CINCINNATI UNDERWRITERS A. CO. v. Commissioner of Int. Rev., 6095.

• Decision Date: 17 March 1933
• Docket Number: No. 6095.,6095.
• Citation: 63 F.2d 309
• Parties: CINCINNATI UNDERWRITERS AGENCY CO. v. COMMISSIONER OF INTERNAL REVENUE.
• Court: U.S. Court of Appeals — Sixth Circuit

63 F.2d 309 (1933)

CINCINNATI UNDERWRITERS AGENCY CO. v. COMMISSIONER OF INTERNAL REVENUE.

No. 6095.

Circuit Court of Appeals, Sixth Circuit.

January 17, 1933.

As Modified on Denial of Rehearing March 17, 1933.

A. C. Harvey, of Chicago, Ill. (Charles A. Kreps, of Chicago, Ill., on the brief), for petitioner.

J. H. McEvers of Washington, D. C. (G. A. Youngquist, Asst. Atty. Gen., and Sewall Key and C. M. Charest, both of Washington, D. C., on the brief), for respondent.

Before MOORMAN, HICKENLOOPER, and SIMONS, Circuit Judges.

MOORMAN, Circuit Judges.

The question in this case is whether the petitioner, an Ohio corporation engaged in soliciting insurance on a commission basis, but not engaged in assuming insurance risks or issuing insurance policies, should have been permitted to file consolidated tax returns for the years 1926 and 1927 with another Ohio corporation, the Eureka Security Fire & Marine Insurance Company, which was engaged in issuing insurance policies and assuming insurance risks common to insurance companies.

The Revenue Act of 1926, § 240 (a), 26 USCA § 993 (a), gave to affiliated corporations the right to make consolidated returns for 1926 and subsequent years. In defining such corporations, it provided in part that two or more domestic corporations should be deemed to be affiliated if one corporation owned at least 95 per centum of the voting stock of the other or others. The Eureka Company owned all of the capital stock of the petitioner, and, as the general language of the act is broad enough to include all domestic corporations, insurance companies, and others, it is contended by the petitioner that the decision of the Board of Tax Appeals in disallowing its affiliation with the Eureka Company is contrary to the provisions of the act.

There would be much force in the petitioner's contention were it possible to give it effect without defeating the legislative intent of other provisions of the act. One of such purposes, as appears from provisions made exclusively applicable to insurance companies, was to segregate such companies from other corporations for tax purposes. Pursuant to this purpose, it was provided that, in lieu of the tax rates of 13 and 13½ per cent. levied upon the income of other corporations, the rate applicable to insurance companies should be 12½ per cent. Nowhere was provision made for a tax rate applicable to the consolidated income of these differently taxed units. It is contended by the petitioner that this deficiency in the act may be supplied by an application by the Commissioner of the higher class rate to the consolidated result, but this contention finds denial in the circumstance that there is no authority in the Commissioner so to do, and that tax rates are fixed by statute and not by administrative procedure. There being, therefore, no statutory rate for such consolidated result nor any authority for applying either of the class rates, the only solution of the situation that is practicable is to construe the general provisions relied upon as permitting only such affiliation as could be effected without affecting the other purposes of the act. This was what was done in circumstances almost identical with those here involved in Fire Cos. Building Corporation v. Commissioner (C. C. A.) 54 F.(2d) 488. It was fully warranted under the rule forbidding constructions which lead to absurd consequences. In re Chapman, 166 U. S. 661, 667, 17 S. Ct. 677, 41 L. Ed....