dissenting: I am unable to concur in the foregoing opinion. It seems to me that both legal and economic reasoning lead to an entirely different conclusion.
We should reject, as did the Supreme Court jn Southern Pacific Co. v. Lowe, 274 U. S. 830, “the broad contention of the government that all receipts — everything that comes in — are income within the proper definition of the term ‘ gross income.’ ” We should consider, first, whether the receipts here under consideration are income with.in the meaning of the Sixteenth Amendment, and second, whether they are income within the meaning of the statute, for, as was said in Towne v. Eisner, 245 U. S. 425, “ but it is not necessarily true that the income means the same thing in the constitution and in the act.” Here, as in Eisner v. Macomber, 252 U. S. 189, we should analyze everything connected with the receipts and having a bearing upon their source and nature, and determine whether or not they are income within the meaning of the constitution, and we must carefully regard the truth and substance and disregard the form.
In Eisner v. Macomber, supra, the court had under consideration the question of what constituted income within the meaning of the constitution. “ Income ” is there defined as the “ gain derived from capital, from labor, or both combined, including profit gained through sale or conversion of capital.” On page 207, Mr. Justice Pitney, in the case just cited, said:
The Government, although basing its argument upon the definition as quoted, placed chief emphasis upon the word “gain” which was extended to include a variety of meanings, while the significance of the next three words was either overlooked or misconceived — “ derived-from-capital “ the gain-derived-from-capital ” etc. Here we have the essential matter; not a gain accruing to capital, not a growth or increment of value in the investment, but a gain, a profit, something of exchangeable value proceeding from the property, severed from the capital however invested or employed, and coming in, being “ derived ”, that is received or drawn 6y the recipient (the taxpayer) for his separate use, *329benefit, and disposal; that is income derived irom property. Nothing else answers the description. (Italics ours.)
See also Merchants Loan & Trust Co. v. Smietanka, 255 U. S. 509; Eldorado Coal & Mining Co. v. Mager, 255 U. S. 522; Goodrich v. Edwards, 255 U. S. 527; Walsh v. Brewster, 255 U. S. 538.
Section 213 (a) of the Revenue Act of 1918 is identical with section 213 (a) of the Revenue Act of 1921 and reads as follows:
Sec. 213. That for the purposes of this title (except as otherwise provided in section 233) the term “ gross income ”—
(a) Includes gains, profits, and income derived from salaries, wages, or compensation for personal service (including in the case of the President of the United States, the judges of the Supreme and inferior courts of the United States, and all other officers and employees, whether elected or appointed, of the United States, Alaska, Hawaii, or any political subdivision thereof, or the District of Columbia, the compensation received as such), of whatever kind and in whatever form paid, or from professions, vocations, trades, businesses, commerce, or sales, or dealings in property, whether real or personal, growing out of the ownership or use of or interest in such property; also from interest, rent, dividends, securities, or the transaction of any business carried on for gain or profit, or gains or profits and income derived from any source whatever. The amount of all such items shall be included in the gross income for the taxable year in which received by the taxpayer, unless, under methods of accounting permitted under subdivision (b) of section 212, any such amounts are to be properly accounted for as of a different period; but * * *
The receipts here under consideration must meet the test as prescribed by the statute and as prescribed by the Supreme Court in its interpretation of the constitution. The petitioner admits that it has income in an amount equal to 6 per centum on its capital plus noncleductible Federal taxes, plus the 2 per centum tax paid on its own tax-free-covenant bonds. The question is whether the remainder of its receipts are income. Have they the essential attributes? Have they the element of gain, of profit? Are they something of exchangeable value ? Are they severed from the capital of the taxpayer?
In Merchants Loan & Trust Co. v. Smietanka, supra, the Supreme Court in discussing the definition set forth in Eisner v. Macomber, supra, expressed itself as “entirely satisfied with that definition.” Further in their application of the definition to the facts in that case, they said: “ It is palpable that it was £ a gain or profit5 ‘ produced by ’ or £ derived from ’ that investment and that it ‘ proceeded ’ and was £ severed ’ or rendered severable from it by the sale for cash and thereby became that £ realized gain ’ which has been repeatedly declared to be taxable income within the meaning of the constitutional amendment and the acts of Congress.” They further said with reference to the meaning of the word income and their definition thereof, “ There would seem to be no room to doubt that the word must be given the same meaning in all of the Income *330Tax Acts of Congress that was given to it in the Corporation Excise Tax Act, and that what that meaning is has now become definitely settled by the decisions of this court.”
It should be borne in mind that the receipts here under consideration are not subject to the will of the corporation. They may not be distributed, their use is limited by and to the provisions of the franchise. The mere fact that these receipts may not be distributed as earned, is not in itself sufficient to take them out of the classification of income but that fact as it here appears, is of the greatest importance in applying the test prescribed by the Supreme Court. The taxpayer has pledged itself to apply these receipts against the cost of service as soon as the accumulation reaches $700,000. This situation has already arisen and the fund thus accumulated has already been so applied. It may arise again at any time. I do not see how it can possibly be said that these receipts in the hands of this taxpayer have an “ exchangeable value ” because, if for no other reason, they have not been and can not be “severed” from the fund and made available to the taxpayer. Note the language of Justice Pit-ney — “for his separate use, benefit, and disposal.” Separate use, separate benefit, separate disposal — each of those words has a commonly accepted meaning. Are these receipts subject to the separate use, the separate benefit, the separate disposal of this taxpayer? Clearly they are not. They may not even be added to or included in the capital account upon which the petitioner is permitted to earn 6 per centum. In fact the excess receipts, by the terms of the franchise, serve to reduce the receipts for the succeeding period or periods in which the accumulations exceed $700,000. In them this petitioner has nothing definite, nothing tangible, nothing usable in the way of income. Their accumulation is a matter of no interest to the petitioner because no advantage is gained thereby. No gain or profit results from such an accumulation and it lacks several of the essentials of true income under the Sixteenth Amendment.
In the case of Bourne v. McLaughlin, 19 Fed. (2d) 148, the court, after quoting the definition from Eisner v. Macomber, said:
Gains arising out of dealings in property are not taxable unless they fall within the above definition of income. This is true whether the statute under which the tax is levied is that of 1916 or 1926. The explicit recognition of the principle that income is not realized unless it is received in a form which has an equivalence in cash, a realizable market value, found in the 1918 and subsequent statutes is not a restriction of the incidence of the income tax. It is merely an express statement of a principle inherent in the nature of income as recognized in Eisner v. Maconiber, supra, in the statement that income must be “ a gain, a profit, something of exchangeable value, proceeding from the property.”
The statutory definition of gross income is phrased to include gains, profits, and “ income derived front any source .whatever.” It *331is clear that this definition is limited by the broad concept of income and that anything which is not income in the broad sense may not be gross income within the meaning of the statute. For example, if the thing received has no exchangeable value or if it has not been severed from capital, it may not be considered gross income under the statute. It seems to me that these receipts lack the essential attributes of income whether tested by the common concept of income or the statutory definition of gross income.
If these receipts are income, it does not follow that the Commissioner’s determination should be approved. The last sentence of section 213(a) reads as follows:
Tlie amount of all sucli items shall be included in the gross income for the taxable year in which received by the taxpayer, unless, under methods of accounting permitted under subdivision (b) of section 212, any such amounts are to be properly accounted for as of a different period.
Section 212 (b) reads as follows:
(b) The net income shall be computed upon the basis of the taxpayer’s annual accounting period (fiscal year or calendar year, as the case may be) in accordance with the method of accounting regularly employed in keeping the books of such taxpayer; but if no such method of accounting has been so employed, or if the method employed does not clearly reflect the income, the computation shall be made upon such basis and in such manner as in the opinion of the Commissioner does clearly reflect the income. If the taxpayer’s annual accounting period is other than a fiscal year as defined in section 200 or if tlie taxpayer has no annual accounting period or does not keep books, the net income shall be computed on the basis of the calendar year.
If a taxpayer changes his accounting period from fiscal year to calendar year, from calendar year to fiscal year, or from one fiscal year to another, the net income shall, with the approval of the Commissioner, be computed on the basis of such new accounting period, subject to the provisions of section 226.
In accordance with the last sentence of section 213 (a), the respondent has, both by regulation and decision, repeatedly permitted or required the accounting for income in a period other than that of its receipt. As to his action in this respect it is sufficient to call attention to article 36 of Regulations 45 relative to long-term contracts and article 44 of the same regulations relative, to sales of real estate on the deferred payment plan.
Upon consideration of these receipts, the purposes to which they are pledged, and the limitations upon their use, I am convinced that if they are income (and in my judgment they are not) they may not be included in gross income in the year in which received unless and only to the extent that they are expended within the year. Such part as is not absorbed should be carried forward as deferred income until actually expended. The result of this conclusion is to limit income in any year to the amounts contended for by the petitioner.
Smith, Teussell, and Love concur in this dissent.