75 F.2d 663 | D.C. Cir. | 1935
Petitioner is a Delaware corporation. In 1926 it issued $175,000 of bonds secured- by a mortgage upon its properties located in Arkansas and Oklahoma. The entire issue was sold at par. A part of the bonds were designated A and a part B bonds.
On January 1, 1928, $60,000 of A bonds and $100,000 of B bonds were outstanding. During that year petitioner “acquired $100,-000 principal amount of B bonds by purchase at a cost of $47,039.80. The B bonds were all acquired in one transaction and the purchase price was a lump sum for the lot. The petitioner held these bonds in its treasury throughout 1928.” In February, 1929, petitioner delivered the bonds to the-trustee for cancellation. Simultaneously, the A bonds were paid off at par. Petitioner did not in its 1928 return report the difference between the issuing price and the redemption price of the B bonds as taxable income. The Commissioner included it. The Board of Tax Appeals approved the Commissioner’s action, and this appeal was taken.
The single question we have to decide is whether a corporation, which has purchased its own bonds at a price less than the amount at which they were sold, and thereafter held them in its treasury until the following year, realized taxable income in the year of purchase. In the case of United States v. Kirby Lumber Co., 284 U. S. page 1, 52 S. Ct. 4, 76 L. Ed. 131, the Supreme Court held that gain — hence income — resulted where a corporation purchased and retired some of its own bonds for less than the amount received for them when issued.
And so, in this case the question is, the intention of petitioner when it redeemed its bonds. And this, from all that appears was clearly, as we think, to pay the bonds and retire them, for that is actually what did happen, and there is not a word of evidence-to show a different or contrary intention at any other time. The fact that the intention was also to postpone actual surrender and cancellation to a subsequent year, rather than the year of the purchase, does not affect the question; nor keep the bonds alive. In short, if the acquisition of the bonds from the holder was for the purpose of paying the debt, there could not at the same time be an intention to keep the debt alive, and without that intention the transaction was a completed one and the bonds, even though held in the treasury, were not subject to reissue, and were as much “retired” as if they were actually surrendered and marked “can-celled.” In that view it is not necessary to-consider whether the Commissioner’s regulation, approved in the Kirby Case, was as-far reaching as petitioner contends, because, as we have seen, the intention to cancel the bonds, as in fact was done at the beginning of the new year, would bring the transaction within the exact terms of the regulation.
But we think it at least doubtful whether the Commissioner’s regulation should be construed as petitioner would construe it. To say, as the regulation does say, that when bonds are purchased and retired at less than the selling price, the excess is income, is by no means to say that when they are purchased, but not retired, it is not income; and if the regulation must be so construed, the question whether it violates the terms of the statute (Revenue Act 1928, § 22 (a), 26 USCA § 2022 (a) would at least be arguable, but we have no need to pass upon that question here. Enough appears to convince us beyond any reasonable doubt that when petitioner purchased the $100,000 of bonds, it purchased them for cancellation and retirement and not for the purpose of keeping them alive for reissue, and the mere fact that it held them in its' treasury until the commencement of the next year does not, in the absence of evidence of a clear intention to hold them for investment, militate against this conclusion. In this view, the Commission and the Board were correct.
Affirmed.