Athens Roller Mills v. Com'r of Internal Revenue

• Citation: 136 F.2d 125
• Decision Date: 01 June 1943
• Docket Number: No. 9430.,9430.
• Parties: ATHENS ROLLER MILLS, Inc., v. COMMISSIONER OF INTERNAL REVENUE.
• Court: U.S. Court of Appeals — Sixth Circuit

136 F.2d 125 (1943)

ATHENS ROLLER MILLS, Inc., v. COMMISSIONER OF INTERNAL REVENUE.

No. 9430.

Circuit Court of Appeals, Sixth Circuit.

June 1, 1943.

Geo. E. H. Goodner, of Washington, D. C., for petitioner.

S. Dee Hanson, of Washington, D. C. (Samuel O. Clark, Jr., Sewall Key, and A. F. Prescott, all of Washington, D. C., on the brief), for respondent.

Before ALLEN, HAMILTON, and McALLISTER, Circuit Judges.

HAMILTON, Circuit Judge.

A proceeding to review a decision of the Board of Tax Appeals (now the Tax Court of the United States) determining a deficiency against the petitioner in income taxes and excess profits taxes respectively for the year 1935 in the amounts of $809.19 and $276.43.

The taxpayer is a corporation organized under the laws of the State of Tennessee and engaged in the milling business. It consistently keeps its books and files its income tax returns on the accrual basis Taxpayer made payments of processing taxes in the year 1935 in the total amount of $6,844.63. Of this sum $1,983.00 was for taxes due in 1934 and $4,857.61 for taxes due in 1935 and $3.97 penalty for the latter year. In addition to the foregoing payments, the taxpayer accrued on its books but did not pay, $7,092.70 taxes due for the year 1935. The taxpayer, in making its income and excess profits tax return for the calendar year 1935, deducted from gross income as taxes paid or accrued processing taxes of $7,106.87.

On March 9, 1939, the respondent on audit and review disallowed the processing taxes claimed by the taxpayer as a deduction on the ground that "it appears that these taxes were invalidly imposed in accordance with the decision of the Supreme Court in United States v. William M. Butler et al., 297 U.S. 1, 56 S.Ct. 312, 80 L.Ed. 477, 102 A.L.R. 914, and inasmuch as the records of the Bureau disclose that you have filed a claim for refund alleging that the taxes so paid are refundable pursuant to the provisions of Title VII of the Revenue Act of 1936 7 U.S.C.A. § 644, et seq.."

On January 6, 1939, the taxpayer petitioned the Board for review. The Commissioner in his answer, by way of a claim for increased deficiencies in income and excess profits taxes, stated that in his original statutory notice of deficiency he had failed to take into consideration the amount of $7,092.70 which represented taxes imposed under the Agricultural Adjustment Act, but not paid by the taxpayer, which sum the taxpayer had included in the cost of goods sold, and that the cost of goods sold as claimed in the taxpayer's original return should be reduced $7,092.70. The Board, after making certain adjustments favorable to the taxpayer and not in controversy here, disallowed as a deduction from the taxpayer's original return under the item designated "taxes," processing taxes in the sum of $7,092.70 on the ground that this sum had been accrued in the taxpayer's accounts, but not paid before the Statute levying the taxes was declared unconstitutional and within the statutory period of limitation for the adjustment of both income and deductions.

Respondent put in evidence before the Board a claim for refund filed by the taxpayer on March 14, 1940, wherein the taxpayer stated that in its income tax return for the calendar year 1936, it had included in gross income $7,075.71 the amount of processing taxes which it had claimed as a deduction in its original return for the calendar year 1935 and respondent also put into the record the allowance of the taxpayer's refund and a United States Treasury check dated December 9, 1940, in the amount of $845.53, payable to the order of the Athens Roller Mills, Inc., which check showed the indorsement of the payee and also the canceling of the check by payment. The parties stipulated that the check in question represented a tax refund to the petitioner of $706.01 and interest thereon of $139.52 and that said sum was based on petitioner's refund claim.

Respondent now concedes that the Board's order on the ground stated by it was erroneous under the decision of this court in Davies' Estate v. Commissioner of Internal Revenue, 6 Cir., 126 F.2d 294. However, it argues that the Board's decision should be affirmed on other grounds, namely, (a) because the taxpayer failed to prove that it had filed with the Collector appropriate processing tax returns showing that it owed in the aggregate the $7,092.70 in question and (b) that the taxpayer, having recovered a refund on account of the processing taxes reported in its gross income for the calendar year 1936, which it had charged as an expense in 1935, was estopped to question the disallowance of taxes as a deduction by the Commissioner.

It is to be noted that here respondent seeks to raise new questions of law and issues of fact not stated in the Commissioner's statutory notice of deficiency, nor stated in the pleadings before the Board of Tax Appeals nor decided by the Board.

When disentangled from technicalities that formerly plagued courts in the administration of justice, the rule that appellate courts confine themselves to issues raised below in reviewing a decision of the Board of Tax Appeals still has some vitality and the rule should only be cast aside where in exceptional cases this is necessary to prevent a miscarriage of justice. Respondent does not present any new theory of law promulgated by court decisions or statutes nor any phase of the case involving legal...