Reporter's Statement of the Case itself in the amount of $6,991.21 on account of said deductions made from bills of the Director General as recited, and in a settlement subsequently had between the plaintiff and the Director General, the Director General received the benefit of said charge.

In a settlement had as of December 31, 1921, between the plaintiff and the Director General, relating to plaintiff's trustee account, it was found that there was due the Director General the sum of $41,910.42, which the plaintiff, on March 22, 1922, paid into said trustee account. Said sum so paid included said sum of $7,857.34.

XIV. On March 7, 1922, plaintiff and the Director General entered into a final settlement agreement in writing, pursuant to which the Director General paid the plaintiff a lump sum of $7,000,000-"in full satisfaction and discharge of all claims, rights, and demands of every kind and character, which the said company now has or hereafter may have or claim against the Director General, or anyone representing or claiming to represent the Director General, the United States, or the President, growing out of or connected with the possession, use, and operation of the company's property by the United States during the period of Federal control, or out of the contract between the parties dated the 14th day of March, 1919."

Such final settlement agreement also provided:

"The purpose and effect of this instrument is to evidence a complete and final settlement of all demands, of every kind and character as between the parties hereto, growing out of the Federal control of railroads, save and except that the following matters are not included in this adjustment and are not affected thereby:

66 EXCEPTIONS

"1. The obligation on the part of the company, as expressed in the standard form of contract between the Director General and the company, as to the conduct of litigation arising out of Federal control (except as to claims and suits of carriers against the Director General of the United States), as is stated in paragraph (f) of section 9 of said contract, is to continue and is not affected by this settlement. "2. This settlement does not include nor affect any moneys or assets of the Director General turned over to the 83151-26-cc-vol 61-2

Memorandum by the Court

company pursuant to General Order No. 68, the account created by this order to be adjusted as though this agreement had not been made.

"3. This settlement does not include the obligations of the Director General, assumed in paragraphs (i) and (j) of section 4 of said contract, to save the company harmless as to claims, if any, of third persons, or the obligations of the Director General in respect to the payment of taxes under section 6 of the contract.

"4. This settlement does not affect nor alter any obligation executed by the company for amounts loaned, advanced, or funded by the Director General, or amounts due by reason of any equipment trust agreements, all such obligations on the part of the company to remain in full force, the same as if this agreement had not been entered into."

The court decided that plaintiff was entitled to recover.

MEMORANDUM BY THE COURT

The right of the plaintiff to recover the first three items set out in the conclusion of law is not now contested. The fourth item, which is contested, involves the use of the Chicago-Cairo route as a proper basis for equalizing land grant.

On this point the record is unsatisfactory and leaves room for a possibility that the question may not in fact be correctly determined.

If the agreement of the Seaboard Air Line Railway as set out in Finding IV is controlling, equalization with the Chicago-Cairo route. was unauthorized because not a usually traveled route" between points of origin and destination.

66

The equalizing agreement participated in generally by the railroads, quoted from in Finding IV and found in full in the Manual of the Quartermaster Corps, volume 2, page 223, makes different provisions as to passenger and freight transportation and, as to the latter, does not contain the words "usually traveled route." It is for construction if uncertain in its application and, in the absence of a specific showing as to its applicability, a reasonable construction must prevail.

There is no showing that the deductions made on the basis of the Chicago-Cairo route were from a lawful rate

Reporter's Statement of the Case

filed with the Interstate Commerce Commission applying from point of origin to destination, and applicable as against either the L. & N. or the Seaboard. Recognition of this route for land-grant purposes by and its use as against another carrier is not necessarily of force.

The use of this route for equalization purposes in the absence of a showing does not appeal. It is excessive in its roundabout character and increased mileage. The defendant, upon this question and to sustain its contention, furnishes the testimony of a witness whose theory is that when a railroad company signs an equalization agreement, it agrees to equalize "with any kind of a route you can imagine or construct." Such a view can not be accepted. It is unreasonable.

It is not intended hereby to hold anything with reference to the use of the route in question as an equalizing route to the extent of establishing a controlling precedent. We determine only this case.

PITTSBURGH AND WEST VIRGINIA RAILWAY CO.; WEST SIDE BELT RAILROAD CO. (SUBSIDIARY) v. THE UNITED STATES1

[No. C-32]

On the Proofs

Income tax; war tax; Federal control of railways.-Where the income accrued from the operation of a railroad by the Railroad Administration during the period of Federal control is paid by the Director General of Railroads to the owner of said railroad, after the termination of Federal control, as part of just compensation for the use of said railroad by the United States, such income, having been earned during Federal control, is not subject to the normal tax of 2 per cent assessed under the provisions of section 1 of the act of March 21, 1918, 40 Stat. 451.

The Reporter's statement of the case:

Mr. Harvey D. Jacob for the plaintiff. Mr. Frank M. Swacker was on the brief.

Mr. A. A. McLaughlin, with whom was Mr. Assistant Attorney General Ira K. Wells, for the defendant. Mr. Dwight E. Rorer was on the brief.

1 Appealed.

Reporter's Statement of the Case

Decided May 4, 1925. Applications for appeal allowed November 16, 1925.

The following are the facts as found by the court:

I. Plaintiff is and, at all times hereinafter mentioned, was a corporation duly organized and existing under the laws of the States of Pennsylvania and West Virginia, and having its principal business office in the city of Pittsburgh, State of Pennsylvania, and engaged in the business of a common carrier by railroad. The Pittsburgh and West Virginia Railway Company owns all of the stock of the West Side Belt Railroad Company, a corporation duly organized and existing under the laws of the Commonwealth of Pennsylvania and engaged in the business of a common carrier by railroad. For the purposes of taxation the Pittsburgh and West Virginia Railway Company and the West Side Belt Railroad Company were required at times hereinafter mentioned by the Commissioner of Internal Revenue, pursuant to his authority under the revenue acts, to render a consolidated tax return and plaintiff to pay taxes based thereon.

II. From January 1, 1918, to February 29, 1920, inclusive, the plaintiff and its subsidiary, West Side Belt Railroad Company, were operated and controlled by the United States under the Federal control act of March 21, 1918, and the proclamation of the President of December 26, 1917. The plaintiff had, on, to wit, April 1, 1917, undergone a reorganization and was a carrier whose earnings for the three years preceding June 30, 1917, were not fully reflected in the operating railway income for the said three years, and could not accurately be determined therefrom, and under section one of the Federal control act it did negotiate with the United States in order to establish the amount of just compensation payable to it for operations under Federal control.

III. During the years 1918 and 1919 negotiations were had between plaintiff and the United States to determine the amount of just compensation to which plaintiff and its subsidiary, the West Side Belt Railroad Company, were entitled. In January, 1920, plaintiff was paid the sum of

Reporter's Statement of the Case

$250,000 on account by the United States as part of the just compensation for operation under Federal control. In 1920. and 1921 further negotiations were continued between plaintiff and defendant, and during the year 1921 the United States and the plaintiff agreed that the just compensation for plaintiff and its subsidiary for the whole period of Federal control should be $1,820,000. (The final settlement agreements between the Director General of Railroads and the Pittsburgh and West Virginia Railway Company and the West Side Belt Railroad Company are attached to the petition as Exhibits A and B, and are made a part hereof by reference. Said settlement agreements provide for payment to the Pittsburgh and West Virginia Railroad Company of the sum of $720,000 and to the West Side Belt Railroad Company of $1,080,000, a total to the two of $1,800,000, which amount was comprised of $1,570,000 balance of compensation and $230,000 in adjustment of other claims not concerned herein.) In accordance with these agreements the United States paid the plaintiff and its subsidiary the sum of $1,570,000 as and for compensation for the use of their properties in addition to the sum of $250,000 paid on account in 1920.

IV. Under the Federal control act and internal revenue acts of 1916, 1917, and 1918 all railroads operating under Federal control were required to return and pay out of their own funds and bear all Federal corporation taxes save and except the original normal corporation tax of two per cent. It was the custom for each carrier to return and pay the said two per cent normal tax, together with the taxes payable and bearable out of its own funds, upon the receipt of its just compensation, whereupon the United States, through the Director General of Railroads, duly credited the carrier to the extent of the said two per cent normal tax so paid. The Federal corporation tax upon the net income of railroads, accrued or received in the year 1918, including the normal tax of two per cent, was twelve per cent, and the Federal corporation tax upon the net income of railroads, accrued or received in the year 1919 or succeeding years, was ten per cent.

V. When plaintiff and its subsidiary received $1,570,000 of the just compensation allowed and paid for operations