The opinion
*1117 OPINION.
Love:
The petitioner contends that the entire amount paid in 1917 to the creditors of the Surf Beach Amusement Co. was properly deductible in that year. And, in support of this contention, it takes t.he position that as assignee of the lease it had no option in the matter of the payment of the lessor’s creditors, but, on the contrary, it had to apply all money, other than necessary operating *1118 expenses, to that purpose. Consequently, it is urged, that all money which came into its hands, other than necessary operating expenses, was impressed with a trust for the benefit of lessor’s creditors and as such it was properly deductible. We are unable to agree with this contention.
It is clear that if petitioner had made improvements on the property leased, the cost of such improvements would be prorated over the remaining life of the lease from the time such improvements were made. National City Bank of Seattle, 1 B. T. A. 139; H. Citrin, 2 B. T. A. 626. What, then, was the effect of the transaction whereby the petitioner took over the property of the lessor for a term of 15 years, operated it and agreed to pay the lessor’s outstanding debts, which were, as alleged, mainly for improvements.
The Board is of the opinion that the ultimate effect or result of that transaction was the same as if petitioner had erected or made improvements on the leased property to the extent of the amount of the lessor’s obligations which it paid within the taxable year. And, it is immaterial in our estimation, that petitioner agreed to apply all of its income over and above necessary operating expenses to the extinguishment of those debts. The petitioner was free to contract as it wished and the mere fact that it sought quickly to pay off the debts in question can not and does not affect the nature of the expenditure any more than is the nature thereof altered by the fact that such payments were made pursuant to a contract.
Having reached the conclusion that the amount paid by petitioner in 1917 to the creditors of the lessor was, in effect, an improvement made by it to the extent of the amount paid, we are of the opinion that the Commissioner’s action in prorating the amount over the life of the lease, including a deduction of an aliquot part for 1917, was correct.
Reviewed by the Board.
Judgment will be entered for the respondent.