text:
    FESSENDEN v. WILSON et al.
    Patent Appeal No. 2680.
    Court of Customs and Patent Appeals.
    April 15, 1931.

      Francis P. Garland, Ezekiel Wolf, Herbert U. Smith, and Hurlburt, Jones & Hall, all of Boston, Mass., for appellant.
    Franklin T. Woodward, Hubert A. Patti-son, and R. R. Adams, all of New York City, for appellees.
    Before GRAHAM, Presiding Judge, and BLAND, HATFIELD, GARRETT, and LENROOT, Associate Judges.
   BLAND, Associate Judge.

This is an interference ease involving the question of priority between the junior party, Fessenden, and the senior party, patentees, Wilson and Schafer, and is an appeal from the decision of the Board of Appeals of the United States Patent Office, affirming the decision of the Examiner of Interferences, in awarding priority to appellees.

The subject-matter of the invention relates to a method and system of secret electric signaling in which a signal wave is divided arbitrarily into different parts, which are transmitted over different paths simultaneously, and are then recombined to form a signal wave corresponding to the original signal wave.

On June 23,1915, Fessenden filed his application, serial No. 35,957, which application contained, according to the decision of the Board, descriptions of 22 inventions which included the subject-matter in controversy here, and which was later disclosed and claimed by Fessenden in his application filed January 23, 1922, serial No. 531,166.

The subject-matter of this interference, while described in Fessenden’s 1915 application, was not shown by drawing nor was it claimed in any claim. In the consideration of Fessenden’s 1915 application, the Patent Office required the applicant to “limit the specification to one of these inventions and only one and to present claims to the invention retained.” In conformity with this request of the Patent Office, the application was amended on May 18, 1916, so as to be limited to a gun sight, a drawing thereof being supplied and also a supplemental oath to support the claims which were then submitted. All reference to any sort of signaling means was then canceled out of the application. This application so" restricted resulted in a patent issued on May 14, 1918, No. 1,-265,766.

Wilson’s and Schafer’s application, some of the claims of which are herein involved as counts in the interference, was filed September 29, 1919, which resulted in a patent issued November 1,\1921, No. 1,395,378.

Both tribunals below held that Fessenden’s 1915 application would be accepted as evidence of conception but not as evidence of reduction to practice, and that, since he was last to file an allowable application, claiming the invention, which might be regarded as a reduction to practice, he must show diligence, which they say he did not do. Both tribunals held that the appellant, who was the first to conceive and second to reduce to practice, did not show diligence from immediately prior to the time when Wilson and •Schafer entered the field until a final reduction to practice.

Appellant contends, first, that the 1915 application must be accepted not only as evidence of conception, but as a reduction to practice of the issues of the count, and that, since he is therefore the first inventor, the Board erred in awarding priority of invention to appellees; second, that, in event appellant’s 1915 application is not a reduction to practice, he has shown due diligence from the date of conception to the date of his reduction to practice or has shown facts which would excuse diligence. Many authorities are cited by appellant, most of which are not in point and few of which need be considered by us.

In support of appellant’s first contention, he cites and discusses Milbum Co. v. Davis-Bournonville Co., 270 U. S. 390, 46 S. Ct. 324, 70 L. Ed. 651; Chapman v. Wintroath, 252 U. S. 126, 40 S. Ct. 234, 64 L. Ed. 491; Wagenhorst v. Hydraulic Steel Co. (C. C. A.) 27 F.(2d) 27; and other authorities. He contends that the three above-cited decisions overrule any prior decisions which may be regarded as holding that a description in an application without a claim is no evidence of priority.

On this phase of the case the appellees point out that the decisions relied upon by appellant do not relate to an application which is not pending and allowable at the time reduction to practice becomes important, and cite, among others, the following cases as supporting their position and the position of the Board: The Corn Planter Patent, 23 Wall. 181, 23 L. Ed. 161; Beach v. Fowler, 1889 C. D. 187; Carty v. Kellogg, 7 App. D. C. 542, 1896 C. D. 188; Hien v. Pungs, 1894 C. D. 92. Appellees correctly state that “it is well established that for one application to he a division, within the meaning of the law, of another, the two must at some time be co-pending,” and cite Sarfert v. Meyer, 1902 C. D. 30; In re Spitteler, 31 App. D. C. 271,1908 C. D. 374; and Wainwright v. Parker, 32 App. D. C. 431, 1909 C. D. 379.

We agree with the Board’s finding as follows: “Fessenden’s earlier application became a patent May 14, 1918, and the patent contained no disclosure of the invention claimed in Fessenden’s later application. There was an interim of more than three years between the grant of the patent upon the earlier application and the filing of the later application. The later application cannot have the benefit of the date of the earlier application as a continuation thereof. The proceeding relating to the two must be in fact continuous. Sarfert v. Meyer, 1902 O. D. 30. An application cannot be considered as a continuance of a patent granted prior to the filing thereof, since after the application has eventuated into a patent there is nothing left pending before the Patent Office upon which it could act or to which the later application could attach. In re Spitteler, 31 App. D. C. 271, 134) O. G. 1301; Wainwright v. Parker, 32 App. D. C. 431,142 O. G. 1115, 1909 C. D. 379.”

No authority has been cited and we have found none to the effect that an invention described hut not claimed in an abandoned application, or an application which did not and could not result in a patent, could he regarded as a reduction to practice of the subject-matter described. The converse of this proposition is supported by In re Spitteler, supra; Wainwright v. Parker, supra; Conover v. Downs, 35 F.(2d) 59, 61,17 C. C. P. A. 587; and other of the authorities herein-before cited.

Appellant contends that the decisions in Wainwright v. Parker, supra, and In re Spitteler, supra, are contrary to the decision in Milburn Co. v. Davis-Bournonville Co., supra, and that Milbum Co. v. Davis-Bournonville Co. supports his contention herein.

It is sufficient to note that Milbum Co. v. Davis-Bournonville Co. was an infringement case, and the application which was relied upon for reduction to practice was not abandoned, but was only delayed by reason of its progress through the Patent Office.

An analogous issue to the one at bar was before this court in Conover v. Downs, supra, and this court there discussed the Spitteler, Wainwright, and Milburn Cases, and said: “If the quoted language [in the Milbum Case] of the Supreme Court had been employed in an issue such as the one before us, it might he seriously argued that it was intended to establish a rule contrary to the pronouncements contained in, the decisions in the eases of Wainwright v. Parker and In re Spitteler, supra, and to change the historic policy of the Patent Office. 'However, it must be remembered that this is an interference case; that appellee was the first to conceive the invention; that he was diligent in reducing it to practice; and that a different issue was before the Supreme Court in the Mil-burn Co. Case. We do not believe that the Supreme Court had any intention of denying the correctness of the principles announced in the Wainwright v. Parker and In re Spitteler Cases. Surely, if such had been the intention, some reference to those decisions would have been made. Undue liberties should not he taken with the language in a court decision. Bather it should be construed and applied in accordance with the precise issue before the court. If this course is followed, much useless litigation may be avoided.”

Since Fessenden’s 1915 application, as amended, contained no disclosure of the subject-matter in issue and was not operable for patentable purposes, for the subject-matter in issue, and was, under the facts in this record, and as related to the subject-matter at bar, to be regarded in law as an abandoned application, it cannot be relied upon as a reduction to practice.

Appellant argues that, if it could not be relied upon as a reduction to practice, it could not be relied upon as evidence of conception, and cites this court’s decision in Harlan v. Bregman, 39 F. (2d) 494, 496, 17 C. C. P. A. 949, in which this court said: “We can see no good reason for accepting the testimony as proving conception and rejecting it on the question of reduction! to practice.” The nonapplieahility of this ease to the issues at bar is at once apparent when it is pointed out that the facts in that case show that those remarks were directed toward a construction and test made of an actual device and not toward a constructive reduction to practice presumed from the filing of an application. The citation of such authorities as this by counsel for appellant on this point and elsewhere in this appeal, without mentioning the points of distinction, has been very misleading to the court, and is a practice which, to say the least, is not to be encouraged.

Appellant claims that, even if his 1915 application was not to be regarded as a reduction to practice, his lack of diligence in making proper application and reducing to practice the subject-matter of this controversy was excusable on account of his secrecy obligations incident to his naval service. The record contains and the briefs discuss numerous facts bearing upon this question which we do not regard as calling for a detailed statement and discussion here. In this connection the Board said:

“Fessenden has not shown diligence from the time of filing of his original application up to just prior to the appearance of Wilson and Schafer. He neither asked permission of any of the Government officials in authority to file a divisional application for the invention of the issue of this interference nor did he prove that he made an actual reduction to practice of. the invention prior to the appearance of Wilson and Schafer. Fessenden alleges that he was deterred from filing an application for a patent for the system for secret signalling by reason of his secrecy orders and his oath to secrecy as an officer in the Navy. However, the disclosure, except for the drawings had been made in his original application No. 35,957. Another divisional application might have been filed for such disclosure of his system of secret signals without disclosing anything more than had been disclosed in the original application on pages 29 to 34 thereof. Such an application claiming the invention would have entitled Fessenden to notice of and an interference with the application of Wilson and Schafer. By not filing such application there was nothing pending in the Patent Office to entitle him to such notice. After learning of the patent to Wilson and Schafer Fessenden did not wait to obtain the consent of the Navy Department but filed his later application in the Patent Office prior to receiving any orders from the Navy Department relieving him from the restraints of such order. He never attempted to obtain relief from such order until after he had filed his later application.
“Fessenden asserts that the right to subsequently file the application for the invention in interference had been expressly and in writing reserved by Fessenden, in the response making the division of May 12,1916. Rule 44 of the Rules of Practice reads:
‘A reservation for a future application of subject matter disclosed but not claimed in a pending application will not be permitted in the pending application.’
“Fessenden should have filed his divisional application claiming the invention when he divided his original application to preserve his rights, by a pending application, to the date of his earlier application.”

With respect to the diligence of Fessenden, we agree with the conclusion of the Board.

It is also a contention of the appellant that, since a description of the invention was filed in the Patent Office in his 1915 application, appellees are, under the statute, not the first inventor and axe not entitled to a patent, and therefore are not entitled to priority in this interference. The statute authorizes the granting of a patent under certain conditions if the invention is “not known or used by others in this country, before his invention or discovery thereof, and not patented or described in any printed publication in this or any foreign country. ® * * ” 35 USCA § 31.

For obvious reasons, the filing of an application, the description of which is canceled before it results in a patent or comes to the public notice, is not such a published description of the invention as is within the inhibition of the statute. Milburn Co. v. Davis-Bournonville Co., supra.

Agreeable to the decision of the Board, the appellees, though last to conceive, were first to reduce to practice, and, since appellant showed lack of diligence in reduction to practice, appellees were properly awarded priority of the subject-matter of the counts, and the decision of the Board of Appeals is affirmed.

Affirmed.


source: Caselaw Access Project

author: GRAHAM, Presiding Judge.

license: Public Domain

text:
    MINTON et al. v. THOMAS.
    Patent Appeal No. 2666.
    Court of Customs and Patent Appeals.
    April 15, 1931.

      H. G. Grover, of New York City (James G. Norton, of New York City, of counsel), for appellant.
    Adolph A. Thomas, of New York City, pro se.
    Before GRAHAM, Presiding Judge, and BLAND, HATFIELD, and GARRETT, Associate Judges.
   GRAHAM, Presiding Judge.

The appellants filed an application on . June 9, 1925, for a patent on improvements “in filter systems for loud speakers.” On July 12, 1927, a patent was issued to the appellee upon an invention relating to loud speakers upon his application filed March 15, 1926. On October 12, 1927, the appellants filed an amendment in the Patent Office, in and by means of which they amended their specification so that the same would state one of the objects of the appellants’ alleged invention to be the same as that set forth in appellee’s said patent. In addition, the appellants added claims 16 to 23, inclusive, which were copied from appellee’s said patent, claims 1 to 5, inclusive, and 7 to 9, inclusive. Thereupon an interference was declared by the Patent Office, the counts of the interference being the counts copied by appellants 'from appellee’s said patent.

On February 20, 1928, the appellee made a motion to dissolve the interference, alleging as grounds thereof that the counts of the interference did not read upon the disclosure of the appellants. This matter came on to be heard before the Law Examiner, who granted the motion to dissolve as to counts 4, 5, and 8 of the interference, and denied the same as to counts 1, 2, 3, 6, and 7. No evidence was taken by the parties, and, on October 17, 1928, the Examiner of Interferences awarded priority of invention of the subject-matter in issue on renumbered counts 1 to 5, inclusive, of the interference to the appellants, holding that they could make said counts.

On appeal to the Board of Appeals, the Board held that the Examiner of Interferences was in error in his finding, and that the appellants could not make the claims in issue and awarded priority to the junior party, the appellee. The counts in issue, upon which such priority was awarded, were copied from claims 1, 2, 3, 7, and 8 of the said patent to appellee.

As the matter now comes to this court, the only question in issue is whether the said counts of the interference will read upon the disclosure of the appellants.

Counts 2 and 6 of the interference are typical, and here follow:

“2. A sound reproducer having a pair of diaphragms arranged to be operated independently of each other, an electromagnetic actuating device associated with each diaphragm, .each of said devices including a coil, means for connecting said coils independently with a common circuit of electric impulses representing transmitted sound, and means for dephasing the impulses in one coil with respect to the impulses in the other coil, whereby the impulses in said circuit cause vibration of said diaphragm in dephased relation.”
“6. In the art of electrically reproducing sound, the improvement which consists in operating one diaphragm to represent direct sound waves and simultaneously operating a second diaphragm in lagging phase relation to the first diaphragm to represent reflected sound waves.”

The application of appellants, Minton and Ringel, had as its object the providing of a device by which different bands of frequencies resulting from a composite or complex sound might be separately amplified and ■thereafter blended, the idea of the alleged inventors being that this method would give a true intensified reproduction of the original sound. In order to effectuate this plan they had in mind, in a loud speaker, a plurality of elements, responsive to different bands of frequencies, with filtering means associated with the several elements to select the band of frequencies appropriate to each element. In order to do this, two electrical units were devised, each connected with a loud speaker. One of these electric circuits or units was so devised as to prevent the passage of low frequencies and to transmit the high frequencies. The high frequency unit was shunted by a ehoke coil and had a condenser in series with it. The low frequency unit was so constructed as to freely transmit the low frequencies and to prevent the passage of the high frequencies. This was done by means of a condenser in the circuit.

The specification filed' repeatedly calls attention to the fact that the object of the device is to construct a two part loud speaker in such a way that one unit will receive the band of high frequencies and tbe other the band of low frequencies, and that each will have its own band of frequencies selected by means of filters interposed in the circuits for that purpose. The manifest object of the invention is to prevent high frequencies passing over the low frequency unit and low frequencies passing through the high frequency unit. It is claimed in the specification that "the device will therefore give tones of unusual purity and increased intensity which are faithful reproductions of the original sounds.” Some alternative forms of the device are shown, and the loud speakers may be in series or in parallel. It is unnecessary to detail the construction of the remainder of the device, as such construction is not claimed to be anything but what is well known to the art.

The appellee, Thomas, had obviously a different thought in mind when he filed his application which ripened into his patent. He expressed the idea in his specification that each sound when made under natural surroundings had an echo caused by reflected sound waves. He stated that in all broadcasting studios these refleeted sounds were absent, and that the consequent reproduction by the reproducer was not as the sound was made in nature and did not have a pleasing effect. He, therefore, proposed a device by which two reproducing diaphragms would be provided with two separate electric circuits, and to have these two diaphragms operating out of predetermined phase with each other, by a small degree, equal to that which usually exists between the reception of the direct waves of a sound and the reception of its reflected waves.

He proposed to produce this result by having his two diaphragms connected with different circuits, in one of which circuits was located a choke coil and in the other of which was a condenser. The frequencies in one circuit were caused to lag behind the frequencies in the other circuit by means of the choke coil, which said choke coil was adjustable as .to its inductance value. The inventor stated that the lagging of the frequencies in one circuit behind those in the other circuit was only a fraction of a second, and should be just sufficient to represent the phase difference between direct and reflected waves of sound.

In Thomas’ invention, there was no attempt made to separate bands of frequencies. In fact his specification plainly describes a device wherein the same band of frequencies shall be received and transmitted to both diaphragms. His whole object was to dephase the current transmitted to one diaphragm as related to that received by the other. On the other hand, the idea of Minton and Bin gel . was to separate the low and high frequencies and to transmit them, not in a dephased relation, but in the' same relation, to their respective loud speakers.

The argument made by appellants here is that there is a band of frequencies which will be received by both of their circuits and which will overlap and which cannot be filtered out of the respective circuits. It is further argued that in this band of intermediate frequencies there will be, by means of the condensers and choke coils found in their respective circuits, necessarily a dephased relation. It is, therefore, argued that, having shown a device which will produce such an effect, and being first in the field, they are entitled to the benefit of any use which may be made of the invention disclosed by them in their application.

We agree with the Board of Appeals that, if there is any such band of intermediate frequencies which wiE pass through the filters of both circuits in the appeEants’ device, it will be an effect not contemplated by them-when they filed their- original appHeation herein. No one can read their specification as first filed and consider their original claims, without being led to the conclusion that such an overlapping and intermediate band of frequencies was the one thing which they were trying to prevent by their apparatus. If such overlapping occurs, and if the device which they disclose wEl operate in a way which they did not seek, and which they were trying to prevent, it is quite apparent that such result was accidental and does not constitute an idea which they should now be permitted to take advantage of to the detriment of the appeEee, who was working with this particular thought in mind. It is a reasonable presumption that the amended specification and new claims of appeEants were the results of an afterthought, suggested by appellee’s patent.

It is well settled that a patent for a mechanical combination is not anticipated by a prior patent which incidentally shows a similar arrangement, which was not described or claimed to perform the function which it performs in the second invention, and in which any reshit obtained similar to the functions performed by the second is accidental, and was neither intended nor appreciated by the prior patentee. We had occasion to go into that matter quite fully in Re Daniel, 34 F.(2d) 995, 17 C. C. P. A. 605, when Garrett, J., speaking for the court, cited many authorities to the point. Other eases cited, and to the point, are Eibel Process Co. v. Paper Co., 261 U. S. 45, 43 S. Ct. 322, 67 L. Ed. 523;. Wickelman v. Dick (C. C. A.) 88 F. 264; Beckwith v. Malleable Iron Range Co. (C. C.) 174 F. 1001; General Electric Co. v. Sangamo Electric Co. (C. C. A.) 174 F. 141; Vacuum Cleaner Co. v. Thompson (D. C.) 258 F. 239.

The decision of the Board of Appeals is affirmed.

Affirmed.

LENROOT, Associate Judge, did not participate in this ease.


author: HATFIELD, Associate Judge.

text:
    In re MARDEN et al.
    Patent Appeal No. 2633.
    Court of Customs and Patent Appeals.
    March 31, 1931.
    Max F. Reges, of Bloomfield, N. J. (Raymond Jones, 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 affirming the decision of the Primary Examiner rejecting claims 31 to 46, inclusive, in appellants’ application for a patent for an alleged invention relating to a “mass of thorium, which -is substantially pure, coherent and homogeneous,” wire, filaments, and electrodes formed of ductile thorium.

Claims 32, 38, 42, and 46 are illustrative. They read:

“32. A mass of thorium which is substantially, pure, coherent and homogeneous.”
“38. A wire formed of ductile thorium.”
“42. A filament of ductile thorium.”
“46. An electrode of ductile thorium.”

The references are: Von Bolton, 927,935, July 13, 1909; Arsem, 1,085,098, January 27, 1914; Kuzel, 1,088,909, March 3, 1914; Langmuir, 1,244,216, October 23, 1917.

Appellants’ application also disclosed and claimed a process for producing ductile thorium. However, the process claims were allowed by the Primary Examiner, .and are not involved in this appeal.

The patent to Von Bolton relates to a method for the manufacture of filaments of highly refractory metals, including thorium, for electric lamps. In the specification, thorium metal was described .as an “exceedingly easily ductile metal having a very high melting point and one which can be worked up mechanically in this manner.”

The patent to Arsem relates to the production of pure thorium and the use thereof in the manufacture of filaments for incandescent lamps. In his specification, the patentee ■described a process for the production of metallic thorium free from impurities and in a condition suitable to be hammered and drawn, or otherwise manipulated, into lamp filaments and wire. A process for obtaining “pure, malleable, ductile, metallic thorium” was described in claim 8 of the patent.

The patent to Kuzel relates to a method for obtaining substantially pure metals from their compounds and oxids. Thorium is named as one of the metals produced by the patentee’s process.

The patent to Langmuir relates to an electron discharge apparatus and “method of preparation,” and discloses the use of metallic thorium as cathode material.

Counsel for appellants contended before the tribunals below, and contends here, that it has been established by the affidavit of John W. Marden, one of the appellants, that the processes described in the Von Bolton, Arsem, and Kuzel references are inoperative, and will not produce ductile thorium.

The tribunals below discussed the references and held that the products claimed by appellants were old and were fully disclosed in' the references.

The Primary Examiner cited the ease of In re Decker, 36 App. D. C. 104, in which it was held that, where a product is clearly described in a patent, the operativeness of the process by which the patentee claimed the product could be produced was immaterial, and that the patent was a proper reference for the product therein disclosed.

The' Board of Appeals did not refer in its decision to the ease of In re Decker, supra, or the principles therein announced, but cited «the ease of the General Electric Co. v. DeForest Radio Co. et al., 28 F.(2d) 641, in which it was held by the Circuit Court of Appeals, Third Circuit, that a patent awarded for a “product of nature” is invalid. Reference may also be had to the decisions in In re Marden, 47 F.(2d) 957, 18 C. C. P. A. -, and In re Marden & Rich, 47 F.(2d) 958, 18 C. C. P. A.-.

In the case of Cohn v. United States Corset Co., 93 U. S. 366, 377; 23 L. Ed. 907, the Supreme Court said:

“It is-quite immaterial (even if it be a fact) that the Johnson specification is insufficient to teach a manufacturer how to make the patented corset. It is enough if it sufficiently describes the corset itself. Neither it nor the plaintiff’s specification exhibits the process of making. Neither of them set up a claim for a process. The plaintiff claims a manufacture, not a mode of making it; and the important inquiry, therefore is, whether the prior publication described the article. To defeat a party suing for an infringement, it is sufficient to plead and prove that the thing patented to him had been patented or •described in some printed publication prior to his supposed invention or discovery thereof. Rev. Stat. § 4920 [35 USCA § 69]. What is required is a description of the thing patented, not of the steps necessarily antecedent to its production.”

Ductile thorium and the products produced therefrom and claimed in appellants’ application were clearly and adequately described in the references of record. Accordingly, in view of the decisions hereinbefore referred to, the question of the operativeness of the methods disclosed in .the references is not involved in a determination of the issue of the patentability of the subject-matter of the involved claims.

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

Affirmed.


author: GARRETT, Associate Judge.

text:
    In re MURRAY.
    Patent Appeal No. 2643.
    Court of Customs and Patent Appeals.
    March 31, 1931.
    Usina & Rauber, of New York City (Milans & Milans, of Washington, D. C., and Benjamin T. Rauber, of New York City, of counsel), for appellant.
    T. A. Hostetler, of Washington, D. C., for the Commissioner of Patents.
    Before GRAHAM, Presiding Judge, and BLAND, HATFIELD, GARRETT, and LENROOT, Associate Judges.
   GARRETT, Associate Judge.

The patent here sought is for alleged improvements in boiler structure. There are two claims at issue, Nos. 5 and 6, whieh read as follows:

“5. A boiler wall structure of the character described comprising a multiplicity of rolled structural channel beams arranged flange to flange alongside one another and having separately formed U-shaped caps united to the edges of the channel flanges and nipples in the flanges of the channels adapted to establish communication between the chambers formed by said members.
“6. A boiler wall structure of the character described comprising a multiplicity of rolled structural beams each having a rigid web and integral flanges substantially perpendicular thereto and separately formed caps united to the edges of the flanges and nipples establishing communication between the chambers formed by said members.”

The claims were rejected by the Examiner, whose decision was affirmed by the Board of Appeals of the Patent Office. Appeal was then taken to this court.

The references to prior art cited are: Mc-Clellon, 764,753, July 12, 1904; MeClellon, 963,627, July 5, 1910; Murray, 1,186,222, June 6,1916.

In its decision the Board said:

“Claims 5 and 6 are objectionable for the reason that they involve the limitation of an article claim by the method of making it. The article, as claimed, differs from the boiler fire wall disclosed in the patents to MeClellon only in the fact that the tubes are made by welding together at their edges two forms of rolled structural material, such as a channel bar and a semitubular section. When so welded together the tube is no different from one which is formed from a tube' having its sides flattened to produce abutting surfaces when brought together to form the fire wall. Such tubes are used in MeClellon No. 963,627 (See page 1, lines 83 to 85) and it is stated in No. 764,753 that the tubes 12 may be made of various shapes in cross-sectional contour though it is preferred that this be square exteriorly. (See page 3 lines 11 to. 14.)
“If a claim were drawn to the method of making a tube by welding together the edges of two rolled structural elements it would be met by appellant’s patent No. 1,186,222, cit'ed by the Examiner.”

It is observed that MeClellon, in patent No. 764,753, discloses a locomotive boiler with flat-sided water tubes composing the sides of the fire box. The specifications state that the tubes “may assume various shapes in cross-sectional contour, although I prefer the tubes that are square exteriorly.” A figure of the drawings shows tubes which are square both exteriorly and interiorly.

McClellon’s patent, No. 963,627, is for a fire box for boilers which shows sections having curved sides joined by flattened sides. These are fitted together to form the walls. Nipples are shown which permit the water freely to circulate through the connected sections.

The reference patent to Murray relates to a method of electrical welding. In view of the fact that the claims in the present case do not mention welding, this reference is not thought to have any particular pertinency here, but we are unable to see any error in the holding of the Board of Appeals which, in effect, is that appellant’s tubes, when finished by having the separately formed U-shaped caps united to the edges of the channel flanges, do not present any differences of a patentable nature from MeClellon’s tubes flattened to produce abutting surfaces.

The decision of the Board is therefore affirmed.

Affirmed.


author: LITTLETON, Judge. LITTLETON, Judge.

text:
    AMERICAN HIDE & LEATHER CO. v. UNITED STATES.
    No. J-555.
    Court of Claims.
    Nov. 3, 1930.

      William E. Hayes, of Washington, D. C. (Hayes & Hayes, of Washington, D. C., on the brief), for plaintiff.
    H. A. Cox, of Washington, D. C., Charles B. Rugg, Asst. Atty. Gen., and C. J. Mattson, of Washington, D. C. (Charles F. Kincheloe, of Washington, D. C., on the brief), for the United States.
    Before BOOTH, Chief Justice, and GREEN, LITTLETON, WILLIAMS, and WHALEY, Judges.
   LITTLETON, Judge.

Plaintiff brings this suit to recover $556,-754.72, alleged to represent an overpayment of income and • profits tax for the last six months of the calendar year 1919, being the first six months of the fiscal taxable year beginning July 1, 1919, and ending June 30, 1920.

As shown by the facts, the commissioner held that the erroneous calendar-year returns were returns under the statute for the fiscal year ending within such calendar year and treated the-tax assessed and paid on such calendar-year returns as having been paid on a return for such fiseal year. As a result, the Commissioner of Internal Revenue held that there had been no overpayment for the period claimed by plaintiff. The result of the commissioner’s determination upon audit of the returns for 1918,1919, and 1920 was to show an overassessment of $538,202.77 for the six-month period ending June 30,1918. Of this amount the refund of $443,367.61 was barred by the statute of limitation and the balance of $94,835.16 was duly refunded by the commissioner with interest.

Plaintiff contends that one-half of the tax paid under each of the erroneous calendar-year returns must be regarded as having been paid for each of the two fiseal years involved in such erroneous return. It therefore claims that six-twelfths of the tax paid under the erroneous calendar year 1918 return should be treated as having been paid for the fiscal period ending June 30,1918, and six-twelfths should be treated as a tax paid for the fiscal year ending June 30, 1919, and that the tax collected on the erroneous calendar year 1919 return should be similarly applied.

Defendant contends that the tax paid under any such erroneous return must be treated as a tax paid for the correct taxable period •or year for which the return should have been filed and the tax paid, and that any ■overpayment should be refunded or credited against any tax due for another taxable period in the usual and ordinary manner expressly provided by statute in respect of overpayments.

The question for decision, therefore, is whether a taxpayer having erroneously filed a return or returns and paid the tax thereunder for a period other than that required 'by law is entitled to have the tax so paid apportioned between the two taxable years involved upon the basis of the respective number of months concerned which fall within each of the correct taxable years.

This question has been fully considered .and discussed by the court in P. L. Mann v. United States (Ct. Cl.) 44 F.(2d) 1005, this ■date decided. -For thfe reasons therein set forth, we are of opinion that plaintiff is not entitled to recover any amount as an overpayment of tax for the fiscal year ending •June 30, 1920.

The petition must therefore be dismissed. It is so ordered.

BOOTH, Chief Justice, and WILLIAMS •and GREEN, Judges, concur.

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

On Motion for New Trial.

LITTLETON, Judge.

Plaintiff’s petition was dismissed by opinion rendered November 3, 1930. Thereafter plaintiff filed a motion for a new trial and 'brief in support thereof.

It is insisted, first, that “the court erred in treating the calendar year 1919 statement -of income as a statutory return for the fiscal year ended June 30, 1919,” and, secondly, that “the court erred in treating the tax paid •on income of the twelve months’ period ending December 31,1919, which period was not "the taxable period, as if it were a payment made for a taxable year ending in such ealen-dar year.”

With respect to the first point the court ■held that when a taxpayer files a calendar-year return, when it should have filed a return ■for the fiscal year ending during such calendar year, such return, although on an erroneous basis, must be treated as a return under the statute, and it can only be treated as a return for a taxable period or year that has ended during the period covered by it.

On the second point the court decided that a tax assessed and paid on a return for a calendar year, when the true accounting period of the plaintiff was a fiscal year ending within that calendar year, must be regarded ás having been assessed and paid for the fiscal taxable year ending within the year for which the return was filed, even although the taxpayer filed his return on the wrong basis.

In oral argument upon the motion for a new trial and in the brief in support thereof, counsel for plaintiff contend that the calendar-year returns filed cannot be regarded as returns under the statute for any purpose, since in neither form nor substance did they purport to contain the income for a fiscal year which was the taxpayer’s annual accounting period and for which it was required by the statute to file returns. We cannot concur in this contention. Except for the fact that plaintiff did not file sufficient and timely claims for refund with respect to the tax paid on the calendar year 1918 return, there would be no basis whatever for the claimed overpayment for the fiscal year beginning July 1, 1919, and ending June 30, 1920, for the reason that had the commissioner not been prevented by the statute of limitation from refunding the entire overpayment determined for 1918, the plaintiff would have received the refund of all of the tax paid in excess of its correct tax liability for each of the fiscal years ended June 30, 1918, 1919, and 1920. The overpayment claimed by the plaintiff to have been made for the first six months of the fiscal year ended June 30, 1920, can only be supported by completely disregarding for all purposes the calendar-year returns filed and by treating each of them merely as a statement of income and deductions of the tax paid thereon as a tax for the first half and the second half of plaintiff’s fiscal taxable year. In other words, in order to bring the claimed overpayment within a period covered by a sufficient and timely claim for refund, one-half of the tax paid on each of the calendar-year returns must be treated as an advance payment for the first six months of the fiscal year ending on June 30. . We are of opinion, as pointed out in P. L. Mann v. United States (Ct. Cl.) 44 F.(2d) 1005, that the calendar-year returns must be treated as statutory returns for the fiscal year ending ■ within the calendar year for which such returns were filed. The Commissioner of Internal Revenue correctly so held and adjusted the income, deductions, and the tax paid accordingly. Returns are not fatally defective merely because they do not include all of-the income for the correct taxable period for which the returns should have been filed, or because they may include income which properly belongs in some other taxable period, or because the returns were made upon an erroneous basis. The treatment by the defendant of the calendar-year returns as statutory returns for the taxable fiscal years ending within the calendar years for which such return^ were improperly made for the purpose of assessment, collection, refunds, credits, and the statute of limitations was, in our opinion, a correct administration of the taxing act. The calendar-year returns purported to and did cover a period recognized by the statute as a taxable year. The taxable year covered by each calendar year return did not include the entire taxable year of the plaintiff, because its books were kept on a fiscal year basis. Each return was therefore made on an erroneous basis and included income and deductions of a portion of two of plaintiff’s correct taxable years. When the commissioner came to audit the calendar-year returns, he discovered that the plaintiff was on a fiscal year basis and it was necessary for him to adjust the income returned, the deductions taken, and the tax paid to conform to the plaintiff’s fiscal year. He did this by adjusting the income, deductions, and tax liability of the correct fiscal taxable year to the calendar-year returns covering the period in which the fiscal year ended. The commissioner would not have been justified in completely ignoring the calendar-year returns filed and in treating the taxpayer as if it had never filed a return for any of the taxable years 1918 to 1920, inclusive. This conclusion is not inconsistent with Lucas v. Pilliod Lumber Co., 281 U. S. 245, 50 S. Ct. 297, 74 L. Ed. 829, 67 A. L. R. 1350, where the taxpayer failed to sign and swear to a return. Nor is the ease of Florsheim Brothers Drygoods Co., Ltd., v. United States, 280 U. S. 453, 50 S. Ct. 215, 74 L. Ed. 542, authority for the contention of the plaintiff that calendar-year returns filed by a taxpayer keeping its books on the fiscal-year basis are without legal significance whatever and must be completely ignored. The Elorsheim Case involved the question whether a request for extension of time within which to file a return accompanied by an estimate of the total tax due for the year was a sufficient return to set in motion the statute of limitations. The holding of the court that such a document could not be considered a return under the statute cannot be extended to include a complete calendar-year return filed by a taxpayer employing the fiscal-year basis of accounting. '

We find no reason justifying a modification of the decision heretofore rendered. The motion for a new trial is therefore denied.

BOOTH, Chief Justice, and WHALEY, WILLIAMS, and GREEN, Judges, concur.


author: WILLIAMS, Judge.

text:
    HART GLASS MFG. CO. v. UNITED STATES.
    No. H—528.
    Court of Claims.
    April 6, 1931.

      Frank C. Olive, of Indianapolis, Ind., for plaintiff.
    Ralph C. Williamson, of Washington, D. C., and Herman J. Galloway, Asst. Atty. Gen. (Charles P. Sisson, of Washington, D. C., on the brief), for the United States.
    Before BOOTH, Chief Justice, and WILLIAMS, LITTLETON, and GREEN, Judges.
   WILLIAMS, Judge.

This is a suit to recover the sum of $11,-590.63, with interest thereon, which the plaintiff alleges is due it as an overpayment of its income and profit taxes for the year 1918.

The plaintiff, the Hart Glass Manufacturing Company, and the T. F. Hart Paper Company, are each corporations doing business under and by virtue of the laws of the state of Indiana.

The two companies filed separate income tax returns for the year 1918, and paid the taxes assessed against them on such returns by separate cheeks drawn on their respective banks.

On December 27, 1921, the plaintiff and the paper company made application to have their tax liability for the years 1918 and 1921 computed on the basis of affiliated corporations. The Commissioner of Internal Revenue, on February 8, 1922, ruled they were affiliated corporations for the year 1918 within the purview of the Revenue Act of 1918. The T. F. Hart Paper Company was used as the principal company.

An application was made to the Commissioner of Internal Revenue by the plaintiff and the T. F. Hart Paper Company, on November 7, 1923, that the taxes of the said companies be computed under sections 327— 328 of the Revenue Act of 1918 (49 Stat. 1993).

The Commissioner of Internal Revenue on February 11, 1924, made an ’ additional assessment against the plaintiff in the amount of $45,901.03, and an additional assessment against the T. F. Hart Paper Company in the amount of $19,047.98. These additional assessments were made on the basis of the affiliation of the two companies, but not under the special, assessment provisions of sections 327-328 of the Revenue Act of 1918. Both the plaintiff and the paper company, in apt time, filed their claims for the abatement of the additional assessments made against them respectively.

On November 6, 1926, the Commissioner of Internal Revenué made final adjustment of the assessment of taxes made against the plaintiff and the T. F. Hart Paper Company as affiliated corporations for the year 1918. The adjustment of assessments was made under the provisions of sections 327-328 of the Revenue Act of 1918, and, as outlined in bureau letter dated December 27, 1926, was as follows:

Hart Glass Manufacturing Company.......$ 6,539 46

T. P. Hart Paper Company................. 36,202 13

The Commissioner’s letter of December 27, 1926, explaining the basis on which the final adjustment of the taxes of plaintiff and the T. F. Hart Paper Company for 1918 was made, shows an overassessment against each of the companies for the year, which overassessments to the extent not paid were abated by the Commissioner. It further shows an overpayment in the sum of $12,-930.94 by the plaintiff of its taxes, and a balance due from the T. F. Hart Paper Company on its taxes for the year in the amount of $17,300.17.

The Commissioner applied $1,430.31 of the amount of the plaintiff’s overpayment of its taxes against an unpaid assessment ¿Í taxes against plaintiff for the year 1920, and the balance, $11,500.63, was credited by the Commissioner, without the consent of the plaintiff, against taxes due from the T. F. Hart Paper Company for the year 1918, which amount the plaintiff seeks to recover in this suit.

The first question presented is whether the Commissioner could legally apply an overpayment of the plaintiff’s taxes for the year 1918 to the' payment of taxes due from the T. F. Hart Paper Company for the said year on the ground that they were affiliated companies.

Section 240 of the Revenue Act of 1918 (40 Stat. 1081), provides:

“In any case in which a tax is assessed upon the basis of a consolidated return, the total tax shall be computed in the first instance as a unit and shall then be assessed upon the respective affiliated corporations in such proportions as may be agreed upon among them, or, in the absence of any such agreement, then on the basis of .the net income properly assignable to each.”

There was no agreement between the plaintiff and the T. F. Hart Paper Company as to the proportions in which the taxes due under the consolidated net income should be assessed against each of them, respectively, and there was no agreement between them which obligated-the plaintiff to pay or assume any of the tax liability of the T. F. Hart Paper Company for the year 1918.

The Commissioner of Internal Revenue in his determination of the tax liability of the plaintiff and the paper company, as affiliated corporations for the year 1918, on both February 11, 1924, when the additional assessment against the two corporations was made, and on November 6, 1926, when final adjustment of such assessments was made, in which it was determined there was an over-assessment against each company, acted in strict compliance with the statute. In each instance he first computed the total tax liability of the two companies as a unit, and then apportioned the tax between them on the basis of the net income properly assignable to each. In the absence of an agreement between plaintiff and the T. F. Hart Paper Company that their taxes as affiliated corporations should be otherwise apportioned, the Commissioner was bound by the plain provisions of the statute to assess the tax against them in the proportion of their respective net incomes to the total net consolidated income as shown by the return. Swift & Co. v. United States, 69‘ Ct. Cl. 171.

The Board of Tax Appeals has consistently held, and we think rightly so, that for the purpose of assessment and collection of taxes the separate identity of each corporation in an affiliated group is recognized.

In American Creosoting Company v. Commissioner, 12 B. T. A. 247, the board said:

“A corporation affiliated with another corporation under section 240 of the Revenue Act of 1918 does not lose its status as a Taxpayer’ and an assessment against such corporation in the absence of an agreement that the taxes due from other affiliated corporations may be collected from it will not authorize the collection from it of taxes due from such other corporations, and a notice to it of a deficiency in taxes due from other affiliated corporations joining with it in filing a consolidated return will not authorize the filing with the board of petitions for the redetermination of deficiencies by other affiliated corporations.”

Nelson T. Hartson, Solicitor of Internal Revenue, in L. O. 1113 — C. B. III — 2—36, said in regard to section 240 of the Revenue Act of 1918:

“This section, however, does not make of the affiliate group a single taxable entity so far as the payment of the tax is concerned; it provides that where the tax is assessed on the basis of a consolidated return, it shall be computed in the first instance as a unit, and shall then be assessed upon' the respective affiliated corporations in such proportions as may be agreed upon among them, or, in the absence of any such agreement, then on the basis of the net income properly assignable to each. The act does not provide that the affiliate group is a single ‘taxpayer’; on the contrary, since each member of the affiliated group is a taxpayer, subject to the tax imposed by the act, it is a ‘taxpayer’ within the meaning of the term as defined in section 1.”

The statute authorizes an overpayment to be credited “against any income, war-profits, or excess-profits tax or installment thereof then due from the taxpayer.” (Italics ours.) This language does not authorize such overpayment to be credited against taxes due from any taxpayer other than the one making the overpayment. The taxpayer making the overpayment in this ease was the plaintiff. The commissioner applied such overpayment to the payment of taxes due from another taxpayer. His action in that respect was erroneous.

The next question to be considered is the plaintiff’s right, in this suit, to recover the amount of the overpayment of its 1918 taxes which was wrongfully credited by the commissioner against taxes due from the T. F. Hart Paper Company.

The defendant contends plaintiff’s right to maintain its suit is barred by the statute of limitations, because of its failure to file a sufficient claim for refund within the time required by law.

Compliance with the statutory requirement with reference to the filing of claims for a refund of taxes is a condition precedent to the right of a taxpayer to maintain a suit for the recovery of such taxes. Feather River Lumber Co. v. United States, 66 Ct. Cl. 54; Hazel M. Davis v. United States, 67 Ct. Cl. 643; Swift & Co. v. United States, 68 Ct. Cl. 97; Kings County Savings Institution v. Blair, 116 U. S. 200, 6 S. Ct. 353, 29 L. Ed. 657; Rock Island Railroad Company v. United States, 254 U. S. 141, 41 S. Ct. 55, 65 L. Ed. 188.

The Revenue Act of 1924, § 281 (26 USCA § 1065 note), provides:

“(b) Except as provided in subdivisions (e) and (e) of this section, (1) no such credit or refund shall be allowed or made after four years from the time the tax was paid, unless before the expiration of such four years a claim. therefor is filed by the taxpayer. * * *
“(e) If the taxpayer has, within five years from the time the return for the taxable year 1917 was due, filed a waiver of his right to have the taxes due for such taxable year determined and assessed within five years after the return was filed, or if he has, on or before June 15, 1924, filed such a waiver in respect of the taxes due for the taxable year 1918, then such credit or refund relating to the taxes for .the year in respect of which the waiver was filed shall be allowed or made if claim therefor is filed either on or before April 1, 1925, or within four years from the time the tax was paid.
“(f) This section shall not (1) bar from allowance a claim for credit or refund filed prior to the enactment of this Act which but for such enactment would have been allowable. * *. *”

The Revenue Act of 1926, § 284 (26 US CA § 1065) provides:

“(g) If the taxpayer has, within five years from the time the return for the taxable year 1917 was due, filed a waiver of his right to have the taxes due for such taxable year determined and assessed within five years after the return was filed, or if he has, on or before June 15,1924, filed such a waiver in respect of the taxes due for the taxable year 1918, then such credit or refund relating to the taxes for the year in respect of which the waiver was filed shall be allowed or made if claim therefor is filed either on or before April 1, 1925, or within four years from the time the tax was paid. * * *
. “(h) Except as provided in subdivision (d) this section shall not (1) bar from allowance a claim for credit or refund filed prior to the enactment of this Act which but for such enactment would have been allowable. * . * * »

Section 1113. (a) Section 3226 of the Revised Statutes (26 USCA § 156), as amended, is re-enacted without change, as follows:

“See. 3226. No suit or proceeding shall be maintained in any court for the recovery of any internal-revenue tax alleged to have been erroneously or illegally assessed or collected, or of any penalty claimed to have been collected without authority, or of any sum alleged to have been excessive or in any manner wrongfully- collected until a claim for refund or credit has been duly filed with the Commissioner of Internal Revenue, according to the provisions of law in that regard, and the regulations of the Secretary of the Treasury established in pursuance thereof; but such suit or proceeding may be maintained, whether or not such tax, penalty, or sum has been paid under protest or duress. No such suit or proceeding shall be begun before the expiration of six months from the date of filing such claim unless the commissioner renders a decision thereon within that time, nor after the expiration of five years from the date of the payment of such tax, penalty, or sum, unless such suit or proceeding is begun within two years after the dis-allowance of the part of such claim to which such suit or proceeding relates. * * * ”

The plaintiff filed three claims for a refund in respect to its 1918 taxes, as follows:

(1) On March 15, 1920; a claim for the refund of $4,149.02, which claim was rejected by the Commissioner on February 11, 1924.

(2) On March 11, 1924, a claim for refund in the amount of $10,000. The claim stated no ground for a refund other than that it was filed to protect the plaintiff’s rights against the running of the statute of limitations. It was rejected by the Commissioner on May 21, 1924.

Neither of these rejected claims was, after its rejection, reopened or reconsidered by the Commissioner, nor were they amended, or sought to be amended, by the filing of any subsequent claim. This suit was begun December 22, 1927, more than five years after the payment of the taxes sought to be recovered, and also more than two years after the rejection of the said claims by the Commissioner, and is barred by the statute of limitations, in- so far as such claims are concerned.

The plaintiff, however, does not rely upon the aforesaid rejected claims for refund as a basis of its suit, but relies upon (3) the joint claim for refund filed by it and the T. F: Hart Paper Company on December 17, 1926. This claim asks for a refund of $20,-000, and reads as follows:

“This claim for refund is filed to protect the rights of the tax-payers under the statute of limitations and is based upon an application for special assessment under sections 327-328, revenue act of 1918, filed with the Commissioner of Internal Revenue in the taxpayers’ brief on May 1, 1924. The case is now pending in the special assessment section. Waivers on file for 1918 expire December 31, 1926. The amount shown on line 6 is estimated and subject to change upon final determination of the tax liability.”

The plaintiff contends this claim is valid, and, by virtue of the waiver filed on October 28, 192b, extending the time in which assessment of the plaintiff’s 1918 taxes might be made until December 31,1926, was filed within the time prescribed by law.

The waiver in question was filed subsequent to the time fixed in the Revenue Acts of 1924 and 1926 in which the filing of a waiver would operate to extend the time for filing claims for refund. Furthermore, the claim for refund relied upon was filed more than a year after the period had elapsed in which such claim was required to be filed.

By virtue of section 278 (c) of the Revenue Acts of 1924 and 1926 (26 USCA § 1060), the waiver herein, although filed after the limitations had run against the assessment of taxes against the plaintiff for the year 1918, revived in the Commissioner authority to make an assessment within the period covered by the waiver. Stange v. United States, 282 U. S. 270, 51 S. Ct. 145, 75 L. Ed. -. Such waiver, however, filed after the date prescribed in section 281 (e) of the Revenue Act of 1924 and section 284 (g) of the Revenue Act of 1926, did not operate to extend the time in which claim for refund could be filed under the provisions of said sections.

In Burnet v. Chicago Railway Equipment Co., 282 U. S. 295, 51 S. Ct. 137, 139; 75 L. Ed. -, the court said:

“Attention is also called to section 281 (e) of the 1924 act, which extended the time for making claims for refund where a waiver of assessment had been filed prior to certain specified dates, and it is said that section 278 (e), as interpreted, would, when read with section 281 (e), result in a discrimination against those taxpayers who had signed a waiver after the statute had run. The argument is that such taxpayers would still be liable for the tax, but that no corresponding extension of the limitation on claims for refund would be given. The dates specified in section 281 (e), however, do not coincide with the periods of limitation on assessment and collection. The purpose of that section was merely to extend the time for filing claims for refund in particular cases of taxes for the years 1917-1919. There is no necessary relation between it and section 278 (c).”

Neither waiver nor claim for refund was filed within the time required by law, and the plaintiff’s right to bring suit to recover the amount of the overpayment of its taxes for the year 1918 w;as barred by the statute of limitations when the petition herein was filed, December 23, 1927. The Commissioner had no legal authority to allow the refund, and no right to interest on the overpayment ever attached.

Plaintiff’s petition is therefore dismissed. It is so ordered.

BOOTH, Chief Justice, and LITTLE-TON and GREEN, Judges, concur.

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


author: GREEN, Judge.

text:
    WAUD et al. v. UNITED STATES.
    K-502.
    Court of Claims.
    April 6, 1931.

      H. Stanley Hinrichs, of Washington, D. C. (Frank S. Bright, of Washington, D. C., Raymond M. Ashcraft and Ashcraft & Ash-craft, all of Chicago, Ill., and Bright, Thompson, Hinrichs & Warren, of Washington, D. C., on the brief), for plaintiffs.
    J. W. Sheppard, of Washington, D. C., and Charles B. Rugg, Asst. Atty. Gen. (Percia E. Miller, of Washington, D. C., on the brief), for the United States.
    Before BOOTH, Chief Justice, and GREEN, WHALEY, WILLIAMS, and LITTLETON, Judges.
   GREEN, Judge.

Plaintiffs bring this suit as executors of the estate of George F. Griffin, deceased, to recover the sum of $5,242.28, with interest, paid as federal income tax for the period of May 4, 1920, to December 31, 1920. The facts have been stipulated, and the issue in the ease is whether certain sums paid to the executors as income from a trust created by the decedent’s father were taxable as income against decedent’s estate.

The findings of fact show that the decedent, in his lifetime, under the will of his father and an agreement with other heirs, received one-half of the net income of the trust estate created under his father’s will, until his death, and thereafter Ms estate received this income until the expiration of a certain period. The Commissioner determined the value of the right to receive tMs income from the time of the death of the decedent, George F. Griffin, to the end of the period for which it was to be received, included this value as a part of the gross estate of the decedent, and assessed the estate tax accordingly. When the plaintiffs filed a federal income tax return, as executors, for the period of May 4,1920, to December 31,1920, they did not include this income from the trust as a part of the income of the estate, but the Commissioner, upon an audit of the return, did so include it, and assessed a deficiency by reason thereof. The plaintiffs paid this additional assessment with interest, and duly filed an application for refund on the ground that the income so received was not taxable as income to the estate of which they were executors. The application for refund having been rejected by the Commissioner, tMs suit was brought.

The contention of the plaintiffs is, in brief, that the property which was so taxed by the Commissioner of Internal Revenue became, by virtue of the bequest of Ms father, and was, a part of the corpus of the estate of George F. Griffin, deceased; that it had been taxed as such under the estate tax provision; that, being a part of the corpus or principal of the estate, it was not income within the meaning of the Revenue Act of 1918; and that the aetion of the Commissioner resulted in double taxation, which Congress did not intend.

We are unable to agree that the property taxed became a part of the corpus of the • estate by virtue of the bequest except in the sense that all receipts by an estate eventually become a part thereof. Nor do we think there was any double taxation. In this case, the estate tax and the income tax were levied upon two different things and under two different principles. The estate tax was levied as a transfer tax, and in this case is measured by the value of the right to receive certain property, while the income tax was levied and assessed upon the gain derived from other property. The federal estate tax is an indirect tax and not a direct fax upon property. It is merely a tax upon the privilege of transferring property. Whether the same transaction may give rise to the levy and assessment of another tax is not at all material, and does not at all affect the question of whether an income tax may be collected under the circumstances of the ease at bar.

It is quite true that a gift or bequest of capital assets, even if payable in installments, or consisting of interest due at a future date, or other items of that nature, does not constitute income. The cases cited by counsel for plaintiffs are mostly of this nature, and are therefore not applicable herein. In the instant ease, the bequest was of the right to receive this income, and, when the income was paid, it still remained income. The precise question involved in this case was determined in Irwin v. Gavit, 268 U. S. 161, 45 S. Ct. 475, 69 L. Ed. 897, wherein it is held in effect that the beneficiary for life, or for a term of years, of the income of a trust estate created by will, is taxable on that income as sueh. Practically the same objections were raised therein to the taxation of the income from the trust as income to the estate as are made in the case now being considered, and these objections were held to be unfounded.

The Board of Tax Appeals in the ease of Ernest P. Waud et al., Executors, 6 B. T. A. 871, has held that the income here involved was subject to income tax upon the authority of Irwin v. Gavit, supra; and also held in the case of Bull, Executor, v. Commissioner of Internal Revenue, 7 B. T. A. 993, that a tax in one form may be imposed on the present value of the right of expectancy and a tax in another form imposed upon the income when derived. In the ease of Widener v. Commissioner of Internal Revenue, 8 B. T. A. 651, the Board of Tax Appeals sustained the position taken by the government in the case now before the court. We concur in the reasoning of the Board of Tax Appeals in. the eases cited above.

We have examined with care the other eases cited by plaintiffs in support of their position, but find that they are based on facts so much different from those of the ease at bar that, in our opinion, they have no bearing thereon.

It follows that the petition of plaintiffs must be dismissed. It is so ordered.


author: WHALEY, Judge.

text:
    McCANN et al. v. UNITED STATES.
    No. K-64.
    Court of Claims.
    April 6, 1931.

      A. Donald MacKinnon, of New York City (Murray, Aldrich & Webb, of New York City, on the brief), for plaintiffs.
    George H. Foster, 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.

This suit is brought by the administrators of the estate of John William Cooke, who inherited an undivided one-eighth interest in certain real estate in the city of New York under the will of William Washington Cole, who died March 19, 1915, to recover an assessment of additional income taxes based on the increased value of the property at the time of sale over the appraised value placed on it at the time of the death of Cole. The plaintiffs contend the value of the property in March, 1913, should be compared with the sale price received in 1929 which would show a loss sustained instead of a gain derived. But Cooke had no interest in the property in 1913. The only interest he acquired was under the will of Cole, and that interest vested immediately upon the death of Cole. The value of his interest was an undivided one-eighth of the total value of the property at that time. The appraisal of the property by the State authorities for inheritance-tax purposes placed a value of $800,999 on the property at the death of Cole. Cooke’s interest was one-eighth of that amount, or $100,000. Cooke died 18 days after the devise had vested. The plaintiffs are the ancillary administrators de bonis non of his estate and as his representatives are entitled to receive his interest. in the estate of Cole. No immediate distribution of this property was made by the executor of Cole. It was held by the executor until 1920, when it was sold for $978,001.58, or a net gain of $178,001.58 over the appraisal made at the death of Cole. The mortgages taken in part payment were not disposed of until 1923, and then distribution was made by the executor of Cole of the proceeds of sale. The estate of Cooke received one-eighth of the $978,001.58, or $122,259, an increase of $22,259 over the value of the property when acquired by Cooke upon the death of Cole. The Commissioner of Internal Revenue assessed a tax on this increase as income to the estate of Cooke. The taxable year is 1920 and the revenue act of 1918 is applicable. The corpus of the devise is exempt from taxation, but the income from such property is subject to tax. Section 213 (b) (3), 40 Stat. 1057,1065. The regulations specifically provide that where there is no appraised value for federal estate tax purposes “its value as appraised in the State court for the purpose of State inheritance taxes should be deemed to be its fair market value when acquired.” Article 1562, Reg. 45.

Immediately upon the death of the owner, title to his real estate passes to his heirs or devisees. The value at the time of Cole’s death is the basis for the ascertainment of gain, or loss on the sale of real estate. That is the time of acquisition. Under the will of Cole, his executor had the power of sale of the real estate for distribution, but the title of Cooke vested at the time of death of Cole and its value as of that time is the basis on which the tax should be computed. Brewster v. Gage, 289 U. S. 327, 59 S. Ct. 115, 74 L. Ed. 457.

The plaintiffs contend the Elmhirst Case, 38 F.(2d) 915, 69 Ct. Cl. 295, and the McKinney Case, 62 Ct. Cl. 189, decided by'this court sustain their position. But there is no merit in this contention. In the Elmhirst Case, supra, it was held that the cost to the testator of property purchased after March 1, 1913, was the basis of computing gain or loss when sold by his estate and the ownership by the testator during his lifetime and his estate afterwards was an entity. In the McKinney Case, supra, the property had been purchased prior to March 1, 1913, and sold by the executors. This court held that the cost to the testator was the, basis of computing the gain derived or the loss sustained from the sale. It was the difference between the original investment and the sale price and not the market value of the property on the date of the death of the testator. In this case the court treated the holdings of McKinney during his lifetime and his estate as an entity. These eases are entirely different from the ease under consideration. Neither Cooke nor his estate had any interest in the property before March 19,1915, and no purchase was made by Cooke. He acquired his interest under the will of Cole in 1915. The estate of Cole is in no way involved in the question before us and only the estate of Cooke is under consideration. There is a clear demarcation between the McKinney and Elmhirst Cases, supra, and the ease at bar. The Commissioner was correct in assessing the tax and the complaint should be dismissed. It is so ordered.


author: PER CURIAM.

text:
    MT. VERNON CAR MFG. CO. v. UNITED STATES.
    No. F—342.
    Court of Claims.
    April 6, 1931.

      Russell A. McNair, of Detroit, Mich. (Goodenough, Voorhies, Long & Ryan, of Detroit, Mich., on the brief), for plaintiff.
    Ralph C. Williamson, of Washington, D. C., and Charles B. Rugg, Asst. Atty. Gen., for the United States.
   PER CURIAM.

Tbe plaintiff presented tbe identical question involved in this ease to tbe Board of Tax Appeals in contesting an alleged deficiency tax for tbe calendar year 1921. Tbe Board of Tax Appeals in a written opinion announced October 5, 1928 (13 B. T. A. 810), granted tbe plaintiff’s contentions and entered judgment accordingly. Thereafter tbe Commissioner of Internal Revenue acquiesced in the holdings of tbe Board of Tax Appeals. No reason has been advanced in this case why we should disturb the opinion of the Board of Tax Appeals, and judgment for tbe plaintiff is entered accordingly.


text:
    W. M. DUTTON & SONS CO. v. UNITED STATES.
    No. H-397.
    Court of Claims.
    April 6, 1931.

      F. W. McReynolds, of Washington, D. C., for plaintiff.
    R. 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.
   WILLIAMS, Judge.

Plaintiff sues for recovery of excise taxes' assessed on sales of air pumps during the period from March 1, 1919, to February 28, 1926, under section 900 of the Revenue Act of February 24, 1919, 40 Stat. 1122 (and similar provisions of the acts of 1921 and 1924).

Section 900 (3) of the Internal Revenue Acts of 1918 (40 Stat. 1122) and 1921 (42 Stat. 291), and section 600 (3) of the act of 1924 (26 USCA § 881 note), provide for excise taxes on “tires, inner tubes, parts, or accessories” of automobiles or motor cycles “sold to any person other than a manufacturer or producer” of automobiles or motor cycles.

The question as to what constitutes “parts” and “accessories” in automobiles within the meaning of the Revenue Acts of 1918, 1921, and 1924 has been passed upon by this court in numerous cases. In Atwater Kent Manufacturing Co. v. United States, 62 Ct. Cl. 419, 425, the court said: “Where the articles, as those we are concerned with, are applicable for use in different kinds of machines or appliances and are just as ap-' plieable to the one use as to the other they are not distinctively parts of automobiles so as to be taxable under these statutes.”

The rule announced in the Atwater Kent Mfg. Co. Case, supra, is followed in Cole Storage Battery Co. v. United States, 65 Ct. Cl. 164; Walker Manufacturing Co. v. United States, 65 Ct. Cl. 394; Fairmount Tool & Forging Co. v. United States, 42 F.(2d) 591, 70 Ct. Cl. 425, and other eases.

In Universal Battery Co. v. United States, 281 U. S. 580, 583, 50 S. Ct. 422, 423, 74 L. E. 1051, the court said:

“The administrative regulations issued under section 900 uniformly have construed the term 'part’ in that section as meaning any article designed or manufactured for the special purpose of being used as, or to replace, a component part of such vehicle, and which by reason of some characteristic is not such a commercial article as ordinarily would be sold for general use, but is primarily adapted for use as a component part of such vehicle. The regulations also have construed the term 'accessory’ as meaning any article designed to be used in connection with such vehicle to add to its utility or ornamentation and which is primarily adapted for such use, whether or not essential to the operation of the vehicle.
“This construction of those terms has been adhered to in the Internal Revenue Bureau for about ten years, and it ought not to be disturbed now unless it be plainly wrong. We think it is not so, but is an admissible construction. Certainly it would be unreasonable to hold that articles equally adapted to a variety of uses and commonly put to such uses, one of which is use in motor vehicles, must be classified as parts or accessories for such vehicles. And it would be also unreasonable to hold that articles can be so classified only where they are adapted solely for use in motor vehicles and are exclusively so used. Magone v. Wiederer, 159 U. S. 555, 559, 16 S. Ct. 122, 40 L. Ed. 258. We think the view taken in the administrative regulations is reasonable and should be upheld. It is that articles primarily adapted for use in motor vehicles are to be regarded as parts or accessories of such vehicles, even though there has been some other use of the articles for which they are not so well adapted.”

The air pumps involved were sold by the plaintiff to jobbers only, who in turn sold them to retailers through whom they were distributed to the ultimate consumer. While they could be and were used in connection with automobiles, they were not primarily adapted for that purpose, and in fact were used for a large variety of purposes such as inflating all kinds of pneumatic tires used on bicycles, motorcycles, airplanes, and sulkies; furnishing air pressure in gasoline and kerosene heating and cooking stoves, grates, and lighting systems; spraying equipment, chemical sprays for trees and paint-spraying machines; testing of fuses and switch boxes in electrical work: in gasoline torches for brazing; in draught-beverage containers; in outdoor athletic equipment, such as footballs, basket balls, air boats, air beds, air pillows, chest protectors, mask protectors, metal air tanks, and air containers for vulcanizing.

Under the uniform decisions of this court, and the decision of the Supreme Court in Universal Battery Co. Case, supra, the articles in question being equally adapted to a variety of uses, and commonly put to such uses, one of which is use in motor vehicles, cannot be considered as primarily adapted for use in motor vehicles. The plaintiff is therefore entitled to recover the amount of taxes paid by it since October 11, 1922, for which claim for refund was made. Taxes paid prior to that date are barred by the statute of limitations. The plaintiff is awarded judgment in the sum of $38,658.25 with interest. It is so ordered.


author: LITTLETON, Judge.

text:
    TAYLOR-LOCKWOOD CO. v. UNITED STATES.
    No. K-496.
    Court of Claims.
    April 6, 1931.
    For former opinion, see 45 F.(2d) 284.
    Theodore B. Benson, of Washington, D. C., for plaintiff.
    Lisle A. Smith, of Washington, D. C., and Charles B. Rugg, Asst. Atty. Gen., for the United States.
    Before BOOTH, Chief Justice, and LITTLETON, WHALEY, WILLIAMS, and GREEN, Judges.
   LITTLETON, Judge.

Plaintiff moves for a new trial on the grounds, first, that its claim for refund filed February 19,1923, was sufficient in law, and, secondly, that the court erred in holding that the Revenue Act of October 3,1917 (40 Stat. 300) did not require the plaintiff to file a second return after its passage for the fiscal year ending June 30,1917. It is insisted that the act did require a second return and the rulings of the Commissioner fixed March 1, 1918, as the- date on which the second returns of taxpayers in the situation of the plaintiff were due. It is therefore contended that the refund claim was filed in time.

The first ground of plaintiff’s motion for a new trial is without merit. The claim for refund which was filed related entirely to special assessment, and, as pointed out in the opinion of the court, the language thereof was not sufficient to constitute a claim for refund on any other ground. In this view of the matter, it is immaterial whether the Revenue Act of October 3, 1917, and the regulations required taxpayers in the situation of the plaintiff to file a second return on or before March 1,1918, for the fiscal year ending June 30, 1917, after the passage of the Revenue Act of October 3, 1917. This plaintiff did not file a second return, and the Commissioner did not require it to do so; neither did the Commissioner assert any penalty against the plaintiff. The ease of Updike et al. v. United States (C. C. A.) 8 F. (2d) 913, is not in point. That case related to a corporation which was dissolved prior to October 3, 1917, and article 61, Reg. 33, specifically provides that in such ease a second return under the act of October 3, 1917, should be made notwithstanding returns under prior acts had been made. The case of Beam v. Hamilton (C. C. A.) 289 F. 9, related to penalties for failure to file an exeess profits tax return for the calendar year 1917, and the decisions in McKnight, 3 B. T. A. 1060, and Monis, 9 B. T. A. 1273, are also not in point. Treasury Decision No. 2650, promulgated February 9, 1918, extending the time for filing returns under the act of October 3, 1917, does not apply to this case for the reason that that Treasury decision extended the time for filing returns to March 1, 1918, only with respect to returns due subsequent to October 16, 1917, and on or before March 1, 1918. The plaintiff’s return was due and was made August 30, 1917. I. T. 1951, C. B. III-1, page 362, related to a partnership and was based upon the authority of Treasury Decision No. 2650.

The motion for a new trial is overruled.


author: MARTIN, Chief Justice.

text:
    READING BROADCASTING CO. v. FEDERAL RADIO COMMISSION (Journal Co., Intervener).
    No. 5254.
    Court of Appeals of District of Columbia.
    Argued Feb. 4, 1931.
    Decided March 2, 1931.
    George O. Sutton, of Washington, D. C., for appellant.
    Thad H. Brown, Elmer W. Pratt, Elisha Hanson, and D. M. Patrick, all of Washington, D. C., for appellee.
    Before MARTIN, Chief Justice, and ROBB and VAN ORSDEL, Associate Justices.
   MARTIN, Chief Justice.

Am appeal from a decision of the Federal Radio Commission refusing an application of appellant for an increase of power and a change of frequency for the operation of its broadcasting station WRAW located at Reading, Pa.

It appears that station WRAW was first licensed as a broadcasting station in the year 1923. On June 15, 1927, it received a renewal license from the Federal Radio Commission permitting it to operate on a frequency of 1260 kilocycles with 100 watts power. This frequency was afterwards changed to 1310 kilocycles, the power remaining the same. The station was required to share time with station WGAL, located at Lancaster, Pa., operating upon the same frequency with 15 watts power.

On January 25, 1930, the appellant filed an application with the Commission for a permit to install a new transmitter, and operate upon a frequency of 620 kilocycles with a power of 500 watts, and with unlimited time of operation. This application accordingly sought a change of frequency from 1310 kilocycles to 620 kilocycles, a change of power from 100 watts to 500 watts, and a right to operate without time restriction instead of dividing its time with another broadcasting station. Such a change if allowed would advance the station from a local to a regional station.

A hearing was duly held upon the application, at which broadcasting station WTMJ of Milwaukee, Wisconsin, was allowed to intervene. The Commission thereupon held that the public interest, convenience, or necessity would not be served by granting the application. It was accordingly refused, and the present appeal was taken under section 16 of the Radio Act of 1927, 44 Stat. 1162, 1169 (47 USCA § 96).

The Board found upon the evidence that station WRAW as now operating is doing a good local broadcasting service, although, owing to peculiar geographical conditions, its service area is somewhat restricted; but that its service in Reading and the neighborhood could be increased by approximately 600 per cent, by an improvement in the transmission of the present station, producing 100 per cent, modulation without changing its power or frequency. The Board found moreover that the service area of the station is well served by station WJZ located at New York City, and other high-powered radio stations.

The Board also found that, if appellant’s station should be permitted to operate upon a frequency of 620 kilocycles, with power output of 500' watts, as proposed in the application, it would result in heterodyne interference with station WLBZ located at Bangor, Me., about 470 miles from Reading, operating upon a 620-kiloeyele channel with 500 watts power, and likewise with station WTMJ, located at Milwaukee, Wis., about 675 miles from Reading, operating upon a 620-kilocycle frequency, with power of 1 kilowatt at nighttime and 2% kilowatts in the' daytime, and would thereby reduce the service areas of those stations; also that it would interfere with the service of stations WEAN and WIP, located at the city of Philadelphia, about 50 miles distant from Reading, one operating upon a 620-kiloeyele channel, the other upon a 610-kiloeycle channel, by producing cross-talk on both of these channels.

We have examined the evidence contained in the record, and we think it sufficiently sustains these findings. It consists in part of the testimony of competent engineers which is entitled to weight, and there is but little contradiction of it in the record. Under the rule expressed in Technical Radio Laboratory v. Federal Radio Commission, 59 App. D. C. 125, 36 F.(2d) 111, 66 A. L. R. 1355, 'the findings of the Board should in such ease be sustained.

It is contended by appellant that the Second Zone, in which the state of Pennsylvania is situate, is under-quota in radio facilities as compared with the other zones established by section 2 of the Radio Act of 1927 (47 USCA § 82), supra, and section 9, second paragraph, as amended by section 5 of the Act of March 28, 1928, 45 Stat. 373 (47 USCA § 89), and that the state of Pennsylvania is similarly under-quota as compared with the other states of the Seeond Zone. Appellant insists that the Board should not continue such a situation by denying its application, in the interest of stations located in the over-quota states or zones. In answer to this contention, the Commission states that, if appellant’s application should be granted, “the interference which would result on- the‘620-kiloeyele and the 610-kiloeyele channels would be more detrimental to the listening public of Pennsylvania than the existing lack of this State’s full quota of regional assignments.” The Commission also states that it “took into account the service of the various stations operating on 620-kiloeycles and adjacent channels and determined that public interest, convenience, or necessity would not be served by permitting the operation of an additional station on 620 kilocycles at Reading, Pa., if such station would cause either heterodyne or crosstalk interference in the communities served by the former stations.”

We concur in these views, for it would not be consistent with the legislative policy to equalize the comparative broadcasting facilities of the various states or zones by unnecessarily injuring stations already established which are rendering valuable service to their natural service areas. The paramount consideration after all is the public interest, convenience, and necessity, and we are convinced upon a review of the record that the Board’s conclusions are in line therewith.

The decision is therefore affirmed, at the cost of appellant.


text:
    HENRY v. BURNET, Commissioner of Internal Revenue.
    No. 4801.
    Court of Appeals of District of Columbia.
    Argued Feb. 5, 1931.
    Decided March 2, 1931.
    Motion for Rehearing Denied March 21, 1931.

      Camden R. McAtee, of Washington, D. C., for appellant.
    Mabel W. Willebrandt, Asst. Atty. Gen. and C. M. Charest, L. W. Scott, Sewall Key, Joe S. Franklin, and John G. Remey, all of Washington, D. C., for appellee.
    Before MARTIN, Chief Justice, and ROBB and VAN ORSDEL, Associate Justices.
   MARTIN, Chief Justice.

This is an appeal from an order of the Board of Tax Appeals involving the individual income tax return of appellant for the year 1919. The controversy relates to two deductions claimed by appellant: (1) Because of appellant’s proportionate share of certain losses sustained in that year by a partnership in which appellant was a partner; and (2) because of the enforced payment by appellant of the proportionate share of such losses owing by his partner.

The issue is governed by the Revenue Act of 1918, 40 Stat. 1057,1066,1070,1074, parts of which read as follows:

“See. 214. (a) That in computing net income there. shall be allowed as deductions : * * *
“(4) Losses sustained during the taxable year and not compensated for by insurance or otherwise, if incurred in trade or business. * * *
“(7) Debts ascertained to be worthless and charged off within the taxable year.”
“See. 218. (a) That individuals carrying on business in partnership shall be liable for income tax only in their individual capacity. There shall be included in computing the net income of each partner his distributive share, whether distributed or not, of the net income of the partnership for the taxable year. * * *
“(d) The net income of the partnership shall be computed in the same manner and on the same basis as provided in section 212. • '* * ”
“See. 224. That every partnership shall make a return for each taxable year, stating specifically the items of its gross income and the deductions allowed by this title, and shall include in the return the names and addresses of the individuals who would be entitled to share in the net ineome if distributed and the amount of the distributive share of each individual. * * ■* ”

It appears that the partnership in question was composed of appellant and one O. W. Muller, and conducted a stock brokerage business in the year 1919 in the city of New York. A branch of the firm located in Newark is not involved in this ease. The New York firm prospered during the first three months of 1919; but immediately after-wards it sustained severe reverses, and by November 14 of that year it was compelled to discontinue business. Appellant was the financial backer of the firm, and, when it suspended, he was obliged to meet, not only his own proportion of the firm’s obligations, but also those which should have been borne by the partner Muller.

In March, 1920, an information return for 1919 was filed by the partnership, as required by section 224, supra: The appellant filed his individual tax return for 1919 at the same time, and claimed a deduction therein of $35,950.25 because of his proportionate share of a partnership loss of $63,038.20 sustained in carrying four certain margined accounts for its customer George C. Smith. This item similarly appeared in the information return of the partnership. Appellant claimed that the loss represented a debt ascertained to be worthless and charged off within the taxable year 1919, and accordingly responded to the deduction provided for by section 214(a) (7), supra.

The Commissioner of Internal Revenue held that, in fact, the debt in question was not ascertained to be worthless nor charged off in the taxable year 1919, and accordingly disallowed the deduction. Appellant appealed that issue to the Board of Tax Appeals. While the .appeal was pending, appellant by motion amended his petition by adding a claim of $9,222, as Muller’s share of certain conceded bad debts lost by the firm, which should have been paid by him, but whieh appellant was compelled to pay for him.

The Board of Tax Appeals decided against appellant upon his claim, including the amendment, and an appeal to this court was then taken.

We agree with the finding and decision of .the Board.

The record discloses that early in November, 1919, the Smith account showed a net aggregate debit balance greatly in excess of the value of the collateral securities held by the partnership therefor. These collaterals had been first deposited as security for three of the four accounts, but were considered by the parties and subsequently treated as security for all of them. On November 8 or 9, 1919, the firm notified Smith that he must put up additional margin or that his account would be closed out. Smith promised that he would try to protect the account, but he failed to do so, and was prohibited from, further trading after November 17, 1919. The debit balances of the accounts were ruled and brought down to January 1, 1920, and both interest and carrying charges were afterwards charged for that month. The collaterals securing the account, composed in part of Liberty bonds and in part of stocks, were closed out partly in February and partly in March, 1920, and on March 16 the final debit balances of the accounts were charged off, and the partnership was dissolved. The evidence concerning Smith’s financial condition during November and December, 1919, is not clear. .It was a period of panic in the stock markets, and such a situation would naturally be uncertain. We think that these facts fail to sustain appellant’s claim that the Smith debt was ascertained to be worthless and was charged off in 1919. Seiberling v. Commissioner (C. C. A.) 38 F.(2d) 810; Stranahan v. Commissioner (C. C. A.) 42 F.(2d) 720.

It is contended by appellant that the action taken by the firm in November, 1919, forbidding further trading in the Smith account unless additional collateral was furnished, is proof that the debit balance then owing by Smith was ascertained to be worthless and was thereby charged off. The Board held otherwise, and we think correctly, for the firm’s action was manifestly intended as a temporary measure and not as a final settlement of the account. Moreover, the amount of the actual net indebtedness of Smith to the firm was not ascertained until the collateral was sold and the proceeds applied thereon. The firm did- not assume to own the collateral, crediting Smith with its market value, but sold it and credited the proceeds in the account.

It is our opinion also that the evidence fails to sustain appellant’s claim for a deduction based upon his payment of Muller’s share of certain conceded debts of the firm, which appellant was compelled to pay for him. The Board found that a debtor-creditor relation arose between appellant and Muller because of this payment, but there seems to be no reason to hold that this relation existed prior to the dissolution of the partnership in March, 1920. Therefore the debt in question was not in existence as such in the year 1919. Moreover, the Board found the evidence insufficient to establish that the debt, even if it existed in 1919, was worthless at that time, and we do not disagree with this conclusion.

The decision of the Board is affirmed.