author: GREEN, Judge. LITTLETON, Judge WILLIAMS, Judge

text:
    SUNNY BROOK DISTILLERY CO. v. UNITED STATES.
    No. L-5I5.
    Court of Claims.
    April 13, 1931.
    WILLIAMS and WHALEY, JJ., dissenting.
    Levi Cooke, of Washington, D. C. (Cooke & Beneman, of Washington, D. C., on the brief), for plaintiff.
    Joseph H. Sheppard, of Washington, D. C., and Charles B. Rugg, Asst. Atty. Oral., for the United States.

      Before BOOTH, Chief Justice, and GREEN, LITTLETON, WILLIAMS, and WHALEY, Judges.
   GREEN, Judge.

The petition alleges, in substance, that the plaintiff is a corporation, and, being the owner of a certain number of cases of distilled spirits which it had produced on its premises, paid taxes thereon at the rate of $6.40 per proof gallon in the year 1919; that Congress, by an act approved February 11, 1925 (43 Stat. 860 [26 USCA § 150]), authorized the Commissioner of Internal Revenue to refund all taxes paid by the plaintiff in excess of $2.20 per proof gallon on such distilled spirits; that plaintiff filed claims for refund of said tax pursuant to the said act; and that the Commissioner of Internal Revenue allowed said refund claims in the amount that had been paid in excess of $2.20 per proof gallon (with certain small deductions not disputed by plaintiff and not necessary to be mentioned here), but refused to allow plaintiff interest on the amount allowed from the dates of the payment of the taxes to the date of the allowance of the said refund, such interest amounting to $46,923.23.

The defendant demurs to the petition on the ground that it does not state a cause of action, and the issue arising on the demurrer is whether the ruling of the commissioner in refusing to allow interest was correct.

The Revenue Act of 1924, §§ 1011, 1019, 43 Stat. 253, 342 (26 USCA § 149, and § 153 note), provided:

“Sec. 1011. Section 3220 of the Revised Statutes, as amended, is re-enacted ’without change, as follows:

“ ‘The Commissioner of Internal Revenue, subject to regulations prescribed by the Secretary of the Treasury, is authorized to remit, refund, and pay back all taxes erroneously or illegally assessed or collected, all penalties collected without authority, and all taxes that appear to be unjustly assessed or excessive in amount, or in any manner wrongfully collected. * * * ’ ”
“Sec. 1019. Upon the allowance of' a credit or refund of any internal-revenue tax erroneously or illegally assessed or collected, or of any penalty collected without authority, or of any sum which was excessive or in any manner wrongfully collected, interest shall be allowed and paid on the amount of such credit or refund at the rate' of 6 per centum per annum from the date such tax, penalty, or sum was paid to the date of the allowance of the refund. * * ”

The Act of Congress approved February 11, 1925, 43 Stat. 860, chap. 208 (26 USCA § 150), provided:

“That the Commissioner of Internal Revenue may, pursuant to the provisions of section 3220-, Revised Statutes, as amended, allow the claim of any distiller for the refund of taxes paid in excess of $2.20 per proof gallon on any distilled spirits produced and now owned by him and stored on the premises of the distillery where produced. * * * ”

The Revenue Act of 1926, § 1116(a), 44 Stat. 9 (26 USCA § 153 note), provided:

“Sec. 1116(a). Upon the allowance of a credit or refund of any internal-revenue tax erroneously or illegally assessed or collected, or of any penalty collected without authority, or of any sum which was excessive or in any manner wrongfully collected, interest shall be allowed and paid on the amount of such credit or refund at the rate of 6 per centum per annum from the date such tax, penalty, or sum was paid to the date of the allowance of the refund. * * * ”

The Revenue Act of 1928 provided in section 614(a), 26 USCA § 2614(a):

“See. 614(a). Interest shall be allowed and paid upon any overpayment in respect of any internal-revenue tax, at the rate of 6 per centum per annum. * * * ”

It is argued on behalf of the defendant that neither section 1019 of the act of 1924, section 1116 of the act of 1926, nor section 614 of the act of 1928, provided for the allowance of’interest in such a ease as the one now before the court, and we think it must be conceded that these statutory provisions standing alone would not entitle the plaintiff to the interest which it seeks to recover. It is plain that the original payment of the taxes included no “overpayment,” as required by the act of 1928, nor were the taxes so paid “erroneously or illegally assessed or collected, * * * or in any manner wrongfully collected,” as required in section 1019 of the act of 1924 and section 1116 of the act of 1926. The only specification of the act of 1926 which could possibly be construed as having any application is found in the word “excessive,” as applied to the tax. But we think it equally clear that this word did not in any way refer to matters which pertained to the propriety or equity of the tax, but simply to the question of whether or not it exceeded the amount which could be legally collected. Moreover, the language used in these two sections with reference to cases where interest can be allowed is substantially the same as the language of section 1011 of the act of 1924, amending section 3220 of the Revised Statutes, and prescribing conditions under which refunds could be allowed. Evidently Congress considered that the provisions of the section last referred to were not sufficient to authorize a refund in a case like the one at bar, and consequently the provision under which the refund herein was granted was enacted. In other words, Congress did not consider that the circumstances of the instant ease were included in any of the specifications of section 1011 of the act of 1924, and not being included therein the ease does not come under the provisions of section 1116 of the act of 1926 or section 1019 of the act of 1924.

It is contended, however, on the part of the plaintiff that by the terms of the act of February 11, 1925, which provided for the refund granted in this case, section 1116 of the Revenue Act of 1926, providing for interest, becomes applicable. Attention is called to the fact that the act of 1925 states that the refund may be made “pursuant to the provisions of section 3220, Revised Statutes, as amended,” and it is said that this language has brought the taxes herein involved within the scope of the interest allowance provided in the Revenue Act of 1924 and subsequent acts.

It is quite true that when a refund is allowed under the provisions of section 3220,-as amended, interest is also allowed under the provisions of section 1019 of the act of 1924 or of section 1116 of the act of 1926, but this is because the requirements for the allowance of interest under these sections are the same as the requirements for the allowance of a refund under section 3220, and not because the sections providing for interest made any reference to the section providing for refunds. We do not think the language last above quoted can be construed to mean that a ease like the one at bar should be held ■to be included within the provisions of; section 3220. This would be doing .too much violence to the language of that section which, as we have already shown, was not considered by Congress to include a case of the nature that we are now considering. The words “pursuant to the provisions of section 3220” mean, as we think, that the case should be treated by the Commissioner 'as if the provisions of section 3220 were applicable, but this does not lead us to the conclusion that the provisions of section 1019 of the act of 1924 or of section 1116 of the Revenue Act of 1926 were applicable also, especially when it is considered, as shown above, that their terms and specifications exclude a ease like the one at bar.

It is said that if this construction is applied, the words “pursuant to the provisions of section'3220” might as well have been left out, but this is not quite correct, as under section 3220 the commissioner was not only authorized to allow the claim for refund (which is all that the act of 1925 provided for), but also was authorized to pay back the taxes wrongfully collected.

Whatever may have been the application of the act of 1925 to section 1011 of the act of 1924, amending section 3220 of the Revised Statutes, we think it could have had no application to the statutory provisions with reference to interest. If these provisions with reference to interest had been contained in section 1011 above referred to, the argument would have had much more force, but they were in a different section, or in entirely different acts, and even if the act of 1925 can be said to have the effect to amend section 3220 (included in section 1011 of the act of 1924), we do not think it can be held to amend any of these provisions in other sections and other acts with reference to interest. The terms and specifications of the statutes with reference to interest still stand and are of such a nature as to exclude the claim of plaintiff made herein. - We are therefore of the- opinion that the act of 1925 in no way brought plaintiff’s claim" within the requirements made for the allowance of interest.

It follows that the demurrer must be sustained and the petition dismissed. It is so ordered.

BOOTH, Chief Justice, concurs.

LITTLETON, Judge

(concurring).

Section 600 (a), title 6, of the Revenue Act of 1918, approved February 24, 1919 (40 Stat. 1105 [26 USCA '§-245 note] provided : “That there ■ shall be levied and collected on all distilled-spirits now in bond or that have been or that may be hereafter produced in or imported into the United. States, except such distilled spirits as'.are subject to the tax provided in section 604, in lieu of the internal-revenue taxes now imposed thereon by law, a tax of $2.20 (or, if: withdrawn for beverage purposes or for use .in the manufacture or production of any. article used or intended, for use as a beverage, a tax of $6.40) on each proof gallon, or wine gallon when below proof, and a proportionate tax at a like rate on all fractional parts of such proof or wine gallon, to he paid by the distiller or importer when withdrawn, and collected under the provisions of existing law.”

The plaintiff corporation was engaged in the business as a distiller of alcoholic liquors with principal office at Louisville, Ky., and was liable to the tax imposed as above mentioned. It was required to make returns and pay the tax in question, and was liable to the penalty of $1,000 provided in section 1308(a) of the aforementioned act (26 USCA § 1270) for failure to make a return required by law or regulation. It was further liable under section 1308(b) to a fine of not more than $10,000 or imprisonment for not more than one year, or both, for willfully refusing to pay any such tax, make such return, or supply such information at the time or times required by law^or regulation, or for any willful attempt in any manner to evade such tax. Under subdivision (c) of the same section, plaintiff was liable to a further penalty equal to the amount of the tax evaded or to the penalties provided in sections 3176 and 3256 of the Revised Statutes (26 USCA §§ 97, 98, 260).

In 1919 plaintiff owned and had stored on its premises, in accordance with law, 6,-455 cases of distilled spirits which had theretofore been produced by the plaintiff, as the distiller thereof, containing 19,220.4 proof gallons, upon which it was liable under the aforementioned section 600(a), to a tax at the rate of $6.40 per proof gallon. The tax so imposed on said distilled spirits was duly returned and paid by plaintiff during the months of March, April, May, and June, 1919, in the amount of $123,010.56.

On February 11, 1925, an act of Congress, 43 Stat. 860, quoted in part in the foregoing opinion, authorized the Commissioner of Internal Revenue, pursuant to the provisions of section 3220 of the Revised, Statutes as amended, to allow the claim of any distiller for the refund of taxes paid in excess of $2.20 per proof gallon on any distilled spirits produced and owned by him and stored on the premises of the distillery where produced. In February, 1925, plaintiff made claim upon the Commissioner of Internal Revenue for the refund of the tax paid on the 19,220.4 proof gallons of spirits in excess of $2.20 per proof gallon, said claim for refund being-for $80,725.68, or such greater amount as might be legally refundable. July 13, 1925, the commissioner notified plaintiff that he had allowed the claim in the amount of $80,135.79 and rejected it in the amount of $589.89. That portion of the claim disallowed resulted from leakage, breakage, etc., which reduced the total number of proof gallons on hand. No claim is made for the disallowed portion. Treasury cheek for $80,135.79 was received by plaintiff with the commissioner’s notice of his action upon the claim.

On May 8, 1928, plaintiff owned 2,545 eases of distilled spirits which were then in a tax-paid warehouse operated in connection with and contiguous to an internal-revenue bonded warehouse upon the premises of plaintiff. The aforementioned eases contained 7,635 proof gallons of distilled spirits theretofore produced by the Associated Distilleries of Kentucky, a subsidiary of and owed by plaintiff. The tax of $6.40 per proof gallon imposed by section 600(a) of the Act of February 24, 1919, on the aforementioned 7,635 proof gallons had been duly returned and paid by the distiller thereof during the months of May and June, 1919, amounting to a total of $48,864.60.

On May 8, 1928, Congress passed another act, 45 Stat. 492, chap. 509 (26 USCA § 150a), providing: “That in addition to the authority contained in the Act entitled ‘Am Act to refund taxes paid on distilled spirits in certain cases,’ approved February 11, 1925, the Commissioner of Internal Revenue may allow the claim of the owner (whether the distiller or his successor or other person) for the refund of taxes paid (whether by such owner or any other person) in excess of $2.20 per proof gallon on any domestic distilled spirits which are now in a tax-paid warehouse operated in connection with and contiguous to an internal-revenue bonded warehouse, if proof satisfactory to the Commissioner of Internal Revenue is furnished of the ownership and identity of the distilled spirits as to which the refund is claimed, and of the amount of tax paid thereon.”

May 8, 1928, plaintiff made claim upon the commissioner for the refund of $32,067, or such greater amount as might be legally refundable, being the tax alleged to have been paid on the 7,635 proof gallons of distilled spirits in excess of $2.20 per proof gallon. August 9, 1928, the commissioner notified plaintiff that he had allowed the claim for $31,903.83 and had rejected it in the amount of $163.17, the latter amount being that portion of the claim relating to the quantity of distilled spirits missing. Plaintiff received treasury cheek for $31,903.83. No question is raised as to that portion of the claim which the commissioner rejected.

Section 3220 of .the Revised Statutes, as amended by section 1011 of the Revenue act of 1924 (26 USCA § 149), and section 1111 of the Revenue Act of 1926 (26 USCA § 149), authorized the commissioner, subject to regulations prescribed by .the Secretary of the Treasury, to refund and pay back all taxes erroneously or illegally assessed or collected, .all penalties collected without authority, and all taxes unjustly assessed or excessive in amount, or in any manner wrongfully collected. The provisions of law with reference to the payment of interest upon taxes refunded at the time both of the aforementioned acts of Congress of 1925 and 1928 became effective were contained in section 1019 of the Revenue Act off 1924 and section 1116 of the Revenue Act of 1926, which provided for the payment of interest upon the refund of any internal-revenue tax erroneously or illegally assessed or collected, or of any penalty collected without authority, or of any sum which was excessive or in any manner wrongfully collected.

The reference in the Act of February 11, 1925, authorizing the commissioner to allow the claim of any distiller for a refund of taxes paid in excess of a certain amount, to the provisions of section 3220 of the Revised Statutes was for the purpose of making it certain that in the preparation, presentation, and investigation of the claim the Commissioner of Internal Revenue should have authority to proceed as in other claims for the refund of taxes in accordance with regulations duly made. In other words, Congress recognized that there already existed under section 3220 an established practice in the Treasury Department with reference to the preparation and presentation of claims for refund and with reference to investigations and hearings thereon, and the commissioner was authorized to follow the provisions of section 3220 relating to refunds of all taxes in allowing the claim of any distiller for the refund of the taxes authorized in the acts of 1925 and 1928. The amount of tax which Congress by the acts of 1925 and 1928 authorized the commissioner to refund was a tax levied by Congress, legally collected, and was not excessive in amount. From the time the tax became due under the statute, it belonged to the United States and at no time after it was paid was it wrongfully withheld. The government was at no time using funds that belonged to the plaintiff. The underlying purpose of the allowance of interest upon a refund of a tax is that the government has collected from the taxpayer amounts in excess of those authorized by the taxing acts and has had the use of money that did not belong to it. The reason for the allowance of interest did not exist in respect of the tax in question and in the absence of specific authorization for the payment of interest upon the refund of amounts which had been legally collected and at all times belonged to the United States, we should not read into the two acts in question the general provisions of law with reference to the payment of interest upon a tax erroneously or illegally assessed or collected. Prior to the Revenue Act of 1921, approved November 23, 1921 (42 Stat. 227), no interest was payable upon taxes overpaid and refunded. By that act interest on over-payments was allowed under certain conditions. The Revenue Act of 1924, 43 Stat. 253, in section 1019 (26 USCA § 153 note), contained a provision for the payment of interest from the date of overpayment to the date of allowance of refund. The Revenue Act of 1926, 44 Stat. 9, in section 1116 (26 USCA § 153 note), again restricted the allowance of interest upon refunds and credits by paying interest upon amounts wrongfully withheld by the government during the time when the taxpayer was not indebted to the government for a like amount and also shortened the period during which the taxpayer could receive interest upon a claim. See Riverside & Dan River Cotton Mills v. United States, 37 F.(2d) 965, 69-Ct. Cl. 70), and George U. Hind v. United States, 41 F. (2d) 892, 70 Ct. Cl. 288. Section 614 of the Revenue Act of 1928, approved May 29,1928 (26 USCA § 153 note; § 2614 and note), continued the provisions of the 1926 act with reference to the payment of interest on credits and refunds but changed the date to which interest on a refund should be paid from the date of the allowance thereof to a date preceding the date of the refund check by not more than thirty days. By reason of the changes in the interest provisions, subdivision (c) of section 1116 of the Revenue Act of 1926 made that section applicable to any refund paid and to any credit taken on or after the date of the enactment of that act even though such refund or cred-7 it was allowed prior to such date, and subdivision (d) of section 614 of the Revenue Act of 1928 contained a similar provision with reference to the provisions of that section. Subdivision (c) of the 1926 act and subdivision (d) of the 1928 act have no bearing on the question here. They were inserted to guard against the computation of interest under a prior statute because of certain action taken by the Commissioner of Internal Revenue. George U. Hind v. U. S., supra.

The United States is not liable for interest except by its consent. The allowance of interest against the government is a matter of grace, manifestly restrictive, is never to be presumed, and should not be allowed unless clearly and specifically authorized. We may not, therefore, presume that Congress in authorizing the refund of a portion of a tax duly imposed and legally collected by a special act which makes no mention of interest, intended that other provisions of law for the payment of interest upon taxes erroneously and illegally collected and wrongfully withheld should apply. Neither may we read into the special acts of 1925 and 1928 for the benefit of distillers the general-interest provisions with respect to illegal collections merely because such special acts refer to section 3220, Revised Statutes, as the authority by which the commissioner may allow the refund.

Congress authorized the commissioner to follow the provisions of section 3220 in allowing the claim for a refund of a portion of a tax paid on distilled spirits on hand at the date of the enactment of those acts. The fact that he was authorized to proceed in conformity with section 3220 indicates that Congress recognized that in authorizing the repayment of a portion of the tax in question it was making an exception to the general rule with reference to refunding taxes, and it inserted the words “pursuant to the provisions of section 3220, Revised Statutes, as amended,” to permit the commissioner to invoke the provisions of that section and no other, in connection with whatever action he might take in considering and allowing the claim. If we read into the acts of 1925 and 1928 the general-interest provisions of the internal revenue laws, it would seem that we would also be compelled to read into those acts the limitation provisions as well, for no exception in this regard was made. In that event the refunds upon which interest is here claimed were barred and therefore illegal.

I am of opinion that Congress simply intended to return to distillers the difference between the tax of $6.40 per gallon levied and collected upon liquor withdrawn and held for sale for beverage purposes, and the lesser tax of $2.20 levied and collected upon liquor held in bond and not yet withdrawn for beverage purposes or for the manufacture of any article used or intended for use as a beverage, without interest thereon. The reason for the return of a portion of the tax levied, assessed, and paid was because the liquor upon which levied and collected could not, because of the eighteenth amendment to the Constitution, be sold for beverage purposes. It was purely a voluntary act, and we may not assume that Congress intended to return more money 'than it specifically authorized.

WILLIAMS, Judge

(dissenting).

I think the plaintiff’s petition states a cause of action and that the demurrer thereto should be overruled.

The plaintiff sues to recover interest on two refunds of internal-revenue taxes made to it by the Commissioner of Internal Revenue as follows:

(1) A refund of $80,135.79 made pursuant to an Act of Congress of February 11, 1925 (43 Stat. 860, e. 208 [26 USCA § 150]); and

(2) A refund of $31,903.83 made pursuant to an Act of Congress approved May 8, 1928 (45 Stat. 492, c. 509 [26 USCA § 150a]).

The Act of February 11, 1925, under the provisions of which the first refund was made reads as follows: “That the Commissioner of Internal Revenue may, pursuant to the provisions of section 3220, Revised Statutes, as amended, allow the elaim of any distiller for the refund of taxes paid in excess of $2.20 per proof gallon on any distilled spirits produced and now owned by him and stored on the premises of the distillery where produced. * * * ”

The Act of May 8, 1928, under which the second refund was made reads as follows: “That in addition to the authority contained in the Act entitled ‘An Act to refund taxes paid on distilled spirits in certain cases,’ approved February 11, 1925, the Commissioner of Internal Revenue may allow the elaim of the owner (whether the distiller or his successor or other person) for the refund of taxes paid (whether by such owner or any other person) in excess of $2.-20 per proof gallon on any domestic distilled spirits which are now in a tax-paid warehouse. * * * ”

It is stated in the majority opinion that when a refund is allowed under the provisions of section 3220 of the Revised Statutes, as amended, interest is also allowed under the provisions of section 1019 of the act of 1924 or of section 1116(a) of the act of 1926, for the reason that the requirements for the allowance of interest under these sections are the same as the requirements for the allowance of a refund under section 3220.

I think the act of February 11, 1925, authorizing the Commissioner of Internal Revenue to refund the taxes in question “pursuant to section 3220, Revised Statutes, as amended,” brings the taxes herein involved with the scope of the interest allowance provided in section 1019 of the Revenue Act of 1924 and section 1116(a) of the Revenue Act of 1926. To hold otherwise renders the language “pursuant to the provisions of section 3220, Revised Statutes, as amended,” of the Act of February 11, 1925, absolutely meaningless. To deny the plaintiff interest on the refund herein, the court, it seems to me, is required to delete this language entirely from • the context of the act.

Under a universally accepted rule of statutory construction, courts are required to give all the words used in a statute their proper signification and effect. United States v. Lexington Mill & Elevator Co., 232 U. S. 399, 34 S. Ct. 337, 58.L. Ed. 658, L. R. A. 1915B, 774.

The Legislature is presumed to have used no superfluous words. Platt v. Union P. R. Co., 99 U. S. 48, 25 L. Ed. 424.

The rule is that a statute ought to be so construed that if' possible no clause, sentence, or word shall be superfluous, void, or insignificant. Montclair Twp. v. Ramsdell, 107 U. S. 147, 2 S; Ct. 391, 27 L. Ed. 431.

The majority opinion says “the words 'pursuant to the provisions of section 3220’ mean, as we think/'that the case should be treated by the Commissioner as if the provisions of section 3220 were applicable, but this does not lead us -to the conclusion that the provisions of section 1019 of the act of 1924 or of section 1116 of the Revenue Act of 1926 were applicable also, especially when it is considered, as shown above, that their terms and specifications excluded a case like the one at bar.”

I am unable to see how the commissioner could make'the refund “as if the provisions of section 3220 were applicable” without the allowance of interest when it is conceded, as it must be conceded, that a refund of taxes made under the provisions of the said section carry interest. It is my opinion the words “pursuant to section 3220, Revised Statutes, as amended,” unless they be regarded as superfluous and be given no' effect whatever, required the Commissioner of Internal Revenue to make the refund in the same manner as refunds are made of taxes “erroneously or illegally assessed or collected, all penalties collected without authority, and-all taxes thait -'appear to.be unjustly assessed or excessive in amount, or in any manner wrongfully'collected. * * * ”

In other words'Congress intended, in the use of the words “pursuant to the provisions of section 3220,” that the taxes to be refunded should, for the purposes of the refund, be regarded as of the type of taxes enumerated in section 3220. Otherwise, there was obviously no reason for referring to section 3220. The action of the commissioner in making the refund without the allowance of interest was precisely what his action would necessarily have been had the words “pursuant to the provisions of section 3220” been entirely omitted from the Act of February 11, 1925.

The Act of May 8, 1928, provides that in addition to the refund provided for in the Act of Congress approved February 11,1925, refund shall be made of taxes paid in excess of $2.20 per proof gallon on distilled spirits therein described. The refund in the instant case, made pursuant to the aforesaid Act of May 8, 1928, was paid on August 9, 1928. At the time that refund was paid subsection (a) of section 614 of the Revenue Act of 1928 (45 Stat. 791, 26 USCA § 2614 (a) (2) was effective. That section provides that—

“Interest shall be allowed and paid upon any overpayment in respect of any internal-revenue tax, at the rate of 6 per centum per annum, as follows: * * *
“(2) In the case of a refund, from the date of the overpayment to a date preceding the date of the refund check by not more than 30 days, such date to be determined by the Commissioner.”

Subsection (d) of section 614 of the Revenue Act of 1928 (26 USCA § 153 note) provides that: “Subsections (a), (b), and (e) shall take effect on the expiration of thirty days after the enactment of this Act, and shall be applicable to any credit taken or refund paid after the expiration of such period, even though allowed prior thereto.”

Therefore, a refund of internal revenue taxes paid after June 29, 1928, is a refund on which interest shall be allowed and paid as provided in section 614(a) of the Revenue Act of 1928. The act does not provide that interest- is to be paid on refunds made pursuant thereto, but provides for the payment of interest on “any credit taken or refund paid” after said act became effective.

For the reasons stated, I think the action of the Commissioner of Internal Revenue in denying interest on the two refunds was erroneous and that the demurrer filed by the defendant hereiri' should be overruled.

WHALEY, Judge, concurs in this opinion.


source: Caselaw Access Project

author: BOOTH, Chief Justice.

license: Public Domain

text:
    UNITED STATES CARTRIDGE CO. v. UNITED STATES.
    No. H-522.
    Court of Claims.
    April 6, 1931.

      H. Le Baron Sampson, of Boston, Mass. (Jay B. Angevine, of Boston, Mass., on the brief), for plaintiff.
    Fred K. Dyar and Isadore Graff, both of Washington, D. C., Charles B. Rugg, Asst. Atty. Gen. (Ottamar Hamele, of Washington, D. C., on the brief), for the United States.
    Argued before BOOTH, Chief Justice, and WILLIAMS, LITTLETON, and GREEN, Judges.
   BOOTH, Chief Justice.

This case presents the determination, under the revenue laws and regulations of the Commissioner of Internal Revenue, of plaintiff’s tax liability for the year 1918.

The plaintiff is a Massachusetts corporation and during the late World War was engaged, in the manufacture of ammunition to be used both in this country and abroad. In making its tax return for the calendar year 1918 two contentions arose as to the proper valuation of its inventory for the year and the denial by the Commissioner of a deduction from gross income for the year of the cost of buildings erected upon leased grounds.

No jurisdictional question arises and the case depends solely upon the issues stated. The facts which follow must be stated in detail.

The plaintiff’s books of account were kept upon an accrual basis. On March 19, 1917, the Maxim Munitions Corporation, a Delaware corporation, entered into a contract with the Offieine di Villar Perosa, an Italian corporation acting for the Italian government, hereafter referred to as the Italian contract, for the manufacture and delivery of 250,000,000 9-millimeter cartridges. This contract was amended May 31, 1917, and December 14, 1917, the last amendment reducing the quantity of ammunition to be delivered to 125,000,000 cartridges. All of this ammunition was of special design and intended for use by Italy in the war. The Maxim Corporation was required to give bond for the faithful performance of the contract and received from Italy an advanced payment of $1,531,250 for the ammunition to be delivered under the contract. In order to procure the exacted bond the Maxim Corporation deposited with the Maryland Casualty Company, the Fidelity & Deposit Company of Maryland, and the United States Fidelity & Guaranty Company of the same state, the entire sum so advanced, in such proportions as to secure each of the companies against loss, and later on, when the quantity of cartridges to be delivered was reduced one-half, the surety companies reduced their collateral one-half, and this amount was returned to the Italian corporation and retained by it.

On October 5, 1917, the plaintiff entered into a written contract with the Maxim Corporation, by the terms of which the plaintiff agreed to manufacture and deliver the ammunition in the quantities stipulated and in accord with the terms of the existing contract between the Maxim Corporation and the Italian government. In other words, the plaintiff took over the Maxim contract. The plaintiff acquired materials, manufactured and delivered a large quantity of cartridges, and had on hand materials and undelivered cartridges involved herein, when on November ' 22, 1918, the Italian authorities canceled the contract of March 19,1917, between the Maxim Corporation and Italy, and thereafter declined to accept any additional deliveries whatever. Some dispute arose as to the authority of those acting to cancel, an unessential point, but the plaintiff company accepted cancellation as accomplished, and on November 26, 1918, discontinued the manufacture of cartridges entirely. It is conceded by the parties that at the time of the cancellation of the Maxim contract the unworked and finished materials then on hand in plaintiff’s plant applicable to the Maxim contract possessed a market value of $79,297.11 and a cost value of $274,659.-78. See finding 20. The plaintiff did not realize the cost value of the materials. Following the cancellation of the1 Maxim contract negotiations ensued for a settlement with the Italian government for the loss occasioned thereby,. but neither the plaintiff nor the Maxim Corporation ever obtained any sums in addition to the advance payment made to the Maxim Corporation as heretofore noted. In virtue of waivers filed by the plaintiff, its tax liability, due to audits and examination of its books, of account in relation to this particular contract and other transactions to follow, was not finally determined until January 16, 1926, when the Commissioner declined to allow the plaintiff to value its inventory for the year at the market value of the materials on hand to perform its contract with the Maxim Corporation, i. e., $79,297.11, and instead valued its inventory at cost, i. e., $274,-659.78.

During the calendar year 1918 the Maxim Munitions Corporation was insolvent, it could not have possibly performed its Italian contract nor pay the plaintiff for its unworked material and finished munitions. It was indebted to the plaintiff in the sum of $300,000, and doubtless, because of its insolvency and indebtedness to the plaintiff, the contract involved herein was made. On May 29, 1919, a petition of involuntary bankruptcy was filed against the Maxim Corporation, and on June 18, 1919, it was adjudicated a bankrupt.

See. 203 of the Revenue Act of 1918 (40 Stat. 1057,1060) provides as follows: “That whenever in the opinion of the Commissioner the use of inventories is necessary in order clearly to determine the income of any taxpayer, inventories shall be taken by such taxpayer upon such basis as the Commissioner, with the approval of the Secretary, may prescribe as conforming as nearly as may be to the best accounting practice in the trade or business and as most clearly reflecting the income.”

Section 234 of the Revenue Act of 1918 (40 Stat. 1077) provides in part as follows:

“Sec. 234(a) That in computing the net income of a corporation subject to the tax imposed by section 230 there shall be allowed as deductions: ® 16 *
“(4) Losses sustained during the taxable year and not compensated for by insurance or otherwise. * * * ”

Article 1584 of Regulations 45, the first regulations promulgated under the act of. 1918, reads as follows: •

“Art. 1584. Inventories at market.— Under ordinary circumstances ‘market' means the current bid price prevailing at the date of the inventory for the particular merchandise in- the volume in which ordinarily purchased by the taxpayer and is applicable in the cases (a) of goods purchased and on hand, and (b) of basie elements of cost (materials, labor, and burden) in goods in process of manufacture and in finished goods on hand; exclusive, however, of goods on hand, or in process of manufacture for delivery .upon firm sales contracts at fixed prices entered into before the date of the inventory. * * * ”

Articles 1612 and 1614 of Regulations 65, in force in 1926 when the additional taxes now complained of were assessed and paid, read as follows:

“Art. 1612. Valuation of inventories— The act provides two tests to which each inventory must conform: (1) It must conform as nearly as may be to the best accounting practice in the trade or business and (2) it must clearly refleet the income. * * * An inventory that can be used under the best accounting practice in a balance sheet showing the financial position of the taxpayer can, as a general rule, be regarded as clearly reflecting his income.
“The basis of valuation most commonly used by business concerns and which meets the requirements of the revenue act is (a)f cost or (b) cost or market, whichever is lower. (For inventories by dealers in securities, see article 1615.) Any goods in an inventory which are unsalable at normal prices or unusable in the normal way because of damage, imperfections, shop wear, changes of style; odd or broken lots, or other similar causes, including secondhand goods taken in exchange, should be valued at bona fide selling prices less cost of selling whether basis (a) or (b) is used, or if such goods consist of 'raw materials or partly finished goods held for use or consumption, they shall be valued upon a reasonable basis, taking into consideration the usability and the condition of the goods; but in no case shall such value be less -than the scrap value. * * *
“Art. 1614. Inventories at market. — Under ordinary circumstances, and for normal goods in an inventory, ‘market’ means the current bid price prevailing at the date of the inventory for the particular merchandise in the volume in which usually purchased by the taxpayer, and is applicable in the cases (a) of goods purchased and on hand, and (b) of basic elements of cost (materials, labor, and burden) in goods in process of manufacture and in finished goods on hand; exclusive, however, of goods on hand or in process of manufacture for delivery upon firm sales contracts (i e., those not legally subject to cancellation by either party) at fixed prices entered into before the date of the inventory, which goods must be inventoried at cost. n ■% *»

The plaintiff insists that it was entitled under the regulations to value its inventory at eo'st or market, whichever was lower. The defendant contends that a lawful exception prevails as to this option granted by the regulations in the case “of goods on hand or in process of manufacture for delivery upon firm sales contracts (i. e., those not legally subject to cancellation by either party) at fixed prices entered into before the date of inventory, which goods must be inventoried at cost.” The purpose of inventories in a business enterprise such as we have here is apparent, and the Commissioner’s regulations as to a valuation of the same on the basis of cost or market value, whichever is lower, were clearly to ascertain accurately annual income in view of fluctuating values of merchandise on hand, at the beginning and close of the year. Mutual Chemical Co. of America, 12 B. T. A. 578. If, however, the taxpayer possesses a contract stipulating a fixed price for the commodity to be manufactured, he is, as pointed out in the opinion just cited, “protected against any reduction in value occasioned by declining market prices.” The single exception to the above rule is applicable only to contracts to manufacture and deliver a completed article subject to cancellation by either party. Of course, if a taxpayer is protected against loss of value of unworked materials by the terms of a fixed contract of sale, and obviously such would be the case in firm sales contracts, the valuation of his inventories as related to the contract is not dependable upon cost or market, whichever is lower, and actual income is not to be ascertained by according to inventories the procedure set forth in the regulations where no such condition obtains.

The intent of the regulations, aside from the language used, is manifestly to apply them as the actual situation presents itself to the Commissioner. When the plaintiff’s tax liability was fihally determined by the Commissioner, it was known to him that the contract between plaintiff and the Maxim Munitions Corporation had been canceled before the expiration of the year 1918. It was also known to him that the Maxim Corporation was insolvent and had been adjudicated a bankrupt, and that plaintiff had not been able to realize cost or anyway near cost for the materials procured by it to perform the Maxim contract. The record further discloses that knowledge of the Italian government’s disavowal of any liability under the Maxim contract was brought to his attention, and that hope or prospect of realizing contract prices for munitions under the Italian contract had been foreclosed. The contract between the plaintiff and the Maxim Munitions Corporation contained no cancellation clause applicable to the present contention, but the contract between the Maxim Munitions Corporation and the Italian Corporation, which is the essential subject-matter from -which source the plaintiff’s income for the term involved was to accrue, did contain a stipulation as follows: “Ninth. Performance. — In the event that the seller shall fail to make deliveries within sixty (60) days after the date or dates upon which such deliveries are due according to the terms of this contract, by reason of fires, strikes, wrecks, explosions, confiscations, eminent domain, the acts of God or the publie enemy or for any reason whatsoever, the buyer shall have the right to cancel this contract.” Under this clause of the Italian contract the right of cancellation was exercised and liability to the contractor for losses occasioned thereby expressly disavowed by the Italian corporation.

Beyond doubt, default in deliveries obtained. What the plaintiff secured by its contract with the Maxim Munitions Corporation was the right to perform the latter’s contract with the Italian corporation — the right, as expressly stated in the contract, “to manufacture cartridges upon the said contracts herein mentioned”— and the contracts identified by “herein mentioned” were the Italian contracts. The situation in which the plaintiff found itself in 1918 was not one where it was in process of performing a firm sales contract; the contract had been suspended, the plaintiff’s performance had been effectually foreclosed, and no reason existed to expect that any of the articles contracted .for would ever be delivered, the owner of the contract known to be insolvent and no hope of realizing the contract price for delivered articles obtained. If, therefore, the intent of the regulation is to predicate the ascertainment of income, in cases involving a firm sales contract, upon the fact that a valid contract exists whereby the contractor will in due course obtain the contract price, and that the inventory of materials on hand to perform the contract is by reason thereof worth more as a current asset than their market value, then, in so far as the Maxim contract with 'the plaintiff is concerned, the plaintiff is entitled to value its inventory at market value. It is true that in 1917 the sureties on the bond of the Maxim Munitions Corporation at the request of the corporation loaned the plaintiff $612,500 from the sum deposited with them, i. e., the advance payment made by the Italian government to the corporation which it deposited with the surety companies to go on its bond. This loan made under contracts for repayment, details of which we need not discuss, was in addition secured by the plaintiff’s notes for the amount loaned, guaranteed by tbe National Lead Company (finding 11). Tbe plaintiff has not paid tbe notes, and suits are now pending against it for their payment and as yet undetermined. The plaintiff on its books of account carries as a liability upon the notes a sufficient reserve to liquidate a possible judgment against it because of this litigation. The defendant asserté that the plaintiff has this sum of money, that it is in excess of the $300,000 which the Maxim Munitions Corporation owes the plaintiff, and also in excess of the total of the former amount and the sum of $274,659.78 valuation put upon the plaintiff’s inventory by the Commissioner in 1926, and that, in the event of the' plaintiff’s successful defense to the pending suits to recover the amount of the loan, the plaintiff will recover more than the contract value of the materials left on its hands by the cancellation of the Maxim contract with Italy. It is also true that the plaintiff purchased on March 16, 1926, for a consideration of $61,250, an unconditional conveyance from the trustees in bankruptcy of the Maxim Munitions Corporation, all the interest of said corporation in and all rights of action it might have against the Italian corporation, and attempts were made to realize from the Italian corporation the loss plaintiff suffered by reason of the cancellation of the Maxim Munitions Corporation contract.

From these facts the defendant argues that the plaintiff has a valid claim for reimbursement of the cost of its inventory. The plaintiff’s only possible recourse against the Italian corporation must originate in the purchase of the interests of the Maxim Munitions Corporation against the Italian government. The record discloses that attempts to procure a settlement with the Italian corporation failed, and that the corporation is possessed of no assets in the United States and no known place of conducting business here, where service could be had upon it. In addition to the inferences which may be drawn from the facts as recited, the transactions cited are but remotely related to the issue of the valuation of inventories. Borrowed funds and assigned rights of action under a contract are not directly related to the valuation of inventories; they of course constitute a factor in the ascertainment of income, but their bearing upon the issue in suit is too remote and too conjectural to influence the question of what valuation should be placed under the law and regulations upon the unused and unworked materials allocated to contract work after the contract has been canceled, especially so when the known facts discredit the possibility of realizing from the sources alleged, and a period of eight-years having elapsed without any beneficial results. It is impossible now to indicate what may be the outcome of the litigation pending, and whatever it may be the taxing laws take care of it when it becomes a certainty. Lewellyn v. Electric Reduction Co., 275 U. S. 243, 48 S. Ct. 63, 72 L. Ed. 262.

United States Contracts.

The plaintiff entered into four contracts with the United States, represented by the War Department. One of the contracts provided for the manufacture and delivery of 135,100,000 .45 caliber cartridges, and the other three for the manufacture and delivery of 14,760,000 artillery primers. One of the contracts was made in 1917 and all the others on various dates in 1918 prior to November 11, 1918. In each of the contracts there was a provision for their cancellation in the event of the termination of the war, and likewise a provision for settlement of and payment to the plaintiff of amounts due it by reason of cancellation. As to materials on hand at time of cancellation the contracts provided as follows:

* * * The United States shall also pay to the contractor the cost of the materials and component parts purchased by the contractor for the performance of this contract and then on hand in an amount not exceeding the requirements for the completion of this contract, provided they comply with the- specifications, and also all costs shown by the contractor to have been theretofore necessarily incurred in the performance of this contract and remaining unpaid; and the United States shall also protect the contractor on all obligations incurred necessarily and solely for the performance of this contract of which the contractor can not be otherwise relieved. To the above may be added such sums as the Chief of Ordnance may deem necessary to fairly and justly compensate the contractor for work, labor, and service rendered under this contract.
“Title to all such materials and component parts paid for by the United States upder this article shall, immediately upon such payment, vest in the United States. * * * ”•

In December, 1918, following the armis-' tice, the contracts were suspended and the plaintiff duly notified. The plaintiff, observed the suspension notice and thereafter, in virtue of settlement contracts, following a somewhat prolonged inspection and audit of plaintiff’s accounts, a final settlement was concluded by the terms of which the plaintiff was paid 'the total sum of $1,154,618.35. Included in the sum so paid is an item of the cost of materials and finished and unfinished articles in plaintiff’s plant allocated to the contracts involved, the conceded value of which was $732,088.62. In placing a valuation upon its inventory for the year 1918 the plaintiff claims it is entitled to fix the sum at the market value of the materials, etc., on hand to fulfill the contracts, i. e., the conceded market value of $231,615.43.

The Commissioner of Internal Revenue declined to accede to plaintiff’s claim, and instead assessed, levied, and collected from plaintiff income, excess profits, and war profits taxes by valuing plaintiff’s inventory for the year 1918 on the basis of the sum paid to it by the United States for materials allocated to the contracts, i, e., $732,088.62. Plaintiff’s argument is addressed mostly to the same regulations and sections of the revenue laws that are involved in its contention with reference to inventory values in the preceding Italian contract. The facts as to the United States contracts present a decidedly different situation than was involved in the Italian contract. The United States contracts clearly disclose “firm sales contracts at fixed prices,” and, while the contracts were subject to cancellation, they contained express covenants upon the part of the United States to save the plaintiff harmless in so far as the cost of materials, etc., entering into its inventory is concerned. The contracts contained express provisions setting forth with exactness how the plaintiff should be paid, and the items included within the Government’s liability to pay. The regulations of the Commissioner, heretofore cited, article 1612 of regulations 65, wherein appears an option to value inventories at cost or market, whichever is lower, must, as we have previously said, be construed in the light of their purpose and in view of an actual and subsisting situation. There can be no doubt that, if the plaintiff’s contention is correct, the value it seeks to place upon its inventory for the year 1918 does not represent the actual value received by it for the materials mentioned and does not clearly reflect its income for the year involved.

The Commissioner in determining the plaintiff’s tax liability for 1918 had before him the actual situation with respect to plaintiff’s status in relation to the United States contracts, and upon the basis of the same determined the tax. The plaintiff does not challenge the correctness of the amounts or dispute the receipt of the sums involved, which necessarily leaves its contention upon the single insistence that the words of the regulations entitle it to recover. Inventories at the beginning and end of the year, as provided for in the regulations, are essential to ascertain income, and, if their valuation may be fixed upon a basis known to be contrary to the actual facts, the purpose of the same is in no sense accomplished. All through the regulations concerned with this subject-matter run numerous provisions designed to meet situations wherein inventories are to be used, which clearly reflect an intent to value the inventories so used upon a basis of fact, and assuredly such a basis may not be challenged as counter to good accounting practice. It is of course true that at the dose of the year 1918 the plaintiff was unaware as to the precise sum it would receive in dollars and cents for the materials on hand, the ascertainment of the same was yet to be made, and the final result dependent upon accounting. It did, however, possess an enforceable demand for their cost in the form of a positive covenant to pay the same from a responsible party, and, having voluntarily waived its right to have its tax liability for the year 1918 determined within the period of the statute of limitations with respect thereto, thereby enabled the exact determination of the cost of its inventory free from any uncertainty. The fixed statutory period within which the Commissioner must determine a taxpayer’s liability is a period which. Congress extended to him to ascertain liability, and the ascertainment of the same is to be accomplished from the taxpayer’s return.

We need not recite the details essential to be pursued. It is in this case sufficient to state that an audit of plaintiff’s return was available to the Commissioner and actual facts developed from such an audit may not be ignored. Therefore, it seems evident to the court that, so long as the Commissioner was lawfully possessed of the right to determine plaintiff’s tax liability for the year 1918, and unquestionably the subject-matter was within his jurisdiction when he did act, he had under the law and regulations the right to take into consideration the fiscal transactions of the plaintiff occurring in that year and the final consummation of the same, notwithstanding it required additional time to ascertain the facts all taking place within the statutory period.

The plaintiff kept its books upon an accrual basis, and when it made its tax returns neither it nor the Commissioner could determine with accuracy its tax liability for the year 1918. The time consumed by both parties was in an effort to fix its taxes for 1918 upon the basis of what the actual value of its inventory should be, and before the statute of limitations expired facts developed which did fix the value of the same in dollars and cents. In this respect the case is no different from the adopted procedure many times occurring with respect to all tax returns involving a similar situation, and to hold that the Commissioner was bound as to the valuation of the inventory given by the taxpayer in the return filed for 1918, when later facts clearly and indisputably show that for all the items involved the taxpayer received cost of the same, would require the court to negative a positive fact. Keeping in mind that action of the Commissioner challenged in this ease relates exclusively to plaintiff’s tax liability for 1918, and that the Commissioner was acting within the scope of his jurisdiction, we find nothing in the many regulations cited to warrant a contrary holding.

The claims, i. e., the rights conferred upon the plaintiff under the settlement contracts executed by the parties within the year 1918, brought about a situation which within the statutory period matured into an observance of the settlement contracts by the United States and the plaintiff received payment in accord, therewith, and all this was part of and essential to the ascertainment of plaintiff’s inventory value for the year 1918. An entirely different situation might have developed, a matter not within the purview of the issue in this ease, if the settlements had not been accomplished within the statutory period, and payments for the inventory had been postponed to later years. But in such case it would have been the duty of the Commissioner to determine the inventory at the actual cost to the plaintiff. The plaintiff executed the settlement contracts, proceeded thereunder, and received without protest within the statutory period determining its tax liability for 1918 the cost value of its inventory for that year, and while the payment was not made in 1918 it was made to pay for the cost of materials, etc., included in plaintiff’s inventory for 1918. In the ease of Producers’ Fuel Co., 1 B. T. A. 202, the Board of Tax Appeals determined a controversy involving the principle upon which we rely. The Producers’ Fuel Company in December, 1920, deliberately breached a contract' for the future delivery to it of coal and set up on its books for the year 1920 an estimated liability upon the contract breached. Thereafter in 1921 the company compromised with its contractors for the breach and paid the sum of $35,292.40 in cash. The reserve set up on its books as before noted totaled $37,500, and the company claimed as a deduction this estimated amount from its gross income for the year 1920. The Board of Tax Appeals decided adversely to the plaintiff’s contention, and in so doing said: “While it appears that at the end of the year 1920 this taxpayer estimated its liability under the breached contracts with approximate accuracy and set the sum up on its books of account and then made its income and profits tax return in accordance with such books, we have now before us a review of that income and profits tax return and in making such review it is our duty to consider not only the facts known and recorded at the close of December, 1920, but also those same facts as modified by subsequent events. These subsequent events have developed the fact that the damages and losses sustained by the taxpayer on account of the breach of the Monongahela contract were settled for the sum of $5,-500, and that the damages and losses sustained by the taxpayer on account of the breach of the Campbell contract were finally determined and settled for the sum of $29,-742.4Q. With these facts before us, and for the purpose of determining the final net taxable income of the taxpayer for the year 1920, the amounts of damages and losses as finally determined must now be substituted for the estimate originally made, and in place of the deductions claimed by the taxpayer in his return and disallowed by the Commissioner the losses and damages as finally settled must be allowed as the deduction contemplated by the law.” See, also, cases of McCreery et al., 4 B. T. A. 967, and Ewing Thomas Converting Co. v. McCaughn (C. C. A.) 43 F.(2d) 503.

Claimed Deduction from Gross Income on Account of the Cost of Buildings Erected on Leased Ground.

Prior to 1914 the plaintiff’s factory •buildings were rented from the Wamesifc Power Company, the business of the plaintiff being carried on at Lowell, Mass., in the rented buildings owned by the Wamesit Company at that place. In 1914, shortly after the World War began, the plaintiff received orders from European governments for ammunition, and, in view of orders in hand and additional ones anticipated, the plaintiff began the erection of buildings essential to its manufacturing needs on land of the Wamesit Power Company at Lowell and South Lowell, Mass. The buildings involved were erected under an agreement between the plaintiff and the Wamesit Power Company that the expense of their construction should be borne by the plaintiff and occupied free of rental by it for a term, of ten years, at the expiration of which time they were to become the property of the Wamesit Power Company. Under this agreement, which contained other provisions not material here, the plaintiff erected the buildings involved at a conceded cost of $802,499.49. During the war plaintiff’s factory necessities were great and the new buildings erected on the leased grounds were occupied to their capacity. After the close of the war and the suspension of its contracts for ammunition, its business receded to normal conditions, and of course not all of the extra floor space of the buildings involved was needed. The lease under which the buildings were erected did not by its terms expire until the dose of 1924, and for the six years remaining, i. e., from 1918 to 1924, the plaintiff occupied the buildings, continuing the manufacture of commercial ammunition and adding to this activity the manufacture of radiators, radiator tubes, phonograph motors, paper boxes, and certain other articles. The plaintiff in its tax return for 1916 charged off as a deduction a very large part of the cost of these buildings and machinery. The Commissioner of Internal Revenue declined to allow the deduction in full, holding that the cost of the plant should be charged off over the ten-year period of the lease, and that only a proportionate part could be charged off each year. The plaintiff acquiesced in the Commissioner’s ruling. Later, however, when the war terminated and in making its tax return for 1918, the plaintiff claimed as a deduction from its gross income the depreciated value of the buildings as of December 31, 1917, less their residual value, a total of $414,421.89, this sum being arrived at in the following manner, viz:

Depreciation allowed by the Commissioner for the years 1914 to 1917, inclusive...... $197,107.74
Cost of buildings. .$802,499.49
Less depreciation.. 197,107.74
Leaving a-depreciated value as of 1918 of....... 605,391.75
From which a subtraction of residual value............. 190,969.86
Leaves ......,........ 414,421.89

The Commissioner adhered to his former ruling, disallowed the claimed deductions, and instead allowed a depreciation deduction of $86,484.54, a proportionate annual allowance sufficient in amount to cover the cost of the buildings in the ten-year period of the lease.

The plaintiff’s suit contests the ruling of the Commissioner and contends for the deduction claimed in its return for 1918. If the plaintiff’s contention is sound, it is entitled to a substantial refund of taxes paid for the year 1918.

Section 234 (a) of the Revenue Act of 1918 (40 Stat. 1077), in so far as here pertinent, provides as follows:

“Sec. 234. (a) That in computing the net income of a corporation subject to the tax imposed by section 230 there shall be allowed as deductions: * * * •
“(4) Losses sustained during the taxable year and not compensated for by insurance or otherwise; * * *
“(7) A reasonable allowance for the exhaustion, wear and tear of property used in the trade or business, including a reasonable allowance for obsolescence. * * * ”

Article 143 of regulations 45 as to loss of useful value, is as follows: “Art. 143. Loss of useful value. — When through some change in business conditions the usefulness in the business of some or all of the capital assets is suddenly terminated, so that the taxpayer discontinues the business or discards such assets permanently from use in the business, he may claim as a loss for the year in which he takes such action the difference between the eost or the fair market value as of March 1,1913, of any asset so discarded (less any depreciation sustained) and its salvage value remaining. This exception to the rule requiring a sale or other disposition of property in order to establish a loss requires proof of some unforeseen cause by reason of which the property must be prematurely discarded, as, for example, where an increase in the cost of or other change in the manufacture of any produet makes it necessary to abandon such manufacture, to which special machinery is exclusively devoted, or where new legislation directly or indirectly makes the continued profitable use of the property impossible. This exception does not extend to a case where the useful life of property terminates solely ás a result of those gradual processes for which depreciation allowances are authorized. It does not apply to inventories or to other than capital assets. The exception applies to buildings only when they are permanently abandoned or permanently devoted to a radically different use, and to machinery only when its use as such is permanently abandoned. Any loss to be deductible under this exception must be charged' off on the books and fully explained in returns of income. But see articles 181-189.”

Article 109 of the same regulations, as to rentals, contains the following terms: “Art. 109. Rentals. — Where a leasehold is acquired for business purposes for a specified sum, the purchaser may take as a deduction in his return an aliquot part of such sum each year, based on the number of years the lease has to run. Taxes paid by a tenant to or for a landlord for business property are additional rent and constitute a deductible item to the tenant and taxable income to the landlord, the amount of the tax being deductible by the latter. The cost borne by a lessee in erecting buildings or making permanent improvements on ground of which he is lessee is held to be a capital investment and not deductible as a business expense. In order to return to such taxpayer his investment of capital, an annual deduction may he made from gross income of an amount equal to the total cost of such improvements divided by the number of years remaining of the term of lease, and such deduction shall be in lieu of a deduction for depreciation. If the remainder of the term of lease is greater than the probable life of the buildings erected, or of the improvement made, this deduction shall take the form of an allowance for depreciation. See article 48.”

Additional applicable regulations are found in articles 161 and 162 of regulations 45, each of which we quote:

“Art. 161. Depreciation. — A reasonable allowance for the exhaustion, wear and tear, and obsolescence of property used in the trade or business may be deducted from gross income. For convenience such an allowance will usually be referred to as depreciation, excluding from the term any idea of a mere reduction in market value not resulting from exhaustion, wear and fear, or obsolescence. The proper allowance for such depreciation of any property used in the trade or business is that amount which should be set aside for the taxable year in accordance with a consistent plan by which the aggregate of such amounts for the useful life of the property in the business will suffice, with the salvage value, at the end of such useful life to provide in place of the property its cost, or its value as of March 1, 1913, if acquired by the taxpayer before that date. See further articles 139 and 844.
“Art. 162. Depreciable property. — The necessity for a depreciation allowance arises from the fact that certain property used in the business gradually approaches a point where its usefulness is exhausted. The allowance should be confined to property of this nature. In the case of tangible property, it applies to that which is subject to wear and tear, to decay or decline from natural causes, to exhaustion, and to obsolescence due to the normal progress of the art, as where machinery or other property must be replaced by a new invention, or due to the property becoming inadequate to the growing needs of the business. * * * ” .

The plaintiff asserts seven distinct reasons, predicated upon facts, relied upon to bring its contention within the revenue laws and the commissioner’s regulations. The buildings, it is said, were constructed exclusively for war purposes, there existed no other use for them. The normal business of the plaintiff did not warrant their construction. They were erected on leased premises and their usefulness in any event limited to a ten-year period; they were used up to their capacity for war purposes until 1918. The plaintiff did not know and had no means of knowing when the war would terminate, and hence it was impossible until that date to charge off more than their proportionate cost, as was done. Subsequent to the armistice the plaintiff did not contemplate the manufacture of war munitions for which the buildings had been erected; it received no new orders for war ammunition and of course was not to receive any. Income from rental of the buildings was not available because of a Jack of demand for their use; they had been so incorporated into the buildings previously rented from the landlord that they had to he used as a unit unless at great cost they be revamped, which from a financial point of view was not warranted, and finally that the plaintiff sought, by adding to its commercial products the manufacture of a distinct line of articles not theretofore manufactured by it, to obtain a profitable use of the buildings, but without success. In other words, six years in advance of the complete obsoleteness under its lease of the buildings the plaintiff is to be allowed a deduction for the cost of the same, upon the theory that they in 1918 became no longer useful for the precise purposes for which they were erected. It is true the plaintiff made the investment for .the purpose of fulfilling war contracts for ammunition, and that the armistice precluded a continuance of their use for this precise purpose, but the physical structures remained upon the premises for at least the full term of its lease; they were used aud occupied by the plaintiff during this period largely for the manufacture of ammunition for which use they were adapted; possession was not surrendered to the landlord or the buildings abandoned, and, while unfortunately the continued business enterprise of the plaintiff proved unprofitable, it continued to go forward in these buildings under the same conditions applicable, as shown by the record, to pre-war times. What the plaintiff apparently complains of is not an injustice inflicted upon it by the Commissioner in the amount of the annual or total sums allowed it as depreciation or obsolescence allowances, but that a radical change in business relations and a serious diminution of income in 1918 entitle it to deduct from its gross income for 1918 the total balance of allowances which would accrue annually, less residual value of its lease in the year 1918. Obviously when the war was on, business abnormal and profits correspondingly so, manufacturers built according to their needs, and in many instances at the close of the war were in possession of quarters more than adequate for normal conditions. If, however, as here, the buildings involved were upon leased premises continuously occupied by the tenant for the full term of the lease, they thereby possessed a fixed period of value and usefulness. It is difficult to accurately determine in advance of the expiration of the lease any other loss to the lessee than the annual depreciation or obsolescence of the lease on any other than the basis of a final return of the capital investment. “Obsolescence,” as said by the Board of Tax Appeals in the ease of Tennessee Fibre Co., 15 B. T. A. 133, “as used in the statute is the state or process of becoming obsolete and the provision allowing a deduction therefor is intended to care for losses of capital which take place over a longer period than the taxable year.” We are not confronted by the record with the happening of some event which rendered the buildings obsolete prior to the expiration of the lease, where the allowance of annual depreciation proportionate to their cost is insufficient to return cost of the same, for the buildings were not abandoned nor unsuitable for plaintiff’s continued activities. Plaintiff may not have .had use for all the floor space within them as it did previously, but this is not attributable to the buildings, it is due wholly to a loss of income from business activities. The economic condition which affected plaintiff was almost wholly due to loss of volume of business and not its character. No single factor of the situation rendered the buildings obsolete in 1918, nor at any time thereafter until the expiration of the lease. Depreciation allowances under these circumstances comply with the revenue laws and regulations. In the recent case of Atwater & Co., Inc., 22 B. T. A. -, the opinion deals with an issue similar to the instant ease. From the opinion we cite the following excerpts :

“The petitioner claims in the alternative that it is entitled to a deduction for the obsolescence of the discharging tower completed in February, 1919. This claim is made on the unique theory that obsolescence’exists in a ease ‘where the property turned out to be more than adequate for the needs of the business and it is foreseen that its value to the^ taxpayer is less than the balance of the cost less ordinary depreciation resulting from wear and tear spread over the actual physical life of the property.’ * * *

“In the case at bar the element of obsolescence was not shown to have been present; We assume that the usual allowances were made for depreciation, wear and tear. No new or more modem machinery was being invented or used to replace its equipment. Only the ordinary repairs were necessary to insure its continued use as a modern and up-to-date facility such as would conform to the petitioner’s present and future needs. ■ Though the additional tower may have given petitioner an excess capacity, this fact does not establish obsolescence. We are of the opinion that petitioner is entitled to no deduction on the ground of obsolescence.”

The Board of Tax Appeals in the ease of Marigold Garden Co. v. Commissioner, 6 B. T. A. 368, 370, in discussing the principle involved in this case, said: “Uselessness to a taxpayer does not determine a deductible loss any more when attributable to* a statutory prohibition than when attributable to any other extraneous cause over which the owner has no control. A change in style or market, or an exhaustion of the supply of raw materials for manufacture may destroy the utility of equipment just as effectually as the intervention of the law, and the detriment to the owner may be just as great. It seems clear that property is not ipso facto lost to a taxpayer because it is no longer useful to him. Ownership and possession still exist, and in some cases value may not wholly disappear. Value and usefulness are not necessarily interdependent, even though they very commonly look to each other for support. The want of either does not make certain the absence of the other. It should be' kept in mind that the considerations in ascertaining net income must always be expressed in money and that all the factors relied upon must be translated into terms of money. Use is only significant to the extent that it is susceptible of such expression. No one would urge that an income deduction may be claimed because a fixture or tool proves less useful than expeeted when the purchase was made. Until the investment is converted into terms of money by sale or other disposition or -its worthlessness otherwise demonstrated, there is neither loss nor gain and income is neither greater nor less.”

The ease of the McCabe Lathe & Machinery Co., 9 B. T. A. 1137, 1143, decided in 1928, involved in part an issue similar to plaintiff’s contention. In deciding the ease the Board in its opinion said: “The mere fact that a building is used for a purpose different than that originally intended does not determine the building to be obsolete. The loss which will be sustained over the remainder of the lease, after allowing for exhaustion of the cost of the building, is deductible yearly and can not be anticipated upon the theory that obsolescence has taken place when, in fact, the building continues to be suitable for the purpose of its erection and all that has taken place is a reduction in its income-producing capacity. The determination of the Commissioner as to this issue is, therefore, sustained.” See, also, Troy Mfg. Co. Case, 7 B. T. A. 119; National City Bank of Seattle v. United States, 64 Ct. Cl. 236; Id., 276 U. S. 620, 48 S. Ct. 301, 72 L. Ed. 735.

We think a decided difference obtains between this ease and the case of Burnet v. Niagara Falls Brewing Co., decided by the Supreme Court February 24, 1931, 282 U. S. 648, 51 S. Ct. 262, 264, 75 L. Ed. —. The present record presents, in our opinion, a ease where the plaintiff occupies buildings upon leased premises, buildings which possess a useful life in excess of the life of the lease, but which, in so far as the plaintiff is concerned, become obsolete upon a date certain, and the Commissioner possessed of this information determines obsolescence upon a basis which in accord with facts returns to the plaintiff the cost of the same. It is in all respects similar to a case wherein a business enterprise enjoying prosperity finds enlarged quarters essential to meet its demands, and without knowledge as to any exact date when an intervening incident may curtail its income, such as bad times, termination of a war, drought, etc., income is materially reduced or disappears, and the enlarged quarters are no longer essential for the needs of the. corporation during this period of distress. Under these circumstances what may happen to the buildings during the remaining period of the lease is problematical and is distinctly different from a case where legislation prohibits the future use of the buildings for the purposes erected, and for which purpose they were specially designed and constructed and not “readily adaptable to other uses.” The Commissioner in the present ease did not refuse an obsolescence allowance. On the contrary, as previously observed, the plaintiff obtains a return of its capital,investment; the only issue in the present case is as to the year in which the deduction of obsolescence of tangible property should be allowed. In the Niagara Case, supra, the Supreme Court said: “Clearly the statute contemplates that, where warranted by the facts, the taxpayer shall have the benefit of, and in making his return may deduct in each year, a reasonable allowance to cover obsolescence of the tangible property,” a holding in response to a contention upon the part of the United States that the statute did not authorize obsolescence allowance of tangible property in the familiar and so-called prohibition eases, an issue foreign to the record in this ease. What the plaintiff is asking here is an anticipation of obsoleteness without a record to support the contention.

Finding 56 discloses the facts with reference to the plaintiff’s claim of loss of useful value for a garage erected upon leased premises. We think the facts as found and not disputed bring the claim within what we have said with reference to the factory buildings. The findings clearly show that the claim may not be sustained.

We think that under the Italian contract the plaintiff is entitled to recover and will enter judgment therefor when the amount of the same is determined. As to the remaining items of the ease the court concludes that they are without merit, and no allowance will be made therefor. It is so ordered.

WHALEY, Judge, took no part in the decision of this case.


author: HITZ, Associate Justice.

text:
    PENN OIL CO. v. VACUUM OIL CO.
    No. 5054.
    Court of Appeals of District of Columbia.
    Submitted March 10, 1931.
    Decided April 6, 1931.
    Alvin L. Newmyer and Joseph L. Tepper, both of Washington, D. C., for appellant.
    Wilton J. Lambert, R. H. Yeatman, and Wm. E. Leahy, all of Washington, D. C., for appellee.
    Before MARTIN, Chief Justice, and ROBB, HITZ, and GRONER, Associate Justices.
   HITZ, Associate Justice.

This is an appeal from a decree of the Supreme Court of the District of Columbia granting a permanent injunction restraining the defendant company, its officers, agents, and servants from selling as “Mobiloil” any other oil, without first informing purchasers of the substitution.

The appellee here, plaintiff below, and hereafter called plaintiff, is a New York corporation engaged in refining and selling at wholesale lubricating oil for internal combustion engines.

Its oil is marketed and sold under the trade-name “Mobiloil,” registered in the Patent Office as a trade-mark on January 27, 1920, but used as a trade-name since 1904, and applied to different grades of its oils by designating letters as “Mobiloil A” and “Mobiloil B.”

The defendant company is a Maryland corporation selling lubricating oils and gasoline at retail; both companies operating in the District of Columbia and elsewhere.

On August 21, 1925, the Vacuum Oil Company filed its bill of complaint in the trial court setting out something of the history of its sixty years in business; the extensive scale of its operations in this, country and abroad; its expenditure of several millions of dollars in advertising its product as Mobiloil — all resulting in the costly attainment of a valuable reputation in the trade.

The bill alleges that the defendant company, at many of its filling stations in Washington during the twelve months prior to the filing of the bill, sold to sundry customers asking for Mobiloil other and different oil, falsely represented as Mobiloil, and for the price of Mobiloil, but without disclosing the substitution to the purchasers.

The bill then charges ten specific sales of such substituted oil falsely represented as Mobiloil from ten different stations of the defendant company in the city of Washington on stated days; avers that the defendant company will continue said substitutions unless restrained; alleges irreparable loss and injury; and prays for a permanent injunction against such sales.

The bill was supported by several affidavits detailing the alleged purchases and analyses of the oils in question.

A rule to show cause against a preliminary injunction having been issued, the defendant company filed its answer to the bill and rule denying all the specific substitutions alleged; denying that it ever made any such substitutions at any time, or that it intended to engage in or continue any such practice,; and alleging that the bill was brought in the course of an effort to eliminate the defendant from commercial competition following an unsuccessful attempt to buy out the defendant company and its business, which had reached large proportions upon its own efforts, expenditures, and merits.

This answer was supported by several affidavits denying the allegations of the bill, and on August 26, 1925, after a hearing, a temporary injunction was denied and the rule discharged.

Thereafter the plaintiff, by leave of court granted over objection of the defendant, amended the bill by adding allegations that on two specified occasions on different days an agent of the defendant company at one of its stations sold to a customer asking for Mobiloil an oil that was not Mobiloil, but which had been previously used in an internal combustion engine, and commonly known as crank case drainings.

The defendant answered the amended bill by denying the alleged sales of crank case drainings as substitutes for Mobiloil, or otherwise, and on the issues thus raised, on September 15, 1926, the ease was ordered to the calendar for hearing, where it appears to have reposed until February, 1929, when it was heard in the trial court.

On February 6, 1929; after hearing, a memorandum opinion was filed by the court stating that the plaintiff’s case had been established by the evidence in respect of the undisclosed substitution of other oil for Mobiloil, and that a permanent injunction against such sales would be granted.

On February 14, 1929, a supplemental memorandum of the trial judge stated that the evidence respecting the alleged sale of crank ease drainings was insufficient to justify an injunction against the defendant company in that respect; the evidence indicating such sales, if made at all, to have been the act of one employee alone.

On the same day the final injunction complained of was granted, and it was “adjudged, ordered and decreed that the defendant, Penn Oil Company, its officers, agents, servants, and employees, he and they hereby are permanently enjoined and restrained from selling to' anyone seeking and offering to buy or asking for ‘Mobiloil’ by name, any other or different lubricating oil without first informing such intending purchaser or purchasers that an oil other than ‘Mobiloil’ is to be supplied.”

From this decree an appeal to this court was perfected and the record here contains eight assignments of error which can be conveniently considered as presenting but two Main contentions:

I. That the decree was not justified by the evidence and the law applicable thereto, because it showed the bill to have been brought as part of a commercial campaign and not to restrain a legal wrong; because the weight of the evidence touching the alleged substitutions was insufficient to warrant an injunction at any time; and because there was no evidence offered of alleged substitutions for several years prior to the trial, and consequently no showing of continuing injury.

II. That the final decree should have formally dismissed the charge of selling crank ease drainings in accordance with the supplemental memorandum of the trial judge.

As' the controversy is mainly one of fact the evidence will be considered in some detail.

I. As to the decree being insufficiently supported by the evidence and the law, it appears that twenty-eight witnesses testified qrally before the trial judge, of whom eleven were recalled once or more for further examination. On behalf of the plaintiff, this testimony tended to show that a certain motorcar had been specially equipped with a device more or less resembling the conduit by which lubricating oil is usually poured into the crank ease, but which device led, not into the crank case, but into a removable can placed to receive the fruits of the intended purchases.

That two men were sent from New York to Washington, one an employee of the plaintiff and one apparently employed and loaned by a Better Business Bureau; these men testified in detail to many visits to many stations of the defendant company in Washington on July 25, 27, 28, and 30, 1925, always asking for Mobiloil.

At some stations they were told that the defendant company sold only its own oil and not Mobiloil, but at ten specified stations of the defendant company oil was sold to them as Mobiloil, at the price of Mobiloil, which was 10,cents per quart higher than defendant’s oil; that such purchases were poured into the said deviee by servants of the defendants, and found their way into the cans, which were removed, sealed, and delivered to chemists, who in turn testified from analyses and examinations their opinions that such oil was not Mobiloil.

Defendant’s testimony, given by its officers, station attendants, and other witnesses, denied all such substituted sales; denied any sales to any car equipped as described; denied any practice or intention at any time of substituting its oils for Mobiloil; and, by way of affirmative explanation .of the proceedings, offered testimony of commercial competition with the Standard Oil Company, at that time the Washington distributor for Mobiloil.

This testimony, touching numerous petty frauds and concealments, given by the alleged actors therein, developed a sharp conflict as observed by the trial judge, but, after argument and consideration, and after seeing and hearing the witnesses perform in open court, he found the facts for the plaintiff and against the defendant, and decreed the injunction. And, after examination of all the evidence in the record, we agree with his findings and conclusions.

The findings of facts by a trial judge are never to be lightly disturbed. McLarren v. McLarren, 45 App. D. C. 227; Economon v. Barry-Pate Co., 55 App. D. C. 143, 3 F.(2d) 84; Grosfield v. U. S., 276 U. S. 499; Ellison v. Splain, 49 App. D. C. 101, 261 F. 247; Blundon v. Blundon, 56 App. D. C. 313, 12 F. (2d) 848.

The unauthorized and undisclosed substitution of one article of sale for another is familiar ground for injunction against the seller. Elgin Watch Co. v. Ill. Watch Case Co., 179 U. S. 665, 21 S. Ct. 270, 45 L. Ed. 365; Warner v. Lilly Co., 265 U. S. 526, 44 S. Ct. 615, 68 L. Ed. 1161; Hennesy v. Wine Growers’ Ass’n (D. C.) 212 F. 308.

“The imitator of another’s goods must sell them as his own production. He cannot lawfully palm them off on the publie as the goods of his competitor. The manufacturer or vendor is entitled to the reputation which his goods have acquired and the publie to the means of distinguishing between them and other goods; and protection is accorded against unfair dealing whether there be a technical trade-mark or not. The wrong is in the sale of the goods of one manufacturer or vendor as those of another.” Warner Co. v. Lilly Co., 265 U. S. 531,44 S. Ct. 615, 618, 68 L. Ed. 1161.

But the appellant contends that fraudulent substitutions found to exist in July, 1925, do not justify an injunction in February, 1929; as the. writ of injunction must operate in futuro to prevent continuing and threatened wrongs, while the evidence here at most shows only certain long-completed wrongs for which the plaintiff has adequate remedy at law.

But this case was not tried on any such theory; quite the contrary, for defendant’s counsel repeatedly conceded that, if the evidence established the. substitutions in fact, the injunction must follow in law.

The course of the proof was changed by these concessions, and the trial judge repeatedly acted thereupon. And the defendant also expressly conceded at the trial that the word “Mobiloil” is a duly registered trade-mark which the plaintiff company owns and is entitled to use.

But, aside from estoppel, the point has no value, for while it is, of course, true that injunctions operate in futuro, the suit comes into equity because of a threatened wrong, which may be great, by invasion of business, and not because of the completed wrong, which must be slight, by sale of a quart of oil.

If the plaintiff could sue at law in damages for the wrong done, it could sue in equity for injunction to prevent a continuance of the wrong.

The evidence having established sales of substitutes during the period of investigation from July 25 to July 30,1925, indicated a course of conduct which, like certain other facts, once found to exist, are presumed to continue. 1 Wigmore, Ev. 382.

“The charge of unfair competition being established, it follows that equity will afford relief by injunction to prevent such unfair competition for the future. Several acts of unfair competition having been shown, we are warranted in concluding that petitioner is willing to continue that course of conduct, unless restrained.” Warner Co. v. Lilly Co., 265 U. S. 531, 44 S. Ct. 615, 617, 68 L. Ed. 1161.

“If a plaintiff has the absolute right to the use of a particular word or words as a trade-mark, then, if an infringement is shown, the wrongful or fraudulent intent is presumed, and although allowed to be rebutted in exemption of damages, the further violation of the right of property will nevertheless be restrained.” Elgin Watch Co. v. Ill. Watch Case Co., 179 U. S. 674, 21 S. Ct. 270, 274, 45 L. Ed. 365.

There can be no claim of laches in bringing the suit, which was filed within a month of the sales complained of, and there is nothing in the record to indicate that the plaintiff was responsible for any delay thereafter occurring, which may have been wholly due to the congested docket of the court. While an injunction may sometimes be avoided by affirmative showing that former transgressions no longer exist, and while in this case the defendant may have desisted pendente lite, yet, if the plaintiff is entitled to relief, it is entitled to effective relief, and, as the Seventh Circuit Court of Appeals said in a similar ease, “No assurance is in sight that petitioner, if it could shake respondent’s hand from its shoulder, would not continue its former course.” Sears, Roebuck & Co. v. Fed. Trade Commission, 258 F. 307, 310, 6 A. L. R. 358.

The appellant further contends that the testimony of the two witnesses for the plaintiff who had equipped the ear for the tour of investigation, and who made the purchases of alleged substituted oil, should be received only with great caution and suspicion in support of so drastic a remedy as injunction.

But these men were not professional detectives working for unusual or contingent compensation, and their credibility was in no way impeached.

They were competent witnesses, and were entitled to be heard, for “no court is at liberty to refuse credence to the testimony of witnesses unless there is something in the record upon whieh to rest the refusal.” Bijur v. Bendix, 52 App. D. C. 240, 285 F. 974, 975; Browning v. Johnson, 50 App. D. C. 337, 271 F. 1017.

“It is not the law, however, that relief in equity will be denied when the only actual sale proven is one to complainant’s detective. It may be * “ * that such a sale is not per se an infringement [of a trademark] ; but * * * it may, in connection with other proof, be persuasive evidence of other sales, and convincing proof of an intention to sell whenever the opportunity of doing so without detection is presented. * * »

“Against this threatened injury complainant should be protected 'by an injunction, but there is .not proof sufficient to warrant a decree for an accounting.” Lever v. Pasfield (C. C.) 88 F. 484, 485; Kessler & Co. v. Goldstrom (C. C. A.) 177 F. 392.

It was the duty of the court to hear these witnesses, to weigh their testimony in the light of their relation to the parties, their interest in the cause, and the other evidence.

They both testified at length; both were recalled for further examination; and both testified on their first direct examination as well to the refusals of Mobiloil at some stations as to the sale thereof at others.

The court had ample opportunity to consider and compare their testimony with the other evidence in the case, and we find no error in this respect.

II. The appellant finally contends that the decree for injunction should have expressly and in terms exonerated the defendant company from the charge of selling crank ease oil, as made in the amended bill, because of a doubt indicated in the supplemental opinion as to whether the alleged sales of crank ease drainings should be regarded as acts of the defendant company or as acts of'the one employee involved therein. But the record shows no request made to the trial court for any such provision in the decree, which runs in the language of the prayer for relief, and which stands as the final conclusion of the court.

We regard the form and the substance of that decree as being within the pleadings, the evidence, and the discretion of the trial court, and it is therefore affirmed, with costs.

Affirmed.