Commissioner of Internal Rev. v. Glenshaw Glass Co., No. 11073

CourtUnited States Courts of Appeals. United States Court of Appeals (3rd Circuit)
Writing for the CourtBIGGS, , and MARIS, McLAUGHLIN, KALODNER, STALEY and HASTIE, Circuit
Citation211 F.2d 928
PartiesCOMMISSIONER OF INTERNAL REVENUE v. GLENSHAW GLASS CO. COMMISSIONER OF INTERNAL REVENUE v. WILLIAM GOLDMAN THEATRES, Inc.
Decision Date09 April 1954
Docket NumberNo. 11073,11150.

211 F.2d 928 (1954)

COMMISSIONER OF INTERNAL REVENUE
v.
GLENSHAW GLASS CO.
COMMISSIONER OF INTERNAL REVENUE
v.
WILLIAM GOLDMAN THEATRES, Inc.

Nos. 11073, 11150.

United States Court of Appeals, Third Circuit.

Argued December 23, 1953.

Decided April 9, 1954.

As Amended April 26, 1954.


211 F.2d 929

Melva M. Graney, Washington, D. C. (H. Brian Holland, Asst. Atty. Gen., Ellis N. Slack, Lee A. Jackson, Sp. Assts. to Atty. Gen., on the brief), for petitioner.

Max Swiren, Chicago, Ill. (Sidney B. Gambill, Pittsburgh, Pa., Joseph D. Block, Swiren & Heineman, Chicago, III., Reed, Smith, Shaw & McClay, Pittsburgh, Pa., on the brief), for Glenshaw Glass Co.

Samuel H. Levy, Philadelphia, Pa. (Bernard Wolfman, Philadelphia, Pa., on the brief), for Goldman Theatres.

Before BIGGS, Chief Judge, and MARIS, McLAUGHLIN, KALODNER, STALEY and HASTIE, Circuit Judges.

BIGGS, Chief Judge.

The Commissioner seeks to reverse two decisions of the United States Tax Court in favor of two taxpayers. In Glenshaw a claim for punitive damages based upon a competitor's, Hartford's, fraudulent suits which disastrously affected the taxpayer's business, as well as a claim for treble damages under Section 4 of the Clayton Act, 15 U.S.C.A. § 15, were settled by the payment of a sum of money.1 In Goldman a judgment for treble damages was awarded Goldman against Loew's, Inc.,2 also pursuant to Section 4 of the Clayton Act. The sole question presented for our determination is whether moneys paid as punitive or statutory treble damages are taxable as

211 F.2d 930
income under Section 22(a) of the Internal Revenue Code, 26 U.S.C.A.3 The Tax Court has decided that they are not and the Commissioner of Internal Revenue has petitioned this court for review.4 Insofar as the issue before us is concerned no valid distinctions can be drawn between a money settlement and money paid in satisfaction of a judgment or between punitive damages levied for fraud and treble damages rendered under the Clayton Act.5

The positions of the taxpayers are based in large part upon the definition of "income" set out in Eisner v. Macomber, 1920, 252 U.S. 189, 207, 40 S.Ct. 189, 64 L.Ed. 521, on the decision of this court in Central R. Co. v. Commissioner, 3 Cir., 1935, 79 F.2d 697, 101 A.L.R. 1448, the decision of the Board of Tax Appeals in Highland Farms Corporation v. Commissioner of Internal Revenue, 1940, 42 B.T.A. 1314, and the applicable Treasury Regulations.67 The taxpayers also assert considerations which are based on the general philosophy of income taxation but we will not discuss these specifically in this opinion. But the United States for its part contends that Eisner v. Macomber does not settle the applicable definition of what constitutes taxable income insofar as the cases at bar are concerned, that the decision of this court in the Central R. Co. case is not applicable, but if it is, it was wrongly decided, and that the decision of the Board of Tax Appeals in Highland Farms was clearly erroneous. The substance of the government's argument is that all property or money coming into the hands of a taxpayer is income except where specifically exempted by the taxing statute.

211 F.2d 931

In Eisner v. Macomber the Supreme Court stated 252 U.S. 189, 40 S.Ct. 193: "`Income may be defined as a 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 * * *." In Eisner v. Macomber the Supreme Court laid emphasis on the ordinary meaning of income in common parlance and said, 252 U.S. at pages 206-207, 40 S.Ct. at page 193: "For the present purpose we require only a clear definition of the term `income' as used in common speech, in order to determine its meaning in the amendment * * *." The second sentence of the applicable Treasury Regulations adopted the Eisner v. Macomber definition in toto. See note 7 of this opinion. The only qualification of the second sentence of the regulation lies in the phrase "In general" and surely little can be taken from that. Of course, as the United States points out, in Eisner v. Macomber the Supreme Court was primarily concerned with distinguishing between capital and income, not between sources of property which came into the hands of the taxpayer and we cannot doubt but that the Supreme Court has departed in some degree from the Eisner v. Macomber definition. This is apparent from United States v. Kirby Lumber Co.,8 1931, 284 U.S. 1, 3, 52 S.Ct. 4, 76 L.Ed. 131 where Mr. Justice Holmes stated: "We see nothing to be gained by the discussion of judicial definitions."

If the property or money paid represents a return of capital or a contribution to capital it is not subject to income taxation. Subsidies paid by a sovereign to aid in the construction and operation of a railroad line were held not to be income in Edwards v. Cuba R. Co., 1925, 268 U.S. 628, 45 S.Ct. 614, 69 L.Ed. 1124, and the money and property acquired were treated in effect as an accretion to capital. But compare Detroit Edison Co. v. Commissioner, 1943, 319 U.S. 98, 63 S.Ct. 902, 87 L.Ed. 1286, where the Supreme Court has indicated some halt in the doctrine of capital donation expressed in Edwards v. Cuba R. Co., supra. Cf. also Great Northern Ry. Co. v. Commissioner, 8 B.T.A. 225 (1927), affirmed 8 Cir., 1930, 40 F.2d 372. A single gift of money or property probably should not be treated as taxable income even if the specific exemption granted to gifts by statute were unavailable. Periodicity seems to be considered a factor. See Irwin v. Gavit, 1925, 268 U.S. 161, 168, 45 S.Ct. 475, 69 L.Ed. 897; Magill, Taxable Income, supra, note 8, at p. 428. The spontaneity of the gift may also serve to relieve the recipient of tax. See Bogardus v. Commissioner, 1937, 302 U.S. 34, 42, 58 S. Ct. 61, 82 L.Ed. 32; Washburn v. Commissioner, 1945, 5 T.C. 1333.9

The United States lays emphasis on the decision of the Court of Claims in Park & Tilford Distillers Corp. v. United States, Ct.Cls. 1952, 107 F.Supp. 941, 943-945. In this case the issue was whether a recovery under Section 16(b) of the Securities Exchange Act, 15 U.S. C.A. § 78p(b), constituted income to the recovering corporate taxpayer. The Court of Claims held that the recovery was taxable as income and specifically rejected the reasoning of this court in Central R. Co. v. Commissioner and the decision of the Board of Tax Appeals in Highland Farms. The Court of Claims stated: "The money came in from an outside source, it went into the plaintiff's

211 F.2d 932
treasury, it did not replace something which went out of plaintiff's ownership as a consideration for it." The Court went on to say that it was unwilling to surmise that the definition of "income" of Eisner v. Macomber was sufficient to read out of the taxing statute the phrase "income derived from any source whatever." In our opinion the theory of recovery under Section 16(b) of the Securities Exchange Act of 1934 is not a purely punitive one. The statute was designed to prohibit profit being made by an "insider" possessing peculiar knowledge of future profitable operations of his corporation. The making of a profit by the "insider" is the mainspring of the statute, a profit required by law to be passed on to the corporation probably because the corporation is the most convenient...

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14 practice notes
  • Carr-Consolidated Biscuit Company v. Moore, Civ. No. 3792.
    • United States
    • United States District Courts. 3th Circuit. United States District Court of Middle District of Pennsylvania
    • October 25, 1954
    ...because the corporation is the most convenient receptacle." Commissioner of Internal Revenue v. Glenshaw Glass Co., 3 Cir., 1954, 211 F. 2d 928, at page 932, and see Kelly v. Dolan, 3 Cir., 1916, 233 F. 635. Cf. 66 Harv.L.Rev., supra at 417, "The `violation' is the flouting of the statutory......
  • Commissioner of Internal Revenue v. Glenshaw Glass Company, No. 199
    • United States
    • United States Supreme Court
    • March 28, 1955
    ...recovery must be reported by a taxpayer as gross income under § 22(a) of the Internal Revenue Code of 1939.1 In a single opinion, 211 F.2d 928, the Court of Appeals affirmed the Tax Court's separate rulings in favor of the taxpayers. 18 T.C. 860; 19 T.C. 637. Because of the frequent recurre......
  • Roemer v. Comm'r of Internal Revenue , Docket No. 949-80.
    • United States
    • United States Tax Court
    • August 30, 1982
    ...view that punitive damages did not constitute gross income for tax purposes. Glenshaw Glass Co. v. Commissioner, 18 T.C. 860 (1952), affd. 211 F.2d 928 (3d Cir. 1954). In 1955, the Supreme Court granted certiorari and reversed the position of this Court and the Third Circuit. Commissioner v......
  • Reynolds v. Pegler
    • United States
    • United States District Courts. 2nd Circuit. United States District Courts. 2nd Circuit. Southern District of New York
    • July 22, 1954
    ...v. Bobbs-Merrill Co., 228 N.Y. 58, 65-66, 126 N.E. 260, 10 A.L.R. 662; cf. Commissioner of Internal Revenue v. Glenshaw Glass Co., 3 Cir., 211 F.2d 928, 8 New York Evening Post Co. v. Chaloner, 2 Cir., 265 F. 204, 220. 9 See, e. g., Sanderson v. Caldwell, 45 N.Y. 398, 406; Mattox v. News Sn......
  • Request a trial to view additional results
14 cases
  • Carr-Consolidated Biscuit Company v. Moore, Civ. No. 3792.
    • United States
    • United States District Courts. 3th Circuit. United States District Court of Middle District of Pennsylvania
    • October 25, 1954
    ...because the corporation is the most convenient receptacle." Commissioner of Internal Revenue v. Glenshaw Glass Co., 3 Cir., 1954, 211 F. 2d 928, at page 932, and see Kelly v. Dolan, 3 Cir., 1916, 233 F. 635. Cf. 66 Harv.L.Rev., supra at 417, "The `violation' is the flouting of the statutory......
  • Commissioner of Internal Revenue v. Glenshaw Glass Company, No. 199
    • United States
    • United States Supreme Court
    • March 28, 1955
    ...recovery must be reported by a taxpayer as gross income under § 22(a) of the Internal Revenue Code of 1939.1 In a single opinion, 211 F.2d 928, the Court of Appeals affirmed the Tax Court's separate rulings in favor of the taxpayers. 18 T.C. 860; 19 T.C. 637. Because of the frequent recurre......
  • Roemer v. Comm'r of Internal Revenue , Docket No. 949-80.
    • United States
    • United States Tax Court
    • August 30, 1982
    ...view that punitive damages did not constitute gross income for tax purposes. Glenshaw Glass Co. v. Commissioner, 18 T.C. 860 (1952), affd. 211 F.2d 928 (3d Cir. 1954). In 1955, the Supreme Court granted certiorari and reversed the position of this Court and the Third Circuit. Commissioner v......
  • Reynolds v. Pegler
    • United States
    • United States District Courts. 2nd Circuit. United States District Courts. 2nd Circuit. Southern District of New York
    • July 22, 1954
    ...v. Bobbs-Merrill Co., 228 N.Y. 58, 65-66, 126 N.E. 260, 10 A.L.R. 662; cf. Commissioner of Internal Revenue v. Glenshaw Glass Co., 3 Cir., 211 F.2d 928, 8 New York Evening Post Co. v. Chaloner, 2 Cir., 265 F. 204, 220. 9 See, e. g., Sanderson v. Caldwell, 45 N.Y. 398, 406; Mattox v. News Sn......
  • Request a trial to view additional results

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