dissenting.
I would allow the plaintiff to recover. The things which the plaintiff was to spend Britain’s money for out of the machinery and facilities fund, and out of the equipment fund, were “articles, materials or supplies” within the meaning of the statute. Britain needed airplane engines, but in order to get them she had to have buildings and tools for their construction. These buildings and tools, provided with her money, were to belong to her, and the plaintiff’s contract required it to build or acquire them for her.
The reason for the enactment of section 719 (a) (2) is not very clear. Before the United States entered the war, or enacted an excess profits tax, foreign governments, particularly Great Britain, made contracts with American manufacturers for the manufacture of munitions. Most of these were cost-plus contracts, and if the manufacturers had had to borrow money to finance the contracts, it would have added that much to the costs. The advances thus saved the foreign government money, if it had the funds to advance.
When the excess profits tax was enacted, it provided that borrowed money, evidenced by certain formal instruments could be included in invested capital and thus reduce excess profits tax. Perhaps in order not to put manufacturers who had advances from foreign governments but did not have the formal instruments of indebtedness required by section 719 (a) (1) at a disadvantage, Congress provided that in the case of contracts entered into before or within 80 days after the enactment of the excess profits tax law, advances from foreign governments could be treated as borrowed invested capital for excess profits tax credit purposes.
*729It seems to me that the suggested reason for the enactment of the law is just as applicable to the advance payments for the machinery and equipment, as for the engines themselves. If Britain had not advanced the money, the plaintiff could have borrowed it, perhaps would have had to borrow it, and charge it as a cost. If it had done so, it would have qualified under 719 (a) (1) for an excess profits tax credit.
The Government urges that the machinery and equipment funds were different from the engine advance payments in that they were trust funds while the engine payments became debts of the plaintiff. All of the advances were deposited to the credit of the plaintiff and the plaintiff had the physical power to withdraw them from the banks. But whether it was expressly provided in the contract or not, it would have been a gross breach of the plaintiff’s implied obligation for it to withdraw money from the engine fund for any other purpose than to pay the costs of manufacturing engines, or to pay itself fees that it had earned by manufacturing them. I do not think that Congress had in mind any delicate distinction between debts and trusts when it enacted section 719 (a) (2). I have grave doubts that the engine fund was “at the risk of the plaintiff’s business” as the Government expresses it. I doubt that it could have been reached by the plaintiff’s creditors. In brief, I think all three of the funds were, to a substantially equal degree, held for a special and limited purpose, and should be similarly treated for tax purposes. See West Construction Co. v. Commissioner, 7 T. C. 974, for interesting comment on the statute.
Littleton, Judge, joins in the foregoing dissenting opinion.EINDINGS OF FACT
The court, having considered the facts as stipulated by the parties, and the briefs and argument of counsel, makes findings of fact as follows:
1. Plaintiff is a corporation organized and existing under the laws of the State of Michigan with its principal office and place of business in the City of Detroit in said State. It is *730and was during the calendar years 1940, 1941 and 1942 engaged in the manufacture of engines and motors. During that period plaintiff’s corporate name was “Packard Motor Car Company,” which name has since been changed by amendment of its articles of incorporation to “Studebaker-Packard Corporation.”
2. On September 3, 1940, plaintiff entered into a contract with His Majesty’s Government in the United Kingdom (hereinafter called Britain), which is and was a “foreign government” within the meaning of section 719 (a) (2) of the Internal Revenue Code of 1939. A true copy of the contract, with all relevant amendments, designated No. A-787, appears as Exhibit A to A-14 to the printed petition in this case. The contract was made before the expiration of thirty days after the date of the enactment of the Second Revenue Act of 1940.
3. The provisions of contract No. A-787, as amended, relating to advance payments by Britain to the plaintiff appear in Articles IY, Y and XIII, and fall into three classifications as follows:
(1) Advance payments relating to machinery, equipment and facilities costs.
(2) Advance payments relating to tool equipment costs.
(3) Advance payments relating to engine costs.
4. Pursuant to contract No. A-787, Britain deposited an advance payment of $13,333,333 to the credit of plaintiff in the National City Bank of New York on or before September 19, 1940, for Machinery, Equipment & Facilities Costs, as defined in said contract No. A-787. This was somewhat increased during the year 1941 as shown by Exhibits A-2 and A-6 of the petition. On the same date, Britain deposited to the credit of plaintiff with the Bankers Trust Company of New York an advance payment of $6,666,667 for tool equipment costs, as defined in said contract No. A-787. This was somewhat decreased during the year 1941 as shown by Exhibit A-2 of the petition. On or before September 23,1940, Britain made advance payments to plaintiff for engines to be manufactured under the contract of $19,000,000 for use as a revolving fund to be replenished from time to time by Britain as plaintiff drew upon it. Britain deposited the $19,000,000 *731in plaintiff’s account with tbe National Bank of Detroit. No part or parts of such, advance payments were included or includible as such in the gross income of plaintiff, but fixed fees of $1,200 per engine payable to plaintiff for each engine manufactured and delivered to Britain were deposited in said revolving fund and were immediately withdrawn by plaintiff and deposited to other accounts. Such fixed fees of $1,200 per engine withdrawn from said revolving fund were included and includible in the gross income of the plaintiff.
5. Plaintiff keeps its books and files its federal tax returns on a calendar year, accrual basis. During the years 1940 and 1941, plaintiff’s excess profits credit was based on its invested capital. During each of said years, plaintiff’s excess profits credit exceeded its excess profits net income and plaintiff was therefore not subject to excess profits taxes and had certain excess profits credits available to carry forward to 1942 as an unused excess profits credit adjustment. During 1942 plaintiff became liable for the payment of excess profits taxes; during that year, its excess profits credit was based on income.
6. For reasons which defendant urges are correct and which plaintiff urges are erroneous shown in the “Conference Memorandum,” a true copy of which appears at page 179 of the petition as a part of petition Exhibit B, the Commissioner of Internal Eevenue determined that no part of the advance payments made by Britain to plaintiff on account of machinery, equipment and facilities costs and on account of tool equipment costs were includible in plaintiff’s statutory borrowed capital during the years 1940 and 1941. He also reduced Britain’s advance payments on account of engine costs by the amount of the minimum fixed fee payable to plaintiff by Britain under Contract No. A-787, which minimum fixed fee was determined to be $1,200,000 based on $1,200 profit per engine to plaintiff for the first one thousand engines to be manufactured. The Commissioner allowed the inclusion in plaintiff’s borrowed capital of the balance of the revolving fund relating to engine costs.
7. Plaintiff’s excess profits tax liability for 1942 was determined by the Commissioner of Internal Eevenue to be *732$6,234,172.39. Said taxes were duly assessed and were paid as follows:
March 16, 1943_ $2, 079,485.07
June 11, 1943_ 2,079,485.08
September 3, 1943-. 291,532. 54
December 13, 1943. 1, 483,500. 90
March 20, 1950_ 236,213.20
March 19, 1951_ 8,406.52
August 8, 1952_ 84, 596. 62
Total_$6,263,219.93
Refunds of 1942 excess profits tax of $24,652.16 and $4,395.38 have been allowed.
8. On March 30, 1953, plaintiff filed a claim for refund of excess profits taxes exacted for 1942. A true copy of said claim for refund appears as Exhibit B of the petition and among other things discloses plaintiff’s computations of the increases in its daily average borrowed invested capital for the years 1940 and 1941 which would result (a) from the inclusion in its borrowed capital of the advance payments made by Britain to the plaintiff pursuant to Contract No. A-787 on account of machinery, equipment and facilities costs and on account of tool equipment costs, and which would result (b) from the inclusion in its borrowed capital based on the revolving fund of $19,000,000 constituting advance payment of the costs of engines manufactured, of the minimum fixed fee of $1,200,000 allowed to plaintiff by the contract in case of cancellation. Such computations shall be received in evidence and treated in the same manner as if based on competent evidence duly produced by plaintiff and received by this court.
9. The exclusion from plaintiff’s borrowed capital during the years 1940 and 1941 of the advance payments made by Britain to the plaintiff pursuant to Contract No. A-787 on account of machinery, equipment and facilities costs and tool equipment costs, reduced plaintiff’s excess profits credits for those years and diminished the excess profits carry-over adjustment to the year 1942.
10. The Commissioner of Internal Revenue allowed inclusion in plaintiff’s borrowed capital for 1940 and 1941 of the revolving fund of $19,000,000 constituting advance pay*733ment oí the costs of engines manufactured, except for a deduction from the daily amounts of such advanced payments of the minimum fixed fee of $1,200,000 allowed to plaintiff by the contract in case of cancellation thereof before completion, for the reasons shown in the “Conference Memorandum” appearing in petition, p. 179, et seq.
11. The Commissioner of Internal Kevenue allowed plaintiff for the calendar year 1942 unused excess profits credit carry-overs in the amount of $2,891,167.93 from 1940, plus $135,042.56 from 1941. His computation of plaintiff’s excess profits tax liability for 1942 was as follows:
Excess profits net income, Schedule 6-$13,983, 812.21
Less: Specific exemption_ $5,000. 00
Excess profits credit- 4, 025, 743. 51
Unused excess profits credit adjustment_ 3,020,210.49 7, 056, 954. 00
Adjusted excess profits net income- 6,926,858. 21
90 percent of item 5- 6,234,172.39
Correct excess profits tax liability- 6, 234,172. 39
Of the foregoing total excess profits tax liability, plaintiff was entitled to and has received a 10 percent post-war refund under the provisions of section 780 and 781 of the Internal Eevenue Code of 1939.
12. Plaintiff’s computations of the amounts by which its borrowed invested capital for 1940 and 1941 would be increased by the inclusion in its borrowed capital of the advance payments made by Britain to the plaintiff pursuant to Contract No. A-787 on account of machinery, equipment and facilities costs and on account of tool equipment costs appear on pages 140 to 160, inclusive, of the petition. The computation as adopted by the Commissioner of Internal Revenue of the reduction of the borrowed invested capital of plaintiff for 1941, which resulted from the exclusion from the borrowed capital of plaintiff of the minimum fixed fee of $1,200,000 allowed to plaintiff by the contract in case of cancellation, appears in the petition as Exhibit C. The summary of the computation as adopted by the Commissioner of Internal Revenue of the reduction of borrowed invested capital of plaintiff for 1940, which resulted from the exclusion from the borrowed capital of plaintiff of the minimum fixed fee of $1,200,000 allowed to plaintiff by the contract in case *734of cancellation, appears at the bottom of page 160 of the petition. Plaintiff’s computation of the amounts by which its unused excess profits carryovers to the year 1942, from the years 1940 and 1941 would be increased by including said advance payments and the amount of said minimum fixed fee in its borrowed invested capital, appears on pages 160 and 161 of the petition.
13. Plaintiff is the sole owner of the claim involved in this cause, and there has been no assignment or transfer of such claim or any part thereof.
CONCLUSION OF LAW
Upon the foregoing findings of fact, which are made a part of the judgment herein, the court concludes that as a matter of law the plaintiff is not entitled to recover, and its petition is dismissed.