JACOBS, Judge:
Notices of income tax deficiencies and transferee liabilities for these consolidated cases concern the years 1962 through 1968.2 The deficiencies, as determined by respondent, are as follows:
Year Amount3
1962 . $14,087,392
1963 . 10,718,321
1964. 11,446,017
1965 . 8,827,875
1966 . 8,972,806
1967 . 10,590,947
1968. 21,499,083
Petitioners claim overassessments and overpayments of tax for these years in excess of $100 million.
The parties have settled, or have informed the Court that they will be able to settle, all but 5 of the more than 150 issues in this case. One of the unsettled issues is whether the notices of deficiency issued to new Southern Pacific are invalid because it is not a proper agent for receipt of notices of deficiency for the consolidated group for the years 1962 through 1968. A second related issue is whether Southern Pacific Transportation Co. is hable as a transferee. The third related issue is whether the statute of limitations bars all assessments for taxable years 1962 through 1967. Based on the Court’s prior opinions which held that Southern Pacific Co. was a proper agent for years prior to 1969 (Southern Pacific Co. (formerly S.P. Inc.) v. Commissioner, 84 T.C. 375, 387 (1985), and Southern Pacific Co. (formerly S.P. Inc.) v. Commissioner, 84 T.C. 395, 404-405 (1985)), the parties did not further brief herein the first three issues. Instead, they supplemented the record with a stipulation and attached exhibits, and reserved the right to submit additional evidence on the statute of limitations and notice of deficiency issues should the Court’s holdings in its prior opinions be reversed on appeal.
The two issues remaining for resolution at this time are: (1) Whether amounts paid to support or oppose various State and local propositions are deductible (herein referred to as the initiatives issue), and (2) whether amounts paid in connection with the construction of public highway overpasses over petitioners’ tracks and roadbeds qualify for the investment tax credit (herein referred to as the overpass issue).
After concessions, the amount of deductions involved with respect to the initiatives issue are as follows:
Year Amount
1964. $1,243,825
1966 . 8,500
1967 . 7,000
1968. 41,925
After concessions, the amount of the deductions and tax credits involved with respect to the overpass issue are as follows:
Year Amount of deduction ITC
1962 $57,882 $4,052
1963 166,136 11,630
1964 608,536 42,598
1965 593,461 41,542
1966 461,775 32,324
1967 2,613,254 182,927
1968 388,938 27,226
The facts relating to the initiatives issue have been fully stipulated and are so found. Some of the facts relating to the overpass issue have been stipulated and are so found.
GENERAL FINDINGS OF FACT
On November 26, 1969, former Southern Pacific Co. merged with Southern Pacific Transportation Co. (Transportation). Transportation was the surviving corporation in that merger. Former Southern Pacific Co. was a corporation organized under the laws of Delaware on March 21, 1947. It was engaged in the business of furnishing railroad transportation services in the State of California and various other States west of the Mississippi River. Transportation was incorporated under Delaware law on February 20, 1969. Sometime before November 26, 1969, S.P., Inc., a newly formed Delaware corporation, acquired the outstanding stock of Transportation pursuant to the terms of a merger agreement, dated February 20, 1969, among former Southern Pacific, Transportation, and S.P., Inc. In accordance with the merger agreement, former Southern Pacific transferred all of its assets to Transportation and ceased its separate corporate existence. S.P., Inc., subsequently changed its name to Southern Pacific Co. (new Southern Pacific), and the stock of the shareholders of former Southern Pacific was automatically converted into stock of new Southern Pacific. As of November 26, 1969, new Southern Pacific owned all the stock of Transportation which, in turn, owned all the assets of former Southern Pacific. Hereinafter, we shall refer to both former Southern Pacific Co. and new Southern Pacific as Southern Pacific. The principal place of business of Southern Pacific and Transportation at the time the petitions in these cases were filed was San Francisco, California.
For convenience, our remaining findings of fact and opinion will be grouped according to the issue involved.
1. Initiatives Issue
FINDINGS OF FACT
Between 1962 and 1968, Southern Pacific and Northwestern Pacific Railroad Co., a wholly owned subsidiary of Southern Pacific, paid amounts to support or oppose a number of California State and local propositions. The recipients, purpose of the proposition, and amounts paid are as follows:
Year Recipient and purpose of proposition Amount
1964 Whitaker & Baxter Advertising Agency4 $1,205,974
(California Proposition 17, a proposal to allow freight trains to be operated in California with smaller crews than had previously been allowed, i.e., anti-featherbedding)
Miscellaneous (California Proposition 17) 1,574
Citizens Committee for Passage of Proposition D 1,000
(San Francisco Proposition D, a proposal for issuance of bonded indebtedness for park and recreational facilities)
1966 Yes on Proposition 3 (California Proposition 3, a 1,500
proposal to maintain and preserve open space land and to require state property tax assessors to take into account such restrictions in determining the value of such land)
Year Recipient and purpose of proposition Amount
San Francisco International Airport Board $7,000
Committee (San Francisco Proposition A, a • proposal for bonded indebtedness for the acquisition, construction, and completion of transportation facilities, including airport facilities)
1967 San Francisco International Airport Board 7,000
Committee (San Francisco Proposition A)
1968 Californians Against Proposition 9 (Proposition 9, 29,425
a proposed constitutional amendment limiting property taxes)
Committee for Propositions B & C (San 7,500
Francisco Propositions B & C: Proposition B sought voter approval for the transfer of harbor facilities to the City and County of San Francisco and the assumption of related indebtedness under conditions enacted by the California State Legislature; Proposition C was a proposal to amend the San Francisco City and County Charter concerning control of the harbor by the City and County of San Francisco)
Tax Slush Committee (City of Oakland 5,000
Proposition J, a proposal to adopt a new charter for the City of Oakland)
In addition, in 1964, Southern Pacific paid $35,277 to the Arizona Railroad Association, an organization of which it was a member, in order to qualify Proposition 200, an anti-featherbedding proposal, for the Arizona ballot.
Petitioners claimed deductions with respect to these ballot proposition expenditures; such deductions were disallowed by respondent.
The expenditures in question (except for amounts paid to the Whitaker & Baxter Advertising Agency) were paid to taxpayers’ associations or local committees which were formed solely to campaign for or against the propositions. The local committees primarily consisted of local business entities, including Southern Pacific. The State taxpayers’ associations and local committees engaged in radio, television, and newspaper advertising, as well as direct mail distributions.
Southern Pacific had a direct interest in the outcome of the propositions it supported or opposed, as follows:
(1) Passage of California Proposition 17 would mean that Southern Pacific and Northwestern Pacific Railroad Co. would be able to operate freight trains in California with crews smaller than had previously been required.
(2) Passage of San Francisco Proposition D (to finance improvements to parks and recreational facilities in San Francisco) would make San Francisco more attractive to prospective employees. Southern Pacific’s headquarters were in San Francisco and some of its employees lived there.
(3) Passage of California Proposition 3 would affect the method of tax assessment of land used for growing food and of timberlands. Petitioners owned land in California that was used for growing food, as well as timberland, and it annually paid property taxes on such land.
(4) Passage of San Francisco Proposition A would provide funds for improved facilities at San Francisco International Airport, which would enable petitioners’ employees to travel more quickly and efficiently to and from other cities.
(5) Passage of California Proposition 9 would have limited property taxes, and it was believed that this would raise other taxes in California. Petitioners were subject to State and local taxes in California other than, and in addition to, property taxes. Thus, passage of Proposition 9 might have increased the amount of taxes paid by petitioners.
(6) Passage of California Propositions B & C would revitalize San Francisco harbor. Businesses often shipped freight by Southern Pacific which arrived at, or was shipped from, the port of San Francisco. Alternative ports of arrival or embarcation for this freight might have meant transportation by railroads or carriers other than Southern Pacific.
(7) Proposition J was a proposal to adopt a new charter for the City of Oakland. Southern Pacific had a rail yard in, and lines that went through, Oakland; it owned property in, and paid taxes to, Oakland. It was believed that passage of Proposition J would result in a more efficient city government, thereby easing fiscal pressures on the city and resulting in a tax decrease (or a deceleration of the rate of tax increase) for Oakland taxpayers.
(8) Passage of Arizona Proposition 200 would mean that Southern Pacific would be able to operate freight trains in Arizona with crews smaller than had previously been required.
All of the local propositions supported or approved by petitioners, except proposition B, were approved by the local boards of supervisors or city councils before submission to the voters for approval. Proposition B was submitted to the voters pursuant to a special statutory directive passed by the California State Assembly.
All of the State ballot propositions proposed constitutional amendments. All but one of these propositions, California Proposition 3, were placed on the ballot by the initiative process.5 California Proposition 3 was placed on the ballot by the California State legislature. The local propositions were of three types: (1) Propositions to approve the adoption of, or amendment to, city or county charters (e.g., San Francisco Proposition C and Oakland Proposition J); (2) propositions to approve the issuance of bonded indebtedness (e.g., San Francisco Propositions A and D); and (3) a proposition to approve the transfer of local harbor facilities and related liabilities from the State of California to the city and county of San Francisco (e.g., San Francisco Proposition B).
The purpose of all of the various propositions involved herein was to change or amend California or Arizona State or local statutes, constitutions, or charters. In order for each of these propositions to pass, approval by at least a majority of the voters was required.
OPINION
Petitioners claim entitlement under section 162(e) to deductions for expenditures made in connection with the State and local ballot propositions involved herein. Respondent disagrees; we agree with respondent.
In 1962, Congress enacted section 162(e), modifying then-existing Treasury regulations which had denied a business expense deduction for lobbying expenses and for expenditures related to the promotion or defeat of legislation. The stimulus for the enactment of section 162(e) was the Supreme Court’s decision in Cammarano v. United States, 368 U.S. 498 (1959),6 which upheld the validity of the regulations (and thus denied a business expense deduction for funds contributed to finance a Statewide publicity program urging the defeat of an initiative), even though the expenditures in question were essential to the survival of the taxpayer’s business.7
Section 162(e), effective for taxable years beginning after December 31, 1962, provides, in relevant part, as follows:
SEC. 162(e). Appearances etc., With Respect to Legislation.—
(1) In GENERAL. — The deduction allowed by subsection (a) shall include all the ordinary and necessary expenses (including, but not limited to, traveling expenses described in subsection (a)(2) and the cost of preparing testimony) paid or incurred during the taxable year in carrying on any trade or business—
(A) in direct connection with appearances before, submission of statements to, or sending communications to, the committees, or individual members, of Congress or of any legislative body of a State, a possession of the United States, or a political subdivision of any of the foregoing with respect to legislation or proposed legislation of direct interest to the taxpayer,
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(2) Limitation. — The provisions of paragraph (1) shall not be construed as allowing the deduction of any amount paid or incurred (whether by way of contribution, gift or otherwise)—
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(B) in connection with any attempt to influence the general public, or segments thereof, with respect to legislative matters, elections, or referendums.
Section 162(e) originated as section 3 of H.R. 10650 (which became the Revenue Act of 1962, Pub. L. 87-834, 76 Stat. 960). A reading of the House and Senate floor debates with respect to section 3, H.R. 10650, indicates that Congress did not wish to allow a deduction for business expenditures incident to grass root lobbying — i.e., expenditures made to influence the general public. Congress felt that the entire brunt of grass root lobbying expenditures should be borne by the businesses themselves, rather than permitting a significant proportion of such costs to be shifted to the Federal Treasury via tax deductions.
Petitioners argue that section 162(e) was enacted to overturn the Supreme Court’s decision in Cammarano and that their position herein is identical to that of the taxpayers in Cammarano.8 We agree that there is no discernible difference between petitioners’ situation herein and that of the taxpayers in Cammarano. However, we do not agree that Congress intended to overturn Cammarano and to allow a business expense deduction for contributions to support or defeat an initiative.
Following the Cammarano decision, the Treasury Department promulgated new regulations relating to lobbying expenses, which have subsequently been repealed. These regulations (formerly section 1.162-15(c), Income Tax Regs.) denied a deduction for expenditures made to promote or defeat legislation. Such expenditures included amounts paid for the purpose of attempting “to influence members of a legislative body directly or indirectly by urging or encouraging the public to contact such members for the purpose of proposing, supporting, or opposing legislation.” T.D. 6435, 1960-1 C.B. 79. Congress felt that the regulations “brought to a head many administrative and enforcement problems and uncertainties which have plagued both the Government and taxpayers.” House Ways and Means Comm. Rept. to Sec. 3, H. Rept. 1447, 87th Cong., 2d Sess. (1962), 1962-3 C.B. 405, 421. Accordingly, Congress enacted section 162(e) in an attempt to rectify these perceived problems. The underlying policy reasons for section 162(e) were stated in the congressional committee reports as follows:
It appears anomalous, for example, that expenses incurred in appearing before legislative bodies or before legislators are not deductible while appearances before executive or administrative officials with respect to administrative matters or before the courts with respect to judicial matters, are deductible where the expenses otherwise qualify as trade or business expenses. Your committee believes that the present bar on deductions with respect to legislative matters must be modified to place presentations to the legislative branch of government on substantially the same footing in this regard as that which obtains in the other two coordinate branches of government.
It is also desirable that taxpayers who have information bearing on the impact of present laws, or proposed legislation, on their trades or businesses not be discouraged in making this information available to members of Congress or legislators at other levels of Government. The presentation of such information to the legislators is necessary to a proper evaluation on their part of the impact of present or proposed legislation. The deduction of such expenditures on the part of business also is necessary to arrive at a true reflection of their real income for tax purposes. In many cases making sure that legislators are aware of the proposed legislation may be essential to the very existence of a business. The deduction of legislative expenses for those who incur them for personal reasons is not proposed here, since personal expenses are not deductible with respect to administrative or judicial presentation and have no bearing in the determination of true taxable income of a business.
H. Rept. 1447, 87th Cong., 2d Sess. (1962), 1962-3 C.B. 405, 421; S. Rept. 1881, 87th Cong., 2d Sess. (1962), 1962-3 C.B. 707, 728-729.
In our opinion, section 162(e) was but a limited departure from prior law. Senator Kerr, designated Senate floor manager of the Revenue Act of 1962, in discussing section 3, H.R. 10650, in floor debate said:
Although not explicitly provided for in the statute, court decisions in the Cammarano and Strauss cases have interpreted long-existing Treasury regulations as denying a deduction for expenses incurred in making appearances, submitting materials, or communicating with respect to legislative matters.
The House version of the bill would modify these court interpretations of existing law, in order to permit deductions for expenses relating to appearances before presentation of statements to, or communications sent to a legislative body, committee, or individual legislator at any level of government if the expenses are otherwise ordinary and necessary business expenses * * * This provision does not permit the deduction of expenses incurred in attempts to influence the general public, or large groups of the public, through advertising or other campaigns, nor does it permit the deduction of expenses associated with political campaigns. [Senator Kerr, 108 Cong. Rec. 17754 (1962); emphasis added.]
In enacting section 162(e), Congress was aware that expenses incurred in connection with the passage or defeat of an initiative were not previously or presently deductible. Had Congress intended to make deductible such expenses, it could have expressly done so; it did not.
Petitioners argue that the general electorate acts as a “legislative body” with respect to initiatives;9 thus, because Southern Pacific had a direct interest in the outcome of the propositions which it supported or opposed, the requirements of section 162(e)(1) are met. We believe this argument is flawed.
We agree that Southern Pacific had a direct interest in the propositions it supported or opposed; however, we do not agree that the electorate is a “legislative body of a State” within the purview of section 162(e)(1)(A). Admittedly, the electorate can cause legislation to be adopted through the initiative process, but to hold that the electorate is a “legislative body” would be to strain the common meaning of the words. In our opinion, a “legislative body of a State,” for purposes of section 162(e)(1)(A), means a governmental legislative unit. However, assuming arguendo that the electorate is a “legislative body of a State,” section 162(e)(2)(B) nonetheless would deny a deduction for the expenses involved herein because such expenses would be incurred in connection with an attempt to influence a segment of the general public “with respect to legislative matters.”
Petitioners argue that the political processes (i.e., initiatives, constitutional amendments, or local propositions), the expenses for which they are claiming deductions, are not included in the proscribed processes set forth in section 162(e)(2)(B). They argue that if initiatives or constitutional amendments are legislative matters within the purview of section 162(e)(2)(B), “then there would be no reason to separately exclude referendums from this limitation because referendums involve questions posed by the electorate [to the legislature].” We believe the initiative process constitutes a “legislative matter” for purposes of section 162(e)(2)(B). Further, we note that section 1.162-20(c)(2), Income Tax Regs., sets forth those expenses incurred after December 31, 1962, with respect to legislative matters which are deductible. Section 1.162-20(c)(l), Income Tax Regs., states that “All other expenditures for lobbying purposes, for the promotion or defeat of legislation (see paragraph (b)(2) of this section) * * * are not deductible.” Paragraph (b)(2) of section 1.162-20, Income Tax Regs., specifically disallows a deduction for an expenditure which attempts to “Influence the public to approve or reject a measure in a referendum, initiative, vote or a constitutional amendment, or similar procedure.” Thus, the Treasury regulations expressly disallow deductions for expenses incurred in attempting to influence the public with respect to initiatives.
2. Overpass Issue
During the years in issue, Southern Pacific spent approximately $4.9 million in connection with the construction of 47 public highway overpasses above its railroad tracks and roadbeds.10 Most of these overpasses were located in California11 and were constructed to replace existing crossings-at-grade and overpasses.
The expenditures incurred by Southern Pacific with respect to the California overpasses were made as a result of orders issued by the California Public Utilities Commission.12 In accordance with applicable California law, Southern Pacific paid 10 percent of the overpass construction costs (plus capitalized savings on maintenance). The amounts contributed by Southern Pacific for the overpass projects were recorded in Interstate Commerce Commission (ICC) capital account number 39 (Public Improvements; Construction).13
For each overpass project, Southern Pacific conveyed (by deed or indenture) to the governmental body concerned an easement to “construct, reconstruct, maintain, and use” the overpass as a public highway above its right of way so long as the overpass was used as a public highway. In the event the governmental body abandoned the use of the property as a highway, the rights granted by Southern Pacific to the governmental body ceased, and Southern Pacific had the right to resume exclusive possession of the property.
Each overpass was designed and built to accommodate Southern Pacific’s specific needs. Southern Pacific and the governmental bodies both exercised varying degrees of control over the construction of the overpass structures. In a few cases, Southern Pacific exercised complete control over the construction of the overpasses. In such cases, it sought bidders, let the contract, approved all bills, and supervised the construction process. However, in most cases, Southern Pacific exercised little control over the construction, but, in every instance it made a final inspection of the contractor’s work. After the overpass structures were constructed, the structures generally were maintained by the governmental body, rather than by Southern Pacific.
By letter dated January 16, 1945 (the terms letter), effective January 1, 1943, respondent granted Southern Pacific permission to change from retirement to depreciation accounting with respect to its road property, including overpass structures recorded in ICC capital account number 39. For the years here in issue, respondent allowed petitioners to take a depreciation deduction with respect to each of the 47 overpass structures.
The overpass structures are tangible property which have a limited useful life due to normal deterioration and obsolescence. The useful life of the overpass structures is in excess of 4 years.
Petitioners claimed an investment tax credit of $342,299 with respect to their investment in the 47 overpass structures which for the most part respondent disallowed. Respondent concedes that Southern Pacific is entitled to an investment tax credit with respect to certain expenditures in connection with the underpass projects and crossings-at-grade, but he contends that the overpass structures do not qualify for such a credit. He also concedes that Southern Pacific is entitled to an investment tax credit with respect to certain grading costs incurred in connection with the construction of the overpasses.
Section 38 permits a tax credit (in an amount based on the taxpayer’s qualified investment in the property, as determined under section 46) for investments in certain property known as “section 38 property.” Section 38 property is defined in section 48(a)(1). The relevant portion of section 48(a)(1) provides:
the term “section 38 property” means— * * * tangible property * * * used as an integral part of * * * furnishing transportation, * * * Such term includes only property with respect to which depreciation (or amortization in lieu of depreciation) is allowable and having a useful life (determined as of the time such property is placed in service) of 4 years or more.
Respondent contends that the overpass projects do not qualify as section 38 property for three reasons. First, he argues that Southern Pacific did not acquire a depreciable interest in the overpasses. In this regard, respondent claims that the overpass structures were owned by the governmental bodies and that Southern Pacific’s interest in the overpasses was “intangible,”14 in the nature of a long-term benefit arising from the separation of the highway and railroad line. Second, respondent claims that Southern Pacific did not use the overpasses as an integral part of furnishing transportation. Finally, respondent argues that the overpasses were used by governmental units and therefore the restrictions of section 48(a)(5) bar Southern Pacific’s claim for the investment tax credit.15
Before addressing the arguments raised by respondent, we note our concern as to respondent’s logic in denying Southern Pacific an investment tax credit for expenditures incurred in the construction of an overpass and, at the same time, admitting that Southern Pacific is entitled to an investment tax credit for expenditures incurred in the construction of an underpass. Overpasses and underpasses serve identical functions: both are essential to the furnishing of rail transportation, and both enable Southern Pacific’s rail operations to be safer and more efficient by eliminating the risk of vehicle and train collisions. The only difference between the two is that vehicles travel on overpasses, whereas trains travel on underpasses. This, we believe, is an inconsequential difference insofar as the tax laws are concerned.
As previously stated, respondent argues that for purposes of the investment tax credit, Southern Pacific does not have a depreciable interest in the overpasses. Respondent makes this argument notwithstanding his admission that Southern Pacific is entitled to depreciate (pursuant to the terms letter) its $4.9 million investment in the overpasses. See Denver & Rio Grande Western Railroad Co., 32 T.C. 43 (1959), affd. 279 F.2d 368 (10th Cir. 1960). If Southern Pacific is entitled to a depreciation deduction for its $4.9 million investment in the overpasses, it would appear to follow that Southern Pacific has a depreciable interest in the overpasses for purposes of the investment tax credit.
The overpasses are tangible property which have a limited useful life due to deterioration and obsolescence. They were built on Southern Pacific’s property as a result of easements granted to the concerned governmental body. Southern Pacific invested $4.9 million in connection with the construction of the overpasses. Each overpass was designed and built to accommodate Southern Pacific’s specific needs. Although Southern Pacific was not involved in the construction of all the overpasses, in every instance it made a final inspection of the contractors’ work to insure that the completed structure met its specifications. Further, Southern Pacific retained the right of possession of the overpasses if and when they were no longer used as public highways. We therefore conclude that Southern Pacific had a depreciable interest in the overpass structures.
Respondent argues that the overpasses were owned by the concerned governmental bodies and that Southern Pacific did not have a present interest in the overpasses but rather enjoyed long-term benefits by reason of the separation of the highway from the railroad line. Respondent’s rationale for this argument is that the governmental bodies maintained the overpasses and therefore Southern Pacific did not have the burden of ownership. We do not agree.
Ownership and maintenance are not synonymous. See Estate of Thomas v. Commissioner, 84 T.C. 412 (1985). In our opinion, Southern Pacific was a co-owner of the overpasses. It possessed the same type of interest in the overpasses as it possessed in the underpasses and crossings-at-grade, and respondent allowed an investment tax credit for expenditures incurred in constructing these structures. Southern Pacific’s “burdens of ownership” of the overpasses was its $4.9 million expenditure and the possibility that it would have to incur additional costs to replace or expand the overpasses should the California Public Utilities Commission so order.
Further, section 48(a) does not restrict the definition of “section 38 property” to property owned by a taxpayer. In fact, an ownership requirement is nowhere to be found in sections 38, 46, or 48. Section 46 speaks of investment while section 48 refers to property with respect to which depreciation is allowable. Here, Southern Pacific had a $4.9 million investment in the overpass structures, and respondent conceded that depreciation is allowable with respect to Southern Pacific’s investment in the overpasses. Hence, both the investment requirement of section 46 and the depreciable interest requirement of section 48 are satisfied.
Respondent cites numerous cases, including Kauai Terminal, Ltd. v. Commissioner, 36 B.T.A. 893 (1937), and Algernon Blair, Inc. v. Commissioner, 29 T.C. 1205 (1958), in support of his position. All of the cases cited by respondent are distinquishable from the instant case because none of the cited cases involved the allowance of the investment tax credit. In Kauai, the issue presented was whether the taxpayer could expense its investment in constructing a breakwater. In Algernon Blair, the taxpayer (a general contractor) desired to depreciate sidewalks, curbs, and paved streets which it had constructed and turned over to the local government. In the instant situation, depreciation of the overpasses is not an issue; hence, we need not further discuss the cases cited by respondent.'
Respondent next argues that the overpasses were not used by Southern Pacific as an integral part of furnishing transportation. In support of his argument, respondent states that “the overpasses are built to carry motor vehicles, not trains, as the overpasses were part of the public road systems.” We find this argument to be flawed. Although the public actually travels on the overpasses, Southern Pacific uses the overpasses as an integral part of furnishing transportation because the overpasses, like underpasses, enable Southern Pacific to operate its trains in a safer and more efficient manner. The fact that the public, and not Southern Pacific, actually travels on the overpasses does not diminish the benefit of the overpasses to Southern Pacific. Thus, we hold that Southern Pacific uses the overpasses to furnish transportation within the purview of section 48(a)(1).
The final argument we must address is whether the restrictions of section 48(a)(5) bar Southern Pacific’s claim for an investment tax credit. Section 48(a)(5) excludes from the definition of section 38 property any property used by a State or political subdivision. Respondent posits that the overpasses provide public safety, which is an inherent duty of governmental bodies, and that such use can be considered use by a governmental body within the meaning of section 48(a)(5). In our opinion, governmental bodies are not using the overpasses within the meaning of section 48(a)(5). Rather, it is the motoring public and Southern Pacific which are using the overpasses.
In order to ascertain the proscribed “governmental use” under section 48(a)(5), we must remain cognizant of the intended function of the investment tax credit. The investment tax credit was enacted to stimulate investment in the modernization and expansion of certain business assets by reducing their net acquisition cost. H. Rept. 1447, 87th Cong., 2d Sess. (1962), 1962-3 C.B. 405. Because the demand of the Government for property typically is inelastic (that is, Government consumption is not significantly increased by a lower price), property used by the Government was excluded from entitlement to the investment tax credit. H. Rept. 1447, 87th Cong., 2d Sess. (1962), 1962-3 C.B. 405, 416.
Here, Southern Pacific’s decision to build the overpasses was a financial decision. It did not have to build the overpasses. When the Public Utilities Commission required a grade separation, Southern Pacific could have discontinued its train operations or it could have appealed the decision to build an overpass.16 Thus, in our opinion, the investment tax credit served to stimulate Southern Pacific’s decision to construct the overpasses by reducing the cost of construction; and by reducing its construction cost, Southern Pacific was able to modernize its railroad operations.
In conclusion, we find that petitioners are entitled to the investment tax credit with respect to Southern Pacific’s expenditures for overpasses.17
To reflect the foregoing, and the numerous concessions by both parties,
Decisions will be entered under Rule 155.
Reviewed by the Court.
Sterrett, Chabot, Nims, Eorner, Shields, Hamblen, Swift, Wright, Parr, Wells, and Whalen, JJ., agree with the majority opinion. Clapp, Gerber, and Ruwe, JJ., did not participate in the consideration of this opinion.