Court Opinion

ID: 4471201
Source: CourtListenerOpinion
Date Created: 2020-01-09 22:04:46.40366+00
Date Added: 2024-06-11T14:53:43.969656
License: Public Domain

DisNey, J., dissenting: I find myself unable to agree with the conclusion of the majority with respect to the items of $428.96 and $97.15 as to which exemption as interest is denied. These amounts represented what the statute of California and the bond denominated as interest; that is to say, the person redeeming the bond was required to pay principal “with interest thereon calculated up to the due date of the next maturing interest coupon, and all penalties accrued and unpaid, together with interest for six months at the rate named in said bond.” My first thought is that this is a situation where the terminology used by the parties should, if ever, receive respect, and that the rule often announced that the fact, and not the terminology used, is decisive, should be here very sparingly applied. Interest is a matter of contract, or, in the absence of contract, a matter of law, under many decisions. Here, in a contract, and as provided by law, the amounts to which I have above referred were specifically termed “interest.” The purchaser of the bond contracted for interest, and so contracted in the light of the law, which, since the bond was issued by a municipality, provided that such interest would be tax free. Under such circumstances I am of the opinion that the term “interest” was an integral and important part of the contract, and that the taxpayer is entitled to the results that flow from that expression, under section 22 (b) (4) of the Revenue Act of 1938. To hold otherwise seems to me, at least, to smack of impairment of contract. Secondly, even without relying upon any weight given to the fact that statute and bond issued the taxpayer provided that what was received would be interest, it did in fact receive interest under the usual definition thereof. In Fall River Electric Light Co., 23 B. T. A. 168, 171, we adopted what we said was a definite and well accepted meaning for the term “the compensation allowed by law or fixed by the parties for use, or forbearance, or detention of money.” Can it be denied that the two items above noted were not allowed by law and fixed by the parties as interest? Or, can it be denied that the law allowed and the parties fixed those amounts for the use of money? The bondholder allowed the use of his money and because of such use he received back the principal together with the above noted items. It is true that in general the interest was to be 7 percent, but there is no suggestion that interest at a greater rate was illegal and it appears to me that the bondholder simply received a rate of interest slightly greater than 7 percent for the use of his money from the time of his investment up to the time he received it again, and that what he received is.well within the above definition. All that the bondholder put into the matter was money. In consideration thereof he received back certain money, and what he received does not fail to be interest, that is, consideration for the use of money, merely because it is measured by a term slightly longer than the actual use of the funds invested. Most particularly in the situation here at hand where statute and contract provide for interest, entailing the payment of the sums here being considered, and where the bondholder’s investment may well have been actuated by the nontaxibility of the interest designated by statute and the bond, I see more reason for holding that the sums received were compensation for the use of the money invested than for thinking that they comprise something in the nature of a premium or penalty for prepayment of the bond. Where the law and the parties fix the sums as interest, and the principal was, in fact, used for a long period of time, I consider its use compensated for by the amount received and find unreality in the view that the bondholder was paid for anything but the use of his money. I therefore respectfully dissent.