years the said bonds were owned by the Southern Railway Company. The Mobile & Ohio and the Southern Railway were affiliated corporations within the meaning of section 240 (b) of the Revenue Acts of 1918 and 1921, and, together with other corporations, they filed a consolidated return of net income and invested capital for the taxable years, pursuant to section 240 (a) of said acts. Held, that in computing consolidated net income no deduction may be allowed in respect of the discount sustained by the Mobile & Ohio. New Orleans, Teras & Mexico Ry. Co., 6 B. T. A. 436; and Gulf, Mobile & Northern R. R. Co., 22 B. T. A. 233. 5. In 1901 the Southern Railway Company issued its collateral trust bonds of a total face or par value of $8,356,000, in exchange for the Mobile & Ohio Railroad Company's general mortgage 4 per cent bonds of a total face or par value of $8,356,000, and of a fair market value, as of the date of the exchange, of $7.938,200. Held, that the stipulated facts do not show that the Southern Railway issued its bonds at a discount, and no deduction in respect of such alleged discount may be allowed in computing consolidated net income. 6. In 1886 the St. Louis & Cairo Railroad Company issued its 4 per cent first mortgage 50-year bonds at a discount. On July 28, 1913, all of the properties of that company were transferred and conveyed to the Mobile & Ohio Railroad Company, subject to the mortgage securing the said bond issue, the Mobile & Ohio assuming payment of the bonds as to both principal and interest. Held, that the deduction for amortization of the said discount is not available to the Mobile & Ohio; and, consequently, no deduction in respect of such discount may be allowed in computing consolidated net income. Missouri Pacific R. R. Co., 22 B. T. A. 267, following Western Maryland Ry. Co., 12 B. T. A. 889. 7. Prior to March 1, 1913, the Southern Railway Company issued its first consolidated mortgage gold bonds at a premium. Held, that no part of such premium is taxable income. Old Colony R. R. Co. v. Commissioner, 284 U. S. 552. 8. Held, that the evidence is insufficient to overcome the presumption of prima facie correctness attaching to the respondent's determination in respect of an allowance of $7,461,826.55 received by the petitioners in final settlements with the Director General for Federal control. 9. In final settlements with the Director General for Federal control, the petitioners received allowances, amounting in the aggregate to $11,996,199.35, for undermaintenance of their properties during the control period. In 1920 expenditures of an undisclosed total amount were used to make good some portion of the undermaintenance of the control period. In the absence of evidence showing the extent to which such undermaintenance was made good in 1920 and the amount expended for that purpose, the respondent's action in disallowing the deduction for maintenance expenses, to the extent of the Director General's allowance, is sustained. 10. Decision on the question of undermaintenance in Missouri Pacific R. R. Co., 22 B. T. A. 267, held to be erroneous, and it will not be followed in the future. 11. At the beginning of Federal control the Southern Railway Company turned over to the Director General materials and supplies of an aggregate value of $11,226,862; and at the end of Federal control, the Director General turned back to the Southern Railway materials and supplies of an aggregate value of $12,766,849.26. Respondent determined that the Southern Railway charged all of the materials and supplies turned back by the Director General to operating expenses of 1920, at the Director General's inventory prices, and, thereupon, disallowed the Southern Railway's operating expenses to the extent of the difference in the value of the two inventories, $1.539,987.26. Held, that, since items of an identifiable value in the Director General's inventory were not charged to operating expenses in 1920, respondent erred in reducing the operating expenses by the full amount of the difference of $1,539,987.26. Amount of adjustment necessary to correct the error determined. 12. No change will result in the respondent's determination of the consolidated net income for 1920, whether an item of $559,734.33, profit on sale of rail, be treated as an offset against operating expenses, as the respondent has treated it, or as an item of income, as the petitioners contend it should be treated. 13. Additional compensation for Federal control allowed to the petitioners in final settlements with the Director General constitutes income of the control period, and not of the years in which such final settlements were made. Old Dominion Steamship Co., 16 B. T. A. 264; affd., 47 Fed. (2d) 148; and Kansas City Southern Ry. Co., 16 B. T. A. 665; affd., 52 Fed. (2d) 372. L. E. Jeffries, Esq., and John B. Hyde, Esq., for the petitioner. D. A. Taylor, Esq., and J. T. Haslam, Esq., for the respondent. OPINION. TRAMMELL. The respondent has determined deficiencies in income taxes against the several petitioners for the years and in amounts as follows: Nine of the fifteen assignments of error set forth in the petitions and five of the six issues raised by the respondent's affirmative defense have been disposed of by abandonment, confession, or stipu lation. The proceedings were consolidated for hearing and decision. The parties have filed a written stipulation, the first five paragraphs of which read as follows: It is hereby stipulated and agreed by and between the petitioner and the respondent, through their respective counsel of record, that the following facts shall, upon the filing of this stipulation, be taken as true without further proof thereof, provided this stipulation is without prejudice to the right of either party herein to offer other and further evidence not inconsistent with the provisions of this stipulation. 1. The above appeals relate to the consolidated income of the Southern Railway Company and its affiliated corporations for the calendar years 1920 to 1923, inclusive. The following is a list of all the companies affiliated with the Southern Railway Company for said years, designated as those which were common carriers and those which were not common carriers during the years in question: COMMON CARRIERS: Southern Railway Company Asheville & Craggy Mountain Railway Company Asheville & Northern Railway Company Asheville Southern Railway Company Atlantic & Yadkin Railway Company Blue Ridge Railway Company Chattanooga Terminal Railway Company Cumberland Railroad Company Carolina & Tennessee Southern Railway Company Cumberland Railway Company Danville & Western Railway Company Delta Southern Railway Ensley Southern Railway Company Georgia Midland Railway Company Georgia Midland Terminal Company Hartwell Railway Company Johnson City Southern Railway Company Memphis Chattanooga Railway Memphis & Charleston Railway Company Middlesboro Mineral Railway Company Mobile & Ohio Railroad Company Warrior Southern Railway Company New Orleans Terminal Company North & South Carolina Railroad Company Southern Railway Company in Mississippi (Name changed to Columbus & Greenville Railroad Company) to October 22, 1920 only. New Orleans & Northeastern Railroad Company Northern Alabama Railway Company Southern Railway-Carolina Division COMMON CARRIERS-Continued. Southern Railway Company of Indiana Southern Railway Company of Kentucky Sievern & Knoxville Railroad Company Tallulah Falls Railway Company Tennessee & Carolina Southern Railway Company NOT COMMON CARRIERS: Georgia Industrial Realty Company Lenoir Car Works Alabama Land Development Company Interstate Car Works Mobile Docks Company National Investment Company Railway Fuel Company That the Southern Railway Company and its above mentioned affiliated common carrier companies were, at all times herein mentioned, engaged in interstate commerce, subject to the Interstate Commerce Act, and required to and did keep their books of account upon the accrual basis and in accordance with the rules and regulations prescribed by the classification of accounts of the Interstate Commerce Commission. Copies of three standard forms of said classification called "Classification of Income, Profit, and Loss and General Balance Sheet Accounts for Steam Roads, Effective July 1, 1914 ", Classification of Operating Revenues and Operating Expenses of Steam Roads, Effective July 1, 1914”, and “Classification of Investment in Road and Equipment, Effective July 1, 1914 ", are herewith attached and made parts hereof, marked Exhibits 1, 1-A and 1-B, respectively. 66 The above mentioned companies designated "Not Common Carriers" kept their books of account upon the accrual basis during the years herein involved. 2. The word "petitioner " as used in this stipulation, unless specifically qualified, refers to the affiliated group. 3. There is attached hereto and made a part hereof, marked Exhibit 2, a classified tabulation of issues involved in the above mentioned appeals, setting forth in parallel columns a classified list of the issues involved; the year or years involved; amounts of adjustments to income claimed in petitions, or in amendments thereto, and in affirmative pleas of respondent; amounts of adjustments to income so claimed but herein conceded by the petitioner; amounts of adjustments to income so claimed and herein conceded by the respondent; and amounts of adjustments to income so claimed and herein submitted to the Board. There is attached hereto and made a part hereof, marked Exhibit 3, sheets listing, opposite numbers, the errors assigned in the petitions and in the various amendments to the petitions, designating in which the error is assigned; number thereof; the amount, or amounts, involved as named in said pleadings; and affirmative issues raised by the respondent. The headings of the issues hereinafter set forth as conceded are identified with the assignments of error, listed on said Exhibit 3, by means of the numbers contained in the first column of said Exhibit 3. 4. The petitioner withdraws the following assignments of error and concedes that the respondent's adjustments with respect thereto, as set forth in the sixty-day letter and/or sixty-day letters, were correct: Transportation for Investment-Credit (Line 25, Exhibit 3, Sheet C) Interest other than Rental Interest (Line 10, Exhibit 3, Sheet A), (Line 20, Exhibit 3, Sheet B), (Line 37, Exhibit 3, Sheet C) Interest on Additions and Betterments Adjustment (Line 30, Exhibit 3, Sheet C) Interest During Construction, Federal Control (Line 21, Exhibit 3, Sheet B), (Line 38, Exhibit 3, Sheet C), (Line 47, Exhibit 3, Sheet D). 5. The respondent concedes that in his determination of the petitioner's net taxable income for the years in question, he committed errors as alleged by the petitioner in the following assignments of error: Depreciation prior to July 1, 1907 (Line 27, Exhibit 3, Sheet C) Interest on Columbus & Greenville Railroad Company's Bonds (Line 26, Exhibit 3, Sheet C), (Line 41, Exhibit 3, Sheet D) Loss on Lawrenceville Branch Railroad Company's Notes (Line 16, Exhibit 3, Sheet B) New Orleans Terminal Loss (Line 35, Exhibit 3, Sheet C). Exhibits Nos. 1 to 3, inclusive, of the stipulation are incorporated herein by reference. The matters so disposed of by the stipulation will be given effect in the recomputation under Rule 50. Donations. Paragraph 6 of the stipulation is as follows: 6. DONATIONS: In determining the petitioner's taxable income for the years in question the respondent included therein as income the following amounts designated Donations: 1920____. 1921. 1923 $46. 073.32 62, 238.64 90, 195. 25 The respondent concedes that in so doing he erred in so including the following amounts thereof: The correctness of the action of the respondent in including the following remaining portions of said amounts, designated Donations, in taxable income remains in issue: 1920- 1921___ 1922_ 1923. $15, 888.56 8, 233. 32 8, 592. 71 Pursuant to and in accordance with the provisions of certain contracts entered into between the petitioner and individuals and/or companies, a representative copy of which is attached hereto and made a part hereof, marked Exhibit 4, said individuals and companies made deposits of cash with the petitioner in amounts equal to the estimated cost of industrial tracks to be con |