They accordingly returned the reports of the Army, with statements to the effect that the properties were in much better condition at the time taken over than shown by the reports in question. Over a period of time, there was some sending of the reports back and forth. On October 23, 1942, Lt. Joel A. Clark wrote a letter to Petitioner Schwinger, advising that ‘in order to certify vouchers for payment of rental on the Sea Isle Hotel files must be complete on that property. * * * You are in your rights to make any comments pertaining to this report which will be filed with the Statement of Condition, but it is necessary that the report be signed and returned.‘ Petitioner Turchin then signed the certificate attached to the Statement of Condition, after adding a qualifying statement, as follows:

October 27, 1942.

I hereby certify that the attached ‘Statement of Condition‘ report of the Sea Isle Hotel is a true report and is accepted by me as such, subject to the exception hereinafter set forth.

Ben Turchin, Partner, Owner or Agent.

At time inventory was taken, no check was made room to room concerning condition of paint on base and walls. Your report shows every room plaster and woodwork partially soiled. This is not correct because all rooms were inspected and three painters had been working for over one month painting rooms where needed. Approximately 75 per cent of all rooms were in first class condition and were either unsoiled or had just been repainted.

Ben Turchin, Partner, Owner or Agent.

From May 1, 1942, to the date on which the Army occupied the premises as a whole the petitioners had three men on the premises doing painting and making repairs.

From the date of entry under the lease, until about August 1, 1942, the hotel was occupied by the 90th Air Force. It was next occupied by 600 to 700 Air Force Cadets. At the time the cadets moved in the property was in poor condition. The cadets, by use of soap and water, maintained the property to the best of their ability. They were later supplied with paint by the lessors, but at no time were their facilities for maintenance fully adequate. Despite the billeting of four, six, and eight men to a room, through the use of double-deck beds, the property, when returned to the owners in December of 1943, was generally in better condition than when the cadets took it over in August of 1942. However, the condition of the hotel when turned back to the owners was not first class. There was added damage or damages beyond normal to the hotel due to Army occupancy, but the damage was of a general nature and was not individual damage or damage due to specific injury. Most of this damage occurred during the early occupancy of billeted troops.

During the latter part of 1943, when it was known that the Army was going to return the hotel to its owners, negotiations were had on the partnership's claim for damages to the hotel during the period of its occupancy under the lease. The partners preferred a cash settlement, rather than actual restoration of the property by the Government, since a cash settlement would permit them to enter into possession of the property without delay and supervise for themselves the restoration of the hotel for use during the tourist season which was then approaching. Agreement as to the amount due the partnership was not immediately reached. The partnership claimed that the amount required under the restoration provision of the lease was $76,295.97, while the Army contended that the amount due was between forty and forty-five thousand dollars. From that point, negotiations proceeded and an agreement was reached that the amount to be paid was $59,000, which amount included an allowance for 2 months' rent. In December 1943, the $59,000 agreed to was paid by the Army in satisfaction of the Government's liability under the lease and, as such, was accepted by the partnership.

Of this amount, $8,125 was claimed as ‘2 months rent allowance for restorative.‘

Except that the beds and other furniture were refinished and, as refinished, are still in use, the record does not show what was done by way of repairs and physical restoration, or how much money was spent in restoring the property to hotel use.

As to petitioner Turchin, it is stipulated that in reporting his share of the partnership profits he did not report as income any part of the $59,000 paid as set forth.

So far as shown by the record, no part of the settlement of $59,000 was included in income by the partnership in its books or in its return of income as representing rent for any period.

In May 1943, Leo Robinson purchases petitioner Schwinger's interest in the partnership and the hotel property. The co-partnership of Turchin & Schwinger was thereupon changed to Turchin & Robinson. Petitioner Schwinger reported in his 1943 income tax return the sale of his partnership share at $165,000, with the cost in 1940 at $156,171.56.

On the partnership return of Turchin & Schwinger for the fiscal year ended November 30, 1942, deductions were taken to cover ‘normal‘ depreciation on the hotel buildings and furnishings in the respective amounts of $13,426.98 and $11,403.68, or the total of $24,830.66. Deductions for added or ‘accelerated‘ depreciation were taken as follows: Building, $13,602.15; furniture and fixtures, $16,742.94, a total of $30,346.09. Respondent disallowed the total amount of the accelerated depreciation as a deduction, but allowed the deduction for normal depreciation on an adjusted base, which has been accepted by petitioners.

Petitioners are not entitled to the allowance of any amount as accelerated or abnormal depreciation on the building, furniture and fixtures of the Sea Isle Hotel.

OPINION.

TURNER, Judge:

Petitioners contend in these proceedings that the respondent should have allowed the increased deduction claimed by them in their partnership income tax return for the fiscal year ended November 30, 1942, to compensate them for abnormal depreciation suffered by their hotel property and furnishings during the occupancy of the hotel by Army Air Corps troops from June 19 to November 30, 1942.

A reasonable allowance for the exhaustion, wear and tear, and obsolescence of the property used in the trade or business may be deducted from gross income, as provided by section 23(1)(1) of the Internal Revenue Code and section 29.23(1)-1 of Regulations 111.

SEC. 23. DEDUCTIONS FROM GROSS INCOME.In computing net income there shall be allowed as deductions:(1) 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, * * *

SEC. 29.23(1)-1. DEPRECIATION.— A reasonable allowance for the exhaustion, wear and tear, and obsolescence of property used in the trade or business, or treated under section 29.23(a)-15 as held by the taxpayer for the production of income, may be deducted from gross income. For convenience such an allowance will usually be referred to as depreciation, excluding from the term any idea of a mere reduction in market value not resulting from exhaustion, wear and tear, or obsolescence. The proper allowance for such depreciation is that amount which should be set aside for the taxable year in accordance with a reasonably consistent plan (not necessarily at a uniform rate), whereby the aggregate of the amounts so set aside, plus the salvage value, will, at the end of the useful life of the depreciable property, equal the cost or other basis of the property determined in accordance with section 113. Due regard must also be given to expenditures for current upkeep. * * *

The petitioners took, and the respondent has allowed a deduction for normal depreciation. The respondent did make some adjustment of the partnership's basis for the hotel properties and a small part of the deficiency in each case resulted from that adjustment. The petitioners are not here contesting the adjustment of basis, and effect will be given thereto in computations to be made under Rule 50.

It is the contention of the petitioners that, due to Army occupancy and use, the hotel properties suffered unusual damage of a general nature over and above the ordinary wear and tear which would reasonably have been sustained if the hotel had been subjected to use as a hotel, that the greater part of this unusual damage occurred during the first weeks of Army occupancy and still obtained at November 30, 1942, the close of the partnership's fiscal year, and that by reason thereof, the partnership, in reporting its income for said year, was entitled to a deduction for depreciation over and above normal depreciation to cover the unusual damage, and this, without regard to any right of indemnification or any subsequent payment therefor by the Government. The petitioners' counsel argues that the subsequent compensating payments received by the partnership in 1943 are comparable to recoveries on debts which became worthless and were deducted in a prior year and have no bearing whatever on the right of the partnership to the ‘accelerated‘ depreciation deduction claimed by the partnership for the fiscal year 1942, and disallowed by the respondent.

That the above contention of the petitioners is not well taken, is immediately apparent, when the nature and purpose of the depreciation allowance is considered and understood. It is the normal and expected thing that physical properties used in a business operation will eventually be consumed. Where there has been no sale of plant, as such, and there is no means or right of recovery for its consumption, except through the sale of goods produced or the letting of the property to the use for which it was constructed, acquired or held, the owner must, of necessity, look to gross profits or receipts for recovery of the plant or capital consumed in the production of those profits. In that case, a reasonable allowance to cover the consumption of the plant or capital becomes a proper charge on profits. On the other hand, to the extent that the owner of the property is otherwise indemnified for the damage and wear and tear to the property and does not have to look to operating profits for the recovery of the capital consumed, then there is no basis, in reason or in fact, for a charge of such wear and tear against those profits.

Here, by the specific terms of the lease, the Government was required to ‘restore the premises to the same conditions as that existing at the time of entering upon the same,‘ reasonable and ordinary wear and tear excepted. It thus appears that except for reasonable and ordinary wear and tear, damage to or consumption of the property by reason of Army occupancy was at no time a proper or reasonable charge against income— in this instance, the rents received. To the contrary, any damage or consumption over and above reasonable and ordinary wear and tear became a charge against the Government and the owners of the hotel properties were at all times indemnified therefor. It is at once apparent, therefore, that the allowance of the deduction claimed to cover damage or added wear and tear over and above reasonable and ordinary wear and tear would not only be an unreasonable allowance for exhaustion, wear and tear of the hotel properties, but would permit the petitioners a double recovery for such damage and added wear and tear, one by way of a charge against the rents received and reported as income, and the other, by way of a valuable and subsisting claim against the Government for recovery under the lease. At this point, it may be observed that any comparison of the Government's obligation under the lease in 1942 to a worthless debt is, to say the least, inept.

The petitioners cite and rely upon numerous cases wherein an added depreciation deduction has been allowed, due to abnormal and increased use of the property used by taxpayers in the trade or business. Those cases are not in point, and give no support to the petitioners' contention here. There the taxpayers had no indemnitors for such added wear and tear, but could look only to operating profits for recovery of the capital items consumed in the operations in question. Such was not the case here.

If we follow and understand it correctly, one argument advanced by the petitioners' counsel is that Army representatives took the position that the Government, by the terms of the lease, was liable only for damage beyond that resulting from the wear and tear which might reasonably and ordinarily be expected from use of the hotel as army barracks, while the petitioners claimed that, by the terms of the lease, the Government was liable for all damage beyond that resulting from the wear and tear which might reasonably and ordinarily be expected from use of the property as a resort hotel; that regardless of the money settlement later made, this difference as to the proper interpretation of the lease has never been finally determined, and that justification of the claim for added or accelerated depreciation for 1942 is accordingly established. A further or supporting contention seems to be that it necessarily follows that the damage was such that restoration could not be effected by means of repairs alone, and, as a consequence, there was a demonstrated shortening of the life of the hotel for which there was never any compensation or right of compensation.

If such is the theory of counsel, we must still conclude, on the record here, that the right to the deduction claimed has not been established. Except for such conclusions as may be drawn from the wording of the contention itself, the record supplies no yardstick by which we can determine what the margin of difference would be between the wear and tear which might reasonably be expected from the use of the premises as army barracks and their use as a hotel. It is true the amount deducted on the partnership return as accelerated depreciation was $30,348.09. But from the evidence which the petitioners themselves have developed and made of record, it is abundantly clear that that amount may not be regarded as representing only the margin of difference which might have existed between reasonable and ordinary wear and tear through use of the properties as a hotel, and that which might reasonably have been expected from their use as army barracks.

Whether, in arriving at the amount of damages for which the Government was liable under the lease, the line for measuring the excepted wear and tear be drawn at use of the properties as a hotel or at use as army barracks, the evidence does show that there was added or abnormal damage due to Army occupancy and use, most of it in 1942, and we have so found. We do not understand that the respondent contends otherwise. From the testimony of petitioner Turchin and other evidence of record, however, we think it clear that most, if not all, of the damage complained of was damage over and above that which might reasonably and ordinarily have been expected from the use to which properties were put, namely, as army barracks, and as to that damage, the lessors, even under the theory now advanced, were fully indemnified under the lease. In the first place, the abnormal damages suffered may not be attributed to those furnishings which would be most likely to suffer abnormal damage. Since, in the main, those furnishings were removed and were not subjected to army use. Also, as noted in our findings, the damage complained of was, to a substantial extent, due to the fact that facilities for proper maintenance by the troops in the course of their occupancy were never fully adequate, and as to this, there was full and complete indemnity under either interpretation of the wear and tear clause of the lease. Furthermore, the claim is, to a great extent, based upon criticism by the petitioners of the reports by army inspectors as to the condition of the premises when taken over by the Army under the lease. The tenor of the criticism is that the condition of the hotel as reflected in the reports was not a true statement of condition at the time of Army entry, but rather a reflection of condition after it had been subjected to the wear and tear of Army occupancy, a necessary implication being that the reports not only did not reflect the true condition as of the dates of the reports, but, also, that the inspections may well have been made subsequent to the dates shown, and after the Army had occupied the hotel for some period. Each of the Statements of Condition comprising the report shows the date on which the particular inspection was made, and the date shown is at or prior to the time of entry by the Army under the lease. The reports were all subscribed and sworn to by the inspectors and, so far as shown, it cannot be said that the inspectors were without qualifications to do the job to which they were assigned, or that they failed to do the tasks to which they were assigned honestly and conscientiously. It may well be reasoned that they could more readily make objective reports on the condition of the hotel on the dates of inspection than petitioners Schwinger or Turchin, or their manager, Atherton.

Whatever the amount representing actual wear and tear, due to use of the hotel as army barracks, over and above that which might reasonably and ordinarily have been sustained from use of the properties as a hotel, the petitioners have not, in our opinion, established their right to deduction for depreciation of any amount over and above that allowed in the respondent's determination. The amount allowed has been referred to by the parties as representing normal depreciation. From a reading of the lease, which, after all, must supply the answer to the question of the measure of the wear and tear and damage for which restoration was to be made by the Government as part of the consideration for use of the hotel, we think it clear that normal wear and tear is as apt an expression as might be used in describing the wear and tear, damage for which the Government was not to be liable; and, regardless of the disputes that may have been indulged in by the army representatives and the petitioners as to the terminology of the lease, as to the condition of the premises at the time of Army entry, and as to the amount reasonably and properly representing the cost of restoration at the time of surrender, we think it clear that, by the terms of the lease, the lessors at all times had the right to restoration of the hotel properties for all damage due to Army occupancy and use beyond normal wear and tear, and the petitioners throughout 1942 and at all times thereafter persisted in their claim of right to indemnification under the lease as so interpreted.

By way of corroboration, it is noted that in so far as the record shows the lessors were in the end indemnified in full for the damage upon which their claim is here based. The settlement agreement, if it was reduced to writing, was not placed in evidence. We are accordingly uninformed as to its terminology. We do know that at the start of negotiations the lessors were claiming that a cash settlement of $76,295.97, which amount included an allowance for 60 days' rental to cover the period of restoration, was the amount required for restoration of the property, pursuant to the terms of the lease, while army representatives were contending that the restoration liability, under the lease, was between forty and forty-five thousand dollars. Full scale and arm's-length negotiations were had and, as a result, the parties, by agreement, arrived at a figure of $59,000, which amount was paid by the Government and accepted by the lessors in full satisfaction of Government liability under the lease. There is some indication that the partnership did, up to the last, contend for a greater sum, and there is a suggestion of argument that the settlement was made under duress. It is to be noted, however, that the alternative proposed by Government representatives was that if the $59,000 which had already been agreed upon was not satisfactory, the Government desired to be informed, in order that physical restoration as called for in the lease might be started immediately. It should also be noted that the hotel was promptly reconditioned and very shortly thereafter was again in use as a resort hotel. The record is silent as to the cost of such reconditioning, and we are not advised whether the cost was more or less than the amount of the settlement; nor to what extent the reconditioning consisted of repairs, as contrasted with replacements and improvements. Certainly there is no showing that the useful life of the properties as a hotel was, in fact, shortened by the wear and tear received during Army occupancy, allowance being made for the settlement under the lease.

In passing, it is noted that petitioner Schwinger sold his interest in the hotel properties to Robinson, in the spring of 1943, and was not a member of the partnership receiving the settlement under the lease, in December of that year. That fact, however, cannot serve, retroactively, to give to the original partnership a right to a prior year depreciation deduction, which right is not shown ever to have existed. So far as appears of record, any and all rights of restoration of the properties by the Government to which Schwinger was entitled under the lease, were part and parcel of the sale made to Robinson, and by reason of the sale, Robinson thereafter stood in his shoes.

Decisions will be entered under Rule 50.