author: HATFIELD, Associate Judge.

text:
    In re JENNINGS.
    Patent Appeal No. 2697.
    Court of Customs and Patent Appeals.
    April 22, 1931.

      Louis W. Southgate, of New York City (Chas. E. Riordon, of Washington, D. C., of counsel), for appellant.
    T. A. Hostetler, of Washington, D. C., for Commissioner of Patents.
    Before GRAHAM, Presiding Judge, and BLAND, HATFIELD, GARRETT, and LENROOT, Associate Judges.
   HATFIELD, Associate Judge.

This is an appeal from the decision of the Board of Appeals of the United States Patent Office affirming the decision of the Primary Examiner denying all of the claims, Nos. 4 and 6 to 11, inclusive, in appellant’s application for a patent for an alleged invention relating to improvements! in wet vacuum pumping apparatus, and consists in securing the motor and pumps as a unit to the side of the tank, and providing a float control for the electric motor.

Claims 4 and 8 are illustrative. They read:

“4. A pumping apparatus of the class described including a tank, a easing containing a liquid and a gas pump secured to the side of the tank, a frame rabbeted to the pump casing, a motor carried by the frame, and means for securing these parts as a unit to the tank.”
“8. In an apparatus of the class described, the combination of a tank, a lug therein, a yoke fitting said lug, an arm extending from said yoke and carrying a float, a shaft extending through the tank, lug and yoke, means as a screw for adjustably connecting the yoke and shaft, an electric switch, and connections between the shaft and switch.”

The references are: Creamer, 404,174, May 28, 1889; Coppus, 1,056,151, March 18, 1913; Wellington, 1,125,611, January 19, 1915; McCarthy, 1,264,315, April 30, 1918; Wilson, 1,463,989, August 7, 1923; Jennings, 1,592,024, July 13, 1926.

In his specification, appellant stated that thef object of the alleged invention was to improve the wet vacuum apparatus disclosed in the Jennings’ reference, which comprised a rigid base, a tank and motor secured to the base, and pumps fastened to the side of the tank.

Counsel for appellant contends that considerable difficulty was encountered in aligning the motor with the pumps in the apparatus disclosed in the Jennings’ reference, due to the fact that the motor was secured to the base; and that, by securing the motpr and pumps as a unit to the side of the tank, they may be removed ánd replaced as a unit, or separately, as desired, and the motor is retained in alignment with the pumps.

Appellant has undoubtedly improved the apparatus disclosed in the patent issued to him in 1926. This is not denied by the Patent Office tribunals. They concurred, however, in holding that, in view of the references of record, the improvements defined in the claims do not involve invention.

In its decision, the Board of Appeals described and applied the references in the following language:

“The patent to Jennings discloses the combination set forth in claims 4, 6, 7, 9, 10, and 11 except that the motor is supported on the machine base instead of being secured to a rabbeted seat on the pump casing. The patent to Wilson discloses a construction in which the container 51 corresponds to appellant’s container B, the rabbeted pump casing 2 to appellant’s pump easing, and the motor 4 with its legs 3 to appellant’s motor M and legs 11. In Wilson the motor and pump casing are attached to the top of the container but there would be nothing inventive in supporting Wilson’s structure on the side of the tank in view of Jennings in which the pump easing is so located and the motor is axially aligned with the pump. The patent to Cop-pus also shows a motor and pump or fan arranged horizontally and supported as a unit from an opening in the side of the casing. 5. The purpose of appellant’s construction is to insure accurate alignment of these elements which is also stated on page 1, lines 27 to 36 as one object of Wilson’s invention. If Wilson’s perforated motor support is considered not the same as appellant’s legs 11, it is clearly an equivalent therefor, the leg type of support being old, as shown in Wellington.
“Claim 8 was rejected on Creamer. In the reference the lug is divided and the float carrying arm is secured between the two parts of the lug whereas in appellant’s construction the lug is single and is embraced by the yoke on the float arm. One structure is a mere reversal of the other. In the reference the shaft appears to be integral with the float arm instead of being adjustable therein but there is no invention in merely making parts adjustable by the common means of a set screw. The reference operates a valve R instead of an electric switch but these elements are recognized equivalents in a float controlled device.”

We have given the issues involved careful consideration. Were it proper to grant appellant a patent merely because he has decidedly improved the apparatus disclosed in his patent No. 1,592,024, it would be necessary to reverse the decision of the Board of Appeals. Regardless, however, of the importance of the improvements in a commercial' sense, invention, as distinguished from obvious mechanical changes, must be present to warrant the issuance of a patent.

Although counsel for appellant has vigorously urged the presence of invention in the involved application, we are unable to find any error, either in the reasoning or in the conclusion reached by the tribunals of the Patent Office. The decision of the Board of Appeals must, therefore, bé and, accordingly, is affirmed.

Affirmed.


source: Caselaw Access Project

author: GARRETT, Associate Judge.

license: Public Domain

text:
    In re WEEKS.

    Patent Appeal No. 2636.
    Court of Customs and Patent Appeals.
    April 22, 1931.
    Louis Burgess, of New York City, for appellant.
    T. A. Hostetler, of Washington, D. C., for Commissioner of Patents.
    Before GRAHAM, Presiding Judge, and BLAND, HATFIELD, GARRETT, and LENROOT, Associate Judges.

      Rehearing denied May 27, 1931.

   GARRETT, Associate Judge.

Appellant has here appealed from a decision of the Board of Appeals of the Patent Office sustaining the action of the examiner in rejecting his eleven claims numbered 20 to 30, inclusive, for “new and useful improvements in Portable Hoisting Apparatus.’’

Appellant’s claimed invention relates primarily to stevedoring, that is, to the unloading of ships, particularly ocean-going vessels.

Claim No. 26 is for the method; the remainder are directed to the article.

From appellant’s brief we quote the following :

1 “Claims 20 to 23, 27, 29 and 30 are descriptions of the variants of structure which basically characterize the invention.
“Claims 24 to 28 introduce as an additional element the hopper and chute carried by the tower to receive the discharge from the bracket and direct it into the barge.
“Claims 25 and 30 introduce as an additional feature that the power unit is integral with the platform and by its weight contributes to the general stability of the structure bn shipboard.
“Claim 26 defines broadly the method of unloading a ship which comprises simultaneously operating from a plurality of hatches by means of a portable crane of ’the Weeks type.”

With the foregoing statements in mind, it is sufficient to quote in full only claims. 20 and 26.

“20. In a portable crane, supporting means comprising a tower freely and selectively positionable on the deck of a ship with relation to the hatch, a beam carried by the tower adapted to extend over the hatch, hoisting mechanism carried by the beam, a power unit carried by said supporting means for actuating the hoisting mechanism,. the entire assembly being lif table as . a unit to, and from the deek of the ship and readily movable from hatch to hatch thereof.”

“26. In a method of unloading a ship with a plurality of small cranes, each of which comprises an assembly of a tower small enough to be placed on the deck of the ship between the hatch and adjacent side of the ship,-a beam, hoisting mechanism and a power unit for operating the hoisting mechanism; the steps comprising lifting a plurality of the cranes onto the deek and placing the tower of each crane on the deek alongside the respective hatches of the ship with the beam of each crane extending over the respective hatch, operating the cranes, for simultaneously unloading the ship from a plurality of hatches and thereby lightening it evenly, and after the unloading is completed, lifting the small cranes off the deek of the ship.”

The references cited are:

Messier, 237,571, February 8, 1881.
Bogle, 419,630, January 21, 1890.
Sinclair, 658,810, October 2, 1900.
Hutchings, 700,051, May 13, 1902.
Titeomb, 738,084, September 1, 1903.
Titeomb, 742,101, October 20, 1903.
Hammond, 845,461, February 26, 1907.
McIntyre, 1,010,291, November 28, 1911.
Zimmerman, 1,428,809, September 12, 1922.
Von Haase, 1,565,875, December 15,1925.
Engineering News, July 17, 1913, page 119.

In presenting the ease before us, counsel for appellant greatly aided the court by using models, not only of appellant’s own structure, but of several of the devices of the most material references. We were and are impressed with the idea that appellant’s mechanism is a valuable contribution to the art for use in which it was designed. He has developed a device which, in the form made and used, appears to have a number of advantages over any of the patents referred to in the record. It can be moved freely from place to place upon the deek of a vessel without the use of track or rails for its wheels and, apparently, more readily and rapidly positioned by the hatches, in a situation best adapted for hoisting the cargoes from the hold, than can any of the devices of the prior art.

But, notwithstanding this, the law is that an applicant’s “claims define the measure of his invention” (italics ours), and if the disclosures of the references read upon his claims, patentability must be denied.

None of the claims are specified as being for the combination, but, by reason of the wording, some of them, at least, seem, in fact, to be of a character which makes it proper to regard them as combination claims, and we so treat them.

In the brief of the Solicitor for the Patent Office there is found a concise description of appellant’s device which, omitting the numerals, we quote: “The application on appeal discloses a portable hoisting apparatus or crane, and comprises a tower mounted on wheels, so that it can be freely and selectively positionable on the deek of a ship with relation to the hatch. A beam is carried by the tower and is adapted to extend over the hatch. The beam carries hoisting mechanism including trolley and cable arrangement for raising and lowering the grab bucket. The supporting tower carries a power unit for actuating the hoisting mechanism, including the power winch. A hopper is provided on the tower into which the bucket drops its load, the hopper being supported from the tower by chains and having a chute for delivering matter from the hopper to the barge or lighter. The beam is provided at one end with a supporting post pivoted to the beam.”

There are four elements of structure in claim 20, to wit:

First. “Supporting means comprising a tower freely and selectively positionable on the deek of. a ship with relation to the hatch.”

The patent to Zimmerman shows a structure designated therein as a “crane” and described, in part, as “comprising two pairs of obliquely disposed adjustable supporting legs, one pair adjacent either side of the .boat. * * *”

These supporting legs, so obliquely disposed, are pivotally united at their upper ends and form the support for the mechanism utilized in the unloading operation.

In appellant’s specifications it is said: “In the embodiment shown I use a tower 10 which can be any frame capable of carrying the hoisting apparatus and of a sufficient height to facilitate the work.”

Elsewhere in the specifications we find: “ * * * In using the term “portable crane” I mean to include the ordinary or any preferred structure carrying hoisting mechanism. * * *”

We assume, although it was not specifically so stated in the decisions of the Patent Office tribunals, that the tower of appellant was regarded as the mechanical equivalent of the crane or frame of Zimmerman, particularly in view of the above-quoted excerpts from appellant’s specifications. They do seem to be equivalent, although it is not necessary so to hold, in view of the fact that the tower structure itself is disclosed in prior art relating to the loading and unloading of vessels. The patent to Messier shows this, as does the illustration from the “Engineering News.”

Second. “A beam carried by the tower and adapted to extend over the hatch.”

This, or an obvious equivalent thereof, is shown in Zimmerman’s elements, numbered 10 in his drawings, and, apparently, is also present in Titeomb and Hammond.

Third. “Hoisting mechanism carried by the beam.”

Zimmerman shows this in his features numbered 30 to 34. It is an element old in the art, though, of course, different mechanisms might have varying details. Appellant’s claim is not limited to any detail of structure, but calls broadly for “hoisting mechanism.”

Fourth. “A power unit carried by said supporting means for actuating the hoisting means.”

Zimmerman disclosed this also in the features numbered 20 and 21.

In addition to the four elements of structure, claim 20 adds that the entire assembly is “liftable as a unit to and from the deck of the ship” and is “readily movable from hatch to hatch thereof.”

The patent to McIntyre discloses: “An eye * * * at the top of the frame to receive a suspension • rope from a derrick by which the frame is swung into position on the side of the ship.”

The Engineering News has a photographic illustration of a 25-ton crane being lifted by another crane of 250 tons capacity.

The hopper, chute, and bucket elements referred to in claims 24 and 28 are shown respectively by McIntyre, Hammond, Titeomb, and Von Haase.

The adjustment of the power unit in such a way as that “its weight contributes to the general stability of the structure on shipboard,” referred to in appellant’s brief as being contained in claims 25 and 30, is not regarded as patentable.

Emphasis has been placed upon the fact that the Zimmerman structure must have a track upon which its supporting wheels operate, and its movements are limited to the track, while appellant uses casters by means of which his device can be moved in any direction requiring no rails upon which to run.

We find no claim which is limited to such a structure. It is true that in claim 27 it is said: “ * * * Being operable * * * and requiring no rails or other modifications on the deck of the ship for its use.”

But nothing is said there or elsewhere in the claims about casters or other means whereby the device is rendered movable without rails, or, as is stated in some of the claims, rendered “freely and selectively positionable with reference to the hatch.”

So, even if the substitution of casters for the track wheels and movement without rails could be held patentable, appellant presents no claim for means of accomplishing these ends.

It seems obvious that appellant’s product claims are so broad as that they are anticipated in the prior art cited.

The method claim does not relate in any way to the moving of the tower or crane upon the deck, but to the unloading operation. We are unable to see wherein it discloses any new way of handling the material which is taken from the vessel. At most, the claim does no more than describe the method by specifying the apparatus used in the operation. This is not sufficient. In re Weston, 17 App. D. C. 431, 442, declared: “ * * * a process, which amounts to no more than the mere function.of a machine, is not patentable. * * * ”

So far as the use of several of the devices for “simultaneously unloading the ship from a plurality of hatches” is concerned, surely there is no invention in that. Even if it were an inventive idea, Titeomb discloses it.

Appellant’s brief says: “The concept that a new and useful purpose would be served by creating the .new device is peculiar to Weeks and even though the structure per se involves no invention whatsoever, he is an inventor and entitled to a patent.”

This contention, as stated, we think, is entirely too broad. One may not patent an idea of an article unless that idea is expressed in some physical entity, and that entity must be something new and useful and must involve invention.

We have examined the cases cited by appellant as authorities upon this contention, viz.: Hobbs v. Beach, 180 U. S. 383, 21 S. Ct. 409, 45 L. Ed. 586; National Cash Register Co. v. Boston Cash Indicator & Recorder Co., 156 U. S. 502, 15 S. Ct. 434, 39 L. Ed. 511; Cutler-Hammer Mfg. Co. v. Union Electric Mfg. Co. et al. (C. C.) 147 F. 266; Comptograph Co. v. Mechanical Accountant Co. (C. C. A.) 145 F. 331. We have also examined the authorities which were referred to in that part of the opinion in the last-named case quoted in appellant’s brief.

They do not sustain so broad a principle as appellant seems here to contend for.

With a single exception (that of Krementz v. Cottle Co. [C.C.] 39 F. 323), the claims involved in the several eases thus brought to our attention were combination claims, and in each instance they were so worded as that it was held that prior art did not read upon them in the combination disclosed. In the instant ease, as we have shown, the wording of the claims is such as that the disclosures of the prior art do read upon them even when treated as constituting a combination. As stated, appellant seems to have produced an improvement over prior •art, but his claims are not so formulated in the application now at issue as that we can feel justified in holding that there was error in the decisions of ihe Patent Office tribunals.

The decision of the Board of Appeals is •affirmed.

Affirmed.


author: LENROOT, Associate Judge.

text:
    In re BYCK.
    Patent Appeal No. 2671.
    Court of Customs and Patent Appeals.
    April 15, 1931.
    R. L. Scheffler, of Washington, D. C., for appellant.
    T. A. Hostetler, of Washington, D. C. (Howard S. Miller, of Washington, D. C., of counsel), for appellee.
    Before GRAHAM, Presiding Judge, and BLAND, HATFIELD, GARRETT, and LENROOT, Associate Judges.
   LENROOT, Associate Judge.

This is an appeal from a decision of the Board of Appeals of the United States Patent Office affirming the decision of the Examiner, rejecting claims 1, 2, 3, 8, 9, and 10 of appellant’s application for failure to define anything inventive over the subject-matter claimed in appellant’s prior patent, in view of the prior art.

Claims 1, 3, and 9 are illustrative of the claims in issue and read as follows:

“1. An insulated coil comprising a conductive winding having an insulating coating of infusible, flexible, phenol-fatty oil composition, and an insulating filling for the interstices of said winding.”
“3. An insulated coil comprising a conductive winding having an insulating coating of infusible, flexible, phenol-fatty oil composition, associated with a fibrous sheet material, and an insulating filling for the interstices of the said winding.” .
“9. As an article of manufacture, a flexible electrical conductor having an adhering insulating coating of an infusible, flexible, phenol-fatty oil composition.”

The references are: Baekeland, 1,213,-726, January 23, 1917; Byck, 1,590,079, June 22, 1926.

The alleged invention is sufficiently described in the claims quoted.

The Board of Appeals in its decision stated:

“The patent to Baekeland discloses the making of an insulated coil by first insulating the conductor in various ways, see page 2, lines 8-10, among which is coating it with an insulating varnish and then impregnating the conductor or coil and filling the interstices between the windings with a fluid and mobile phenolic condensation product and finally transforming said product, in situ, into a solid homogeneous, impervious, insoluble and infusible body.
“Appellant carries out the same process but uses both as the insulating varnish and as the impregnating material, a composition for which he has been granted a patent No. 1,590,079.
“The Examiner holds that there is no invention in substituting the composition of. appellant’s patent for the insulating varnish and the impregnating material in the Baekeland method.”

It .appears that on June 22, 1926, appellant was granted the patent cited as a reference, upon an application filed November 5, 1923. The instant application was filed on February 11, 1926, so that it was eopending at the time said patent was issued.

Appellant moved for a rehearing before the Board of Appeals upon the ground that the Board had overlooked the fact that his application was eopending when said patent was issued. The Board denied the motion, stating: “The ground of our rejection was that appellant had already been granted a patent on the phenolic condensation product which he proposes to use for insulating electric conductors and coils, as claimed in the present application, and that it involved no invention to use such material for this purpose in view of the Baekeland patent No. 1,213,726. The question is merely whether it involved invention to substitute appellant’s patented composition in the Baekeland process and coil. We held that it did not and it is entirely immaterial that the applications were copending. The situation is like that in Re Isherwood, 46 App. D. C. 507, C. D. 1917, page 226; Ex parte Hammond & Hammond, C. D. 1922, page 15; Ex parte Chapman, C. D. 1924, page 143; and Willcox & Gibbs Sewing Mach. Co. v. Merrow Mach. Co. (C. C. A.) 93 F. 206, C. D. 1898, page 584.”

In appellant’s said patent it is stated that his material is adapted for use as a varnish or impregnating solution; it is further stated as follows: “Varnishes and lacquers prepared as above may be applied to wood, metal, fabrics, paper and all other bases, and yield when haired (preferably at about 160°-170° C.) lustrous, adherent, mechanically and chemically resistant, electrically insulating and highly flexible films. They have been found well suited, among other uses, for the manufacture of so-called composite cardboard, or laminated products (U. S. Patent No. 1,019,406 to L. H. Baekeland) comprising sheets of paper, canvas, etc., coated or impregnated with the phenolic condensation product, and consolidated and transformed by sufficient application of heat.”

It is dear to us that the decision of the Board of Appeals must be affirmed unless the fact that appellant’s instant application was copending with the application upon which his patent was issued prevents such patent being considered in determining whether appellant has made an invention. It is elementary that there cannot be more than one valid patent for the same invention, and, if appellant’s claims here in issue have ns an element of invention only the use of the composition patented to appellant, it would seem that, in view of the Baekeland reference, appellant was attempting to secure a patent upon an obvious use of a composition for which he has already received a patent.

Appellant cites many authorities in support of his contention that his said patent is not a bar to the allowance of the claims in issue. The eases so cited appear to establish'the rule that, where two applications by the same inventor are eopending, it is a matter of indifference which of the patents is issued first, provided that the claims are for separate inventions. Traitel Marble Co. v. U. T. Hungerford Brass & Copper Co. (C. C. A.) 22 F.(2d) 259, and cases cited.

In the same case it was held that: “The issuance of the first patent does not abandon the unclaimed matter in its disclosure, the pending of the second application rebutting any such inference.”

We think it clear that the application here in issue does not claim a separate invention from that claimed in the issued patent, but only claims an obvious use of the composition there patented. If appellant’s position is well taken, then it would seem that any inventor of a new and useful composition of matter may receive á patent for-it, and he may also, by filing separate applications, secure patents for every use of such composition that he may disclose. An inventor is not entitled to a patent unless his invention is new and useful. It would shock one’s sense of justice if an inventor could receive a patent upon a composition of matter, setting out at length in the specification the useful purposes of such composition, manufacture and sell it to the public, and then prevent the public from making any beneficial use of such product by securing patents upon each of the uses to which' it may be adapted.

In the ease at bar, appellant received a patent upon his composition of matter because he had invented something new and useful. He could not have received such patent unless he had disclosed its utility. Such disclosure of usefulness did not constitute separate inventions, but an essential part of a single invention. Of course he might have •disclosed a use of the invention which, together with other elements, might have constituted a separate invention for which he would be entitled to a patent. This, we hold, he did not do, in view of the Baekeland reference.

For the reasons stated, there was no error in citing the said patent, not as prior art, but to show that appellant had already received a patent for the only invention that was disclosed in either application.

The decision of the Board of Appeals is affirmed.

Affirmed.


text:
    In re PEABODY.
    Patent Appeal No. 2695.
    Court of Customs and Patent Appeals.
    April 22, 1931.
    Meyers & Jones, of New York City (Charles S. Jones, of New York City, of counsel), for appellant.
    T. A. Hostetler, of Washington, D. C. (Howard S. Miller, of Washington, D. C., of counsel), for Commissioner of Patents.
    Before GRAHAM, Presiding Judge, and BLAND, HATFIELD, GARRETT, and LENROOT, Associate Judges.
   HATFIELD, Associate Judge.

This is an appeal from the decision of the Board of Appeals of the United States Patent Office affirming the decision of the Primary Examiner denying all of the claims, Nos. 33 to 55, inclusive, in appellant’s application for a patent for an alleged invention relating to improvements in a fuel burner.

Claims 34 and 54 are illustrative. They read:

“34. In combination, a furnace having a wall with an opening therein, means for delivering a body of air for combustion with a whirling motion to said opening, and means for projecting fuel in a converging cone into said air from a source outside thereof at substantially the entrance to said opening.”
“54. A fuel burner comprising a chamber provided with a frusto conical wall for directing air, and an annular slot in the wall thereof, said wall and said slot converging in the same direction and at an angle to the axis of the chamber.”

The references are: Schutte, 391,865, October 30, 1888; Case, 950,996, March 1, 1910; Lindsay, 1,378,248, May 17, 1921; O’Neill et al., 1,429,090, September 12, 1922; Leps, 858,189, June 25, 1907.

Claim 34 defines a combination including a “furnace having a wall with an opening therein [shown in the patent to O’Neill], means for delivering a body of air for combustion with a whirling motion to said opening [shown in the patent to Sehutte], and means for projecting fuel in a converging cone into said air from a source outside thereof at substantially the entrance to said opening [also shown in the patent to Sehutte].”

Claims 44, 46, 47, 54, and 55 define, generally, a burner having a frusto-conieal wall for directing air and an annular discharge opening converging in the same direction and at an angle to the axis of the chamber.

With reference to these claims, the Board of Appeals said:

“The claims above mentioned by number all call for the delivery of the air through a gradually decreasing air passage. The patent to Lindsay discloses a burner having a gradually decreasing air passage in substantially the same relationship as appellant’s. The gas is delivered to the air column through an annular slot burner but the slot is not inclined as in appellant’s structure and that of Sehutte. An oil burner is found in Lindsay at substantially the same relative location as in appellant’s structure. There are auxiliary air feed openings in Lindsay and appellant contends that the constricted passage is only for atomizing the liquid fuel but inasmuch as the specification of Lindsay in the seeond paragraph clearly states that either, of the fuels may be employed alone it seems apparent that when the oil is not being fed, some of the air will be delivered to the gas burner through the constricted passage. In any event, we do not consider that it would involve invention to give the air passage of Schutte slight constriction if desired, especially in view of the disclosure of Lindsay. In our opinion, therefore, the claims which include the constricted air passage do not patentably distinguish from Schutte.”

Other features of appellant’s burner are clearly shown in the other references, and we deem it unnecessary to diseuss them.

It may be, as claimed by appellant in his affidavit of record, that his fuel burner is more efficient than any other burner of its class on the market-,' and that it is a commercial success. It may likewise be true that appellant’s specification might support patentable claims. However, after giving the matter careful consideration, we are of opinion that the involved- claims are sufficiently broad to read on the references or on obvious combinations thereof, and .therefore are not patentable.

We are in accord with the conclusion reached by the Patent Office 'tribunals, and the decision of the Board of Appeals is affirmed.

Affirmed.


text:
    In re RUSSELL.
    Patent Appeal No. 2873.
    Court of Customs and Patent Appeals.
    April 15, 1931.
    Robt. E. Barry and D. P. Wolhaupter, both of Washington D. C. (Seymour & Bright, of Washington, D. C., of counsel), for appellant.
    T. A. Hostetler, of Washington, D. C. (Howard S. Miller, of Washington, D. C., of counsel), for Commissioner of Patents.
    Before GRAHAM, Presiding Judge, and BLAND, HATFIELD, GARRETT, and LENROOT, Associate Judges.
   HATFIELD, Associate Judge.

This is an appeal from the decision of the Board of Appeals of the United States Patent Office affirming the decision of the Primary Examiner denying all of the claims, Nos. 6 and 7, in appellant’s application for a patent fbr an alleged invention relating to improvements in indexes, particularly to the indexing of names in directories, and . is claimed to be applicable to dictionaries, etc.

The method of arranging and grouping the names is sufficiently set out in the involved claims. They read:

“6. A directory comprising a part in which surnames are arranged phonetically with the given names of the respective surnames arranged otherwise than phonetically, and another part in which the surnames are arranged otherwise than phonetically with reference to the section in the first-mentioned part where surnames are arranged phonetically.
“7. A directory comprising a part in which surnames are arranged in groups phonetically with the given names of the respective surnames arranged alphabetically and a second part in which surnames are arranged in columns alphabetically with references to the pages in the first-mentioned part where surnames are arranged phonetically, the several columns of the second part having at their heads designations of the range of surnames in the respective columns.”

It is claimed by appellant that his alleged' invention facilitates the finding of' names in directories and the like; and that it comprises “finished tangible subject matter bearing specifically arranged data or means, combined to produce a novel result.”

It may be observed, however, that the only matter claimed to be new is the alleged novel arrangement of names.

The mere arrangement of printed matter on a sheet or sheets of paper, in book form or otherwise, does not constitute “any new and useful art, machine, manufacture, or composition of matter,” or “any new and useful improvements thereof,” as provided in section 4886 of the Revised Statutes, 35 USCA § 31. Guthrie v. Curlett et al. (C. C. A.) 10 F.(2d) 725; Flint et al. v. Leonard & Co. (C. C. A.) 27 F.(2d) 215; In re Dixon, 44 F.(2d) 881,18 C. C. P. A.-, and cases therein cited.

It is contended by ‘counsel for appellant that the decision in the ease of Cincinnati Traction Co. v. Pope (C. C. A.) 210 F. 443, 446, supports his contention that the involved claims present patentable subject-matter.

In that ease, the Circuit Court of Appeals, Sixth Circuit, held that so-called transfer tickets for use by street railway traction companies, etc., involved patentable subject-matter, and, in its decision, referred to the case of Rand, McNally & Co. v. Exchange Scrip-Book Co. (C. C. A.) 187 F. 984, also relied upon by counsel for appellant in this ease. The court, however, did not hold that the mere arrangement of the printed text constituted patentable subject-matter, but, on the contrary, based its decision upon the patentable novelty of the physical structure of the tickets, and, in this connection, said:

“The specifications describe a distinctive physical structure, viz., a given combination and general arrangement of body and coupon (with the suggestion that the two parts may be printed in different colors), accompanied by ‘conventional indications’ and instructions for the use and interpretation of the ticket. But the alleged patentable novelty does not reside m the arrangement of the printed text, nor does such text constitute merely a printed agreement.” (Italics ours.)

It is not claimed in the ease at bar that appellant has invented a new physical structure or a method of producing it. It is contended, however, that his alleged novel arrangement of names in directories and dictionaries is patentable subject-matter.

The issues at bar are clearly distinguishable from those involved in the Cincinnati Traction Co. Case, supra, and other cases relied upon by counsel for appellant.

The decision is affirmed.

Affirmed.


author: GRAHAM, Presiding Judge.

text:
    In re NICKEL et al.
    Patent Appeal No. 2679.
    Court of Customs and Patent Appeals.
    April 15, 1931.
    Foster & Codier, of Washington, D. C. (Oscar Codier and Ivan P. Tashof, both of Washington, D. C., of counsel), for appellants.
    T. A. Hostetler, of Washington, D. C. (Howard S. Miller, of Washington, D. C., of counsel), for the Commissioner of Patents.
    Before GRAHAM, Presiding Judge, and BLAND, HATFIELD, GARRETT, and LENROOT, Associate Judges.
   GRAHAM, Presiding Judge.

Appellant prays an appeal from the decision of the Board of Appeals of the United States Patent Office, which affirmed the decision of the Examiner in refusing to allow claims 1 to 7, inclusive, of appellant’s application for a process and product patent upon furnace slag cement. Two of appellant’s claims are as follows:

“1. Process for the manufacture of cement from lime and silicates consisting in the employment of solid vitrified silicates technically free from water in admixture with burned unslaked lime, and a' small amount of gypsum, the ingredients being reduced to the fineness of cement, substantially as set forth.”
“3. Cement comprising a mixture of 3 to 20'% of burned unslaked lime and 75 to 95% of water-free vitreous silicates and 1 to 5% of gypsum ground to the fineness of ordinary cement substantially as set forth.”

The claims were denied on the following references: Bodmer, 70,510, November 5, 1867; Grau, 905,813, December 1, 1908; Bergmann, British, 4,594, April 2, 1898; Eckel’s Cements, Limes, and Plasters, published by Wiley & Son, New York, 1st Ed. 1905.

Appellant proposes to make his cement by first water cooling and vitrifying Ms slag, then drying the same, adding unslaked lime and gypsum, and grinding these substances together into powder. TMs process, he states, is new, and the product is new; hence inventive. It will be observed that, while claim 1 calls for the use of “solid vitrified silicates technically free from water,” no particular method of obtaining the same is claimed.

The reference English patent to Bodmer, describes a process of making cement from vitrified furnace slag and unslaked lime, heated and dried after mixing, and then ;ground. He also teaches the mixture of such lime with the slag as it comes molten from the furnace. The reference Grau teaches the making of cement by blowing either slaked or unslaked lime into the molten slag as it issues from the furnace and then grinding the same. Grau also recites that gypsum may be mixed with the other components in making the cement.

The reference Bergmann makes the following recitation in his specification: “The production of granulated slag for clinkers or cement stones heretofore, has been by running water directly on to the outflowing hot slag, thereby reducing the same to a foamy glassy wet sand which, for making cement stones, must, previous to grinding undergo an expensive drying process in special furnaces, since it only dries very slowly in the air, and has a tendency to cake into large solid lumps or masses when left for a length of time in a heap.”

Bergmann further states that he avoids the disadvantages of the former process and uses furnace slag which is not first granulated, but which, while in its solid state, is broken up and ground after having been allowed to cool slowly in the ordinary slag boxes. This slag, he states, is “absolutely free of water,” and this he proposes to grind with lime, and which lime, he states, is “intensely hygroscopic.”

The ease is not free from difficulties, but we are of opinion the application of appellant has been anticipated by the said references. It is not claimed there is anything new in the quality of the cement produced by appellant’s process. Certainly there is nothing new in mixing furnace slag, either vitrified or otherwise, with unslaked lime to make cement. The references fully disclose that this was known to the art many years before appellant made his application. There was therefore no invention shown by his application in this respect.

We are also unable to see anything inventive in the particular combination disclosed by appellant in his claims, of which claim 3 is typical. It has been suggested by the Solicitor of the Patent Office that, it being once known that gypsum, unslaked lime, and vitrified furnace slag might be mixed to form a cement, the proper proportions of each to be used would naturally and obviously suggest themselves to one skilled in the art.

If it may be claimed that appellant’s claims, typified by claim 3, should be allowed because they teach the mixture of the components in certain percentages, it will be observed that the range of percentages for the various components .is so wide that no real addition to the art is furnished. It amounts to little more than a statement that a mixture of vitrous slag, unslaked lime, and gypsum is used.

The decision of the Board of Appeals is affirmed.

.Affirmed.


author: BLAND, Associate Judge.

text:
    In re LEASK et al.
    Patent Appeal No. 2692.
    Court of Customs and Patent Appeals.
    April 22, 1931.
    Meyers & Jones, of New York City (Charles S. Jones, of New York City, of counsel), for appellants.
    T. A. Hostetler, of Washington, D. C. (Howard S. Miller, of Washington, D. C., of counsel), for Commissioner of Patents.
    Before GRAHAM, Presiding Judge, and BLAND, HATFIELD, GARRETT, and LENROOT, Associate Judges.
   BLAND, Associate Judge.

The invention involved in this appeal relates to a method and apparatus for burning finely divided fuel. All of the apparatus claims and some of the method claims were allowed by the Patent Office. Method claims 1 to 4 were rejected, and it is from a decision of the Board of Appeals of the United States Patent Office affirming the decision of the Examiner as to these claims, that appeal is taken here.

Claim 1 is illustrative, and follows:

“1. The method of burning finely divided fuel which consists in delivering such fuel with carrier air to la burner tube, causing the fuel to travel in a spiral path in a general direction transverse to the line of feed toward one end of the tube, and discharging the fuel in a relatively thin stream , around the periphery of the end of the tube into a combustion chamber.”

The method consists of three steps enumerated in .claim 1. Centrifugal force is set up in the burner, which causes the mass of fuel carrying air to travel spirally and hug the inner wall of the burner tube. A rotating column of secondary air, required for com'bustion, is also admitted within the interior of the spirally moving mass of fuel.

The claims were rejected upon the British patent to Peabody, No. 256,685, August 12, 1926, which relates to a method of burning pulverized fuel, and which method consists, according to the specification found in the record, “in forcing a body of air or other combustion-supporting gas with a whirling motion into a passage leading to a combustion chamber and injecting a mixture of pulverized fuel and air or other gaseous fluid into said rotating body of air, from a source outside said latter, at an angle to the axial direction of travel of said rotating body.”

The method in the Peabody patent is carried out by an apparatus which is shown in the drawings. A fuel and carrier medium such as air is admitted through an inlet in the member specified and discharged into the throat opening along an annular outlet, including an inclined wall, “in a thin sheet with a rotary motion relative to the axis of the throat,” as stated at record page 31, lines 67-74. The patent further states that: “Upon passing out of the annular outlet, this thin sheet of combustible material is mixed with a rotating column of air which is entering through the air register and passage formed by the wall 12 of the member 10.”

The allowed method claims were drawn so as to provide for the admission of fuel and carrier air into the burner tube “tangentially to its inner wall.” This feature of appellants’ device was found to be new and not covered by the prior art. Appellants seem to argue in this court that, because there was a rotary spiral movement of the fuel and air in Peabody, and also a rotary spiral motion in appellants’ device, which in the latter device was occasioned, in part, by the tangentially placed opening, the Board, therefore, having allowed the claims providing for the “tangentially” placed opening, must have regarded the spiral movement as new. Appellants argue here that, if this is the ease, then the claims in issue here, which omit the tangentially opening feature, should also be allowed.

It is sufficient to say that we agree with the finding of the Board that the tangentially placed opening feature is new and the spiral motion feature old. Since appellants’ claims now under consideration leave out the tangentially placed opening feature and are confined to the spiral movement, appellants’ contention is without merit, and the Board of Appeals correctly rejected the claims, and its decision is affirmed.

Affirmed.


text:
    In re BRONSON.
    Patent Appeal No. 2688.
    Court of Customs and Patent Appeals.
    April 22, 1931.
    Kwis, Hudson & Kent, of Cleveland, Ohio (A. J. Hudson, of Cleveland, Ohio, W. T. Estabrook, of Washington, D. C., and W. E. Williams, of Cleveland, Ohio, of counsel), for appellant.
    T. A. Hostetler, of Washington, D. C. (Howard S. Miller, of Washington, D. C., of counsel), for Commissioner of Patents.
    Before GRAHAM, Presiding Judge, and BLAND, HATFIELD, GARRETT, and LENROOT, Associate Judges.
   BLAND, Associate Judge.

The alleged invention involved in this appeal relates to a coupling in an air connection used in inflating rubber inner tubes during the curing or vulcanizing process, and is particularly directed to the air stem which leads from the inner tube through the outer casing and through the rim of the wheel.

The six claims presented were rejected by the Board of Appeals of the United States Patent Office. No. 1 is a combination claim, and claims 2 to 6 are drawn to cover the construction of the stem, and therefore 1 and 2 are regarded as illustrative, and are as follows:

“1. An air connection comprising a flexible tube having a nipple at one end, a plunger member to which the other end of the tubing is secured, a casing surrounding the plunger, resilient means between the plunger and the easing tending to normally separate one with respect to the other, an air stem having a part for securing the same with respect to a tire mold and another part with which .said plunger engages, and a non-circular head on said stem, said casing having one end which has a substantially noneircular opening through which the said head may extend and within which it may he turned to properly position said stem for engagement hy said plunger. (Italics ours.)
“2. An air stem comprising an integral hollow tubular body, a head at one end thereof, and a second head at the other end which is noneircular.”

The italicized portion of elaim 1 is claimed to be the new part of the combination involved in that elaim, and is substantially the subject-matter called for in the other claims involved, although expressed in language differing in each of the claims.

The claims were rejected on the prior art, and the following references are relied upon: Kotten, 660,856, Oct. 30, 1900; Rose, 1,362, 189, Dec. 14, 1920; Crumlich, 1,386,603, Aug. 9, 1921; Smith, 1,487,696, March 18, 1924.

The rejection is based upon the ground that, in view of the general combination shown in Rose, Crumlieh, and Smith, it is not inventive to substitute in any of these devices the specific coupling disclosed in Kotten. The patents to Rose, Crumlieh, and Smith involved couplings used for the same purpose as those of applicant, while Kotten was an air pipe coupling for a pneumatic tool.

Appellant argues to the effect that, since the Kotten patent concerns a nonanalogous art, it should not be cited to defeat appellant’s application. Kotten’s connection operates upon the same principle as applicant’s, and we do not think that invention would lie in placing the Kotten device in a vulcanizer connection in view of disclosures in the other references.

We agree with the finding of the Board that the details found in appellant’s structure involved nothing 'more than the usual mechanical skill over the prior art cited.

The decision of the Board of Appeals is affirmed.

Affirmed.


author: LITTLETON, Judge.

text:
    J. H. WILLIAMS & CO. v. UNITED STATES.
    No. H-291.
    Court of Claims.
    April 6, 1931.
    For former opinion, see 39 F.(2d) 1019.
    Malcolm C. Law, of New York City (James L. Dohr, of New York City, on the brief), for plaintiff.
    Charles R. Pollard, of Washington, D. C., and Herman J. Galloway, Asst. Atty. Gen. (Ralph E. Smith, of Washington, D. C., on the brief), for the United States.
    Before BO'OTH, Chief Justice, and LITTLETON, WHALEY, WILLIAMS, and GREEN, Judges.
   LITTLETON, Judge.

This suit was brought to recover $13,571.-13, interest on an overpayment of tax for 1918, which overpayment was duly allowed; $131,477.76 thereof was paid to the plaintiff by check of May 15, 1924, and a balance of $5,671.29 was credited against an additional tax for 1919.

The ground upon which the suit was brought in this court was that the plaintiff filed with the Bureau of Internal Revenue a elaim for refund for 1918 on February 10, 1922, and that under the third ground specified in section 1324 (a) of the Revenue Act of 1921 (42 Stat. 316), with "reference to the payment of interest upon the allowance of a claim for refund or credit, plaintiff was entitled to interest upon the overpayment refunded from six months after February 19, 1922-, to the date of the allowance of the claim. Prior to bringing its suit, plaintiff had requested and petitioned the Commissioner of Internal Revenue to allow and pay interest upon the refund made for 1918, but the Commissioner’s office could not locate the claim for refund, claimed to have been filed, or any record of it having been received by the Bureau, and for that reason refused to compute and allow any interest.

The overpayment arose out of certain adjustments and allowances made by the Commissioner of Internal Revenue with respect to amortization of war facilities for 1918, and, when the plaintiff requested the Commissioner to allow interest, he took the position that the overpayment had been determined as a result of plaintiff’s claim for amortization in connection with an amended return filed, and that it was not the result of “the allowance of the claim for refund,” but by authority of the provisions qf section 252 of the' Revenue Act of 1921 (42 Stat. 268), which directs the Commissioner to make a refund of any overpayment determined within five years after the return was due.

Certain facts were stipulated, and. testimony was taken by the plaintiff and the defendant, and thereafter the court published its special findings of fact. In finding 18 the court found as a fact that plaintiff duly filed a claim for refund of $282,658.63, for 1918 on February 19, 1922, and in findings 19, 29, and 21 the court found facts with reference to the execution of the claim, the grounds thereof, and the reasons stated in support of the claim of taxpayer for its allowance. As a result of these findings, the court decided that plaintiff was entitled to interest under the provisions of section 1324 (a) of the Revenue Act of 1921 from August 19, 1922, six months after the filing of the claim for refund, to April 39, 1924, the date on which the Commissioner made his allowance. Judgment was accordingly entered for the amount sued for. 39 F. (2d) 1919.

The United States denied the right of plaintiff to recover, and defended on the ground that plaintiff had never filed a claim for refund. After the findings and decision by the court, the defendant filed a motion for a new trial on the ground that the court had erred in finding that plaintiff had filed a claim for refund and on the further ground that plaintiff had instituted a suit in the United States District Court at Brooklyn, N. Y., seeking to recover an alleged overpayment of tax for 1918 in addition to the overpayment allowed and paid by the Commissioner upon which the suit for interest in this court is predicated.

Defendant’s counsel undertook to set up certain inferences drawn from the suit instituted in the District Court and from certain proceedings therein, which it is claimed support the government’s contention that no claim for refund was ever filed with the Bureau of Internal Revenue until the filing of a claim on February 11, 1924, which was less than six months prior to the date on which the Commissioner allowed the refund for 1918.

In the motion for a new trial, defendant counsel reargues the position originally taken that the plaintiff failed to prove that it filed a claim for refund in February, 1922, or at any other date prior to February 11, 1924.

We have again examined the entire record in the ease, all the testimony and exhibits presented by both parties in the light of the argument originally made by the defendant, and also the brief in support of a motion for a new trial, and we find no reason to modify the findings originally made or to change the decision rendered thereon.

When the case was heard, the parties filed a stipulation of certain preliminary and uncontroverted facts accompanied by certain written documents in the form of original and amended returns, schedules of overassessments, refunds, and credits, and a letter dated February 19, 1922, addressed to the Commissioner of Internal Revenue signed by the plaintiff by its attorney, Robert C. Cooley, transmitting an amended return and certain other documents to the Commissioner. In addition, plaintiff produced as a witness Robert C. Cooley, plaintiff’s attorney, who represented and handled all the matters in connection with its claim for amortization, the amended return, and the claim for refund alleged to have been filed February 19, 1922. This witness testified positively with reference to the handling of the matter, the conferences with plaintiff’s officers, the preparation of the amended return showing the great reduction in the tax liability over the amount paid on the original return, the amortization schedules, the claim for refund, and the transmittal of all these documents securely fastened together with the letter of February 10, 1922, to the Commissioner of Internal Revenue. His testimony shows that the amended return, schedules, amortization claim, and the claim for refund were prepared on February 9', 1922, and were brought to Washington by him on the night of that date; it shows the amount of refund claimed therein, that the claim was prepared on standard form 843 of the Bureau of Internal Revenue, that it was sworn to by the plaintiff company by its proper officer before a notary public, and that the grounds of the claim and the reason for the allowance thereof were that the plaintiff was entitled to an allowance of $399,158.90 for amortization of war facilities pursuant to section 234 (a) of the Revenue Act of 1921 (42 Stat. 254), as set forth in the amended return for 1918 filed on that date, to wit, February 10, 1922; that the amount of $282,658.53 which it was claimed should be refunded was the difference between the tax theretofore paid for 1918 on the original return of $384,592.84 and the tax shown to be due by the amended return of $101,934.21. His testimony further shows that the amended return, schedules, the claim, and the letter of February 10; 1922, were securely fastened" together at the time they were filed with the Bureau of Internal Revenue, and that the letter of February 10, 1922, was written in Washington, and that the witness personally delivered and filed all of the papers mentioned with the chief of the amortization section of the Bureau of Internal Revenue on February 10, 1922. The certified copies of the amended return and the letter referred to show evidence of the fact that they were fastened together, and they further show that they had been tom apart and the fastener removed. The original letter of plaintiff’s attorney dated February 10; 1922, a certified copy of which was made a part of the stipulation, does not mention the claim for refund, but only mentions the amended return in supporting amortization schedules, the amount of amortization claimed, and the power of attorney of the writer of the letter. Mr. Cooley presented a duplicate carbon copy of the original, which carbon bears the notation which he testifies he made thereon when he filed the documents with the Bureau of Internal Revenue. This notation is as follows: “Copy filed with refund claim, amended return, amortization claim, power of attorney by R. C. Cooley personally at Washington with Major Delamater, chief of the amortization section.”

This testimony was not contradicted by the defendant. ■ We believed, and still believe, the testimony of this witness to be true.

In rebuttal of this testimony, counsel for the defendant called as a witness an employee of the Bureau of Internal Revenue in the claims control section of the Income Tax Unit, who testified that her duties were to make a card record of all claims reaching her section, and that, when the matter of the claim involved in this suit came up, she made a search by direction of the Deputy Commissioner of Internal Revenue of the card records in her section and in other sections where the case of the plaintiff might have been considered, but that she could not find any record made of the claim of February 10, 1922. She testified that in her examination of the card records she found a record of other companies of the same name as the plaintiff but at a different address, and that those card records contained statements with reference to claims having been filed. This witness did not, and, of course, perhaps she could not, proceed to investigate the various files in the amortization section or other sections in which the ease of this taxpayer was handled, nor does she testify that she examined the files of the companies having the same name as this plaintiff, but which were shown on the card record as having a different address, to see whether the claim alleged to have been filed by this taxpayer might have found its way into the file of another taxpayer of the same name. We have no reason to disbelieve anything testified to by the defendant’s witness. We think all that she said is true, but her testimony shows nothing more than that she could find no card record of a claim for refund having been filed by plaintiff on February 10, 1922, but this testimony does not controvert the positive fact established by the plaintiff that the claim was prepared and filed. It is quite probable that, with.the many thousands of cases, documents, and claims pending and being constantly considered and audited in the Bureau of Internal Revenue, the claim of this plaintiff, having been attached to an amended return and transmitted directly to the amortization section instead of through the office of the collector of internal revenue, as is the usual custom, became misplaced, lost, or associated with some- other file of some other taxpayer when it was-detached from the amended return and amortization claim. It is a fair inference that the employee of the amortization section did not properly route the refund claim to the claims control section for appropriate record there.

The testimony of the government witness and the inferences which the defendant seeks to draw from certain correspondence and from the fact that the claim could not be located does not refute the fact that the claim was duly filed.

We find nothing in the suit instituted in the District Court at Brooklyn, N. Y., or in the transcript of the argument before the court on March 5 and April 4, 1930, or in the opinion of the court ‘of March 25, 1930, which in any way affects the question in this suit or throws any additional light upon the question whether plaintiff filed a claim for refund on February 10, 1922. That suit, as hereinbefore stated, was instituted to recover an alleged overpayment for 1918, in excess of that allowed and paid by the Commissioner, and in the hearing and argument before the court plaintiff and the government made reference to a claim for refund filed by plaintiff on February 11, 1924. The petition in that case alleged the filing of the claim for refund on February 10, 1922, as well as the one of February 11, 1924, but apparently at the hearing only the claim of February 11, 1924, which was filed within five years after the return for 1918 was due, was insisted upon. It appears that the February 11, 1924, claim was for the purpose of claiming a larger amount than had been stated in the claim of February 10, 1922) for the 1924 claim asserted the right to a refund of the entire tax paid for 1918. The District Court, upon consideration of the matter, sustained the contention of the government that, to be valid, a claim for refund for 1918 must be filed within four years after the payment of tax as provided by section 3228 of the Revised Statutes as amended (26 USCA § 157), and also that the 1924 elaim did not state grounds sufficient to constitute the basis for a suit, and dismissed the petition. The questions considered and decided by that court are not involved here, and we express no opinion thereon. We refer to that case to show that, nothing said or done therein has any bearing on the question before this court, or in any way supports the contention of the defendant here that plaintiff-did not file a claim for refund on February 10, 1922.

Delay in acting upon the defendant’s motion for a new trial was due to a misunderstanding. The motion for a new trial is without merit, and is accordingly overruled.


author: GREEN, Judge.

text:
    BULGER BLOCK COAL CO. v. UNITED STATES.
    No. K-87.
    Court of Claims.
    April 6, 1931.

      Claude W. Dudley, of Washington, D. C., for plaintiff.
    Ralph C. Williamson, of Washington, D. C. , and Charles B. Rugg, Asst. Atty. Gen., for the United States.
    Before BOOTH, Chief Justice, and GREEN, WHALEY, WILLIAMS, and LITTLETON, Judges.
   GREEN, Judge.

The controversy in this ease is with reference to a dividend declared by the plaintiff and entered upon its books to the credit of one D. J. Kennedy, under the heading “Dividends payable, D. J. Kennedy,” but not actually paid during the taxable years in question. The plaintiff claims that, as the money was .used in the business, it was a part of the surplus or undivided profits of the company. The defendant, on the other hand, insists that it represented borrowed money which should be deducted from plaintiff’s invested capital during the years in question. The Commissioner of Internal Revenue took the latter view of the case, and deducted the amount of dividend due Kennedy in computing the invested capital of plaintiff. This, plaintiff’s counsel says, was an error, and, having paid the additional taxes assessed by reason of this action on the part of the Commissioner and duly filed claims for refund, plaintiff brings this suit to recover the amount by which its taxes were thereby increased.

There is no dispute as to the facts in the case. The taxable years of 1918, 1919, and 1920 are involved. During those years, one D. J. Kennedy owned 99 per cent, of the stock of the plaintiff corporation and also 98 per cent, of the stock of the D. J. Kennedy Company, another corporation. The plaintiff and the D. J. Kennedy Company accordingly filed consolidated income and profits tax returns; it being conceded that the two corporations were affiliated.

It appears that the plaintiff was engaged in mining and shipping coal at wholesale. The D. J. Kennedy Company was engaged in the sale of coal and builders’ supplies at retail. The business of plaintiff was a profitable one, while that of the D. J. Kennedy Company was not. The plaintiff supplied the D. J. Kennedy Company with coal and extended credit therefor by reason of which a large indebtedness was created from the D. J. Kennedy Company in favor of plaintiff during the years involved. In order to provide D. J. Kennedy with funds which he might advance to the D. J. Kennedy Company with which to liquidate its indebtedness to plaintiff, it was planned to have a 100 per cent, dividend declared by the plaintiff, which was accordingly done on November 8, 1917. After the dividend had been declared, D. J. Kennedy was informed that, if the plan was carried out, it would necessitate his paying an income tax of approximately $40,000. This led to the abandonment of the "plan to furnish funds to the D. J. Kennedy Company. D. J. Kennedy’s share of the dividend was credited to an account on the books of the plaintiff entitled “Dividends payable, D. J. Kennedy.” The minority stockholders were paid their share of the dividend, but the balance of $104,950 remained in said account on the plaintiff’s books until May 31, 1918, and under that date the amount of $24,339.-76 was entered as a charge thereon and. credited to D. J. Kennedy’s personal account. The balance of D. J. Kennedy’s share of the declared dividend ($80,610.24) continued to be carried on plaintiff’s books in this account through the years involved in the case, and is the amount which the Commissioner treated as borrowed money. It is this action of the Commissioner of which the plaintiff " complains.

Under section 326 (a) of the Revenue Act of 1918 (40 Stat. 1092), which controls the ease, “invested capital” does not include “borrowed capital,” and section 325 (a) provides:

“That as used in this title— * * *
“The term ‘borrowed capital’ means money or other property borrowed, whether represented by bonds, notes, open accounts, or otherwise. * * * ” (Italics ours.)

The ultimate, question in the case is whether this $80,610.24, carried in an account as above stated, was borrowed capital.

The brief filed on behalf of plaintiff practically concedes that, by the declaration of the dividend, an indebtedness was created in favor of the stockholders and against the corporation for the amount of their respective shares. Nevertheless, it is argued that, by reason of the fact that the greater portion of the dividend involved was not paid to D. J. Kennedy, but remained with the corporation and was used in its business, this sum, amounting to $80,610.24, remained part of the capital of the company as surplus or fin-divided profits. In determining this question, the language used in some of the decisions of the courts which have held that the declaration of a dividend created an indebtedness in favor of the stockholders will be found enlightening.

The leading authorities on the relation of a stockholder to a corporation after a dividend has been declared are reviewed in the case of W. E. Caldwell Co., Inc., 6 B. T. A. 47, 51-52, in which it is said: “The reasoning advanced in the Stange Case [1 R. T. A. 810] was to the effect that upon the declaration of a dividend the corporation immediately becomes the debtor of the stockholder for his proportionate part of the dividend, regardless of the fact that actual payment is not to be made until later. There is abundant authority for this proposition and we have seen no authority to the contrary.”

Reference is further made to the case of Wheeler v. Northwestern Sleigh Co. (C. C.) 39 E. 347, 348, wherein the court declared: “By the declaration of a dividend, however, the earnings, to the extent declared, are separated from the general mass of property, and appropriated to the then stockholders, who become creditors of the corporation for the amount of the dividend. The relationship of the stockholder to the corporation, as to the amount of the dividend, is thus changed from one of partnership ownership to that of creditor. He thereafter stands * * * with respect to the dividend, as creditor upon a par with other creditors of the corporation. * * * That the dividend is payable at a future date can work no distinction in the right. The debt exists from the time of the declaration of dividend, although payment is postponed for the convenience of the company.” (Italics ours.)

That the same rule has been laid down by all of the leading text-writers on corporations is shown in Staats v. Biograph Co. (C. C. A.) 236 E. 454, 458, L. R. A. 1917B, 728, in which, after quoting from Taylor on Corporations (5th Ed.) § 568; Machen on Modem Law of Corporations, vol. 2, § 1358; Morawetz on Corporations, vol. 1, § 445, the opinion recites:

“But if a board of directors should declare a cash dividend and make a public announcement of the fact, the courts have held that thereafter the board has no right to reconsider and rescind its action. The reason seems to be that the declaration of the dividend sets apart from the profits of the corporation a sum which is to be paid to the stockholders in proportion to their shares, and that it creates a débt due from the corporation to each shareholder, resulting in the relation of debtor and creditor. A dimidend divides the property which belongs to the corporation into that which the corporation retains and that which the corporation agrees to pay to the stockholders, and which it is thereby bound to pay.- That which one person is bound to pay to another is a debt. Lockhart v. Yan Alstyne, 31 Mich. 76, 78, 18 Am. Rep. 156 (1875).” (Italics ours.) '

In 14 C. J. § 1238, p. 815, the rule is laid down that: “The declaration of a dividend creates a debt against the corporation in favor of each stockholder to the amount due him as his pro rata share” — citing more than 50 eases from 14 different states.

Also: “And this is true although the dividend is made payable at a future date *' * K. When a dividend has been declared and no fund has been set apart for the payment thereof, a stockholder stands in the same position as other general creditors of the corporation” — citing a number of cases.

In McLaran, Administrator, v. Crescent Planing Mill Co., 117 Mo. App. 40, 49, 93 S. W. 819, 822, after reviewing the authorities on this point and quoting at length from leading text-writers on the subject, the court reached the conclusion that: “The doctrine is that by the mere declaration, the dividend becomes immediately thereby separated and segregated from the stock and exists independently of it; that the right thereto becomes at once immediately fixed and absolute in the stockholder, and from thenceforth the right of each individual stockholder is changed by the aet of declaration from that of partner and part owner of the corporate property to a status absolutely adverse to every other stockholder and to the corporation itself, in so far as his pro rata proportion to the dividend is concerned.” (Italics ours.)

These cases.show that authority is abundant for the proposition that the declaration of a dividend is sufficient by itself and alone to set apart from the profits of the corporation (if the profits are sufficient for that purpose) a sum which is to be paid to stockholders in proportion to their shares. But counsel for plaintiff contend that this is merely in a bookkeeping sense, and that, until the dividend has actually been paid over to the stockholders, it still remains a part of the surplus and undivided profits of the corporation. We will discuss this proposition later after considering the decisions cited on behalf of plaintiff, which we will next take up. The cases relied upon by counsel for plaintiff are all distinguishable to some extent in respect to the facts upon which the decisions made therein were based, but it must be conceded that all of them contain some statements which, taken by themselves and alone, might tend to support the theory upon which counsel for plaintiff seeks to maintain the case.

The case of Eaton v. English & Mersick Co. (C. C. A.) 7 F.(2d) 54, 59, is largely relied upon by plaintiff, but in that ease the court held upon the facts that the directors could not legally declare a dividend, and, in effect, that, their action having been illegal in this respect, no indebtedness to the stockholders arose by reason of' the .declaration of the dividend. In other words, the situation was the same as if no dividend had been declared. Counsel for plaintiff quotes from the opinion with reference to the fund in controversy in this ease the following: “The surplus having never been distributed but during the entire period was retained in its own treasury, it could not have constituted ‘borrowed capital.’ ”

But this language must be considered as applying to the particular facts in that case where no dividend had been properly declared. True, the court held therein that no indebtedness had been created, but obviously, as we think, it would not have so held if it had found that there was a legal declaration of the dividend, and this finding that there was no indebtedness created inevitably led to the conclusion that the fund in question could not be “borrowed capital,” as there was ni> claim of any contractual borrowing.

In the ease of Davidson & Case Lumber Co. v. Motter (D. C.) 14 F.(2d) 137, it appeared that the amount in question, although credited to the stockholders on the books, not only had not been paid to the stockholders, but had not been declared as a dividend. A reading of the decision in full will show that it was based on the fact that no dividend had been declared, and to that extent we have no disagreement with it. We have no occasion here to determine the effect of merely crediting an amount to the account of a stockholder. The opinion quotes with approval the language used in the case of Eaton v. English & Mersick Co., supra, and also a statement made by the Supreme Court in Eisner v. Macomber, 252 Ü. S. 189, 40 S. Ct. 189*, 194, 64 L. Ed. 521, 9 A. L. R. 1570, to which reference will hereinafter be made. But the decision does not thereby become an authority in a ease where a cash dividend has actually been declared as in the case at bar.

In Flynn v. Haas Bros. (C. C. A.) 20 F.(2d) 510, another ease cited on behalf of plaintiff, the court found that the directors did not intend to declare a dividend.' While the court quoted, with approval, from the case of Eaton v. English & Mersiek Co., supra, to show that the resolutions of the directors created no separate fund distinct from the capital stock or surplus profits, and that the company did not set aside any fund which had become the property of the stockholders, the ease was evidently treated as if the' action of the directors did not constitute a valid declaration of a dividend. We therefore do not think it sustains the plaintiff’s position.

Feick & Sons Co. v. Blair, 58 App. D. C. 168, 26 F. (2d) 540, 541, cited by plaintiff (a case in which an appeal had been taken from the decision of the Board of Tax Appeals), appears in some respects to support plaintiff’s contention. Counsel for defendant say in argument that no dividend was declared in that case. It is true that the opinion does not refer anywhere to a declaration of a dividend, but there are numerous references all through’ the opinion to “dividends,” “accumulated dividends,” and “undistributed dividends” in the case, and we are at a loss to understand how such matters could exist if there never had been anything in the way of a declaration of a dividend. In the opinion the court said: “It is elementary law that before title tó a dividend passes to the stockholder there must be a declaration of a dividend; and the fund for its payment must be separated from the capital or surplus profits of the corporation. When this is done, it becomes the property of the stockholder, and a debt of the corporation on which the stockholder may recover, and it is likewise exempt from action by creditors of the corporation.”

The implication from this statement would seem to be that, unless there was an actual separation so that a separate fund was created, there was no segregation of the dividend. Although the opinion does not show definitely whether there had been any declaration of a dividend, it recites that certain amounts “representing the accumulated dividends and undrawn salaries * * * bad been credited to the three individual stockholders on the books of the corporation.” But the court also found that the “surplus dividends under the agreement of the stockholders in this case remained the property of the corporation tobe used in its business, and as such a part of its invested capital” (Italics ours.) If the stockholders made an agreement that the dividends should remain the property of the corporation and a part of its invested capital, such an agreement would present a very different state of facts 'than is shown in the instant ease.

The most significant feature of the decision in the Feiek & Sons Case, supra, is found in other parts of the opinion where it is stated: “It is conceded by the Assistant Attorney General that the amount of accumulated dividends should not be excluded from appellant’s invested capital.”

And also: “The Assistant Attorney General, referring to the discussions contained in the brief prepared by the Bureau of Internal Revenue, states that 'we are not in accord with its reasoning nor with the conclusion reached by the Board of Tax Appeals.’ ”

Such a statement not only indicated the position taken by the Department of Justice, but amounted to a confession of error, under which the case would be reversed as a matter of course without anything further. But in this particular case it seems that an opinion was asked and therefore rendered.

If the Department of Justice still takes this position with reference to accumulated dividends which had not been paid out, there is reason to expect a similar result would follow■ in this ease if judgment was rendered in favor of the defendant. We shall undertake to show, however, that the reasoning and logic used in every decision directly involving the question upon which the case at bar turns do not accord with this concession.

Before leaving the eases cited by plaintiff, mention should be made of two others upon which plaintiff relies. One is the ease of Eisner v. Macomber, supra, from which an extensive quotation is made in the Feiek Case, supra, including the following: “The dividend normally is payable in money, under exceptional circumstances in some other divisible property; and when so paid, then only (excluding, of course, a possible advantageous sale of his stock or winding-up of the company) does the stockholder realize a profit or gain which becomes Ms separate property, and thus derive income from the capital that he or his predecessor has invested.”

But the Supreme Court in this case was considering the question of whether a stock dividend was subject to tax as income. What was said in its opinion had reference to stock dividends only, and what is quoted above to the question of whether a party in receipt of a stock dividend had realized any profit or gain which was taxable. We think, therefore, this language has no application to the instant ease. Moreover, when a stock dividend is declared, the same rule does not apply as where a cash dividend is declared, and the stockholder cannot sue and recover his proportionate share in cash. Terry v. Eagle Lock Co., 47 Conn. 141; State v. Baltimore, etc., R. Co., 6 Gill (Md.) 363, 386.

The opinion in the ease of United States v. Mellon (D. C.) 279 F. 910 (also cited by-plaintiff), shows that the court held the dividend therein involved was in effect a stock dividend, and the court followed the rule laid down in Eisner v. Macomber, supra, wherein it was said with reference to stock dividends that: “The essential and controlling fact is that the stockholder has received nothing out of the company’s assets for his separate use and benefit; on the contrary, * * * whatever accretions and accumulations have resulted from employment of his money and that of the other stockholders * * * still •remains the property of the company.”

In the case at bar the evidence does not show the form of the declaration of the dividend, but we tMnk that the circumstances clearly show that it was a cash dividend, and have so found. The Commissioner also so found in his finding XVI, and the plaintiff has taken no exception thereto. It will be observed that the dividends due the minority stockholders were paid in cash shortly after the declaration thereof.

Coming now to the ultimate question in the case, which is, whether the dividend declared remained a part of the assets of the company and could be included in its surplus, we think it has been shown that there is in fact little, if any, conflict in the authorities, and that the rule is, as stated in Jermain v. Railroad Co., 91 N. Y. 483, that: “When a dividend has once been declared out of net earnings, the amount of such dividend is no longer a> paA-t of the assets of the company, but is appropriated or set apart for the shareholders.” (Italics ours.)

Indeed, when it is once conceded that the declaration of a dividend creates an indebtedness in favor of the stockholders, it is difficult to see upon what line of reasoning a different conclusion could be reached. We know of no rule of bookkeeping or principle of law by which an indebtedness of a corporation could be made part of its surplus or undivided profits.

The Supreme Court said in Edwards v. Douglas, 269 U. S. 204, 46 S. Ct. 85, 88, 70 L. Ed. 235, that: “The surplus account represents the net assets of a corporation in ex- éess of cell liabilities including its capital stock.” (Italics ours.)

That the unpaid portion of this dividend was both a debt and a liability there is no doubt, and it is equally certain that suit could' be brought thereon at any time by the stockholders.

The plaintiff argues that the fact that no interest was paid on the account in which the dividend was carried shows it was not borrowed money. But this contention loses its force (if it has any) when it is considered that'D. J. Kennedy owned 99 per cent, of the stock in the plaintiff corporation, and that paying interest on the account would have been merely taking it out of one pocket and putting it into another.

We think, we have already shown quite conclusively, that the declaration .of a dividend is by itself and alone sufficient to set apart the amount thereof to the stockholders; but, if it should be heid that some other segregation should be made thereof in order to take the fund out of the surplus account, we think it was done in this ease when the amount of the dividend in controversy was, after the declaration of the dividend, carried on plaintiff’s books in an account headed “Dividends payable — D. J. Kennedy.” The plaintiff calls attention to the faet that a portion of the dividend due D. J. Kennedy was credited directly to his personal account. The evidence fails to show why this was done, and we do not think it alters the relation of the parties.

There is another matter which should be considered in this connection. When the amount of the dividend of D. J. Kennedy was carried in a separate account headed “Dividends payable — D. J. Kennedy,” and placed upon the credit side thereof, it necessitated a countercharge somewhere upon the books of the company, otherwise the books would not’balance. There is no place where this countercharge could have been made except in the surplus or undivided profits account, and, while the evidence does not directly so show (the books of the corporation not being in evidence), we can come to no other conclusion but that the plaintiff’s books showed in the surplus account a charge of the amount of this dividend. The evidence shows that in making up.statements.of the condition of the corporation for the banks the amount of this dividend was included in the surplus. We have no occasion to determine in what position such a statement put the party who made it. It is sufficient to say that like any other liability the amount of the dividend could not properly be included in surplus, and that, if the books were properly kept, it would not be so included.

The statute under which the ease must be determined makes borrowed money include open accounts with the intent, as we think, of covering just such cases as we now have before us. We have already shown that the amount of the dividend could not constitute surplus, and it certainly could not constitute undivided profits, for the express purpose of the dividend was to divide profits. This leaves no other classification for the purpose of the statute except that of “borrowed money.” It is true it was used in the business, but money borrowed by a corporation always is, or at least should be.

In the case of W. E. Caldwell Co., Inc., supra, in determining the effect of the declaration of a dividend, after quoting from Park v. Gilligan (D. C.) 293 P. 129, the following statement: “It is well settled that the declaration of a dividend creates a debt from the corporation to the stockholders,” the Board went on to say: “If such a relationship is created upon the declaration of a dividend, from that moment the corporation has no right to have the amount of the dividend included in its statutory invested capital, as defined by section 326 of-the Revenue Act of 1918. If it uses the money or property with which it must pay the dividend, to the amount of the dividend declared it is using borrowed money and such is excluded from statutory invested capital.”

With this statement of the law we are in entire accord.

The Commissioner rightfully excluded the amount of the unpaid dividend from plaintiff’s capital and surplus, and its petition must be dismissed. It is so ordered.


text:
    MOHAWK CONDENSED MILK CO. v. UNITED STATES. COLORADO CONDENSED MILK CO. v. SAME.
    Nos. H-234, J-126.
    Court of Claims.
    Nov. 3, 1930.

      Robert N. Anderson, of Washington, D. C. (Chester A. Gwinn and Humphreys & Day, all of Washington, D. C., on the brief), for plaintiffs.
    P. M. Cox, of Washington, D. C., and Charles B. Rugg, Asst. Atty. Gen. (Charles F. Kincheloe, of Washington, D. C., on the brief), for the United States.
    Before BOOTH, Chief Justice, and GREEN, LITTLETON, and WILLIAMS, Judges.
   LITTLETON, Judge.

These two cases were instituted to recover amounts growing out of; overpayments of tax for 1917 and 1918, about which there is no controversy. The controversy in both cases is the same, and is whether plaintiffs are indebted to the United States for over-payments made to them for evaporated and condensed milk sold and delivered to the defendant for its military forces during the period November 1, 1917, to December 31, 1918.

The defendant filed a counterclaim in eaeh case. Under these counterclaims it is the contention of the defendant that, under the agreement set forth in the findings, a profit of not more than 42 cents per case on evaporated and 59 cents per ease on condensed milk was to be computed on sales to the Army, Navy, and Marine Corps separately; that the plaintiffs were overpaid in the amounts set forth in the notices mailed to them by the Comptroller General.

Plaintiffs deny these claims of the defendant.

There is no competent proof by the defendant to support the allegations of the counterclaims. The notices from the Comptroller General to the plaintiffs do not prove the correctness of the figures therein used. It appears that the Comptroller General’s office obtained the figures shown in his notices from some one in the Federal Trade Commission, hut there is no competent proof as to who compiled these figures or how they were arrived at. For the purpose of showing how the Comptroller General arrived at his figures the defendant offered in evidence certain sheets of paper containing certain totals and summaries which the Comptroller General certified that he had received from the Federal Trade Commission. No one who had anything to do with the preparation of these figures was called to testify as to their correctness or how they were arrived at. The defendant claims that these documents represented an audit on the basis of the Federal Trade Commission cost accounting, as set forth in a pamphlet issued by the Federal Trade Commission, of July, 1917, entitled “Uniform Contracts for Cost Accounting, Definitions and Method.” There is no competent proof of this. This court will not accept certified copies as proof of facts as to the correctness of figures contained in documents certified by an official of the government who has received Such documents from some other official, department, or commission. Certification of documents proves only the document itself, and permits its introduction in evidence without further proof of identification, but such certification does not establish as a fact the correctness of the statements or figures therein contained. When there is as ¡here a controversy concerning the correctness of the contents of such documents, such contents must he proved hy the party relying thereon the same as other facts We cannot accept the sheets certified by the Comptroller General as proof of their contents or of the correctness of his determination.

Inasmuch as we have no competent evidence to establish the correctness of the figures for which the defendant contends, we cannot allow any portion of the counterclaim even if the theory of the defendant that the sales of evaporated and condensed' milk to the departments of the military services were to be considered separately in arriving at the profit to be paid. While we are of the opinion that the contract was one for the sale of evaporated and condensed milk to the government and that, under its terms, the sales to the Army, Navy, and Marine Corps were to be considered collectively in ascertaining whether the manufacturers had made during the period an average profit of more or less than 42 cents per ease on the evaporated milk and 59 cents per case on the condensed milk, Libby, McNeill & Libby v. United States, 65 Ct. Cl. 64, we need not discuss this feature, in view of the lack of competent proof by the defendant to support its counterclaims on its theory.

Judgment will therefore be entered in favor of the Mohawk Condensed Milk Company for $8,491.54, with interest at 6 per eent. from December 14, 1925, until paid. Act of March 3, 1875, 18 Stat. 481, section • 227, USCA title 31.

Judgment will also be entered in favor of the Colorado Condensed Milk Company for $427.71, with interest at 6 per cent, from February 16,1927, until paid. Act of March 3,1875, 18 Stat. 481, section 227, USCA title 31, supra.

WHALEY, Judge, did not hear this case and took no part in the decision thereof.


author: WHALEY, Judge.

text:
    BENEFICIAL LOAN SOC. OF BETHLEHEM v. UNITED STATES.
    No. L-223.
    Court of Claims.
    April 6, 1931.
    Jackson R. Collins, of New York City (Syme & Syme, of Washington, D. C., on the brief), for plaintiff.
    Ralph C. Williamson, of Washington, D. C., and Charles B. Rugg, Asst. Atty. Gen., for the United States.
    Before BOOTH, Chief Justice, and GREEN, LITTLETON, WILLIAMS, and WHALEY, Judges.
   WHALEY, Judge.

The defendant has interposed a demurrer to the petition on the ground it does not state a cause of action against the United States. The petition alleges the plaintiff was affiliated with the Beneficial Loan Society, a Delaware corporation, and that from the time the plaintiff was incorporated (April 20, 1923) to May 1, 1925, the income of the plaintiff was shown in the consolidated return filed by the Beneficial Loan Society, the parent company; that the Beneficial Loan Society having disposed of the common voting stock of the plaintiff on May 1, 1925', the plaintiff could no longer include its income in the consolidated return, and was required to file an individual return (section 240 (e) and (d), Revenue Act of 1926 [26 USCA § 993 (c, d)]). An information return on Form 1122 was filed each year showing such consolidated return. Plaintiff filed its separate corporation income-tax return setting forth a statement of its net income for the period from May 1, 1925, to January 31, 1926, and also an information return (Form 1122) showing its income from February 1, 1925, to April 30, 1925, was included in the consolidated return of the Beneficial Loan Society. The Beneficial Loan Society made its consolidated return on the fiscal-year basis from February 1 to January 31 each year. The plaintiff, after severance of the affiliation with the Beneficial Loan Society, adopted and retained the same fiscal-year basis for its individual income-tax return. In preparing and submitting its income-tax return for the period from May 1, 1925, to January 31, 1926, a prorated credit of $1,500 was taken instead of the full credit of $2,-000, which latter sum was the full specific credit allowed a domestic corporation with a net income of $25,000 or less (section 233, Revenue Act of 1926 [26 USCA § 985]). As a result of prorating the credit for the nine months which it had been out of consolidation with the parent company, the plaintiff paid $963.38, whereas had the full credit of $2,000 been taken only' $898.10 would have been payable, or a difference of $65.28. A claim for refund of this amount was timely filed and rejected by the Commissioner of Internal Revenue. The claim was reopened and again denied on February 13, 1930. Plaintiff is suing to recover the amount disallowed with interest from the date of the payment of the tax.

Section 226 of the Revenue Act of 1926, 44 Stat. 38, 39 (26 USCA § 968), provides:

“See. 226. (a) If a taxpayer with the approval of the Commissioner changes the basis of computing net income from fiscal year to calendar year a separate return shall be made for the period between the close -of the last fiscal year for which return was made and the following December 31. If the change is from calendar year to fiscal year, a separate return shall be made for the period between the close of the last calendar year for .which return was made and, the date designated as the close of the fiscal' year. If the change is from one fiscal year to another fiscal year a separate return shall be made for the period between the close of the former fiscal year and the date designated as the close of the new fiscal year.
“(b) Where a separate return is so made, and in all other cases where a separate return is required or permitted, by regulations prescribed by the Commissioner with the approval of the Secretary, to be made for a fractional part of a year, then the income shall be computed on the basis of the period for which separate return is made. * * *
“(e) In the case of a return made for a fractional part of a year, except a return made under subdivision (a), the credits provided in subdivisions (e), (d), and (e) of section 216 shall be reduced respectively to amounts which bear the same ratio to the full credits provided in such subdivisions as the number of months in the period for which return is made bears to twelve months.”

Section 230 of the revenue act of 1926, 44 Stat. 39 (26 USCA § 981 note), provides for the tax on the net income of corporations in excess of the credits provided for in sections 236 to 263.

Section 239 (b) of the Revenue Aet of 1926, 44 Stat. 45 (26 USCA § 991), provides: “Returns made under this section shall be subject to the provisions of section 226. In the case of a return made for a fractional part of a year, except a return made under subdivision (a) of section 226, the credit provided in subdivision (b) of section 236 shall be reduced to an amount which bears the same ratio to the full credit therein provided as the number of months in the period for which the return is made bears to twelve months.”

The plaintiff contends the return made by it from May 1,1925, to January 31,1926, was its first return and therefore was a “taxable year,” and, being such, it is entitled to the full amount of the credit. But this contention is not true. The plaintiff was in existence for its entire fiscal year of twelve months ending January 31, 1926, and previous thereto. Until May 1, 1925, plaintiff was affiliated with another corporation and the consolidated return was the return of the plaintiff until the affiliation ceased, and this is true whether the consolidated return was filed by or in the name of another corporation as the parent company. It was the return of the plaintiff as much as if it had been a separate return. Each member of the affiliated group at all times retained its separate identity and was a separate taxpayer under the statute. The commissioner was required to assess against the plaintiff and collect from it its proportion of the tax computed upon the consolidated net income in proportion to the net income assignable to the plaintiff unless there existed an agreement among the corporations for a different apportionment or payment. The consolidated return from February 1 to April 30,1925, was therefore the plaintiff’s return for that period. Swift & Co. v. United States, 38 F.(2d) 365, 69 Ct. Cl. 171; Cincinnati Mining Co., 8 B. T. A. 79. On the last date the affiliation, so far as the plaintiff was concerned, was terminated by a change in the stock ownership and the plaintiff was no longer required or permitted to include its income in an affiliated return. Under section 226 (b) of the Revenue Act of 1926, in article 634 of Regs. 65 and 69; plaintiff was required to make and file a separate return for the period May 1, 1925, the date of the termination of the affiliation, to the end of its taxable year, January 31, 1926'. The regulations mentioned provide that where a return is filed for a fractional part of a year as the result of the termination of the affiliated status the tax shall he computed in accordance with the provisions of sections 226 and 239 of the Revenue Acts of 1924 and 1926, respectively (26 USCA §§ 968, 991). Section 239 provides that the return shall be subject to the provisions of section 226, and the latter section provides, with a certain exception not material here, for the proration of the credit where a return is filed for a fractional part of a year. These sections of the statute and the regulations referred to are clearly applicable to the issue here involved and the action of the commissioner in prorating the specific credit was correct. The separate return filed by plaintiff for the period May 1, 1925, to January 31, 1926, was not a return for a “taxable year” any more than was the consolidated return for three months of the plaintiff’s fiscal year a return by it for a taxable year. Under the facts there was merely a change in the basis of reporting net income which required the plaintiff to file a return for a fractional part of a year.

If the contention of the plaintiff were correct, it would receive the benefit of a specific credit in excess of the maximum of $2,-000 allowed.

During that portion of the fiscal year ended January 31, 1926, that plaintiff was included in the affiliated return it received the benefit of one specific exemption for the affiliated group; to again allow it the full specific credit for the remainder of the fiscal year, after termination of the affiliation, would be in direct violation of the statute.

The demurrer is sustained, and the petition is dismissed. It is so ordered.