Court Opinion

ID: 4497016
Source: CourtListenerOpinion
Date Created: 2020-01-23 18:15:12.420624+00
Date Added: 2024-06-11T08:00:08.945016
License: Public Domain

Black,
dissenting: I agree with most of what is said in Member Kern’s dissent, but I wish to add some words of my own. I do not think the majority opinion gives sufficient consideration to the fact that what the Supreme Court was deciding in Willcuts v. Bunn, 282 U. S. 216, was not an express congressional exemption but an implied constitutional immunity. The two subjects are very different and different rules of construction apply.
The applicable revenue act which was before the Supreme Court in Willcuts v. Bunn was the Revenue Act of 1924. Section 213 (b) (4) of that act reads in part as follows:
(b) Tbe term “gross income” does not include the following items which shall be exempt from taxation under this title: * * *
(4) Interest upon (A) the obligations of a State, Territory or any political subdivision thereof or the District of Columbia: * * *
Manifestly profits derived from the purchase and sale of state and municipal bonds was not interest upon such bonds. Therefore, plainly Congress had not specifically exempted such gains from taxation under section 213 (b) (4). The taxpayer in that case was not so contending, but was contending that such profits and gains *1118were constitutionally immune from taxation. This contention the Supreme Court denied upon the ground that the language contained in section 213 (a) of the Eevenue Act of 1924 plainly included gains from the purchase and sale of capital assets and was broad enough to include profits from the purchase and sale of state and municipal bonds and that a tax on such gains was not a tax on either the principal or the interest of such bonds and, therefore, there was no constitutional immunity.
In the instant case the specific exemption contained in the Eevenue Acts of 1932 and 1934 exempting interest upon bonds issued under the provisions of the Federal Farm Loan Act is exactly the same as the provision we have quoted above from the 1924 Eevenue Act exempting interest from municipal and state bonds. So if that were all the specific exemption there is, I would certainly say that Willcuts v. Bunn controls and petitioners should lose. But that is not all.
There is still to be considered section 26 of the Federal Farm Loan Act which reads in part as follows: “Section 26. * * * First mortgages executed to Federal Land Banks or to joint stock land banks and farm loan bonds issued under the provisions of this Act, shall be deemed and held to be instrumentalities of the Government of the United States and as such they and the income derived therefrom shall be exempt from Federal, municipal and local taxation.” Section 26 of the Federal Farm Loan Act, although not specifically carried in the Eevenue Acts of 1932 and 1934, applicable to the taxable years here in question, was not repealed by any provision in said acts and was in full force and effect in both taxable years. It was not materially altered until section 817 of the Eev-enue Act of 1938 altered the exemption in a very material manner, but then only as to future bond issues. Therefore, during the two taxable years under consideration we have to construe an exemption which was much broader than a mere interest exemption. It was an exemption which specifically exempted from Federal taxation the “income derived” from Federal farm loan bonds.
It should require no citation of authorities to support the rule that, in construing this language of Congress, Congress will be deemed to have used the words in their plain, ordinarily understood meaning. Can it be plausibly argued that at the time Congress wrote these words into section 26 of the Federal Farm Loan Act it was not commonly and ordinarily understood that the expression “income derived from property” included gains and profits derived from the purchase and sale of property as well as such things as interest and rents derived from the property.
*1119I don’t tbinlr it can plausibly be so argued. I will concede that if Congress were now writing such a statute as section 26 of the .Federal Farm Loan Act, and used the same language, the construction contended for by respondent would be entirely reasonable in the light of the Supreme Court’s decision in Willcuts v. Bunn, but we are construing a statute written in 1916 and not one written in 1939, and it is what Congress meant in 1916 that should control us in the instant case.
The case of Hubert De Stuers, 26 B. T. A. 201, is also cited and relied upon in the majority opinion. In my judgment, as Member Kern points out in his dissent, that case has no bearing on the question we have here to decide. In that case we had before us for construction section 3 of the Liberty Loan Act as amended exempting United States bonds while beneficially owned by nonresident aliens, “both as to principal and interest, from any and all taxation, etc.” We held that a tax derived from the purchase and sale of such bonds was not a tax on either the principal or the interest upon such bonds, following Willcuts v. Bunn, supra.
If the exempting statute which we have to construe in the instant case, section 26 of the Farm Loan Act, is no broader than the one present in the De Stuers case, then the Government should undoubtedly win because a tax on the gain derived from the purchase and sale of Federal farm loan bonds is not a tax on the principal of such bonds nor is it a tax upon the interest of such bonds.
But for reasons I have already endeavored to point out, the exemption which we have here to construe is considerably broader than the one which we had in the De Stuers case because an income tax on the profits arising from the purchase and sale of such bonds is a tax on the “income derived therefrom” as that expression was intended to mean when used by Congress in section 26 of the Federal Farm Loan Act. Interest is, of course, income, but it is only one kind of income. As used in the revenue act and the Federal Farm Loan Act, it is the premium paid for the use of money. Income, on the other hand, as used in the same acts, is a generic term, which has a meaning considerably broader than interest and certainly broad enough at the time Congress wrote the act to include gains and profits derived from the purchase and sale of capital assets, including farm loan bonds.
For the reason that I think the majority opinion construes section 26 of the Federal Farm Loan Act more narrowly than Congress intended, I respectfully record my dissent.
Leech and HakroN agree with this dissent.