267 F. 872 | S.D. Ohio | 1920
The plaintiff is a corporation “formed for the purpose of manufacturing and selling brass, bronze, aluminum, white metal, and all other kinds of metal castings, machining same and doing all things incident thereto.” The Recording & Computing Machines Company (hereafter called the Recording Company) had a contract with the Canadian Car & Foundry Company for delivery of a large number of time fuses for shrapnel shells for the Russian government. Each fuse, when assembled and completed, consisted of 45 parts. On May 27 and 29, 1915, plaintiff entered into contracts with the Recording Company to make for use in fuses, from ingots and patterns to be supplied by such company, certain rough castings, to be paid for by the pound and to be delivered at such company’s plant.
Plaintiff performed its contracts. The work done by it concerned but 4 of the 45 parts entering into a completed fuse. None of such 4 parts was at the time of their delivery fitted for insertion into fuses. On the contrary, the Recording Company was required to subject such parts to numerous mechanical operations, varying according to circumstances from 16 to 29, before they were perfected for use. The castings made by plaintiff, if not used in fuses, were serviceable only as scrap, and would have to be melted and properly treated to be utilized for other purposes. Down to the date of the above-mentioned contracts, plaintiff had practically at all times used its own raw material in its manufacturing business and sold its own product; but in its 12 years’ experience it had sent out castings which were thereafter to be finished by machine work. Such subsequent finishing is a common practice, for.the reason that castings are seldom ready for use after coming from the molds.
Plaintiff thereupon sued- to recover interest on the amount of the exacted penalty from December 12, 1917, to June 20, 1918, the date on which it was repaid, and also to recover the sum of $18,860.83, with interest from December 8, 1917. -The stated grounds for recovery are that the articles cast and delivered by it were not parts of fuses, that in the performance of its work under the provisions of the contract it was not engaged in manufacturing and was not a manufacturer, and that in delivering the castings in the manner' provided for in the contract it did not sell or dispose of them within the terms of the above-mentioned act. A jury was waived and trial was had to the court. There are no controverted facts.
“Revenue laws are not penal laws in tlie sense that requires them to be construed with great strictness in favor of the defendant. They are rather to be regarded as remedial in their character, and intended to prevent fraud, suppress public wrong, and promote the public good. They should be so construed as to carry out the intention of the Legislature in passing them and most effectually accomplish these objects.”
The act here in question was under consideration by the United States Supreme Court in the cases of Carbon Steel Co. v. Lewellyn, 251 U. S. 501, 40 Sup. Ct. 283, 64 L. Ed.-, Worth Bros. Co. v. Lederer, 251 U. S. 507, 40 Sup. Ct. 282, 64 L. Ed.-, and Forged Steel Wheel Co. v. Lewellyn, 251, U. S. 511, 40 Sup. Ct. 285, 64 L. Ed.-, all decided March 1, 1920. In the last-named case the rule was recognized that statutes levying taxes should not be extended by implication beyond the clear import of their language. In the Carbon Steel Co. Case the purpose of the act is thus defined:
“It was such profits [i. e., of the contractor] that the act was intended to reach — profits made out of the war and taxed to defray the expense of the*875 war. Or, as expressed by the Court of Appeals, Congress ‘felt that the large abnormal profits incident to these war contracts created a remunerative field for temporary taxation.’ ”
The court refused to accept a construction which, would “reduce the statute to empty declarations.”
‘•Raw materials may be and often are subjected, to successive processes of manufacture, each one of which is complete in itself, but several of which may be required, to make the final product. Thus, logs aro first manufactured into boards, planks, joists, scantlings, etc., and then by entirely different processes are fashioned into boxes, furniture, doors, window sashes, trimmings, and the thousand and one articles manufactured wholly or in part of wood. The steel spring of a watch is made ultimately from iron ore, but by a large number of processes or transformations, each successive step in which is a distinct process of manufacture and for which the article so manufactured receives a different name.”
In harmony with the doctrine of the last-named case is U. S. v. Riga (C. C.) 171 Fed. 783, in which it was ruled that parts of rough-bored rifles which had been advanced to a condition unfitting them for any other use than in connection with rifles, but which must be subjected to further processes and assembled with other parts in order to be made into a completed article, are manufactured articles.
The insistence in the Worth Bros. Co. Case was that that company’s forgings on certain shell bodies made by it for the Midvale Company were not parts of shells, because their development was so far short of the point at which they could be combined with any other component of a shell structure that 29 subsequent progressive steps were necessary on the part of the Midvale Company to complete the manufactured shell. The contention was rejected; it being said by Mr. Justice McKenna:
“Congress did not intend to subject its legislation to such artificialities and make it depend upon distinctions so refined as to make a part of a shell not the taxable ‘part’ of the law. Besides petitioner understates its work. It did not deliver raw material to the Midvale Company. Certain processes had been performed on the material, giving it a shape adapted to its destination. It was made cylindrical, hollow, with one end closed. It was rough, it is true, but an advance upon the raw material. * * * ‘Manifestly,’ as counsel for the collector says, ‘the shell body was not completely manufactured by either of the companies which were engaged in its production,’ but ‘by the two act*876 ing together,’ and each therefore is liable for the profit it made and judgment is affirmed.”
The contention made and conclusion reached in the Forged Steel Wheel Company Case were the same as in that of the Worth Bros. Company. The Forged Steel Wheel Company, a subcontractor, made rough steel forgings for a principal contractor, who had agreed to supply the British government with high explosive shells. It put prepared steel rounds through two forging processes, whereby a hole was pierced from one end of each round to within two inches of the other, and the round was then lengthened by drawing it through three successive rings of a hydraulic press. To make.the shell form (which weighed about 170 pounds) suitable for use as a shell, the principal contractor, by dressing, boring, and machining, requiring 27 distinct and separate processes, reduced such form to 77 pounds. The Supreme Court adopted the language of the Court of Appeals that—
“It is manifest that, standing alone, tbe statute neither expresses nor implies any warrant or implication for limiting the broad, inclusive, generic words, ‘any part,’ to the restricted, specific, qualified term ‘any completed part.’ ”
The Forged Steel Wheel Company, like the Worth Bros. Company, was held to be a m'anufacturer, although each made but a rough part of a given article. The conclusion reached in those cases was foreshadowed in the following statement made in the Carbon Steel Co. Case, in speaking of the act in question:
“Of course it did not contemplate that ‘person manufacturing’ should use his own hands. It contemplated the use of other aid and instrumentalities, machinery, servants, and general agents, availing thereby the world’s division of labor; but it contemplated, also, the world’s division of occupations, and in this comprehensive way contemplated that all of the world’s efficiency might be availed of, and, when availed of for profits, the latter could not thereby escape being taxed. And where, indeed, was the hardship of it? The tax was on profits and measured by them.”
The conclusion here must be that the plaintiff was a manufacturer, and as such engaged at a profit in the making of parts of fuses.
“ ‘Any part thereof,’ as used in section 301 of this title, is any article relatively complete within itself and designed or manufactured for the special purpose of being used as a component part of a completed munition, and which, by reason of some peculiar characteristic, loses its identity as a commercial commodity, and which, without further treatment, cannot be used for any purposes other than that for which it was designed.”
It is asserted that the four articles made and delivered by plaintiff under its contract are not “relatively completed” parts. The articles produced by plaintiff, by reason of peculiar characteristics (their form being one of them), lost their identity as a commercial commodity, and, without further treatment, could not be used for any purpose other than that for which they were respectively intended. Each was designed or manufactured for the special purpose of .being used as a component part of a completed munition after further progressive treatment. “Rela
The tax for each taxable year is imposed upon the entire net profits actually received or accruing for such year “from the sale or disposition of” the articles, or any part of any of the articles, named in the act. Sections 301, 302, 304. The proviso of section 301 exempts from taxation the net profits received in 1916 which were derived “from the sale and delivery of” the articles enumerated in that section under contracts fully performed prior to January 1, 1916. Section 303 is designed to prevent evasion and fraud on the part of manufacturers coming within the terms of section 301. It declares that, if any such manufacturer during any taxable year or part thereof, by any agreement, arrangement understanding, or otherwise, so “sells or disposes of any such article at less than the fair market price obtainable therefor” as directly or indirectly to benefit himself or any other person interested in his business, or with intent to cause such benefit, the gross amount received or accruing for such period “from the sale or disposition of” such article is to be taken as the amount which would have been received or accrued “from the sale or disposition of such article, if sold at the fair market price.”
The plaintiff’s contention is that the use of the terms “sale or disposition of,” “sale and delivery of,” “sells and disposes of,” and “fair market price” implies that the articles delivered must be the property of the person taxed; that he must have some title thereto which he can “sell or dispose of”; that the title to the castings, having been at all times in the Recording Company until their delivery to the Canadian Company, the plaintiff never at any time had the sole or even a qualified title to such castings, never received payment from the vendee, and was compensated solely by the Recording Company at a specified rate per pound; and that therefore—
“It cannot be said, even under a tortured construction, that any net profits were received by or accrued to the Brass Company from the sale or disposal of the articles specified in section SOI of the act.”
It is conceded that the words “dispose of” are more comprehensive than the word “sell” ; but it is urged that the maxim, “noscitur a sociis,” as defined in 36 Cyc. 1119, 1120, and First Nat. Bank v. U. S., 206 Fed. 374, 379, 124 C. C. A. 256, 46 L. R. A. (N. S.) 1139 (C. C. A. 8) applies, and that, the word “sell” having a definite meaning of disposal for money, the words “dispose of” mean “a disposal by way of barter, exchange or otherwise” i. e., by “some one of the ingenuous plans that are always brought out to escape the law.” To sustain the view advanced several authorities are cited, some of which were distinguished and held inapplicable by both the Appellate and Supreme Courts in the Forged Steel Wheel Co. Case.
Congress knew that manufacturers' in the production of munitions-were operating under just such contracts as the plaintiff had, and we have the declaration-of the supreme judicial authority that the act in question contemplates the availing of the world’s division of labor and occupations and of all the world’s efficiency, and that, when availed of for profits, such profits cannot thereby escape being taxed. The-definition of the words “dispose of,” above given, must, on a fair interpretation of the act, be accepted as correct. The plaintiff delivered the parts made by it, and relinquished and passed its control over them to-the Recording Company, and, by thus parting with and getting rid of them, disposed of them.
“A statute is passed as a whole, and not in parts or sections, and is animated by one general purpose and intent. Consequently, each part or section should be construed in connection with every other part or section, and so as to produce a harmonious whole.”
Considering the context of the act in question, the words “sale and delivery” must be read “sale or delivery.” Its language elsewhere than in the proviso is “sell or dispose of,” pr “sale or disposition of.” A like situation existed in the statute considered in Geiger v. Kobilka, 26 Wash. 171, 66 Pac. 423, 90 Am. St. Rep. 733. The rule that “and” and “or” are convertible, as the sense may require, applies to their use in statutes (U. S. v. Fisk, 70 U. S. [3 Wall.] 445, 447, 18 L. Ed. 243; Hensel, Bruckmann & Lorbacher v. U. S. [C. C.] 126 Fed. 576; Union Central Life Ins. Co. v. Skipper, 115 Fed. 69, 72, 52 C. C. A. 663 [C. C. A. 8]; Ohio v. Covington, 29 Ohio St. 102, 115; Finckh v. Evers, 25 Ohio St. 82, 85; Seaton v. Grimm, 110 Iowa, 145, 149, 81 N. W. 225), as well as to other instruments (Dumont v. U. S., 98 U. S. 142, 143, 25 L. Ed. 65; Brown v. Grand Rapids Parlor Furniture Co., 58 Fed. 286, 291, 7 C. C. A. 225, 22 L. R. A. 817 [C. C. A. 6]). If Congress had in mind merely a sale, or a disposal by way of barter or exchange, or their equivalent, the words “and delivery” are superfluous, for the reason “delivery” is one of the elements of a sale (City of Iola v. Lederer, 86 Kan. 347, 120 Pac. 354; Commonwealth v. Williams, 72 Mass. [6 Gray] 1, 9); the term “sale,” in common parlance, importing a delivery (Hamilton v. Steck [Sup.] 5 N. Y. Supp. 831, 832).
“Delivery” is a word used in various senses and to express various shades of meaning. Benjamin on Sales (5th Fd.) 677; 5 Am. & Eng. Ency. Law (1st Ed.) 520a, note. “Delivery,” in its legal sense, may denote a transfer of title to the thing sold, or it may mean a transfer of possession (De Bary v. Souer, 101 Fed. 425, 428, 41 C. C. A. 417 [C. C. A. 5]; Morse v. Sherman, 106 Mass. 430, 433; 35 Cyc. 154), and it is generally used to denote a transfer of possession (Bloyd v. Pollock, 27 W. Va. 75, 128, 129). It means:
“To give or transfer; to yield possession or control of; to part with.” Webster’s New International Diet. “To put into another’s possession or power; pass to another.” Century Diet. “Transmit the possession of a thing from one person into the power or possession of another.” 13 Cyc. 773, 774.
But according to these definitions “delivery” and “disposition of” must be held to be equivalent terms. The language of the proviso affords no shield to the plaintiff.
It follows, from the foregoing, that judgment must be entered for' the defendant.