(dissenting in part and in part concurring).
In the letter1 written by petitioners’ *934counsel to the Collector, February 4, 1932, they stated that the transaction between them and Markell, in the form of a sale with an option to pay back, was in fact a loan. In their suit brought in 1937, and in the escrow agreement with Lawton made at the same time, they asserted that the transaction between plaintiffs and Markell constituted a loan of money to them with a mortgage to secure it, and not a sale. The district court so adjudged, and the Supreme Court affirmed. There was nothing in the petition, in the decree, or in the opinion of the Supreme Court indicating or even suggesting that the Hilperts were not obligated to repay the amount of the loan. Indeed, the decree required Markell to execute an instrument reciting in part, “and the said parties of the first part do fully acknowledge full payment of the indebtedness owing by parties of the second part”. If, therefore, the lack of personal obligation, of which the majority opinion makes so much, were material here, and I think it 'wholly immaterial,- in determining whether the property was sold to Markell in 1931, or, as the Tax Court held, to Lawton in January, 1940, the record, so far from showing that there was such lack of obligation, shows quite the contrary. But whether there was a personal obligation or lack of it, the record permits no escape from the conclusion that in fact and in law there was no sale in 1931, from which a capital gain could arise, but a loan, and that in fact and in law there was a sale in 1940, and a capital gain then arising. I think it clear, therefore, that the Tax Court was right for the reasons that it gave in sustaining the commissioner’s determination as to the capital gains tax due, and the majority was wrong in reversing that determination.
On petitioners’ second point, that they ought not to be taxed as ordinary income on $10,635, the difference between the $65,000 borrowed in 1931 and the $54,365 required to redeem in 1940, I agree with them. The Tax Court’s assumption that this difference was received in 1940 as accumulated ordinary income then paid over is, I think, without basis in the record., If this amount were ordinary income received in that year, certainly petitioner should be taxed on it. Certainly, too, there would be no inconsistency in doing this and also taking this amount into account in determining the amount they received under their contract with Lawton, and, therefore, their capital gain. It seems quite clear to me though that it is incorrect to say that this sum, the net remaining after offsetting receipts and disbursements for each of the years from 1931 to 1940, was a receipt of income in 1931. A decree entered on June 1, 1938, adjudicated- (1) that the transaction was a loan and not a sale; (2) that petitioners were entitled to redeem; and (3) that the cause be referred to a master to ascertain and offset their disbursements from 1931 to 1938, inclusive, and determine the amount necessary to redeem. The master’s report having come in, the final decree of August 20, 1938, adjudicated that, as a result of offsets of receipts and disbursements through the years, the amount then necessary to be paid to redeem the property was $59,360.16, or $5,639.84 less than the original debt. The decree affirmed, an accounting and offsetting for the years 1938, 1939 and to January 20, 1940, determined a further net reduction of $4,995.48. Of this amount less than $600 was received in 1940. The balance was the result of receipts and offsetting in 1938 and 1939. Thus, of the total of $10,635, which reduced the original loan of $65,000 to $54,-364.67, only $600 was received in 1940. While, therefore, petitioners ought to have been taxed on this $600 as ordinary income received in 1940, I do not think they could have been taxed on the net receipts of other years. I, therefore, except as to $600, concur with the majority'in reversing the Tax Court’s judgment as to the $10,635.
“It is not the intent of the owner to sell this property at this price, but simply to borrow this amount of money, and following their preliminary negotiations for a loan they had made arrange*934ments for using the money, and it would have embarrassed them greatly if the negotiations had fallen through. In consideration of this fact, they consented to the lender’s method. * * * The Hilperts are expecting to take advantage of this option before it expires and do not feel that they should be taxed at this time simply for borrowing money.”