127 F.2d 239 | 3rd Cir. | 1942
The petitioner is and has been since 1901 the owner of a gold and silver mine in Nevada. Petitioner operated the mine until it closed temporarily in February, 1930. The mine was reopened in October of that year under a plan whereby certain areas were leased to small groups of miners on a royalty basis. Petitioner had one other source of income. Prior to its leasing of the mine, it was able to recover only about 95% of the metals from the ore. The balance of 5% went into the tailings dump on petitioner’s property. Methods of recovery then improved and it became feasible and profitable to recover practically all of the 5% which remained in the tailings dump. This, too, petitioner leased on a royalty basis.
The Supreme Court has conceded the power to tax the gross income received from the exploitation of mineral deposits without allowing a deduction for depletion.
Since taxpayer’s motion to reopen might properly have been denied if the deficiency was validly assessed, our first consideration must be the petitioner’s right to make a new election in its 1936 return.
Petitioner’s main contention is that the Act of 1936 gave it a new right of election. For the purposes of this argument, petitioner concedes that had the 1934 Act remained in effect, petitioner would have been bound by the election which it made or should have made in its first return thereunder. The fifth sentence of Section 114(b)(4) of the 1934 Act provides that the method so determined shall be applied “for all taxable years in which it [the property] is in the hands of such taxpayer, or of any other person.” In an effort to avoid this language, the petitioner points out that Section 114(b)(4) of the 1934 and 1936 Acts are identical, as we indicated earlier in this opinion, except for the new sentence which is added at the end of the 1936 enactment. Petitioner stresses the phrase we italicized
The problem, then, is the old one of interpreting the meaning of words used in statutes. Almost four centuries ago the Baron of the Exchequer declared that “the office of all the judges is always to make such construction as shall suppress the mischief, advance the remedy, and to suppress subtle inventions and evasion for continuance of the mischief, and pro private commodo, and to add force and life to the cure and remedy, according to the true intent of the makers of the Act pro bono publico.”
When Congress adopted the percentage depletion basis in the 1932 Act, it required a taxpayer to elect in his 1933 return whether he desired to have his allowance determined upon the percentage or cost basis for future years. The election for future years was designed to prevent taxpayers from switching back and forth from one method to the other. The legislative history is cited and is clear:
“Section 114(b)(4). Percentage Depletion for Metal Mines and Sulphur.
“Under paragraph (b) (4) metal mines are granted a percentage depletion allowance of 15 per cent, and sulphur mines or deposits of 23 per cent of the gross income from the property during the taxable year. As in the case of oil and gas wells this allowance can not exceed 50 per cent of the net income of the taxpayer from the property. In respect to the taxable years 1932 and 1933 the taxpayer is privileged to have the greater of either (1) the percentage depletion allowance or (2) an allowance computed on the adjusted basis provided in section 113(b), 26 U.S.C.A. Int. Rev.Acts, page 518 (usually cost or March 1, 1913, value, with adjustments). This privilege is the same for those two years as that accorded both under the existing law and the bill in the case of oil and gas wells for all years.
“In the return for the taxable year 1933, however, the taxpayer is required to state as to each property whether he elects to have the depletion allowance for such property for succeeding taxable years computed with or without reference to percentage depletion; this election must be as between either percentage depletion or depletion computed upon the adjusted basis. In the case of any property in respect of which a return is first made in a year subsequent to the taxable year 1933, the election indicated in the return for such year shall be binding as to all future years. If the taxpayer fails to make such election in the return in which it should be indicated, the depletion allowances for that and succeeding taxable years will be computed' on the adjusted basis.” Report of Senate Finance Comm., S.Rept.No.665, 75th Cong., 1st Sess., p. 30.
“The amendment requires that the taxpayer make in his 1933 return an election, binding for 1934 and subsequent years, whether he will have the depletion deduction as to each property computed with or without reference to percentage depletion, and the failure so to elect will preclude the use of the percentage definition.” Report*244 of the Conference Comm, with regard to Amendment No. 54, H.Rept.No.1492, 72nd Cong., 1st Sess., p. 15.15
This provision became effective on June 6, 1932 and it is therefore probable that many small companies were ignorant of their right to elect percentage depletion at the time when their 1933 returns were filed. Consequently, to avoid hardship to these companies it was decided to give them another chance to elect in 1934. The Revenue Act of that year permitted this new election, but again it was to be binding for all future years. As before, the purpose of making the election binding in the future was “to avoid administrative complexity”.
Petitioner argues that such a result was not accomplished because the words “follows the property” were used in the sentence. A literal meaning of these words implies that the sentence is inapplicable unless there has been a change of ownership. But such a result would be absurd. It would allow those who retained ownership .after 1934 to elect anew, while binding those who took as successors in interest. If any distinction were to be made between these two classes, it would be more sensible to deprive the continuous owner of the privilege of changing methods at will, than to bind a successor to a choice of the original owner. If we are to avoid this curious result, what meaning is to be attached to the words “follows the property”? The words have a contextual meaning. They connote a time relationship as well as suggesting a change of ownership. In this contextual meaning the sentence would read as if the words “through the years” came directly after “follows the property”. Thus, “follows the property” is synonymous with “adheres to the property”. Since the literal meaning leads to an absurd result, it must be rejected in favor of a contextual meaning which accords with the legislative intent. Under the 1936 Act, then, petitioner was not given a new election but was bound by the election made in 1934.
As we stated at the outset, petitioner has also appealed from the Board’s denial of a motion. By its motion petitioner tried to introduce evidence that it was entitled to a percentage depletion allowance in 1936 and 1937 on income from mill tailings. Since the petitioner did not elect to avail itself of the percentage basis with respect to this property when it filed its 1934 return, it may not do so in its 1936 and 1937 returns. The motion was therefore properly denied. Even if we had allowed the election, we would be constrained to uphold the Board’s decision on the motion. The petitioner claims that it did not earlier assert its election with respect to the mill tailings because it had been a practice of the Treasury Department to refuse a deduction for depletion on tailings.
The decision of the Board of Tax Appeals is affirmed.
Stanton v. Baltic Mining Co., 240 U.S. 103, 36 S.Ct. 278, 60 L.Ed. 546; Riley Investment Co. v. Com’r, 311 U. S. 55, 61 S.Ct. 95, 85 L.Ed. 36.
26 U.S.C.A.Int.Rev.Acts, pages 166, 167, and 185, 187.
Cf. Determination of Taxable Net Income Prom Mineral Property, 43 Tale Law Journal 466; Income Taxation— Who May Take An Allowance Por Depletion, 23 Virginia Law Review 837.
26 U.S.C.A.Int.Rev.Acts, page 520.
“Percentage depletion for coal and metal mines and sulphur. The allowance for depletion under section 23(m) shall be, in the c&se of coal mines, 5 per centum, in the case of metal mines, 15 per centum, and, in the case .of sulphur
Section 114(b) (4) of the 1934 Act was reenacted without change in the 1936 Act with the added provision: “The above right of election shall be subject to the qualification that this paragraph shall, for the purpose of determining whether the method of computing the depletion allowance follows the property, be considered a continuation of section 114(b) (4) of the Revenue Act of 1934, and as giving no new election in cases where such section would, if applied, give no new election.” 26 U.S.C.A.Int.Rev. Acts, page 867 (italics ours)
Section 114(b) (4) was reenacted in the Revenue Act of 1938, the only change being to include in the last sentence a reference to the Revenue Act of 1936'-as well as the 1984 Act. Similarly, Section 114(b) (4) of the Internal Revenue Code is identical, except that it includes in the last sentence a reference to the 1938 Act and in the third sentence changes “title” to “chapter”. 26 U.S.C.A.. Int.Rev.Code § 114(b) (4).
117 E.2d 436. The Second Circuit Court of Appeals has held contra, criticizing our decision. Mother Lode Coalition-Mines Co. v. Com’r, 2 Cir., 125 E.2d 657.
See footnote 6.
Heydon’s Case, 1584, 3 Co. 7 b.
“Such Construction ought to be put upon a Statute as may best answer the Intention which the makers had in View; for qui haevet in Litera, haevet in Cortice.”
Bacon’s Abridgment (1759) 647.
“The most universal and effectual way of discovering the meaning of a law, when the words are dubious,* is by considering the reason and spirit of it; or the cause which moved the legislator to enact it.”
1 Blaekstone’s Comm. 61.
Loyd, The Equity of a Statute, 58 University of Pennsylvania Law Review 76; De Sloovere, The Equity and Reason of a Statute, 21 Cornell Law Quarterly 591; Thorne, The Equity of a Statute and Haydon’s Case, 31 Illinois Law Review 202; cf. Statutes — Contracts — Interpretation — Use of Preambles or Recitals, 25 Minnesota Law Review 924.
“The object of genuine interpretation is to discover the rule which the lawmaker intended to establish; to discover the intention with which the law-maker made the rule, or the sense which he attached to the words wherein the rule is expressed. Its object is to enable others to derive from the language used ‘the same idea which the author intended to convey.’ Employed for these purposes, interpretation is purely judicial in character.” Pound, Spurious Interpretation, 7 Columbia Law Review 379, 381.
“It should always be permissible for courts to discover the legislative intention if possible. However, once it has been discovered, it should be relevant to the solution of the ease only if consistent with the ‘meaning,’ which may reasonably be attached to the words used. In other cases the ‘meaning’ of the court is decisive. Thi3 will generally accord with the ‘meaning’ which would be attached to the words by ordinary persons, but in some cases a different result may be reached because of considerations of equity or policy which, in the minds of the courts, are controlling.” Nutting, The Ambiguity of Unambiguous Statutes, 24 Minnesota Law Review 509, 521.
See also Landis, A Note on Statutory Interpretation, 43 Harvard Law Review 886; Jones, Extrinsic Aids in the Federal Courts, 25 Iowa Law Review 737; De Sloovere, Extrinsic Aids in the Interpretation of Statutes, 88 University of Pennsylvania Law Review 527; Nutting, The Relevance of Legislative Intention Established by Extrinsic Evidence, 20 Boston University Law Review 601; Horaek, In the Name of the Legislative Intention, 38 West Virginia Law Quarterly 119; Jones, The Plain Meaning Rule and Extrinsic Aids in the Interpretation of Federal Statutes, 25 Washington University Law Quarterly 2; De Sloovere, Textual Interpretation of Statutes, 11 New Xork University Law Quarterly Review 538.
“If petitioner’s view were adopted, taxpayers with the benefit of hindsight could shift from one basis of depletion to another in light of developments subsequent to their original choice. It seems clear that Congress provided that the election must be made once and for all in the first return in order to avoid any such shifts.” Riley Inv. Co. v. Commissioner, 311 U.S. 55, 59, 61 S.Ct. 95, 97, 85 L. Ed. 36.
Report of the Ways and Means Comm., H.Rept. No. 704, 73d Cong., 2nd Sess., p. 29.
“Probably, these additional words, added in the Code and the 1938 and 1936 Acts, were intended to negative any new right of election under those acts and to bind the taxpayer to the depletion election already made under the 1934 Act.” Paul and Mertens, Law of Income Taxation (Supp.1939) § 21.26, p. 1010.
See Atlas Milling Co. v. Jones, 10 Cir., 115 F.2d 61, noted in Should A Depletion Allowance Be Permitted In Income Tax Computation Where Tailings Are Involved, 13 Rocky Mountain Review 258.
43 B.T.A. 617, affirmed Com’r v. Kennedy Mining & Milling Co. 9 Cir., Feb. 4, 1942, 125 F.2d 399.
43 B.T.A. 617, 620.
26 Internal Revenue Code § 1111, 26 U.S.C.A.Int.Rev.Code § 1111; Rules of Practice of the Board of Tax Appeals, Rule 17, 26 U.S.C.A.Int.Rev.Code following section 5011.
Bankers Pocohontas Coal Co. v. Commissioner, 287 U.S. 308, 53 S.Ct. 150, 77 L.Ed. 325; Com’r v. Sussman, 2 Cir., 102 F.2d 919, 922, 923; Scott v. Commissioner, 8 Cir., 117 F.2d 36.
gee Taxation-Board of Tax Appeals —New Trials and Rehearings, 2 George Washington Law Review 526.
“The precise meaning of the * * * addition to this section [114(b) (4) of the 1934 Act] is not as clear as it might be.” Paul and Mertens, Law of Income Taxation (Supp.1939) § 21.26, p. 1010.