Brown's "Shamrock" Linens, Ltd. v. Bowers

SWAN, Circuit Judge.

The plaintiff is a corporation organized under the laws of Great Britain, and during the year 1918 it was engaged in the business of importing and selling in the United States linens and other textiles. Being a foreign corporation, the assessment of its war profits and excess profits tax was required, by section 327(b) of the Revenue Act .of 1918, to be computed by the Commissioner in accordance with section 328 (40 Stat. 1093). That section reads in part as follows:

“Sec. 328. (a) In the cases specified in section 327 the tax shall be the amount which bears 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 * * * £or gugk year. * * *
“In computing the tax under this section the Commissioner shall compare the taxpayer only with representative corporations whose invested capital can be satisfactorily determined under section 326 and which are, as nearly as may be, similarly circumstanced with respect to gross income, net income, profits per unit of business transacted and capital employed, the amount and rate of war profits or excess profits, and all other relevant facts and circumstances.”

The complaint alleges upon information and belief that for the year 1918 the ratio of the average tax to the average net income of representative corporations engaged in like business and similarly circumstanced to plaintiff in the respects specified in the statute, did not exceed the sum of 25 per cent., and it charges that the Commissioner failed to use this ratio, but illegally assessed against plaintiff a tax which was 44.8 pereent. of its net income for said year, resulting in an illegal exaction of some $19,600., for the recovery of which this suit w„as brought after a claim for refund had been rejected. Thus it is apparent that the complaint attacks the correctness of the ratio used by the Commissioner and asks the court to review all the comparative data which under the statute must enter into his determination of such ratio. The District Court held that section 328 vested in the Commissioner administrative discretion in the computation of the tax which was not subject to judicial control on the mere allegation of error or illegality. Its opinion may be found in 41 F.(2d) 862. The correctness of this view is the sole question presented by this appeal.

A majority of the court are of opinion, as was the judge below, that the law is set-*104tied adversely to appellant’s contention by Williamsport Wire Rope Co. v. United States, 277 U. S. 551, 48 S. Ct. 587, 72 L. Ed. 985. There it was held that the Court of Claims was without jurisdiction to review the Commissioner’s refusal to grant a domestic corporation a' special assessment, because the Commissioner’s determination involved administrative discretion which could only properly be exercised by an official or a body having wide experience with the class of problems concerned. It is true that there the precise question was whether conditions existed which entitled the domestic taxpayer to a special assessment, the Commissioner having computed its' tax by the normal method; while here the foreign taxpayer is required to have a special assessment, and the question is whether it has been rightly computed. But the considerations which controlled the answer to the former question are equally .applicable to solution of the latter, and were, we think, present to the mind of the court, as indicated by the following quotations from the opinion of Mr. Justice Brandeis (pages 558, 559 of 277 U. S., 48 S. Ct. 587, 589)

“* _* * The task imposed on the Commissioner by sections 327 and 328 was one that could only be performed by an official or a body having wide knowledge and experience with the class of problems concerned. For the requirement of a- special assessment under paragraph (d) of section 327, and its computation in all cases, are dependent on ‘the average tax of representative corporations engaged in a like or similar trade or business.’- [Italics ours.]

“ * * * What are ‘representative corporations engaged in a like or similar trade or business;’ which corporations are ‘as nearly as may be, similarly circumstanced with respect to gross income, net income, profits per unit of business transacted and capital employed, the amount and rate of war profits or excess profits, and all other relevant facts and circumstances’ — these are all questions of administrative discretion.”

In Blair v. Oesterlein Mach. Co., 275 U. S. 220, 226, 48 S. Ct. 87, 89, 72 L. Ed. 249, it was said that “there is no inherent impossibility, or, indeed, serious difficulty in reviewing judicially any determination authorized by sections 327 and 328,” but this language was used with reference to a review b’y the Board of Tax Appeals, and must, in the light of the later Williamsport decision, be so limited. Whether, upon appeal from the Board, a Circuit Court of Appeals has power to review a decision of the Board in respect to special assessment under these sections, we need not now say. See Ryan Car Co. v. Commissioner, 44 F.(2d) 26 (C. C. A. 7); cf. Cramer & King Co. v. Commissioner, 41 F.(2d) 24 (C. C. A. 3).

The interpretation of the Williamsport opinion which we adopt was also adopted by the Court of Claims in Chicago Frog & Switch Co. v. United States, 67 Ct. Cl. 662, cert. denied 280 U. S. 579, 50 S. Ct. 32, 74 L. Ed. 629. That was a ease identical with the suit at bar, except that the complaining taxpayer was a domestic corporation. See, also, Clinton Iron & Steel Co. v. Heiner, 30 F.(2d) 542, 544 (D. C. W. D. Pa.). The fact that special assessment is mandatory for a foreign corporation and permissive for a domestic one furnishes no basis for distinction-when each is attacking the Commissioner’s computation on the ground that he selected improper comparatives in determining the assessment which he made.

The judgment is affirmed