There have been a host of cases requiring the Court to distinguish between an expense and a capital expenditure; a recent one was Elgin B. Robertson, Jr., 61 T.C. 727">61 T.C. 727 (1974). In that case, Robertson represented Burndy, a manufacturer of electronics products, under an exclusive sales contract in Texas and part of Louisiana. Penzner represented Burndy under a similar arrangement in Oklahoma. Penzner and Robertson reached an agreement whereby Penzner terminated its representation of Burndy in Oklahoma and Robertson expanded its representation of Burndy into the vacated1974 U.S. Tax Ct. LEXIS 2">*11 territory. The controversy concerned the tax treatment of the payment which Robertson made to Penzner for its customer lists and its rights in Oklahoma. The Court held that the payment constituted a capital expenditure because, in part, it was made to acquire a new business, representing Burndy in Oklahoma.

The payment made by the petitioner to secure a cancellation of the territorial agreement resembles in essence the payment made by Robertson to secure the right to do business in Oklahoma. While the territorial agreement was in effect, RIS and its assignee, Mr. Goldman, possessed valuable rights to carry on a 63 T.C. 414">*419 business in the area covered by that agreement. They had the opportunity to construct motels and to operate them for a profit or to derive income by licensing them to others. Their right to conduct that business was transferable, and the business could be carried on for as long as 30 years. Considered from the other side, the territorial agreement, so long as it existed, significantly restricted Rodeway's rights in the territory. Rodeway could not construct a motel, and could not grant a franchise to someone else to do so, without the approval of RIS. If Rodeway1974 U.S. Tax Ct. LEXIS 2">*12 became aware of a most advantageous opportunity, it could not act without the concurrence of RIS, and to secure RIS's approval, Rodeway was apt to have to pay a price -- to make some concession to RIS.

By the cancellation agreement, RIS's rights were extinguished, and Rodeway acquired the untrammeled right to do business in the territory. Without the necessity of any additional payments to RIS or any concessions to it, Rodeway could, after the cancellation of the territorial agreement, build as many motels as it wished or grant whatever franchises it desired to other persons to construct motels. By making the payment, it was free to enhance its income not just for the year 1968, but for whatever period remained during which it might still secure desirable sites for new motels.

A payment to acquire a business is in the nature of a capital expenditure. 61 T.C. 727">Elgin B. Robertson, Jr., supra. By its payment, Rodeway enhanced its business opportunities in the Southwest area and obtained the chances of increased income from that territory, and payments made for such reasons are capital in nature. Darlington-Hartsville Coca-Cola Bot. Co. v. United States, 393 F.2d 4941974 U.S. Tax Ct. LEXIS 2">*13 (C.A. 4, 1968), certiorari denied 393 U.S. 962">393 U.S. 962 (1968); Darrell D. Hudgins, 55 T.C. 534">55 T.C. 534 (1970); Bay Counties Title Guaranty Co., 34 T.C. 29">34 T.C. 29 (1960), affirmed per curiam 288 F.2d 187 (C.A. 9, 1961); see KWTX Broadcasting Co., 31 T.C. 952">31 T.C. 952 (1959), affirmed per curiam 272 F.2d 406 (C.A. 5, 1959); cf. Medco Products Co., 62 T.C. 509">62 T.C. 509 (1974). Thus, the payment by Rodeway was not merely to maintain its existing business. See Houston Natural Gas Corp. v. Commissioner, 90 F.2d 814">90 F.2d 814 (C.A. 4, 1937), affirming 34 B.T.A. 228">34 B.T.A. 228 (1936), certiorari denied 302 U.S. 722">302 U.S. 722 (1937); Falstaff Beer, Inc., 37 T.C. 451">37 T.C. 451 (1961), affd. 322 F.2d 744 (C.A. 5, 1963); see also Philad Co. of Delaware, 47 B.T.A. 565">47 B.T.A. 565 (1942); compare Booth Newspapers, Inc. v. United States, 303 F.2d 916 (Ct. Cl. 1962); Cubbedge 63 T.C. 414">*420 , 31 T.C. 585">31 T.C. 585 (1958);1974 U.S. Tax Ct. LEXIS 2">*14 Fishing Tackle Products Co., 27 T.C. 638">27 T.C. 638 (1957). As required by section 441, Rodeway filed annual tax returns and computed its income on an annual basis; the payment in 1968 to secure the cancellation of the territorial agreement was not related merely to the production of income for that year. 55 T.C. 534">Darrell D. Hudgins, supra.To deduct the full amount of that payment against income for the one year would cause a gross distortion of income. Commissioner v. Boylston Market Assn., 131 F.2d 966 (C.A. 1, 1942), affirming a Memorandum Opinion of this Court.

When a lessor of real property makes a payment to a lessee to terminate the lessee's lease prior to its expiration, such payment is treated as a capital expenditure. Peerless Weighing & Vending Machine Corp., 52 T.C. 850">52 T.C. 850 (1969); Trustee Corp., 42 T.C. 482">42 T.C. 482 (1964). The similarities between such situation and the one involved herein provide additional support for concluding that Rodeway's payment constituted a capital expenditure. In both situations -- there is an agreement under which1974 U.S. Tax Ct. LEXIS 2">*15 rights are granted for a specified period in return for consideration to be paid over that period; the agreement is cancelled and the rights are terminated prematurely in consideration for a payment by the grantor to the grantee; and after the termination, the grantor is restored to the rights possessed by him prior to the agreement. Though the one agreement concerned real estate and the present agreement concerns intangible rights, there is no reason for a different tax treatment of the payment to secure the cancellation. 47 B.T.A. 565">Philad Co. of Delaware, supra.

The petitioner maintained that Rodeway's payment constituted a business expense for the reasons that: (1) Rodeway did not acquire a capital asset by virtue of making the payment, and (2) the payment was made to be released from a burdensome or onerous contract. In the first of these arguments, the petitioner would exhort form over substance; it argues that it did not secure an asset because it did not secure some tangible thing which it had not previously possessed. Yet, it did obtain the right to do business in the Southwest area in any manner that it desired and without any interference on the part1974 U.S. Tax Ct. LEXIS 2">*16 of RIS. That right, whether or not signified by a tangible thing, was of considerable value to it, and Rodeway stood to enhance its profits over a period of years. The fact that it was merely reacquiring rights once possessed by it is no reason for treating it any 63 T.C. 414">*421 differently than the initial purchase of a business. Triangle Publications, Inc., 54 T.C. 138">54 T.C. 138 (1970). Harry M. Flower, 61 T.C. 140">61 T.C. 140 (1973), and Marc D. Leh, 27 T.C. 892">27 T.C. 892 (1957), affd. 260 F.2d 489 (C.A. 9, 1958), cases relied upon by the petitioner, both involved the tax treatment of the recipient of the payment, and not the treatment of the payor; neither case is inconsistent with our conclusion in this case.

In support of the second of those arguments, the petitioner relies upon Helvering v. Community Bond & Mortgage Corp., 74 F.2d 727 (C.A. 2, 1935), affirming 27 B.T.A. 480">27 B.T.A. 480 (1932); Pressed Steel Car Co., 20 T.C. 198">20 T.C. 198 (1953); Olympia Harbor Lumber Co., 30 B.T.A. 114">30 B.T.A. 114 (1934),1974 U.S. Tax Ct. LEXIS 2">*17 affd. 79 F.2d 394 (C.A. 9, 1935). However, in those cases, the taxpayer made a payment to reduce or eliminate its losses or expenses; whereas, in the present case, Rodeway paid to have the territorial agreement canceled so as to have the opportunity to augment its income from the territory. See H & G Industries, Inc., 60 T.C. 163">60 T.C. 163 (1973), affd. 495 F.2d 653 (C.A. 3, 1974).

In our judgment, Rodeway's payment for the cancellation of the territorial agreement was a capital expenditure since Rodeway thereby acquired the right to conduct a business from which it could anticipate earning profits over future years, and we so hold. In view of that holding, we then reach the question of whether such payment may be amortized under section 167(a). That section provides:

(a) General Rule. -- There shall be allowed as a depreciation deduction a reasonable allowance for the exhaustion, wear and tear (including a reasonable allowance for obsolescence) --

(1) of property used in the trade or business, or

(2) of property held for the production of income.

The cost of acquiring an intangible asset, such 1974 U.S. Tax Ct. LEXIS 2">*18 as that acquired by Rodeway, may be amortized under section 167(a) but only if it has a useful life "which can be estimated with reasonable accuracy." Sec. 1.167(a)-3, Income Tax Regs.; Manhattan Co. of Virginia, Inc., 50 T.C. 78">50 T.C. 78 (1968). "Useful life" is defined in section 1.167(a)-1(b), Income Tax Regs., as "the period over which the asset may reasonably be expected to be useful to the taxpayer in his trade or business or in the production of his income." The petitioner must demonstrate with "reasonable certainty" or "reasonable accuracy" the period beyond which the 63 T.C. 414">*422 agreement would not have continued. Gulf Television Corp., 52 T.C. 1038">52 T.C. 1038, 52 T.C. 1038">1057 (1969).

The Commissioner argued that Rodeway's payment produced an economic benefit extending into the indefinite future since it thereby acquired the unrestricted opportunity to develop RIS's territory for as long as it chose to do so. Nevertheless, when a lessor makes a capital expenditure in order to terminate a lease prematurely, such expenditure is amortizable over the remaining period of the canceled lease, although the lessor thereby reacquires the right to deal 1974 U.S. Tax Ct. LEXIS 2">*19 with the property as he wishes for so long as he wishes. Peerless Weighing & Vending Machine Corp., 52 T.C. 850">52 T.C. 850 (1969); Trustee Corp., 42 T.C. 482">42 T.C. 482 (1964). Such cases hold that the payment is made to obtain possession of property for the duration of the lease, and that the payment thus is amortizable over that period. Henry B. Miller, 10 B.T.A. 383">10 B.T.A. 383 (1928). In substance, Rodeway's payment for the cancellation of the territorial agreement achieved the same results, and it is therefore amortizable over the remaining useful life of that agreement. See also Triangle Publications, Inc., 54 T.C. 138">54 T.C. 138 (1970).

The territorial agreement could have continued in force for as long as 24 years and 22 months after the date on which it was canceled, when it would have expired by its own terms, or for merely 22 months longer, when it was next subject to renewal. However, such provisions are not controlling for the purposes of determining the useful life of the agreement; we must determine how long the agreement would have been useful to Rodeway, had it not been canceled. Sec. 1974 U.S. Tax Ct. LEXIS 2">*20 1.167(a)-1(b), Income Tax Regs.; see KWTX Broadcasting Co., 31 T.C. 952">31 T.C. 952 (1959).

Initially, the petitioner argued for the 22-month useful life. However, RIS had the option to renew so long as it was fulfilling its obligations under the territorial agreement, and in computing the useful life of the asset, such option for renewal must be taken into consideration. Toledo TV Cable Co., 55 T.C. 1107">55 T.C. 1107 (1971), affirmed per curiam 483 F.2d 1398 (C.A. 9, 1973). Nor are we convinced by the Commissioner's argument that the useful life of the territorial agreement would extend for the entire period during which it could be renewed, for that argument assumes that the agreement would remain useful throughout that period.

Rodeway produced evidence that all the desirable locations in the area covered by the territorial agreement would, most likely, 63 T.C. 414">*423 be taken within 4 or 5 years after 1968, and the Commissioner accepted that conclusion. Thus, the parties agree that, viewed from 1968, the usefulness of the territorial agreement would be consumed by the end of 1973. Based on that evidence, we find and1974 U.S. Tax Ct. LEXIS 2">*21 hold that the useful life of the territorial agreement was 5 years, determined as of 1968, and that the petitioner may amortize the cost of canceling that agreement over such period.

Decision will be entered under Rule 155.