dissenting: 1 agree with the majority opinion that what is a capital asset in determining whether the gain from the sale of property shall be taxed as capital gain or as ordinary income depends on statutory definition as written by Congress. It is not governed by state law. Congress, of course, could tax all income from the sale of capital assets as ordinary income if it chose to do so. The term “income” as used in the Constitution and income tax laws has been defined by the Supreme Court as “the gain derived from capital, from labor, or from both combined, provided it be understood to include profit or gain from a sale or conversion of capital assets.” Stratton’s Independence v. Howbert, 231 U. S. 399; Doyle v. Mitchell Bros., 247 U. S. 179; Eisner v. Macomber, 252 U. S. 189. But Congress bas elected to provide in section 117 of the Internal Bevenue Code that gains from the sale of certain property shall be taxed as long term capital gains and that only 50 per cent of the gain shall be taken into account for the computation of income tax. Generally the term “capital assets” as defined by Congress includes all classes of property not specifically excluded in the statutory definition. The term is defined in the statute, as follows:
SEC. 117. CAPITAL GAINS AND LOSSES.
(a) Definitions. — As used in this chapter—
(1) Capital Assets. — The term “capital assets” means property held by the taxpayer (whether or not connected with his trade or business), but does not include—
(A) stock in trade of the taxpayer or other property of a kind which would properly be included in the inventory of the taxpayer if on hand at the close of the taxable year, or property held by the taxpayer primarily for sale to customers in the ordinary course of his trade or business;
(B) property, used in his trade or business, of a character which is subject to the allowance for depreciation provided in section 23 (1), or real property used in his trade or business;
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At the outset, I wish to make it plain that I do not question the feasibility of dividing the sale which took place here into its component parts. I accept as correct the doctrine in Williams v. McGowan, 152 Fed. (2d) 570, where taxpayer sold a hardware business as a going concern, including accounts receivable, fixtures, and merchandise inventory, that the whole business was not to be treated as a single piece of property representing “capital asset” for income tax purposes, but the sale would be comminuted into its fragments and these would be separately matched against the definition in the statute of capital assets.
It is perfectly clear to me that in the instant case Pogue, the purchaser, bought himself a growing orange crop when he made the purchase here involved. I am also willing to believe that the growing orange crop had a fair market value of $40,000 at the time of sale and that as found by the majority “The portion of the selling price of the Dofflemyer ranch, $197,000, allocable to the growing crop of oranges on the trees, was $40,000.” But that does not, in my opinion, solve the problem which we have here. The problem is whether this growing crop of unmatured oranges on the trees is excluded from the definition of “capital assets” by the exceptions enumerated in section 117. I do not think they are excluded. Clearly, the immature oranges which were on the trees at the time petitioner sold them were not “stock in trade of the taxpayer or other property of a kind which would properly be included in the inventory of the taxpayer if on hand at the close of the taxable year” as those terms are used in section 117. .Were they “property held by the taxpayer primarily for sale to customers in the ordinary course of his trade or business” (emphasis added), as provided in section 117 (a) (1) (A)? If they were, then the majority opinion is correct because its conclusions are based on that particular provision of the statute and the majority has made an affirmative finding that the unmatured oranges were “property held by the taxpayer primarily for sale in the ordinary course of his trade or business.” But I think there is much force in petitioner’s contention as stated in the majority opinion, as follows:
The petitioner argues, however, that the oranges in this instance were not held primarily for sale to customers in the course of her trade or business, because she and her brothers were in the business of producing and selling ripe oranges and not in the business of producing and selling green oranges. * * *
Of course, it goes without saying that if a producer of oranges, such as was petitioner in the instant case, sells the oranges on the trees after they have matured the income therefrom would be ordinary income and not capital gain. She would be selling property held primarily for sale to customers in the ordinary course of her trade or business. That business was the growing and selling of ripened oranges. In other words, she would not have to pick them off the trees and sell them after they were picked in order for the income to be taxed as ordinary income. The ordinary income provisions of the statute would be quite as effective in cases of selling fruit matured, still unpicked on the trees, at it would be in selling the fruit after it was picked — I certainly concede that fact. But where, as here, the land is sold, together with the producing orange trees and the immature oranges on the trees, it seems to me the situation is different. In that sort of a situation the property sold is “real property used in the trade or business of the taxpayer” as used in the last sentence of section 117 (a) (1).
If I am correct in this assumption, then section 117 (j) is applicable which was added as an amendment by section 151 (b) of the 1942 Act. Subsection (j) which was thus added reads,.as follows:
(j) Gains and Losses From Involuntary Conversion and From the Sale or Exchange of Certain Property Used in the Trade or Business.—
(1) Definition of property used in the trade or business. — For the purposes of this subsection, the term “property used in the trade or business” means property used in the trade or business, of a character which is subject to the allowance for depreciation provided in section 23 (1), held for more than 6 months, and real property used in the trade or business, held for more than 6 months, which is not (A) property of a kind which would properly be includible in the inventory of the taxpayer if on hand at the close of the taxable year, or (B) property held by the taxpayer primarily for sale to customers in the ordinary course of his trade or business, * * *.
(2) General rule. — If, during the taxable year, the recognized gains upon sales or exchanges of property used in the trade or business, * * • exceed the recognized losses from such sales, exchanges, * * * such gains and losses shall be considered as gains and losses from sales or exchanges of capital assets held for more than 6 months. If such gains do hot exceed such losses, such gains and losses shall not be considered as gains and losses from sales or exchanges of capital assets. * * *
If section 117 (j) is applicable to the sale of tbe entire property here, as I think it is, then even though it is possible to divide the sale into component parts as the majority opinion does, petitioner’s entire gain from the sale is taxable as long term capital gain as petitioner contends and the gain from the sale of the unmatured oranges is not ordinary income as the Commissioner has determined and the majority opinion holds.
Of course, it is perfectly true that Congress by appropriate definition could exclude gain from the sale of unmatured crops, such as we have here, from the benefits of the capital gains provisions of the statute, but I do not think it has done so when the statutory definitions and exceptions are given their ordinary and commonly understood meaning.
I would, therefore, sustain petitioner in her contention that the gain from the sale of the unmatured orange crop here involved should be taxed as long term capital gain and not as ordinary income. I, therefore, respectfully dissent.
HaeRON, J., agrees with this dissent.