Helvering v. Brooklyn City R. Co.

• Decision Date: 16 July 1934
• Docket Number: No. 340.,340.
• Citation: 72 F.2d 274
• Parties: HELVERING, Commissioner of Internal Revenue, v. BROOKLYN CITY R. CO.
• Court: U.S. Court of Appeals — Second Circuit

72 F.2d 274 (1934)

HELVERING, Commissioner of Internal Revenue, v. BROOKLYN CITY R. CO.

No. 340.

Circuit Court of Appeals, Second Circuit.

July 16, 1934.

Frank J. Wideman, Asst. Atty. Gen., and Sewall Key and John MacC. Hudson, Sp. Assts. to the Atty. Gen., for appellant.

Sigourney B. Olney, of Brooklyn, N. Y., and Raymond B. Goodell, of New York City, for appellee.

Before MANTON, L. HAND, and AUGUSTUS N. HAND, Circuit Judges.

L. HAND, Circuit Judge.

This is an appeal from (petition to review) an order of the Board of Tax Appeals which expunged a deficiency fixed by the Commissioner for the calendar year 1921. The taxpayer is a street railway, subject to the jurisdiction of the Public Service Commission of the State of New York, and on July 10, 1890, its executive committee and directors, in pursuance of a recent statute of the state requiring it to do so, fixed its fiscal year to end June thirtieth; and thereafter it made its reports to the commission on the basis of such a fiscal year. It did not however do the same in its income tax returns, but until 1930 filed these on the basis of the calendar year. In accordance with this practice, on or about March 15, 1922, it filed a return for the whole calendar year 1921, on which the Commissioner assessed a deficiency of $154,000, on August 6, 1926, for reasons not necessary to consider. On October 2 of that year it filed with the Board of Tax Appeals a petition to review this assessment; which it amended in April, 1931. In the amendment it insisted that its return should have been for the fiscal year ending June 30, 1921, in which event there would have been no deficiency; as the original petition is not in the record, we cannot know whether or not it took the same position also. The Commissioner contested the taxpayer's right to vary the period voluntarily selected by it; but the Board decided that the statute made compulsory the actual fiscal year, if there was one, and that neither the taxpayer, nor the Commissioner, had power to adopt any other. The Commissioner then appealed. Three questions arise. First, whether the books were in fact kept on a fiscal year basis; second, whether if they were, the return must follow the fiscal year; third, whether the taxpayer is estopped to raise the question for the first time on a petition to the Board to review the deficiency.

We have no doubt that the books were in fact kept on a fiscal year basis; and indeed, the Commissioner substantially conceded as much before the Board. Be that as it may, the books were themselves in evidence, and showed a closing date of June thirtieth in all cases. Specifically, the cash was balanced as of that date, and only then; this is also true of the "accounts receivable," the "suspense account," and the "general office building account." The "operating and maintaining" account was indeed kept on a quarterly basis, one quarter ending December thirty-first; but these quarterly balances were carried over to the profit and loss account, which was itself balanced only on June thirtieth, and was finally carried into the surplus account, where the significant entry appears, "To transfer debit balance of Profit and Loss a/c to Surplus a/c at termination of Fiscal year June 30th, 1921." The same entry was made for the next year. The surplus account was balanced as of June thirtieth. All this would be conclusive, even though we were hearing the cause de novo; after a finding by the Board it is quite beyond our review. The books being so kept, the statute required the return to be made as of the fiscal year and that alone. "The net income shall be computed upon the basis of the taxpayer's annual accounting period (fiscal year or calendar year, as the case...