Fides, AG v. Commissioner of Internal Revenue
Citation | 137 F.2d 731 |
Decision Date | 16 August 1943 |
Docket Number | No. 5053.,5053. |
Parties | FIDES, A. G., v. COMMISSIONER OF INTERNAL REVENUE. |
Court | United States Courts of Appeals. United States Court of Appeals (4th Circuit) |
Ellen E. O'Neil, of New York City (Lawrence R. Condon, of New York City, on the brief), for petitioner.
A. F. Prescott, Sp. Asst. to Atty. Gen. (Samuel O. Clark, Jr., Asst. Atty. Gen., and Sewall Key and Carlton Fox, Sp. Assts. to Atty. Gen., on the brief), for respondent.
Cravath, DeGersdorff, Swaine & Wood, Roswell Magill, and George G. Tyler, all of New York City, on the brief as amici curiae.
Before SOPER, DOBIE, and NORTHCOTT, Circuit Judges.
The Commissioner of Internal Revenue (hereinafter called the Commissioner) assessed against Fides, A. G. (hereinafter called petitioner) a surtax for the year 1936 and a delinquency penalty under Sections 351 and 291 of the Revenue Act of 1936, 26 U.S.C.A. Int.Rev.Acts, pages 936, 920. This tax and the penalty were (after redetermination and adjustment) sustained by the Board of Tax Appeals (hereinafter called the Board, and now the Tax Court of the United States) and petitioner has duly appealed.
Among the stipulations of facts were the following:
Sections 351, 291 and 233 of the applicable Revenue Act of 1936 are (in part) set out below:
Two questions are, in this appeal, presented for our determination: (1) Is the petitioner subject to the tax? And (2) if so, was the penalty assessment valid? Both of these questions were answered affirmatively (and, we think, correctly) by the Board.
Petitioner frankly admits that it falls within the literal words of Section 351, and that it completely satisfies the objective criteria therein set out. But, as was said in the opinion of the Board (47 B.T.A. 280):
The argument that the literal meaning of Section 351, so as to bring petitioner within its ambit, would accomplish a harsh and inequitable result, does not, in itself, justify us in giving to Section 351 the restricted meaning for which petitioner contends. That argument, we think, is adequately answered in the O'Sullivan Rubber Company case, 42 B.T.A. 721, affirmed by the Circuit Court of Appeals for the Second Circuit in 120 F.2d 845. See, also, the cases of Foley Securities Corporation, 38 B.T.A. 1036, affirmed 8 Cir., 106 F.2d 731; Porto Rico Coal Co., 44 B.T.A. 221, affirmed 2 Cir., 126 F.2d 213.
A much stronger argument is that the petitioner, an alien corporation, does not come within the evil which Section 351 sought to prevent — the so-called "incorporated pocket-book" — since petitioner's distributions of dividends to its stockholders (also aliens) would not be subject to tax by the United States. A careful reading of the Congressional debates, and a study of the background and history of Section 351 fail to convince us that this was the sole purpose of that section. That it was a primary and major purpose is hardly open to doubt.
Thus, in the Preliminary Report of the House Subcommittee, submitted by its Chairman, Honorable Samuel Hill, we find, at page 7: "The effect of this system recommended by your subcommittee is to provide for a tax which will be automatically levied upon the holding company without any necessity for proving a purpose to avoid surtaxes." And, again in the report of the House Subcommittee on Proposed Revision, submitted by its Chairman, Honorable Fred Vinson, we find, with reference to Section 351, at page 21: (Italics ours.)
We hold no brief for the anathema so often visited, in connection with the meaning of statutes, upon what Austin called Intensive Spurious Interpretation. Statutory universals are sometimes not what they seem. General terms describing a class of persons subject to a statute should be limited when a strictly literal (and purely analytic) application would encompass absurd results and would defeat, rather than subserve, the clear and manifest purpose of the statute. Qui haeret in litteris, haeret in cortice. And statutes...
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