(dissenting).

The outstanding and incontrovertible circumstance of this case is that the trial court misunderstood and misapplied the law which determines and defines the difference between “capital expenditures” and “ordinary and necessary expenses”. Neither the trial court’s conclusions nor this court’s opinion even mentions the applicable legal standards, established by a long line of decisions. There is not the slightest question of fact in this case. Exactly what happened, and what was done, is not in dispute between the parties. 1 The court’s key finding was its No. IX as follows:

This discloses a complete misapprehension of the true test as to what constitutes a capital expenditure. That test, as stated in the leading case of Parkersburg Iron & Steel Co. v. Burnet, 4 Cir., 48 F.2d 163, 165 , is not whether the expenditures in question increased the productivity or capacity of the plant; it is not whether it results in ultimate or any advantage to the taxpayer; nor is it whether it increases the value of the property. “The true test is rather the nature of the expenditure in and of itself.” This court said the same thing in Crocker First Nat. Bank of San Francisco v. Commissioner,. 9 Cir., 59 F.2d 37, 39 , by quoting from the Parkersburg opinion. 2

*881 Here the expenditures in question resulted in a permanent and practically everlasting addition to the plant facilities. They were precisely within the definition of capital expenditure in the applicable regulation, 3 which by reason of its existence through successive reenactments of the same statutory provisions, has the effect of law. Helvering v. Winmill, 305 U.S. 79, 83 , 59 S.Ct. 45 , 83 L.Ed. 52 .

Thus the court relied upon findings that were legally irrelevant and immaterial, for whether the microfilms in question did or did not “improve the original plant” or “increase the net or gross income” is wholly beside the point. What was done here was no different than if the taxpayer had acquired by purchase a complete file of its back issues which it found in some private library. The “nature of the expenditure” in either case is the only thing that counts.

The majority opinion fails to meet this legal question head-on, or at all. Instead it talks of “business practice in a locality in view of an emergency presented.” There is no evidence whatever of any “business practice” in this locality. Nor could there be. What constitutes a capital expenditure within the meaning of an act of Congress is necessarily the same whether the expenditure is by the New York Times or the Los Angeles Times, and no local business practice can change it. But building upon this untenable premise the opinion concludes that “the determination savors of the facts”, and then goes on to treat the decision as if it were one of fact, saying “The substantial evidence in the record sustains the findings. * * * Each is supported by substantial evidence. * * * We should not substitute our judgment on facts for that of the trial judge.” I think the court cannot thus rationalize its action in affirming what is no more than a failure of the trial court to recognize and apply the established law as to the true test here applicable.

. The opinion itself states: “There is no disagreement between the litigants as to the circumstances which are relevant to the determination.”

. In the Parkersburg case, although the expenditures made upon taxpayer’s plant were changes in its building, rather than as here, in respect to facilities in the natur'e of personal property, the changes were made to meet a wartime requirement of the Army for whom taxpayer was performing war contracts. The court said: 48 F.2d at page 165 . “The words ‘ordinary and necessary expenses,’ as used in section 234(a) (1) of the statute, and! also the words ‘permanent improvements or betterments made to increase the value of any property or estate,’ as used in section 215 (b), must be given their rational, practical meaning, according t»■ which the alterations were unquestionably ‘necessary,’ because compelled by the *881 exigencies of the war. However, they were not ‘ordinary,’ but in fact extraordinary for this very reason, and they resulted in ‘permanent improvements’ to tho property, when that phrase is interpreted in the sense that it must be assumed to be used in the statute; that is, alterations which, both by their very nature and use, are relatively permanent, although they may never in fact enhance the actual value of the property^ as an investment, as opposed to alterations of which both the nature and the use are relatively temporary.”

. Seetion 29.41-3(2) Treasury Regulations m. «(2) Expenditures made dur¡ng the year gllQuW be properiy classified ag between capital and expense; that is to sayj expenditures for items of plant, equipment, etc., which have a useful life extending substantially beyond the year should be charged to a capital account and not to an expense account; * *