Gulf Coast Broadcasting Co. v. Commissioner

Gulf Coast Broadcasting Company, Petitioner, v. Commissioner of Internal Revenue, Respondent Gulf Coast Broadcasting Co. v. Commissioner Docket No. 30834 United States Tax Court 24 T.C. 1094; 1955 U.S. Tax Ct. LEXIS 94; September 27, 1955, Filed *94 Decision will be entered for the respondent. Petitioner commenced business during the base period and was committed, prior to January 1, 1940, to a change in its operational capacity which was consummated after December 31, 1939. Its average base period net income for the taxable years in issue was computed under the section 713 (f) (1939 Code) "growth formula." Held, petitioner has established grounds for relief under section 722 (b) (4) but has failed to prove fair and just amount representing normal earnings, in excess of its average base period net income computed under section 713 (f), to be used as a constructive average base period net income. Therefore, petitioner has not shown that its average base period net income computed under the "growth formula" was an inadequate standard of normal earnings and that its excess profits taxes for the taxable years here involved were excessive and discriminatory. Held, further, petitioner's claim for relief under section 722 (b) (5) denied because not based on "any other factor" than those to which subsection (b) (4) is specifically directed. Clermont Groves, Inc., 17 T. C. 1616, followed. Joyce Cox, Esq., for the petitioner. Allen T. Akin, Esq., for the respondent. Black, Judge. BLACK *1095 The Commissioner disallowed petitioner's applications for excess profits tax relief, timely filed on Forms 991 and related Forms 843. From that disallowance a petition was properly filed with this Court requesting refund or credit, under section 722 (b) (4) or (b) (5) of the Internal Revenue Code of 1939, of the full amount of excess profits taxes paid by petitioner for the years noted, to wit: Fiscal year ending Excess profits November 30 tax paid [1943] $ 14,692.02 [1944] 41,707.96 [1945] 55,266.62 [1946] 5,102.86 The issue presented is whether, and to what extent, the petitioner has established its right to such relief under section 722 (b) (4) or (b) (5). FINDINGS OF FACT. Some of the facts were stipulated*96 and are so found. The stipulation thereof is incorporated herein by reference. Gulf Coast Broadcasting Company, hereinafter sometimes referred to as petitioner, is a corporation which owns and operates, under license issued by the Federal Communications Commission (F. C. C.), radio broadcasting station KRIS. Its studios and transmitter are located in Corpus Christi, Texas, and its revenues are derived from broadcasting programs and announcements for advertisers. Petitioner was incorporated under the laws of the State of Texas on September 15, 1935, but did not then commence business. Effective March 9, 1937, the F. C. C. approved petitioner's application for construction and operation of KRIS in Corpus Christi at power of 500 watts daytime and 250 watts nighttime. Thereafter, on April 1, 1937, petitioner acquired certain assets in return for capital stock and began operations on that day as the owner of the only station in Corpus *1096 Christi through 1939. On May 25, 1937, the F. C. C. authorized petitioner to operate KRIS at power of 500 watts both day and night. On June 23, 1937, petitioner entered into a contract with National Broadcasting Company, Inc. (NBC), a national*97 network system, pursuant to which KRIS became an affiliated station of NBC. Pertinent provisions of that contract follow: I. NETWORK AFFILIATION AND PROGRAM SERVICE * * * * In return for the NBC network affiliation, including sustaining program service, you will waive compensation for 16 unit hours * of our network commercial programs broadcast by your station during each 28-day period and in addition you agree to pay NBC in accordance with the terms of Rider Number 1 attached hereto and made a part hereof. ["Rider Number 1" provided that, for each 28-day period, petitioner pay NBC "a sum dependent on the number of unit hours of network commercial programs * * * which you broadcast at our request during such period." The sum ranged proportionately from $ 708.92, if no unit hours of such programs were broadcast during the 28 days, to $ 0.00 if 16 unit hours were broadcast. The payments were intended to reimburse NBC for one-half of its cost of maintaining a telephonic transmission line to carry its programs, from the then terminus of its transmission line at San Antonio and/or Houston, to petitioner and to KRGV (the sole station in Weslaco, Texas). The other half of NBC's costs *98 for that line were to be reimbursed by KRGV, which entered into a like contract with NBC at the same time as did petitioner.] II. STATION COMPENSATION (1) Beginning with the effective date of this agreement, we will pay you for each succeeding 28-day period, approximately 15 days after the close of such period, in accordance with the following provisions: Your compensation for broadcasting our network commercial programs under this arrangement will be based upon an average unit hour rate computed for each 28-day period by dividing the total value at the network rate for your station of the network commercial programs broadcast from your station by the total number of unit hours of such programs during that period. (a) For the first 25 unit hours in excess of the 16 unit hours covering the network affiliation, NBC will pay you at the rate of 20% of your average unit hour rate for the 28-day period. (b) For the next 25 unit hours, NBC will pay you at the rate of 30% of your average unit hour rate for the 28-day period. *1097 (c) For all unit hours in excess of 66 unit hours, NBC will pay you at the rate of 37 1/2% of your average unit hour rate for the 28-day period. (2) *99 The network station rate for your station, on which its compensation will be figured as provided above, will be $ 120.00 per full evening hour. This rate will apply between 6:00 P. M. and 11:00 P. M. local time at your station. Rates for other hours and for shorter periods will be as follows: Network station rate Local time at station 1 hour 3/4 hour 1/2 hour 1/4 hour Daily except Sunday: 12:00 mid. to 8:00 a. m. $ 40.00 $ 32.00 $ 24.00 $ 16.00 8:00 a. m. to 6:00 p. m. 60.00 48.00 36.00 24.00 6:00 p. m. to 11:00 p. m. 120.00 96.00 72.00 48.00 11:00 p. m. to 12:00 mid. 60.00 48.00 36.00 24.00 Sunday: 12:00 mid. to 8:00 a. m. 40.00 32.00 24.00 16.00 8:00 a. m. to 12:00 noon 60.00 48.00 36.00 24.00 12:00 noon to 6:00 p. m. 90.00 72.00 54.00 36.00 6:00 p. m. to 11:00 p. m. 120.00 96.00 72.00 48.00 11:00 p. m. to 12:00 mid. 60.00 48.00 36.00 24.00 * * * * (3) NBC reserves the right to change at any time your network station rate to advertisers from that set forth in the preceding table. * * * * * * * III. NETWORK OPTIONAL TIME (a) Upon 28 days' notice, your station will broadcast network commercial*100 programs for NBC during any periods requested by NBC within the hours designated below as Network Optional Time, provided, that because of your public responsibility your station may reject a network program the broadcasting of which would not be in the public interest, convenience and necessity. Network optional time will be as follows: (New York City Time) Weekdays Sundays 10:00 A. M. -- 12:00 Noon 1:00 -- 4:00 P. M. 3:00 P. M. -- 6:00 P. M. 5:00 -- 6:00 P. M. 7:00 P. M. -- 7:30 P. M. 7:00 -- 11:00 P. M. 8:00 P. M. -- 11:00 P. M. * * * * IV. GENERAL * * * * (9) It is understood and agreed that your station will have the status of an optional NBC outlet and as such will carry any of our network programs which we desire to schedule thereon in accordance with the terms of this agreement, but that NBC shall be under no obligation to include your station on any scheduled network commercial program or furnish your station any sustaining service other than that available in the regular course of NBC's network operations. *101 Effective October 1, 1939, NBC reduced the KRIS network station rate from $ 120 to $ 100 per full evening hour (6 through 11 p. m.) and adjusted its rates for other hours and shorter periods accordingly. On October 19, 1939, petitioner applied to the FCC for authorization to operate KRIS at power of 1000 watts, day and night. The application was granted in 1940 and the increased power facilities were constructed and placed in full use for commercial broadcasting on July 22, 1941. *1098 T. Frank Smith, hereinafter sometimes referred to as Smith, petitioner's president and owner of some of its stock, managed petitioner and was its moving spirit. He was highly experienced in the radio broadcasting business, having been employed therein since 1929. He lived in Houston, Texas, until 1946, when he moved to Corpus Christi, 218 miles away. From 1937 until 1946 he divided his time and services between KRIS, and the managerships of KXYZ, Houston, and a small station in Brownsville, Texas. The cost of radio programs to sponsors who buy NBC network time (customarily through their advertising agencies) is dependent upon the number of network stations over which they decide to have the*102 program broadcast and the time rate of each such station. NBC representatives attempt to sell sponsors and advertising agencies time on as many of its network stations as possible. KRIS, however, was not considered an easily salable outlet because the Corpus Christi market area was regarded as too small for sponsors to concentrate on, so NBC decided not to "waste" its representatives' time in efforts to promote KRIS with sponsors and agencies. Moreover, because of doubts as to the amount of revenue derivable by it from the KRIS affiliation, NBC required petitioner to assure it against losses resulting from transmission line charges, as per the provision of Rider Number 1 of the above-mentioned contract. As a consequence of the above, Smith found it necessary to himself attempt to convince sponsors and advertising agencies of the desirability of including KRIS in purchases of NBC network time. At the same time he endeavored to sell national "spot" time, which is time purchased (for both programs and short announcements) by national advertisers directly from KRIS at rates determined solely by petitioner, rather than through inclusion of KRIS in a purchase of NBC network time. Smith*103 also endeavored to build up local consumer acceptance of KRIS in an effort to make KRIS more attractive to both national and local sponsors. It was determined that it would take at least 8 to 10 years to fully develop KRIS. Smith put a great deal of time and effort into all the aforementioned activities and displayed agressiveness, tenacity and ability in their performance. Nevertheless, he found it difficult to convince national advertisers and their agencies to buy "spot" or NBC network time on KRIS during the time intervening between the signing of the NBC contract on June 23, 1937, and the end of the base period, December 31, 1939, because they judged the possibilities of a market primarily by census figures and, during that period, the most recent figures available were those of 1930 (hereinafter listed) which were not favorable to Corpus Christi. Smith's efforts, therefore, were not well rewarded until 1942 (the first year in which KRIS realized net revenue from NBC), which was after the 1940 census and 1942 Hooper *1099 rating figures became available, and after KRIS had begun operations at 1000 watts. It was the objective of Smith, and petitioner, to develop petitioner*104 into a major outlet for national advertising with NBC network time being purchased by advertisers on KRIS for at least 80 per cent of the Network Optional Time designated in part III (a), above, of petitioner's contract with NBC. This, in turn, would facilitate sales by KRIS of short commercial announcements during the program-breaks and station-breaks adjacent to those network programs. The desired 80 per cent level was not reached by KRIS until about 1944 or 1945. Petitioner was entitled to, and did, determine its excess profits credit for the excess profits tax years in issue (i. e., its 1943 through 1946 fiscal years) pursuant to the so-called average earnings method prescribed in section 713 of the 1939 Code. Its "base period," as defined in section 713 (b) (1) (B), is the calendar years 1936 through 1939. (Petitioner computed its income on the calendar year basis through 1940; in 1941 and thereafter its computations were based on a fiscal year ending November 30.) Petitioner's "average base period net income" (95 per cent of which, under section 713 (a) (1), equaled its excess profits credit for the years in issue) was computed under the "growth formula" provisions of section*105 713 (f), as limited by paragraph (6) thereof. The average base period net income so computed was $ 30,784.84, petitioner's actual excess profits net income for its most prosperous base period year of 1939. The computation, applying the "growth formula" provided by section 713 (f), is as follows: Actual base period net income: 1936 -- No operations (8% invested capital 12-31-39 of $ 53,838.76) $ 4,307.10 1937 -- Operations commenced 4-1-37 8% of invested capital 12-31-39 for 1/4 of year 1,076.77 Actual operations 4-1 to 12-13 9,192.35 1938 -- Actual operations 15,182.23 1939 -- Actual operations 30,784.84 Total $ 60,543.29 Average (1/4 total base period net income) 15,135.82 Average base period net income after application of section 713 (f): 1938 and 1939 (last half of base period) 45,967.07 1936 and 1937 (first half of base period) 14,576.22 Increase (last half over first half) $ 31,390.85 One half of $ 31,390.85 increase 15,695.92 Aggregate income -- last half of base period 45,967.07 Total $ 61,662.99 Average of $ 61,662.99 total [12 months/24 months (1/2)] 30,831.49 Allowable -- highest annual excess profits net income in base period (1939) 30,784.84 Allowed by Commissioner 30,784.84 *106 *1100 In its Forms 991 filed with respondent petitioner claimed a constructive average base period net income, hereinafter sometimes referred to as CABPNI, of $ 77,281, grounding its claims on section 722 (b) (4) or (b) (5). Its petition claims a CABPNI, on the same statutory grounds, of either "(1) In each excess profits tax taxable year an amount equal to the excess profits net income for that year; or, alternatively," (2) the aforementioned $ 77,281; "or, alternatively, (3) such other figure as the Court may determine." The following computation was used by petitioner in arriving at the CABPNI claimed in its applications for relief on Forms 991: Gross income $ 230,792 Less cost of operations 131,482 $ 99,310 Deductions: Officers' salaries $ 15,600 Rent [400] Repairs [90] Bad debts [545] Taxes 2,002 Depreciation 3,392 22,029 Constructive average base period net income $ 77,281 The following tables contain pertinent financial data of petitioner: Statement of Petitioner's Revenue and Expenses, 1937-1946 Nine Year ended December 31 months ended 12-31-37 [1940] Income (revenues other than from NBC): Broadcast revenues $ 42,398.64 $ 59,987.43 $ 91,862.05 $ 102,719.58 Other income 51.80 24.44 1,421.83 295.99 $ 42,450.44 $ 60,011.87 $ 93,283.88 $ 103,015.57 Expenses (other than line charges by NBC and Fed. income tax): Operating expenses $ 28,327.42 $ 37,454.03 $ 54,602.74 $ 70,426.38 Bad debts 323.60 518.39 908.27 592.79 Taxes 697.97 968.20 1,407.12 1,889.86 Depreciation 986.63 1,496.52 1,309.04 1,472.47 Interest 123.41 $ 30,335.62 $ 40,560.55 $ 58,227.17 $ 74,381.50 Net income, excluding receipts from and payments to NBC $ 12,114.82 $ 19,451.32 $ 35,056.71 $ 28,634.07 Receipts from, less payments to, NBC $ 17.06 Payments to, less receipts from NBC $ 2,922.47 $ 4,269.09 $ 4,271.87 3,898.46 Net receipts from (or payments to) NBC ($ 2,922.47) ($ 4,269.09) ($ 4,271.87) ($ 3,881.40) Net taxable income $ 9,192.35 $ 15,182.23 $ 30,784.84 $ 24,752.67 *107 Statement of Petitioner's Revenue and Expenses, 1937-1946 Eleven months ended 11-30-41 Income (revenues other than from NBC): Broadcast revenues $ 99,031.57 Other income 423.13 $ 99,454.70 Expenses (other than line charges by NBC and Fed. income tax): Operating expenses $ 77,194.32 Bad debts 193.97 Taxes 1,289.19 Depreciation $ 1,161.01 Interest $ 79,838.49 Net income, excluding receipts from and payments to NBC $ 19,616.21 Receipts from, less payments to, NBC $ 719.01 Payments to, less receipts from NBC 2,254.12 Net receipts from (or payments to) NBC ($ 1,535.11) Net taxable income $ 18,081.10 *1101 Statement of Petitioner's Revenue and Expenses, 1937-1946 Year ended November 30 [1944] Income (revenues other than from NBC): Broadcast revenues $ 130,027.74 $ 132,965.82 $ 188,932.16 Other income 865.97 344.66 92.40 130,893.71 133,310.48 189,024.56 Expenses (other than line charges by NBC and Fed. income tax): Operating expenses 93,818.10 113,851.94 151,482.94 Bad debts 194.50 271.00 861.61 Taxes 1,536.62 1,852.64 2,512.90 Depreciation 2,661.17 3,849.55 3,010.03 Interest 98,210.39 119,825.13 157,867.48 Net income, excluding receipts from and payments to NBC 32,683.32 13,485.35 31,157.08 Receipts from, less payments to, NBC 7,678.35 37,084.72 52,346.45 Payments to, less receipts from NBC Net receipts from (or payments to) NBC 7,678.35 37,084.72 52,346.45 Net taxable income $ 40,361.67 $ 50,570.07 $ 83,503.53 *108 Statement of Petitioner's Revenue and Expenses, 1937-1946 Year ended November 30 [1946] Income (revenues other than from NBC): Broadcast revenues $ 228,877.99 $ 236,104.56 Other income 134.75 1,473.36 229,012.74 237,577.92 Expenses (other than line charges by NBC and Fed. income tax): Operating expenses 177,122.27 184,522.01 Bad debts 771.97 Taxes 1,629.71 1,567.88 Depreciation 3,318.07 3,467.83 Interest 182,842.02 189,557.72 Net income, excluding receipts from and payments to NBC 46,170.72 48,020.20 Receipts from, less payments to, NBC 51,598.01 54,863.43 Payments to, less receipts from NBC Net receipts from (or payments to) NBC 51,598.01 54,863.43 Net taxable income $ 97,768.73 $ 102,883.63 Summary of Petitioner's Revenue December 31 9 months Source of revenue 12/31/37 [1940] Local announcements $ 30,928.94 $ 36,584.66 $ 33,484.58 $ 44,119.30 Local programs 10,635.69 19,368.88 17,809.33 15,543.79 Regional revenue 11,451.67 7,362.66 National "spot" revenue 6,288.29 14,989.37 Blue Network Co NBC 1,365.65 6,751.04 5,673.63 1,718.66 Mutual Network Lone Star Chain 1,416.60 6,151.79 Local politicals 534.50 3,266.93 1,083.00 8,192.95 Local religion 773.11 News service 245.40 1,350.18 Transcriptions 414.99 Talent 2.00 1,278.25 Lines 297.51 766.96 1,846.35 1,256.58 Lines Lone Star Chain 479.09 Remote charges Miscellaneous 1,409.85 287.55 Cash discount 51.80 24.44 11.98 8.44 Bad debt recovered Nonbroadcast Recording 29.00 Texas State Network 17,313.75 Gross revenue $ 43,816.09 $ 66,762.91 $ 98,957.51 $ 103,032.63 *109 Summary of Petitioner's Revenue 11 months Source of revenue 11/30/41 Local announcements $ 34,304.53 Local programs 9,242.74 Regional revenue 14,371.45 National "spot" revenue 25,398.66 Blue Network Co NBC 407.34 Mutual Network 6,126.60 Lone Star Chain 5,853.85 Local politicals 1,332.00 Local religion 814.80 News service Transcriptions Talent 779.51 Lines 1,119.10 Lines Lone Star Chain Remote charges Miscellaneous 314.29 Cash discount 47.84 Bad debt recovered 61.00 Nonbroadcast Recording Texas State Network Gross revenue $ 100,173.71 *1102 Summary of Petitioner's Revenue November 30 Source of revenue [1944] Local announcements $ 38,748.77 $ 40,615.48 $ 34,812.62 Local programs 5,422.05 12,994.93 29,592.49 Regional revenue 22,382.73 23,433.45 29,347.95 National "spot" revenue 37,992.12 32,482.02 45,785.64 Blue Network Co 33,207.95 net 52,682.18 net NBC 5,771.90 Mutual Network 7,898.74 14,133.59 19,612.09 Lone Star Chain 8,875.50 8,434.39 17,394.73 Local politicals 6,314.40 1,126.20 4,535.10 Local religion 280.80 News service 3,043.38 3,151.80 3,103.64 Transcriptions 1,402.54 Talent 302.50 1,635.35 Lines 673.20 427.23 596.20 Lines Lone Star Chain 768.08 Remote charges 43.50 10.00 Miscellaneous 829.00 239.25 4.20 Cash discount 36.75 7.43 Bad debt recovered Nonbroadcast 97.98 88.20 Recording Texas State Network Gross revenue $ 138,572.06 $ 170,395.20 $ 241,371.01 *110 Summary of Petitioner's Revenue November 30 Source of revenue [1946] Local announcements $ 35,355.40 No figures Local programs 28,623.93 available. Regional revenue 40,119.83 National "spot" revenue 64,819.49 Blue Network Co 51,969.09 NBC Mutual Network 27,663.31 Lone Star Chain 18,749.64 Local politicals 1,325.10 Local religion News service 1,961.34 Transcriptions 2,449.40 Talent 3,289.25 Lines 3,531.22 Lines Lone Star Chain 204.00 Remote charges 415.00 Miscellaneous Cash discount Bad debt recovered 134.75 Nonbroadcast Recording Texas State Network Gross revenue $ 280,610.75 Petitioner regarded its base period affiliation with the Mutual Network, Lone Star Chain, and Texas State Network as a temporary and expedient method of providing service to its listeners and building up a following in order to, and until such time as it could, obtain more NBC network programs. It discontinued its affiliation with the Texas State Network after 1939 since that network proved unstable and, in fact, failed to fully pay petitioner for the time purchased in 1939 until 4 or 5 years later. During the base period years Corpus Christi was a fast growing*111 city in the growing Gulf Coast section of the country. Its business and industry expanded markedly during the decade of the 1930's when most of the nation was showing practically no net economic gains. The city's growth during that period was ascribable primarily to the development of oil and gas production in the area, the opening of deepwater port facilities and, to a lesser extent, manufacturing activities primarily designed to serve the oil industry. Growth was greatly stimulated by the World War II and post-war booms, particularly as regards oil and gas production and manufacturing. During the war years the most important single source of income to Corpus Christi was the United States Navy's air training center, established there in 1941. The following tables shed further light on Corpus Christi's growth: *1103 Corpus Christi Economic Growth [Basis of indices: 1939=100] A. Population: Year of census City Metropolitan area [1930] 27,741 51,779 [1940] 57,301 92,661 [1950] 108,287 165,471 B. Miscellaneous: Retail sales -- 10 large School census stores Year Amount Index No. Index [add 000] [1936] $ 2,068 [1937] 2,556 [100] 10,407 [1938] 2,287 [89] 11,523 [1939] 2,562 [100] 12,653 [1940] 2,889 [113] 13,577 [1941] 3,848 [150] 16,320 [1942] 4,229 [165] 16,700 [1943] 4,648 [181] 17,686 [1944] 5,412 [211] 18,200 [1945] 18,950 [150] *112 Postal receipts Assessed valuations Port Building Year tonnage permits [add 000] Amount Index Amount Index [add 000] [add 000] [add 000] [1936] 2,825 $ 2,719 [1937] 5,448 $ 266 [86] $ 21,110 [68] 2,840 [1938] 6,720 [93] 28,000 [91] 3,079 [1939] 7,525 [100] 30,876 [100] 6,597 [1940] 6,795 [117] 34,351 [111] 8,106 [1941] 6,128 [149] 43,182 [140] 11,968 [1942] 3,859 [179] 47,663 [154] 10,139 [1943] 3,479 [225] 48,646 [158] 3,080 [1944] 4,912 [279] 50,047 [162] 2,103 [1945] 5,813 [294] 58,410 [189] 4,909 Petitioner commenced business during the base period. Furthermore, petitioner, prior to January 1, 1940, committed itself to a course of action looking toward a change in operational capacity (by applying to F. C. C. for increase in transmission power from 500 to 1000 watts) and such change was consummated on July 22, 1941. Petitioner's average base period net income, as computed under the "growth formula" of section 713 (f) of the 1939 Code and used by petitioner in the computation of its excess profits credit, reflects the normal operation for the entire base period of the business*113 and, therefore, such average base period net income is not an inadequate standard of normal earnings. Petitioner's excess profits tax for each of its fiscal years ending November 30, 1943 through 1946, computed without the benefit of section 722, is not an excessive and discriminatory tax. *1104 OPINION. Petitioner contends that it is entitled to excess profits tax relief, under section 722 (b) (4) or (b) (5), for its fiscal years ended November 30, 1943 through 1946. The applicable provisions of section 722 appear in the margin. 1 Applicable also are various provisions of Regulations 112 and of the Treasury Department's Bulletin on Section 722, Excess Profits Tax Relief (hereinafter referred to as the Bulletin). *114 To sustain its claim for relief under the statute petitioner must establish (1) that the tax computed without benefit of section 722 is excessive and discriminatory and (2) a fair and just amount representing normal earnings to be used as a CABPNI. See East Texas Motor Freight Lines, 7 T. C. 579. Petitioner was entitled to, and did, compute its average base period net income under the section 713 (f) "growth formula," arriving at $ 30,784.84 (its actual net income for 1939) as the amount thereof. It *1105 seeks to establish that, as a result of both base period commencement and change in character of its business, it qualifies for relief under either subsection (b) (4) or (b) (5) of section 722. However, since those factors (commencement and change) are ones to which subsection (b) (4) is specifically directed and petitioner has not called our attention to "any other factor," its claim under (b) (5) is not sustainable and need not be further considered by us. Clermont Groves, Inc., 17 T. C. 1616. We need only concern ourselves, therefore, with the determination of whether petitioner qualifies for relief under section*115 722 (b) (4) and, if so, the extent of such relief. Insofar as applicable to this case, section 722 (b) (4) provides that petitioner's excess profits taxes for the years in issue, computed without benefit of 722, will be considered "excessive and discriminatory" if petitioner shows that its average base period net income of $ 30,784.84 "is an inadequate standard of normal earnings because" petitioner, "during * * * the base period, commenced business or changed the character of the business and the [$ 30,784.84] * * * does not reflect the normal operation for the entire base period of the business." A change in character of the business includes "a difference in the capacity for production or operation," and if a change of that type was consummated in a taxable year ending after December 31, 1939 (rather than during the base period), but resulted from "a course of action to which the taxpayer was committed prior to January 1, 1940," it is deemed, under the commitment rule, to be a change on December 31, 1939. Further, (b) (4) contains the so-called push-back rule providing that if petitioner's business "did not reach, by the end of the base period, the earning level it would have *116 reached if * * * [petitioner] had commenced business or made the change in * * * character * * * two years before it did so, it shall be deemed to have commenced the business or made the change at such earlier time." 2 It is admitted by respondent that petitioner commenced business on April 1, 1937, which was during the base period. It is also admitted that, as a result of a course of action to which it was committed prior to January 1, 1940 (i. e., filing of application with F. C. C.), petitioner's operational capacity was changed on July 22, 1941, from transmission at *117 500 watts to transmission at 1000 watts, day and night, and that such change is properly deemed to have occurred on December 31, 1939. See Regs. 112, sec. 35.722-3 (d) (3), (5). Petitioner, therefore, possesses two of the (b) (4) qualifying factors, and we so hold. *1106 Applying the push-back rule to those two factors our analysis proceeds on the assumption that petitioner began business on April 1, 1935, and changed from 500- to 1000-watt operation on December 31, 1937. See Bulletin, Part V (II) (F) (3). We also assume that it entered into its affiliation contract with NBC on June 23, 1935, almost contemporaneously with the commencement of its business. The first question then is whether, in the framework of economic conditions as they actually existed during the base period, Southern California Edison Co., 19 T. C. 935, petitioner would as a result of the above assumptions have realized net income in 1939 greater than its actual net income of $ 30,784.84 for that year. If the answer is in the negative, then it is clear that any CABPNI would be less than petitioner's actual average base period net income -- which was determined under the *118 "growth formula" as that same $ 30,784.84. See Homer Laughlin China Co., 7 T. C. 1325. This is so because both parties agree that the CABPNI must be computed by multiplying petitioner's reconstructed earnings for 1939 by a percentage, representing the average of index numbers of net earnings for the 4 base period years (1939 equaling 100), see East Texas Motor Freight Lines, supra, and, although there is a difference of opinion between the parties as to the proper indices to use, the average of either set is less than 100. Following a careful analysis of the evidence, including many detailed exhibits concerning petitioner's financial history and the financial history of other broadcasting stations, we have concluded that, after operation of the commitment and push-back rules, petitioner would have realized net income in 1939 no greater than its actual $ 30,784.84 net income for that year. As has already been stated petitioner contends for a CABPNI of either (1) an amount for each taxable year in issue equal to its excess profits net income for such year, (2) $ 77,281, or (3) such other amount as this Court may determine. *119 By a reference to our Findings of Fact it will be seen that petitioner's net income in 1939 was $ 30,784.84, which was the highest it had attained in any year since it began business in 1937. Thus, it will be seen that the CABPNI of $ 77,281 for which petitioner contends is 2 1/2 times as much as its 1939 net income. The reconstruction by which petitioner reaches the conclusion that its CABPNI should be $ 77,281 is shown in our Findings of Fact. That reconstruction assumes that by the application of the 2-year push-back rule petitioner's gross income in 1939 would have been $ 230,792. By a reference to the table entitled "Summary of Petitioner's Revenue" in our Findings of Fact, it will be seen that petitioner's gross revenue from all sources in 1939 was only $ 98,957.51. Therefore, it seems to us that petitioner's contention for assumed gross revenue in 1939 of $ 230,792 and *1107 net income of $ 77,281 by application of the push-back rule is altogether unrealistic and is not supported by the facts of record. Also of considerable significance, we think, in negativing petitioner's contention that by the end of 1939 it had not reached its normal earning level when it had*120 net income of $ 30,784.84, is that in the following year, 1940, its net income was $ 24,752.67. In 1941, petitioner changed to a fiscal year basis ending November 30, 1941, and its net income for that 11-month fiscal year was $ 18,081.10. Therefore, it seems to us that petitioner's reconstruction of a CABPNI of $ 77,281 is not supported by the facts. Furthermore, we are unable to find in the record any support for a CABPNI of an amount lesser than $ 77,281 but greater than the $ 30,784.84 which petitioner has received under section 713 (f). It would, of course, be permissible to grant petitioner a CABPNI of a lesser amount than that contained in its application for relief and its petition if the facts warranted it, but, as already stated, we do not think the facts warrant our finding of a CABPNI large enough to afford petitioner any relief. It is petitioner's primary contention that, after application of the commitment and push-back rules, additional revenues would have been realized from NBC in 1939 which, in turn, would have stimulated national "spot" revenue in the form of time purchased adjacent to the NBC programs. But the record does not indicate that appreciable added *121 revenue would have been realized from NBC had petitioner commenced business in 1935 and begun transmitting at 1000 watts on December 31, 1937. It is true that Corpus Christi was a growing city in a growing section of the country. Nevertheless, Smith, petitioner's manager, testified that the advertising agencies and sponsors who bought NBC network time based their decisions to buy primarily upon population figures and that, during the entire base period, the only such figures available were those of the 1930 census. Therefore, even though Corpus Christi was growing, the time buyers could not be impressed with that fact since they resorted to the unfavorable 1930 census reports. Smith's testimony is borne out by NBC's reluctance to have its representatives "waste" effort in attempts to sell network time on KRIS, the terms of the NBC contract requiring petitioner to guarantee transmission line charges to Corpus Christi (Rider No. 1), and the fact that, as late as October 1, 1939, NBC reduced the KRIS rate from $ 120 to $ 100 per full evening hour. It is also of importance that petitioner's gross receipts from NBC for 1939 were actually less than those for 1938 and, as a result, its*122 transmission line payments to NBC exceeded its receipts from that network by a greater amount in 1939 than in 1938. Consequently, considering the temper and criteria of the time buyers during the base period, as we must do, Southern California Edison Co., *1108 , it does not appear to us that, had petitioner begun operations in 1935 (thereby giving Smith 2 more years in which to promote KRIS), Smith would have been very much more successful in selling network time on KRIS during 1939. This conclusion is strengthened by the fact that revenue from NBC was actually less in 1939 than 1938, even though income of stations generally rose in 1939. The evidence convinces us that Smith is an able and competent manager of a radio station and he has brought KRIS to success. There seems to be no doubt of that fact. His testimony was to the effect that it takes 8 or 10 years to bring a radio station to its full development. To the same effect was the testimony of James M. Gaines, a former vice president of NBC and undoubtedly a man well informed and experienced in the radio business. On the strength of this testimony, we made a finding in our Findings*123 of Fact that "It was determined that it would take at least eight or ten years to fully develop KRIS." But the excess profits tax law with which we are here dealing takes no note of any 8- or 10-year development period. It might well be that if petitioner had commenced business 6 or 8 years prior to the time it did in 1937, it would, by the end of 1939, have reached the normal level of earnings for which it contends. But it is the 2-year push-back rule provided in 722 (b) (4) that we must apply here and in applying it we are unable to reach the result for which petitioner contends. We do not think the record supports it. Petitioner appears to argue, both as an additional qualification for relief under (b) (4) and as a basis for reconstruction of its 1939 income, that it was "committed" prior to January 1, 1940, to become a national outlet and that such "commitment" was realized in the period 1943-1947, when about 80 per cent of its NBC network optional time was purchased by network advertisers and the time adjacent thereto was purchased by national advertisers. Therefore, petitioner contends that under the (b) (4) commitment rule, its 1939 income should be reconstructed on the*124 assumption that 80 per cent of its NBC network optional time, and the adjacencies thereto, were purchased in 1939 by network and national advertisers. This argument, we think, is unsound. In the first place petitioner's contract with NBC was entered into almost contemporaneously with its commencement of business in 1937 and operations were conducted under the contract during the remainder of the base period. From the start, therefore, petitioner intended to be a national outlet, made the arrangements to become such, and actually entered into operations as such. Consequently, there was no "commitment" to become a national outlet which was not consummated until after December 31, 1939. The case might be different had petitioner entered into its NBC *1109 contract in 1939 with operations beginning thereunder in 1940. See Regs. 112, sec. 35.722-3 (d) (5). The only question posed by petitioner's argument along this line is whether petitioner, in 1939, could have sold 80 per cent of its NBC network optional time, and the time adjacent thereto, had it commenced business and entered into the NBC contract in 1935, and had it been operating at 1000 watts since December 31, 1937. *125 Earlier in this opinion we, in effect, decided that question in the negative. In the light of the above we conclude that petitioner has failed to prove that its actual 1939 net income did not reflect the earning level it would have reached had it commenced business in 1935 and begun transmission of 1000 watts on December 31, 1937. Consequently, under the circumstances of this case, petitioner has failed to prove a fair and just amount representing normal earnings (in excess of its average base period net income) to be used as a CABPNI and, therefore, has not shown that its average base period net income is an inadequate standard of normal earnings for the entire base period and that its excess profits taxes for the years in issue are excessive and discriminatory. Reviewed by the Special Division. Decision will be entered for the respondent. Footnotes *. Unit hours are computed according to the following table: ↩ Unit Hour Credit Local Time 1 Hour 3/4 Hour 1/2 Hour 1/4 Hour Weekdays: 12:00 Mid. to 8:00 A. M. .333 .250 .167 .083 8:00 A. M. to 6:00 P. M. .500 .375 .250 .125 6:00 P. M. to 11:00 P. M. 1.000 .750 .500 .250 11:00 P. M. to 12:00 Mid. .500 .375 .250 .125 Sundays: 12:00 Mid. to 8:00 A. M. .333 .250 .167 .083 8:00 A.M. to 12:00 Noon .500 .375 .250 .125 12:00 Noon to 6:00 P. M. .750 .563 .375 .188 6:00 P.M. to 11:00 P. M. 1.000 .750 .500 .250 11:00 P.M. to 12:00 Mid. .500 .375 .250 .125 1. SEC. 722. GENERAL RELIEF -- CONSTRUCTIVE AVERAGE BASE PERIOD NET INCOME. (a) General Rule. -- In any case in which the taxpayer establishes that the tax computed under this subchapter (without the benefit of this section) results in an excessive and discriminatory tax and establishes what would be a fair and just amount representing normal earnings to be used as a constructive average base period net income for the purposes of an excess profits tax based upon a comparison of normal earnings and earnings during an excess profits tax period, the tax shall be determined by using such constructive average base period net income in lieu of the average base period net income otherwise determined under this subchapter. In determining such constructive average base period net income, no regard shall be had to events or conditions affecting the taxpayer, the industry of which it is a member, or taxpayers generally occurring or existing after December 31, 1939, except that in the cases described in the last sentence of section 722 (b) (4) * * *, regard shall be had to the change in the character of the business under section 722 (b) (4) * * * to the extent necessary to establish the normal earnings to be used as the constructive average base period net income. (b) Taxpayers Using Average Earnings Method. -- The tax computed under this subchapter (without the benefit of this section) shall be considered to be excessive and discriminatory in the case of a taxpayer entitled to use the excess profits credit based on income pursuant to section 713, if its average base period net income is an inadequate standard of normal earnings because -- * * * * (4) the taxpayer, either during or immediately prior to the base period, commenced business or changed the character of the business and the average base period net income does not reflect the normal operation for the entire base period of the business. If the business of the taxpayer did not reach, by the end of the base period, the earning level which it would have reached if the taxpayer had commenced business or made the change in the character of the business two years before it did so, it shall be deemed to have commenced the business or made the change at such earlier time. For the purposes of this subparagraph, the term "change in the character of the business" includes a change in the operation or management of the business, a difference in the products or services furnished, a difference in the capacity for production or operation, * * * Any change in the capacity for production or operation of the business consummated during any taxable year ending after December 31, 1939, as a result of a course of action to which the taxpayer was committed prior to January 1, 1940, * * * shall be deemed to be a change on December 31, 1939, in the character of the business, or (5) of any other factor affecting the taxpayer's business which may reasonably be considered as resulting in an inadequate standard of normal earnings during the base period and the application of this section to the taxpayer would not be inconsistent with the principles underlying the provisions of this subsection, and with the conditions and limitations enumerated therein.↩ 2. As regards the push-back rule, the Bulletin points out, at Part V (II) (B) (3) (a), that "it is not theoretically possible to determine that the taxpayer has reached by the end of the base period the level of normal earnings it would have reached under the push-back provision without making a computation under that provision." Therefore, in analyzing whether petitioner has established its right to relief the push-back rule will be applied by us.↩