WILLIAM A. WEBSTER COMPANY, INC. v. Commissioner of Internal Revenue

• Decision Date: 05 May 1938
• Docket Number: Docket No. 88700.
• Citation: 37 BTA 800
• Parties: WILLIAM A. WEBSTER COMPANY, INC., PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
• Court: U.S. Board of Tax Appeals

37 B.T.A. 800 (1938)

WILLIAM A. WEBSTER COMPANY, INC., PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Docket No. 88700.

Board of Tax Appeals.

Promulgated May 5, 1938.

F. E. Hagler, Esq., and Edgar A. Ryerson, C. P. A., for the petitioner.

Harry R. Horrow, Esq., for the respondent.

OPINION.

HILL:

This proceeding is for the redetermination of deficiencies in income and excess profits taxes for the fiscal year ended February 28, 1934, in the amounts of $2.34 and $2,357.99, respectively. Petitioner assigned as errors the action of the respondent (a) in failing to allow "certain depreciation on Furniture and Fixtures", and (b) in failing to allow "the declared value of Capital Stock as stated by the petitioner", which alleged errors were denied by respondent.

The first issue above indicated apparently was abandoned by petitioner, no evidence being offered thereon. In its brief petitioner states:

There is only one question presented in this appeal. It is: May a taxpayer make a second, amended, or corrected declaration of value for its capital stock tax prior to the expiration of the period provided for making such declaration?

The deficiencies determined by respondent are, therefore, approved in so far as they result from the adjustment of depreciation, and we will consider here only the second issue.

The facts were stipulated in part, and none is in controversy. Petitioner is a Tennessee corporation, with its principal office at Memphis. On July 29, 1933, petitioner filed on the form provided therefor a return of capital stock tax for the year ended June 30, 1933, which return disclosed an original declared value for petitioner's entire capital stock of $395,157, and on the same date petitioner paid to the collector of internal revenue the capital stock tax shown to be due on such return in the amount of $395.

On September 8, 1933, and within the time for filing capital stock tax returns for the year 1933, as extended by Treasury Decisions 4368 and 4386, petitioner filed on the form provided for capital stock tax returns a return intended by it as an amended return for the year 1933, but which is not admitted by respondent to be an amended return, or any return whatsoever, which disclosed an original declared value of $800,000 for the entire capital stock. On the same date petitioner paid to the collector of internal revenue $405, which is the difference between the amount of capital stock tax shown to be due by the alleged amended return, which was $800, and the amount theretofore paid, which was $395.

Under date of June 12, 1934, respondent issued his notice of refund, with which there was enclosed a Treasury check for $423.13, being for the return of the $405 so paid on September 8, 1933, together with $18.13 as interest thereon. This check has never been endorsed or cashed by petitioner, who never made claim or demand for same.

Under date of January 18, 1937, respondent issued his notice of deficiency for petitioner's fiscal year ended February 28, 1934, which notice asserted a deficiency in income tax of $2.34 and a deficiency in excess profits tax of $2,357.99, all of which the parties have stipulated is due and assessable on the basis of a declared value for petitioner's capital stock of $395,157, but none of which is due or assessable on the basis of the declared value of $800,000.

The question presented here is governed by sections 215 (f) and 216 (a) of the National Industrial Recovery Act, 48 Stat. 195, 208, quoted in the margin.¹ The language used in the pertinent provisions of the statute appears too plain and unambiguous to require interpretation. In construing the words of an act of Congress the purpose is to seek the legislative intent, and we should "give to the words their natural significance unless that leads to an unreasonable result plainly at variance with the evident purpose of the legislation." Lincoln v. Ricketts, 297 U. S. 373, 376. The plain, obvious, and rational meaning of a statute is always to be preferred. Old Colony Railroad Co. v. Commissioner, 284 U. S. 552.

The pertinent language used in the quoted statute is that, in valuing the capital stock of a domestic corporation for purposes of the capital stock tax, "the adjusted declared value shall be the value, as declared by the corporation in its first return under this section (which declaration of value can not be amended)." Petitioner filed its first return pursuant to the statute on July 29, 1933, in which it declared the value of its entire capital stock to be $395,157, and paid thereon the tax due in the amount of $395. Later, on September 8, 1933, but within the time as extended for filing capital stock tax returns, petitioner filed its so-called amended return in which it sought to amend its former declaration of value by increasing the amount thereof from $395,157 to $800,000. We think this action was plainly prohibited by the express terms of the statute. No question is raised here that the enactment was unconstitutional.

The legislative intent is not difficult to discover, and strongly indicates that the words used, when given their natural and commonly understood meaning, aptly expresses such intent. Under the capital stock tax provisions of the earlier revenue acts, much administrative difficulty was encountered in determining the value of capital stocks. In order to obviate that situation, a new plan was adopted in the enactment of the present law. The capital stock tax imposed was to be computed for the first year on the basis of value of the stock as declared by the corporation in its first return, with the proviso that such original declaration of value could not thereafter be amended; and for subsequent years, it was provided that the original declared value, as modified only by changes in the capital structure, should be the basis.

However, in order to assure a reasonable original declaration of value, an excess profits tax was levied upon the net income of the corporation in excess of 12½ percent of the adjusted declared value of its capital stock. Hence, while a declaration of low value for the capital stock would reduce the capital stock tax, it would tend to increase in a much larger amount the excess profits tax in the event the corporation later had substantial net income. See report of the Senate Committee on Finance, No. 114, p. 6; H. R. 5755 73d Cong., 1st sess.

The obvious purpose of prohibiting amendment of the original declared value was to prevent a corporation from declaring an unreasonably low value for its capital stock in order to reduce the capital stock tax, at a time when it probably could not be determined what its net income subject to the excess profits tax would be, and then later, when such net income could be determined, reducing its excess profits tax by increasing the capital stock valuation through the filing of an amended capital stock tax return. But whatever might be the actual purpose of an attempt to amend the original declared value, the language of the statute is absolute; no exception is provided.

In Scaife & Sons Co. v. Driscoll, 94 Fed. (2d) 664, arising under the Revenue Act of 1935, which, in section 105 (f), contains the same provisions as the statute hereinabove quoted, the court had before it substantially the same question we are considering here and under similar facts. In its opinion the court said:

The statute declares that the declaration of value contained in the first return can not be amended. This language is plain, and it means what it says. Therefore the Collector possesses no power to accept and file an amended return in lieu of the original return. It follows that no power lies in any court to enjoin the Collector from a refusal to accept a return, when that refusal is in accordance with the law.

A somewhat analogous question was considered by us in Automobile Loans, Inc., 36 B. T. A. 809. That case arose under section 351 of the Revenue Act of 1934, which imposes a surtax upon personal holding companies, but in subdivision (d) provides that the tax shall not apply if all the shareholders of the corporation include, at the time of filing their returns, in their gross income their entire pro rata shares, whether distributed or not, of the "adjusted net income" of the corporation for the taxable year. In the cited case the shareholders of the petitioner corporation, a personal holding company, filed their first or original returns without reporting in gross income their pro rata shares of the corporation's adjusted net income, and later, but within the time allowed the corporation for filing its return, they filed "amended returns" including in gross income their pro rata shares of the corporation's adjusted net income. We held that "the time of filing their returns" was when the first returns were filed, and that the requirements of section 351 (d) were not met by the filing...