(c) acquire any new subsidiary at a cost of over $ 10,000 without consent.

(d) without consent:

(1) pledge or mortgage any assets;

(2) borrow any money (except as herein provided for);

(3) execute any time obligations except within the limits of consolidated current liabilities specified in this paragraph;

(4) sell any accounts receivable with recourse;

(5) incur any direct or contingent debts except those incident to operation;

(6) undertake any transaction involving lending money or credit, the aggregate amount of which outstanding at any one time shall be in excess of $ 10,000, but nothing herein contained shall in any way be deemed to limit the granting of usual credit for merchandise sold to customers.

Borrowings were to be evidenced by notes maturing not later than 15 months from date, with interest at not less than 4 per cent nor more than 6 per cent per annum. Petitioner also undertook to pay the banks a commission of 1 per cent per annum on the amount of loans outstanding under the credit line. Applications for loans1959 U.S. Tax Ct. LEXIS 59">*77 were made pursuant to the line of credit so granted, and $ 2 million was loaned to petitioner by the participating banks.

The net results for the first half of the fiscal year ending April 30, 1938, were disappointing. Loans were due to mature beginning in September of 1938, and the commercial bankers had a conference. Petitioner's affairs were discussed, and the bankers did not agree with Doiseau's system of operations. To create cash with which to meet obligations as they matured, the bankers required petitioner to cease 33 T.C. 87">*95 distilling operations, thus conserving $ 5,000 or $ 6,000 cash per working day. In 1938, petitioner distilled no whisky from January 1 until late in October.

By supplemental agreement dated September 1, 1938, petitioner agreed to repay its indebtedness to the banks on or before September 1, 1939. To assure payment, petitioner agreed to deposit 50 cents for each case of whisky sold during a specified period with the Kentucky Title Trust Company as trustee for application on the indebtedness. The agreement of July 21, 1936, was to remain in force except as specifically modified. Subsequently, the date of payment of the balance due on indebtedness extended1959 U.S. Tax Ct. LEXIS 59">*78 pursuant to the foregoing line of credit was further extended to September 1, 1940, the interest rate was fixed at 4 per cent per annum, and the loans were secured by a pledge of certain warehouse receipts.

Early in 1938, the other officers of petitioner concluded that Doiseau would have to be relieved of his responsibilities. They, like the bankers, disagreed with his policy of full-scale competition with the "Big Four." They also felt strongly that petitioner should save much more of its inventory for eventual sale as 4-year-old whisky. A plan of operations was conceived, essentially concerned with financing, and with expense and price controls. In an effort to meet competition and acquire business petitioner had reduced prices on Old Forester, and stabilization of its price structure was one of the big problems then facing it. This appraisal was known as the Sanderlin Plan.

The banks suggested that petitioner's management committee formulate the plan on the most conservative basis possible and submit it in writing. Work began immediately on a budget and a profit and loss projection, and was completed in February or March 1939.

The sales of Old Forester in relation to total1959 U.S. Tax Ct. LEXIS 59">*79 sales were predicted as 18.33 per cent in 1939, 40 per cent in 1940, 37 1/2 per cent in 1941, 45 per cent in 1942, and 50 per cent in 1943. This goal required and the plan anticipated retention of all current production for aging of 4 years or more. This retention plus the shutdown in 1938 in turn required additional purchases of outside distillations for straight whiskies, as well as a rationing of inventory produced prior to the shutdown. The projection indicated that petitioner could operate profitably, but would have to purchase 25,000 or 30,000 barrels of outside distillation.

It was also predicted that petitioner would sell 94,167 cases of 4-year-old bottled-in-bond whisky during its fiscal year ending April 30, 1940, and that the price of Old Forester per case of pints, exclusive of tax, would decline from the then current price of $ 24.85 to $ 18.60 by September 1939. Both assumptions proved erroneous. Only 40,016 33 T.C. 87">*96 cases of bonded whisky were sold in fiscal 1940, and there were no further price declines on Old Forester.

Pending formulation of the plan the bankers agreed to an extension of about 9 months on loans due. The plan was submitted in March or April of1959 U.S. Tax Ct. LEXIS 59">*80 1939 and the bankers concurred. As a result, a renewal agreement was executed in April 1939 extending petitioner's loans approximately 18 months and permitting it to borrow sufficient sums to finance the necessary purchases of bulk whisky. Commencing in October 1938, when petitioner was permitted to resume distilling operations, its entire production, with the exception of 36 barrels, was aged to 4 years or more and sold after the base period.

During the early years of its existence, petitioner sold in bulk some of its own distillation. These sales were necessary at the time in order to finance petitioner's operations, and were to a degree responsible for the net profit realized by petitioner in its fiscal year 1936. Thereafter, and during the base period, petitioner repurchased as much of this whisky as it could locate to use in Old Forester. In pursuance of the Sanderlin Plan it purchased substantial quantities of other bulk whiskies as well.

The following is a summary of annual purchases of bulk whisky by petitioner in each of its fiscal years ended April 30, 1936, to April 30, 1943, inclusive:

Purchases of Brown-Forman distillation by petitioner were at prices substantially exceeding petitioner's costs of distilling and carrying in inventory whisky of like ages.

In January of 1939, in order to further entrench itself in the quality whisky field, petitioner increased the age of some of its brands.

During petitioner's fiscal years 1937 to 1940, inclusive, its total case sales, case sales of bonded and of other whiskies in absolute quantity and in proportion of the total sold, gross profit per case on each type of sale, and total net income were as follows: 33 T.C. 87">*97

1959 U.S. Tax Ct. LEXIS 59">*82 In late 1939 and during 1940, petitioner purchased advertising space in trade papers and magazines of wide general circulation seeking to encourage liquor dealers to increase their stocks of Old Forester.

National Distillers, one of the "Big Four" of the industry, produces 2 of the 6 aforementioned bottled-in-bond bourbon whiskies, namely, Old Grand Dad and Old Taylor. National's expenditures in advertising Old Grand Dad and Old Taylor during the calendar years 1936 to 1939, inclusive, were as follows:

The comparatively small expenditures in 1936 and 1937 were due to the relatively small inventory of 4-year-old whisky then available.

Petitioner incurred the following costs in advertising during the calendar years 1936 to 1940, inclusive:

1959 U.S. Tax Ct. LEXIS 59">*83 Advertising a brand of whisky is long term and cumulative. Steady advertising is important in building consumer demand. The expense necessary to produce a desired number of sales of a given brand in any year is substantially affected by amounts spent in advertising the same brand in prior years.

During the early part of the base period the short supply of 4-year-old bourbon whisky created in essence a "seller's market." However, National always looked upon Old Forester as the biggest ultimate competitor of its own premium bourbon whiskies. Case sales 33 T.C. 87">*98 of Old Forester as compared to sales of Old Grand Dad and Old Taylor for 1937 to 1939, inclusive, were as follows:

Petitioner and National are not comparable. National is many times larger than petitioner, and markets a full line of distilled products. It entered the postprohibition era with much larger stocks of aged whisky in reserve and much larger distilling and storage capacity than petitioner and an established nationwide distribution and selling 1959 U.S. Tax Ct. LEXIS 59">*84 organization. Petitioner, in contrast, had limited capital, and very little aged whisky in reserve.

The selling, general, and administrative expenses (expressed as a percentage of net sales) of petitioner, National, and of distilleries registered with the Securities & Exchange Commission and for the years 1937, 1938, and 1939, were as follows:

The net ³ whisky inventories for the entire industry of whiskies aged 3 to 4 years and over 4 years in bonded warehouses as of June 30 of each year, 1936 to 1940, inclusive, and total industry tax gallon withdrawals of bottled-in-bond whisky for years ending June 30, 1937 to 1940, inclusive, all in gallons, were as follows:

Some unspecified portions of whiskies 3 to 4 years old were eventually bottled and sold other than in bond. Total gallons withdrawn each month and bottled in bond during the calendar years 1937 to 1939, inclusive, were as follows: 33 T.C. 87">*99

By 1940, monthly industry withdrawals for bottled-in-bond had reached a level of approximately 1 million gallons. During 1940, 1941, and 1942, the annual demand for bottled-in-bond whiskies of all types and qualities was approximately 13,000,000 gallons.

In its fiscal year ending April 30, 1940, the average selling prices per case ⁴ realized by petitioner on bonded and other whiskies were, respectively, $ 16.97 and $ 5.97. Average gross profits per case on each class of business were, respectively, $ 11.11 and $ 2.66.

During each month from January 1939 to April 1940, inclusive, petitioner made the following use or sales (in cases) of its own distillation at least 4 years old: 33 T.C. 87">*100

In addition, petitioner produced during its fiscal year ending April 30, 1940, approximately 200,000 cases of whisky out of bond from its own distillation between 3 and 4 years of age. The Brown-Forman distillation, 4 years or older, was suitable for use in Old Forester, and that 3 to 4 years of age would soon have become so.

Prior to 1939 no Brown-Forman distillation 4 years old or older had been used other than in bonded whisky, with the exception of 52 cases each in October and December of 1938. During its fiscal year ending April 30, 1940, petitioner bottled out of bond 1,339 barrels of its own distillation of 1935. Its inventory of earlier distillation was nominal. It also bottled out of bond during that fiscal year 5,481 barrels of distillation of the spring of 1936, and bottled in bond 748 barrels of that distillation.

Petitioner's closing inventory of its own distillation (in cases) at least 4 years old1959 U.S. Tax Ct. LEXIS 59">*88 for each month from January 1939 to April 1940, was as follows:

In the Sanderlin Plan of operation, petitioner had premised case sales for fiscal 1940 as follows:

33 T.C. 87">*101 This report was subsequent in time to the cessation of production lasting until October of 1938.

During World War II, demand for Old Forester rose beyond prewar expectations. To better meet such demand, petitioner, beginning in the fall of 1942, allocated virtually all of its own distillation to Old Forester and practically eliminated Early Times, except for nominal sales in a few markets.

During fiscal 1940, petitioner bottled as Old Forester that quantity of its own distillation of sufficient age necessary to satisfy the then actual demand. There was in addition a great latent or potential demand, but this would have1959 U.S. Tax Ct. LEXIS 59">*89 to be developed by appropriate advertising, and as matters stood in fiscal 1940, was not a current, effective demand.

In the latter part of 1939 Schenley Distillers Corporation, one of the "Big Four" of the industry, changed the age of I. W. Harper, its premium bottled-in-bond bourbon comparable to Old Forester, from 4 to 5 years. Schenley did not refer to this change or mention age in advertisements nor seek in any way to exploit the fact as a selling point with the public. Neither during the base period nor at any other time pertinent have advertisements respecting any of the premium bottled-in-bond bourbons made reference to age except as hereafter noted.

Beginning in January of 1940, petitioner also began to bottle and sell some Old Forester 5 as well as 4 years of age. From January to April of 1940 petitioner's sales and inventory (in cases) available for each respective age group were as follows:

Petitioner's advertising of Old Forester did1959 U.S. Tax Ct. LEXIS 59">*90 not mention age or attempt to present age as a selling feature, except that a reference to age on the Old Forester label was reproduced without special note or comment along with the rest of that label in advertising picturing the bottle. This reference read: "THIS WHISKY IS FOUR YEARS OLD" until the plate was changed sometime after the base period to read: "THIS WHISKY IS FIVE YEARS OLD."

During the base period the Old Forester label contained the following statement, in the reproduced handwriting of George Garvin Brown, exactly as written by him in 1870 on the founding of the old Brown-Forman organization:

33 T.C. 87">*102 This whisky is distilled by us only, and we are responsible for its richness and fine quality. Its elegant flavor is solely due to original fineness developed by age. There is nothing better in the market.

The then Bureau of Internal Revenue took the position that the above reference to "age" required that the label also note the exact age of the whisky. The representation on the Old Forester label that "THIS WHISKY IS . . . YEARS OLD" was due solely to this position of the Bureau. Petitioner discontinued the phrase "BY AGE" in the early 1940's and deleted1959 U.S. Tax Ct. LEXIS 59">*91 at the same time the statement as to the actual age of the whisky.

At some undisclosed time petitioner increased the age of its straight whiskies to 4 years. A memorandum in support of petitioner's section 722 claims refers to this matter in the following language:

It was not until the middle of 1940, or even later, that the industry as a whole realized that the public would demand mature whiskies over four years old even in the volume brands. * * *

The following is a schedule showing total industry withdrawals from bond for years ending June 30, from 1937 to 1949, inclusive, bottled-in-bond production by petitioner for 1937 to 1949, inclusive, based on years ending April 30, and the percentage of the former represented by the latter:

For the years 1934 to 1950, inclusive, disposable personal income, expenditures for distilled spirits, and the percentage of the latter to the former, in the United States, were as follows: 33 T.C. 87">*103

Throughout the base period the selling price of Old Forester was identical with that of Old Grand Dad, Old Taylor, and I. W. Harper. 1959 U.S. Tax Ct. LEXIS 59">*93 Until early in 1938 the only whisky available for bottling in bond had been produced during prohibition under the Medicinal Spirits Act or prior to prohibition. These aged whiskies were scarce in relation to the demand, and prices ranged from $ 37.50 to $ 40 per quart case, including Federal tax. Thereafter, National Distillers had an adequate supply of its own distillation produced subsequent to repeal, and reduced the price of Old Grand Dad and Old Taylor to $ 23.50 per quart case, including tax. Schenley made a similar price reduction on I. W. Harper, and petitioner did so, perforce, on Old Forester. No further price reductions took place, although anticipated by the industry during 1939.

In the fiscal year ending April 30, 1940, petitioner's costs of sales for bonded and other whiskies were in the respective amounts of $ 5.86 and $ 3.31 per case. Had petitioner been able to fill its needs without outside purchases these costs would have been, respectively, $ 4.08 and $ 3.06.

On its consolidated excess profits tax return for fiscal 1942 petitioner reported and paid a tax in the amount of $ 1,266.35. On its separate returns for fiscal 1943 to 1946, inclusive, it reported 1959 U.S. Tax Ct. LEXIS 59">*94 taxes and claimed deferment of payment under section 710(a)(5) as follows:

33 T.C. 87">*104 Petitioner's excess profits tax liability and deficiencies as presently determined by respondent are as follows:

Petitioner filed applications for relief on Form 991 and related refund claims (Form 843) on the following dates:

1959 U.S. Tax Ct. LEXIS 59">*95 These claims include the carryover and carryback of unused excess profits credits based upon a CABPNI as follows:

The applications for relief under section 722 were denied by statutory notices dated May 26, 1952, in the case of fiscal 1942 and May 8, 1953, for all other fiscal years.

Petitioner's excess profits net income and excess profits credits based on invested capital under section 714 for fiscal 1942 to 1946, inclusive, are as follows:

33 T.C. 87">*105 Petitioner's excess profits net income and excess profits credits based on income, without regard to adjustments claimed for abnormal deductions under section 713, are as follows:

1959 U.S. Tax Ct. LEXIS 59">*96 Petitioner's excess profits net income for each of the base period years, without regard to adjustments claimed for abnormal deductions was as follows:

OPINION.

Petitioner relies solely on section 722(b)(5), and seems to premise its claim variously on (1) the absence of an "adequate" supply of aged whisky at the beginning of the base period, and (2) that not until October of 1938 did petitioner begin saving and aging its distillation for eventual sale as bonded whisky at least 4 years old.

The first factor is entirely without merit. Prohibition was repealed in December of 1933. According to petitioner, approximately 4 to 4 1/2 years are required to produce and prepare for sale 4-year-old bonded whisky. Thus, not until the spring of 1938 could any American distiller have had an "adequate" supply of such whiskies of its own distillation.

Petitioner's first contention is hence untenable unless Congress1959 U.S. Tax Ct. LEXIS 59">*97 intended relief for all distillers primarily engaged at all times pertinent in the production and sale of aged whiskies. While petitioner's contentions on brief are inconsistent with a class theory of relief, we do not reach this point, since the facts show that until October of 1938 petitioner was not within that class.

The record is clear that shortly after repeal and continuing as far into the base period as it could profitably do so, petitioner did not save and age its own distillation, but in fact sold it in the form of young bulk or bottled whisky, as fast as it could induce others 33 T.C. 87">*106 to buy it. Accordingly, any argument based upon a lack of aged whisky at the beginning of the base period cannot aid petitioner, as it was not within the class of taxpayers covered by that argument.

Petitioner's second attempt to come within the purview of section 722(b)(5), based essentially on the fact that in 1938 it began to save and age its distillation, seems sound. Respondent contends that this ground is within section 722 (b)(4), and for that reason cannot be considered under (b)(5). We do not agree.

The Senate Report accompanying the Revenue Bill of 1942 (S. Rept. No. 1631, 1959 U.S. Tax Ct. LEXIS 59">*98 77th Cong., 2d Sess.) states at pages 202-203:

5. The business of the taxpayer during the base period was adversely affected by any other factor, resulting in an average base period net income which is an inadequate standard of normal earnings, and the taxpayer's claim for relief and the application of the relief as provided in this section would not be inconsistent with the principles underlying the eligibility requirements and the conditions and limitations set forth therein. Thus, corporations which do not meet the strict eligibility requirements set forth in this section are not debarred from relief if their case is within the spirit of the statute and if its application would not be inconsistent with its principles and conditions and limitations.

An example which your committee believes illustrates this paragraph would be a taxpayer which shortly before the base period undertook a business involving the manufacture of a product requiring an extensive period for preparation or manufacture, and which had no stocks of such product on hand at the commencement of such business. Since a large portion of the base period would be devoted to preparation of the product for sale, and since1959 U.S. Tax Ct. LEXIS 59">*99 sales would consequently be small or nonexistent and would not serve as a measure of the normal operations of the business, the base period would represent an abnormal standard by which to compute excess profits. Although in such a case, it might be said that the business was not depressed during the base period since it was operating at full manufacturing capacity, and thus might not be entitled to relief under paragraph 2, it would seem clear that such a taxpayer is entitled to relief by way of a constructive excess profits net income based upon more normal operations. For example, assume that a taxpayer was organized in 1935 to distill and sell whisky. It had no reserve whisky stocks on hand. During 1935 and for the greater part of its base period, it was aging the whisky it had distilled. Because of a lack of a marketable product, the sales of such taxpayer, and consequently its base period net income, were abnormally low and do not reflect results of usual operations. Relief should be extended to such taxpayer, the base period net income of which would not have been distorted if it had adequate whisky stocks on hand at the beginning of the base period.

The specific example1959 U.S. Tax Ct. LEXIS 59">*100 of the whisky distiller does not fit this petitioner, since petitioner was organized in 1933, not 1935, took over an existing operation from a predecessor which had operated during prohibition under special license, and did not in fact attempt to save and age its own distillation until late in 1938. Petitioner's persistence in claiming that it does resemble that hypothetical taxpayer is not well taken.

However, that example does demonstrate that (b)(4) and (b)(5) may overlap. The distiller in the example seems clearly to have 33 T.C. 87">*107 "commenced business" "immediately prior to the base period," within the meaning of (b)(4). Yet, it is expressly stated to be entitled to relief under (b)(5). The example, of course, was intended as merely one illustration of a taxpayer entitled to relief under (b)(5), and is not all-embracing. Petitioner's failure to identify itself with that specific taxpayer is thus not fatal to its case. Cf. Glenshaw Glass Co., 23 T.C. 1004">23 T.C. 1004.

Moreover, the words immediately preceding the example of the whisky distiller show even more clearly the consistency of applying (b)(5) to cases also within the ambit of some other subsection1959 U.S. Tax Ct. LEXIS 59">*101 of 722(b). A taxpayer which "shortly before the base period undertook a business" of the nature described therein seems clearly to have commenced business, or if already in other lines of endeavor, to have changed the character of its business, immediately prior to the base period.

There seems no reason to distinguish between a taxpayer which commences a business and one which changes the character of its business, or between a commencement or change immediately prior to and one occurring during the base period. Thus, paraphrasing some of the language above quoted, we derive the following:

An example which your committee believes illustrates this paragraph would be a taxpayer which during the base period changed the character of its business to the manufacture of a product requiring an extensive period for preparation or manufacture and which had inadequate stocks of such products on hand at the time of such change. Since the remaining portion of the base period would be devoted to preparation of the product for sale, and since sales for the remainder of the base period would consequently be small or nonexistent and would not serve as a measure of the normal operations of the business, 1959 U.S. Tax Ct. LEXIS 59">*102 the base period would represent an abnormal standard by which to compute excess profits. Although in such a case, it might be said that the business was not depressed during the base period since it was operating at full manufacturing capacity, and thus might not be entitled to relief under paragraph 2 or 4, it would seem clear that such a taxpayer is entitled to relief by way of a constructive excess profits net income based upon more normal operations.

We conclude from the foregoing that petitioner qualifies for relief under section 722(b)(5). We must now determine the CABPNI to which it is entitled.

Petitioner's claimed CABPNI in the amount of $ 2,020,508 is unduly optimistic, and is based upon a number of unacceptable premises. Petitioner assumes, for example, that a shortage of aged whisky at the beginning of the base period justifies relief. But as we have 33 T.C. 87">*108 pointed out, petitioner was then selling young whiskies, and in fact did so quite profitably. It was not then seeking to save and age whisky, and experienced no shortage in the product it was then in the business of selling, i.e., young whiskies.

Moreover, there is no warrant for placing petitioner in a 1959 U.S. Tax Ct. LEXIS 59">*103 uniquely favorable position as compared to its competitors. As noted, in view of the date of repeal, no domestic distiller had or could have had any substantial quantity of 4-year-old whisky of its own distillation for sale prior to 1938. If we were to assume, contrary to fact, that petitioner had adequate stocks of such whisky at the beginning of the base period, we would have to assume the same fact for its competitors. We would thus have been required to assume a normal market, eliminating special conditions arising from a "seller's market," and would have to premise any reconstruction on the assumption that nationally there was an adequate supply of aged whisky.

In 1938, when for the first time an adequate supply of bonded whisky was available, prices fell, reaching their lowest point in 1939. At that time industry experts and petitioner's Sanderlin Plan all predicted further reductions in price. There were, in fact, no further price reductions, but we are satisfied from the entire record that this was the result of an artificial stimulation of the economy by national defense activities resulting from wartime conditions. If in fact there had been an adequate supply of whisky1959 U.S. Tax Ct. LEXIS 59">*104 in 1936, we are satisfied that the price at that time would have been near the low point actually reached in 1939, and that further reductions would have taken place throughout the base period.

In our opinion, however, petitioner qualifies for relief solely because, beginning in October 1938, or during the last 18 months of its base period, it changed character and progressively increased the saving and aging of its own distillation for eventual sale as bonded whisky at least 4 years old. Any relief granted must be limited to an amount commensurate with that factual basis for such relief, and must be granted only in respect of those excess profits tax years in which petitioner actually realized additional income subject to excess profits tax as a result of the activity commenced in 1938.

Petitioner claims that in its last base period year, given adequate supply, it could have sold 235,000 cases of Old Forester. During that year petitioner in fact sold approximately 470,000 cases of all types of whiskies, of which only approximately 40,000 cases consisted of bonded whisky. Also during that year, a substantial amount of Brown-Forman distillation actually or almost of sufficient age1959 U.S. Tax Ct. LEXIS 59">*105 for bottling in bond was bottled and sold out of bond.

Petitioner was no longer beset during its fiscal year 1940 with the credit and financing difficulties which had so severely tried it in 33 T.C. 87">*109 earlier years, as the banks had by that time approved the Sanderlin Plan, and Doiseau was no longer in control. The profit on bonded whisky was so much higher than that on nonbonded whisky that we are satisfied that petitioner would not sell out of bond any of its own distillation which it could shortly expect to bottle as Old Forester, if readily salable. The Sanderlin Plan, written with full awareness of petitioners inventory situation, had prophesied for fiscal 1940 far greater sales of Old Forester than were actually realized. We find as a fact that in the last fiscal year of its base period petitioner sold all the bonded whisky that the actual market would then accept.

On the other hand, if petitioner had had substantial stocks of aged whisky, not at the start of the base period, but beginning in October of 1938, cf. S. Rept. No. 1631, supra, it would have known well in advance that such stocks would be available, and would have taken steps to prepare the market accordingly. 1959 U.S. Tax Ct. LEXIS 59">*106 This would have increased expenses, particularly advertising expenses in the earlier years, but would have reduced other expenses, and especially those involved in the repurchasing by petitioner of its own distillation, and would have resulted in substantially greater sales of Old Forester for the last 18 months of petitioner's base period than it actually realized.

The reconstruction of a taxpayer's base period net income is necessarily largely speculative. It would serve no purpose to attempt to plot out in detail every consideration and mental process involved in such reconstruction. Having reviewed the entire record, we conclude that a proper CABPNI, for those excess profits tax years for which relief is to be granted, is in the amount of $ 850,000.

Each of the taxable years is a separate accounting period, subject to considerations not necessarily common to all. Thus, it does not follow that because relief should be granted for one taxable year it must necessarily be granted for all years. Petitioner argues against the application of the so-called variable credit rule, contending that it is applicable only where relief is granted under section 722(b)(4). But this petitioner1959 U.S. Tax Ct. LEXIS 59">*107 is being granted relief here solely because of activity commencing in October 1938. Under the circumstances, that activity could not and did not result in additional income subject to the excess profits tax until approximately 4 years thereafter.

Whether or not the variable credit rule as such is limited to (b)(4) cases, we are still bound to allow only that relief warranted by the facts, and must consider each of the taxable years before us on its own merits. Petitioner realized no additional income until its fiscal year 1943 from the activity commenced in 1938. The factual basis of petitioner's right to relief under section 722(b)(5) is thus irrelevant before its fiscal year 1943. Accordingly, petitioner is entitled to no 33 T.C. 87">*110 relief and may not use any CABPNI until such year. As to its fiscal years 1943, 1944, 1945, and 1946, petitioner is entitled to a CABPNI in the amount of $ 850,000 which may or may not result in any actual relief since for some of the years under consideration petitioner's tax was computed under the so-called 80 per cent rule of section 710.

Reviewed by the Special Division.

Decisions will be entered under Rule 50.