Opinion ID: 1473730
Heading Depth: 1
Heading Rank: 4

Heading: Capital Assets.

Text: The Tax Court declined to find, as urged by petitioner, that its good will passed to Garrett & Company, Inc. In reaching this conclusion, the Tax Court gave effect to the statutory provision which, in defining capital assets, excludes stock in trade of the taxpayer or other property of a kind which would properly be included in the inventory of the taxpayer if on hand at the close of the taxable year, or property held by the taxpayer primarily for sale to customers in the ordinary course of its trade or business, or property, used in the trade or business, of a character which is subject to the allowance for depreciation provided in section 23 ( l ). 26 U.S.C.A. § 117(a) (1). The applicable Treasury Regulation provided: Gain or loss from a sale of good will results only when the business, or a part of it, to which the good will attaches is sold. Treasury Regulation 111, Section 29.22(a)10. And see Section 29.117-1. The petitioner seems to think that on the facts in the case and on the application of the doctrine declared in such cases as Pfleghar Hardware Specialty Co. v. Blair, 2 Cir., 1929, 30 F.2d 614, and White & Wells Co. v. Commissioner, 2 Cir., 1931, 50 F.2d 120, it was entitled to a favorable finding upon the issue presented. We cannot agree. To the contrary, we are of the view that the facts in this case do not bring it within the doctrine declared in those cases. There, the Courts found that the clear intention was to transfer the operating properties for the manufacture of hardware accessories for carriages and automobiles in one case and paper boxes in the other, as going concerns. The rationale of the ruling is given in the following language of Swan, Circuit Judge, in Pfleghar Hardware Specialty Co. v. Blair, supra: Good will has no existence except in connection with a going business; it cannot be separated from the going business to which it is incident. A seller who disposes of his manufacturing plant as a going concern necessarily parts with all those advantages which are inherent in conducting an established business at that plant; in other words, parts with his good will. Pfleghar Hardware Specialty Co. v. Blair, 2 Cir., 1929, 30 F.2d 614, 616. More, in White & Wells Co. v. Commissioner, supra, it was not questioned that there had been a sale of the paperbox factory as a going concern. The sole matter in dispute was  the amount of profit realized . And the Court of Appeals, in reversing the Board of Tax Appeals, merely determined that it had adopted an erroneous method of computing the amount of the tax. Petitioner here complains that the Tax Court in this case based its refusal to apply the rulings of the two cases just cited to the facts in this case upon the single ground that there had not been a sale of the plant in the present case. We do not so read the findings and opinion of the Tax Court. On the contrary, a study of them, in their entirety, discloses the fact that the Tax Court was convinced that there had been no intention to transfer and no actual transfer of good will. The fact that the Tax Court, in arriving at a correct determination of the facts, may have assigned a wrong legal reason is immaterial. The validity of the finding is to be judged by the facts and inferences from them which give support to it in the record. And here, the Tax Court was right in concluding that, unlike what occurred in the cases on which the petitioner relies, there was no intention to transfer the good will of the wine business of the petitioner, and that, in fact, he parted with nothing more than the inventoried wine, cooperage, labels.