dissenting: The majority opinion taxes petitioners, as members of a partnership, with their proportionate shares of $16,-134.02, which amount is held to be income for 1930, and it is pointed out that the partnership was solvent in that year. But the partnership was still insolvent in 1927, when it executed one demand note to cover the entire indebtedness which had been deferred, which note did not bear interest, and the creditors further agreed that whenever the total payments made on this note, together with the principal and interest payments made on their claims prior to 1927, should equal the face value of the note the unpaid balance thereof would be canceled. The creditors were willing to discontinue charging inter*432est and to revise the agreement which they had made with the partnership in 1923 in order to assist the partnership in “working out of its difficulties” and to pay the balance of the creditors’ claims.
I am of the opinion that, under these circumstances, so much of the partnership indebtedness as was equal to the interest payments made from 1923 to 1926, inclusive, was forgiven by the creditors in 1927 upon condition that the partnership pay the entire principal amount of the indebtedness. It appears to me that the partnership was actually relieved in 1927 from paying an amount to its creditors which the evidence shows it could not have then paid. Clearly the parties contemplated no profit, under the terms of the 1927 agreement. Although the partnership' undoubtedly received a benefit in that it was enabled to continue in business, and it made a profit during the next few years, it does not follow that the partnership derived any gain or income, within the meaning of the Constitution and the revenue acts, when the final payments were made in 1930 and the note was marked paid and returned by the creditors. Meyer Jewelry Co., 3 B. T. A. 1319; Simmons Gin Co., 16 B. T. A. 793; aff'd., 43 Fed. (2d) 327; Porte F. Quinn, 31 B. T. A. 142; Dallas Transfer & Terminal Warehouse Co. v. Commissioner, 70 Fed. (2d) 95, reversing this Board’s decision reported at 27 B. T. A. 651.
As was said by the Court of Appeals for the District of Columbia in Burnet v. Campbell Co., 50 Fed. (2d) 487, affirming 15 B. T. A. 458, where it was held that the cancellation by creditors of a part of their claims against a debtor corporation which was in financial distress in order to secure payment of the balance thereof did not produce taxable income to the debtor corporation:
* * * We do not believe that the term “income” as commonly understood applies to the partial cancellation by a creditor of a debt due to him from a disabled debtor, in order that such debtor may thereby be enabled to pay the balance of the debt. “The fact that after the transaction the plaintiff’s balance sheet had improved was not sufficient to constitute ‘a gain derived from capital.’ If anything it was a gain accruing to capital, and, as such, under the Eisner and Phellis eases, was not taxable income.” Kerbaugh-Empire Co. v. Bowers, 300 Fed. 938; Aff’d. 271 U. S. 170.
In my opinion the facts of the instant case are distinguishable from those in B. F. Avery & Sons, Inc., 26 B. T. A. 1393, cited in the majority opinion, where the cancellation of a part of the taxpayer’s indebtedness served to reduce the cost price of goods purchased by him.
Smith and Arundell agree with this dissent.