Commissioner of Internal Revenue v. Philadelphia Transp. Co.

GOODRICH, Circuit Judge.

The Philadelphia Transportation Co., the taxpayer here, was formed on January 1, 1940 as the culmination of reorganization proceedings involving 65 corporations concerned in Philadelphia’s public transportation system. In accordance with the reorganization plan, the taxpayer issued, in Janu'ary, 1940, mortgage bonds dated January 1, 1939 and bearing interest from that date. The interest coupons for 1939 and 1940 were redeemed by the taxpayer in 1940, as required by the reorganization plan.

The taxpayer computes its tax liability on an accrual basis. In its income tax…