Kanne

Taxpayer, Alexander & Baldwin, Limited, appeals from a judgment refusing a $50,000 deduction' from its income for the tax year 1932.

In 1931 the Henry Waterhouse Trust Company, Limited, a Hawaiian corporation, although conducting business as usual, was encountering great financial difficulties in that year of world depression. The Bishop Trust Company, Limited, agreed to take over the Waterhouse Company’s business and liquidate all its obligations, provided, inter alia, that $400,000 be contributed by persons and firms in Hawaii who would be benefited by preventing the business collapse likely to ensue with the failure of the Waterhouse Company.

The $400,000 was paid to the Water-house Company, for which the payors received instruments called notes, agreeing to pay the amount each contributed with interest at 4% “only when, if and to the extent that,” after all the indebtednesses and liquidation costs of Waterhouse Company had been paid, there remained an excess of assets. The taxpayer paid $50,000 to the Waterhouse Company and received such an instrument.

The district court erroneously held that the payment of $50,000 to the Water-house Company in 1932 was “just a…