dissenting: I find myself unable to agree with the majority decision that the amount which the petitioner received from the United States Government pursuant to section 209 of the Transportation Act of 1920 is to be included as a part of its income taxable under the provisions of the Revenue Act of 1918.
The case of the Missouri Pacific Railroad Company, decided this day, presents a more complete picture of the extent to which this decision goes than is possible under the meager facts in this case. There the guaranteed amount appears as something less than $7,250,000. The company was paid over $13,500,000, making it clear that the payment, to the extent of some $6,000,000, was to replace actual losses of operation. The payment was not only to increase operating income to a certain point, it was to make good all losses of operations.
The circumstances which led to the enactment of this legislation are a matter of public record and of general knowledge. The railroads had been under Government operation for more than two years. Costs of labor and materials had reached unprecedented levels, and this was particularly true with respect to railroad labor. The impaired condition of maintenance of the roads and of the equipment had increased operating costs. Increases in rates had not kept pace with the increased costs of operation and, while it was recognized that higher rates would be necessary, it was also recognized that they could not be put into effect at once. Many of the railroads which had been on a paying basis before the period of Federal control were facing large deficits, while the earning powers of all were substantially impaired.
Adequate transportation was recognized as necessary to the well-being of the nation. The railroads had been operating primarily for the purpose of aiding the prosecution of the war and not for the *265production of income. Their condition was attributable primarily to such operation and Congress recognized the necessity and the equity of granting some relief during the period of adjustment. The Federal Control Act and the agreements entered into thereunder had provided for the payment of compensation for the use of the roads and gave to the railroads all that they were constitutionally entitled to demand. The aid given them under the provisions of section 209 of the Transportation Act was nothing which they could have demanded and was not in settlement of any legal claim which they had. It was based upon the recognition of a moral or equitable obligation to provide some means by which the railroads might be compensated for the impairment of their earning power, caused by Federal control, until an opportunity had been granted, under private operation, to take the necessary steps to put rates and wages upon a business basis.
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.
I believe that there is a very grave doubt whether such a payment, made to replace a loss of income without any legal obligation to do so, falls within the constitutional provision. Edwards v. Cuba Railroad Co., 268 U. S. 628; Bowers v. Kerbaugh Empire Co., 271 U. S. 170; Rice, Burton & Fades v. Commissioner, 41 Fed. (2d) 339; Edward E. Marshall, 10 B. T. A. 1140; H. Sheldon Manufacturing Co., 13 B. T. A. 1296. If this be so, two well established rules of construction apply: the first, that statutes are to be construed to avoid doubts as to constitutionality; the second, that taxing statutes are not to be extended to matters not clearly included. Having these principles in mind, it seems to me that a proper construction of the Transportation Act requires us to reach the conclusion that the amount paid under its terms is not subject to income tax.
Paragraph (f) of section 209 of the Transportation Act provides the method by which railway operating income is to be computed. Subdivision (4) provides that there shall not be included in such computation such portion of the taxes paid under Title II or III of the Revenue Act of 1918 as by the terms of such act are to be treated as levied by an act in amendment of Title I or II of the Revenue Act of 1917. The effect of this provision can be understood only after reference to several other statutes. These we find quoted *266and analyzed in the decision in New York, Ontario & Western Railway Co., 1 B. T. A. 1172. The ultimate effect of the provision quoted is, as I understand it, as follows: The operating income for the guaranty period is reduced by a 2 per cent income tax, but is not reduced by the remainder of the income and profits tax imposed by the Revenue Act of 1918. The difference between the amount of the guaranty and the operating revenue as so reduced is to be paid to the carrier. By virtue of this provision the Government is to repay to the carrier a 2 per cent tax upon its operating income and the carrier is to bear the remainder of the tax upon its operating income. The Transportation Act thus expressly provides the extent to which taxes imposed under the Revenue Act of 1918 shall affect the payment to be made under the Transportation Act and the amount of the payment is dependent upon the amount of the tax. It is not reasonable to suppose that Congress, in thus providing that the amount of the guaranty payment should include a part of the tax levied under the Revenue Act of 1918 and should not include another part of the same tax, intended that such payment should again be reduced by paying a tax thereon under the same revenue act. The provisions of the Transportation Act and of the Revenue Act of 1918 are so interwoven that the two acts must be read together. When this is done a proper application of the rules of construction requires a holding that Congress intended the amount of the guaranty to be reduced by the taxes imposed by the Revenue Act of 1918 only to the extent expressly provided in the Transportation Act.
It seems to me significant that under the Federal Control Act (March 21, 1918) Congress, in providing for the payment of just compensation for the use of property taken over by the Government, inserted provisions for the taxation thereof and in the Transportation Act failed to provide that the payment by the Government should be taxable, while at the same time it provided in the Transportation Act for a division of the tax upon the actual operating income upon the same basis as was provided in the Federal Control Act for the tax upon all income. Had Congress intended that the basis for taxation prescribed in the Federal Control Act should continue with respect to the payments under the Transportation Act, it seems reasonable to suppose it would have so provided; instead of which, it provided for the continuance of such taxation only with respect to the actual operating income.
I am of the opinion that the Commissioner was in error in including such payment as a part of the gross income of the petitioner.