Produce Exchange Stock Clearing Ass'n v. Helvering
| Citation | 71 F.2d 142 |
| Decision Date | 04 June 1934 |
| Docket Number | No. 305.,305. |
| Parties | PRODUCE EXCHANGE STOCK CLEARING ASS'N, Inc., v. HELVERING, Commissioner of Internal Revenue. |
| Court | U.S. Court of Appeals — Second Circuit |
Allen H. Gardner, of Washington, D. C. (Morris, Kix Miller & Baar, of Washington, D. C., of counsel), for petitioner.
Frank J. Wideman, Asst. Atty. Gen. (Sewall Key and John G. Remey, Sp. Assts. to Atty. Gen., of counsel), for respondent.
Before L. HAND, SWAN, and CHASE, Circuit Judges.
The question presented for decision is whether the petitioner is exempt from income tax by virtue of section 103 (7) of the Revenue Act of 1928 45 Stat. 812, 813, 26 US CA § 2103 (7), granting exemption to "Business leagues, chambers of commerce, real estate boards, or boards of trade, not organized for profit and no part of the net earnings of which inures to the benefit of any private shareholder or individual." The Board decided adversely to the taxpayer's claim of exemption.
The petitioning taxpayer is a corporation organized under the Stock Corporation Law of New York (Consol. Laws, c. 59) with a capital stock of $25,000 all of which is held by the New York Produce Exchange. The latter decided in 1928 to provide facilities for dealings in securities as well as commodities; and pursuant to this decision it caused the petitioner to be formed for the purpose of aiding persons trading in securities listed on the Produce Exchange in clearing their transactions. The clearing service performed by the petitioner is furnished only to "clearing members." During 1929, the taxable year in question, such membership was limited by the petitioner's by-laws to members of the New York Produce Exchange and firms having a partner who was a member of that Exchange. Subsequently, the class of persons eligible to become "clearing members" was enlarged so that in general any broker who desires to trade in securities listed on the Produce Exchange may obtain such membership. For the service rendered, a small fixed charge, which is uniform as to all clearing members, is collected by the petitioner. The charge was originally determined with a view to just covering expenses, but in 1929 receipts exceeded expenditures by nearly $40,000. In later years the charge was reduced below cost, and, when the surplus realized in 1929 shall have been exhausted, it is intended to fix a charge which will cause receipts and expenses to balance. Although the petitioner was organized as a business corporation under the Stock Corporation Law, its by-laws make no provision for the payment of dividends, and in fact no dividend has ever been paid.
Were the construction of the statutory provision in question a matter res integra, we should find little difficulty in holding that a corporation formed for the purpose of affording clearing house facilities to a limited group of traders in securities was not a "business league" entitled to exemption from taxation. The numerous subdivisions of section 103 of the Revenue Act of 1928 (26 USCA § 2103) and the corresponding provisions in the earlier acts, specify organizations which, in the great majority of instances, are evidently granted exemption because of the benefit to be derived by the public from their activities. Cf. Trinidad v. Sagrada Orden, 263 U. S. 578, 581, 44 S. Ct. 204, 68 L. Ed. 458. There is reason why these should be favored, but none is apparent for exempting an association which merely serves each member as a convenience or economy in his business. This is the distinction which the Board of Tax Appeals and the courts have taken in applying the provision in question to somewhat analogous situations. Uniform Printing & Supply Co. v. Commissioner, 33 F.(2d) 445 (C. C. A. 7), affirming 9 B. T. A. 251; Crooks v. Kansas City Hay Dealers' Ass'n, 37 F.(2d) 83 (C. C. A. 8); Northwestern Jobbers' Credit Bureau v. Commissioner, 37 F.(2d) 880 (C. C. A. 8), affirming 14 B. T. A. 362; Louisville Credit Men's Adjustment Bureau v. United States, 6 F. Supp. 196 (D. C. W. D. Ky.); A-1 Cleaners & Dyers Co. v. Commissioner, 14 B. T. A. 1314; Growers Cold Storage Co. v. Commissioner, 17 B. T. A. 1279.
The strength of the petitioner's argument for exemption lies in the Treasury Regulations. Art. 518 of Regulations 45, promulgated under the Revenue Act of 1918, provided as follows:
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