United States v. Huntington Laboratories, 5552.

• Citation: 82 F.2d 356
• Decision Date: 02 March 1936
• Docket Number: No. 5552.,5552.
• Parties: UNITED STATES v. HUNTINGTON LABORATORIES, Inc.
• Court: United States Courts of Appeals. United States Court of Appeals (7th Circuit)

82 F.2d 356 (1936)

UNITED STATES v. HUNTINGTON LABORATORIES, Inc.

No. 5552.

Circuit Court of Appeals, Seventh Circuit.

March 2, 1936.

Frank J. Wideman, Asst. Atty. Gen., James W. Morris, Sewall Key, and Lucius A. Buck, Sp. Assts. to the Atty. Gen., and James R. Fleming, U. S. Atty., of Fort Wayne, Ind., for the United States.

Frank M. Hogan, of Fort Wayne, Ind., for appellee.

Before EVANS and SPARKS, Circuit Judges, and LINDLEY, District Judge.

LINDLEY, District Judge.

The Commissioner of Internal Revenue levied against appellee an assessment for additional income taxes for the year 1927. Appellee paid the additional tax under protest; sued to recover, and obtained judgment in the District Court. This appeal followed.

The parties stipulated as to the facts. Appellee, in 1919, purchased from one West certain formulc for $100,000, paying therefor by shares of its own capital stock. West agreed to act as manager for the corporation and not to resell the stock. The formulc were placed in a safety deposit box rented by the president of appellee, and the latter paid the rental. The box could be opened only in the presence of West and two directors and then only with the consent of the board of directors. The formulc remained locked in the box until 1928. Previous to that time, nobody in the appellee's employ saw or became aware in any way of the contents of any of the formulc. No one except West, the vendor, had any knowledge concerning the same.

On December 23, 1927, appellee sold the formulc to its president for $1, and shortly thereafter the deposit box was opened and the documents removed and delivered to the purchaser. Previously, in 1920, at a special meeting, the board of directors had adopted the following resolution: "Upon motion the one thousand shares of stock issued to P. A. West, in lieu for alleged valuable formulc and which were later found to be of no value to this company, was also ordered to be placed in the hands of our attorneys in hopes of having said stock or its equivalent in money or other property refunded to the Treasury of our Company." On March 31, 1920, appellee wrote down its capital investment account from $391,270 to $137,710. In other words, it reduced upon its books its capital account in the sum of $253,560, a part of which was the $100,000 paid to West for the formulc. However, the transaction apparently was not then considered closed, for in 1927, in making its report, appellee deducted the difference between the cost and selling price of the formulc, saying that it had not previously made the deduction because the transaction had not been fully or completely closed in the manner required by the regulations of the Treasury Department, in order to justify a deduction.

It is insisted by appellant that charging off on the books the amount paid for the formulc in 1920 completed...