M. E. BLATT CO. V. UNITED STATES, 305 U. S. 267 (1938)

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U.S. Supreme Court

M. E. Blatt Co. v. United States, 305 U.S. 267 (1938)

M. E. Blatt Co. v. United States

No. 98

Argued November 15, 16, 1938

Decided December 5, 1938

305 U.S. 267


1. Special findings of fact made by the Court of Claims are not affected by any statement of fact, reasoning, or conclusion that may be found in its opinion. P. 305 U. S. 277.

2. Rent is a fixed sum, or property amounting to a fixed sum. It does not include payments, uncertain as to amount and time, made by the lessee for the cost of improvements. P. 305 U. S. 277.

3. Improvements made by the lessee, even when required by the lease, will not be deemed rent unless such intention is plainly disclosed. Id.

4. Improved real property was leased for use as a picture theater, for ten years beginning upon completion of improvements made and paid for partly by the lessor and partly by the lessee. The lease provided that improvements made by the lessee should become the property of the lessor, on expiration or earlier termination of the leasehold. The Commissioner of Internal Revenue estimated the depreciated values at the end of ten years, of the lessee's improvements, omitting some which could then have no value, and added one-tenth of the total estimate to the lessor's income for the tax year next following the commencement of the lease. Held erroneous.

(1) The question presented is whether, under this particular lease, one-tenth of this "estimated depreciated value" at the end of the term was income of the lessor in the first year of the term. There is nothing in the findings to suggest that cost of any improvement made by lessee was rent, or an expenditure not properly to be attributed to its capital or maintenance account, as distinguished from operating expense. They disclose no basis of value on which to lay an income tax or the time of realization of taxable chanrobles.com-red

Page 305 U. S. 268

gain, if any there was. The figures made by the Commissioner are not defined. The findings do not show whether they are intended to represent value of improvements if removed or the amount attributable to them as a part of the building. The figures themselves repel the suggestion that they were intended to represent amounts obtainable for the items if removed; it is not to be assumed that they were intended as valuations of salvage at the end of the term, and it does not appear that the improvements, if detached, would then have any value, even as junk, over necessary cost of removal. Equally conjectural would be assumption that the figures represent enhancement of value of the leased premises by reason of the improvements when new, or as deteriorated at the end of the term. Present or future value of the premises, however ascertained, is single in substance; it an not be arrived at by mere summation of actual or estimated cost of constituent elements, new or depreciated. Pp. 305 U. S. 276 et seq.

(2) Granting that the improvements increased the value of the building, the enhancement was not realized income of lessor; it was addition to capital, not income within the meaning of the Revenue Act of 1932, § 22(a). P. 305 U. S. 279.

(3) Assuming that, at sometime, value of the improvements would be income of lessor, it cannot be reasonably assigned to the year in which they were installed. P. 305 U. S. 280.

87 Ct.Cls. 413, 23 F.Supp. 461, reversed.

Certiorari, post, p. 581, to review a judgment rejecting a claim for recovery of money paid as an additional income tax. chanrobles.com-red

Page 305 U. S. 274


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