(dissenting).
The main question presented is whether the petitioner, for the year 1937, was a personal holding company within the meaning of Sections 351, 352, and 353 of the Revenue Act of 1936, as amended by the Revenue Act of 1937, 26 U.S.C.A. Int.Rev. Acts, pages 973, 974, and thus subjected to surtaxes as a personal holding company.
The petitioner challenges respondent’s determination of a personal holding company surtax deficiency in the amount of $48,132.42 for the year 1937.
There is involved, also, the question as to whether at least 80 per cent, of petitioner’s gross income for. the year 1937 was holding company income. This is a question of fact, in the first instance, which must be determined from a review of the record. The Tax Court of the United States made its findings of fact, and after a careful consideration of the testimony produced at the hearing, as disclosed by the record, I find no fault with the findings.
In Phillips et al., Executors v. Commissioner of Internal Revenue, 283 U.S. 589, 600, 51 S.Ct. 608, 613, 75 L.Ed. 1289, the court said:
“* * * Save as there may be an exception for issues presenting claims of constitutional right, such administrative findings on issues of fact are accepted by the court as conclusive if the evidence was legally sufficient to sustain them and there was no irregularity in the proceedings. Hi H< H? }f
As I view the record, there are no issues here presenting claims of constitutional right. I am convinced the evidence was legally sufficient to sustain the findings of fact and there is no irregularity in the proceedings. Therefore, the findings of fact are conclusive and must be accepted here.
The petitioner was before this court in Commissioner of Internal Revenue v. Affiliated Enterprises, Inc., 10 Cir., 123 F.2d 665, involving the income from the contract issued by it in the years 1934, 1935 and 1936. Certiorari was denied, 315 U.S. 812, 62 S.Ct. 796, 86 L.Ed. 1211. This court is bound by that decision, so far as it is applicable here. The same contract issued by the petitioner in those years was used for the year 1937, and the question presented here is set forth in petitioner’s brief as follows: “Whether 41.3% of the petitioner’s income in the year 1937, which was found by the Tax Court to have been received from oral contracts, constituted royalties within the meaning of Sections 351, 352 and 353 of the Revenue Act of 1936 as amended by the Revenue Act of 1937, and thus subjected the petitioner to surtaxes as a Personal Holding Company.”
A pamphlet, “Manual Bank Night Theatre Service for 1937,” was introduced in evidence before the Tax Court of the United States. On the final page of this exhibit are the words: “Bank Night Theatre Service, a Department of Affiliated Enterprises, Inc.” and in small print immediately below: “Owner of the trade-name, trade-mark, copyrights and/or patents pertaining to Bank Night.”
*651The Tax Court of the United. States, in its opinion (R. 15), said:
“Furthermore, it is apparent from the record that Respondent in its dealing with theatre operators treated the transaction as one involving the payment of royalty for the use of a creative, novel idea possessing utility. During all the years involved, it had pending applications for a patent and copyright. The trade name was registered in the states in which it operated. The contract was headed: ‘Bank Night License Agreement.’ It recited that Respondent was the owner of the copyrighted and trade mark name, ‘Bank Night,’ and of certain copyrights and patents pending. It specifically stated that the intent of the agreement was to grant the licensee the right to use the copyright and trade mark name, ‘Bank Night,’ and all copyrighted articles. The parties at the time certainly thought they were dealing with reference to an idea subject to protection by patent or copyright, and that the transaction involved royalty payments.”
The opinion further stated:
“Neither the Gantz nor Gruber case held that petitioner had no property rights whatever in Bank Night. As to the former, the same court which decided it, later characterized the situation as follows (Commissioner v. Affiliated Enterprises, 10 Cir., 123 F.2d 665, 667) : ‘The Board seems to have based its decision on the ground that Respondent [petitioner] had no property rights in its idea or system on which it could give licenses to others, because the system was not patentable. * * * But the creative or novel idea would still have value and be subject to contract in the absence of a patent statute. * * * And while we ordinarily think of royalty as payment for patentable or copyrightable articles, it is not necessarily required that the creative idea be subject to patent or copyright.’
“And in the Gruber case, the court said:
“ ‘At any rate, we think that the name ‘Parlay Cash Night’ to designate the defendant’s business through exhibitions or drawings will have no tendency to confuse the public or plaintiff’s [petitioner’s] possible customers or licensees * * *.
“ ‘* * * the plaintiff * * * can come into equity for an injunction against unfair competition, prohibiting another from representing the exhibitions promoted by him are exhibitions promoted by it and preventing the unwarranted use of its property to aid him in competing with it. It is not alleged that the defendants have done any of these things. * * ”
And further:
“The uncontradicted documentary evidence shows that at this time petitioner still maintained its claims to the ownership of copyrights, trade-marks, and similar exclusive proprietorship and some, at least, of these statements were of a nature to have come logically to the attention of prospective customers.”
The record also discloses that the petitioner made application for a patent in 1937 and 1938, and that the applications were rejected because “the art cited is unpatentable.”
I think the record also justifies the holding by The Tax Court that the petitioner, not only in 1937, but as late as 1938, was clinging desperately to the idea that it had a property right and an interest in the term, “Bank Night,” and in everything that might be connected closely with that term.
The facts out of which these “oral contracts” developed are set out in detail in the findings of fact. It appears that evil days had befallen the petitioner in adverse holdings in litigation in various jurisdictions concerning its supposedly protected rights in what it designated “Bank Night.” The petitioner was confused and uncertain as to its position. It added other features to its service, and in 1937, it contacted the same motion picture exhibitors, inducing them, where possible, to enter into the same contract issued by it in previous years. In this business, from which its income was derived, it was able to procure written contracts from 58.32 per cent, of such exhibitors. But 41.3 per cent, refused to sign a written contract, and with those, the petitioner negotiated orally. The reason for the exhibitors refusing to sign a written contract is obvious. The publicity of the misfortunes of the petitioner in the courts was such that those exhibitors were doubtful whether they would be able to continue the benefits they were presumed to get under the written contract for the term of the contract, because of the unsettled condition confronting the petitioner. That condition, however, would have very little bearing upon the character of income that was thus sought and produced. There can be no question as to the character of the income produced from the written con*652tracts which constituted the 58.32 per cent, under the decision in Commissioner v. Affiliated Enterprises, Inc., supra. The mere fact that the 41.3 per cent, was income for the identical service under oral contracts would be immaterial as the income would be of the same character.
It is apparent from the record that petitioner was deriving an income from what it at least hoped would eventually turn out to be a protected right. This is evident from the testimony of Charles U. Yaeger, president of Affiliated Enterprises, Inc., when he was interrogated about the oral contracts as follows: (R. 38)
“Q. Well, why was it necessary to say anything about legal advice? A. Because the theaters who operated Bank Nite needed legal advice. If it hadn’t been for our legal department they wouldn’t have been able to continue operation.
“Q. Well, even with the legal advice they weren’t able to continue with Bank Nite, were they? A. Yes, sir.
“Q. Under the contracts with you? A. They were unable to continue after without the contracts and with contracts.
“Q. However, when the fraud order was issued in 1938 — A. At that time 'we discontinued Affiliated Enterprises.
“Q. Yes. Now, what did that legal advice consist of? A. Consisted in defending them against all lottery charges and any other incidental things that might come up pertaining to the operation of the system known as Bank Night.
“Q. Were there any such charges made against people using Bank Nite? A. You mean lottery charges?
“Q. Yes. A. Yes, sir.
“Q. Whereabouts? A. Well, the places were so numerous that I just offhand couldn’t state them.
“Q. Well, you could name one, couldn’t you?
“Mr. Gould: You mean in the year 1937?
“A. Well, all I know is this, that we were ruled out of several states, ruled out of Illinois, Nebraska, Kansas.
“Q. Yes, but did you ever hear of a theater owner being hailed into court on account of the fact that he operated under the system that we term Bank Nite? A. I myself was. I am a theater operator and my own theater got into court; yes, sir.”
In Helvering, Commissioner of Internal Revenue v. Elkhorn Coal Company, 4 Cir., 95 F.2d 732, 735, it was said:
“ * * * No rule is better settled than that in tax matters we must look to substance and not to form; * *
In Prairie Oil & Gas Company v. Motter, Collector of Internal Revenue, 10 Cir., 66 F.2d 309, 311, this court said:
“ # .-i.- * if a taxpayer sought to avoid a tax on the profits of such a sale as this by asking the Commissioner to ignore the actualities, he would shortly and properly be reminded that taxation is an intensely practical matter and that the substance of the thing done, and not the form it took, must govern.”
When this principle and the entire record in this cause are duly considered, I am of the opinion that the decision of The Tax Court of the United States should be affirmed.