*271 Decision will be entered under Rule 50.
Petitioner, owner of certain patented inventions, licensed a corporation, in which he owned 1,780 and his wife 200 of its 2,000 shares of outstanding capital stock, to manufacture and sell the devices under agreements to pay a royalty of 10 percent of the gross receipts from the sales of each device. The license agreements were for a limited period and were mutually subject to cancellation without liability on giving a prescribed notice. The agreements were assigned to petitioner's wife, to whom the royalties were thereafter paid. Held:
(1) The plea of res adjudicata is applicable only to the extent of royalties in the sum of $ 4,881.35 paid in the taxable year 1937, under the licensing agreement of January 10, 1928.
(2) The remaining royalties paid in the taxable years are taxable income to petitioner. Estate of J. G. Dodson, 1 T.C. 416">1 T. C. 416, followed.
*415 *431 This controversy involves income tax deficiencies as follows:
| 1937 | $ 5,067.11 |
| 1938 | 4,533.01 |
| 1939 | 7,994.77 |
| 1940 | 29,540.50 |
| 1941 | 103,227.18 |
*272 The issues are (1) whether petitioner is taxable on the royalties paid under agreements licensing certain of his patents after the assignment of such agreements to his wife; (2) whether the doctrine of res adjudicata is applicable; and (3) whether the deficiencies for the years 1937 and 1938 were determined within the time prescribed by law. All the material facts were stipulated and are so found. They are summarized as follows:
FINDINGS OF FACT.
Petitioner is an individual, residing at Clayton, Missouri. His Federal income tax returns for the periods involved were filed on a calendar year-cash basis with the collector of internal revenue for the first district of Missouri.
*432 Sunnen Products Co., a Missouri corporation (hereinafter called the company), during the taxable periods was engaged in the manufacture and sale of patented grinding machines and other tools. During such years its outstanding stock consisted of 2,000 shares. Petitioner was its president and held 1,780 shares of its capital stock. Cornelia Sunnen, wife of petitioner, held 200 shares, and the remaining 20 shares were held by others connected with the company.
Petitioner was an inventor. He filed*273 applications and was issued letters patent by the Government of the United States on three devices or inventions. A*416 description of the device, the date of the filing of the applications, the date of issue of the patents, and the patent numbers are as follows:
| Date of | Number | Date patent | |
| Description | application | assigned | issued |
| patent | |||
| Cylinder grinder | Nov. 17, 1927 | 1,982,836 | Dec.4, 1934 |
| Pinhole grinder | Dec.4, 1931 | 1,913,689 | June 13, 1933 |
| Crankshaft grinder | May22, 1939 | 2,240,527 | May6, 1941 |
The petitioner remained the owner of such patents throughout the year 1941.
On December 29, 1939, petitioner filed an application for a patent on another crankshaft grinder. This application was assigned by petitioner to his wife on December 29, 1942, and patent No. 2,309,615 was issued to her on January 26, 1943.
On the following respective dates, petitioner licensed the company to manufacture and sell said inventions and devices on a royalty basis.
| Device | Date of royalty agreement |
| Cylinder grinder | Jan. 10, 1928 |
| Pinhole grinder | Dec. 5, 1931 |
| Crankshaft grinder | June 20, 1939 |
| Crankshaft grinder No. 2 | June 20, 1939 |
The licensing agreement with respect*274 to the cylinder grinder, executed under date of January 10, 1928, reads as follows:
Royalty Agreement.
This Agreement, made and entered into this 10th day of January, 1928, by and between Sunnen Products Company, a corporation organized and existing under and by virtue of the laws of the State of Missouri, Party of the First Part, and Joe Sunnen of the City of St. Louis, Missouri, Party of the Second Part, Witnesseth, that
Whereas, Joe Sunnen has invented and has applied for a patent on a device known as "cylinder grinders" for use in connection with automobile engines, the application for said Letters Patent being No. 233788, and
Whereas, the corporation is desirous of manufacturing, selling and distributing said device, it is hereby agreed between the parties hereto that the said Joe Sunnen does hereby grant and give to the Sunnen Products Company the right, *433 license and privilege to manufacture and sell said device in the United States and foreign countries, in consideration of which the Sunnen Products Company agrees to pay to the said Joe Sunnen ten percent (10%) of the gross sales price of said device as the same are manufactured, sold and collected for.
It is further*275 agreed between the parties hereto that either party shall have the right, without liability for damages or breach, to cancel this license or to cease manufacturing thereunder upon six months' notice in writing to the other party. In the absence of such cancellation, this Agreement shall be and continue in force for a period of ten (10) years from the date hereof.
In Witness Whereof, the parties hereto have caused this Agreement to be executed this 10th day of January, 1928.
The licensing agreements covering the other devices, i. e., pinhole grinders and crankshaft grinders, were in substance the same as the above quoted agreement. They differed only in respect to the description of the device covered, and the period for serving cancellation notice was "one year" instead of six months.
On January 10, 1938, the original royalty agreement covering the cylinder grinder device expired and petitioner executed a renewal license for the balance of the life of the patent, i. e., to December 4, 1951. This agreement was in substance the same as the original agreement and retained the "six month" period for serving cancellation notice.
All of the aforementioned license agreements were submitted*276 to the company's board of directors before execution. The board consisted of the following five members: (1) Petitioner, (2) petitioner's wife, (3) W. A. Douglass, (4) C. J. Schuepbach, and (5) R. S. Nichols. A vote of three was required to take binding action. The execution of the respective agreements on behalf of the company was authorized by the board. Petitioner was present at such meetings, but did not vote thereon.
At no time during the calendar years 1937-1941, or prior thereto, was any notice*417 of cancellation given by either petitioner, his wife, or the company, nor did the company give any notice of intent to cease manufacturing the devices, and the agreement remained in effect throughout such period in accordance with their terms.
The manufacture and sale of such patented devices constituted more than half of the business of the company during the taxable periods involved.
Under date of January 8, 1929, petitioner endorsed upon the back of the original license agreement of January 10, 1928, respecting the cylinder grinder device, the following statement:
January 8, 1929.
For value received I hereby sell, assign, and transfer to Mrs. Cornelia Sunnen, all my rights title*277 and interest in and to the Royalty which shall accrue hereafter to me on the within Royalty contract.
[Signed] Joe Sunnen
*434 On the back of said agreement also appears the following:
Royalty Lease
Standard Cylinder Grinder.
Assigned To
Cornelia Sunnen
Jan. 8-1929.
Under date of January 15, 1929, petitioner wrote a letter addressed to the company which read as follows:
Confirming verbal notice given you at the annual stockholders meeting held at the Company's offices on January 8th, 1929, I have for value received assigned to Cornelia Sunnen, all my rights, title and interest in the royalty contract covering "cylinder grinders", covered by letter patent No. 233788, said contract dated the 10th day of January 1928.
Under date of December 21, 1931, petitioner executed and duly acknowledged a further assignment with respect to the cylinder grinder device. After certain other preliminary recitals not material here, said assignment reads as follows:
Whereas, the United States Commissioner of Internal Revenue, through his representative, has raised some question as to the sufficiency and completeness of said assignment,
Now, Therefore, in consideration of the premises and in consideration*278 of the original consideration of said assignment, I hereby in all respects confirm said previous assignment and by this instrument do assign, transfer, set over and deliver to Cornelia Sunnen all of my right, title and interest in and to said royalty contract of January 10, 1928 between myself and said Sunnen Products Company, relating to the manufacture of the cylinder grinder described in said royalty contract, for the calendar year 1931, particularly. And I hereby state that the royalties accruing under said royalty contract have heretofore been and are hereafter the sole and exclusive property of the said Cornelia Sunnen, and hereby declare that said royalties shall be paid to the said Cornelia Sunnen or to her order, and that she shall have the sole right to collect, receive, receipt for, retain or sue for said royalties.
In Witness Whereof, I have caused these presents to be executed this 21st day of December, 1931.
[Signed] Joe Sunnen.
On the following dates petitioner executed written assignments of the renewal agreement covering the cylinder grinder and the original royalty agreements covering the other devices which he had licensed to the company.
| Cylinder grinder (renewal) | Jan. 10, 1938 |
| Pinhole grinder | Dec. 5, 1931 |
| Crankshaft grinders | June 20, 1939 |
*279 Each of said assignments purported to assign all of petitioner's right, title, and interest in and to the respective royalty contract and were in form and substance similar to the assignment dated December 21, 1931, hereinbefore set forth in part.
*435 In the case of each assignment petitioner notified the company in writing of the execution of the assignment and enclosed a copy thereof, except the original assignment of January 8, 1929, which had been endorsed on the back of the contract. All the above assignments were made as gifts by petitioner to his wife and were without consideration. All of such gifts made after 1932 were reported by petitioner for gift tax purposes.
*418 Pursuant to the above mentioned license agreements and assignments, the company paid to petitioner's wife in the taxable periods royalties as follows:
| Royalties paid on -- | 1937 | 1938 | 1939 | 1940 | 1941 |
| Cylinder grinder | |||||
| (1928 contract) | $ 4,881.35 | ||||
| Cylinder grinder | |||||
| (1938 contract) | $ 3,529.21 | $ 3,713.83 | $ 4,951.73 | $ 6,821.97 | |
| Bushing or pinhole | |||||
| grinder | 15,518.68 | 13,789.59 | 15,780.50 | 23,259.10 | 123,565.38 |
| Crankshaft grinders | 5,749.44 | 22,281.67 | 18,615.43 | ||
| Total | 20,400.03 | 17,318.80 | 25,243.77 | 50,492.50 | 149,002.78 |
*280 Petitioner's wife included these royalties in her Federal income tax returns for the years in which she received the same. She duly paid the income taxes thereon, which have not been refunded. The income tax returns of petitioner for the years 1937 and 1938 showed gross income in the respective amounts of $ 38,992.40 and $ 45,625.36.
The parties have stipulated that if the aforementioned royalties paid to petitioner's wife in 1937 and 1938 are taxable to petitioner, then section 275 (c) of the Revenue Acts of 1936 and 1938 is applicable, and under the consent agreements the deficiencies for the years 1937 and 1938 were determined within the period prescribed by law.
It was also stipulated that the opinion and decision of the Board of Tax Appeals in Joseph Sunnen, Docket Nos. 64117, 69526, and 74077, may be considered by this Court in this proceeding to the same extent as if introduced in evidence herein.
OPINION.
The question presented is whether the royalties accruing under agreements licensing the manufacture and sale of patents belonging to petitioner are taxable income to petitioner after the assignment of the royalty agreements to his wife, to whom the royalties were paid. *281 Petitioner first relies upon a plea of res adjudicata. The basis for the plea is our decision in the case of Joseph Sunnen, Docket Nos. 64117, 69526, and 74077, entered June 29, 1935. The validity of this plea must first be determined, since if the plea is sound it will dispose of the controversy. The prior action and decision related to the taxable years 1929, 1930, and 1931. The parties were the same as those here. The question litigated was whether the royalties paid in those *436 years pursuant to a licensing agreement dated January 10, 1928, which had been assigned to his wife on January 8, 1929, were taxable income of the petitioner. It was there held that those royalties were not taxable to petitioner. One of the issues in the instant proceeding is the same as that presented and determined in the prior proceeding, except the action or claim is different in that it has to do with taxes for a later year, i. e., the taxable year. That issue relates to royalties in the amount of $ 4,881.35 paid to the assignee in 1937, pursuant to the royalty agreement of January 10, 1928, covering the device known as a "cylinder grinder." It is the established law that where*282 a controlling fact or matter is in issue between the same parties and such fact or matter is again put in issue in a subsequent suit between the same parties or their privies, the former adjudication, if pleaded, will be conclusive of the issue in the later suit, whether or not the cause of action is the same in both suits. Tait v. Western Maryland Ry. Co., 289 U.S. 620">289 U.S. 620; Southern Pacific R. R. Co. v. United States, 168 U.S. 1">168 U.S. 1. We do not think this rule has been modified or changed by the case of Blair v. Commissioner, 300 U.S. 5">300 U.S. 5, where the Supreme Court found that a new, controlling fact had intervened, rendering inapplicable the doctrine of res adjudicata. We are not unmindful of recent decisions tending to limit the application of the Tait case, supra, as applied to tax litigation. 1 Until the rule is more clearly defined, however, we do not believe the doctrine of the Blair case requires a holding that any new legal concept enunciated in a subsequent decision, when the statutory law remains the same, renders the doctrine of res adjudicata inapplicable*283 where the controlling facts and issues are identical. Tait v. Western Maryland Ry. Co., supra;Arundel-Brooks Concrete Corporation, 4 T. C. 938. 2
*419 With respect to the royalty payment in 1937 of $ 4,881.35, there is a complete identity of issues and parties. The only new circumstance here is that under later decisions of the Supreme Court our former decision would, or at least might, *284 have been different. However, the fact that our decision may have been or even was erroneous does not furnish a basis here for a denial of the application of the doctrine of res adjudicata. Tait v. Western Maryland Ry. Co., supra.We therefore sustain the plea of res adjudicata as to the royalties in the amount of $ 4,881.35 paid in 1937 under the licensing agreement of January 10, 1928. Respondent erroneously included them in petitioner's gross income for that taxable year.
*437 We do not agree, however, with petitioner's contention that the plea of res adjudicata is valid as to the royalties paid in subsequent taxable years under the renewal contract of January 10, 1938, nor as to any of the royalties paid in any of the taxable years respecting the other inventions or devices. None of these royalty contracts or assignments were in issue in the prior proceedings.
The royalty agreement with respect to the "crankshaft grinders" did not come into existence until June 20, 1939. Although the royalty agreement and assignment with respect to the "pinhole" device were dated December 5, 1931, that agreement and assignment were not before*285 the Court in the prior proceeding. As we have observed, the validity of a plea of res adjudicata where the cause of action is different rests upon the premise that the very matter or thing in issue in the latter suit must have been adjudicated in the earlier action. A question can not have been adjudged before the subject matter basing the question came into existence. National Bank of Louisville v. Stone, 174 U.S. 432">174 U.S. 432, 435. New Orleans v. Citizens Bank, 167 U.S. 371">167 U.S. 371. Identity of principle involved does not base a plea of res adjudicata. Snyder v. Commissioner, 73 Fed. (2d) 5. New contracts respecting other subjects create new and different controlling issues. Harris-Emery Co., 37 B. T. A. 958; D. F. Strickland, 32 B. T. A. 804. We conclude that the plea of res adjudicata is not valid as to the deficiencies for the taxable years 1938, 1939, 1940, or 1941, nor as to the $ 15,518.68 royalties paid in the taxable year 1937 under the agreement respecting the "pinhole grinder" device.
On the merits, the respondent*286 contends that the assignments of the royalty agreements were mere anticipatory agreements to divert and reallocate income from petitioner's property to petitioner's wife, and under the authorities he is taxable thereon. Helvering v. Horst, 311 U.S. 112">311 U.S. 112; Helvering v. Eubank, 311 U.S. 122">311 U.S. 122; Lucas v. Earl, 281 U.S. 111">281 U.S. 111; Harrison v. Schaffner, 312 U.S. 579">312 U.S. 579; Estate of J. G. Dodson, 1 T.C. 416">1 T. C. 416. In the Dodson case petitioner's decedent was the sole owner of a formula protected by trade-mark. He licensed a corporation, in which he held a majority stock interest, to use the formula and trade-mark on a royalty basis. Later he assigned a half interest in the royalty agreement to his wife. The decedent retained title to the formula and trade-mark. We sustained the respondent in taxing the income from this half interest to decedent. In the case at bar petitioner was the sole owner of certain patented devices. He entered into agreements licensing a corporation, in which he held 1,780 of the 2,000 shares of outstanding*287 capital stock, to manufacture and sell such patented devices for a prescribed period upon a royalty basis. He retained title to all the patents for the periods here involved. The license agreements were for a limited period of time, mutually subject to cancellation without liability on *438 notice of either a six-month or one-year period. Either concurrently with the execution of the royalty agreements, or shortly thereafter, petitioner assigned the royalty agreements to his wife, who received the royalties paid thereunder. We think the facts in these two cases are so closely parallel as to make the Dodson case apposite. Thus, upon that authority, we conclude that all the royalties paid under the licensing agreements during the taxable years, except as to the amount of $ 4,881.35 paid in 1937 and held excludible under the doctrine of res adjudicata, were, in fact, taxable income of petitioner.
In view of our holding that all the royalties paid, except the amount of $ 4,881.35, were taxable to petitioner, it follows under the stipulation that the deficiencies were determined within the period prescribed by law.
Decision will be entered under Rule 50.
Footnotes
1. Pelham Hall Co. v. Hassett, 147 Fed. (2d) 63; Monteith Bros. Co. v. United States, 142 Fed. (2d) 139; Commissioner v. Western Union Tel. Co., 141 Fed. (2d) 774; Commissioner v. Security-First Nat. Bank of Los Angeles, 148 Fed. (2d) 937; Henricksen v. Seward↩, 135 Fed. (2d) 986.
2. Reversed, Commissioner v. Arundel-Brooks Concrete Corporation↩, 152 Fed. (2d) 225.