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U.S. Supreme Court

United States v. New York Telephone Co., 326 U.S. 638 (1946)

United States v. New York Telephone Co.

No. 55

Argued November 13, 14, 1945

Decided January 28, 1946

326 U.S. 638


Property sold to the appellee telephone company by its parent corporation was entered on appellee's books at "structural value," an amount considerably in excess of the "original cost" of the property to the parent. Thereafter, the appellee did not apply special depreciation rates to this property, although, at the time of the sale, it had a relatively short remaining life. At the time of the original entries, appellee was subject to the accounting regulations of the Interstate Commerce Commission. Subsequently, the Federal Communications Commission, under the Communications Act, ordered the appellee to charge to surplus the difference between the "structural value" and the "original cost" of the property, less related depreciation, and to make appropriate concurrent entries in other accounts. At the time of this order, some of the property in question had been retired.


1. It is unnecessary to determine whether the original entries in appellee's books were in conformity with the system of accounts prescribed by the Interstate Commerce Commission, since the principal foundation of the order was that the appellee was subject under the Communications Act to the requirement of restating its accounts on the basis of original cost. P. 326 U. S. 647.

2. It was within the power of the Communications Commission to order a reclassification of the entries as to that part of the property which had been retired, as well as to that which had not. P. 326 U. S. 648.

3. Rates established under the "group method" of depreciation are not properly applied to property which is known not to have as long an expected serviceable life as property of the same sort purchased new. P. 326 U. S. 650.

4. To show separately the amount by which the price paid by the accounting company for property now in service exceeded the original cost of that property is not the sole purpose of original cost accounting. Under that system, the inflation in accounts may be not only segregated, but also written off. P. 326 U. S. 651. chanroblesvirtualawlibrary

Page 326 U. S. 639

5. The order of the Commission does not contravene the stipulation in American Telephone & Telegraph Co. v. United States, 299 U. S. 232. P. 326 U. S. 652.

A finding by the Communications Commission, after a full hearing and on evidence which sustains the finding, that part of the cost on the books of a company is due to a profit made by a parent corporation upon a sale of property to the company constitutes a determination "after a fair consideration of all the circumstances" that there has been no true investment, but only a "fictitious or paper increment." P. 326 U. S. 653.

6. The Communications Act imposes upon the company, and not upon the Commission, the burden of justifying accounting entries. P. 326 U. S. 654.

7. An accounting order of the Communications Commission may not be set aside on judicial review unless it is so entirely at odds with fundamental principles of correct accounting as to be the expression of a whim, rather than an exercise of judgment. P. 326 U. S. 655.

56 F.Supp. 932 reversed.

Appeal from a judgment of a district court of three judges, which enjoined the enforcement of an order of the Federal Communications Commission.

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