Helvering v. Gowran, No. 27

CourtUnited States Supreme Court
Writing for the CourtBRANDEIS
Citation302 U.S. 238,82 L.Ed. 224,58 S.Ct. 154
Decision Date06 December 1937
Docket NumberNo. 27
PartiesHELVERING, Commissioner of Internal Revenue, v. GOWRAN. *

302 U.S. 238
58 S.Ct. 154
82 L.Ed. 224
HELVERING, Commissioner of Internal Revenue,

v.

GOWRAN.*

No. 27.
Argued Oct. 22, 1937.
Decided Dec. 6, 1937.

Page 239

Messrs. Homer S. Cummings, Atty. Gen., and Robert H. Jackson, Asst. Atty. Gen., for petitioner.

Messrs. John C. Altman, of San Francisco, Cal., and A. L. Nash, of Manitowoc, Wis., for respondent.

Mr. Justice BRANDEIS delivered the opinion of the Court.

The questions for decision concern the taxation as income of a dividend in preferred stock and the proceeds received on its sale.

On June 29, 1929, the Hamilton Manufacturing Company, a Wisconsin corporation, had outstanding preferred stock of the par value of $100 a share and common stock without par value. On that day the directors declared from the surplus earnings a dividend of $14 a share on the common stock, payable on July 1, 1929, in preferred stock at its par value. Gowran, as owner of common stock, received as his dividend 533 and a fraction shares of the preferred. On or about October 1, 1929, the company acquired his preferred stock and paid him therefor,

Page 240

at $100 a share, $53,371.50. In his income tax return for the year Gowran did not treat this sum as taxable income, but included $27,262.72 as capital net gain on the shares received and sold, computing the gain under articles 58 and 600 of regulations 74, then in force. The Commissioner rejected that treatment of the matter; determined that the $53,371.50 received was income taxable under the Revenue Act of 1928, § 115(g), 45 Stat. 791, 822 (26 U.S.C.A. § 115(g) and note), as a stock dividend redeemed; and assessed a deficiency of $5,831.67.

The taxpayer sought a redetermination by the Board of Tax Appeals. A division of the Board concluded, upon testimony and stipulated facts, that there had been no cancellation or redemption of the preferred stock so as to make it a taxable dividend under section 115(g); that the transaction by which the company acquired it constituted a sale. The Commissioner secured a reconsideration of the case. He then contended that, under the rule declared in Commissioner of Internal Revenue v. Tillotson Mfg. Co. (C.C.A.) 76 F.2d 189, the stock dividend was taxable, because it had resulted in a change of Gowran's proportionate interest in the company. That contention was sustained by the Board; and, on that ground, it affirmed the Commissioner's determination of a deficiency. Gowran v. Com'r, 32 B.T.A. 820.

The taxpayer sought a review by the Circuit Court of Appeals. The Commissioner again urged that the stock dividend was taxable; and then, for the first time, contended that, even if it was not taxable, the determination of the deficiency should be affirmed, because within the tax year the stock had been sold at its par value and, as its cost had been zero, the entire proceeds constituted income. The Court of Appeals recognized that, since the dividends in preferred stock gave to Gowran an interest different in character from that which his common stock represented, it was constitutionally taxable under Koshland

Page 241

v. Helvering, 298 U.S. 441, 56 S.Ct. 767, 80 L.Ed. 1268, 105 A.L.R. 756; but it held that the dividend could not be taxed as income, since by section 115(f), 26 U.S.C.A. § 115(f) and note, Congress had provided: 'A stock dividend shall not be subject to tax.' And it held further that no part of the proceeds could be taxed as income, since there was no profit on the sale, it being agreed that the fair market value of the stock, both at the date of receipt and at the date of the sale, was $100 a share. Gowran v. Com'r, 87 F.2d 125.

Because of the importance of the questions presented in the administration of the revenue laws, certiorari was granted. 301 U.S. 676, 57 S.Ct. 924, 81 L.Ed. 1337.

First. The government contends that section 115(f) should be read as prohibiting taxation only of those stock dividends which the Constitution does not permit to be taxed; and that, since by the dividend Gowran acquired an interest in the corporation essentially different from that theretofore represented by his common stock, the dividend was taxable. In support of that construction of section 115(f), it is urged that Congress has in income tax legislation manifested generally its intention to use, to the full extent, its constitutional power, Helvering v. Stockholms Enskilda Bank, 293 U.S. 84, 89, 55 S.Ct. 50, 52, 79 L.Ed. 211; Douglas v. Willcuts, 296 U.S. 1, 9, 56 S.Ct. 59, 80 L.Ed. 3, 101 A.L.R. 391; that this Court holds grants of immunity from taxation should always be strictly construed, Pacific Co. v. Johnson, 285 U.S. 480, 491, 52 S.Ct. 424, 426, 76 L.Ed. 893; and that the only reason for exempting stock dividends was to comply with the Constitution.

This preferred stock had substantially the same attributes as that involved in the Koshland Case. There the dividend was of common stock to a preferred stockholder, it is true; but we are of opinion that under the rule there declared Congress could have taxed this stock dividend. Nevertheless, by section 115(f) it enacted in 1928, as it did in earlier and later Revenue Acts, that 'a stock dividend shall not be subject to tax.' The prohibition is comprehensive. It is so clearly expressed as to leave no room

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for construction. It extends to all stock dividends. Such was the construction consistently given to it by the Treasury Department.1 The purpose of Congress when enacting section 115(f) may have been merely to comply with the requirement of the Constitution as interpreted in Eisner v. Macomber, 252 U.S. 189, 40 S.Ct. 189, 64 L.Ed. 521, 9 A.L.R. 1570; and the comprehensive language in section 115(f) may have been adopted in the erroneous belief that under the rule declared in that case no stock dividend could be taxed. But such facts would not justify the Court in departing from the unmistakable com-

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mand embodied in the statute. Congress declared that the preferred stock should not be taxed as a dividend.

Second. The government contends that, even if section 115(f) be construed as prohibiting taxation of the preferred stock dividend, the decision of the Board of Tax Appeals affirming the Commissioner's determination of a deficiency should be sustained, because the gain from sale of the stock within the year was taxable income and the entire proceeds must be deemed income, since the stock had cost Gowran nothing. The Circuit Court of Appeals rejected that contention. It held that there was no income, because, as stipulated, there was no difference between the value of the stock when received and its value when sold. The court likened a nontaxable stock dividend to a tax-free gift or legacy and said: 'One who receives a tax-free gift and later sells it, in the absence of statute providing otherwise, is taxed upon the profit arising from the difference in its value at the time he receives it and the sale price. Similarly one who receives a tax-free bequest, when selling it, is taxed upon the profit arising from any excess of the sale price over its fair market value at the time of receipt.'...

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520 practice notes
  • Helvering v. Stuart, Nos. 49 and 48
    • United States
    • United States Supreme Court
    • November 16, 1942
    ...But the applicability of that section was raised by the Commissioner as appellee before the Circuit Court of Appeals. Helvering v. Gowran, 302 U.S. 238, 245, 58 S.Ct. 154, 158, 82 L.Ed. 224. The contention in the Court of Appeals rested on the facts stipulated in the Board of Tax Appeals. O......
  • Banco de Espana v. Federal Reserve Bank, No. 370-372.
    • United States
    • U.S. Court of Appeals — Second Circuit
    • July 8, 1940
    ...here reassert their immunity, as they are entitled to do, as an independent ground for affirming the judgment below. Helvering v. Gowran, 302 U.S. 238, 58 S.Ct. 154, 82 L.Ed. 224. Plaintiff attacks a dismissal of the action in Solomon's case on the basis particularly of United States v. Lee......
  • A.M. ex rel. F.M. v. Holmes, Nos. 14-2066
    • United States
    • United States Courts of Appeals. United States Court of Appeals (10th Circuit)
    • July 25, 2016
    ...if the result is correct ‘[even if] the lower court relied upon a wrong ground or gave a wrong reason’ ” (quoting Helvering v. Gowran , 302 U.S. 238, 245, 58 S.Ct. 154, 82 L.Ed. 224 (1937) )); Richison , 634 F.3d at 1130 (noting our prerogative to “affirm on any basis supported by the recor......
  • LeCann v. Cobham (In re Cobham), NO. 5:15–CV–137–FL
    • United States
    • United States District Courts. 4th Circuit. Eastern District of North Carolina
    • December 7, 2015
    ...should be denied. Id. at 489–90. The court may affirm the bankruptcy court on any ground supported by the record. See Helvering v. Gowran, 302 U.S. 238, 245–46, 58 S.Ct. 154, 82 L.Ed. 224 (1937) (“In the review of judicial proceedings the rule is settled that, if the decision below is corre......
  • Request a trial to view additional results
520 cases
  • Helvering v. Stuart, Nos. 49 and 48
    • United States
    • United States Supreme Court
    • November 16, 1942
    ...But the applicability of that section was raised by the Commissioner as appellee before the Circuit Court of Appeals. Helvering v. Gowran, 302 U.S. 238, 245, 58 S.Ct. 154, 158, 82 L.Ed. 224. The contention in the Court of Appeals rested on the facts stipulated in the Board of Tax Appeals. O......
  • Banco de Espana v. Federal Reserve Bank, No. 370-372.
    • United States
    • U.S. Court of Appeals — Second Circuit
    • July 8, 1940
    ...here reassert their immunity, as they are entitled to do, as an independent ground for affirming the judgment below. Helvering v. Gowran, 302 U.S. 238, 58 S.Ct. 154, 82 L.Ed. 224. Plaintiff attacks a dismissal of the action in Solomon's case on the basis particularly of United States v. Lee......
  • A.M. ex rel. F.M. v. Holmes, Nos. 14-2066
    • United States
    • United States Courts of Appeals. United States Court of Appeals (10th Circuit)
    • July 25, 2016
    ...if the result is correct ‘[even if] the lower court relied upon a wrong ground or gave a wrong reason’ ” (quoting Helvering v. Gowran , 302 U.S. 238, 245, 58 S.Ct. 154, 82 L.Ed. 224 (1937) )); Richison , 634 F.3d at 1130 (noting our prerogative to “affirm on any basis supported by the recor......
  • LeCann v. Cobham (In re Cobham), NO. 5:15–CV–137–FL
    • United States
    • United States District Courts. 4th Circuit. Eastern District of North Carolina
    • December 7, 2015
    ...should be denied. Id. at 489–90. The court may affirm the bankruptcy court on any ground supported by the record. See Helvering v. Gowran, 302 U.S. 238, 245–46, 58 S.Ct. 154, 82 L.Ed. 224 (1937) (“In the review of judicial proceedings the rule is settled that, if the decision below is corre......
  • Request a trial to view additional results

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