Argument for the United States.

231 U. S.

lawfully entitled, the regulations are in violation of the Fifth Amendment to the Constitution of the United States.

In support of petitioner's contentions see Charlotte, C. & A. R. R. Co. v. Gibbes, 142 U. S. 386; Fordyce v. Omaha, Kansas City & E. R. R., 145 Fed. Rep. 544; Goodrich Transit Co. v. Int. Comm. Com., 224 U. S. 194; Int. Comm. Com. v. Louis. & Nash. R. R. Co., 73 Fed. Rep. 409; Int. Comm. Com. v. Chicago G. W. R., 209 U. S. 108; Ill. Cent. R. R. Co. v. Int. Comm. Com., 206 U. S. 441; Ill. T. & S. Bank v. Doud, 105 Fed. Rep. 123; Lackawanna Coal Co. v. Farmers' L. & T. Co., 176 U. S. 298; N. Y., N. H. & H. R. R. v. Int. Comm. Com., 200 U. S. 361; Pennoyer v. Connoughby, 140 U. S. 1; Railroad Tax Cases, 13 Fed. Rep. 722; S. C., 116 U. S. 138; Southern Pac. Co. v. Int. Comm. Com., 219 U. S. 433; Smyth v. Ames, 169 U. S. 466; Santa Clara County v. Southern Pac. R. R. Co., 18 Fed. Rep. 385; S. C., 118 U. S. 394; Tex. & Pac. Ry. Co. v. Int. Comm. Com., 162 U. S. 197; United States v. Verdi Copper Co., 196 U. S. 207; United States v. Folk, 204 U. S. 143; Wisconsin &c. R. R. v. Jacobson, 179 U. S. 287; Un. Pac. R. R. Co. v. United States, 99 U. S. 402; Wood v. Guarantee Co., 128 U. S. 416.

Mr. Assistant Attorney General Denison, with whom Mr. Thurlow M. Gordon, Special Assistant to the Attorney General, was on the brief, for the United States:

In requiring that abandoned property (over and above salvage) should not be continued as an asset, the Commission does not act arbitrarily or injuriously. Int. Comm. Com. v. Goodrich Transit Co., 224 U. S. 194; Knoxville v. Knoxville Water Co., 212 U. S. 1; Minnesota Rate Cases, 230 U. S. 352; Physical Valuation Act, 37 Stat. 701.

Nor did the Commission act arbitrarily and injuriously in requiring that property abandoned in connection with improvements should be charged off through operating expense instead of through surplus.

231 U. S.

Argument for the United States.

The policy of the Commission is to allow an indulgence to the railroads by permitting them to maintain a basis for higher rates until the abandoned property has been paid for.

Obsolescence is depreciation and a proper and authoritatively recognized part of the definition of "operating expense." Cumberland Tel. Co. v. Louisville, 187 Fed. Rep. 637; Columbus Light Co. v. Columbus (Whitten, Valuation of Pub. Ser. Corp., § 450); Eastern Case, Re Advances in Rates, 20 I. C. C. 243; Int. Comm. Com. v. Goodrich Transit Co., 224 U. S. 212; Holyoke, Massachusetts, Purchase Case (Whitten, § 454); Knoxville v. Water Co., 212 U. S. 1; Montgomery on Auditing (ed. 1912), p. 319; Brooklyn Heights R. R. Co. v. Tax Commissioners, 69 Misc. (N. Y.) 646; Queens County Water Co. v. Woodbury, 67 Misc. (N. Y.) 490; Queens Borough Gas Co., 18 N. Y. (reported in Whitten, § 487); San Joaquin Co. v. Stanislaus County, 191 Fed. Rep. 875; Spokane &c. R. R. (Whitten, § 457); State Journal Printing Co. v. Madison Gas Co., 4 W. R. C. R. 501; (Whitten, § 486); Third Avenue Reorganization, 2 P. S. C. N. Y. July 29, 1910; (Whitten, § 463); also Whitten, §§ 450, 451, 452, 453, 458, 481.

Even if dividends should be lost owing to the abandonment of property, such loss is no reason for invalidating this order. Motley's Case, 219 U. S. 467.

But there is no reason to assume that the Commission will refuse to spread the charge so as to avoid such a result.

The required system of accounting does not "veto" the terms of the mortgage.

For other cases in support of contention of the United States see Buttfield v. Stranahan, 192 U. S. 470; Columbus Ry. & Light Co. v. City of Columbus (Whitten, § 450); Cumberland Tel. & Tel. Co. v. City of Louisville, 187 Fed. Rep. 637; Eastern Case, Re Advances on Rates, 20 I. C. C. 243; Holyoke, Mass., Purchase Case (Whitten, § 454);

Argument for Interstate Commerce Commission. 231 U. S.

Illinois Central Case, 215 U. S. 452; Int. Comm Com. v.. Goodrich Transit Co., 224 U. S. 194; Knoxville v. Knoxville Water Co., 212 U. S. 1; Minnesota Rate Cases, 230 U. S. 352; Montgomery on Auditing, Theory, and Practice; Motley's Case, 219 U. S. 467; People ex rel. Brooklyn Heights R. R. Co. v. Tax Commissioners, 69 Misc. (N. Y.) 646; People ex rel. Queens County Water Co. v. Woodbury, 67 Misc. (N. Y.) 490; Queens Borough Gas & Elec. Co., 2 P. S. C. 18 N. Y. (Whitten, § 487); San Joaquin Co. v. Stanislaus Co., 191 Fed. Rep. 875; Spokane & Inland Empire Elec. R. R. (Whitten, § 457); State Journal Printing Co. v. Madison Gas & Elec. Co., 4 W. R. C. R. 501 (Whitten, § 486); Third Avenue Reorganization (Whitten, § 463); Union Pacific Case, 222 U. S. 541; United States v. Grimaud, 220 U. S. 506; (Whitten, Valuation of Public Service Corporations, §§ 450, 451, 452, 453, 458, and 481).

Mr. Charles W. Needham for the Interstate Commerce Commission:

The power of Congress over interstate commerce includes regulating the forms of accounts and reports which have a substantial relation to the regulation of commerce.

Public records are exclusively under public control and Congress has power to vest Commission with authority to determine classification of accounts of common carriers.

The Commission's order is an extension of congressional action and in prescribing the classification of accounts, etc., the Commission was acting in purely a legislative capacity, nor did it act arbitrarily in requiring such classification.

By the Commission's system of classification there was no destruction of property nor was the administration of the funds affected.

Constitutional rights were not violated by the orders

involved.

Depreciation is an operating expense.

Congress has spoken directly on this subject and made these regulations the law and there is no violation of the Fifth Amendment.

In support of these contentions see Adair v. United States, 208 U. S. 178; Butte City Water Co. v. Baker, 196 U. S. 126; Buttfield v. Stranahan, 192 U. S. 470; Employers' Liability Cases, 207 U. S. 497; Second Employers' Liability Cases, 223 U. S. 1; Field v. Clark, 143 U. S. 649; Gibbons v. Ogden, 9 Wheat. 1; Hippolite Egg Co. v. United States, 220 U. S. 45; Hoke v. United States, 227 U. S. 308; Ill. Cent. R. R. Co. v. Int. Comm. Com., 206 U. S. 441; Int. Comm. Com. v. Goodrich Transit Co., 225 U. S. 194; Light v. United States, 220 U. S. 523; Lottery Case, 188 U. S. 353; Prentiss v. Atlantic Coast Line, 211 U. S. 210; Smyth v. Ames, 169 U. S. 466; The Daniel Ball Case, 10 Wall. 557; Union Bridge Co. v. United States, 204 U. S. 384; Union Pacific R. R. Co. v. United States, 99 U. S. 402; United States v. Grimaud, 220 U. S. 566; Wayman v. Southard, 10 Wheat. 142; Montgomery on Auditing, Theory and Practice (1912).

MR. JUSTICE PITNEY, after making the foregoing statement, delivered the opinion of the court.

The contention of appellant in the Commerce Court and in this court is, that the regulations of the Interstate Commerce Commission relative to the method of keeping the accounts of common carriers, so far as they are here questioned, are unreasonable, beyond the power or authority of either Congress or the Commission, and violative of the Fifth Article of Amendments to the Constitution of the United States, as being a deprivation of property without due process of law. It is claimed that the effect of enforcing the regulations under the circumstances of the case is to reduce the amount of net earnings applicable to dividends. and thereby cause an irreparable loss to the

preferred stockholders, whose dividends are non-cumulative and payable only out of the income of the current year; that the property accounts become inaccurate, because while appellant has actually expended something more than $600,000 in the improvement of its property, and its bonded indebtedness has been in fact increased by the like amount, the accounts will declare that for this expenditure the company has obtained a net accretion to its property of only a little over $200,000 ($629,399.74 less $386,484, or $234,747.74); that the Operating Expense Accounts will be improperly swollen by the inclusion therein of the sum of $386,484, to the deception of the stockholders and the investing public, and the impairment of the financial credit of the company; and that under the requirements of the Commission this sum of $386,484 cannot be charged to and finally taken out of the proceeds of the bonds, but must be charged to operating expenses, and thus taken from operating revenue, because of which (as is claimed) this amount, which has already been paid out of the proceeds of bonds, must ultimately be restored in cash to the bond account, and returned to the trustee or otherwise accounted for to the bondholders. As to the Shreveport shop and terminal plant that are to be abandoned, it is contended that it is unreasonable to require the cost of abandonment to be charged to operating expenses, and that this is a proper charge against the accumulated surplus, as represented in the profit and loss

account.

The authority of the Commission rests upon § 20 of the "Act to Regulate Commerce" (February 4, 1887, 24 Stat. 379, c. 104, as amended by the Hepburn Act of June 29, 1906, 34 Stat. 584, cc. 3591).1 The constitu

"SEC. 20. That the Commission is hereby authorized to require annual reports from all common carriers subject to the provisions of this Act, and from the owners of all railroads engaged in interstate commerce as defined in this Act, to prescribe the manner in which