Jdissenting: If we were free to follow our own judgment on this subject, I should be more inclined to accept the Court’s disposition of the present proceeding. But it seems to me the prevailing opinion can not be reconciled with the principle established by the decisions of the five Circuits which have now considered the question; and I do not think we are at liberty to disregard those decisions. See Commissioner v. Woods Machine Co. (C. C. A., 1st Cir.), 57 Fed. (2d) 635; certiorari denied, 287 U. S. 613; Allen v. National Manufacture & Stores Corporation (C. C. A., 5th Cir.), 125 Fed. (2d) 239; certiorari denied, 316 U. S. 679.
Had petitioner adhered to its original program, no taxable income would have resulted, and the present question would not have arisen. But that would have been the effect of the provisions of the plan which made it impossible for petitioner to realize any gain, since the stock was to be distributed at or below cost. It would not have followed from the character of the transaction. If the original program had been changed merely to the extent of permitting distributions to employees at a profit, instead of at cost, the result would have fallen squarely within the decisiqns of the Second and Eighth Circuits in Commissioner v. Air Reduction Co., 130 Fed. (2d) 145, and Brown Shoe Co. v. Commissioner, and Helvering v. Edison Brothers Stores, Inc., 133 Fed. (2d) 582 and 575, respectively. Certainly, the mere purpose of employee stock participation does not mark the operation as an adjustment of capital. Cf. Judge Learned Hand’s dissent in Commissioner v. Air Reduction Co. The further change culminating in the sale of the stock, not only at a profit but to different distributees, makes the petitioner’s case even weaker and brings it within the recent decision of the Sixth Circuit in Dow Chemical Co. v. Kavanagh, 139 Fed. (2d) 242, where, also, the ultimate sale took place because the taxpayer “found itself in need of additional capital to finance an expansion program.”
The situation is only superficially like that in Dr. Pepper Bottling Co. of Mississippi, 1 T. C. 80. The adjustment of capital which the petitioner there accomplished by the original purchase of its stock was completed according to plan. It was not subsequently changed, and it did not contemplate an ultimate disposition as did the original plan of this petitioner. We were able to say in that case that there was “no inference that it was significant whether the stock was retained in the corporation’s treasury or definitively retired.” Here the stock would never be retired while the original plan persisted; and when that plan was abandoned in mid-course because petitioner needed cash, it was transmuted into one for handling the same shares in a manner comparable to any other property or to those of any other corporation — one which readily could and actually did result in unmistakable profit.
Petitioner was not compelled by the terms of its employee, participation plan to acquire the stock in thelirst place, for, unlike the situation in the Brown Shoe 'Co. case, for example, it could have discharged the obligation to its employees by the payment of cash. TIlus, its purchase must have been due, it seems to me, like that in Dow Chemical Co. v. Kavanaugh, to the fact that petitioner “having idle funds not needed in its operations, and knowing the value of its own stock, did what any other prudent investor would have done — bought it when its price was low.”
I conclude, at least under the now outstanding decisions, that when a corporation buys its stock with a view to future distribution and, in fact, engages in that future distribution at a profit, whether originally so designed or not, it has dealt in its stock as it would in other property and has subjected itself to tax. I respectfully dissent.
Hill, 7., agrees with this dissent.