OPINION.
Kern, Judge:
Section 721 of the Internal Revenue Code1 sought to provide relief to a taxpayer which received an abnormal amount or type of income in one year by permitting it to allocate such abnormal income over the years to which it was properly attributable,2 and thereby decrease the amount of excess profits tax to which it otherwise would have been subjected. The present controversy seems to us to be limited by respondent’s brief 3 to the narrow issue of whether or not all or some part of petitioner’s net abnormal income was properly attributable to years other than the ones in which it was earned and received.4
Respondent apparently has recognized that petitioner did have abnormal income and net abnormal income as defined in the code in both 1941 and 1942.5
Respondent assails petitioner’s claim for relief under section 721 on the ground that such income arose solely out of an increased demand for petitioner’s two products under discussion — Pantex and C. C. Tex-tasote — by the armed forces and, consequently, no part of it was attributable to other years, under the statute and his regulations.
Petitioner does not dispute respondent’s premise that items of abnormal income are not attributable to other years to the extent that they have resulted from high prices, low operating costs, or increased volume of sales due to increased demand for the products.6
To meet this attack, petitioner has introduced data reflecting the general improvement in business conditions of the industry of which it is a part. By indices derived from these data it seeks to show us the portion of its net abnormal income due to the improvement in such business, and contends that the remainder of its net abnormal income is attributable to other years and is allocable over the years during which its research and development program was in operation. The technique is not unlike that followed in the Knight case, supra; Rochester Button Co., 7 T. C. 529; and Ramsey Accessories Mfg. Corporation, 10 T. C. 482.
In order to support the reasonableness of these indices, petitioner has further attempted to demonstrate that actually no part of its abnormal income in the years before us can be said to have resulted from any of the conditions recited in the regulations which preclude attribution to other years. The argument advanced is that the demand in a normal peace time market for the products which it could have manufactured under a newly developed process would have been greater than that indicated by its sales of Pantex and C. C. Textasote but for the fact that the raw materials necessary to make these products were not available, due to the advent of the war. Petitioner seems to misconstrue a dictum in Soabar Co., 7 T. C. 89, 97, as supporting its thesis. It is there stated:
A ease could be imagined in which the business normally to be expected from new patents or processes was still in the development stage in 1940 and 1941, so that a part of the increased profits of those years was not due to an increased demand resulting from war stimulated business, but was merely the realization in those years of growth (increase in profits) that would have occurred under normal conditions if there had been no war. * * *
Petitioner is not seeking to prove what demand would have been a “normal” market for the particular products here under discussion, but rather what the demand might have been for some other types of new products that it might have been able to develop as a result of perfecting a new process if necessary raw materials were available. Much must be speculated in resolving issues under section 721, but not that much, we believe. Even if there were some merit in this contention of petitioner by way of supporting the reasonableness and usefulness of the index figures it has offered, the testimony upon which the argument is predicated is at best vague and unsatisfactory, and hardly supports petitioner’s conclusion that in a peace time economy its income would have been as large as that realized through its sales of products for war end uses.7
That the actual income petitioner derived in the two years before us was, to a great extent, the result of increased demand and improvement in business accentuated by the war economy becomes at once apparent from the figures representing petitioner’s sales of the products herein considered. For example, sales of C. C. Textasote more than tripled from 1940 to 1941, and approached that increase from 1941 to 1942. And it should further be observed that the basic development of this product was completed by 1939.8 The increases in the sales of Pantex were even greater, but as to that product basic development continued into the years before us. It was increases in income caused by the impact of the war upon the nation’s economy that the excess profits tax sought to reach, and abnormality in income so caused “would not suffice to justify special relief.” Lindstedt-Hoffman Co., 11 T. C. 584; Soabar Co., supra.
While we can not agree with petitioner that as large a part of its abnormal income is attributable to other years, as it seeks to have us find, we can not agree with respondent that all of it resulted “solely 9 from an increase in business due to the enlarged demands of the Armed Forces.” To the extent that respondent’s argument is directed to precluding x-elief to petitioner merely because the bulk of its production during the years in question was sold for use by the armed forces, we consider that it goes too far. The statute does not permit of such construction and, in fact, the legislative intent appears to have been otherwise. See 86 Cong. Rec. 11250. Moreover, our decision in Eitel-McCullough, Inc., 9 T. C. 1132, upon which respondent strongly relies, recognized that despite the fact that “the bulk of petitioner’s production * * * was for the Army and Navy * * *. Undoubtedly, some of petitioner’s income * * * was the product of research and development * * There, relief was denied because of a complete absence of proof, among other reasons. We said, in part (p.1147):
* * * There is no proof, however, frdm which we can formulate an approximation or even a guess of the amount properly attributable to the vital factors. Thus it is, there is no way on the record made by which to determine in either the base period or the tax years the amount of income attributable to research and development and the amount attributable to manufacturing under improved business conditions, with the consequent inability to determine the amount of petitioner’s abnormal income, if any.
Although the “record leaves something to be desired,” Rochester Button Co., supra, p. 552, we do not find that complete failure to meet the onerous burden placed upon taxpayers under section 721 that prevailed in the Eitel-McCullough case, supra. See Ramsey Accessories Mfg. Corporation, supra; Lindstedt-Hoffman Co., supra.
Unlike our conclusion in such cases as Geyer, Cornell & Newell, Inc., 6 T. C. 96, and Soabar Co., supra, p.
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OPINION.
Kern, Judge:
Section 721 of the Internal Revenue Code1 sought to provide relief to a taxpayer which received an abnormal amount or type of income in one year by permitting it to allocate such abnormal income over the years to which it was properly attributable,2 and thereby decrease the amount of excess profits tax to which it otherwise would have been subjected. The present controversy seems to us to be limited by respondent’s brief 3 to the narrow issue of whether or not all or some part of petitioner’s net abnormal income was properly attributable to years other than the ones in which it was earned and received.4
Respondent apparently has recognized that petitioner did have abnormal income and net abnormal income as defined in the code in both 1941 and 1942.5
Respondent assails petitioner’s claim for relief under section 721 on the ground that such income arose solely out of an increased demand for petitioner’s two products under discussion — Pantex and C. C. Tex-tasote — by the armed forces and, consequently, no part of it was attributable to other years, under the statute and his regulations.
Petitioner does not dispute respondent’s premise that items of abnormal income are not attributable to other years to the extent that they have resulted from high prices, low operating costs, or increased volume of sales due to increased demand for the products.6
To meet this attack, petitioner has introduced data reflecting the general improvement in business conditions of the industry of which it is a part. By indices derived from these data it seeks to show us the portion of its net abnormal income due to the improvement in such business, and contends that the remainder of its net abnormal income is attributable to other years and is allocable over the years during which its research and development program was in operation. The technique is not unlike that followed in the Knight case, supra; Rochester Button Co., 7 T. C. 529; and Ramsey Accessories Mfg. Corporation, 10 T. C. 482.
In order to support the reasonableness of these indices, petitioner has further attempted to demonstrate that actually no part of its abnormal income in the years before us can be said to have resulted from any of the conditions recited in the regulations which preclude attribution to other years. The argument advanced is that the demand in a normal peace time market for the products which it could have manufactured under a newly developed process would have been greater than that indicated by its sales of Pantex and C. C. Textasote but for the fact that the raw materials necessary to make these products were not available, due to the advent of the war. Petitioner seems to misconstrue a dictum in Soabar Co., 7 T. C. 89, 97, as supporting its thesis. It is there stated:
A ease could be imagined in which the business normally to be expected from new patents or processes was still in the development stage in 1940 and 1941, so that a part of the increased profits of those years was not due to an increased demand resulting from war stimulated business, but was merely the realization in those years of growth (increase in profits) that would have occurred under normal conditions if there had been no war. * * *
Petitioner is not seeking to prove what demand would have been a “normal” market for the particular products here under discussion, but rather what the demand might have been for some other types of new products that it might have been able to develop as a result of perfecting a new process if necessary raw materials were available. Much must be speculated in resolving issues under section 721, but not that much, we believe. Even if there were some merit in this contention of petitioner by way of supporting the reasonableness and usefulness of the index figures it has offered, the testimony upon which the argument is predicated is at best vague and unsatisfactory, and hardly supports petitioner’s conclusion that in a peace time economy its income would have been as large as that realized through its sales of products for war end uses.7
That the actual income petitioner derived in the two years before us was, to a great extent, the result of increased demand and improvement in business accentuated by the war economy becomes at once apparent from the figures representing petitioner’s sales of the products herein considered. For example, sales of C. C. Textasote more than tripled from 1940 to 1941, and approached that increase from 1941 to 1942. And it should further be observed that the basic development of this product was completed by 1939.8 The increases in the sales of Pantex were even greater, but as to that product basic development continued into the years before us. It was increases in income caused by the impact of the war upon the nation’s economy that the excess profits tax sought to reach, and abnormality in income so caused “would not suffice to justify special relief.” Lindstedt-Hoffman Co., 11 T. C. 584; Soabar Co., supra.
While we can not agree with petitioner that as large a part of its abnormal income is attributable to other years, as it seeks to have us find, we can not agree with respondent that all of it resulted “solely 9 from an increase in business due to the enlarged demands of the Armed Forces.” To the extent that respondent’s argument is directed to precluding x-elief to petitioner merely because the bulk of its production during the years in question was sold for use by the armed forces, we consider that it goes too far. The statute does not permit of such construction and, in fact, the legislative intent appears to have been otherwise. See 86 Cong. Rec. 11250. Moreover, our decision in Eitel-McCullough, Inc., 9 T. C. 1132, upon which respondent strongly relies, recognized that despite the fact that “the bulk of petitioner’s production * * * was for the Army and Navy * * *. Undoubtedly, some of petitioner’s income * * * was the product of research and development * * There, relief was denied because of a complete absence of proof, among other reasons. We said, in part (p.1147):
* * * There is no proof, however, frdm which we can formulate an approximation or even a guess of the amount properly attributable to the vital factors. Thus it is, there is no way on the record made by which to determine in either the base period or the tax years the amount of income attributable to research and development and the amount attributable to manufacturing under improved business conditions, with the consequent inability to determine the amount of petitioner’s abnormal income, if any.
Although the “record leaves something to be desired,” Rochester Button Co., supra, p. 552, we do not find that complete failure to meet the onerous burden placed upon taxpayers under section 721 that prevailed in the Eitel-McCullough case, supra. See Ramsey Accessories Mfg. Corporation, supra; Lindstedt-Hoffman Co., supra.
Unlike our conclusion in such cases as Geyer, Cornell & Newell, Inc., 6 T. C. 96, and Soabar Co., supra, p. 97, we do not believe that in the instant case all of petitioner’s “net abnormal income of the tax years was due [solely] to improved business conditions in the tax years which resulted in a greater demand for the petitioner’s products in those years.” We are convinced that some portion was the result of petitioner’s long and intensive research program, and, therefore, is attributable to those years in which the program was being carried on.
We are now confronted with the difficult task10 of determining what part of petitioner’s net abnormal income is attributable to the years during which the products were developed. Undoubtedly, “a consideration of so general a nature would still necessarily reduce in the last analysis to a matter of opinion,” Rochester Button Co., supra, at page 553, upon which we must exercise “common sense and judgment in the light of the proven facts.” Ramsey Accessories Mfg. Corporation, supra, at page 489. We have found as a fact what percentages we believe should be applied in reducing petitioner’s net abnor mal income in the determination of what part thereof arose out of its research and development, and what part arose out of other factors. Cf. Cohan v. Commissioner (CCA-2), 39 Fed. (2d) 540; Ramsey Accessories Mfg. Corporation, supra; and Lindstedt-Hoffman, Co., supra. These ultimate findings, based upon a careful consideration of the whole record, decide the only controverted issue presented to us.
Since respondent’s sole contention is that petitioner’s net abnormal income was attributable to the taxable years, rather than to prior years, because of the increased demand in 1941 and 1942 for petitioner’s products by the armed forces, and does not rely upon or mention any other factor (cf. Ramsey Accessories Mfg. Corporation, supra), it is unnecessary to speculate upon the existence in the instant case of factors shown to be material in the Ramsey case.
Reviewed by the Special Division.
Decisions will be entered umder Rule 50.