8 T.C. 300">*300 The Commissioner determined a deficiency of $ 1,199 in petitioner's income tax for 1941 by adding to income reported the value of a building erected on leased premises by the lessees. Petitioner assails the determination, contending that, since the lease covered a period ended December 31, 1941, it did not recover possession and hence realized no income in 1941 because of the building's erection.

FINDINGS OF FACT.

This case was presented on a stipulation of facts and exhibits, which are hereby adopted by reference as our findings. From this evidence it appears that petitioner, a New York trust company, with principal office in New York City, is trustee of a trust created by the will of Charles1947 U.S. Tax Ct. LEXIS 286">*287 F. Houghton for the benefit of MaBelle Houghton Plumb, and it filed an income tax return on the cash basis for 1941 with the collector of internal revenue for the second district of New York. Among assets of the trust was real estate known as 305-7 West Superior Street, Duluth, Minnesota, which petitioner, as trustee, leased by contract dated January 29, 1921, to Albert H. Polinsky and E. R. Ribenack "for a term of twenty-one years, to commence on the first day of January, 1921, and to end on the 31st day of December, 1941, unless sooner terminated." As a covenant of the lease, the lessees agreed to erect on the premises a two-story building adapted to general business use. They did so. By other sections of the contract the parties further agreed that:

Twelfth. -- On the last day of the said term, or other sooner termination of the said estate hereby granted, * * * the lessees shall and will peaceably and quietly leave, surrender and yield up unto the said lessor, all and singular the said demised premises, together with any and all improvements * * *.

* * * *

Fifteenth. -- * * * Any and all new buildings and improvements erected upon the demised premises shall immediately be1947 U.S. Tax Ct. LEXIS 286">*288 and become the property of the lessor * * *.

8 T.C. 300">*301 * * * *

Twenty-fifth. -- * * * Upon the expiration or earlier termination of the term * * *, hereby granted, all buildings and improvements upon the demised property shall be the absolute property of the lessor * * *.

In 1928 Ribenack assigned his interest in the lease to Dorothy N. Ribenack, and by agreement of the parties the stipulated rent was reduced in 1932. Otherwise the contract remained in full force and effect until the end of the original term thereof on December 31, 1941, but in 1935 the trust terminated as to one-half of the property held by the trustee, and the trust has since owned only an undivided one-half interest.

By letters dated December 17 and 19, 1941, Polinsky notified petitioner's renting agent and the agent notified petitioner that Polinsky "would surrender the premises on December 31st." On December 31, 1941, the premises were vacant in part and were occupied in part by subtenants of the lessees. The lessees did not surrender the premises by any overt act in 1941, and no such act was required by the lease contract, but they "remained in possession of said premises under said lease for the full original1947 U.S. Tax Ct. LEXIS 286">*289 term specified in said indenture," and the lease "came to an end upon the expiration of the original term specified therein." The lessees had paid premiums on policies of insurance covering the properties for terms extending beyond the term of the lease, and petitioner reimbursed them for one-half of the premiums applicable to the period after the lease's expiration.

In the trust's income tax return for 1941 petitioner reported no income because of possession of the building. In an attached note it was stated:

On December 31, 1941, the lease expired and the building passed to the owners of the land. * * *

* * * *

Since the building passed to the owners of the land not as a result of forfeiture but solely by the terms of the lease, and since the value of the land and building together at the termination of the lease is materially less than the value of the land alone at the time of the inception of the lease, the taxpayer believes and states that no taxable income resulted from the termination of the lease and none is being reported.

The Commissioner added to the trust's income for 1941 $ 8,000 representing one-half of the value of the building, "possession of which one-half was acquired1947 U.S. Tax Ct. LEXIS 286">*290 December 31, 1941, by you on termination of a lease."

OPINION.

The trust involved herein owned a half interest in real estate on which a tenant erected a building during the period of lease. The lease expired on December 31, 1941, and petitioner recovered possession. The parties are in agreement that the erection of 8 T.C. 300">*302 the building increased the value of petitioner's interest in the property by $ 8,000, and that under the doctrine of , the $ 8,000 is taxable as income of the petitioner for 1941 if realized in that year. The issue for decision is thus the year of realization, and that is fixed by the date on which petitioner recovered possession. It is stipulated that the lessees remained in possession for the full term specified in the lease that no "overt act" accompanied the delivery of possession, since a part of the premises was occupied by subtenants who remained and a part was vacant. The question posed must, therefore, be settled by a theoretical determination of when petitioner's right took effect.

Respondent invokes nice logic for the proposition that the expiration of the lease and reversion of1947 U.S. Tax Ct. LEXIS 286">*291 possession to petitioner were simultaneous, and if the lease expired at midnight on December 31, 1941, then petitioner acquired possession at the same moment, and this moment fell in December 31, 1941, not in January 1, 1942. If we were disposed to apply for tax purposes the logistic refinements of the mediaeval schoolmen, we should weigh against this reasoning the equally cogent argument that the lessees were entitled to the premises through the last moment of 1941 and any possession by petitioner in that year would be contrary to the terms of the lease. Whether the atom of time marking midnight can be split, however, we shall not decide, being of the opinion that the construction of contracts and the incidents of business transactions are not to be interpreted by philosophical refinements, but rather by the practical understanding of terms according to business usage.

By this test we think it plain that the lessees' tenancy ended in 1941 and petitioner's possession began in 1942. This view is well supported by a decision of the Supreme Court of the State of Minnesota, wherein the premises are located. In ;1947 U.S. Tax Ct. LEXIS 286">*292 , the plaintiff lessor was required by law to give his tenant a month's notice to vacate leased premises. On April 30, 1936, the plaintiff served the notice, adding: "so that we may have possession of said premises on and after May 31, 1936." The defendant tenants contended "that since the notice asks possession and contains the word 'on' referring to May 31, it does not constitute a sufficient month's notice." In holding that it did, the court said:

* * * it was proper to ask for vacancy on May 31, and for possession after May 31. It is not unreasonable to suppose that this is what was intended by plaintiff, and there is nothing to indicate that defendants were misled into believing anything else by this notice. * * *

While it is true that a notice to quit is statutory and technical, , the construction of any given one must be reasonable, and there is no justification for the splitting of legal hairs because of the fact of technicality. Sound reason and common sense must govern the construction of even a technical document.

8 T.C. 300">*303 The court's1947 U.S. Tax Ct. LEXIS 286">*293 remarks are singularly applicable to the facts of the case at bar. As held in the cited decision, a day under Minnesota law ends at midnight, and, while respondent attempts to impute to petitioner and the lessees an intention to terminate before midnight on the ground that delivery of possession on December 31 is mentioned in a tax declaration and in correspondence between petitioner's agent, the petitioner, and the lessees, we are not persuaded of any intended change in the lease's terms by reason of expressions in documents which do not expressly purport to change those terms. Indeed, consideration of any intention of the parties to make a change seems precluded by the stipulation that the lease "came to an end upon expiration of the original term specified therein." Nor do we think, as respondent argues, that the effect of the Minnesota holding can be limited because "on and after" created ambiguity or because the tenancy there involved was from month to month.

It seems clear and unambiguous that by petitioner's lease contract the lessees were entitled to possession until the end of the year 1941 and that petitioner became entitled to possession immediately after the end of 1941, 1947 U.S. Tax Ct. LEXIS 286">*294 which point of time is the beginning of 1942. A business man would so understand, and we so understand. Petitioner, therefore, did not recover possession of the property in 1941, and the Commissioner erred in including in 1941 income any amount representing the value of the building on the leased premises.

Decision of no deficiency will be entered.