Sabatini v. Commissioner of Internal Revenue

• Decision Date: 04 August 1938
• Docket Number: No. 288.,288.
• Citation: 98 F.2d 753
• Parties: SABATINI v. COMMISSIONER OF INTERNAL REVENUE. COMMISSIONER OF INTERNAL REVENUE v. SABATINI.
• Court: U.S. Court of Appeals — Second Circuit

98 F.2d 753 (1938)

SABATINI v. COMMISSIONER OF INTERNAL REVENUE.

COMMISSIONER OF INTERNAL REVENUE v. SABATINI.

No. 288.

Circuit Court of Appeals, Second Circuit.

August 4, 1938.

James W. Morris, Asst. Atty. Gen., and Sewall Key, A. F. Prescott, and Alexander Tucker, Sp. Assts. to Atty. Gen., for the Commissioner.

Edgar J. Goodrich, of Washington, D. C., William De Forest Manice, of New York City, and Eugene Meacham, of Washington, D. C. (Guggenheimer & Untermyer, of New York City, of counsel), for Rafael Sabatini.

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

CHASE, Circuit Judge.

The taxpayer is an alien; a subject of Great Britain residing in London, England. He is an author who during the years in question was represented in this country by a firm of authors' representatives and part of the time by a New York bank but all in respect to matters other than the tax liabilities here involved. He, neither before nor during the years for which deficiencies in his taxes have been redetermined, was personally in this country. Some income was received for him by his representatives here and reported for taxation but we are not now concerned with that except as the taxpayer urges the fact as evidence of his lack of knowledge that he was bound to file income tax returns for the years in question. He did not do that and none were filed in his behalf within the time allowed for their filing.

The taxpayer has written numerous books. The income received by him and claimed taxable by the Commissioner arose from certain contracts for the publication or dramatization of his works together with his authorization of their use in motion pictures.

Under Sec. 119 of the Revenue Law of 1928, 26 U.S.C.A. § 119, gross income to be treated as income from sources within this country is defined and under Sec. 212 of the same Act, 26 U.S.C.A. § 211, it is provided that in the case of a non-resident alien individual gross income includes only income from sources within the United States. As income of the last mentioned kind may here be taxed to this individual, the sole question at issue is whether any part of the income he received during the taxable periods mentioned came from sources within this country within the statutory meaning of that language. The income sought to be taxed was all received by him in payment for granting rights to publish or produce one or more of his literary productions. There are what amount to three classes of income, viz., that received under contracts (1) covering volume and second serial rights; (2) motion picture rights; and (3) dramatic rights.

Volume and Second Serial Rights.

Mr. Sabatini entered into a number of contracts with Houghton Mifflin Company, publishers in Boston, Mass., under which he granted to that company the volume and second serial rights in certain books he had written. These books were themselves of what should now be treated as two kinds. They were (1) those on which a United States copyright could be obtained and the right to apply for one either in its own name or that of the author was given the company with the agreement of Sabatini to co-operate to obtain permissible renewals for the benefit of the publishers; and (2) those under which it was stated in the contracts that no copyrights were obtainable. We take this to mean that the works in the latter class were already in the public domain. As to the first class, the exclusive right to publish in this country during the copyright term and any renewals thereof was granted. As to the second class the author agreed not to grant to anyone else in this country the right to publish the work here "so long as said Houghton Mifflin Company shall keep in print their editions of the above-named books".

In each instance the contracts were negotiated by the author's literary representatives in this country but only subject to the final approval of the author who did approve and execute all of them in London, England. In each instance the author was to be paid a stated percentage of the publisher's retail trade list price, or an otherwise stated amount, for each volume sold. All the payments were to be made to the author's representatives here for his benefit.

In so far as these works were copyrightable the payments received fall within the author's gross income from sources within the United States under Sec. 119 (a) (4), 26 U.S.C.A. § 119 (a) (4) providing that such income includes: "Rentals or royalties from property located in the United States or from any interest in such property, including rentals or royalties for the use of or for the privilege of using in the United States, patents, copyrights, secret processes and formulas, good will, trademarks, trade brands, franchises, and other like property."

They were clearly in name and in fact royalties for the use of United States copyrights during their terms and renewals. Though we are not fully advised as to what copyrights were actually secured, in so far as any which might have been obtained were not, the receipts by the author nevertheless fall within the statute as rentals...