LITTLETON, Judge.
The first question is whether the plaintiff is entitled under section 236 of the Revenue Acts of 1918 and 1921 (40 Stat. 1080, 42 Stat. 257) to a credit for 1920 and 1921 in computing the income subject to the normal income tax of 10 per cent. of the amount of interest received on obligations of the United States which interest was included in income for these years.
The Commissioner of Internal Revenue denied the plaintiff a credit in the amount of $802,906.40 for 1920 and $228,426.94 for 1921, and the defendant here contends that this action should be approved on the ground that the legal relationship between the plaintiff and the Director General of Railroads was that of fiduciary and beneficiary; that the funds which the plaintiff invested in the obligations of the United States producing this interest belonged to the United States. The defendant now agrees that, if it should be held that the securities in question were purchased with funds belonging to the Director General or the United States, the income received thereon should not be included in gross income. It further agrees that, if the relationship of the Director General and plaintiff was that of creditor and debtor, the plaintiff is entitled to the credits claimed, and properly treated them on its returns. The history and purpose of plaintiff’s organization are shown by the agreement of June 10 of the old express companies, the contract of June 21, 1918, between the Director General of Railroads and the old express companies, and the contract of June 26, 1918, between the Director General and .the plaintiff. The legal relationship of the Director General and the plaintiff and the plaintiff’s rights and responsibilities are to be determined from these agreements and the practical construction thereof by the parties concerned.
We are of the opinion that the obligations of the United States which produced the interest in question for 1920 and 1921 were not the property of the Director General of .Railroads or of the Treasury Department, but were plaintiff’s property and that the interest therefrom was properly treated by it on its returns. The relationship of the Director General of Railroads and the plaintiff was contractual and was that of debtor and creditor, and not fiduciary. A fiduciary relationship connotes a relation of trust as the basis of obligation of the one and of security for the protection of the right of the other, rather than a basis of contractual provisions. It requires an element of confidence reposed by one in another without that limitation upon authority or accountability that contract terms impose, or without those exact limitations that are applicable in determining the rights and responsibilities of a creditor and debtor. Fiduciary relationship cannot exist in those instances where the contract provisions are mandatory, because of the. nature of the work, or where the contract is resorted to in order that the exact rights and’ responsibilities may be definitely defined.
There is no similarity between the operations of the plaintiff company and those of the railroads under federal control. Plaintiff took over the properties of all of the express-companies'and carried on the express business in its corporate capacity with its own properties subject to the terms of the contract with the Director General of Railroads. Although the President in November, 1918, issued a proclamation assuming control of the-[704]*704system of transportation called the American Railway Express Company and directed that the possession, control, operation, and utilization of said express transportation system by him undertaken should be exercised by the Director General of Railroads, the Director General did not assume direction, control, and operation of the express transportation system, but by a further contract with the plaintiff of November 21, 1918, after the President’s proclamation, adopted, ratified, and confirmed the contract with plaintiff of June 26, 1918, and agreed that the express transportation business was to be managed and conducted during the period of federal control, under the terms of said contract, by the board of directors, officers, and employees of the plaintiff company, and that the contract of June 26, 1918, should fix, according to law, the compensation to which the plaintiff should be entitled so long as the said agreement remained in force. The Director General had assumed direction, control, and operation of railroads, and the contract with plaintiff was for the purpose of centralizing the management and control of the express transportation business in one company and providing for certain payments by that company to the Director General in lieu of express-privilege payments formerly made to the railroads, prior to federal control, by the various express companies carrying on express business over their lines. The properties of the express companies and the express business carried on in the United States might have been taken over and directly managed and operated by the Director General, as was done in respect to the properties of the business of railroads. This however, was not done; the contractual arrangement being used instead. There was no supervision or control of the details of operations. Neither the Director General nor the Treasury Department evidenced any control ovér or interest in the investment affairs of the plaintiff. The government assumed no responsibility for the payment of current operating expenses or claims against the corporation. For all of these matters the plaintiff was liable in its corporate capacity, and, having executed the contract which left the management of the affairs of the express companies in the hands of the plaintiff subject to the provisions covering operations, payment of expenses, claims, taxes, and disposition of profits, étc., the respective rights and obligations with reference to the operation of the express business, as and when funds accumulated, of necessity became one of debtor and creditor.
The contract of June 26, 1918, was similar in many respects to contracts between express companies and railroads free of government control. The business was to be “conducted under such rates, charges, classifications, regulations, and practices as are now or may hereafter be lawfully established.” The Director General was required, as had been the railroads, to “furnish adequate and suitable space in ears properly equipped, lighted, and lettered, ‘American Railway Express Company,’ of the kind customarily furnished by railroad companies for the use of express companies on such passenger, mail, and express trains as may be designated from time to time by the Director General” and to permit the use of “a portion of station buildings on the lines covered by this agreement without charge therefor.” The plaintiff was required to “use its teams, property, offices, and other facilities, and its agents and employees in operating an express transportation business on all the lines of railroad under Federal control.” It was liable for all loss or damage to the facilities furnished by the Director General and for “all claims on account of loss, damage, or delay.” It was precluded from making a defense in any action at law or equity “that it is by virtue of this contract an instrumentality or agency of the Federal Government,” except with the approval of the Director General.
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LITTLETON, Judge.
The first question is whether the plaintiff is entitled under section 236 of the Revenue Acts of 1918 and 1921 (40 Stat. 1080, 42 Stat. 257) to a credit for 1920 and 1921 in computing the income subject to the normal income tax of 10 per cent. of the amount of interest received on obligations of the United States which interest was included in income for these years.
The Commissioner of Internal Revenue denied the plaintiff a credit in the amount of $802,906.40 for 1920 and $228,426.94 for 1921, and the defendant here contends that this action should be approved on the ground that the legal relationship between the plaintiff and the Director General of Railroads was that of fiduciary and beneficiary; that the funds which the plaintiff invested in the obligations of the United States producing this interest belonged to the United States. The defendant now agrees that, if it should be held that the securities in question were purchased with funds belonging to the Director General or the United States, the income received thereon should not be included in gross income. It further agrees that, if the relationship of the Director General and plaintiff was that of creditor and debtor, the plaintiff is entitled to the credits claimed, and properly treated them on its returns. The history and purpose of plaintiff’s organization are shown by the agreement of June 10 of the old express companies, the contract of June 21, 1918, between the Director General of Railroads and the old express companies, and the contract of June 26, 1918, between the Director General and .the plaintiff. The legal relationship of the Director General and the plaintiff and the plaintiff’s rights and responsibilities are to be determined from these agreements and the practical construction thereof by the parties concerned.
We are of the opinion that the obligations of the United States which produced the interest in question for 1920 and 1921 were not the property of the Director General of .Railroads or of the Treasury Department, but were plaintiff’s property and that the interest therefrom was properly treated by it on its returns. The relationship of the Director General of Railroads and the plaintiff was contractual and was that of debtor and creditor, and not fiduciary. A fiduciary relationship connotes a relation of trust as the basis of obligation of the one and of security for the protection of the right of the other, rather than a basis of contractual provisions. It requires an element of confidence reposed by one in another without that limitation upon authority or accountability that contract terms impose, or without those exact limitations that are applicable in determining the rights and responsibilities of a creditor and debtor. Fiduciary relationship cannot exist in those instances where the contract provisions are mandatory, because of the. nature of the work, or where the contract is resorted to in order that the exact rights and’ responsibilities may be definitely defined.
There is no similarity between the operations of the plaintiff company and those of the railroads under federal control. Plaintiff took over the properties of all of the express-companies'and carried on the express business in its corporate capacity with its own properties subject to the terms of the contract with the Director General of Railroads. Although the President in November, 1918, issued a proclamation assuming control of the-[704]*704system of transportation called the American Railway Express Company and directed that the possession, control, operation, and utilization of said express transportation system by him undertaken should be exercised by the Director General of Railroads, the Director General did not assume direction, control, and operation of the express transportation system, but by a further contract with the plaintiff of November 21, 1918, after the President’s proclamation, adopted, ratified, and confirmed the contract with plaintiff of June 26, 1918, and agreed that the express transportation business was to be managed and conducted during the period of federal control, under the terms of said contract, by the board of directors, officers, and employees of the plaintiff company, and that the contract of June 26, 1918, should fix, according to law, the compensation to which the plaintiff should be entitled so long as the said agreement remained in force. The Director General had assumed direction, control, and operation of railroads, and the contract with plaintiff was for the purpose of centralizing the management and control of the express transportation business in one company and providing for certain payments by that company to the Director General in lieu of express-privilege payments formerly made to the railroads, prior to federal control, by the various express companies carrying on express business over their lines. The properties of the express companies and the express business carried on in the United States might have been taken over and directly managed and operated by the Director General, as was done in respect to the properties of the business of railroads. This however, was not done; the contractual arrangement being used instead. There was no supervision or control of the details of operations. Neither the Director General nor the Treasury Department evidenced any control ovér or interest in the investment affairs of the plaintiff. The government assumed no responsibility for the payment of current operating expenses or claims against the corporation. For all of these matters the plaintiff was liable in its corporate capacity, and, having executed the contract which left the management of the affairs of the express companies in the hands of the plaintiff subject to the provisions covering operations, payment of expenses, claims, taxes, and disposition of profits, étc., the respective rights and obligations with reference to the operation of the express business, as and when funds accumulated, of necessity became one of debtor and creditor.
The contract of June 26, 1918, was similar in many respects to contracts between express companies and railroads free of government control. The business was to be “conducted under such rates, charges, classifications, regulations, and practices as are now or may hereafter be lawfully established.” The Director General was required, as had been the railroads, to “furnish adequate and suitable space in ears properly equipped, lighted, and lettered, ‘American Railway Express Company,’ of the kind customarily furnished by railroad companies for the use of express companies on such passenger, mail, and express trains as may be designated from time to time by the Director General” and to permit the use of “a portion of station buildings on the lines covered by this agreement without charge therefor.” The plaintiff was required to “use its teams, property, offices, and other facilities, and its agents and employees in operating an express transportation business on all the lines of railroad under Federal control.” It was liable for all loss or damage to the facilities furnished by the Director General and for “all claims on account of loss, damage, or delay.” It was precluded from making a defense in any action at law or equity “that it is by virtue of this contract an instrumentality or agency of the Federal Government,” except with the approval of the Director General.
Under the revenue provisions, article 8 of the contract, the Director General was to receive 50.25 per cent, of the gross receipts from the express business over the roads under federal control for express privileges, but article 27, under which the plaintiff was protected against operating losses in any year, authorized plaintiff, in the event of such losses, to reduce the amount of 50.25 per cent, of the gross income, otherwise payable to the Director General for express privileges in a subsequent year. The balance of 49.75 per cent, plus the revenues from the express business over other railroads, after payments of the amounts due under operating contracts, plus all other income, was to be paid into a “Gross contract income,” and from the latter the operating expenses' were to be paid by plaintiff. Provision was also made with reference to the use and manner of disposition of the remainder of the fund to be identified as the “Contract income for division,” in connection with which it was provided in part that “it is the understanding and agreement of the parties that the ‘contract income for division’ is not the income or property of the express company but is a fund resulting from the terms of this agreement in which the Director General and the express company have [705]*705a mutual interest.” The last-mentioned provision with reference to the “contract income for division” is immaterial to a consideration of this question, since there was' no “contract income for division” and no portion of such a fund produced any interest for which' plaintiff claims credit.
There were other provisions in the contract with reference to the keeping of accounts, the payment of salaries, pensions, etc., made subject in some minor instances to indirect control by the Director General, but they were clearly intended to protect the interests of the government in the premises.
In our opinion, the provisions in the contract of June 26, 1918, especially those, of article 8, establish the relationship of debtor and creditor between the plaintiff and the Director General, and this we think was intended and consummated.
The plaintiff put its own capital of almost $35,000,000 into the enterprise. The Director General furnished the transportation and received approximately one-half of plaintiff’s gross income, less the sum necessary to repair plaintiff’s losses, if any. It was the employment of plaintiff’s capital that produced the funds and interest thereon which is -here in controversy. Notwithstanding the fact that operations were conducted at a loss, it had funds in hand, because liabilities for damages and injuries, for which plaintiff alone was liable, were not, and in the nature of things could not be, paid currently, but were deferred until the claims therefor should be determined and adjudicated. The only obligation of plaintiff to the Director General was for express privileges in an amount equal to 50.25 per cent, of the gross income, less the amount of operating losses. There was never any income for division since the plaintiff operated at a loss during that part of the federal control period from July 1, 1918, when it acquired the properties of the various express companies, to February 29, 1920, and during the guaranty period, March 1 to September 1, 1920.
The entire tenor of the contract between the plaintiff and the Director General connotes contractual obligation rather than fiducial relation, and the practical construction of the contract shows that the parties regarded their relation as debtor and creditor. In the arrangement made between the plaintiff and the Director General to liquidate all transactions arising during the period of Federal control of railroads, a trustee account of $700,000 was provided to enable the liquidation of the affairs of the plaintiff during the federal control period; i. e., collection of the outstanding assets and payment of liabilities. A part of this trust fund was immediately invested in Liberty bonds which the Director General purchased from plaintiff at the market price on the date of purchase. At that time plaintiff owned over $1,000,000, par amount of the Liberty bonds which it had owned prior to March 1, 1920.
The term “sole agent of the Government” appears to have been used in the contract of June 26, 1918, in the sense of independent contractor and to signify the agreement by the Director General that plaintiff should have a monopoly of the express business over the railroads under federal control. It appears that the parties to the contract of June 26, 1918, construed it, throughout the period of its existence, as creating the relation of creditor and debtor, and this is of great, if not Controlling, influence. Baltimore v. Baltimore Railroad, 10 Wall. 543, 19 L. Ed. 1043; Old Colony Trust Co. v. City of Omaha, 230 U. S. 100, 33 S. Ct. 967, 57 L. Ed. 1410.
The next issue is whether plaintiff is entitled to include in invested capital for 1921 $2,448,353.59 on account of the value of property paid in on July 1, 1918, for stock. There was no excess-profits tax liability for 1920, and this issue does not arise as to that year. In its return for 1921 plaintiff computed its invested capital by using the value of the property as fixed by the Director General of Railroads in the amount of $31,642,109.64 on July 1, 1918, for which stock was issued, except as to $109.64. The Commissioner of Internal Revenue reduced the claimed invested capital in the amount of $2,448,353.50. This reduction was made up of two items—first, a reduction of $1,199,720.12 in the amount fixed by the Director General of Railroads and entered by plaintiff upon its books and used with proper adjustments for depreciation, etc., in computing invested capital in the return, as the value of property paid in; and, second, a reduction of $1,248,633.38 of the amount of $1,594,000 entered by the plaintiff on its books as the value of the property paid in for so-called qualified stock issued to the Adams Express Company.
The first item of $1,199,720.12 was excluded from invested capital by the Commissioner on the ground that the value of the property paid in to plaintiff on July 1, 1918, and for which it issued ordinary common stock, represented the depreciated cost or [706]*706depreciated book value of such property on November 30, 1917, in the hands of the predecessor companies rather than its actual value on July 1, 1918, and that depreciation in the amount of $1,199,720.12 had accrued during the seven months intervening which operated to reduce the value for invested capital purposes in that amount. The Commissioner also held that the restrictive provisions of section 331 of the Revenue Act of 1918 (40 Stat. 1095) were applicable in determining the amount which plaintiff might include in invested capital. Counsel for the defendant, however, correctly agrees that the provisions of this section are not applicable, since an interest or control of 50 per cent, or more did not remain in any one of the predecessor owners. We are of opinion that the action of the Commissioner was erroneous. Article second of the agreement between the Director General and the predecessor express companies with reference to the organization of plaintiff and the transfer of the properties of the various express companies to plaintiff provided that “the new corporation shall be furnished cash by the Express Companies in a sufficient amount to constitute reasonable working capital. No shares of capital stock shall be issued except on payment therefor at par in cash, or its equivalent in property at the fair market value thereof.” (Italics supplied.) And article third provided that: “The initial issue of stock of said new corporation shall not be made until such issue shall have been approved in writing by the Director General.” Article 24 of the contract of June 26, 1918, between the Director General and the plaintiff provided that: “The stock issued by the express company shall be sufficient to pay at par for the property transferred to it and to provide the cash necessary for working capital,” and this contract also provided that no stock might be issued without the approval in writing of the Director General. The provision that stock should be issued for property paid in “at the fair market value thereof” can only mean the actual market value at the time paid in, and the record clearly justifies the conclusion that the valuation of the property by the Director General was as of that date.
The plaintiff was organized to serve the convenience of the United States on account of the war, and to operate according to the contract with the United States by the Director General of Railroads. The essence of the contract of June 26, 1918, was that plaintiff, for conducting the express business, should have a limited return upon the par amount of its capital stock, that any excess of such return should be divided with the United States, and that the Railroad Administration should guarantee plaintiff against operating loss. The United States therefore had a direct and vital interest in the amount of the capital stock which plaintiff might issue. The above-quoted provisions of the contracts were strictly complied with. The property of the old express companies was paid in. The Director General designated a representative of his office, and especially directed him to make, and he did make, an investigation of the amount and value of the property paid in. This investigation was for the sole purpose of determining the actual value of the properties acquired by plaintiff upon the commencement by it of operations July 1, 1918. Although in the agreement of Juno 10, 1918, by the express companies with reference to the organization of plaintiff the value of the properties to be transferred to the plaintiff was “estimated” to be $28,407,000 and in the agreement of June 21, 1918, between the Director General and these express companies, in paragraph second, the value of the properties to be transferred to the plaintiff, including the supplies and materials on hand, was “estimated” to be $30,000,000, as of November 30, 1917, it is clear, we think, that these estimates were not intended to be the actual value at which the properties should be paid in to plaintiff or to fix November 30, 1917, as the date on which the value of the property to be paid in on July 1, 1918, for stock should be determined. Paragraph second of the agreement of June 10, 1918, provided that no stock of plaintiff should be issued except for cash or its equivalent in property at the fair market value thereof. The old express companies continued to carry on the express business of the country until July 1, 1918, and we think it clear that the Director General, in determining the amount of stock which plaintiff might issue for property acquired, valued sueh property on July 1, 1918. After the properties of the express companies had been paid in and upon completion of his investigation of the amount and the value thereof, the Director General, by written certificates, approved the issuance by plaintiff of $34,642,109.64 capital stock, and this amount was issued except $109.64, which was adjusted by payment of cash to the old companies. Cash in the amount of $3,000,000 was paid in. The question before the Director General and the plaintiff was not the book value of the properties on the hooks of the predecessor companies or whether de[707]*707preeiation prior to July 1, 1918, was properly computed on their books, but the question was the actual value of the properties at the time paid in on July 1, 1918. The Director General therefore valued the physical properties paid in at $31,642,000 on July 1, 1918; that determination was advisedly made in order to protect the financial interests of the United States and in furtherance of the deliberate terms of the contract. The Bureau of Internal Revenue made no investigation of the quantity, amount, or value of the properties paid in to plaintiff for stock. The valuation by the Director General is not questioned by the defendant beyond the claim that it represented the depreciated cost or depreciated book value as of November 30, 1917. In this we are of opinion the defendant is in error. Sumpter Valley Ry. Co. v. Commissioner of Internal Revenue, 10 B. T. A. 1325.
The evidence establishes, and we have found as a fact, that the so-called qualified common stock of $1,594,000 issued to the Adams Express Company was issued for actual value residing in miscellaneous equipment paid in by the Adams-Southern Express Company to plaintiff in excess of the amount for which ordinary common stock was issued. Plaintiff therefore correctly included this item in computing invested capital, and the defendant was in error in excluding the same.
The foregoing conclusion that the stock of $1,594,000 was issued to the Adams Company for value in miscellaneous equipment paid in disposes of the last issue with reference to the depreciation deductions for 1920 and 1921 at an annual rate of $159,399.96. Plaintiff charged the amount of $1,594,000 to miscellaneous equipment, the property received in exchange for the issuance of qualified stock in that amount, and undertook the depreciation thereof on the basis of a ten-year life for such property. It charged against gross income in each of the years 1920 an'd 1921 10 per cent, of the total amount. The Bureau of Internal Revenue disallowed those charges to the extent of $53,-133.38 in 1920 and in the full amount for 1921 on the ground that nothing was paid in for the stock. Similar charges against income were made by plaintiff during 1918 and 1919. As hereinafter stated, between July 1, 1918, and February 29, 1920, plaintiff operated under the contract with the Director General, and from March 1, 1920 to August 31, 1920, it operated under the contract as continued by the provisions of section 209 (i) of the Transportation Act of 1920 (41 Stat. 467). By reason of these provisions in the contract and the Transportation Act, the government was directly interested in the amount which should be charged against gross ineome in order to determine the net operating ineome or deficit. The accounts rendered to the Director General and to the Interstate Commerce Commission for the purpose of determining the operating deficits from July 1, 1918, to August 31, 1920, showed deductions from income on account of these charges for depreciation for exhaustion, wear, and tear of miscellaneous equipment. Both the Director General and the Interstate Commerce Commission first objected to .such charges, claiming that they should not be reflected in the deficits charged to the Director General under the contract and the United States under section 209 of the Transportation Act (41 Stat. 464). After full investigation and consideration, the Director General and the Interstate Commerce Commission agreed that the charges were proper and they were allowed to stand. Under the accounting according to the contracts made by plaintiff with the class I railroads of the United States September 1, 1920, the committee representing all of the railroads made substantially the same objection in respect to the annual charge for depreciation in respect of the sum of $1,594,000. After a full investigation and consideration, however, the charge was permitted to stand as a deduction in favor of plaintiff and against the railroads under those contracts. No investigation of the amount of value of the equipment acquired by plaintiff was ever made by the Bureau of Internal Revenue. The evidence overcomes the determination of the Commissioner of Internal Revenue that nothing of value was acquired for this stock. The deductions claimed are therefore allowed.
Plaintiff is entitled to recover $183,235.45, with interest as provided by law, for which judgment will be entered. It is so ordered.