United States v. Coulby

[1] This case presents the question: Whether the portion of a dividend which was paid on corporate shares to a partnership holding such shares as an asset, and which portion was ultimately paid to a member of the firm as his proportionate share of the firm’s profits, was, within the true meaning of the Federal Income Tax Act of 1913 (Act Oct. 3, 1913, c. 16, 38 Stat. 114), net income in the sense that the corporation and the partner were each bound to pay thereon the normal tax of 1 per cent.; in a word, was it the purpose so to tax" the same dividend twice ? The question has been decided both ways in the Internal Revenue Department (Montgomery’s Income Tax Procedure [Ed. 1918] pp. 231, 232); and hence the effect usually given to an established practice of an executive department *28charged with the execution of a statute has no present relevancy. The coürt below denied recovery, and the government brings error.

[2, 3] The facts of the case and the question involved, as well as the manner in which the issue was made and tried, are fully set out in the opinion of Judge Westenhaver; and in view of his discussion of the Income Tax Act of 1913, and of the effect upon that act of the later one of 1916 (Act Sept. 8, 1916, c. 463, 39 Stat. 756), an_ opinion here would not accomplish any useful end. We concur in and adopt the conclusion reached. However, the statement made in the 'opinion that a partnership has no legal existence, aside from the members who compose it, is too broad, as, for instance, in view of the Bankruptcy Act (Act July 1, 1898, c. 541, 30- Stat. 544 [Comp. St. § 9585 et seq.]), yet as applied to the particular portion of the' statute and the question in hand it is correct, and with this explanation we approve the reasoning of the opinion.

It may be added that, unless the construction placed on the statute by the learned trial judge is the natural and the rational one (38 Stat. pp. 166, 167, 169, 172), the language of the act is of such doubtful import as to require it to be construed most strongly against the government and in favor of the taxpayer. Gould v. Gould, 245 U. S. 151, 153, 38 Sup. Ct. 53. 62 L. Ed. 211: Knowlton v. Moore, 178 U. S. 42, 47, 20 Sup. Ct. 747, 44 L. Ed. 969; State of Ohio v. Harris, 229 Fed. at pages 892, 898, 144 C. C. A. 174 (C. C. A. 6).

It results that the judgment must be affirmed.