Court Opinion

ID: 6556873
Source: CourtListenerOpinion
Date Created: 2022-07-20 18:59:35.555336+00
Date Added: 2024-06-11T15:56:21.707906
License: Public Domain

Rodney, J.
(dissenting): I am unable to agree with my associates in this matter, not so much because of the conclusion reached by them, but because I feel that the matters considered by the majority of this court and by the court below were not the matters in issue in the appeal from the Tax Department.
Willard Saulsbury, from 1902 to 1924, owned both common and preferred stock of the Havana Tobacco Company, the said stock having been received in 1902 upon a reorganization of the affairs of Havana Commercial Company. Upon a second reorganization in 1924, the Cuban Tobacco Company was formed to take over the assets of Havana Tobacco Company and the stock was exchanged on the basis of one share of Cuban common stock for each share of Havana Company preferred stock and one share of Cuban Company common stock for each ten shares of Havana Company common stock. Mr. Saulsbury had held 120 shares of Havana Tobacco Company preferred stock and 520 shares of Havana Company common stock. He received in exchange 172 shares of the common stock of Cuban Tobacco Company represented by one certificate for 100 shares and one for 72 shares.
This controversy arises because Mr. Saulsbury in 1924 sold the 72 shares at a considerable loss and attempted to set up this loss in his income tax return.
The Auditor of the Cuban Tobacco Company stated that the 72 shares of Cuban Company common stock was made up of 520 shares of Havana Company common stock (on the basis of 10 shares for 1) and 20 shares of Havana Company preferred stock (on the basis of one share for one). Mr. Saulsbury set off as against *202the proceeds of the sale of the 72 shares of Cuban Company stock his entire investment for the original common stock and one-sixth of his investment for the preferred stock. Here is where the difficulty started.
To me it is apparent from the record that the Tax Department for the purposes of the case then before it assumed the correctness of the identification of the stock as claimed by Mr. Saulsbury, but held that because both common and preferred stock of the Havana Company were exchanged for only common stock of the Cuban Company, that then the identity of the stock was, as a matter of law, lost and could not be shown. In the original explanation of the disallowance of the claim of loss (after stating the facts exactly as claimed by Mr. Saulsbury) the Tax Commissioner said:
“However, since the entire common and preferred stock of Havana Tobacco Company was exchanged for common stock of Cuban Tobacco Company, the preferred and common stock of Havana Tobacco Company lost their identity and became all common stock of Cuban Tobacco Company.”
An assessment of additional tax was made and upon application a hearing was had on June 17, 1927, and the record as kept by the Tax Department shows these entries:
“ * * * Tax Department claims that in the case of a sale where there have been several reorganizations the original shares of stock lose their identity when merged with other shares of stock.”
“Contentions of Taxable: Taxpayer’s contention is that the shares of stock sold can be identified and wants tax adjusted on this basis.”
-To me there is a strong inference in these minutes that the Tax Board was not interested in the identity of the stock as a. matter of fact, but solely with the question as to whether such identity could be shown as a matter of law. This inference is made a certainty at the next meeting.
On June 24, 1927, another meeting was held to consider the “question of basis to be used for determining gain or loss from the sale of stock acquired through reorganization.”
The decision of the Board was
“Taxpayer’s contention that the shares of stock sold can be identified denied and the commissioner’s decision sustained that such shares of stock lose their identity at the time of the reorganization.”
*203The estate of Mr. Saulsbury was notified of the decision of the Board in these words:
“ * * * Tax Board decided that the identity of the shares could not be established.”
Nothing could be more apparent to me from the record than the fact that the Tax Board decided one thing and one thing alone —that as a matter of law, the identity of the shares could not be shown because on reorganization both common and preferred stock of one company were exchanged for common stock alone of another company. Having determined this question in the negative the actual identity of the stock as a matter of fact was not considered and the assessment of additional tax followed as a matter of course.
This question of law as to whether or not the identity of the stock can be shown after a reorganization and the exchange of stock as above set out (assuming that the ability to show such identity exists) was, in my opinion, the only question properly before the Superior Court on appeal as it is certainly the only question argued in this court. The Superior Court did not discuss this question in its opinion and therefore, presumably, did not consider it, but devoted itself exclusively to the question as to whether or not the identity of the shares of stock had been shown as a matter of fact.
It appears to me that the Superior Court has affirmed the Tax Board in the imposition of additional assessment of tax on the ground that the identity of the shares involved had not been shown as a fact while the Tax Board itself, by its record, had assumed the identity of the shares as a matter of fact, but had denied that such identity could be considered as a matter of law.
For this reason, I am of the opinion that the order of the Superior Court should be reversed and the matter remanded to that court.
I express no opinion as to whether the shares of the Cuban • Tobacco Company involved in this case have been actually identified with those of the Havana Tobacco Company and more especially whether this actual identification relates further back to the shares of Havana Commercial Company because I conceive that such questions are not before this court.