Pittsburgh Union Stock Yards Co. v. Commissioner

PITTSBURGH UNION STOCK YARDS CO. AND PITTSBURGH PROVISION & PACKING CO., PETITIONERS, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. Pittsburgh Union Stock Yards Co. v. Commissioner Docket Nos. 9219, 15813, 32370. United States Board of Tax Appeals 16 B.T.A. 139; 1929 BTA LEXIS 2638; April 23, 1929, Promulgated *2638 1. Value of leasehold at date of acquisition determined for invested capital purposes. 2. Value of leasehold on March 1, 1913, determined for purposes of exhaustion. 3. The assessment and collection of the deficiencies for the fiscal years 1919 to 1922, inclusive, are not barred by the statute of limitations. Joy Floral Co.,7 B.T.A. 800; Wells Brothers Co.,16 B.T.A. 79, followed. Ewing Laporte, Esq., for the petitioners. Leroy L. Hight, Esq., for the respondent. MORRIS *139 The petitioners, as affiliated corporations, bring these proceedings for redetermination of deficiencies in income and profits taxes for *140 the fiscal years 1919 to 1921, inclusive, and income taxes for the fiscal years 1922 to 1925, inclusive, as follows: Fiscal year ended June 30 - Pittsburgh Union Pittsburgh Provision Stock Yards Co. & Packing Co. [1919] $32,892.91 [1920] 1,531.29 $5,893.05 [1921] 6,053.68 [1922] 14,742.20 [1923] 6,643.61 [1924] 6,514.50 [1925] 2,973.52 Upon motion of counsel the proceedings were consolidated for hearing and determination of the following allegations*2639 of error: 1. That respondent erred in failing and refusing to allow the petitioners, or either of them, as invested capital, any portion of the cost or March 1, 1913, value of a certain leasehold on the assets, under and by virtue of which they, and particularly the Pittsburgh Union Stock Yards Co., operated and did business during each of the years in question. 2. That the respondent erred in failing and refusing to allow the petitioners, or either of them, as a deduction from income, any portion of the cost or March 1, 1913, value of the said leasehold as depreciation, exhaustion, or amortization. 3. That respondent erred in asserting deficiencies for the fiscal years ended June 30, 1919, 1920, 1921, and 1922 in that his right to assert or collect deficiencies in any sum for any of these years is barred by the statute of limitations. Respondent, in his answers to the amended petitions, denies that the assessment and collection of the deficiencies are barred, and at the hearing moved to amend his answers, which motion was granted over the objections of petitioners, by adding thereto an averment that "waivers" are of record in the office of the respondent. FINDINGS*2640 OF FACT. The petitioners are operating corporations located on Herr's Island in the Allegheny River, Pittsburgh, Pa. The Pittsburgh Provision & Packing Co. was incorporated in 1901 and the Pittsburgh Union Stock Yards Co. in 1904. Prior to 1904 there were two stockyards operating in Pittsburgh, one known as the Central Stock Yards Co., located in East Liberty and handling all livestock shipments over the Pennsylvania Railroad, and the other located on Herr's Island in the Allegheny River, which handled all livestock shipments over the B. & O. Railroad. The Central Stock Yards Co. had, since 1866, been controlled and *141 managed by Samuel W. Allerton, a well known and a prominent livestock dealer. This stockyard plant was located on property owned and leased from the Pennsylvania Railroad. Prior to or during 1898 the livestock situation throughout Ohio, Indiana, and Illinois convinced Allerton that the Pittsburgh market should receive a larger proportion of the livestock business from shippers in these States. Beginning in the fall of 1898, men were constantly on the road soliciting livestock shipments from dealers in Ohio, Indiana and Illinois, and in the Middle*2641 West, for the Pittsburgh market. Allerton boomed the Pittsburgh market in a livestock paper which he published and urged dealers and exporters to ship to and by the way of the Pittsburgh market. He purchased the surplus livestock on the local market and exported it to London, Liverpool, and Hull, England, where he disposed of it in competition with large exporters such as Swift, Armour, Morris, and others. The export department showed a loss of $144,000 in 1900 and $180,000 in 1901, but the business as a whole showed a profit because of the increase in livestock shipments. The Pittsburgh market was also widely advertised by livestock shows held in the fall of 1899, 1900, and 1901, which attracted dealers from all over the country to Pittsburgh. Livestock receipts at the Pittsburgh yards were of two general classes, local and transit, the volume being approximately one-third local and two-thirds transit. The records of the Central Stock Yards from 1897 to and including a portion of 1903, show receipts of local livestock as follows: Year Cattle Hogs Sheep Calves Horses and mules [1897] 70,865 547,387 365,971 37,434 41,015 [1898] 84,581 721,899 346,612 36,002 53,556 [1899] 110,133 700,595 355,435 33,306 43,418 [1900] 110,872 713,991 413,654 38,743 39,669 [1901] 132,857 817,143 483,871 53,377 46,587 [1902] 127,899 785,614 310,345 64,784 47,348 [1903] 85,092 485,562 367,440 49,947 31,904 *2642 The records of livestock receipts at the B. & O. stockyards for the years prior to 1903 have been lost or destroyed, but the volume of receipts of local and transit livestock was estimated to be approximately one-half the volume of the Central Stock Yards. The income of the stockyards was principally derived from the care of livestock received in the yards for sale on the local market, or from unloading, feeding, watering, resting and reloading of livestock in transit, or from the sale of feed for livestock while in the yards. On all livestock placed on the local market a livestock and yardage charge was made of so much per head. In 1904 and until *142 1917 this charge was 15 cents per head for cattle, 6 cents per head for hogs, 4 cents per head for sheep, and 15 cents per head for calves. The yardage charge covered the unloading, yarding, weighing and watering of the livestock. Feeds of all kinds were sold by the stockyards at a fixed differential of profit, their sale price including attention, weighing and delivery to the pens. From 15 to 20 per cent of the livestock received for market locally was purchased by speculators, and upon resale the stockyards received*2643 a second scaleage or yardage charge, which amounted to 10 cents per head on cattle, 4 cents on hogs, 2 cents on sheep and 5 cents on calves. Livestock in transit, which came under the Federal 36-hour or 28-hour law, was unloaded, fed, watered, rested and reloaded at the petitioner's yards at a flat rate of so much per car, regardless of what kind of stock was being shipped or how many head per car. The average net earning power of the Central Stock Yards Co. for the five years prior to 1903 was estimated to be $100,000 per year. The average net earning power of the B. & O. yards for the same period was estimated to be $40,000 or $50,000 per annum. At some time prior to September, 1903, the Pennsylvania Railroad bought all of Herr's Island except that portion already held by the B. & O. Railroad, and erected thereon its new stockyards. The two railroads consolidated their facilities and organized a holding company, the Pittsburgh Joint Stock Yards Co., the capital stock of which was owned 75 per cent by the Pennsylvania Co. and 25 per cent by the B. & O. Co. Prior to the organization of the holding company there was a small stockyard on the island operated by the Pittsburgh*2644 Provision Co. The holding company became the owner of the stockyard properties on Herr's Island, with all the stables, sheds, buildings, structures, machinery, appliances, appurtenances, improvements and track facilities connected therewith which had been erected on the Island. The stockyard properties included, among other things, approximately 28 acres of land, 22 acres thereof being used for the stockyards proper, 3 or 4 acres for the packing house, which was operated in connection with the yards, and the remaining acres for empty stock cars. The yards included cattle pens, hog pens, sheep pens, railroad tracks, grain elevator, a packing-house plant, a 4-story brick office building, known as the Exchange Building, where the commission men, railroad and stockyards companies had their offices, a 3-story brick hotel, 6 brick horse barns, a large hay barn holding about 65 carloads of hay, which was under a sprinkler system, and brick paving which covered the whole yard. On June 30, 1901, the books of the Pittsburgh Provision Co. showed an opening balance of $671,000, which was carried forward *143 through the books of the succeeding company into the books of the Pittsburgh*2645 Joint Stock Yards Co. On December 31, 1903, the books of the Joint Stock Yards Co. showed a property investment on Herr's Island of approximately $2,259,000, of which $1,500,000 represented the stockyards proportion, which had been expended prior to 1904, and $650,000 represented the railroad's proportion, which included tracks, trestles, culverts, embankments and like construction work. Included in the $1,500,000 representing expenditures by the Joint Stock Yards prior to 1904, was real estate listed at $539,600. The book value of these properties at the end of 1914 was $2,338,000. In 1903, when the Central Stock Yards were closed and the stockyard facilities of the B. & O. Railroad and the Pennsylvania Railroad were consolidated, A. J. Cassett, president of the Pennsylvania system, and Allerton were closely associated. Cassett wanted Allerton to handle the new stockyards, but Allerton was hesitant in assuming the large increase in expenditures which would result. They agreed that Allerton should operate the yards for a couple of years so as to determine whether the yards could be profitably operated, and a lease was entered into on December 1, 1903, between the Pittsburgh*2646 Joint Stock Yards Co., on the one hand, and Samuel W. Allerton, Robert H. Allerton, William V. Callery and Simon O'Donnell, on the other. Cassett agreed to make the rent as low as possible and it was fixed at approximately 8 per cent of construction costs. This lease, among other things, provided for a two-year term ending August 31, 1905, unless sooner terminated, and that thereafter the lessee should hold the premises from year to year; that the yearly rental should be $105,882, together with all taxes and the cost of maintaining adequate fire insurance to be placed on the buildings, structures, etc., by the lessor; that the lessees should maintain the premises exclusively as a stockyard for livestock transported over the Pennsylvania Railroad and the Baltimore & Ohio Railroad and their affiliated companies; that the lessees should in all proper ways secure transportation over such railroads for livestock en route to Pittsburgh; that the lessees could enter into a sublease with "the Pittsburgh, Provision & Packing Co. of that portion of the premises hereby demised, upon which, at its sole cost and expense, the said Packing Company has erected, with the consent of the Lessor, *2647 the packing house plant which is now operated in connection with the Stock Yard premises herein described"; that the lessor should take over the packing-house plant upon the termination of the lease, and upon taking over the plant should pay the lessees the cost thereof less 4 per cent depreciation per annum; "(a certified statement of which cost has been filed with the Treasurer of the Lessor)"; that the lessor *144 should procure and furnish water for the lessees; that the lessor or the railroad companies should maintain and repair the tracks, turnouts, sidings, and loading and unloading platforms, and shift the stock cars for the lessees; that the lessor should rebuild, renew or replace any structure worn out or destroyed by accident, decay or fire and furnish additional buildings, improvements and facilities as may be deemed necessary, and that where new construction shall be provided by the lessor the lessees should pay an increased rental amounting to 8 per cent per annum on the cost of such new construction; that the lessees should not assign, transfer or demise the term created or any portion thereof, nor underlet without having obtained the prior written consent of*2648 the lessor; and that, upon failure of the parties to the lease to amicably adjust their differences with respect to the terms thereof, a board of arbitrators should be appointed, in manner and form therein provided, whose decision would be final and conclusive upon the lessor and the lessees. The lease was signed and acknowledged by the individuals, by the Pittsburgh Joint Stock Yards Co., and by officers of the Pennsylvania Railroad Co., the Pennsylvania Co., the Pittsburgh, Cincinnati, Chicago & St. Louis Railroad Co., and the Baltimore & Ohio Railroad Co. The Pittsburgh Provision & Packing Co., referred to in the above lease, was an outgrowth of a small packing-house plant which had been operated on Herr's Island in 1892 by the Emil Winter Co. In 1894 the plant was sold to the Pittsburgh Provision Co., the principal members of which were William V. Callery and J. D. Callery. At some time between 1894 and 1901, Samuel W. Allerton, recognizing the value of the location for a packing-house business, bought out William V. Callery. In 1901 the name was changed to the Pittsburgh Provision & Packing Co., and Willam V. Callery was brought back into the new corporation by Allerton*2649 as vice president. Throughout the period 1892 to 1901 the packing-house business grew steadily, but under the direction and management of Allerton the business of the Pittsburgh Provision & packing Co. increased from $2,000,000 a year to $5,000,000, and later of $10,000,000 per annum. After 1904 the interests of Allerton and his associates in the Packing & Provision Co. were identical with their interests in the Union Stock Yards Co. The first unit in the packing-house plant cost around $300,000, and in 1910 or 1911 another unit was erected at a cost of approximately $256,000. The ledger of the Pittsburgh Provision & Packing Co. shows an opening debit balance in its new construction account on August 1, 1903, or $356,707.01. By July 31, 1904, the debit balance in the new construction account had been increased by various debit entries to $451,576.49. *145 Actual operations at the new stockyards, which had been built in 1902 and 1903, were begun by Samuel W. Allerton and his associates on or about September 1, 1903, Allerton advancing $20,000 to meet preliminary expenses of operation. Thereafter the yards were continuously operated by them, either as individuals or*2650 through the corporation which they organized in 1904. The receipts of local livestock at the Pittsburgh Union Stock Yards, during the period of individual operation, namely, from September, 1903, until December, 1904, were as follows: Cattle Hogs Sheep Calves Horses and mules [1903] Sept 15,513 56,894 36,414 4,113 4,779 Oct 13,088 86,674 37,157 3,827 3,693 Nov 14,114 108,912 34,758 3,078 2,135 Dec 9,211 118,075 32,052 2,203 1,982 Total 51,926 370,555 140,381 13,221 12,589 [1904] Jan 9,667 107,836 33,764 2,380 4,643 Feb 11,636 74,992 26,747 2,441 4,084 Mar 8,312 45,651 23,624 6,895 5,949 April 7,542 47,104 38,487 11,013 4,487 May 10,548 58,212 52,499 15,200 3,331 June 10,403 61,908 41,839 11,804 1,961 July 11,449 53,322 37,295 7,175 2,033 Aug 16,111 50,467 37,126 7,021 3,175 Sept 11,654 58,590 33,301 4,912 4,708 Oct 14,724 84,532 34,510 4,544 4,495 Nov 11,340 121,632 33,854 3,364 3,312 Dec 9,901 145,535 40,381 3,290 2,929 Total 133,287 909,781 433,427 80,039 45,107 In 1904 S. W. Allerton and his associates, R. H. Allerton, William V. Callery, *2651 and Simon O'Donnell, organized the Pittsburgh Union Stock Yards Co., a Pennsylvania corporation, with a total capitalization of $1,200,000, divided into 12,000 shares having a par value of $100 per share. This capitalization was agreed upon because the incorporators thought the leasehold which the company acquired had a value in that amount. The capital stock was issued to the individuals, who surrendered their unexpired lease and procured the new lease in favor of the corporation. S. W. Allerton received a majority of the stock and the remainder thereof was issued to his associates. The terms of the new lease were very similar to the terms of the lease to the individuals, differing chiefly in the period of time that the lessees therein were to hold the stockyard facilities. The pertinent provisions of the new lease were as follows: *146 LEASE PITTSBURGH JOINT STOCKYARDS COMPANY TO PITTSBURGH UNION STOCK YARDS COMPANY. Dated December 1st, 1904. Of Stock Yard Property on Herr's Island, Allegheny City, Pennsylvania. THIS AGREEMENT made and entered into this first day of December, A.D. One thousand, nine hundred and four (1904), between the PITTSBURGH JOINT*2652 STOCK YARDS COMPANY, hereinafter called the Lessor, party of the first part, and PITTSBURGH UNION STOCK YARDS COMPANY, hereinafter called the Lessee, party of the second part. * * * SECOND: The lessor agrees that it will arrange with the said Railroad Companies, that, so far as they lawfully can, the said Railroad Companies will deliver in cars on the said premises all the live stock which may be transported over said lines of railroad, or any of them, and destined to the Pittsburgh market or any market or station in the vicinity thereof, or to any market or station that may be reached therefrom, also all other products, materials and supplies necessary to enable the Lessee to comply with the terms of this lease and to grant to the Lessee, as far as said Railroad Companies and the said Lessor lawfully can, the privilege of furnishing all the necessary feed for live stock arriving at said stock yards and while remaining thereat, it being agreed that all the feed both as to quality and quantity purchased for consumption on said premises and the manner of feeding, watering, taking care of and unloading and loading live stock at the said stock yards, and generally the manner of transacting*2653 the business thereon and thereat shall be satisfactory to the said Railroad Companies, and that the Lessee shall be entitled to charge, collect and receive, for its own use, from the owners, shippers and consignees of all such live stock as may be delivered to and received by it, as aforesaid, a reasonable compensation for the loading, unloading, feeding, watering, and taking care of the said live stock, and for weighing and yarding the same, such compensation not to exceed the average compensation for like services charged by the stock yard companies at Buffalo, or similar competitive points, or those charged by The Jersey City Stock Yards Company, The Union Stock Yards Company of Baltimore County, Maryland, and The Union Stock Yard and Market Company at Sixtieth Street, New York City: But it is expressly agreed that stock shipped to any market or station that may be reached from Pittsburgh and vicinity as aforesaid over the said lines of railroad or any of them, upon through receipts or through bills of lading or that may not have been sold at Pittsburgh, and not unloaded, fed, watered or taken care of as aforesaid, shall not be subject to charges for such services; and such stock*2654 so shipped on through receipts or through bills of lading, fed, watered and taken care of, and then reloaded and forwarded, shall not be subject to any yardage charge. * * * FOURTH: The Lessor agrees that it shall and will renew, rebuild, or replace any structure now or hereafter erected on the hereby demised premises when so worn out by use or destroyed by accident, decay, or fire, that its value shall *147 be less than thirty per cent of the then cost to renew, rebuild or replace said structure, such value, in the event that the Lessor and Lessee do not agree thereon, to be determined as provided in article fifteenth hereof, and that it shall and will make, construct and furnish such additional buildings, improvements and facilities at and upon the said premises as, in the opinion of its Board of Directors may be deemed necessary by reason of the buildings, improvements, and facilities proving insufficient to properly accommodate the business and traffic at said stock yard, or by reason of the increase in the live stock traffic on and over the said lines of railroad on condition that whenever the said Lessor shall make, construct and furnish any additional buildings, *2655 improvements and facilities to accommodate said traffic and business, the yearly rent hereinbefore specified and reserved shall be increased by the addition thereto of a yearly rent or sum which shall be equal to eight per centum per annum upon the cost of such new constructions. FIFTH: The Lessor hereby consents and agrees to a sub-lease from the Lessee to the Pittsburgh Provision and Packing Company of that portion of the premises hereby demised, upon which, at its sole cost and expense, the said Packing Company has erected, with the consent of the Lessor, the packing house plant which is now operated in connection with the Stock Yard premises herein described. The Lessor agrees that at the termination of such sub-lease it shall then take from the said Packing Company the said packing house plant and shall pay to the said Packing Company the cost thereof (a certified statement of which cost has been filed with the Treasurer of the Lessor), first deducting therefrom, on account of depreciation, an amount which it is understood and agreed between the Lessor and Lessee and the said Packing Company, shall be ascertained by multiplying four per cent of such cost by the number of years*2656 and fractional part of a year intervening between and including December 1st, 1904, and the date of the termination of this lease; no allowance or payments shall be made to the Lessee or to the said Packing Company for the good-will or the value of the business transacted in connection with and in the said packing house plant, and when said sum is paid the said Lessee and Packing Company, their successors, or assigns, in possession of said packing house premises shall immediately deliver the same to the said Lessor on condition that the sub-lease next hereinafter mentioned shall recite that it is made under and subject to each and every the terms, conditions, covenants and stipulations contained in this lease and that, at the expiration of this lease, or whenever it shall be terminated as provided by this lease, the said sub-lease shall terminate simultaneously and shall also provide for the sale of the said packing house plant as provided in this article. SIXTH: The Lessee in consideration of the leasing and demising of the aforesaid premises agrees to well and promptly pay, or cause to be paid unto the Lessor during the continuance of this lease a yearly rental of ONE HUNDRED*2657 SEVEN THOUSAND, THREE HUNDRED NINETY-EIGHT AND 40/100 DOLLARS, ($107,398.40), payable quarterly on the last days of February, May, August and November in each year; together with a further sum which shall be equal to all taxes, of any kind whatsoever that now or hereafter during the term of this lease may be assessed on the hereby demised premises and on all buildings, improvements, structures and appurtenances at present erected, or placed thereon, or in the future erected, or placed thereon, or used in connection therewith; and a further sum which shall be equal to the cost of maintaining adequate fire insurance to be placed by the Lessor upon the buildings, structures, piers, machinery, fixtures and appurtenances now or hereafter erected upon the demised premises; and also to pay unto the Lessor on the days and *148 times hereinbefore mentioned the increased yearly rent provided for in Article Fourth hereof from the time the same shall become due under the provisions of said Article Fourth. * * * FIFTEENTH: This lease may be modified or amended by the mutual consent of the parties hereto, and if any difference shall arise as to the rights or obligations of the parties*2658 under this lease which cannot be adjusted amicably by the parties hereto, the same shall be submitted to a Board of Arbitrators composed of three competent disinterested men, one to be chosen by the Lessor, one by the Lessee and the third to be selected by the two arbitrators so chosen. The decision of the three arbitrators thus chosen, or that of a majority of them, shall be final and conclusive upon the parties hereto. In case either of the said parties hereto shall fail to appoint an arbitrator within thirty days after notice is given to that effect by the other party, then the arbitrator appointed by the party not in default shall appoint an arbitrator for the defaulting party, and the said arbitrators so chosen shall select a third, and the three arbitrators so chosen shall decide the difference. Their decision, or that of a majority of them, shall be final and conclusive upon the parties hereto. SIXTEENTH: That this lease shall be effective from and as of the First day of December 1904, and shall remain in full force during the period of ten years ending the Thirtieth day of November 1914, unless sooner terminated as hereinbefore provided. That if on or before the Thirtieth*2659 day of November 1913 - provided this Lease shall then be in force - the Lessee shall desire renewal thereof, and shall within said period indicate such desire by written notice served in person on the President, any Vice President, Secretary, Treasurer or any Director of the Lessor, or upon any of the persons at the time performing the duties usually exercised by such officers, then and in that case, if the Lessee shall have kept and performed all the covenants and stipulations in this lease contained, and the Lessor shall not have notified the Lessee of its desire to use the demised premises for other purposes, the Lessor shall and will again lease the demised premises to the Lessee for an additional term of ten (10) years by a lease upon like terms and conditions and with like covenants and provisions as are contained in this lease, except that the annual rental for the new term shall be then ascertained and determined by agreement between the parties, and except also that the said new lease shall contain no stipulation or provision for renewal or extension of the term therein prescribed. * * * In accordance with the fifth article of the lease hereinabove set forth, and on the*2660 same date, the Union Stock Yards Co. subleased a portion of its premises to the Pittsburgh Provision & Packing Co. under a lease, some of the provisions of which are: SUB-LEASE Made and executed this first day of December, A.D. 1904, by the PITTSBURGH UNION STOCK YARDS COMPANY, a corporation created and existing under the laws of the State of Pennsylvania. and the PITTSBURGH PROVISION & PACKING COMPANY, a corporation created and existing under the laws of the State of Pennsylvania. WHEREAS, the Pittsburgh Joint Stock Yards Company, the owner of the stock yard property and stables, sheds, buildings, tracks, machinery, appliances, appurtenances, improvements, and track facilities connected therewith, situate on *149 Herrs Island, Allegheny City, Pa., has by Indenture of Lease demised the same to the said Pittsburgh Union Stock Yards Company for and during the full term of ten (10) years from December 1st, 1904, unless sooner terminated as in said lease provided, and after December 1st, 1914, for the further term of ten (10) years, in manner and as provided in said lease; and * * * Now, THEREFORE, the Pittsburgh Union Stock Yards Company doth hereby sublet and demise*2661 unto the Pittsburgh Provision & Packing Company, the packing house plant, including the storage warehouse, stables, and everything belonging to said packing house plant, and necessary and appurtenant to its operation, for and during the full term of ten (10) years from December 1st, 1904, unless the lease made by the Pittsburgh Joint Stock Yards Company to the said Pittsburgh Union Stock Yards Company is sooner terminated; and after December 1st, 1914, for the further term of ten (10) years, unless the lease made by the Pittsburgh Joint Stock Yards Company to the Pittsburgh Union Stock Yards Company is sooner terminated. The Pittsburgh Provision & Packing Company, in consideration of the subletting and demising to it of the said packing house plant, doth hereby agree to pay, or cause to be paid unto the said Pittsburgh Union Stock Yards Company, during the continuance of this sub-lease, a yearly rental of One hundred ($100.00) dollars, payable quarterly, on the 1st days of February, May, August and November in each year. This sub-lease is made under and subject to each and every the terms, conditions, covenants and stipulations contained in the original lease and agreement made*2662 by the Pittsburgh Joint Stock Yards Company to the Pittsburgh Union Stock Yards Company. This sub-lease shall terminate simultaneously with the expiration of the original lease made by the Pittsburgh Joint Stock Yards Company to the said Pittsburgh Union Stock Yards Company, or whenever it shall be terminated, as provided in the original lease; and the said Pittsburgh Provision & Packing Company agrees to sell said packing house plant, and deliver the same to the Pittsburgh Joint Stock Yards Company at the time, in the manner, for the price, and upon the terms and conditions set forth in Section Fifth of the original lease made by the Pittsburgh Joint Stock Yards Company to the Pittsburgh Union Stock Yards Company. * * * Since its organization in 1904 the stock of the Pittsburgh Union Stock Yards Co. has been closely held by the incorporators and their heirs. The stock has never been offered on the open market or listed on any stock exchange, and very few sales have been made. Upon the death of Simon O'Donnell in 1909, S. W. Allerton purchased the former's stock from the widow, and thereafter, in May, 1910, he sold 300 shares in 100 share blocks to each of three individuals*2663 at par. The operation of the consolidated stockyards on Herr's Island subsequent to 1903 had many advantages over the old competing yards. The new yards were on the main line of the Pennsylvania and the B. & O. Railroads and were situated near a large foreign element which furnished a plentiful supply of labor for the yards and the packing house. The long, 7-mile drive from the Pennsylvania yards to the packing plant on Herr's Island was eliminated by the *150 operation of the yards and the packing house as a unit. The new company was protected as to its receipts by the agreement of the Pennsylvania and the B. & O. Railroads to route all livestock through the Pittsburgh market, and under the Federal 28-hour law the stockyards company was assured a large volume of receipts of livestock in transit. This was particularly true of the Pennsylvania, as the Pittsburgh yards were the only stockyards on the Pennsylvania System for livestock en route from the West to the eastern seaboard. The following table shows the receipts of livestock for the local market from 1905 to 1916, inclusive: Year Cattle Hogs Sheep Calves Horses and mules [1905] 138,710 986,348 343,931 88,135 53,089 [1906] 164,009 896,611 399,419 97,546 50,310 [1907] 145,086 899,383 353,477 99,558 39,863 [1908] 112,298 920,019 272,008 93,453 34,035 [1909] 114,006 663,925 369,801 86,651 36,012 [1910] 122,037 680,628 434,095 89,343 35,407 [1911] 132,110 853,019 593,566 100,063 43,796 [1912] 124,944 850,751 532,209 96,414 41,561 [1913] 109,447 893,048 620,998 73,332 43,760 1914 1 97,656 780,689 458,354 60,140 51,931 [1915] 89,057 841,762 358,751 50,317 46,746 [1916] 107,417 877,749 337,326 61,466 53,505 *2664 During the years 1909 to 1914 practically all the books and records of stock yard operations at the Central Stock Yards and later at Herr's Island, which had been accumulating for a period of 40 years, were destroyed by officials of the Union Stock Yards Co. in order to obtain additional floor space. The books and records covering the B. & O. operations on Herr's Island prior to 1903 have likewise been destroyed or lost. Among the records retained was the minute book of the Union Stock Yards Co. which sets forth the dividends declared and paid out of its earnings, exclusive of the earnings of the packing company, as follows: Fiscal year ended June 30 Amount of dividend paid Dividend rate - per cent [1907] $60,000 [1908] 48,000 [1909] 96,000 [1910] 24,000 [1911] $60,000 [1912] 30,000 2 1/2 [1913] 84,000 [1914] 96,000 [8] The Pittsburgh Provision & Packing Co., with a total cash investment of $600,000, paid its shareholders an average of 24 per cent per annum from its organization in 1901 to June 30, 1917. *2665 The net *151 earnings of this company for the fiscal years ended June 30, 1909, to and including June 30, 1914, and the dividends declared, as shown by the books, were as follows: Fiscal year ended June 30 Net earnings Dividends [1909] $126,678.40 [1910] 220,481.06 $132,000.00 [1911] 229,440.64 144,000.00 [1912] $330,639.76 $270,000.00 [1913] 312,877.43 210,000.00 [1914] 300,211.70 150,000.00 Prior to March 1, 1913, it was mutually understood between S. W. Allerton and the officials of the Pennsylvania Railroad that the lease would be renewed in 1914 when the 10-year period expired. The operation of the yards had been satisfactory to the railroad, and as early as 1910, when Allerton sold some of the stock, he assured the purchasers that the lease would be renewed in 1914. The original lease was renewed by the parties by an agreement, certain provisions of which are as follows: THIS AGREEMENT, executed in triplicate, this 23rd day of February One thousand nine hundred and fourteen (1914), between the PITTSBURGH JOINT STOCK YARDS COMPANY, hereinafter called the "Joint Company" of the first part, the PITTSBURGH UNION STOCK YARDS COMPANY, hereinafter*2666 called the "Union Company" of the second part, and the PITTSBURGH PROVISION AND PACKING COMPANY, hereinafter called the "Packing Company," of the third part (all being corporations of the State of Pennsylvania); * * * WHEREAS by five certain Agreements between the parties hereto, dated respectively July 1st, 1907, July 27th, 1909, December 30th, 1911, September 5th, 1912 and January 2nd, 1913, certain buildings were erected and additions and installations made to the Packing House plant by the Packing Company, the cost of which amounted to Two hundred and sixty-two thousand, eight hundred and ninety-one dollars and ninety-one cents ($262,891.91), which cost added to the agreed cost of the Packing House plant as originally constructed amounts to Seven hundred thousand, three hundred and two dollars and twelve cents ($700,302.12); and * * * WHEREAS the Union Company desires a renewal of the said Agreement between the Joint Company and the Union Company, dated December 1st, 1904, as therein provided, for the further term of ten (10) years, from December 1st, One thousand nine hundred and fourteen (1914) to December 1st One thousand nine hundred and twenty-four (1924) with the*2667 distinct understanding that the buildings and facilities erected and furnished by the Packing Company on the said premises have depreciated in value as of December 1st, One thousand nine hundred and fourteen (1914) to the sum of Four hundred and sixty-six thousand, six hundred and twenty-seven dollars and eighty-eight cents ($466,627.88), as provided for in Paragraph "Fifth" of said Agreement between the Joint Company and the Union Company dated December 1st, 1904, and the Joint Company has consented to renew said Agreement upon the following terms and conditions: - Now, *152 THEREFORE, THIS AGREEMENT WITNESSETH, That in consideration of the premises and of the mutual convenants herein set forth as well as for and in consideration of the yearly rent, sums and taxes to be paid as hereinafter provided, the Joint Company doth hereby renew the said Agreement with the Union Company dated December 1st, 1904, and doth again lease and demise to the said Union Company the premises therein particularly described for the further term of (10) years, viz; - From December 1st, One thousand nine hundred and fourteen (1914) to December 1st, One thousand nine hundred and twenty-four (1924), *2668 UNDER AND SUBJECT, to all the terms, covenants, conditions and agreements therein contained and UNDER AND SUBJECT, to all the terms, conditions, covenants and agreements contained in the above recited Agreements, all of which shall remain in full force and effect and run and terminate simultaneously with this renewal of the said agreement with the Union Company of December 1st, 1904, and under and subject to the terms and conditions hereof; The Union Company agrees to and with the Joint Company to well and promptly pay or cause to be paid unto the Joint Company during the continuance of the term hereby created, a yearly rental of One hundred and eight thousand, and twenty-five dollars and sixty-five cents ($108,025.65), payable in equal quarterly installments, on the last day of February, May, August and November in each year; Together with a further sum which shall be equal to all taxes of any kind whatsoever that now or hereafter during the renewed term hereby created, may be assessed on the demised premises and on all buildings, improvements, structures and appurtenances at present erected or placed thereon, or in the future erected, or placed thereon, or used in connection therewith; *2669 and a further sum equal to all water rent for water supplied to said premises by the City of Pittsburgh and a further sum which shall be equal to the cost of maintaining adequate fire insurance to be placed by the Joint Company upon the building, structures, piers, machinery, fixtures and appurtenances now or hereafter erected upon or installed in the demised premises; and also to pay unto the Joint Company on the days and times hereinbefore mentioned the increased yearly rent provided for in Article "Fourth" of said Agreement between the Joint Company and the Union Company dated December 1st, 1904, from the time the same shall become due under the provisions of said Article "Fourth;" IT IS HEREBY MUTUALLY UNDERSTOOD AND AGREED: - I. That the Joint Company will enlarge the sheep pens now located on the said premises at a cost not to exceed the sum of One hundred and fifty thousand dollars ($150,000.00) and that the Union Company will execute an Agreement with the Joint Company covering the cost of the work and pay to the Joint Company the additional rent of eight per cent. per annum upon the cost thereof as provided in Article "Fourth," of said Agreement between the Joint Company*2670 and the Union Company dated December 1st, 1904; II. That the Union Company will reconstruct the mule barn on said premises at a cost which shall not exceed Twenty-two thousand dollars ($22,000.00) and that the Joint Company will upon the termination of this Agreement, take over the said mule barn and pay to the Union Company the cost of such re-construction (a sworn certified statement of which cost the Union Company agrees to file with the Treasurer of the Joint Company immediately after the completion of the work) first deducting therefrom on account of depreciation an amount which it is understood and agreed between the Joint Company and the Union Company shall be ascertained by multiplying four per cent. of such cost by the number of years and fractional part of a year intervening between and including the day upon which the work of reconstruction is completed and the date of the termination of this argument; *153 III. That upon the termination of this agreement and the said sub-leases with the Packing Company, the Joint Company shall then take from the said Packing Company the said packing house plant and the additions thereto and pay to the Packing Company the depreciated*2671 value of Four hundred and sixty-six thousand, six hundred and twenty-seven dollars and eighty-eight cents ($466,627.88) above recited, first deducting therefrom on account of additional depreciation of said plant an amount which it is understood and agreed between the parties hereto shall be ascertained by multiplying four per cent. of the value as agreed upon, by the number of years and fractional part of a year intervening between and including the first day of December, One thousand nine hundred and fourteen (1914) and the date of the termination of this agreement; no allowance or payments shall be made to the Union Company or the Packing Company for the good will or the value of the business transacted in connection with and in the said packing house plant and when said sum is paid the said Union Company and Packing Company, their successors or assigns, in possession of said packing house premises shall immediately deliver the same to the Joint Company. On July 1, 1914, the balance sheet of the Union Stock Yards Co. showed assets of $92,270.60, and no liabilities. In 1904, when the business was incorporated, the company had to borrow $120,000 from the Pittsburgh Provision & *2672 Packing Co. in order to comply with the incorporation laws of the State of Pennsylvania, since its only asset at that time was the leasehold. The stockyard plant was new when the consolidated yards started operating and on March 1, 1913, it was in practically as good shape as to depreciation and efficiency as when it started. The brick buildings depreciated very little and the brick pavement was protected by straw and bedding so that there was no wear and tear on it. The boards or fences which were kicked off or torn down were replaced or rebuilt and the wooden uprights and water troughs were being replaced by concrete. The net earnings of the stockyards, without deducting the $60,000 annually for exhaustion of leasehold as shown by petitioner's books, and the dividends paid out of earnings from July 1, 1914, to June 30, 1917, were as follows: Fiscal year ended June 30 Net earnings Dividends [1915] $78,796.68 [1916] 161,292.99 $60,000.00 [1917] 100,149.20 120,000.00 The actual cash value of the leasehold in 1904 was $1,200,000, and its fair market value on March 1, 1913, was $800,000. For the fiscal year ended June 30, 1919, the petitioners filed*2673 separate returns, the Stock Yards Co. filing its return on September 13, 1919, and the Provision & Packing Co. filing its return on September 12, 1919. For the fiscal year ended June 30, 1920, separate returns *154 were filed by petitioners on the same date, viz., September 15, 1920. The petitioners filed consolidated returns for the fiscal years 1921 and 1922 on September 15, 1921, and September 14, 1922, respectively. By letter dated December 4, 1920, Deputy Commissioner Newton notified the petitioners that they were affiliated for the fiscal years 1917 to 1920, inclusive, and directed them to file consolidated returns for those years. The collector's accounts in the district in which petitioners are located show the following assessment and payments of taxes for the fiscal year ended June 30, 1920: Reference is made to Bureau letter of April 12, 1928, requesting this office to furnish transcripts of the accounts of the above-named petitioners, as shown by our records, for the fiscal year ended June 30th, 1920, showing income and profits tax assessments, payments and dates thereof including any abatements, credits or refunds. In compliance with request contained*2674 in your letter this office is herewith setting forth the transcripts desired. Pittsburgh Union Stock Yards Co., Herr's Island, Pittsburgh, Penna. Fiscal year 6/30/20- Account 404713- September 1920 list Amount of tax $19,976.82 Paid 9/16/20 $4,994.21 Paid 12/18/20 4,994.21 Paid 2/18/21 879.22 10,867.64 Balance $9,109.18 Form 47, Claim for Abatement, filed for $5,360.66. Form 47-A, Claim for credit filed for $3,748.52. Waiver filed 12/31/28. (Waiver expires 12/31/28.) PITTSBURGH PROVISION & PACKING COMPANY, Herrs Island, Pittsburgh, Penna. Fiscal year 6/30/20-Account number 40474-Sept. 1920 list Amount of tax $12,450.81 Paid 9/16/20 $3,112.71 Paid 12/17/20 3,112.70 Paid 2/28/21 879.22 7,104.63 Balance 5,346.18 Form 47, Claim for Abatement filed for $5,346.18. Waiver expiring December 31st, 1928 on file. The aggregate tax liability for period 6/30/20 disclosed on separate returns of the above named companies as follows: #404713 - Sept. 1920 $19,976.82 #404740 - Sept. 1920 12,450.81 Total $32,427.63 The consolidated return filed 1/4/21 shows less tax liability*2675 than that shown on the original separate returns, the amount of tax being $21,721.79. This latter return was forwarded to the Bureau March 19th, 1921. (Signed) D. B. HEINER, Collector. *155 The following consents in writing were entered into by the Pittsburgh Union Stock Yards Co. and the respondent with respect to the year 1919: OCT. 17, 1924. (Date) INCOME AND PROFITS TAX WAIVER In pursuance of the provisions of existing Internal Revenue Laws, Pittsburgh Union Stock Yards Company, a taxpayer, of Herrs Island, Pittsburgh, Pennsylvania, and the Commissioner of Internal Revenue, hereby consent to extend the period prescribed by law for a determination, assessment, and collection of the amount of income, excess-profits, or war-profits taxes due under any return made by or on behalf of said taxpayer for the years ended June 30, 1919 under the Revenue Act of 1924, or under prior income, excess-profits, or war-profits tax Acts, or under Section 38 of the Act entitled "An Act to provide revenue, equalize duties, and encourage the industries of the United States, and for other purposes", approved August 5, 1909. This waiver is in effect from the date it is signed*2676 by the taxpayer and will remain in effect for a period of one year after the expiration of the statutory period of limitation within which assessments of taxes may be made for the year or years mentioned, or the statutory period of limitation as extended by Section 277(b) of the Revenue Act of 1924, or by any waivers already on file with the Bureau. PITTSBURGH UNION STOCK YARDS CO., Taxpayer. By: (Signed) J. S. MCFADYEN, Vice-President, (Signed) JOHN ANDERSON, Treasurer. [Corporate seal.] (Signed) D. H. BLAIR, Commissioner. If this waiver is executed on behalf of a corporation, it must be signed by such officer or officers of the corporation as are empowered under the laws of the State in which the corporation is located to sign for the corporation, in addition to which, the seal, if any, of the corporation must be affixed. INCOME AND PROFITS TAX WAIVER IT:E:SM PJH-B-4136 AUGUST 10, 1925. In pursuance of the provisions of existing Internal Revenue Laws Pittsburgh Union Stock Yards Company, a taxpayer of Pittsburgh, Pennsylvania, and the Commissioner of Internal Revenue hereby waive the time prescribed by law for making any assessment*2677 of the amount of income, excess-profits, or war-profits taxes due under any return made by or on behalf of said taxpayer for the year 1919 under existing revenue acts, or under prior revenue acts. This waiver of the time for making any assessment as aforesaid shall remain in effect until December 31, 1926, and shall then expire except that if a notice of a deficiency in tax is sent to said taxpayer by registered mail before said date and (1) no appeal is filed therefrom with the United States Board of Tax Appeals then said date shall be extended sixty days, or (2) if an appeal is filed with said Board then said date shall be extended by the number of days *156 between the date of mailing of said notice of deficiency and the date of final decision by said Board. PITTSBURGH UNION STOCK YARDS COMPANY Taxpayer. By (Signed) JOHN ANDERSON Treasurer. [Corporate seal] (Signed) D. H. BLAIR Commissioner. If this waiver is executed on behalf of a corporation, it must be signed by such officer or officers of the corporation as are empowered under the laws of the State in which the corporation is located to sign for the corporation, in addition to which, *2678 the seal, if any, of the corporation must be affixed. The respondent notified the Pittsburgh Union Stock Yards Co. of a deficiency of $32,892.91 for 1919 by a letter mailed under date of March 16, 1926. In June, 1925, the following consents in writing were entered into by the parties subscribing thereto with respect to the years 1920 and 1921: INCOME AND PROFITS TAX WAIVER IT:CR:C JWD JUNE 24, 1925. In pursuance of the provisions of existing Internal Revenue Laws Pittsburgh Provision and Packing Company, a taxpayer of Pittsburgh, Pennsylvania, and the Commissioner of Internal Revenue hereby waive the time prescribed by law for making any assessment of the amount of income, excess-profits, or war-profits taxes due under any return made by or on behalf of said taxpayer for the years 1920 and 1921, under existing revenue acts, or under prior revenue acts. This waiver of the time for making any assessment as aforesaid shall remain in effect until December 31, 1926, and shall then expire except that if a notice of a deficiency in tax is sent to said taxpayer by registered mail before said date and (1) no appeal is filed therefrom with the United States Board of Tax*2679 Appeals then said date shall be extended sixty days, or (2) if an appeal is filed with said Board then said date shall be extended by the number of days between the date of mailing of said notice of deficiency and the date of final decision by said Board. PITTSBURGH PROVISION & PACKING COMPANY Taxpayer. By (Signed) JOHN ANDERSON Treasurer. [No corporate seal] (Signed) D. H. BLAIR Commissioner. If this waiver is executed on behalf of a corporation, it must be signed by such officer or officers of the corporation as are empowered under the laws of the State in which the corporation is located to sign for the corporation, in addition to which, the seal, if any, of the corporation must be affixed. *157 INCOME AND PROFITS TAX WAIVER. IT:CR:C JWD JUNE 25, 1925. In pursuance of the provisions of existing Internal Revenue Laws Pittsburgh Union Stock Yards Company, a taxpayer of Pittsburgh, Pennsylvania, and the Commissioner of Internal Revenue hereby waive the time prescribed by law for making any assessment of the amount of income, excess-profits, or war-profits taxes due under any return made by or on behalf of said taxpayer for the*2680 years 1920 and 1921 under existing revenue acts, or under prior revenue acts. This waiver of the time for making any assessment as aforesaid shall remain in effect until December 31, 1926, and shall then expire except that if a notice of a deficiency in tax is sent to said taxpayer by registered mail before said date and (1) no appeal is filed therefrom with the United States Board of Tax Appeals then said date shall be extended sixty days, or (2) if an appeal is filed with said Board then said date shall be extended by the number of days between the date of mailing of said notice of deficiency and the date of final decision by said Board. PITTSBURGH UNION STOCK YARDS CO., Taxpayer. By (Signed) JOHN ANDERSON, Treasurer. (Signed) D. H. BLAIR, Commissioner. [No corporate seal.] If this waver is executed on behalf of a corporation, it must be signed by such officer or officers of the corporation as are empowered under the laws of the State in which the corporation is located to sign for the corporation, in addition to which, the seal, if any, of the corporation must be affixed. The respondent notified the Pittsburgh Union Stock Yards Co. and the Pittsburgh*2681 Provision & Packing Co. of his determination of deficiencies for the fiscal years ended June 30, 1920 and 1921, as hereinbefore set forth by letters mailed under date of September 23, 1925. The notice of deficiency for the fiscal year 1922 was mailed to the Pittsburgh Union Stock Yards Co. on April 7, 1926. The petitioners included the unextinguished portion of the alleged actual cash value of said lease of $1,300,000 in invested capital for the fiscal years 1919 to 1921, inclusive, and for each of the years in question deducted $60,000 from income, representing exhaustion thereon. The respondent disallowed the amount included in invested capital and also the deduction for exhaustion. OPINION. MORRIS: These proceedings present for our determination three questions: First, the value of a leasehold acquired in exchange for stock in 1904 for invested capital purposes; second, the value of this leasehold on March 1, 1913, for exhaustion purposes; and, third, whether respondent is barred from assessing and collecting the deficiencies asserted for the fiscal years ended June 30, 1919, 1920, 1921, and 1922, by the statute of limitations. *158 The statute of limitations*2682 question will be considered first. The Revenue Act of 1918, under which the taxes for 1919 and 1920 became due, provides that except in the case of false or fraudulent returns with intent to evade tax, the amount of the tax due should be determined and assessed within five years after the return was due or was made, and no suit or proceeding for the collection of any tax should be begun after the expiration of five years from such dates. The Revenue Act of 1921 contains a similar provision, adding: "unless both the Commissioner and the taxpayer consent in writing to a later determination, assessment, and collection of the tax." The Revenue Act of 1924 provides the same limitation on such taxes and adds the further provision that: Where both the Commissioner and the taxpayer have consented in writing to the assessment of the tax after the time prescribed in section 277 for its assessment, the tax may be assessed at any time, prior to the expiration of the period agreed upon. (Sec. 278(c).) The Pittsburgh Union Stock Yards Co. filed its return for the fiscal year 1919 on September 13, 1919. On October 17, 1924, or more than five years thereafter, a consent was executed extending*2683 the period for assessment and collection for one year after the expiration of the statutory period. On August 10, 1925, a second consent in writing was entered into by the parties extending the period for making assessment for the fiscal year 1919 to December 31, 1926. The notice of deficiency was mailed March 16, 1926. In Joy Floral Co.,7 B.T.A. 800, we held on similar facts that the consents were effective to extend the period of limitations, which decision was followed in Wells Brothers Co.,16 B.T.A. 79. We therefore conclude that the assessment and collection of the deficiency for 1919 are not barred. As to the fiscal year 1920, the petitioners filed separate returns on September 15, 1950. Within the five-year period, namely on June 25, 1925, and June 24, 1925, the petitioners and the respondent consented in writing to extend the period for making assessment of taxes for the fiscal year 1920 to December 31, 1926. The notices of deficiencies were mailed under date of September 23, 1925, or within the statutory period as extended by the consents. It is therefore held that the statute of limitations does not bar the assessment and collection*2684 of the deficiencies for that year. Joy Floral Co., supra. A similar situation exists as to the fiscal year 1921, and it is therefore held that as to that year the assessment and collection of the deficiency are not barred by the statute of limitations. With respect to the fiscal year 1922, the return was filed September 14, 1922, and the four-year period for making assessment under the 1921 Act would therefore expire September 13, 1926. Since the notice of deficiency was mailed April 7, 1926, and a petition was *159 timely filed, it is evident that the deficiency for that year is not barred. The petitioner urges that since some of the consents in writing failed to bear the corporate seal, they had no force and effect in extending the period of limitations; that in order to constitute a valid consent the respondent must notify petitioner that he has signed the agreement, and that the execution of the agreement by the corporation and the respondent must be proven. We have considered similar contentions in prior cases and denied them for the reasons therein stated. See *2685 Pictorial Printing Co.,12 B.T.A. 1407; Maple Coal Co.,10 B.T.A. 1336, and Cunningham Sheep & Land Co.,7 B.T.A. 652. The first two questions presented by these proceedings have in effect been disposed of by our findings of fact. We deem it necessary, however, to point out the principal factors which influenced us in arriving at the values found. We will consider the proof in two large classifications, first the detailed testimony of the two principal witnesses, Anderson and McFadyen, who devoted their time to the stockyard and packing-house business and whose testimony covers the figures on actual earnings, receipts, and dividends; and estimates of prior earnings, receipts, and dividends and their opinions as to the value of the lease at the date of acquisition and on March 1, 1913. In the second group we will consider the leases and sublease with particular reference to the monopolistic character of the covenants contained in the leases between the railroads and the petitioners. The testimony shows that Anderson had been in the provision and packing business on Herr's Island since 1892 and that McFadyen had been in the stockyard*2686 business since 1888 and had been located in Pittsburgh since 1898. In the absence of their books of record, which had been destroyed, these two witnesses testified in detail to actual and estimated earnings, actual and estimated receipts, dividends, and otherwise qualified themselves to express an opinion on the value of the leasehold, and each of them testified to a specific value for the leasehold at December 1, 1904, of $1,200,000, and McFadyen testified that this value was fixed because the incorporators thought the leasehold was worth that amount. Their testimony was not disturbed by respondent's cross-examination, non were witnesses produced to refute the values which these men had fixed. The terms of the lease itself indicate that it was very valuable. Articles 15 and 16 therein show that the original lease was in effect a 20-year lease. Another clause in the lease of December 1, 1904, which affects the value of the lease when acquired, is the second clause, wherein the Joint Stock Yards Co., the railroad holding corporation, agreed to arrange with the railroad companies to deliver *160 in cars on the leased premises all the livestock which may be transported over*2687 said lines of railroad destined to the Pittsburgh market, or any market or station that may be reached therefrom. In addition the petitioners secured by the terms of their lease a large, new, up-to-date stockyard plant which was located on the main lines of two large railroads and their subsidiary companies. These two railroads and their subsidiaries, by their signatures, became parties to the lease and covenanted with the lessee that they would deliver all livestock to the lessee that they lawfully could and that the lessee should have the privilege of furnishing all the necessary feed for local and transit livestock. These covenants, to our mind, almost definitely assured a profitable business to the lessee because there was a fixed differential of profit on all feeds sold, there was a profit on every car of livestock in transit which came within the terms of the Federal 28-hour law, there was a yardage charge of so much per head for every head of livestock placed on the local Pittsburgh market, there was a profit derived from speculative purchases and sales made on the local Pittsburgh market, and there was a profit from the operation of the provision and packing plant. In*2688 capitalizing their company, the sole asset of which was the leasehold, Allerton and his associates had before them all of these factors from which profits would be derived, together with approximately 15 months of actual operation of the premises. With this experience and their intimate knowledge of the volume of receipts and shipments, they were in a good position to determine the value of the leasehold, and subsequent events corroborate the $1,200,000 valuation which they fixed. It is our opinion, therefore, that petitioners have sustained the burden of proof, and we have found as the actual cash value of the lease as at December 1, 1904, the value testified to by the two principal witnesses. The respondent contends that the stock was issued for services rendered rather than for the leasehold, and that since the evidence fails to show the value of the services rendered, petitioners are not entitled to include any amount in invested capital. We are unable to agree with this reasoning as we are satisfied that the stock was issued in exchange for the lease. The four men interested in the lease dated December 1, 1903, were the same four men who incorporated the business and acquired*2689 all the capital stock of the corporation. It is a matter of record, brought out on cross-examination by respondent's counsel, that they had nothing but the leasehold which they had procured for the corporation by the surrender of their own lease, and that the capital stock was issued to them for their consent to the transfer or assignment of their interests to the newly organized company. While the actual mechanics of the transition of this business from a private enterprise to its corporate form were not as *161 clearly set forth in the record as they might have been, there is no doubt in our minds that the stock was acquired by the individuals in exchange for the lease. The second question presented was the value of the leasehold at March 1, 1913. We have fixed a value of $800,000 on the leasehold at that date, which value was testified to by Anderson and McFadyen and is supported by the results of the prior nine years of operations at Herr's Island. The respondent contends that the value, if any, which is determined for the leasehold on March 1, 1913, should be exhausted by November 30, 1914, the date of the expiration of the original term. This argument ignores the*2690 evident intention of the parties in 1904, the provisions of the renewal clause in the lease, the assurance given the lessee long prior to March 1, 1913, that the lease would be renewed, the mutual advantages which would result to the lessor and lessee from a renewal of the lease, the immense cost to the lessor which would have resulted from taking the "demised premises for other purposes," and, finally, the fact that the lease was renewed less than a year from March 1, 1913. Furthermore, it appears from the fifteenth article of the original lease that, in the event that the parties could not amicably adjust any of their differences, the same should be submitted to a board of arbitration whose decision should be binding and conclusive upon the parties to the lease. In view of all these factors and the unrefuted testimony of Anderson and McFadyen that on March 1, 1913, there was absolutely no doubt about the renewal being granted, we are convinced that the March 1, 1913, value should be exhausted over the remaining life of the original term, plus the renewal period. Cf. *2691 Huyler's et al.,8 B.T.A. 13, and 719 Fifth Avenue Co.,5 B.T.A. 565. Judgment will be entered under Rule 50. Footnotes 1. Quarantine account foot-and-mouth disease in December, 1908, in November and December, 1914, and in January and February, 1915. ↩