Lewis

This action to recover income taxes paid, involves the question as to when a lessor derives income in the case where the lessee places improvements on the leased land and the lease is terminated for default of the lessee.

Appellee, a California corporation, hereafter called the lessor, was the owner of a parcel of real property in San Francisco on March 18, 1909, and on that date executed a lease covering such property to Terminal Investment Company, a corporation, hereafter called the lessee, for a term of fifty years from February 1, 1909, at a stipulated rental. By the terms of the lease, the lessor might terminate the lease upon default in the payment of the rental when due and if such default should continue for ten days. The lease obligated the lessee to “on or before ninety (90) days next after July 1st, 1911, commence, and continue until completion, the construction of a suitable building or buildings, to cost at least One hundred and fifty thousand dollars ($150,000.00) exclusive of foundations, upon said property”. The lease further provides that in “the event of the termination of this lease from any cause before the expiration of the term thereof * * * said * * *…