Amfac, Inc. v. Commissioner of Internal Revenue

The sole question in this case is whether certain expenditures made by Puna Sugar Co., Ltd. (Puna), a subsidiary of the petitioner, Amfac, Inc., are deductible under Section 175(a) of the Internal Revenue Code ( 26 U.S.C. § 175 (a)). The Tax Court held an evidentiary hearing, made findings of fact, and concluded that the expenses were not deductible. We affirm.

The record shows that Puna has been growing sugar cane on the Island of Hawaii since about 1900. In 1967 it made improvements in its sugar mill which substantially increased its capacity. In 1968, to use that added refining capacity, Puna adopted a plan to increase its sugar cane production by bringing additional land into cultivation. The land involved was all owned or leased by Puna. To prepare for cultivation, the land was cleared; high, rocky spots were knocked down; topsoil was removed from the low spots and stockpiled; the low spots were filled with both the debris from the clearings and the excess material from the high spots; and the whole was then covered with topsoil, leveled, and shaped. The drainage was improved by ripping, drilling, and blasting in non-water-permeable rock. As to the three fields in…