The Commissioner of Internal Revenue, in his deficiency notice, determined deficiencies in petitioner's income and excess profits taxes for the taxable years ended December 31, 1944, and 1945, in the following amounts: Year Income tax Excess profits tax 1944 ..................... $1,357.10 $8,597.97 1945 ...................... 1,357.10 5,075.77 In the same notice he made a partial disallowance of petitioner's claims for refund under section 722, Internal Revenue Code, for the years 1942 to 1945, inclusive. Certain issues relating to the income and excess profits taxes have been settled by the pleadings and stipulation, leaving only the 722 relief issue for determination.
FINDINGS OF FACT.
The following facts are substantially those found by the hearing Commissioner which for the most part were stipulated with the addition of certain other dispositive findings:
1. The petitioner is a corporation organized under the laws of the State of California on July 1, 1931 (after operating for more than 30 years as a single proprietorship), having its office and principal place of business at 111 W. Colorado Street, Pasadena 1, California.
2. Petitioner is entitled to use the excess profits credit based on income pursuant to section 713 of the Internal Revenue Code, as amended.
3. Petitioner timely filed with the respondent applications for relief under section 722 on Form 991 for the calendar years 1942 to 1945, inclusive, and for carry-over of unused excess profits credits under section 710 and 722 from the years 1940, 1941, and 1942 to the years 1942, 1943, and 1944, respectively. In these applications petitioner claimed a "constructive average base period net income" under section 722 (b) (1) and (b) (4), Internal Revenue Code, for each of the years of $39,584.71.
10 postwar refund on additional tax for 1943 of $8,135.99, assessed in 1947.
4. The respondent has allowed in part and disallowed in part petitioner's claims for relief under the foregoing paragraphs of section 722 and pursuant to section 732, Internal Revenue Code. Respondent has determined the constructive average base period income to be $13,551 for each of the years 1942 to 1945, inclusive; $11,261 for the year 1940; and $13,551 for the year 1941 for the purpose of carry-over of unused credit to the year 1942.
5. The petitioner and the respondent executed waiver agreements pursuant to section 276 (b), Internal Revenue Code, for the years, upon the dates, and fixing the time for assessment, as follows: Year Date of execution Date of expiration 1943 ................ February 18, 1947 June 30, 1948 1944 ................ January 27, 1948 June 30, 1949 1945 ................ January 3, 1949 June 30, 1950
6. The petitioner made payments of excess profits taxes and filed claims for refund thereof pursuant to sections 722 and 322, Internal Revenue Code, as follow:
Date claim Year Date of payment filed 1942 ............ Mar. 15, 1943 $2,786.27 Mar. 15, 1943 June 15, 1943 2,786.26 Mar. 5, 1945 Sept. 15, 1943 2,786.26 Dec. 15, 1943 2,786.27 --------- Total ... 11,145.06 1943 ............ Mar. 15, 1944 13,500.00 Mar. 19, 1946 June 15, 1944 12,850.45 Feb. 21, 1947 Sept. 14, 1944 12,671.48 July 26, 1949 Dec. 15, 1944 11,342.07 Dec. 12, 1947 813.60fn1 Jan. 12, 1948 1,285.87 Sept. 30, 1948 6,036.52 ----------- Total .... 58,499.99[fn 2] 1944 ............ Mar. 13, 1945 7,856.30 Mar. 13, 1945 June 15, 1945 7,853.60 June 20, 1949 Sept. 11, 1945 6,277.88 Oct. 29, 1945 3,151.44[fn 3] Dec. 14, 1945 6,377.90 Oct. 7, 1948 2,797.49 ----------- Total .... 34,311.91 1945 .......... Mar. 15, 1946 6,107.68 Mar. 19, 1946 June 17, 1946 6,107.68 June 20, 1949 Sept. 16, 1946 6,107.68 Dec. 13, 1946 6,107.58 --------- Total ..... $24,430.62 7. As of January 1, 1935, the petitioner's business was entirely in the retail field and included goods manufactured by petitioner and others. At that time the petitioner was manufacturing awnings, truck covers, and other canvas products as well as upholstering and making couch swings. The retailing of others' products consisted of garden and beach umbrellas, metal umbrella tables, venetian blinds, and metal and wood summer outdoor furniture (started in 1934). Early in 1935 the petitioner added window shades and garden furniture to its retailing line. Its accounting records to this point broke down sales into two sections — one division for awnings and the balance was called "other sales." In October 1935 the petitioner added a line of linoleum to its retailing business and has always kept the sales in that department as a separate unit. During 1936 the petitioner added the rental of equipment for parties and camping, and installed a paint shop at 51 Dayton Street (new addition) for the painting of customers' garden furniture and the refinishing of venetian blinds. In November 1937 there was added the manufacture of cushions for the trade (other merchants). Cushions had previously been made to retail customers' orders only. The retailing line was again added to late in 1938 (September or October) by the inclusion of summer and garden outdoor furniture and in the spring of 1939 by the further addition of indoor summer type furniture. The petitioner threw all this additional business in its classification "other sales," excepting the awning and linoleum lines.
8. During 1938 petitioner became interested in the manufacture and sale of rattan products and found a company, namely, the Rattan Products Company, which had ceased its business functions. In August of 1938 the petitioner acquired all of the assets of the aforementioned Rattan Company which had previously imported rattan furniture frames from the Philippines, cushioned and sold same. No good will or customers were acquired. The petitioner upon acquisition of these inventories also temporarily took over the warehouse occupied by the former Rattan Products Company and proceeded to finish and sell some of the inventory so acquired. During 1939 petitioner developed additional types of rattan furniture and refined certain types for sale as indoor furniture. It also added to its operation the manufacture of wooden outdoor furniture, using principally Douglas fir. This furniture manufacturing division was called Tropical Sun Company.
9. During and immediately prior to the base period the petitioner occupied premises, all located in Pasadena, California, at the times and with the areas and purposes as follows: Date Address Jan. 1, 1935 ........... 117 W. Colorado Street. 1935 ........... 111 W. Colorado Street. Plus balcony 1936 ................... 117 W. Colorado Street 1936 ................... 51 Dayton Street 1938 ................... 109 W. Colorado Street 1939 ................... 150 S. Raymond Street Date Square feet Purpose Jan. 1, 1935 ........... 1,250 Retailing Vacated in 1935. 1935 ........... 5,500 Retailing. 1,250 Retailing. 1936 ........... 1,250 Retailing (re-occupied). 1936 ........... 7,200 Painting, renovation and storage. 1938 ........... 2,500 Retailing. 1939 ........... 25,000 Furniture manufacturing and canvas sewing. 10. During 1938 and later years the taxpayer rented space in the Los Angeles and San Francisco furniture marts for the purpose of promoting sales of rattan furniture.
11. During the base period the taxpayer made the following additions to shop equipment and delivery equipment, respectively: Shop Delivery Year equipment equipment 1936 ......................... $82.64 $3,317.90 1937 ......................... 330.43 1,728.10 1938 ......................... 241.96 971.33 1939 ......................... 424.77 2,937.81 12. During the early part of 1939 most of the petitioner's rattan furniture was manufactured for it by an outside contractor. During the latter part of 1939 this contracting practice was continued for a portion of such furniture and a portion thereof was manufactured at 150 S. Raymond Street, and assembled at 51 Dayton Street.
13. A fire occurred on petitioner's premises, known as 51 Dayton Street, Pasadena, California, on or about April 9, 1939. Such premises had been used for storing petitioner's and customers' goods as well as a paint shop for refinishing garden furniture and renovating venetian blinds, and as a garage for petitioner's delivery equipment. The direct monetary loss from this fire is shown by the petitioner's records for 1939 as follows:
Loss of, and repairs to, delivery trucks ........... $1,367.13 Steam cleaning and painting ........................ 87.10 Destruction of petitioner's merchandise ............ 9,137.24 Settlement to customers, damage to their goods in storage or being renovated ....................... 5,685.13 --------- Total .......................................... 16,276.60 =========
Insurance received on trucks ....................... 1,328.83 Insurance received on merchandise and supplies ..... 13,000.00 Salvage sales ...................................... 486.18 --------- Total recovery ................................. 14,815.01 =========
Net direct monetary loss from fire ................. 1,461.59
14. The actual sales of the petitioner, broken down departmentally, during the base period years, were as follows: Linoleum Awnings Other 1936 Jan .......... $686.56 $1,191.46 $2,633.20 Feb .......... 795.67 1,331.80 2,455.24 Mar .......... 2,744.34 1,871.75 3,209.89 Apr .......... 2,625.48 3,687.15 4,489.46 May .......... 3,141.95 4,083.45 4,640.27 June ......... 2,086.74 4,207.59 5,164.14 July ......... 2,218.02 2,960.52 4,170.44 Aug .......... 2,211.96 2,198.86 5,142.25 Sept ......... 4,258.12 2,814.59 3,557.99 Oct .......... 3,248.42 2,453.40 5,552.68 Nov .......... 2,674.82 2,689.21 4,086.14 Dec .......... 5,409.14 3,411.04 6,399.08 ----------- ----------- ---------- Total .... 32,101.22 32,900.82 51,500.78 ============= =========== ========== 1937 Jan .......... 2,158.62 1,475.75 4,276.97 Feb .......... 3,078.32 1,484.64 2,743.98 Mar .......... 3,301.00 3,803.38 3,766.21 Apr .......... 3,364.38 4,372.21 5,452.24 May .......... 3,051.06 4,476.65 11,236.11 June ......... 4,840.42 6,439.59 7,862.56 July ......... 3,308.33 3,291.64 6,770.10 Aug .......... 6,447.39 4,149.47 5,967.58 Sept ......... 5,710.92 3,445.48 5,206.66 Oct .......... 5,241.83 4,878.99 4,699.22 Nov .......... 4,748.77 3,386.70 5,085.72 Dec .......... 4,787.20 2,608.03 5,311.91 Total .... 50,038.24 43,812.53 68,379.26 ----------- ----------- ---------- Tropical Total Subtotal Sun all sales 1936 Jan .......... $4,511.22 $4,511.22 Feb .......... 4,582.71 4,582.71 Mar .......... 7,825.98 7,825.98 Apr .......... 10,802.09 10,802.09 May .......... 11,865.67 11,865.67 June ......... 11,458.47 11,458.47 July ......... 9,348.98 9,348.98 Aug .......... 9,553.07 9,553.07 Sept ......... 10,630.70 10,630.70 Oct .......... 11,254.50 11,254.50 Nov .......... 9,450.17 9,450.17 Dec .......... 15,219.26 15,219.26 ----------- ---------- ------------- Total ..... 116,502.82 116,502.82 =========== ========== ============= 1937 Jan .......... 7,911.34 7,911.34 Feb .......... 7,306.94 7,306.94 Mar .......... 10,870.59 10,870.59 Apr .......... 13,188.83 13,188.83 May .......... 18,763.82 18,763.82 June ......... 19,142.57 19,142.57 July ......... 13,370.07 13,370.07 Aug .......... 16,564.44 16,564.44 Sept ......... 14,363.06 14,363.06 Oct .......... 14,820.04 14,820.04 Nov .......... 13,221.19 13,221.19 Dec .......... 12,707.14 12,707.14 ----------- --------- -------------- Total .... 162,230.03 162,230.03 =========== ========= ============== Linoleum Awnings Other 1938 Jan ......... $3,527.71 $1,857.09 $5,028.50 Feb ......... 3,198.87 2,995.70 3,177.75 Mar ......... 1,999.17 3,308.19 5,505.47 Apr ......... 3,175.25 4,475.57 7,010.30 May ......... 3,730.32 6,735.35 7,496.37 June ........ 3,917.40 4,856.78 8,873.30 July ........ 4,366.54 3,229.59 7,714.77 Aug ......... 5,558.40 2,725.93 6,683.18 Sept ........ 5,332.63 1,961.42 5,982.62 Oct ......... 5,516.29 6,072.01 4,663.71 Nov ......... 4,624.18 1,528.80 6,418.64 Dec ......... 3,699.89 2,651.23 6,712.62 ------------- ----------- ---------- Total .... 48,646.65 42,397.66 75,267.23 ============= =========== ========== 1939 Jan ......... 3,753.15 1,724.25 5,032.74 Feb ......... 2,615.63 2,046.68 3,172.55 Mar ......... 3,462.44 5,625.14 5,861.01 Apr ......... 2,566.96 5,790.98 7,417.92 May ......... 2,881.79 3,018.57 9,733.78 June ........ 3,002.01 3,672.18 10,080.67 July ........ 3,818.60 2,684.53 7,115.00 Aug ......... 3,307.02 1,739.84 5,981.41 Sept ........ 4,917.35 1,816.17 6,630.00 Oct ......... 4,032.39 4,291.19 5,214.57 Nov ......... 2,377.53 1,644.97 5,087.05 Dec ......... 4,374.25 2,057.70 6,972.24 Total .... 41,109.12 36,112.21 78,298.94 Tropical Total Subtotal Sun all sales 1938 Jan ......... $10,413.30 $10,413.30 Feb ......... 9,372.32 9,372.32 Mar ......... 10,812.83 10,812.83 Apr ......... 14,661.12 14,661.12 May ......... 17,962.04 17,962.04 June ........ 17,647.48 17,647.48 July ........ 15,310.90 15,310.90 Aug ......... 14,967.51 $5,474.88 20,442.39 Sept ........ 13,276.67 2,467.69 15,744.36 Oct ......... 16,252.01 1,976.43 18,228.44 Nov ......... 12,571.62 3,114.13 15,685.75 Dec ......... 13,063.74 5,596.72 18,660.46 ------------ ----------- ------------ Total .... 166,311.54 18,629.85 184,941.39 =========== =========== ============ 1939 Jan ......... 10,510.15 2,203.15 12,713.30 Feb ......... 7,834.86 9,272.82 17,107.68 Mar ......... 14,948.59 7,721.07 22,669.66 Apr ......... 15,775.86 8,439.86 24,215.72 May ......... 15,634.14 8,094.66 23,728.80 June ........ 16,754.86 7,433.90 24,188.76 July ........ 13,618.13 6,936.41 20,554.54 Aug ......... 11,028.27 7,077.56 18,105.83 Sept ........ 13,363.52 8,772.80 22,136.32 Oct ......... 13,538.15 6,700.99 20,239.14 Nov ......... 9,109.55 6,242.08 15,351.63 Dec ......... 13,404.19 3,454.88 16,859.07 Total .... 155,520.27 82,350.18 237,870.45 Summary total sales exclusive of Tropical Sun Department Less return Total net Total sales sales 1936 ........ $116,502.82 $1,550.52 $114,952.30 1937 ........ 162,230.03 1,459.51 160,770.52 1938 ........ 166,311.54 2,089.27 164,222.27 1939 ........ 155,520.27 1,673.62 153,846.65 15. The actual cost of goods sold, materials, and labor, of the petitioner for the base period years, follows:
1938 1939 1936 1937fn1 Depts. other Depts. other than Trop. Trop. Sun than Trop. Trop. Sun Sun Furn. Furn. Mfg. Sun Furn. Furn, Mfg. Mfg. Mfg. $81,038 $118,321 $122,364 $12,895 $112,463 $56,018 Totals for 1938 and 1939 ...... 135,259 168,481 16. The actual totals, operating, selling, and administrative expenses of the petitioner and its actual excess profits net income for the base period follow:
1936 1937 1938 1939 Operating, selling and administrative expenses ........ $31,915 $40,559 $43,964 $58,746 Excess profits net income ......... 1,970 1,891 3,629 8,970
17. The details of the actual operating, selling, and administrative expenses are:
1936 1937 1938 1939 Officers' salaries and bonuses ...... $13,265 $16,000 $16,598 $18,862 Salaries and wages .................. 1,693 2,860 2,747 10,717 Sales commissions ................... 5,582 6,261 5,562 6,340 Rent ................................ 900 1,300 2,156 3,671 Bad debts ........................... 2,504 1,529 158 1,022 Interest paid ....................... 272 225 217 763 Taxes ............................... 545 1,771 2,927 3,985 Depreciation ........................ 1,102 1,653 1,781 2,215 Delivery expense .................... 901 1,514 1,638 1,647 Car expense ......................... 694 756 2,209 1,249 Repairs and equipment upkeep ........ 144 329 648 715 Dues, subscriptions, contributions .. 248 219 255 225 Light and power ..................... 194 200 271 343 Discounts allowed ................... 222 Miscellaneous ....................... 4 283 283 191 Advertising ......................... 1,025 1,739 1,622 1,860 Licenses ............................ 79 104 111 167 Insurance ........................... 747 1,874 1,368 1,822 Office and store supplies ........... 478 501 1,316 690 Telephone and telegraph ............. 488 541 737 1,302 Storage ............................. 1,050 900 1,138 960 ------- ------- ------- ------- Total .......................... 31,915 40,559 43,964 58,746 18. The total operating, selling, and administrative expenses of petitioner for 1938 and 1939, as shown in paragraphs 16 and 17, were allocated in petitioner's books to Tropical Sun and the other departments as follows: 1938 Expenses Stipulated Fishbeck Tropical Officers' salaries and bonuses ... $16,598 $16,598.25 ---------- ------------ ---------- Salaries and wages ............... 2,747 $2,445.97 Indirect labor ................... 188.32 Bonuses — others .................. 97.75 15.00 ---------- ---------- --------- Commissions ...................... 5,562 5,114.62 446.87 Rent ............................. 2,156 1,500.00 655.64 Bad debts ........................ 158 157.80 Interest paid .................... 217 217.13 Taxes ............................ 2,927 2,786.31 140.31 Depreciation ..................... 1,781 1,732.02 49.02 ---------- ---------- --------- Delivery expenses and freight out ............................ 1,638 1,460.82 156.30 21.30 ---------- ---------- --------- Car and salesmen's expense ....... 2,209 1,202.28 1,007.02 ---------- ---------- --------- Repairs and equipment 648 615.97 30.92 upkeep 1.50 ---------- ---------- --------- Dues, subscriptions and 255 215.49 contributions .................. 40.00 ---------- ---------- --------- Light and power .................. 271 258.58 12.44 Discounts allowed ................ 222 222.21 Miscellaneous .................... 283 .50 73.84 77.86 130.62 ---------- ---------- --------- Advertising ...................... 1,622 1,561.68 59.83 Licenses ......................... 111 110.00 1.00 Insurance ........................ 1,368 1,305.46 62.64 ---------- ---------- --------- Office and store supplies ........ 1,316 508.81 330.34 150.89 23.24 303.29 ---------- ---------- --------- Telephone and telegraph .......... 737 562.01 174.58 Storage .......................... 1,138 1,138.00 ---------- ---------- --------- Total ...................... 43,964 37,732.67 6,231.76 1939 Expenses Stipulated Fishbeck Tropical Officers' salaries and bonuses ... $18,862 $18,862.00 ------------ ------------ --------- Salaries and wages ............... 10,717 $10,269.65 Indirect labor ................... 206.80 Bonuses — others .................. 211.65 28.50 ------------ ------------ ------------ Commissions ...................... 6,340 4,721.73 1,618.02 Rent ............................. 3,671 1,995.00 1,676.00 Bad debts ........................ 1,022 414.27 607.45 Interest paid .................... 763 760.00 2.57 Taxes ............................ 3,985 3,491.54 493.47 Depreciation ..................... 2,215 2,080.12 134.84 ------------ ------------ ------------ Delivery expenses and freight out ............................ 1,647 1,424.48 162.86 60.08 ------------ ------------ ------------ Car and salesmen's expense ....... 1,249 999.70 249.80 ------------ ------------ ------------ Repairs and equipment ............ 715 680.82 15.75 upkeep ......................... 18.51 ------------ ------------ ------------ Dues, subscriptions and contributions .................. 225 184.75 40.00 ----------- ------------ ------------ Light and power .................. 343 312.50 30.54 Discounts allowed ................ ----------- ------------ ------------ Miscellaneous .................... 191 266.28 (75.15) ----------- ------------ ------------- Advertising ...................... 1,860 1,190.29 669.70 Licenses ......................... 167 99.37 67.50 Insurance ........................ 1,822 1,589.35 232.43 ----------- ------------ ------------ Office and store supplies ........ 690 459.75 678.24 1.03 114.49 (562.98) ----------- ------------- ----------- Telephone and telegraph .......... 1,302 606.27 695.59 ----------- ------------- ----------- Storage .......................... 960 960.00 ----------- ------------ ------------ Total ...................... 58,746 41,013.23 17,732.33 ----------- ------------ ------------
19. In addition to the property losses referred to in paragraph 13 above, the fire at petitioner's plant in April 1939 adversely affected its business and resulted in the loss of some of its customers. It also caused a temporary increase in petitioner's expenses.
20. Petitioner obtained the rattan which is used in the manufacture of furniture from the Philippine Islands. In 1939 it experienced some difficulty in getting shipments of rattan delivered due to the wartime demands on shipping facilities and general business conditions in the Philippines.
21. The respondent computed petitioner's constructive average base period net income after adjusting actual sales, as shown in paragraph 14 above, with the California furniture index as follows: Computation of constructive average base period net income for the taxable years ended Dec. 31, 1941, 1942, 1943, 1944, and 1945 Base period years 1936 1937 1938 1939 Index ...................... 91.88 110.61 96.70 100.81 Sales, actual: Linoleum division ........ $32,101 $50,038 $48,647 $41,109 Awning division .......... 32,901 43,813 42,398 36,112 Other sales .............. 49,950 66,920 73,178 76,625 Tropical Sun division .... 18,630 82,350 --------- -------- --------- ---------- Totals ................ 114,952 160,771 182,853 236,196 Sales, constructive: ========= ========= ========= ========= Linoleum division ........ 41,565 50,038 43,745fn3 45,605fn3 Awning division .......... 36,392fn3 43,812fn1 38,301fn3 39,929fn3 Other sales .............. 63,650fn3 76,625fn2 66,989fn3 69,836fn3 Tropical Sun division .... 127,261 153,203fn5 133,938fn5 139,630fn5 Totals ................. 268,868 323,678fn4 282,973fn4 295,000fn4 Normal earnings, constructive: Tropical Sun division: Sales, constructive .... 127,261 153,203 133,938 139,630 Net earnings, constructive (8% of sales, constructive) ........ 10,181 12,256fn6 10,715fn6 11,170fn6 Net earnings, actual (loss) .............. (497) 7,234 -------- -------- -------- ------- Increase, constructive over actual earnings ........... 10,181 12,256 11,212 3,936 Fire loss, etc ......... 160 Actual earnings ........ 1,970 1,890 3,629 8,970 -------- -------- -------- ------- Normal earnings ........ 12,151 14,146 14,841 13,066 -------- -------- -------- ------- Constructive average base period net income .................................... $13,551 22. Petitioner's average base period net income is an inadequate standard of normal earnings because petitioner changed the character of its business during the base period, and its earnings had not reached the level at the end of the base period which they would have reached had the changes taken place two years before they did.
23. A fair and just amount representing petitioner's normal average base period net earnings is $25,000.
LEMIRE, Judge:
The question in issue here is whether petitioner is entitled under the relief provisions of section 722, particularly subsections (b) (1) and (b) (4), to a greater average base period net income, and consequently a greater excess profits credit, for the years 1942 to 1945, inclusive, than that allowed by the respondent on the applications for relief filed by the petitioner for those years.
Petitioner contends that it qualifies for relief under subsection (b) (1) by reason of the fire which occurred in its plant in 1939, and also under subsection (b) (4) by reason of the changes in the character of its business which occurred during the base period. The respondent has accepted petitioner's qualifications under (b) (4) by reason of the expansion of petitioner's retail business and the addition of its wholesale department, Tropical Sun, in the base period years, and has made a partial allowance of petitioner's claims under this subsection which petitioner deems inadequate. Whether petitioner also qualifies for relief under subsection (b) (1), it is not necessary to decide.
The real difference between the parties lies in the reconstruction of petitioner's normal base period income. The respondent's computation is shown in finding 21, above.
Nothing would be gained here by a prolonged discussion of the methods used and the various steps taken by the petitioner in its proposed reconstruction of sales and expenses and of respondent's objections to them. The proposed computations involved various business indices, mathematical formulae, and the testimony of expert witnesses. We have undertaken to evaluate the evidence, and the arguments, so as to apply the relief provisions of the statute as accurately and equitably as possible.
We are satisfied on the evidence that petitioner is entitled to a somewhat higher average base period net income than allowed by the respondent. On the other hand, we think that the petitioner has been over optimistic in its reconstruction of base period earnings. For instance, the evidence, in our opinion, fails to support petitioner's contention that the fire which occurred in its plant in April 1939 caused a loss of $150,000 in retail sales of that year.
Respondent's reconstructive Tropical Sun sales for 1939 of $139,630 are, we think, too low. This department was opened in August 1938. It was strictly a wholesale business, whereas petitioner's previous experience had all been in the retail field. Sales for the balance of the year 1938 amounted to $18,629.85 and for the entire year 1939 were $82,350.18. There was reason to believe that the business would continue to grow. We do not suggest that prospects as of December 31, 1939, for growth in years after 1939 may be taken into account. We mean only that if petitioner had had the advantage of two additional years' experience during the base period with its Tropical Sun department, it would have attained a higher level of earnings by the end of 1939.
We have concluded and found as a fact that $25,000 is a fair and just amount to represent the petitioner's normal average base period net earnings, after determining what the earnings at the end of the base period would have been had the changes taken place two years earlier than they did and after making proper allowance for fire loss and other unusual events shown by the evidence and for the growth of the new lines of business that were added in the latter part of 1938 and early in 1939.
Reviewed by the Special Division.
Decision will be entered under Rule 50.