[288]*288OPINION.
Steenhagen
: The first dispute arises out of the taxpayer’s policy of so-called use-and-occupancy insurance from which, in 1920, it received proceeds amounting to $14,999.94. Of this amount the Commissioner regarded $7,500.02 as income accrued to the taxpayer in the fiscal year 1919. The taxpayer contends that no part of this amount accrued to it in the taxable year, and, secondarily, that if it be held that there was an accrual of any part of this amount in the taxable year, such accrual was not income because the proceeds of such insurance are in their nature not income.
The policy was in effect when the fire occurred on July 2, 1919. It is not disputed that the fire was the occasion for an immediate obligation of the insurance company to the taxpayer under the insurance contract. The contract provided that the corporation would be liable “ for the actual loss sustained of net profits on the business which is thereby prevented, and for such fixed charges and expenses as must necessarily continue during a total or partial suspension of business, for not exceeding such length of time as shall be required with the exercise of due diligence and dispatch to re[289]*289build, repair, or replace,” etc. The liability was limited to $83.33 per day for each business day during the time of total suspension of business. The assured was required to do everything practicable, including the use of other property, to reduce the loss, any net profits earned being deducted from the amount of the insurer’s liability. In the event of disagreement upon any question affecting the amount of loss, reference to appraisers was provided for. Such a reference to appraisers was the same as in the standard policy •covering property insurance.
From the facts it appears that the taxpayer and the insurance company did not agree until November 13 as to the number of days which were to be taken as the measure of time required to rebuild and to be used as the multiplier of $83.33 to determine the total amount for which the insurance company was liable. The taxpayer therefore contends that there was, prior to September 30, 1919, no accrued liability of the insurer which could be regarded as an accrual to the taxpayer. The Commissioner avoids the question as to the date of accrual of the full amount of the insurance company’s liability and treats as an accrual only so much as represents the product of multiplying $83.33 by the number of days within the fiscal year in question. This is all we are called upon to consider, and it is our opinion that the Commissioner was warranted in treating the amount as accrued to this extent. During the fiscal year in question the taxpayer was unquestionably entitled under its contract to that amount. Upon the last day of that fiscal year it had an enforceable right to at least an amount representing the total per diem liability for the number of days of suspension then known to have taken place as the result of the fire. Whether the measure of its right was greater than this we need not consider, since it is not in issue.
Having decided that the amount of $7,500.02 was properly accrued during the taxable year, we must consider whether this accrual is taxable income. The taxpayer urges that it is merely a replacement of a property right, being the right to earn income, and hence that it is in effect a return of capital. It is also urged that the situation is fundamentally similar to that passed upon by the Supreme Court in United States v. Supplee-Biddle Hardware Co., 265 U. S. 189. Both the facts and the question in that case are so substantially different from those before us here that we can not regard that decision in point. The court, having before it the question whether the proceeds of a life-insurance policy received by a corporation upon the death of its president were taxable income, decided that the express exclusion from gross income contained in section 213 (a) (1) of the Bevenue Act of 1918 applied to corporations as well as [290]*290individuals, and this made it unnecessary to decide whether the amount so received was income which would otherwise be taxable.
It may be seriously doubted in any event whether the proceeds of use-and-occupancy insurance, such as that now before us, would be subject to the same considerations as those applicable to life insurance. The insurance is expressly stated in the policy to be against the loss of net profits on business prevented. Such profits, had they not been lost, unquestionably would have been gross income, and there is no reason why an amount received in substitution for net profits should be any more excluded from tax than if received directly in the conduct of the business. But the taxpayer presents the argument that the right to earn profits is a property right, and that the insurance proceeds were only the pecuniary conversion of this property right, which, like other property, is not taxable except as it comes in from capital or labor or both combined. The argument is too attenuated to merit lengthy discussion. All that is responsible for earnings, such, for example, as the hand and brain of man, is not capital under the statute. We therefore hold that the amount of $7,500.02 was correctly treated by the Commissioner as. gross income within the taxable year.
The taxpayer asserts further that the entire amount accrued under this policy for use-and-occupancy was the proceeds of an involuntary conversion of property expended in replacement, and that,, under section 234 (a) (14) of the Revenue Act of 1921, made expressly applicable to prior years, it is entitled to deduct the amount so received. This argument, like the argument of the foregoing contention, takes the postulate that the proceeds of use-and-occupancy insurance is the conversion of property into cash. Since we have held above that this is not true, it follows that section 234 (a) (14) is not applicable and that hence there is no provision for the deduction claimed.
Under its general policy for fire insurance upon its properties the taxpayer, as shown by the agreed statement of facts, was separately insured against loss of materials, loss of buildings, and loss of machinery, and the liability for each of these losses was separately adjusted. The liability under the policies was measured by the value at the time of destruction, and thus it happened that there was a, gain to the taxpayer in the proceeds of the policies upon materials and machinery. As to the buildings, however, the taxpayer suffered a loss of $5,059.16, representing the difference between the proceeds of insurance and the cost less depreciation. This loss the taxpayer claims the right to deduct, while at the same time it applies section 234 (a) (14), swpra, so as to deduct proportionately the gain realized upon the machinery. The gain upon the materials is not in issue, [291]*291because the taxpayer has applied this to the cost of goods sold. The Commissioner urges that, if section 234 (a) (14) is to be applied, the taxpayer must treat all of the amounts received as insurance for the destruction of its property as a single sum, and that it may not segregate the amounts received under different policies for different properties and select those which it desires to subject to the general gain of loss provisions and those to which it desires to apply the provision as to involuntary conversion.
We see nothing in the statute to require treatment of the proceeds as a unit.
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[288]*288OPINION.
Steenhagen
: The first dispute arises out of the taxpayer’s policy of so-called use-and-occupancy insurance from which, in 1920, it received proceeds amounting to $14,999.94. Of this amount the Commissioner regarded $7,500.02 as income accrued to the taxpayer in the fiscal year 1919. The taxpayer contends that no part of this amount accrued to it in the taxable year, and, secondarily, that if it be held that there was an accrual of any part of this amount in the taxable year, such accrual was not income because the proceeds of such insurance are in their nature not income.
The policy was in effect when the fire occurred on July 2, 1919. It is not disputed that the fire was the occasion for an immediate obligation of the insurance company to the taxpayer under the insurance contract. The contract provided that the corporation would be liable “ for the actual loss sustained of net profits on the business which is thereby prevented, and for such fixed charges and expenses as must necessarily continue during a total or partial suspension of business, for not exceeding such length of time as shall be required with the exercise of due diligence and dispatch to re[289]*289build, repair, or replace,” etc. The liability was limited to $83.33 per day for each business day during the time of total suspension of business. The assured was required to do everything practicable, including the use of other property, to reduce the loss, any net profits earned being deducted from the amount of the insurer’s liability. In the event of disagreement upon any question affecting the amount of loss, reference to appraisers was provided for. Such a reference to appraisers was the same as in the standard policy •covering property insurance.
From the facts it appears that the taxpayer and the insurance company did not agree until November 13 as to the number of days which were to be taken as the measure of time required to rebuild and to be used as the multiplier of $83.33 to determine the total amount for which the insurance company was liable. The taxpayer therefore contends that there was, prior to September 30, 1919, no accrued liability of the insurer which could be regarded as an accrual to the taxpayer. The Commissioner avoids the question as to the date of accrual of the full amount of the insurance company’s liability and treats as an accrual only so much as represents the product of multiplying $83.33 by the number of days within the fiscal year in question. This is all we are called upon to consider, and it is our opinion that the Commissioner was warranted in treating the amount as accrued to this extent. During the fiscal year in question the taxpayer was unquestionably entitled under its contract to that amount. Upon the last day of that fiscal year it had an enforceable right to at least an amount representing the total per diem liability for the number of days of suspension then known to have taken place as the result of the fire. Whether the measure of its right was greater than this we need not consider, since it is not in issue.
Having decided that the amount of $7,500.02 was properly accrued during the taxable year, we must consider whether this accrual is taxable income. The taxpayer urges that it is merely a replacement of a property right, being the right to earn income, and hence that it is in effect a return of capital. It is also urged that the situation is fundamentally similar to that passed upon by the Supreme Court in United States v. Supplee-Biddle Hardware Co., 265 U. S. 189. Both the facts and the question in that case are so substantially different from those before us here that we can not regard that decision in point. The court, having before it the question whether the proceeds of a life-insurance policy received by a corporation upon the death of its president were taxable income, decided that the express exclusion from gross income contained in section 213 (a) (1) of the Bevenue Act of 1918 applied to corporations as well as [290]*290individuals, and this made it unnecessary to decide whether the amount so received was income which would otherwise be taxable.
It may be seriously doubted in any event whether the proceeds of use-and-occupancy insurance, such as that now before us, would be subject to the same considerations as those applicable to life insurance. The insurance is expressly stated in the policy to be against the loss of net profits on business prevented. Such profits, had they not been lost, unquestionably would have been gross income, and there is no reason why an amount received in substitution for net profits should be any more excluded from tax than if received directly in the conduct of the business. But the taxpayer presents the argument that the right to earn profits is a property right, and that the insurance proceeds were only the pecuniary conversion of this property right, which, like other property, is not taxable except as it comes in from capital or labor or both combined. The argument is too attenuated to merit lengthy discussion. All that is responsible for earnings, such, for example, as the hand and brain of man, is not capital under the statute. We therefore hold that the amount of $7,500.02 was correctly treated by the Commissioner as. gross income within the taxable year.
The taxpayer asserts further that the entire amount accrued under this policy for use-and-occupancy was the proceeds of an involuntary conversion of property expended in replacement, and that,, under section 234 (a) (14) of the Revenue Act of 1921, made expressly applicable to prior years, it is entitled to deduct the amount so received. This argument, like the argument of the foregoing contention, takes the postulate that the proceeds of use-and-occupancy insurance is the conversion of property into cash. Since we have held above that this is not true, it follows that section 234 (a) (14) is not applicable and that hence there is no provision for the deduction claimed.
Under its general policy for fire insurance upon its properties the taxpayer, as shown by the agreed statement of facts, was separately insured against loss of materials, loss of buildings, and loss of machinery, and the liability for each of these losses was separately adjusted. The liability under the policies was measured by the value at the time of destruction, and thus it happened that there was a, gain to the taxpayer in the proceeds of the policies upon materials and machinery. As to the buildings, however, the taxpayer suffered a loss of $5,059.16, representing the difference between the proceeds of insurance and the cost less depreciation. This loss the taxpayer claims the right to deduct, while at the same time it applies section 234 (a) (14), swpra, so as to deduct proportionately the gain realized upon the machinery. The gain upon the materials is not in issue, [291]*291because the taxpayer has applied this to the cost of goods sold. The Commissioner urges that, if section 234 (a) (14) is to be applied, the taxpayer must treat all of the amounts received as insurance for the destruction of its property as a single sum, and that it may not segregate the amounts received under different policies for different properties and select those which it desires to subject to the general gain of loss provisions and those to which it desires to apply the provision as to involuntary conversion.
We see nothing in the statute to require treatment of the proceeds as a unit. If a taxpayer, for example, has two separate plants, on each of which it receives a specified amount upon destruction or condemnation, there is no reason why it may not apply the one specific amount to the reconstruction of the one plant, claiming under section 234 (a) (14), and determine its gain or loss upon the other without reconstruction. The provisions of section 234 (a) (14) are relief provisions by which a taxpayer may postpone the taxation of so much of the gain derived from an involuntary conversion as it uses in replacement. It may not be permitted to postpone the taxation of the gain derived from the conversion of one piece of property merely because it elects to use the proceeds in replacing another piece of property. On the other hand, the Commissioner may not deny it the deduction of a loss in the one case if the taxpayer elects to keep the two funds separate. Of course, in the present appeal, the taxpayer may not use the proceeds of the machinery insurance for the purpose of replacing the buildings and at the same time claim its loss on the building proceeds. It is only by using the proceeds for the replacement of the specific property covered thereby that section 234 (a) (14) may be made applicable. We hold, therefore, that the taxpayer may properly deduct the $5,059.16 from gross income, irrespective of the provisions of section 234 (a) (14).
The taxpayer assigned as error the Commissioner’s disallowance of obsolescence of certain property, claiming that the period of obsolescence is 15 months instead of 27 months. The Commissioner concedes his error. The Commissioner also concedes that he erred in excluding from invested capital the amount of $11,812.74, received as insurance proceeds and used in replacement under section 234 (a) (14). Appeal of National Grocer Co., 1 B. T. A. 688.
We find no error in the Commissioner’s reduction of invested capital at the beginning of the fiscal year by a proportionate amount of the deduction allowed as amortization of war facilities during the calendar year 1918. The taxpayer’s contention, in effect, is to say that, although‘it may offset 1918 income by an amortization deduction, yet it may nevertheless regard such a deduction as fictitious and not in fact reflecting a disappearance of capital. The purpose of [292]*292the amortization allowance is to give a taxpayer immediate relief from an investment for war purposes which gave him no peace-time utility. Appeal of Moore Investment Co., 2 B. T. A. 579; Appeal of Walcott Lathe Co., 2 B. T. A. 1231. Claiming this successfully, he may not at the same time be heard to say that the investment is still worth its cost for invested capital purposes.