Waterman Steamship Corp v. United States
| Citation | 381 U.S. 252,85 S.Ct. 1389,14 L.Ed.2d 370 |
| Decision Date | 17 May 1965 |
| Docket Number | No. 245,245 |
| Parties | WATERMAN STEAMSHIP CORP., Petitioner, v. UNITED STATES |
| Court | United States Supreme Court |
John W. McConnell, Jr., Mobile, Ala., for petitioner.
Paul Bender, Asst. Sol. Gen., Dept. of Justice, Washington, D.C., for respondent, pro hac vice, by special leave of Court.
This case involves the tax consequences of the purchase by petitioner of a number of ships from the United States Government during the Second World War and the subsequent post-war refund by the Government, pursuant to an Act of Congress, of a substantial portion of the purchase price.
At various times during the years 1942 through 1946, petitioner purchased from the United States Maritime Commission a total of 18 ships that had been built by the United States Government. It paid a total of $46,973,167 for these vessels (after an allowance for the trade-in by petitioner of four of its own ships).1 The vessels purchased by petitioner were immediately chartered back, by bareboat charters, to the United States so that the Gov- ernment continued to operate them.2 The United States paid a total of $13,430,431 in charter hire to petitioner for the wartime use of these ships during the years 1942 through 1946, which amount petitioner reported in its federal income tax returns for those years.
On March 8, 1946, Congress enacted the Merchant Ship Sales Act of 1946, 60 Stat. 41, as amended, 50 U.S.C.App. § 1735 et seq. (1958 ed.), which gave American citizens the right to purchase warbuilt ships from the United States as statutory sales prices which were substantially below the prices at which such vessels were sold by the Commission during the war. Section 9 of the Act, 50 U.S.C.App. § 1742 (1958 ed.), provided the opportunity, upon application, for those, like petitioner, who had bought ships during the war years to obtain a downward adjustment in their sales price 'by treating the vessel as if it were being sold to the applicant on the date of the enactment of this Act (March 8, 1946), and not before that time.' The details of a § 9 adjustment are complex. They consist, however, essentially of two parts: (1) an adjustment in the purchase price down to the new statutory price (§§ 9(b)(1)—(4)); and (2) an unwinding of the transactions, including tax payments, that occurred as a result of the sale prior to 1946 (§§ 9(b)(5), (6), (c)(1)).3
Petitioner applied for a downward adjustment of the sales price of its 18 ships purchased prior to the Act. The Maritime Commission granted such an adjustment determining that under the statute the sales price of these vessels should be $17,685,424.4 Petitioner therefore was credited with $29,287,743, the difference between the statutory sales price and the original price of $46,973,167.5
The pre-Act transactions were then unwound, pursuant to the statute, as follows: (1) the Government was credited $13,430,431, representing the charter hire which had been paid by the Government to petitioner for use of the 18 vessels from 1942 to 1946;6 (2) the Government was debited $1,495,125, representing charter hire which would have been paid by the Government to petitioner prior to 1946 for use of the four ships traded in by petitioner on the original purchase; (3) the Government was debited $2,686,262, representing a return of the interest petitioner paid on the mortgages and interest income which petitioner could have earned on the cash invested in the 18 vessels prior to the date of the Act had this cash not been so committed; and (4) the Government was debited $430,206, representing an overpayment by petitioner of federal income taxes, which, under the Act, were recalculated to give effect to the foregoing unwinding.7 The sum of the unwinding credits and debits was a net credit in favor of the Government of $8,818,838. This amount reduced petitioner's credit on the original sales price of $46,973,167 from $29,287,743 to $20,468,904.8
In tabular form, the computations and credits made under the Act were as follows:
Statutory Adjustments.
1. Original sales price.................. $46,973,167
2. Statutory sales price................. 17,685,424
-----------
3. Gross sales price adjustment
(§§ 9(b) (1)-(4) and (7))....... $29,287,743
4. Credit to Government:
5. Charter hire on 18 vessels
(§ 9(b) (6))...................... 13,430,431
6. Debits against Government:
7. Charter hire on 4 ships traded in
(§ 9(b) (6))...................... (1,495,125)
8. Interest on petitioners' investment
(§ 9(b) (5))...................... (2,686,262)
9. Overpayment by petitioner of federal
income taxes (§ 9(b) (8)).
10. Net credit in favor of Government
(line 5 minus line 7-9)............... 8,818,838
-----------
11. Net 1946 sales price adjustment
(line 3 minus line 10)................ $20,468,9049
Neither party here disputes the accuracy of any of these computations. The issue between the parties is the effect of these determinations on the tax treatment of the ships for the years following this 1946 adjustment. In its federal income tax returns for the years 1947 through 1950 petitioner took depreciation on these vessels on the assumption that its cost was $17,685,424, the statutory sales price. In 1959, however, petitioner sued in the United States District Court for the Southern District of Alabama for a tax refund, contending that its real cost and therefore its basis for depreciation was not the statutory sales price, $17,685,424, but rather $26,504,263, the difference between $46,973,167, the original sales price, and $20,468,904, the net 1946 sales price adjustment credited to petitioner. The District Court agreed with petitioner that its real cost was $26,504,263 and that this was its depreciation basis for tax purposes. 203 F.Supp. 915. The Court of Appeals for the Fifth Circuit reversed, however, holding that, under the statutory scheme, petitioner's real cost was $17,685,424, the statutory sales price, and that this therefore was its proper depreciation basis. 330 F.2d 128. The difference between the lower courts' determinations of the real cost to petitioner of these 18 ships is $8,818,838,10 the net credit in favor of the Government in the preceding calculations of the 1946 sales price adjustment. We granted certiorari, 379 U.S. 927, 85 S.Ct. 321, to resolve a conflict between Courts of Appeals and the Court of Claims on the issue here involved.11 For the reasons set forth below, we agree with the Court of Appeals in this case and consequently affirm the judgment.
Petitioner's argument, put quite simply, is that during the war it paid $46,973,167 for the ships. In 1946, petitioner asserts, it was paid back $20,468,904. Thus petitioner concludes that its cost and therefore its depreciation basis for tax purposes in these ships is the difference between these two figures, or $26,504,263.12 The Government agrees that petitioner paid $46,973,167 during the war and received back $20,468,904 in 1946. It points out, however, that from 1942 through 1946 petitioner also received from the Government in charter hire for the use of the ships, a net of $8,818,838 (the net credit to the Government under the unwinding provisions of the Act), which petitioner would not have received had it not bought these ships prior to the date of the Act. The Government contends that when this $8,818,838 paid to petitioner from 1942 to 1946 is added to the amount of $20,468,904 paid as a lump sum to petitioner in 1946, it is clear that petitioner has received a total of $29,287,743,13 from the Government. The Government concludes that petitioner's cost and therefore its basis for depreciation for tax purposes in these ships is the difference between the original sales price, $46,973,167, and this total refund, $29,287,743, or $17,685,424—the statutory sales price. Petitioner cannot and does not dispute the fact that it received this $8,818,838 from the Government from 1942 through 1946. It argues, however, that this sum was received as income and thus cannot be taken to reduce petitioner's cost. The Government, on the other hand contends that, although the $8,818,838 was undoubtedly originally received as income, under the statutory unwinding scheme this amount must be deemed a return of capital which has reduced petitioner's cost. The only issue dividing the parties, therefore, is the proper treatment of this $8,818,838, an issue which must be determined by reference to the 1946 Act.14
Section 9 of the Merchant Ship Sales Act of 1946 expressly provides that, upon application, a statutory adjustment 'shall be made, as hereinafter provided, by treating the vessel as if it were being sold to the applicant on the date of the enactment of this Act (March 8, 1946), and not before that time.' It is clear that if petitioner had bought the ships on the date of the Act its cost and depreciation basis would have been the statutory sales price of $17,685,424 and that petitioner would not have received net charter hire from the Government of $8,818,838—a payment attributable to the fact that the vessels involved were sold to it before the date of the 1946 Act.15
In order to achieve the statutory purpose of putting petitioner and the Government in the positions they would have occupied had petitioner bought the ships on the 1946 statutory enactment date and not before that time, it was necessary that this $8,818,838 net charter hire be refunded to the Government. In effect this is just what § 9 provides. As applied to this case, petitioner was first credited with $29,287,743, the difference between the original sales price, $46,973,167, and the lower statutory sales price, $17,685,424. The Government owed this amount of $29,287,743 to petitioner. Because of the unwinding of the pre-Act transactions pursuant to the...
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