Under these circumstances, and in view of the nature of the issues. in the case, it seemed necessary to the Board that the hardship be imposed and the new trial ordered.

We have examined carefully the authorities upon which petitioner relies and conclude that they are not here applicable. They refer to the practice and procedure before a master and in a court of equity, and the majority of them refer to a rehearing in equity after a decree. The Board is not a court of equity; no hearing was had here before a master; no decision was rendered in this proceeding before the new trial, and our proceedings are not subject to the rules of practice and procedure obtaining in courts of equity.

The admissibility of evidence in proceedings before us is to be determined by the rules of evidence applicable in courts of equity of the District of Columbia (sec. 907 (a), Revenue Act of 1926). The District of Columbia Code (1926) provides (sec. 1061) that "in equity causes the testimony of witnesses may be taken in the manner provided by the rules of the Supreme Court of the United States for practice in equity and of the Supreme Court of the District of Columbia not inconsistent therewith."

The rules of practice of the Supreme Court of the United States for courts of equity provide (Rule 46) that “in all trials in equity the testimony of witnesses shall be taken orally in open court except as otherwise provided by statute or these rules. (The exceptions refer to depositions.) Cf. Hawks Dental Assn. v. Tooth Crown Co., 194 U. S. 303; Ex parte Fisk, 113 U. S. 713; Salt Lake City v. Smith, 104 Fed. 457.

The Code of the District of Columbia provides (sec. 1058) in cases where the witness lives beyond the jurisdiction, is likely to leave the United States, is infirmed or aged or sick, or for any reason the party desiring his testimony fears he may not be able to secure same at the time of the trial, his deposition may be taken, but if at the time of the trial the witness can be produced to testify in open court, the deposition shall not be read in evidence, and this is true whether the depositions are taken orally or on interrogatories and crossinterrogatories. The code further provides (sec. 1066), "if a party after having testified at a time when he was competent to do so, shall die, or become insane or otherwise incapable of testifying, his testimony may be given in evidence in any trial or hearing in relation to the same subject matter between the same parties or their legal representatives."

It appears therefore that the rules obtaining in the courts of equity of the District of Columbia as to the admissibility of secondary evidence are not materially different from the rules of evidence generally prevailing. Upon the new trial of a cause the admissibility

of evidence given at a former hearing depends not so much upon the character of the tribunal as upon the judicial character of the proceedings and the purpose for which the evidence is offered. Generally, upon a new trial of a cause, the testimony of a witness who is living, is under no disability and is within the jurisdiction, given at a former hearing, is not admissible, over objection, except for purposes of impeachment. See Wigmore on Evidence, Vol. III, sec. 1042; C. J., sec. 517. Citation of cases establishing and supporting the rule could be endless. Here, petitioner made no attempt to lay the ground for admission of the testimony, or any part thereof, taken at the first trial-made no showing toward bringing such testimony within such rule, but merely offered the previous record in toto. As such, it was rejected, and we think there can be no doubt that, under the rules of evidence obtaining before this Board, the motion to decide this cause upon it, or to admit it in bulk into the record made at the new trial, was properly denied.

In view of the foregoing, it is hardly necessary to discuss petitioner's contention that the former testimony should be admitted because it is a public record. Public records are admissible to show certain facts, if material, such as the fact that a hearing was had on a date certain, at a certain place, at which certain witnesses were heard, and other facts of like import, but, notwithstanding the fact that records of proceedings before this Board are public records (and are open to public inspection) they are no more admissible as evidence on a retrial of the cause without the laying of a proper foundation therefor than would be any of the other public records with which the files of the various departments of the Government are filled. Petitioner has laid no such foundation; consequently, we can not consider as a part of this record the evidence presented at the former trial.

With respect to the issue of fraud, we have no hesitancy in sustaining the imposition of penalties on that account, for the evidence as to manipulations by petitioner's officials designed to conceal taxable income is beyond dispute. Petitioner urges that its subsequent, voluntary filing of amended statements and payment of the greater amount of taxes disclosed thereby should serve to mitigate the charge of fraud and excuse it from the statutory penalties. The matter of mitigation of a fraud charge is not in our hands, and we may not pass upon it. Our duty is plain; if respondent alleges fraud and submits evidence sufficient to prove it, we have no alternative but to sustain the penalty which the statute imposes. L. Schepp Co., 25 B. T. A. 419.

However, it is not clear to us that respondent has computed the penalties in accordance with section 250 (b), Revenue Acts of 1918

and 1921. The correct amounts thereof may be determined upon settlement.

Without extended recitation of the detailed evidence introduced by respondent respecting his computation of petitioner's inventories for each of the several years involved, we have set out in our findings our determinations of the correct inventories. The testimony on this matter was voluminous and the changes to be made as contended by respondent over the amounts disclosed by petitioner's returns were taken up item by item. The proof shows clearly that petitioner's inventories as reported were erroneous. We accept the respondent's proof as to what they should be, for, while cross-examination of respondent's witnesses indicated the possibility of error in some items in his determinations of his proposed inventory adjustments, it did not show the existence of error, and, on the whole record, we are convinced that respondent has maintained the burden of proof of his affirmative allegations.

VOLUNTEER STATE LIFE INSURANCE COMPANY, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, Respondent.

1

Docket No. 54176. Promulgated April 10, 1933.

1. The gross income of a life insurance company may not be increased by the amount of the rental value of space occupied for business purposes in the home office building owned by it, and deductions for expenses pertaining to such building may not be denied because such rental value is excluded from gross income. LaFayette Life Insurance Co., 26 B. T. A. 946.

2. Since the income tax liability of a life insurance company is not affected by the amount of profit derived or loss sustained on sales of real estate, commissions paid on such sales may not be deducted in computing taxable net income.

TRAMMELL: This is a proceeding for the redetermination of a deficiency in income tax for the year 1928 in the amount of $1,541.01. The issues are (1) whether or not there should be included in gross income of the petitioner, a life insurance company, the rental value of space occupied by it in its home office building; (2) what portion of the salaries paid by the petitioner to its president and treasurer

may be deducted as investment expense under the provisions of section 203 (a) (5) of the Revenue Act of 1928; (3) whether or not the petitioner is entitled to deduct from gross income for the taxable year the amount of $5,704.22 paid during said year as taxes on real estate; (4) whether or not the petitioner is entitled to deduct from gross income for 1928 the amount of $4,091.42 as taxes imposed upon its shareholders upon their interests as shareholders, which amount was paid in said year by the petitioner without reimbursement from the shareholders; (5) whether or not the petitioner is entitled to deduct the amount of $2,071.91 representing expenses of maintaining real estate rented to tenants, the rental having been reported as income; (6) whether the petitioner is entitled to deduct from gross income the amount of $4,764.80 paid during the taxable year as expenses of maintaining real estate, including the amount of $1,843.60 paid as commissions on the sale of real estate; (7) whether the petitioner is entitled to deduct the amount of $341.19 paid during the taxable year as expenses in connection with the sale of real estate; and (8) whether or not the petitioner is entitled to exclude from its gross income the amount of $1,496 representing gross discount on claims paid in advance.

In respect of issues (3), (4) and (5), involving deductions in the amounts of $5,704.22, $4,091.42 and $2,071.91 claimed by the petitioner and disallowed by the respondent, the latter now concedes error and admits that the petitioner is entitled to the full amounts of the deductions claimed. In respect of issue (8) the respondent also concedes error and admits that the amount of $1,496, representing discount on prepaid claims, was erroneously reported by the petitioner as interest and should be eliminated from gross income. In redetermining the deficiency the items referred to will be treated in accordance with the respondent's admissions of error. The petitioner concedes issue (7), involving a deduction in the amount of $341.19 claimed by the petitioner and disallowed by the respondent. On this issue, the respondent's determination is, therefore, approved. The remaining issues will be considered in their numerical order.

Issue (1) raises the question whether or not the petitioner's gross income should include the rental value of the space occupied by it in its home office building.

The petitioner is a Tennessee corporation, engaged in the business of life insurance, with its home office at Chattanooga. Its life insurance business is conducted on the legal reserve plan. Petitioner keeps its books of account on the basis of cash receipts and disbursements.

During the taxable year 1928 the petitioner owned a twelve-story office building, about one-tenth of which it occupied as its home office, renting the remainder. During the said year the petitioner received

rents from other tenants in the total amount of $144,084.19, and the expenses for the year, including depreciation, amounted to $104,507.33. The net rentals in excess of expenses received in said year amounted to $39,576.86. The rental value of the space occupied by the petitioner was $9,873.76. The correct book value of said office building at December 31, 1928, was $701,787.19.

This issue, in our opinion, must be decided in favor of the petitioner. We have repeatedly held that gross income of a life insurance company may not be increased by the amount of the rental value of space occupied for its business purposes in a building owned by it, and that deductions for taxes and other expenses pertaining to such building may not be denied or abridged because such rental value is omitted from the gross income. Independent Life Ins. Co., 17 B. T. A. 757; Reserve Loan Life Ins. Co., 18 B. T. A. 359; Two Republics Life Ins. Co., 21 B. T. A. 1355; LaFayette Life Ins. Co., 26 B. T. A. 946.

On authority of the prior decisions above cited, we here hold that the amount of $9,873.76, representing the rental value of the space occupied by the petitioner in its home office building and which amount was erroneously included in its gross income for the taxable year, should be excluded therefrom.

Issue (2) involves the deduction claimed by the petitioner for "investment expenses." Section 203 (a) (5) of the Revenue Act of 1928 defines "net income " in the case of a life insurance company as meaning the gross income less certain specified deductions including" investment expenses," provided that if any general expenses are in part assigned to or included in the investment expenses, the total deduction for investment expenses shall not exceed one-fourth of 1 per centum of the book value of the mean of the invested assets at the beginning and end of the taxable year.

The petitioner claimed a deduction from its gross income for 1928 in the amount of $42,742.48 on account of investment expenses. Of this amount $15,999.96 was for officers' salaries, $9,000 having been paid to the petitioner's president and $6,999.96 to its treasurer for investment services. The aggregate amount paid to said officers for all services was $22,800.

The respondent makes no objection to any item comprised in the total deduction claimed for investment expenses other than officers' salaries, but contends that this item represents a general expense which was "in part assigned to or included in the investment expenses." Accordingly, the respondent allowed the amount of $33,393.09 as investment expenses, which amount, it is agreed, represents one-fourth of 1 per centum of the mean of the petitioner's invested assets in the taxable year. Respondent's action resulted in