Park & Tilford Distillers Corp. v. United States

• Decision Date: 04 November 1952
• Docket Number: No. 49434.,49434.
• Citation: 107 F. Supp. 941
• Parties: PARK & TILFORD DISTILLERS CORP. v. UNITED STATES.
• Court: U.S. Claims Court

107 F. Supp. 941

PARK & TILFORD DISTILLERS CORP. v. UNITED STATES.

No. 49434.

United States Court of Claims.

November 4, 1952.

Roswell Magill, New York City, for plaintiff. Albert Rosenblum, New York City was on the briefs.

Joseph H. Sheppard, Washington, D. C., with whom was Ellis N. Slack, Acting Asst. Atty. Gen., and Andrew D. Sharpe, Washington, D. C., for defendant.

Before JONES, Chief Judge, and LITTLETON, WHITAKER, MADDEN and HOWELL, Judges.

MADDEN, Judge.

The plaintiff has sued for the refund of corporation income and personal holding company income taxes paid by it for the year 1944. It paid the taxes, together with accrued interest, in 1949. The total payment was $285,257.24. The plaintiff filed a timely claim for refund, which has not been acted upon, and it is entitled to have its claim decided here on its merits.

The money which came to the plaintiff in 1944, and whose status as taxable income vel non is here in litigation, was paid to it by David A. Schulte. He was an officer and a director of the plaintiff corporation, and owned more than ten percent of its stock. During the years 1942, 1943 and 1944 Schulte had sold and purchased, or purchased and sold, 9,900 shares of the plaintiff's stock in the open market, each purchase and sale or sale and purchase having occurred within a six-month period. He realized a profit of $264,827.57 on these transactions. Section 16(b) of the Securities Exchange Act of 1934, 48 Stat. 896, 15 U.S.C.A. § 78p(b) provides that when a person who owns more than ten percent of the stock of a corporation makes a profit from selling and purchasing, or purchasing and selling, shares of the corporation's stock within a six-month period, he must turn his profits over to the corporation. The plaintiff corporation made a demand upon Schulte that he pay over to the corporation his profits of $264,827.57, and he did so in 1944. As we have said, it was this payment to the corporation which was taxed by the Government as income and which the plaintiff insists was not taxable income.

The money was paid to the plaintiff and became its money. In a general sense, then, it was income. But not everything of value that comes into one's control is taxable income. So far as is here pertinent, that is because the income tax statutes do not purport to levy an income tax on all money or things of value which come into one's control. We say, so far as is here pertinent, because we do not understand the plaintiff to suggest that Congress could not constitutionally tax the plaintiff on the money here in question. Our question, then, is a question of the proper construction of the income tax statutes.

Section 22(a) of the Internal Revenue Code, 26 U.S.C.A. § 22(a), says:

"(a) General definition. `Gross income' includes gains, profits, and income derived from salaries, wages, or compensation for personal service * * *, of whatever kind and in whatever form paid, or from professions, vocations, trades, businesses, commerce, or sales, or dealings in property, whether real or personal, growing out of the ownership or use of or interest in such property; also from interest, rent, dividends, securities, or the transaction of any business carried on for gain or profit, or gains or profits and income derived from any source whatever. * * *"

The receipt of the money here in question seems not to fall within any of the language of Section 22(a) except the clause last quoted, "gains or profits and income derived from any source whatever." It was clearly not compensation for services, or profits from sales, or rent, interest or dividends. But it was "income derived from any source whatever", unless those words, as used in the statute, have a meaning more restricted than their apparent meaning.

We see no reason for not giving the statutory language its natural meaning, as to the money here in question. It was, to be sure, a "windfall" to the plaintiff. If Congress were to select one kind of receipt of money which, above all others, would be a fair mark for taxation, it might well be "windfalls." That would not penalize industry nor discourage enterprise or economy as taxes on wages, salaries and profits do. At any rate we cannot imagine Congress expressly exempting windfalls from taxation as income, as it has done expressly with regard to gifts and inheritances. That being so, it is not for the courts, by the process of statutory construction, to create an exception which the legislature would quite certainly not have made if it had dealt expressly with the question.

The plaintiff relies upon language used by the Supreme Court of the United States in Eisner v. Macomber, 252 U.S. 189, 40 S.Ct. 189, 64 L.Ed. 521. The question in that case was whether stock dividends distributed by a corporation to its shareholders, in proportion to their existing holdings, constituted taxable income. The court's decision was that they did not, they being merely evidence of accretions to capital which had not been "realized" by conversion into money in the hands of the shareholder. The shareholder still had the same interest in the corporation, though he now had two pieces of paper instead of one, to evidence that interest. The court said, 252 U.S. at page 207, 40 S.Ct. at page 193, with regard to the statutory language "gain derived from capital":

"* * * Here we have the essential matter: not a gain accruing to capital; not a growth or increment of value in the investment; but a gain, a profit, something of exchangeable value, proceeding from the property, severed from the capital, however invested or employed, and coming in, being `derived' — that is, received or drawn by the recipient (the taxpayer) for his separate use, benefit and disposal — that is income derived from property. Nothing else answers the description."

The court concluded that Congress could not constitutionally tax unrealized accretions to capital.

The instant case does not involve at all the problem of unrealized accretions to capital. The receipt of the money in question was, in every possible sense, a realization. The money came in from an outside source, it went into the plaintiff's treasury, it did not replace something which went out of plaintiff's ownership as a consideration for it. The decision in Eisner v. Macomber, supra, seems, then, not to be in point in the instant case. But in Eisner v. Macomber the court defined "income" for income tax purposes, as follows:

"`* * * the gain derived from capital, from labor, or from both combined,' provided it be understood to include profit gained through a sale or conversion of capital assets * * *."

We are unwilling to surmise that the court intended by this language, not necessary to its decision, to read out of the income tax statute language which Congress must have inserted with great deliberation and for important reasons, viz., "income derived from any source whatever." It could not have so intended for constitutional reasons since the quoted language was taken almost literally from the Constitutional Amendment which authorized the taxation of incomes.

In Helvering v. Clifford, 309 U.S. 331, 334, 60 S.Ct. 554, 556, 84 L.Ed. 788, the court said:

"The broad sweep of this language Section 22(a) indicates the purpose of Congress to use the full measure of its taxing power within those definable categories."

In Helvering v. Brunn, 309 U.S. 461, 60 S.Ct. 631, 84 L.Ed. 864, the court said that its expressions in Eisner v. Macomber were merely for the purpose of clarifying the distinction between an ordinary dividend and a stock dividend, and were not controlling in the case then before it for decision. In United States v. Safety Car Heating Co., 297 U.S. 88, 93, 56 S.Ct. 353, 356, 80 L.Ed. 500, the court said of the words "from any source whatever" as they appeared in the Revenue Act of 1926, § 213(a), 26 U.S.C.A.Int.Rev.Acts, page 163:

"We have said of that act that it reveals in its provisions an intention on the part of Congress to reach `pretty much every sort of income subject to the federal power.' Helvering v. Stockholms Enskilda Bank, 293 U.S. 84, 89, 55 S.Ct. 50, 52, 79 L.Ed. 211."

In Douglas v. Willcuts, 296 U.S. 1, 9, 56 S.Ct. 59, 62, 80 L.Ed. 3, the court said, of the definitions of gross income in the statutes:

"They are to be considered in the light of the evident intent of the Congress `to use its power to the full extent.'

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