Mitchell Bros. Co. v. Doyle
| Decision Date | 30 April 1915 |
| Citation | 225 F. 437 |
| Parties | MITCHELL BROS. CO. v. DOYLE, U.S. Internal Revenue Collector. |
| Court | U.S. District Court — Western District of Michigan |
At Law. Action by the Mitchell Bros. Company against Emanuel J Doyle, as Collector of Internal Revenue for the Fourth Collection District of Michigan. Judgment for plaintiff. Norris, McPherson, Harrington & Waer, of Grand Rapids, Mich for plaintiff.
Myron H. Walker, U.S. Atty., of Grand Rapids, Mich., for defendant.
Plaintiff was incorporated in 1903, succeeding to and taking over the property of the former copartnership, Mitchell Bros. The property purchased and so taken over by the corporation consisted for the most part of timber, lands, and a large sawmill plant. Since its organization, plaintiff has been engaged in the lumber business, cutting and manufacturing its own timber into lumber and other forest products, and selling and marketing the same. In 1903, the average market value of its merchantable hardwood timber was $2.25 per thousand feet of its pine timber $8 per thousand feet, and of cut-over or 'stump' lands $2 per acre. Timber suitable only for cordwood had no market value. Plaintiff then paid the amounts above stated for its timber and lands, and has since carried them upon its books at the same prices. The plaintiff also purchased from Mitchell Bros. an office building and lot in the city of Cadillac for $3,500, and two vacant lots in the city of Grand Rapids for $500. The prices so paid were at that time the fair market values of these parcels of land.
After its purchase, plaintiff's timber, lands, and other property, from natural and other causes, steadily increased in value. During the years 1909, 1910, 1911, and 1912, the average and actual market value of its standing merchantable hardwood timber was from $4.20 to $4.50 per thousand feet, and of its pine $20 per thousand feet. The actual market value of its stump lands varied from $4 to $12 per acre. The office building and lot in the city of Cadillac was fairly worth $5,000, and the two lots in the city of Grand Rapids more than $700. In 1906 a chemical and charcoal plant was located in the city of Cadillac, and thereafter timber suitable for cordwood had a market value of 25 cents per cord.
In compliance with the provisions of the Corporation Tax Act of 1909 (36 Stat. 112, c. 6, Sec. 38 (Comp. St. 1913, Sec. 6301)) plaintiff made a return in each of the years 1909, 1910, 1911, and 1912. In computing its taxable net income in each of such returns plaintiff deducted from its gross receipts the then actual market value of the timber stumpage cut and converted into lumber during that year, and also the actual market value of its stump and other lands sold during the year. An assessment was duly made by the Commissioner of Internal Revenue upon each of such returns, and the excise taxes so levied were paid by the plaintiff. Afterwards, and following an investigation, the Commissioner of Internal Revenue made an additional assessment for each of the four years, based upon the difference between the prices paid by the plaintiff in 1903 for its timber, lands, and other property, as shown by and carried on its books, and the amounts deducted as and for the actual market values of such properties at the times of the making of the returns. The additional excise taxes so levied were paid by plaintiff under protest, and this suit is brought to recover back the amounts so paid.
The issues here presented, although novel, are sharply defined. The plaintiff claims that its standing timber and other property were capital assets, and that the portion of the proceeds derived from the cutting, manufacture, and sale of such timber, measured by the actual stumpage value thereof, did not constitute income, and therefore that, in computing its taxable net income, it was entitled to deduct such actual stumpage value of its timber from its gross receipts. The Commissioner of Internal Revenue concedes the right of the plaintiff to deduct the original cost price of the timber, as shown by its books, from its gross receipts, but denies its right to make any deduction on account of increase in values. The Attorney General contends that all the proceeds derived from the manufacture and sale of the timber constituted income, and that plaintiff, in its returns of taxable net income, had no right to make any deductions whatsoever on account of either cost price or actual value of the timber stumpage.
The proofs in this case show conclusively that between the time of their purchase in 1903 and the 1st day of January, 1909 when the Excise Tax Law became effective, plaintiff's timber, lands, and other property had so increased in value that they were fully worth the amounts which were deducted from gross receipts as capital assets. It cannot be denied that the plaintiff's...
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... ... which already had become capital. See Mitchell Brothers v ... Doyle, 225 F. 437. That is not the situation in the case at ... bar. The income ... ...
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Lynch v. Turrish
...649, 654, 655; Sargent Land Co. v. Von Baumbach (D.C.) 207 F. 423, 430, 432, 434; Mitchell Bros. Co. v. Doyle (D.C.) 225 F. 437, 439, 440; Doyle, Collector, v. Mitchell Bros. Co., 235 686, . . . C.C.A. . . . (6th Circuit), filed June 30, 1916; Chicago, Bur. & Q.R. Co. v. Page, 1 Biss. 461, ......
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...against interest of the defendant in its books when it places the valuation of the common stock in question at $1. In Mitchell Bros. v. Doyle (D.C.) 225 F. 437, the said: 'The fact that plaintiff carried its properties upon its books at their original cost prices is neither material nor imp......