[956]*956OPINION.
Lansdon:
The petitioner in this appeal is a brewery corporation which claimed a deduction for obsolescence for the calendar years 1918 and 1919, because of war-time and national prohibition legislation. The questions submitted in the appeal are:
(1) Whether the Commissioner erred in disallowing the deductions from gross income claimed by the petitioner for the calendar years 1918 and 1919 as obsolescence of its tangible and intangible assets, resulting from war-time and national prohibition legislation; (2) whether the Commissioner erred in failing to apply the net loss sustained by the petitioner in 1919 against the taxable income as determined by him for the calendar year 1918; and (3) whether the Commissioner erred by failing to include in invested capital for the calendar year 1918, $70,000 arbitrarily charged off the petitioner’s real estate account in 1903 and 1906, but restored by the Commissioner in 1919. This latter claim is conceded to be correct by the Commissioner, and will not be further considered.
From the evidence offered it is proved that the petitioner was a prosperous going concern for over twenty years prior to March 1, 1913. By several sound methods of computation it was worth approximately $2,000,000 on December 31, 1917. It is also proved that by December 31, 1919, the value had dwindled to substantially a salvage value. The question for the Board to determine is whether or not the deduction for obsolescence proved as to facts and amounts, is such as to come within provisions of the law potent to furnish the relief claimed by the petitioner.
Obsolescence is recognized by statute. Section 234 (a) of the Kevenue Act of 1918, provides:
That in computing the net income of a corporation subject to the tax imposed by section 230 there shall be allowed as deductions:
* * sji * * * ‘ *
(7) A reasonable allowance for the exhaustion, wear and tear of property used in the trade or business, including a reasonable allowance for obsolescence. (Italics ours.)
Obsolescence is defined in Webster’s New International Dictionary as “ state of becoming obsolete ” and obsolete is defined as “ no longer in use ”; “ neglected.” Obsolescence can be distinguished from “ wear and tear ” in that wear and tear refers to the physical condition, while obsolescence refers to disuse and disappearing value arising from some extrinsic or external causes, such as progress in an art, change of style, or legislation. Machinery may be in good physical condition, but, by reason of change of style or progress in the art in which it is employed, be obsolete or in a state of obsolescence. It should be noted that obsolescence is defined as the state of becoming [957]*957obsolete, and does not necessarily imply that tbe disuse should be completed.
It must be conceded that legislation prohibiting the sale or use of certain manufactured products after a certain date may cause obsolescence of the asset used in such production. There being no further market for the product, the machinery and equipment for its manufacture, although in good physical condition, may become useless and obsolete. On the other hand, the machinery and equipment may be adaptable for the manufacture of some other product and still retain a part or even all of their useful value.
Let us see just what the situation was in 1918 and 1919 in respect to prohibition. On December 18, 1917, Congress passed a resolution submitting the prohibition constitutional amendment to the States. At that time thirty-three States, only three less than the number required for the ratification of an amendment to the Constitution, had state-wide prohibition, and large areas of the other States had prohibition by local option. It was then practically certain, therefore, that the amendment would be adopted. As early as January, 1918, some States that had been considered doubtful ratified the amendment, and, by January 15, 1919, the requisite number of States to make prohibition the law of the land had so acted. National prohibition was effective January 16,1920. In the meantime war-time prohibition was in effect. On November 21, 1918, the manufacture of beer from cereals was prohibited and the sale thereof prohibited after June 80, 1919, except for export. “ Food Control ” acts were in force during the year 1918, restricting the use and transportation of cereals and other food products for beverage purposes.
The petitioner foresaw the doom of the brewing industry. The evidence discloses that early in 1919, it was seeking bids for salvaging its tangible property. In February, 1919, it received bids ranging from $13,500 to $20,000 for its plant. It then investigated the feasibility of converting its plant into facilities for a cold storage, vegetable-drying or packing-house business, but found it suitable for none of these .uses. On July 1, 1919, it still had on hand 25,000 barrels of beer. This it converted into legal beverages by dealcoholizing and other processes, but failed to produce a commodity salable at profitable prices. In an additional effort to utilize the remaining value of its tangible assets, the stockholders of the petitioner organized another corporation with a capitalization of $200,000, which purchased the brewery plant for an amount that was a mere fraction of its former value. The new company did not purchase the trade name, “Manhattan Beer,” which the petitioner abandoned in 1919, as of no value. It produced a nonalcoholic “ near beer ” which it sold in bottles to a class of customers who had never been patrons of the petitioner. This new venture, with a small capitalization, suf[958]*958fered losses of approximately $20,000 for each of the next three years.
We have found that the value of the depreciable tangible property used by the petitioner in its trade or business was $455,114.73 at December 31, 1917. The evidence discloses that the petitioner ceased the manufacture of Manhattan Beer on November 20, 1918, and thereafter abandoned that trade name, and that on December 31, 1918, it charged off its books the amount of $255,488.56 on account of obsolescence of its tangible assets, and deducted such amount from its gross income in its income and profits-tax return for that year. The proof of the curtailment of the normal useful life of such assets by legislation already enacted or assured of enactment at an early date is clear and convincing. Allowances for obsolescence of tangible assets are authorized in section 234 (a) (7) of the Revenue Act of 1918. The Commissioner seems to have based his disallowance on the theory that the property continued to be used by the petitioner in a similar trade or business. The evidence refutes this contention. Even if the use of the assets in a similar trade or business is a bar against the allowance of obsolescence, as is contended, there is conclusive evidence in this record that these assets were not so used. In our opinion, the petitioner was legally entitled to a deduction at December 31,1918, on account of obsolescence resulting from legislation.
It remains, then, for us to determine whether the amount so written off and deducted comes within the requirements of reasonableness as set forth in the law. There is no question as to the value of the property. The period of obsolescence extending from December 18, 1917, to January 16, 1920, is equally well established. Prohibition at an early date was almost a certainty.
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[956]*956OPINION.
Lansdon:
The petitioner in this appeal is a brewery corporation which claimed a deduction for obsolescence for the calendar years 1918 and 1919, because of war-time and national prohibition legislation. The questions submitted in the appeal are:
(1) Whether the Commissioner erred in disallowing the deductions from gross income claimed by the petitioner for the calendar years 1918 and 1919 as obsolescence of its tangible and intangible assets, resulting from war-time and national prohibition legislation; (2) whether the Commissioner erred in failing to apply the net loss sustained by the petitioner in 1919 against the taxable income as determined by him for the calendar year 1918; and (3) whether the Commissioner erred by failing to include in invested capital for the calendar year 1918, $70,000 arbitrarily charged off the petitioner’s real estate account in 1903 and 1906, but restored by the Commissioner in 1919. This latter claim is conceded to be correct by the Commissioner, and will not be further considered.
From the evidence offered it is proved that the petitioner was a prosperous going concern for over twenty years prior to March 1, 1913. By several sound methods of computation it was worth approximately $2,000,000 on December 31, 1917. It is also proved that by December 31, 1919, the value had dwindled to substantially a salvage value. The question for the Board to determine is whether or not the deduction for obsolescence proved as to facts and amounts, is such as to come within provisions of the law potent to furnish the relief claimed by the petitioner.
Obsolescence is recognized by statute. Section 234 (a) of the Kevenue Act of 1918, provides:
That in computing the net income of a corporation subject to the tax imposed by section 230 there shall be allowed as deductions:
* * sji * * * ‘ *
(7) A reasonable allowance for the exhaustion, wear and tear of property used in the trade or business, including a reasonable allowance for obsolescence. (Italics ours.)
Obsolescence is defined in Webster’s New International Dictionary as “ state of becoming obsolete ” and obsolete is defined as “ no longer in use ”; “ neglected.” Obsolescence can be distinguished from “ wear and tear ” in that wear and tear refers to the physical condition, while obsolescence refers to disuse and disappearing value arising from some extrinsic or external causes, such as progress in an art, change of style, or legislation. Machinery may be in good physical condition, but, by reason of change of style or progress in the art in which it is employed, be obsolete or in a state of obsolescence. It should be noted that obsolescence is defined as the state of becoming [957]*957obsolete, and does not necessarily imply that tbe disuse should be completed.
It must be conceded that legislation prohibiting the sale or use of certain manufactured products after a certain date may cause obsolescence of the asset used in such production. There being no further market for the product, the machinery and equipment for its manufacture, although in good physical condition, may become useless and obsolete. On the other hand, the machinery and equipment may be adaptable for the manufacture of some other product and still retain a part or even all of their useful value.
Let us see just what the situation was in 1918 and 1919 in respect to prohibition. On December 18, 1917, Congress passed a resolution submitting the prohibition constitutional amendment to the States. At that time thirty-three States, only three less than the number required for the ratification of an amendment to the Constitution, had state-wide prohibition, and large areas of the other States had prohibition by local option. It was then practically certain, therefore, that the amendment would be adopted. As early as January, 1918, some States that had been considered doubtful ratified the amendment, and, by January 15, 1919, the requisite number of States to make prohibition the law of the land had so acted. National prohibition was effective January 16,1920. In the meantime war-time prohibition was in effect. On November 21, 1918, the manufacture of beer from cereals was prohibited and the sale thereof prohibited after June 80, 1919, except for export. “ Food Control ” acts were in force during the year 1918, restricting the use and transportation of cereals and other food products for beverage purposes.
The petitioner foresaw the doom of the brewing industry. The evidence discloses that early in 1919, it was seeking bids for salvaging its tangible property. In February, 1919, it received bids ranging from $13,500 to $20,000 for its plant. It then investigated the feasibility of converting its plant into facilities for a cold storage, vegetable-drying or packing-house business, but found it suitable for none of these .uses. On July 1, 1919, it still had on hand 25,000 barrels of beer. This it converted into legal beverages by dealcoholizing and other processes, but failed to produce a commodity salable at profitable prices. In an additional effort to utilize the remaining value of its tangible assets, the stockholders of the petitioner organized another corporation with a capitalization of $200,000, which purchased the brewery plant for an amount that was a mere fraction of its former value. The new company did not purchase the trade name, “Manhattan Beer,” which the petitioner abandoned in 1919, as of no value. It produced a nonalcoholic “ near beer ” which it sold in bottles to a class of customers who had never been patrons of the petitioner. This new venture, with a small capitalization, suf[958]*958fered losses of approximately $20,000 for each of the next three years.
We have found that the value of the depreciable tangible property used by the petitioner in its trade or business was $455,114.73 at December 31, 1917. The evidence discloses that the petitioner ceased the manufacture of Manhattan Beer on November 20, 1918, and thereafter abandoned that trade name, and that on December 31, 1918, it charged off its books the amount of $255,488.56 on account of obsolescence of its tangible assets, and deducted such amount from its gross income in its income and profits-tax return for that year. The proof of the curtailment of the normal useful life of such assets by legislation already enacted or assured of enactment at an early date is clear and convincing. Allowances for obsolescence of tangible assets are authorized in section 234 (a) (7) of the Revenue Act of 1918. The Commissioner seems to have based his disallowance on the theory that the property continued to be used by the petitioner in a similar trade or business. The evidence refutes this contention. Even if the use of the assets in a similar trade or business is a bar against the allowance of obsolescence, as is contended, there is conclusive evidence in this record that these assets were not so used. In our opinion, the petitioner was legally entitled to a deduction at December 31,1918, on account of obsolescence resulting from legislation.
It remains, then, for us to determine whether the amount so written off and deducted comes within the requirements of reasonableness as set forth in the law. There is no question as to the value of the property. The period of obsolescence extending from December 18, 1917, to January 16, 1920, is equally well established. Prohibition at an early date was almost a certainty. We are convinced that the amount of $255,488.56, determined by the petitioner, was a reasonable measure of the obsolescence of its tangible property during the year 1918. Appeals of Michigan Lithographing Co., 1 B. T. A. 989; Robert H. McCormick, 2 B. T. A. 430; Auditorium Co. v. Commissioner,, 5 B. T. A. 163.
Evidence offered and not disputed proves that intangibles consisting of good will, trade names, and trade-marks constituted a substantial portion of the value of the assets of the petitioner at March 1, 1918, and December 31, 1917. By advertising, fair dealing, and producing a single grade of product called “ Manhattan Beer ” the petitioner built up a large business with select customers in contiguous territory under conditions that enabled it to operate its plant at capacity and at a low cost. It created a demand for Manhattan Beer, and acquired a line of customers and business that was of substantial value over and above that of the tangible assets. We have found that the value of the good will of the petitioner at March 1, [959]*9591913, and at December 31, 1917, was $1,000,000. The same series of legislative acj« that resulted in the obsolescence of the petitioner’s tangible assets operated with equal or greater effect in reducing the value of its intangible assets. On December 31, 1918, the petitioner charged off its books the amount of $474,002.30 on account of the obsolescence of its intangible assets used in its trade or business, and, in its income and profits-tax return for that year, deducted from its gross income the amount so charged off. The Commissioner disallowed such deduction.
As authority for the deduction which it made from its gross income for 1918 on account of obsolescence of intangible assets, the petitioner relies on section 234 (a) (7) of the Revenue Act of 1918, which we quote swpra in our discussion of obsolescence allowance for tangible property. It is its contention that the provision “A reasonable allowance for the exhaustion, wear and tear of property used in the trade or business, including a reasonable allowance for obsolescence,” should be read as if it had been written “A reasonable allowance for exhaustion, wear and tear of property used in the trade or business and a reasonable allowance for obsolescence.” Its counsel argue that the word “ including ” simply adds another category to the allowable deductions, and that, as intangible property was owned by the petitioner and used in its business, a reasonable allowance for obsolescence thereof is clearly authorized by the statute. Counsel also maintain that inasmuch as taxpayers are allowed to make deductions on account of the exhaustion of patents, copyrights, leaseholds, and other forms of intangible property, it follows that similar deductions are due of right and law to this petitioner on account of the obsolescence of its good will, trade-marks and trade names.
The language of the statute seems to us to be clear, but, if it is not clear and must be interpreted, it is obvious that tribunals charged with that duty should not read into it any meaning not contemplated by Congress. The dictionary definition of the word “including,” and many court decisions agree, almost without exception, that the word as used in the statute under consideration indicates enlargement of the meaning of the preceding terms rather than any addition thereto. Had Congress intended the provision cited to have the meaning contended for by the petitioner, it would have been easy to use the word “ and,” a term clearly indicating addition, instead of the word “ including ” which is so clearly a term indicating enlargement. We are of the opinion that the word “ including ” in the statutory provision cited does not establish an additional category as a basis for deductions from gross income, but merely enlarges the meaning of the words “ exhaustion, wear and tear.” Blanck v. Pioneer Mining Co., 93 Wash. 26; 159 Pac. 1077, 1079.
[960]*960The argument of the petitioner’s counsel that if the statute does not authorize allowances for obsolescence of its intangibles, there is no authority for such allowance for patents, copyrights, and leaseholds, is not persuasive. The sole purpose of the provision in question is to permit the recovery of the cost or March 1, 1913, value of an asset during its useful life if it is used in the trade or business of its owner. Tangible assets deteriorate with use, and the measure of such deterioration is readily established by proof of certain facts. The law recognizes the possibility of exhaustion from other than physical causes and so provides that any allowances on account of wear and tear may include a reasonable allowance for obsolescence. Patents, copyrights, leaseholds, and similar intangibles do not suffer any physical deterioration in use, but, as their life is limited by contract, they decrease in value or become exhausted by the mere passage of years. Ordinarily the annual allowances for the exhaustion of such property is an aliquot part of their cost or capital value at March 1, 1913, for the number of years to elapse prior to the termination of the contract period, but in extraordinary conditions, as with tangibles, the allowance for exhaustion may be increased to include obsolescence.
From the foregoing it is obvious that in the instant appeal we must determine (1) whether this petitioner’s good will, trade-marks and trade name are property used in the trade or business, and, (2) if so, whether it is subject to such exhaustion or wear and tear as will bring it within the statute and entitle its owner to a reasonable allowance for obsolescence.
We are of the opinion that it is now quite well settled that good will is property within the meaning of these statutes.
Good will is property recognized and protected by law as such, and capable of sale or other transfer from one owner to another in connection with a transfer of the property, business, or other rights to which it is incident. gS Corpus Juris, 730-731, citing many cases.
The Supreme Court of the United States in discussing the definition of property as used in the Eevenue Act of 1918 said:
The general provision in § 12 (a), Second, is that the deduction from gross income shall include a reasonable allowance for the “ exhaustion * * * of property.” There is nothing to suggest that the word “ property ” is used in any restricted sense. Lynch v. Alworth-Stephcns Co., 207 U. S. 364.
In support of this view, see also Washburn v. National Wall-Paper Co., 81 Fed. 17; Metropolitan Bank v. St. Louis Dispatch, 149 U. S. 436; Fox Co. v. Glynn, 191 Mass. 344, 348; 78 N. E. 89.
The intangible property which the petitioner asserts is subject to obsolescence consists of good will, trade names, and trade-marks. Such assets have value, but that value is so interwoven with the [961]*961operation of the business, so much, an inseparable part of the going concern to which they appertain, that the ascertainment of such value is difficult and their sale, except as component parts of a going business concern, is all but impossible. They are not subject to physical wear and tear incident to their use in the business operations of their owner, nor ordinarily is the period of their useful life limited either by contract or statute. No one would argue that such intangibles are subject to ascertainable annual losses due either to wear and tear or exhaustion even if their cost or capital value could be ascertained. In the light of the evidence and the law we are of the opinion that the petitioner is not entitled to the allowance claimed for obsolescence, since we hold above that such obsolescence is merely an enlargement of the meaning included in the words “ exhaustion, wear and tear.” Red Wing Malting Co. v. Willcuts, 15 Fed. (2d) 626 (United States Circuit Court of Appeals, Eighth Circuit); certiorari denied, 273 U. S. 763.
In further support of its contentions, the petitioner alleges that it sustained a net loss in its business operations in 1919 in the amount of $347,533.83, and that, under section 204 of the Eevenue Act of 1918, it is entitled to the deduction of such net loss from its taxable income for the year 1918. The record discloses the alleged net loss was sustained in the sale of the petitioner’s plant and equipment to a successor corporation, and has been allowed by the Commissioner as a loss sustained during 1919, and disallowed as net loss for the purpose of reducing tax liability for the year 1918. The net loss statutory provision upon which the petitioner relies in support of this contention is as follows:
Sec. 204. (a) That as used in this section the term “net loss” refers only to not losses resulting from either (1) the operation of any business regularly carried on by the taxpayer, or (2) the bona fide sale by the taxpayer of plant, buildings, machinery, equipment or other facilities, constructed, installed or acquired by the taxpayer on or after April 6, 1917, for the production of articles contributing to the prosecution of the present war; and when so resulting means the excess of the deductions allowed by law (excluding in the case of corporations amounts allowed as a deduction under paragraph (6) of subdivision (a) of section 234) over the sum of the gross income plus any interest received free from taxation both under this title and under Title III.
(b) If for any taxable year beginning after October 31, 1918, and ending prior to January 1,1920, it appears upon the production of evidence satisfactory to the Commissioner that any taxpayer has sustained a net loss, the amount qf such net loss shall under regulations prescribed by the Commissioner with the approval of the Secretary be deducted from the net income of the taxpayer for the preceding taxable year; and the taxes imposed by this title and by Title III for such preceding taxable year shall be redetermined accordingly. Any amount found to be due to the taxpayer upon the basis of such redetermination shall be credited or refunded to the taxpayer in accordance with the provisions of section 252. If such net loss is in excess of the net income for [962]*962such preceding taxable year, the amount of such excess shall under regulations prescribed by the Commissioner with the approval of the Secretary be allowed as a deduction in computing the net income for the succeeding taxable year.
(c) The benefit of this section shall be allowed to the members of a partnership and the beneficiaries of an estate or trust under regulations prescribed by the Commissioner with the approval of the Secretary.
In our opinion this provision of the statute is applicable only to net losses sustained in ordinary business operations. This seems to have been the intent of Congress, since it expressly included losses resulting from the sale of capital assets that had been acquired for producing materials for prosecuting the. war. Had Congress intended that this provision should be all inclusive it would not have been necessary to specify any particular category of such assets. To the extent that the alleged net loss for 1919 resulted from the sale of the petitioner’s tangible, property it is not deductible from net income in 1918, under section 204 of the Revenue Act of 1918. Auburn & Alton Coal Co. v. United States, 61 Ct. Cls. 438.
On December 31, 1919, the petitioner sold for $199,000 tangible assets, the depreciated cost of which was $525,114.73 at January 1, 1918. For the purpose .of determining gain or loss resulting from such conversion, we have held that the basie cost of depreciable property must be decreased or the sales price thereof must be increased by the amount .of accrued depreciation at date of sale. Appeal of Even Realty Co., 1 B. T. A. 355. In this appeal we have approved the amount of $255,488.66 as a reasonable allowance for obsolescence of the depreciable assets here involved for the year 1918, and the evidence and law upon which we have determined such allowance establish the right of the petitioner to a corresponding allowance for 1919, which practically wipes out the book value of such'property at December 31 of that year. If the depreciation and obsolescence allowed and allowable in the amounts of $406,768.81 and $455,114.73, respectively, are added to the sales price, the result is $1,060,883.54. We are not able to determine whether the amount of $70,000, charged off the petitioner’s real'estate account in 1903 and 1906, is included in the value of tangibles at March 1, 1913, which the books of the petitioner show was $861,883.54. If not so included the true value of tangibles at that date was $931,883.54. The conversion of tangible assets at December 31, 1919, therefore, resulted in a gain of either. $199,000 or $129,000.
The record disclosed that the Commissioner-computed the net operating income of the petitioner - for 1919 in the amount of $208,547.59, against which he allowed' a deduction of $347,533.83, representing his computation' of the loss sustained by the sale of capital assets, with a resulting net loss of $138,896.24, which he refused to subtract from income for 1918 under the provisions of the [963]*963taxing statute cited supra. Obviously these computations were made without giving the petitioner any benefit from deductions for obsolescence of depreciable assets to which we have held herein that it is entitled. It follows, therefore, that the net operating income for 1919 should be decreased by the amount of the obsolescence allowable, less the amount of ordinary depreciation allowed by the Commissioner for such year. Since the Commissioner has asserted no deficiency for. 1919, we.are concerned with the net operating income of that year only in relation to the petitioner’s contention that it is entitled to a deduction from its taxable income for 1918, under the net loss provisions of the applicable taxing statute. We are without some of the facts necessary for the computations of the true operating income for 1919, and must leave this matter to be determined by proof in a proceeding under Rule 50.
Judgment will be entered on 15 days’ notice, under Bule 50. " '