United States v. Merry Brothers Brick and Tile Co., 16373

• Decision Date: 27 March 1957
• Docket Number: No. 16373,16323.,16373
• Parties: UNITED STATES of America, Appellant, v. MERRY BROTHERS BRICK AND TILE COMPANY, Appellee. UNITED STATES of America, Appellant, v. RELIANCE CLAY PRODUCTS COMPANY, Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

242 F.2d 708 (1957)

UNITED STATES of America, Appellant, v. MERRY BROTHERS BRICK AND TILE COMPANY, Appellee.

UNITED STATES of America, Appellant, v. RELIANCE CLAY PRODUCTS COMPANY, Appellee.

Nos. 16373, 16323.

United States Court of Appeals Fifth Circuit.

March 27, 1957.

No. 16373:

Gerard J. O'Brien, Atty., Dept. of Justice, Washington, D. C., Charles K. Rice, Asst. Atty. Gen., Dept. of Justice, Lee A. Jackson, Hilbert P. Zarky, Sheldon I. Fink, Attys., Dept. of Justice, Washington, D. C., William C. Calhoun, U. S. Atty., Augusta, Ga., for appellant.

Joseph B. Brennan, Atlanta, Ga., William M. Fulcher, Augusta, Ga., Fulcher, Fulcher, Hagler & Harper, Augusta, Ga., of counsel, for appellee.

No. 16323:

Gerard J. O'Brien, Sheldon I. Fink, Hilbert P. Zarky, Attys., Dept. of Justice, Washington, D. C., Charles K. Rice, Asst. Atty. Gen., John N. Stull, Acting Asst. Atty. Gen., Dept. of Justice, Robert N. Anderson, Atty., Dept. of Justice, Washington, D. C., John C. Ford, Asst. U. S. Atty., Dallas, Tex., Lee A. Jackson, Atty., Dept. of Justice, Washington, D. C., Heard L. Floore, U. S. Atty., Ft. Worth, Tex., for appellant.

Joseph B. Brennan, Atlanta, Ga., Lon Sailers, George S. Terry, Turner, Rodgers, Winn, Scurlock & Terry, Dallas, Tex., for appellee, Reliance Clay Products Co.

Before HUTCHESON, Chief Judge, and RIVES and BROWN, Circuit Judges.

HUTCHESON, Chief Judge.

These appeals from judgments of the United States District Court for the Southern and Northern Districts of Georgia¹ and Texas,² respectively, involve claims for refund of income and excess profits taxes. They present on the same basic facts the same basic question, and have therefore been submitted and argued together.

This question is whether this court will depart from its decision in United States v. Cherokee Brick & Tile Co., 5 Cir., 218 F.2d 424, in which, affirming the judgment and approving the opinion of the United States District Court for the Middle District of Georgia, in Cherokee Brick & Tile Co. v. United States, 122 F.Supp. 59, we said, 218 F.2d at pages 424-425 of the pertinent portion of Sec. 114³ of the Internal Revenue Code, 26 U.S.C.A. § 114(b) (4) (A, B):

"The statutory language is clear and unambiguous, which is that gross income from mining must include the income from ordinary treatment processes which must be applied to the ore or mineral in order to obtain the commercially marketable mineral product, that is, the first product which is marketable in commerce. There is no provision in the statute for excluding any process before such a marketable product is reached. The only restriction is that the processes must be the ordinary treatment processes normally applied by mine owners or operators.

"The complaint alleges that, of the brick and tile clay mined in the United States, there is opportunity for the sale of only a negligible quantity before it is put into the form of burnt brick and tile. This allegation is admitted in the answer of the appellant. For this and other reasons (but mainly for this one) stated in the opinion of the district court, above cited, the judgment appealed from should be affirmed."

Conceding that the cases were decided below in accordance with our decision in the Cherokee case and that if that decision stands, they must be affirmed, the United States, stating: "Since this decision, the United States District Court of Maine, in Dragon Cement Co. v. United States, D.C., 144 F.Supp. 188", has, declining to follow the Cherokee decision, put forward an interpretation of its own of the statute, goes on to say:

"In view of this interpretation and the great number of decisions which have arisen within this circuit following the decision in Cherokee Brick & Tile Co., and which involve substantial amounts of revenue, the government respectfully asks this court to reconsider its decision."

Pointing out that, with the exception of that in the Dragon case, all of the numerous decisions in the district courts in this and other circuits and of the Courts of Appeals for, the Fourth Circuit, in Townsend v. The Hitchcock Corp., 232 F. 2d 444, 445, and the Tenth Circuit, in United States v. Sapulpa Brick & Tile Co., 239 F.2d 694, have agreed with and approved our decision, appellees insist that the grounds now put forward in support of its reconsideration present no sound reasons therefor.

They urge upon us moreover that if we should enter upon such a reconsideration of the decision, the result would only be to reaffirm it, since the undisputed facts and every sound consideration of statutory construction and application support indeed compel the conclusion that it was right and should be adhered to.

Upon the fullest and most careful re-examination and reconsideration of our decision in the Cherokee case, in the light of the records and the briefs and arguments in that case and these, we agree that this is so. Because it is and because in their decisions the district court and this court dealt adequately and correctly with the question presented in it and here, we will not undertake to restate or further elaborate upon the reasons they gave but will content ourselves with saying that, upon the plain and simple considerations set down and for the reasons pointed up in the Cherokee case, we decline to depart from the decision in it, and, on its authority, affirm the judgments appealed from.

We think it not amiss, however, to say that we have taken particular note of and approve the comment in appellee Reliance Clay Products Company's brief.⁴ We have also taken particular note of and agree with Proposition No. 2 in Merry Brothers' brief, "The government's attack on the Cherokee case is based on the fallacious assumption that the Cherokee decision allows depletion on `manufacturing processes'" (emphasis supplied), and its argument thereunder reproduced in part in the margin,⁵ as well as its corollary "that the Government's argument ignores the obvious fact that Congress intended Sec. 114(b) (4) to provide a simple, practical rule which could easily be applied to compute the percentage depletion deduction" (emphasis supplied) and its argument in support reproduced in part here:

"* * * we might also point out here that the Government\'s argument completely ignores the obvious fact that Congress intended Sec. 114(b) (4) to provide a simple, practical rule which could be easily applied to compute the percentage depletion deduction.

"In order to compute a percentage depletion deduction, there must be a dollar base to which to apply the applicable percentage. Congress elected to use the marketable product rule as a simple means to provide this dollar base. With this dollar base established in Subparagraph (B) of Section 114(b) (4), Congress can then set the applicable rates in Subparagraph (A) to produce the dollar amount of depletion which it wishes to grant in the case of each particular type of natural deposit without disturbing the simple means for determining the dollar base. Of course, the processing necessary to obtain marketable products from the ores and minerals mined from the various types of natural deposits will vary greatly, but this fact can be taken into account in fixing the applicable rates. Thus, Congress has set rates in Sec. 114(b) (4) (A) which vary from 5% to 23%, and these rates can be raised or lowered as Congress sees fit.

"* * * If Congress upon further consideration should feel that applying the applicable rate to the gross income from any product, whether or not it is a `manufactured\' product produces too large a depletion deduction, and should wish to decrease that deduction, it has only to lower the rate while still using as a base the gross income from the marketable product.

"In spite of its effort to conceal the fact, the Government\'s argument in sum and substance is merely that 5% of the selling price of burnt brick and tile is too large a deduction to

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