now to decide. If the burden of taxation under the Revenue Act of 1913, as interpreted by the highest court, should be considered to bear more heavily upon the deferred dividend policy holders than the annual dividend policy holders, that is an argument which may properly be addressed to the legislative branch.

[2] 2. Plaintiff further contends that $283.10 of the tax in question was erroneously assessed, because the Commissioner of Internal Revenue refused to permit the plaintiff to deduct from its gross income commissions in the amount of $28,309.97 advanced to agents prior to 1906 (in which year the making of further advances was prohibited by the state of New York), and repaid or recovered in the year 1913. It appears from the stipulation that these advances had, subsequent to 1906 and prior to January, 1913, been charged off by the company as losses. Inasmuch as, under the uncontradicted testimony, it appears that these debts had been written off prior to the enactment of the Act of August 5, 1909, c. 6, § 38, 36 Stat. 112, imposing a special excise tax upon corporations, including insurance companies, and that no benefit in respect of any deductions for losses on account of these debts had been retained under any federal tax law, the plaintiff should not be obliged to treat the amount of the repayment of these doubtful loans as income, merely because it had prudently omitted some of its questionable assets from its balance sheet. Though a taxpayer cannot, while retaining the benefits accruing from the deduction of its bad debts in previous years, disclaim the burdens resulting from the inclusion of the samewhat unexpected repayment of these bad debts in subsequent years, yet if, as in this case, no such benefits have accrued, such repayments are properly to be treated as capital gains, and not income.

[3] 3. It is a further contention of plaintiff that the Commissioner of Internal Revenue erroneously refused to permit the plaintiff to deduct from its gross income the sum of $332,466.22, representing the amortization of the securities purchased by the plaintiff at a premium. The amortization was based on the actual purchase price, and mathematically computed in and from the books of the plaintiff; it was not a revaluation of the securities to conform to market prices. Such amortization was not allowed as a deduction, under the act of 1909, by the Circuit Court of Appeals for the Seventh Circuit, in Fink & Northwestern Mutual Life Insurance Co.,

267 F. 968, on the ground that no loss had been actually ascertained, and that such amortization could not be regarded as depreciation, which, within the meaning of that act, had reference only to the wear and tear and obsolescence of property, and did not even cover the depletion of mining property. Von Baumbach v. Sargent Land Co., 242 U. S. 524, 37 S. Ct. 201, 61 L. Ed. 460.

The government contends that the language of the act of 1913 on depreciation is even narrower than that of the act of 1909, except where express qualifications have been made, as in the case of mines. In New York Life Insurance Co. v. Anderson, 263 F. 527, the Circuit Court of Appeals for this Circuit permitted the insurance company to revalue its securities in accordance with the prevailing market prices, and to deduct the loss as depreciation under the act of 1909. The government's position is that the latter decision is not in accord with the views expressed by the Supreme Court, and, whether right or wrong under the act of 1909, which permitted "a reasonable allowance for depreciation of property," would not hold under the act of 1913, which permitted such allowance only "for depreciation by use, wear and tear of property." It has already been pointed out, however, that the amortization in question is not a revaluation to reflect market changes. It is a computation to distinguish the payment back of a portion of a capital investment from the interest or yield. It need not be assimilated to depreciation at all.

[4] In computing the return or income from bonds purchased at a premium, as a matter of economics an allowance must be made from the nominal interest paid to permit the amortization of the premium of maturity. In fact, a trustee for a life tenant and a remainderman is obligated, if he purchases bonds at a premium, to reserve from the income accruing to the life tenant sufficient sums to amortize the premiums paid so that the capital may be kept intact. In re Stevens, 187 N. Y. 471, 80 N. E. 358, 12 L. R. A. (N. S.) 814, 10 Ann. Cas. 511; McLouth v. Hunt, 154 N. Y. 179, 48 N. E. 548, 39 L. R. A. 230. If, in accordance with sound business and accounting methods, the plaintiff has consistently distinguished between the yield of its investments and the amortization of its capital, I think that the Commissioner of Internal Revenue erroneously treated the amounts amortized as income.

valuation of a street tramway system for ratemaking purposes.

3. Evidence 584(1)-Nonexpert testimony of one not qualified as expert witness rejected, where inseparably affected by opinions of witness.

Where a so-called expert on public utility matters was not qualified as an expert on valuation of street railways, his nonexpert testimony as to facts shown by tramway company's books should be rejected, where so modified, enlarged, or restricted by his personal opinion as to be inseparable from his opinion testimony. 4. Carriers ~12(5)-Reproduction cost new, less depreciation, is dominant factor in valuation for rate-making purposes.

In inquiry as to valuation of street railway system for the purpose of rate-making, ordinarily reproduction cost new, less depreciation, is the dominant factor, and of necessity must be the rule, where there are no other sufficient data on the subject.

5. Evidence 571 (7)-Opinions of eminently qualified experts not to be lightly weighed.

In the valuation of street railway property for the purpose of rate-making, opinions of experts who have given the subject long study and reflection, and whose continuous practical experience for many years have informed them on every phase of the inquiry, ought not to be lightly weighed though they need not be literally followed.

6. Carriers 12(7)—In valuation proceedings accrued depreciation is fact to be ascertained by inspection.

In valuation of street railway for rate-making purposes, accrued depreciation is a fact to be determined by inspection.

7. Evidence 571 (7)-Evidence held to require allowance of going concern value in rate-making proceedings.

In proceedings for valuation of street railway by receiver for rate-making purposes, expert evidence on the question of value as going concern held to require allowance of lowest amount testified to; the municipality opposing increase in rates having offered no testimony on the question.

8. Carriers 12(5)-Easements in streets of street railway held property of value.

Easements in streets, whatever their dura

tion or terms may be, are property of value, indispensable to other property rights of street railway company, whether or not such value can be considered in fixing the base on which

rates are to be established.

9. Carriers 12(1)-Constitutional law

319-City has police power to regulate fares and service of street railway, but cannot fix confiscatory rates.

City possesses at all times police power to regulate fares to be charged and character of services to be rendered by a street railway, so long as such regulations provide a fair return on capital investment and its preservation unimpaired; but to allow a public utility less is confiscation, in violation of constitutional guaranties.

10. Street railroads 28 (2)-Ordinances held to grant easements in perpetuity.

Ordinances granting easements and rights of way to street railway company, its successors and assigns, held to have granted such easements in perpetuity.

II. Constitutional law 205 (7) — Perpetual easements to street railway held not violative of Constitution.

Const. Colo. art. 2, § 11, prohibiting any irrevocable grant of special privileges, franchises, or immunities, held not applicable to the grant of perpetual easements in streets to street railway company; such easements being in furtherance of public right in the use of public highways.

12. Street railroads 28 (2)-Perpetual easements grant not cut down by subsequent ordinances expressly reserving rights of both city and railway under prior ordinances.

Perpetual easements in streets granted to street railway company were not surrendered or cut down to a lesser term by the passage of subsequent ordinances, limited as to term of grant, and their acceptance by the company, which were applicable only to extensions on specified streets, and which expressly reserved all rights of both city and street railway company under the earlier ordinances.

13. Carriers 12(5)-Value of street easements not included in rate-making base.

Value of perpetual easements of street railway company in city streets cannot be included in valuation of company's property for rate-making purposes.

14. Street railroads 58-Receiver not permitted to renounce ordinance creating binding obligation.

In proceedings by receiver of street railway company for permission to increase rates and to enjoin city from enforcing inadequate rates, receiver held not permitted to renounce ordinance, which required, as one of the considerations for its passage and acceptance, that the company pay to the city specified sum of money in monthly installments, which had theretofore been mutually performed, and had been construed as binding obligation on the railway to make all installment payments.

LEWIS, Circuit Judge. This proceeding is on exceptions to the master's report. The reference came about in this way: The Denver Tramway Company was organized in March, 1914, became the owner of and has since operated a street-car system, largely within but in small part without the City of Denver. In acquiring the property it succeeded to the rights of predecessor companies. In December, 1920, this court on a creditor's bill appointed a receiver of all of its properties with power to continue operation. It had defaulted in payment of interest on a part of its mortgaged debt and in payment of taxes. It was indebted to unsecured creditors who were pressing for payment. This condition was brought about in large part by an increased wage scale which it had been compelled to pay for several years theretofore, increase in the cost of supplies necessary to operation, and because of a strike of its employés for higher wages during the summer of 1920. The strike was accompanied by mob violence, property of the company of large value was burned up and otherwise destroyed, and some of the new employés engaged to operate the cars, as well as some of those who participated in attacks upon them, were killed. Order was not restored and the street-car system again put in full operation until Government soldiers had been stationed in the City for several weeks as a means of protection. The company's credit was exhausted. The rate of fare which it was permitted to charge under a regulatory ordinance of 1919 was 6 cents for adults and half that amount for children. The City refused to increase the fares and the receivership followed.

In February, 1921, the receiver filed his petition in the creditor's suit alleging the facts that have been stated, that the wage scale of its employés had been increased approximately 100 per cent, over what it was prior to 1916, that conditions were such that they could not be decreased, that the Tramway Company had appealed to the City, its mayor and council to permit it to charge a 7-cent fare, which was refused, that the 6-cent fare which the City by ordinance permitted the company to charge, but not exceed, was confiscatory, and the receiver prayed that the City be enjoined from enforcing the 6-cent fare ordinance, that he be permitted to increase the fares to be charged

The City intervened and filed its answer to the receiver's petition. As a first defense it moved that the receiver's petition be dismissed, because the petition did not contain facts sufficient to constitute a cause of action in equity or at law, and because the court was without jurisdiction to grant the relief prayed. In its answer it also denied that the 6-cent fare was confiscatory, admitted that the City had refused to permit. the company to charge more than six cents and alleged that Ordinances No. 3, Series of 1885, and No. 36 of 1888, granted to the predecessors and assignors of the Tramway Company, contractually fixed the fare at five cents, that the 6-cent ordinances later passed by the City Council were for temporary purposes and did not change the contractual obligations under the prior ordinances to charge not more than a 5-cent fare, and to which obligations the Tramway Company as assignee was contractually bound. The answer also set up the Ordinance of May 15, 1906, as restricting the company to charge not more than 5 cents for single passage to adults and half that amount for children. The contentions of the City concerning the Ordinances of 1885, 1888, and May, 1906, were resisted by the receiver. After hearing on the issue joined between the receiver and the City the court entered an interlocutory decree enjoining the City from enforcing or attempting to enforce a maximum fare of 6 cents for adults and 3 cents for children, and authorized the receiver to charge and collect fares not in excess of 8 cents for adults and 4 cents for children between the ages of 6 and 12 years, and to issue two tickets or tokens for adults for not more than 15 cents and four tickets or tokens for children for not more than 15 cents, after giving not less than 48 hours' notice of such change, and to cause to be issued to all passengers a receipt showing payments for fares in amounts in excess of 6 cents for adults and 3 for children, upon request of the passenger, and to keep record thereof. From this order the City appealed to the Circuit Court of Appeals, and that court affirmed the interlocutory decree of this court, as will be seen by its opinion in 277 F. 865.

Thereupon, for the purpose of final hearing and decree, the court appointed a special master to take and report the testimony, his findings of fact and such conclusions of law as he might deem essential to the proper advisement of the court. The master

into the system since that time. The property that was taken over by the Denver Tramway Company from its immediate predecessor on its organization in 1914 had been projected and built up by many competing companies covering many years, as shown by the master's report. There had been horse-car lines, dummy-engine lines, cable lines, experimental electric lines that had come and failed and were taken over by some other company; and thus through a period of more than 30 years as the City grew in population the interests of the different companies did not become consolidat

The system has about 200 miles of track within the City, street railway cars, an electrical power plant, electrical distribution system, shops and shop equipment, substations and substation equipment, lands and right of way, buildings and other needed property and structures in the operation of such plant. It has about 1,500 employés and owns and operates the only street-car lines within the city. It owns and operates two suburban lines of about 25 miles each, but they are not considered here and were not valued. The master filed his report June 25, 1924, and on July 14 following the receiver filed exceptions and objections thereto, 37 in all, challenging principally the findings of fact as to valuations made by the master, because, as claimed, those valuations are too low, are not sustained by the proof and are contrary thereto; and especially do the exceptions challenge the ruling of the master in permitting Delos F. Wilcox to testify as an expert witness.

There was no detailed inventory of the property composing the system until 1918. In that year the Tramway Company employed Mr. Frank P. Woy, a thoroughly competent and experienced engineer, to make up for it a complete inventory of all its property. This he did with the assistance of a large force, devoting several months to the work, the result of his labors being 30odd volumes made up in permanent form; so that when the hearing came on before the master the Woy inventory was generally accepted as the true and correct inventory of the property making up the system, barring a few errors made by oversight, and subject to the exclusion of items that had passed out since the inventory was made, and the addition of new items that had been brought

pany's immediate predecessor brought that about some time around 1900. The record leaves the clear inference that the predecessor companies did not keep books in such way that from them investment costs of property in existence that had been acquired and installed prior to 1914 could be ascertained; and that continued under the present company until about 1916, when what is called the Work Order System was inaugurated. The Work Order Sytem as made up in the permanent files consists of loose leaves, one for each job, which shows cost of material and labor, and all incidentals of installation except overheads. The books of account did show property purchased and its cost but not the expense of installing it. That appears to have been covered by general account and not separable to different installations. On this subject the master says: "It is impossible to determine the actual investment cost of the property with any semblance of accuracy; and the witnesses found this situation to exist."

In 1918 the State Utilities Commission undertook to make a valuation of the property for rate purposes, and the Woy inventory was made for the hearing before that Commission. The Commission made a valuation and ordered an increase of the fares to seven cents, but the Supreme Court of the State held that the Commission had no jurisdiction over the subject. Woy's inventory classified the property in accordance with the Interstate Commerce Commission's system of accounting, and he placed valuations on the different classes of property, which, including overheads, in the aggregate amounted, according to Woy, to more than $30,000,000 valuation as of January 1, 1918. This he submitted to the Commission; and at the Commission's request he also submitted a valuation of $22,600,000 plus, based on average prices for a series of years prior to 1918. The Commission's engineers made