Court Opinion

ID: 4498410
Source: CourtListenerOpinion
Date Created: 2020-01-23 18:15:56.2816+00
Date Added: 2024-06-11T14:54:16.179941
License: Public Domain

Hill,
dissenting: I do not agree with the conclusion in the opinion of the majority. Two premises are assumed in support of such conclusion. They are (1) that section 27 (e) of the Revenue Act of 1938 specifically prescribes what dividends paid credits are allowable in respect of dividends paid in a corporation’s obligations and that thereby the dividends paid credit provided by section 27 (a) (4) of such act is excluded if the indebtedness involved represents a dividend obligation; and (2) that it should not be presumed that Congress intended to grant a double deduction for the same transaction in the absence of unmistakable and definitive language evidencing such intent.
It is my conviction that the first premise is wrong. The second premise is sound in the abstract but, in my opinion, the situation here does not invoke its application.
I see nothing in the language or the subject treated in section 27 (e) to indicate that the prevention of duplication of dividends paid credit was involved in the purposes of such enactment. It seems clear to me that the objectives of such enactment are merely to provide when and in what amounts dividends paid credits shall be allowed for dividends paid, such dividends being paid in the corporation’s obligations (1) when such dividends are so paid and, (2) when the dividend obligations are redeemed, if the amount for which they are redeemed exceeds their fair market value at the time of the dividend payment. The scope of the provisions of section 27 (e) is confined to the one purpose of assuring to the taxpayer credit or credits for dividends paid to the extent of the amount for which the obligations are redeemed. The specific and plain language used to express this limited purpose leaves no doubt of its meaning. Neither section 27 (e), supra, nor 27 (d) of the Revenue Act of 1936 relates to dividends paid credit provided by section 27 (a) (4), supra, on account of money used or irrevocably set aside to pay or retire indebtedness. Neither section 27 (e) nor section 27 (d) purports to exclude the application of the provisions of section 27 (a) (4) where the indebtedness involved represents a dividend obligation. Neither of such sections touches the subject of duplicate credits, *797either specifically or by implication. The Revenue Act of 1936 has no provisions comparable to those of section 27 (a) (4) and consequently section 27 (d) thereof was enacted without reference to such provisions. Section 27 (e), supra, is in essence merely a reenactment of such section 27 (d). Section 26 (c) (1) and (2) of the Revenue Act of 1986 provides credits to corporations for purposes of surtax in the case of contracts restricting payment of dividends and contracts requiring earnings and profits to be paid or irrevocably set aside within the taxable year for the discharge of a debt. Section 26 (c) (3) of that act prohibited the allowance of double credits in respect of such contracts. The provisions of such section 26 (c) (1), (2), and (3) were not carried forward to or reenacted in the Revenue A.ct of 1938 and no provisions comparable thereto appear in the latter act.
The provisions of section 27 (a) (4) first appeared in the 1938 Act. Its language is all-embracive and unambiguous in providing dividends paid credit for payment of indebtedness as therein defined. By its terms it applies to such “indebtedness of any kind.” There is no exception. Section 27 (a) (4), on the one hand, and section 27 (e) and section 27 (d), supra, on the other, treat of and specifically provide for different, noninterdependent, and nonexclusive sources of dividends paid credit. There is nothing in the language of either of such sections or elsewhere in the Revenue Act of 1938 to indicate that if a dividends paid credit is taken for dividends paid in the corporation’s obligations a dividends paid credit may not also be taken as provided by section 27 (a) (4) when such obligations are paid, provided such obligations constitute indebtedness as defined in section 27 (a) (4). The obligations paid in 1938 by petitioner for which it claims a dividends paid credit in this proceeding constitute such indebtedness.
The credit in question is affirmatively authorized by unambiguous provisions of statute. The lack of ambiguity in the statute forecloses the privilege, assumed in the opinion of the majority, to construe it.
“It is elementary that the province of construction lies in the domain of ambiguity, and that the use by a legislative body of words having definite meanings creates no ambiguity, and that such words are to be taken and understood in their plain ordinary and popular sense.” Helvering v. Nebraska Bridge Supply & Lumber Co.. 115 Fed. (2d) 290.
Furthermore, it is doubtful whether the charge of duplicate credit can be sustained in respect of the credit here in question. The credit in 1936 for dividends paid in petitioner’s obligations was applied against income not for the purpose of normal tax, but for the purpose *798of surtax on undistributed profits under section 14 of the Revenue Act of 1936. There was no such credit in respect of normal tax. The Revenue Act of 1938 has no provision for tax corresponding to the tax imposed by section 14 of the 1936 Act. The credit in question here applies only to the tax provided by section 13 of the Revenue Act of 1938. It does not apply to any other tax-levying provision. The charge of duplicate credit must, therefore, apply only in respect of the tax levied under section 13 of that act. That section does not levy a surtax but levies a tax of 19 percent on the adjusted net income of corporations generally. If a corporation has received dividends in the taxable year from domestic corporations it gets a credit against tax of 16y2 percent of 85 percent of such dividends. If it has a dividends paid credit consisting of one or more of the items constituting such credit as provided in section 27, it gets a credit against tax of 2% percent of such dividends paid credit.
A comparison of the Revenue Acts of 1936 and 1938 discloses that not only are the credits allowed corporations under sections 26 and 27 of the 1936 act widely variant in scope and kind from credits provided in sections 26 and 27 of the 1938 act, but they are applied differently and under radically different schemes or plans of taxation.
The Revenue Act of 1936 levied both a normal and a surtax on corporations generally. The rate of the normal tax levied was graduated through four brackets from 8 percent to 15 percent on the normal tax net income. The rate of the surtax levy was graduated through five brackets from 7 percent to 27 percent on the undistributed net income. The credit which petitioner received for dividends paid in 1936 was a deduction from income for the computation of surtax only. It had no application to the normal tax levied. The credit that petitioner claims in this proceeding would, if allowed, be applied not as a deduction from income or in respect of a tax levied on undistributed profits, but to the extent of 2y2 percent thereof as a credit against a tax on the adjusted net income of corporations generally, regardless of whether any of such income was undistributed.
The two credits — the one received in 1936 and the one now claimed— were not credits against the same thing. One was against income, the other against tax. They were not the same kind of credits. One was for dividends paid and the other for indebtedness paid. They were not credits in respect of the same kind of tax or under the same or a comparable scheme of taxation. One credit was applied to the extent of its full amount, the other to the extent of only 2% percent of its amount. The credit in 1936 may have eliminated a surtax entirely or it may have reduced the rate of surtax from 27 percent to 7 percent or to some intermediate rate, while the credit claimed in this proceeding would reduce a normal tax lexy by the amount of 2y2 percent of such credit.
*799An attempt to detail all of the variances between the two credits which would be revealed in their application under the respective revenue acts would present a problem in permutations.
Who, then, can say that the credit'claimed by petitioner in this proceeding duplicates the dividends paid credit received in 1936? If there is a duplication, how can the extent of it be calculated ?
However, whether or not the allowance of the credit claimed here by petitioner would result in duplicating a credit which it took for the year 1936, it appears to me clear that the Congress intended to and did expressly grant such credit as is here claimed. The language providing such credit is unambiguous and, without reading something into the statute as it stands or imputing to it a more restricted meaning than its language warrants, I think it must be concluded that petitioner’s claim of credit is authorized and should be allowed.
,Black and Haeeon agree with this dissent.