Page Oil Co. v. Commissioner

PAGE OIL COMPANY, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. Page Oil Co. v. Commissioner Docket Nos. 90515, 95674, 96186. United States Board of Tax Appeals 41 B.T.A. 952; 1940 BTA LEXIS 1117; April 26, 1940, Promulgated *1117 1. Petitioner issued four notes for $500,000 each as part of the consideration for the conveyance to it of certain oil lands, and the notes were subordinate in payment to development notes, costs of improvement and development, operating expenses, and payments on a purchase money mortgage. Petitioner kept its accounts on the accrual basis. Held, that petitioner may deduct interest accrued on such subordinate notes during each of the taxable years. 2. Petitioner is not entitled to depreciate the cost of drilling water wells which were used to stimulate the production of its oil wells. United States v. Dakota-Montana Oil Co.,288 U.S. 459, applied. 3. Petitioner is entitled to a credit under section 26(c)(1) of the Revenue Act of 1936 on account of an express contract restricting its payment of dividends. James P. Quigley, Esq., and C. J. McCarthy, Esq., for the petitioner. E. O. Hanson, Esq., and Thomas H. Lewis, Jr., Esq., for the respondent. LEECH *953 In these consolidated proceedings, petitioner seeks redetermination of deficiencies in income and excess profits taxes as follows: Docket No. Calendar year Income tax Excess profits tax 90515 [1934] $12,472.26 96186 [1935] 22,709.67 $1,292.09 95674 [1936] 56,946.01 10,931.61 *1118 The issues are, first, whether in each of the taxable years petitioner is entitled to a deduction of $120,000 for interest accrued on certain notes; second, whether petitioner is entitled to deduct a so-called "management fee" of $16,800 in each of the years in question; third, whether petitioner is entitled to deduct $147, in its 1934 return, on account of capital stock tax paid in that year; fourth, whether petitioner is entitled to depreciate the cost of drilling certain water wells used to stimulate the production of its oil wells, and entitled to depreciation on other assets in addition to that allowed by respondent; and, fifth, whether petitioner is entitled to a credit, under section 26 of the Revenue Act of 1936, because of a contract restricting the payment of dividends. FINDINGS OF FACT. Petitioner is a corporation organized under the laws of the State of Pennsylvania, and engaged in the production of oil. It owns property in the Bradford Oil Field near Bradford and Kane, Pennsylvania. On January 5, 1929, Roy E. Diament procured a 30-day option to purchase from the Associated Producers Co. all of the latter's oil, gas, and timber interests in 5,300 acres of land*1119 located in Wetmore and Sargent Townships, McKean County, Pennsylvania, and known as the "Ralph property." The terms of the option were that the purchaser should pay $150,000 to the vendor on the date the option was exercised and an additional $600,000 in annual installments over a period of 10 years, with interest at 5 percent. The deferred payments were to be secured by a first mortgage. Diament, unable to take up the option himself, contacted Wilson K. Page. Page, an engineer and oil operator of long experience, after examining the property and finding that there were 200 wells thereon and a good supply of gas and water, became interested, and advanced Diament $10,000 with which to procure an extension of the option. On January 26, 1929, the Associated Producers Co. extended the option to March 5, 1929, in consideration of the payment of $10,000, which was to apply on the purchase price if the option were exercised. It was understood between Page and Diament that the property would ultimately be conveyed to Page. *954 By a deed, dated March 1, 1929, and recorded May 17, 1929, Associated Producers conveyed the Ralph property to Diament, and on March 1, 1929, Diament*1120 gave a purchase money mortgage of $600,000 back to the Associated Producers Co. The mortgage was recorded on April 22, 1929. The down payment of $150,000 for the Ralph property was procured by Page from James P. Quigley, who in turn had procured it from Daniel Shay. It was understood that Shay and Quigley were to have participating interests in the property. On May 15, 1929, Diament conveyed the Ralph property to Wilson K. Page. In this deed there were four covenants, which were stated to run with the land: The grantee agreed to assume the mortgage to the Associated Producers Co., to develop and operate the property in the manner customary in the Bradford Oil Field, to furnish the grantor every six months with a statement of development and operating costs, and, finally, after the property should have produced sufficient oil and gas to equal the total amount of purchase money and cost of operation and development, to convey to the grantor an undivided one-eighth interest in the property and improvements placed thereon. This last clause gave Diament what was known among oil producers as a "carried interest." Its incidents were that the holder thereof was not responsible for*1121 the expenses of developing the property, but was entitled to a one-eighth interest therein after all those expenses had been paid and the purchase price recovered. The clause in the deed covering the operation of the property in the manner customary in the Bradford Oil Field meant that the grantee agreed to operate by the "flooding" method, which will be more fully described below. The deed from Diament to Page was recorded on May 17, 1929. Diament conveyed a second piece of property to Page on May 15, 1929. This property divided the Ralph property. The deed was recorded May 17, 1929. Page and Quigley now concluded that the property could best be developed by a corporation. Petitioner was organized under the laws of Pennsylvania on April 30, 1929. On May 23, 1929, the board of directors of petitioner met to consider a proposal of Page. The proposal was that Page would convey the Ralph property and the smaller property, bought from Diament, to petitioner in exchange for all of petitioner's capital stock, consisting of 1,600 shares, together with $16,000, an interest-bearing demand note for $161,650, and a "subordinate" note for $2,000,000. The subordinate note, or notes, *1122 into which it might be subdivided, was to be payable on demand with interest, but no demand for payment was to be made for five years. The directors resolved to accept this offer. The Ralph property and the smaller tract which Page had acquired through the second deed from Diament were conveyed to petitioner *955 by a deed executed by Page and his wife and dated March 15, 1930, in which petitioner agreed to assume the mortgage to the Associated Producers Co. Page acknowledged this deed on March 26, 1930, and it was subsequently delivered, but was never recorded. On March 15, 1930, petitioner issued four "subordinate" notes, each for $500,000. The payees were the Olean Petroleum Co., Wilson K. Page, and James P. Quigley, the latter being the payee on two of the notes. Each note was in the following form: PAGE OIL COMPANY SUBORDINATE NOTE $500,000.00 Smethport, Pa. March 15, 1930 On demand, on or after five years from date, for value received, We promise to pay to J. P. QUIGLEY or order, Five Hundred Thousand Dollars at the Producers Bank and Trust Company, Bradford, Pennsylvania, with interest at the rate of 6% per annum. Without defalcation, hereby*1123 authorizing any Attorney of Record to confess judgment for the same with five per cent Attorney's commission, waiving inquisition, exemption and stay of execution. This note is given in payment of a part of the purchase price of oil and gas premises and is subordinate in payment to a series of notes aggregating Three Hundred Four Thousand Two Hundred Seventy Six Dollars Forty Cents ($304,276.40) made by this company this date, payable 30 days after demand, to the order of J. P. QUIGLEY and FRANCES F. HATCH; and is likewise subordinate in payment to any notes which may be made by this company for the purpose of paying the cost of improving and the developing of any oil or gas property owned by it. ATTEST: J. H. DAVIDSON, Secretary PAGE OIL COMPANY, By WILSON K. PAGE It was understood between petitioner and the payees of these notes when they were issued, that the notes would bear no interest until 1934. The parties understood that the notes were also to be subordinated to payments on the mortgage to the Associated Producers Co., and to operating expenses. It was also understood and intended that the conveyance of the properties to petitioner and its issue of the*1124 subordinate notes were to be effective as of March 1, 1929. Petitioner issued the 1,600 shares of its stock on October 1, 1930, as agreed upon, to Page and his nominees, as follows: Wilson K. Page 400 shares James P. Quigley 800 shares Olean Petroleum Co 400 shares Two certificates of stock were issued to Quigley, each for 400 shares, but one was shortly thereafter canceled and reissued for 393 shares, the balance of the stock being issued in one-share lots to qualifying directors. *956 In 1929 the Ralph property was a compact tract of land, and for this reason could be operated with much less equipment than if it had been scattered. Comprising 5,300 acres, it had about 200 wells, complete drilling equipment and pipe lines, which were worth approximately $254,000, and plenty of gas and water, and was susceptible of flooding, which latter feature contributed greatly to its value. Oil sold, in 1929, for $4.30 per barrel. From the time petitioner acquired the property until January 1939 the property produced 1,387,508 barrels of oil. The fair market value of the Ralph property in 1929 was approximately $3,000,000. Interest on the subordinate*1125 notes was not accrued by petitioner until 1934. Thereafter it was accrued on the books at the rate of $10,000 a month, $120,000 a year. It has never actually been paid. None of petitioner's tax returns from 1929 to 1936, inclusive, have shown any tax due. Petitioner's income tax returns state that they were filed on the cash basis. In the taxable years, petitioner properly kept its accounts and filed its returns on the accrual basis. At the time of its organization and thereafter, petitioner had no liquid capital with which to operate. It accordingly borrowed extensively from three individuals, giving "development" notes for the sums borrowed. Each of these development notes was a 90-day demand note, bearing 6 percent interest. Petitioner's indebtedness thereon, including principal and interest, as of the close of each taxable year, was as follows: Payee [1936] James P. Quigley $171,755.92 $167,582.32 $177,788.08 Mary A. Shay 153,129.91 162,455.53 172,349.11 Daniel Shay (or estate) 361,316.40 383,320.56 406,664.76 Total 686,202.23 713,358.41 756,801.95 The amounts in the above table are cumulative, that is, none of the*1126 development notes were paid, and new notes including accrued interest on the entire previous balances owed were given semiannually. Petitioner's gross income in each of the taxable years was as follows: [1934] $293,558.90 [1935] 438,661.74 [1936] 479,109.10 The amount still owed by petitioner on the mortgage to the Associated Producers Co. at the end of each taxable year was as follows: [1934] $305,846.14 [1935] 203,243.88 [1936] 115,000.00 *957 Petitioner took interest deductions on its income tax returns, as follows: [1934] $171,413.28 [1935] 171,186.80 [1936] 169,288.52 The annual interest of $120,000 on the subordinate notes is included in the above amounts. Petitioner's method of drilling oil was known as "five-spotting." The essence of five-spotting was to drill four wells on the corners of a parcel of land 300 feet square. These wells were drilled, cased, and shot in the same manner as oil wells. The corner wells were filled with water under pressure, and were allowed to stand thus for about nine months. Thereafter an oil well was drilled in the center of the square. The pressure from the water wells through the*1127 oil sand caused the oil to concentrate in the center well and stimulated production of oil. The oil was pumped out of the center well until it "watered out", that is, until water began to appear instead of oil, after which the well was abandoned. Petitioner's drilling costs on oil and water wells in the taxable years were as follows: [1936] Oil $54,653.77 $143,097.30 $119,381.28 Water 107,479.57 64,007.54 103,713.84 The average useful life of a water well is ten years. On February 23, 1933, petitioner and James P. Quigley, the latter representing himself, Mary A. Shay, and Daniel Shay, entered into an agreement, the material clause of which reads as follows: The party of the first part [petitioner] agrees that until said loans [i.e., the development notes) shall have been paid in full with interest, no dividend of any kind or nature will be declared by it; and that in the event of any dividend of any kind or nature being paid upon any of the shares of said Page Oil Company, then all items of indebtedness to said Shays and Quigley, whether represented by notes, or open account, shall become forthwith due and payable. OPINION. *1128 LEECH: Petitioner introduced no evidence and made no contentions on brief as to the so-called "management fee" of $16,800 nor as to the $147 paid on account of a capital stock tax. Having recourse to the usual presumption of correctness, respondent's actions in these two respects are sustained. Of the issues remaining for decision, the first is whether petitioner is entitled to a deduction of the interest on the four subordinate notes, *958 which is claimed to be deductible in each of the taxable years to the extent of $120,000. A necessary preliminary inquiry here is whether petitioner accounted on the accrual basis, for, since the interest was never paid, the only theory upon which petitioner may have this deduction is that it used the accrual method of accounting. Respondent did not question petitioner's accounting methods in his deficiency notice or in his answer. He raises this issue for the first time on brief. This record, we think, supported by the testimony of the bookkeeper who kept petitioner's books, indicates the petitioner was properly on the accrual basis during the taxable years and was entitled to compute its income for those years on that system*1129 of accounting. Accordingly, we have found that as a fact. The minor deviations apparent here are not sufficient to affect that fact or its propriety, so long as income is accurately reflected. ; ; . And there is nothing in this record that indicates otherwise than that this system reflected the income of the taxpayer reasonably accurately. Cf. . Since this same system of accounting and returns thereon had been used ever since petitioner's organization, petitioner did not require the approval of the Commissioner to make a change, since no change, in fact, was made. The evidence as to petitioner's accounting basis discloses that proceeds from sales of oil, repairs, and general expenses of operation were accounted for only as realized or paid. But these oil sales were made to a pipe line company and were paid practically when accruable, i.e., when delivered to the pipe lines of the purchaser. So it was with labor costs, which made up the greater part of the repair*1130 and general expense items. The book of original entry, petitioner's journal, shows the computation of profit and loss, the closing entries for each year in which are reflected the deferred items here in question, and the balance sheets attached to the returns show that such returns were all made upon this accrual basis. The interest on notes and mortgages, taxes, insurance, salaries, and drilling costs were all accrued. Since the petitioner was using the "flooding" method for oil production, the oil and water wells drilled were permitted to stand for 12 to 18 months before production began. The costs of the drilling of these wells were billed to petitioner and then accrued as expenses, as each well was completed. It may be that some ambiguity exists as to whether these costs were then properly accruable, since they were to be paid, at least primarily, from oil produced from such oil wells. However, it is noted that these wells were all in a field which had produced oil over a long period of time and, as a practical *959 matter, production was not in doubt. But even if not properly accruable until oil was actually produced from the wells, the significant fact remains that*1131 the costs for each well were thus accrued. It is the fact of accrual, alone, which is now denied by the respondent. The right to so accrue does not seem important because the right to deduct such accrued items is not questioned. After examination of the books of the petitioner for each year since its organization, respondent has permitted the deduction of these items as and when so accrued, as well as other accrued items, including interest on the development notes. He has not attacked, and does not here attack, the propriety of any of those deductions, although the items they represent had not been paid. In his deficiency notice respondent disallows the claimed deduction for interest on the four subordinate notes only because "the essential element of cost of the property to you has not been established, nor has any detail with respect to the notes been submitted which justifies the interest accrual as an allowable deduction from income." We take it that respondent was contending that the acquisition of the Ralph property by petitioner was direct from the Associated Producers Co., with Diament and Page merely as agents of petitioner in procuring title, and, accordingly, no*1132 consideration could be recognized except that of the $750,000 passing to the Associated Producers Co. If this was the basis of the disallowance, the evidence not only contains nothing in support of respondent's assumption, but, we think, convincingly disproves it. It is established that petitioner did not acquire all that Diament received from the Associated Producers Co. The former reserved a one-eighth carried interest in conveying to Page, while the conveyance by the latter to petitioner included the 100-acre lease acquired by him from Diament for a consideration of $50,000. In addition to this, it is shown that, subsequent to the acquisition of these properties from Diament, Page attempted unsuccessfully to dispose of them to other interests and only upon the failure of these efforts were they conveyed to petitioner. However, respondent contests the propriety of the deductions of interest upon two other grounds: First, that they were not bona fide obligations, intended to be paid, but merely the medium of obtaining a deduction for interest, and, second, that if bona fide obligations they are not of the character which permitted of the deduction of interest accrued in the*1133 taxable years before us. In support of the first contention, respondent calls attention to the fact that the Ralph property was sold by the Associated Producers Co. for $750,000 and insists that this establishes its value as not in excess of that amount. It is urged that this fact negatives *960 the bona fides of a transaction in which it is claimed the property was acquired by petitioner for a consideration in excess of $2,000,00. It is further argued by respondent that the proof is incomplete as to the total consideration paid by petitioner, in that the offer made by Page and accepted by petitioner was to convey the Ralph and Diament properties for $2,000,000 in subordinate notes, another note for $161,650, cash in the sum of $16,000, and the assumption of mortgages of $600,000 and $37,500, and that the only proof as to payment is the issuance of the $2,000,000 in subordinate notes and the assumption of the $600,000 mortgage on the Ralph property. As to the first argument, it is quite true that the consideration paid the Associated Producers Co. for the Ralph property was $750,000 but a reasonable value for the property very largely in excess of that price is, we think, *1134 clearly established. Witnesses, qualified by substantial experience in oil properties and their market values in that section, testified to a value in excess of $3,000,000 for the property. The Diament lease on 100 acres, included in the sale to petitioner, had been bought for $50,000, or $500 per acre. This latter property lay within the Ralph property and at the same rate would indicate a value, for the latter, in excess of $5,000,000. In addition to this, there were on the Ralph property, in excess of $250,000 in equipment and approximately 200 producing wells. There is, in our opinion, ample evidence to sustain ourfinding of a value of $3,000,000 for the latter property. In view of the record, the acquisition of this property by Page and his associates for $750,000 is easily understood. It had been operated by the Associated Producers Co. under a method which had not proved successful. Page recognized its possibilities if the flooding method of production was used. The correctness of the estimate of value is well supported by the record of oil production under petitioner's operation. As to the lack of complete proof of the payment of the full consideration appearing*1135 in the offer and acceptance, it is noted that the only item of that consideration, the actual payment of which was questioned, was the $2,000,000 in subordinate notes. But there is direct proof of their issuance. The record is silent as to the payment of the other items of the consideration. In that situation we can not find that these other items were not paid. The witnesses with knowledge of the facts were examined and cross-examined, and were merely interrogated as to the issuance of the subordinate notes. Under these conditions, we think, the absence of evidence of payment of the consideration other than the issuance of the deferred notes is of little significance. *961 It is argued that the evidence in connection with the payment of the purchase price for the smaller property bought by Page from Diament conflicts. Page testified that he paid the entire consideration of $50,000, borrowing this amount from Shay. But when he offered the property to petitioner, he notified petitioner that it was subject to a mortgage for $37,500. He also entered this sum on his books as a note payable. His proposal to the petitioner called attention to the existence of this mortgage, *1136 though it did not ask that petitioner assume it. Petitioner did not assume this mortgage. In view of the lapse of at least ten months between the date of Page's proposal to petitioner and the execution of the deed including this property, it is wholly possible that Page paid this mortgage before the execution of that deed. That being so, his testimony that he paid the entire $50,000 consideration to Diament for the smaller property stands unimpeached. Though of relative unimportance, that payment has, therefore, been found as a fact. This leaves for consideration the respondent's contention that the subordinate notes, of bona fide obligations of petitioner, were not of a character to support a deduction for interest accrued. He contends that notes which are payable as to principal and interest only out of profits do not represent a liability for either unless and until there are such profits realized and that prior to such time interest may not be accrued as a deduction from income. We agree fully with the principle, but here the factual premise, essential to its application, is lacking. We find nothing in the record to sustain respondent's assertion that the notes and*1137 interest were payable only from earnings. There is no such limitation of liability in the notes themselves or in the offer and acceptance under which they were issued, nor is there any evidence that an agreement or understanding to that effect existed. They were demand notes bearing interest from date, expressly made subordinate in payment to certain loans for development purposes. The only understanding disclosed is that no demand would be made for payment until 1934. There is no evidence indicating in any way that during the three years here involved the holders could not have demanded payment of both principal and accrued interest, irrespective of whether there were profits accrued, and compelled satisfaction out of the corporate assets, after provision to satisfy the outstanding obligations for development. Cf. . So we do not agree with respondent's added contention that the notes were, in effect, stock certificates with cumulative dividends payable from profits. They evidence a definite intent to create a debtorcreditor *962 relationship rather than a corporation-stockholder relationship*1138 and they have been consistently treated by the parties as valid and subsisting obligations of petitioner. ; Tennessee. Under ordinary circumstances, that notes in this large amount have not been paid either as to principal or interest would probably cast some reflection upon the bona fides of their issuance. However, the record contradicts any such reflection. At the time of the acquisition of the Ralph property and the issuance of these notes, oil from that field was selling at $4.30 per barrel. A drop in the market was not anticipated. However, after that time the price of oil from the Bradford field fell to $2 per barrel. If the higher price had been maintained, the oil actually produced during the period intervening between the time when these notes were issued and the date of the hearing herein would have brought gross receipts of more than $6,000,000. Such income was reasonably to have been anticipated when the notes were issued and, if actually received, not only interest on the notes could have been met, but a substantial reduction of their principal could have been effected. *1139 On the whole record, we conclude that petitioner has established its right to a deduction of the interest accrued on the subordinate notes for each of the taxable years. See The next issue is whether petitioner is entitled to depreciate the cost of drilling so-called "water wells," or whether it must recover these costs through its allowance for depletion. The evidence shows that the water wells are drilled, cased, and shot in exactly the same manner as oil wells. Their effect, when four of them are placed in the corners of a square in the center of which an oil well has been drilled, and thereafter filled with water under pressure, is to concentrate oil in the center well by means of the pressure exerted by the water through the oil sand. Petitioner urges that they constitute depreciable improvements within section 23(m) of the Revenue Act of 1934. It is argued that respondent's regulations covering the point (Regulations 86, art. 23(m) - 1) refer only to gas and oil wells as depletable, which thus excludes "water wells" from that category. *1140 This is a case of first impression, so far as we know. There seem to be no decisions as to whether costs of drilling these aids to production are to be treated in a manner different from the costs of drilling oil wells. Nevertheless, we believe that the principles enunciated in , cover the facts here and require a conclusion that the cost of drilling water wells is to be treated the same as the cost of drilling oil wells, in that such cost is recoverable only through the allowance for depletion. *963 In the Dakota-Montana Oil Co. case, the taxpayer contended that an oil well was an improvement and that, logically, there was no distinction for accounting purposes between the cost of the hole and the admittedly depreciable cost of buildings and machinery. The Government argued that a well was not a tangible physical property that would wear out with use and that its regulations accorded with the practice in the oil industry. The Court, holding for the Government, ruled that the question had been settled by a long and consistent administrative practice, regulatory provision for which was within the*1141 powers delegated to the Commissioner by the statute. This practice was to treat, as depreciable, tangible physical property, such as machinery, tools, equipment and pipe lines; and capital investment in the oil, including costs of development other than costs of physical property, drilling costs being considered as a development cost, were regarded as recoverable only through depletion allowances. It is our opinion that the so-called "water wells" involved in this proceeding are sufficiently similar to oil wells to require the same tax treatment. A water well does not wear out with use as does physical machinery or a pipe line; it is drilled, cased and shot in the same manner as an oil well; and its sole value and function is to complement the oil well by causing the oil to concentrate in the area into which the oil well has been drilled. As such, we think, it is no more than a part of the oil well itself. Having regard to the settled administrative practice of making a division between tangible physical property on the one hand and the well itself on the other, we hold that petitioner is not entitled to depreciation on the drilling costs of its water wells. See also *1142 ; ; ; ; and . In addition to petitioner's assertion of a right to deduct depreciation upon its cost of water wells, it has charged error in the determination of respondent in his failure to compute enough depreciation upon assets with respect to which there is no dispute as to their depreciable character or their cost. Petitioner contends that the rates used by respondent upon various assets are too low and asks that, in each case, a higher rate be used. In connection with this allegation of error, petitioner sets out the amount of depreciation upon each asset resulting from a use of the higher rate he asks to be used, but, in some instances, it happens that the amount of depreciation as computed by him by the use of the higher rate is less in amount than the depreciation computed by respondent by the use of a lower rate. It is quite evident that the computation *964 by petitioner was in error. *1143 That error appears to arise through application of the percentage rate to the depreciated balance of cost of the asset instead of to the original cost. In his answer, respondent, although not admitting the correctness of the rates for depreciation which the petitioner here asks, has made formal admission that the amounts computed by petitioner in those instances in which they are less than the amounts allowed in the determining of the deficiency are correct. Subsequently, at the hearing, petitioner abandoned the issue as to depreciation upon these assets other than water wells and respondent now takes the position that he is entitled to judgment upon the pleadings with respect to the particular items in question. With this we can not agree. Since there appears to be no dispute as to the cost of each asset, the only real issue is the proper rate of depreciation to be used. The amount of the depreciation allowable is thus merely a mathematical calculation. We sustain respondent in his allowance of depreciation computed with the rates used by him. However, in recomputing the deficiency, depreciation should be allowed at those rates upon the actual cost of the various assets*1144 as established. The last issue is whether petitioner is entitled to a credit under section 26(c)(1) of the Revenue Act of 1936 by reason of a contract restricting the payment of dividends. The contract into which petitioner entered with three of its largest creditors provides that petitioner shall not declare any dividends until the indebtedness is discharged and that, if it pays any dividends before that condition is met, the notes representing the indebtedness shall become due and payable. At the close of 1936, the year to which the credit, if otherwise allowable, applies, petitioner owed these creditors $756,801.95 on development notes. Respondent argues that petitioner could have paid dividends without violating the contract, for the reason that the only consequence of so doing would have been to have made the notes immediately payable. We do not so read the agreement. Had petitioner declared and paid a dividend, it would have violated the express agreement not to do so. This agreement had been exacted of it by its creditors as a condition for continuing the loans and making further ones. We think petitioner is entitled to this credit. Decision will be entered*1145 under Rule 50.