dissenting: I am unable to concur in the decision and opinion of the Board in the above appeal.
In my opinion the appeal presents a situation which clearly comes within the provisions of section 327 of the Eevenue Act of 1918. The taxpayer constructed its original mill building at less than the *309market price prevailing at the time, because the brick for the foundation and walls was made on the taxpayer’s premises and cost approximately $4.50 per thousand when laid, whereas the prevailing cost at that time was approximately $8 to $10 per thousand. The same situation existed with respect to additions to the original mill building. The brick cost approximately $6.25 per thousand while the prevailing market price was approximately $12 per thousand. In other words, the brick used in the construction of these buildings cost the taxpayer approximately 50' per cent of the market value. No evidence was introduced, however, as to the investment in these assets or their value when acquired. We have, therefore, no means of determining whether capital was substantially affected by the foregoing circumstances.
But, in addition to the foregoing facts, the taxpayer developed water rights which yielded approximately 700 horsepower. The cost of developing this water power was approximately $50,000, and, when developed at such expense, had an estimated value of from $350,000 to $400,000. This was a material income-producing factor in the business. The taxpayer thus had and used in its business, as a material part of its capital assets, property of a substantial value which it could not include in invested capital due to the limitations of section 326.
The opinion states that invested capital, under the statute, is to be computed upon the basis of the capital embarked by the stockholders and upon the surplus earned or paid in subsequent to organization. This is undoubtedly true, but the question then presents itself whether, when the taxpayer has in its business assets of a recognized and substantial value which are producing income and which it can not capitalize, due to the limitations of section 326, an •abnormality exists which brings it within the provisions of section 327. My view is that it does. That fact, in my opinion, is an abnormality affecting capital, as provided in section 327, provided the amount excluded from invested capital on this account is substantial in amount. If, on account of such exclusion, an exceptional hardship results, as evidenced by a gross disproportion between the tax computed without the benefit of that section and the tax computed by a reference to representative corporations, as specified in section 328, the taxpayer is entitled to relief, according to my interpretation of the statute.
As an illustration, take the case of a corporation which has patents ■of a recognized value of $10,000,000, but which it has developed in its business at a cost of $10,000. Under section 326 it can include in invested capital only the $10,000, which is the cost of development and acquisition of the patents. Yet, if the patents when acquired had an actual value of $10,000,000, it seems to me that it would be *310perfectly clear that an abnormality in capital existed and that an-exceptional hardship would be placed upon such a taxpayer if the excess-profits credit were allowed it upon the basis only of cost of acquisition of such patents. If such a situation is not an abnormality in capital, or, if the case of a taxpayer having in its business capital assets which it can not include in invested capital, due .to-the operation of section 326, does not present an abnormal situation-affecting capital as contemplated in section 327, I do not know of any case or set of facts which constitutes an abnormality in respect-to capital.
I believe that the congressional history of the legislation involved and the discussions during the progress of the legislation in Congress, amply support the position I have taken in this appeal. This is-illustrated by the following quotation from the report of the Senate-Finance Committee to the Senate while the Eevenue Act of 1918 was before that body:
* * * ipjjg pregent statutory rule works well in a large majority of cases. The remaining eases in which it works injustice can and should be cared for by adequate relief provisions which the Committee has carefully formulated and recommends. The Committee therefore endorses the general-rule expressed by the House bill in paragraph 3 of sub-division (a) of section 326, but believes that in certain exceptional cases inability to reeognize-appreciation furnishes just ground for relief and in order that such relief may not be imperiled by over-emphasis upon the general principle, recommends that the explicit denial of the right to include any increase in value-of assets over original cost be stricken from section 326.
The question before the committee at that time was whether section 326 should contain an express provision that the increase in value of assets over cost should not be included in invested capital. The committee clearly had in mind in making that report that such, a situation might present a case where relief should be granted under-section 328.
Section 327, as it passed the House, was amended in the Senate-by adding additional grounds for relief. Subdivision (3) was-changed to read, in part, as follows:
Where the invested capital is materially disproportionate to the net income-as compared with representative corporations engaged in a like or similar-trade or business because: * * *
2. There are excluded from the' invested capital as computed under the provisions of section 326, intangible assets of recognized and substantial value built up or developed by the taxpayer * * ⅜.
Mr. Kitchin, who was in charge of the bill in the House and who was a member of the conference committee, in his report from the committee to the House, referred to the changes as follows:
The Senate amendment increases the classes of eases in which the tax is to be fixed by reference to the experience of representative corporations; includes therein all foreign corporations, and provides that in such cases the *311tax shall be the amount which, hears the same ratio to the net income of the taxpayer for the taxable year as the average tax of representative corporations engaged in a like or similar trade or business bears to their average net income for such years.
The House recedes with amendments :
(1) Making clerical changes;
(2) Oonsolidating a number of separate classes of cases differentiated in the Senate amendment into a single class of cases * * *.
It thus seems that the purpose of section 327, as finally passed, was to consolidate the provisions set out separately in the amendments which enlarged the scope thereof within a single class of ■cases. In my opinion, it was not the intention of Congress to make section 327 any narrower than the language of the amendments clearly and specifically provided.
Even the most strict construction of section 327, in my opinion, would warrant my view in this appeal, but this being admittedly relief legislation, it should be given a broad and liberal construction.
I readily agree that there is not sufficient evidence in this appeal to entitle the taxpayer to relief under section 328, because no evidence of the taxes paid by representative concerns has been introduced, and this being true, we have no means of knowing whether the taxpayer has suffered an exceptional hardship as evidenced by gross disproportion between the tax computed without the benefit of this section and the tax computed by reference to representative ■corporations specified in section 328. However, this does not mean that there was not an abnormality in the capital of this taxpayer, -and the Board, in other appeals, has determined that there was abnormality in capital or income and has referred the case back to the Commissioner for the selection of proper comparatives. Since an abnormality in capital clearly exists in this appeal, I differ from the Board in that I think the case should be referred to the Commissioner for the selection of comparatives and the determination of the tax based upon the use thereof.
Phillips concurring.