Court Opinion

ID: 9636714
Source: CourtListenerOpinion
Date Created: 2023-08-22 14:40:31.07107+00
Date Added: 2024-06-11T18:09:48.429763
License: Public Domain

L. HAND, Circuit Judge
(dissenting).
It is possible that, if subdivision 14 had not been added to section 103, 26 U. S.C.A. § 103(14) and note, we ought to have read subdivision 6, 26 U.S.C.A. § 103(6) note, to comprise companies all of whose profits go to one of the purposes therein described, although Trinidad v. Sagrada Orden, 263 U.S. 578, 44 S.Ct. 204, 68 L.Ed. 458, gives no color to such an interpretation; rather the reverse, for the business income of the taxpayer was there very trifling. It might nevertheless have been possible to say that as subdivision 6 defined exemption by function, and the other subdivisions by the common names of the corporations, a difference of intent was manifest, though I should not have thought so, because the description by function related, I think, to the corporate activities. But subdivision 14 precludes any such reading. Obviously, as to all other subdivisions it meant that a subsidiary should not be exempted merely because its parent was exempt; that was indeed one condition, but the subsidiary must also confine its activities to the mere receipt of income. We are now holding that the subsidiary" of a company exempt under subdivision 6 need not fulfill this second condition, but is ex proprio vigore as much within subdivision 6 as its parent. It might be desirable to prefer corporations within subdivision 6 in that way, but I cannot find any warrant for doing so. The purpose of subdivision 14 was to tax all business income, however destined, unless the company was really not in business at all. To some extent it is indeed true that that purpose can be evaded; an exempt coi-poration may go into business not strictly germain to its charter powers without losing its exemption. But there are several checks upon this possibility; first, the business must be small, if the corporation is to retain its classification under its appropriate subdivision; second, in many cases it will wince at exposing its funds to the hazards of business; third, its charter will often forbid such excursions. But I believe that when, however actuated, an exempt parent does resort to a business subsidiary, any income so obtained becomes taxable. For these reasons I think that the Board was right.