280 U.S. 412
UNITED STATES v. AMERICAN CAN CO. SAME
MISSOURI CAN CO.
DETROIT CAN CO.
Argued Jan. 21, 1930.
Decided Feb. 24, 1930.
[280 U.S. 412, 413] The Attorney General and Mr. Charles E. Hughes, Jr., Sol. Gen., of Washington, D. C., for the United States.
[280 U.S. 412, 414] Mr. Graham Sumner, of New York City, for respondent.
Mr. Justice McREYNOLDS delivered the opinion of the Court.
In the courts below these causes were heard together, and one opinion here will suffice.
Respondent the American Can Company owned the entire capital stock of respondents Missouri Can Company and Detroit Can Company. All were incorporated under the laws of New Jersey and had their legal residences and principal offices therein. Their places of business were within the Second United States Internal Revenue District of New York. William H. Edwards, formerly Collector for that district, retired in 1921; Frank K. Bowers succeeded him. During Edwards' term he demanded and collected from these three corporations income and excess profits taxes for 1917 aggregating more than $5,200,000. Thereafter Collector Bowers exacted of them above $3,300,000 as additional income and excess profits taxes for the same year.
In January, 1926, respondents instituted actions against the United States in the District Court for New Jersey, as permitted under U. S. Code , 41, par. [280 U.S. 412, 416] 20, 28 USCA 41 (20) (Judicial Code, 24, par. 20; Revenue Act, Nov. 23, 1921, c. 136, 1310(c), 42 Stat. 311; Revenue Act, February 24, 1925, c. 309, 43 Stat. 972). They sought to recover with interest more than $2,700, 000 paid, as they alleged, to Edwards in excess of taxes properly assessable to them for 1917. Judgments against the United States for the amounts claimed were affirmed by the Circuit Court of Appeals, Third Circuit, March 5, 1929; and the matter is here upon certiorari.
They also sued Bowers, Collector, in the District Court, Southern District of New York, to recover the additional taxes for 1917 ($3,300,000) demanded by and paid to him. These suits involved the same questions as those presented in the causes now before us. Judgments went for Bowers, Collector. The Circuit Court of Appeals, Second Circuit, affirmed them November 4, 1929. American Can Co. v. Bowers, 35 F.(2d) 832.
The opinions and judgments in the two Circuits upon the same facts are thus in direct conflict.
Pertinent provisions of the statutes and Treasury Regulations are printed in the margin. 1 [280 U.S. 412, 417] The accounts of respondents were kept during 1917 not upon the basis of actual receipts and disbursements but upon the accrual basis-that is, pecuniary obligations
___ 'Title II-...
The Act of September 8, 1916, 39 Stat. 756, 765, 766, 767, 770, 771, c. 463, provided:
Title I, 10. 'That there shall be levied, assessed, collected, and paid annually upon the total net income received in the preceding calendar year from all sources by every corporation, joint-stock company or association, or insurance company, organized in the United States, no matter how created or organized but not including partnerships, a tax of two per centum upon such income; ...
The District Court of New Jersey and the Circuit Court of Appeals, Third Circuit, accepting respondents' view, awarded and approved judgments against the United States aggregating some $4,000,000. The result, we think, is manifestly erroneous. Upon the findings, judgments should have gone the other way.
The claims of respondents rest upon improper construction of paragraph (d), 13, Act of September 8, 1916. This provides that 'a corporation ... keeping accounts upon any basis other than that of actual receipts and disbursements, unless such other basis does not clearly reflect its income, may, subject to regulations ... make its return upon the basis upon which its accounts are kept, in which case the tax shall be computed upon its income as so returned. ...'
United States v. Anderson, 269 U.S. 422, 437 , 440 S., 443, 46 S. Ct. 131, considered the meaning of sections 12(a) and 13(d), Act of 1916, and sustained the action of the Commissioner who had reassessed according to an adjusted return originally made up on the accrual basis.
We need not discuss the question whether under any circumstances the taxable income of a manufacturing or mercantile corporation can be ascertained without reference to inventory values. Certainly, in most instances, where the taxpayer carries on an extensive business, this cannot be done.
The challenged judgments are reversed. The causes will be remanded to the District Court for appropriate action in harmony with this opinion.
[ Footnote 1 ] The Revenue Act of September 8, 1916, c. 463, sec. 10 (39 Stat. 765 ), imposed taxes reckoned upon the amount of income.
The Act of October 3, 1917, Chap. 63, 40 Stat. 300, 302, 303, 305, increased the income tax rates; also imposed an excess profits tax. It provided:
Title I, 4. 'That in addition to the tax imposed by subdivision (a) of section ten of such Act of September eighth, nineteen hundred and sixteen, as amended by this Act, there shall be levied, assessed, collected, and paid a like tax of four per centum upon the income received in the calendar year nineteen hundred and seventeen and every calendar year thereafter, by every corporation, joint-stock company or association, or insurance company, subject to the tax imposed by that subdivision of that section. ...
dent, or other principal officer, and by the treasurer or assistant treasurer. The return shall be made to the collector of the district in which is located the principal office of the corporation, company, or association, where are kept its books of account and other data from which the return is prepared, ...
Treasury Decision No. 2609, promulgated December 19, 1917: