The opinion
Muedock, </., dissenting: I disagree with that part of this opinion in which it is held that the petitioner is entitled to depreciation on the depreciable assets acquired from the Morgans on October 1,1950, based upon a “cost” of those assets equal to their fair market value on October 1,1950, which is stated to be “the date of acquisition.” The petitioner got possession of the assets at that time and began to use them in its business but it did not acquire the assets and was not to receive legal title to them until the purchase price was fully paid. The fact that this petitioner was to maintain the property, keep it insured and bear the risk of loss is no justification for giving it depreciation on the assets. These items are taken care of by deductions other than for depreciation.
However, it acquired an equitable interest in and is entitled to some ■ depreciation on the assets. The Commissioner has allowed some depreciation and apparently does not seek to cut down on the amount allowed. Therefore, the Commissioner’s determination on this point might be left undisturbed.
This petitioner took deductions for depreciation as follows:
1951_$47,732.13
1952 _ 174, 846. 57
1953 _i_ 118, 523. 78
1954 _ 180,943.54
Total_._ 522,046.02
The purpose of deductions for depreciation is to return to the taxpayer, tax free, the cost or basis to it of property being consumed or worn out in its business. The statute provides for the deduction of “a reasonable allowance” for depreciation.
The petitioner was to assume liabilities of Morgan in the amount of $129,682.55, but the record does not show what, if anything, the petitioner ever did to discharge those obligations. It was to pay, in addition, $500,000 in cash, but it paid only $2,000 in 1950 and $30,860 on December 31, 1953, on account of that cash purchase price up to the close of the taxable years. Later it paid a little more and then fwrther payments were called off by the parties. Cf. Lloyd H. Redford, 28 T. C. 773 . The deductions claimed by the -petitioner, which deductions or substantial equivalents the opinion allows, would be far in excess of reasonable allowances for depreciation to this petitioner under the circumstances of this case.
If this case cannot be disposed of by making no change in the depreciation allowed by the Commissioner in determining the deficiency and a decision on the merits is necessary, then it seems to me that the petitioner is limited by its economic interest in the depreciable assets.
The Murray case cited and the cases relied on in the Murray case held that the taxpayer had either equitable or legal title to the property which was being depreciated. I know of no case which holds that a taxpayer could recover such amounts as this taxpayer is being allowed to recover where its actual investment in that property is but a small fraction of the depreciation deductions and, possibly, may never be increased.
Raum, J., agrees with this dissent.