(dissenting).
Without entering into an extensive discussion, I shall briefly point out what I regard as the fallacy of the conclusion reached by the court on what appears to me as the fundamental and controlling question.
The District Court specifically found that the price at which plaintiff sold its product and which it contends was the proper tax basis “was not less than the fair market prices of the said product manufactured and sold by plaintiff during the month of July, 1933; and said sales prices included all elements of value of plaintiff’s product and trade name both tangible and intangible.” The record furnishes not only substantial but well near conclusive support to this finding. By the well established law, we are bound thereby. The opinion seeks to escape the effect of this finding by reasoning that such finding amounts to a legal conclusion. To me such reasoning is not tenable. As a result the conclusion is reached that the tax basis was the wholesale price received, not by plaintiff, but by the selling corporation, recognized as a separate corporate entity, and without any contention that it was plaintiff’s agent, thereby establishing a basis vastly higher than the price received, found to be the fair market price.
The Revenue Act of 1932, Section 603, Title 26 U.S.C.A.Int.Rev.Acts, page 608, provides for a tax equivalent to ten per centum of the price for which the taxable article is sold. Section 619 provides two modes of establishing the tax basis, (a) and (b). By (a) the basis is determined by including and excluding certain designated items which necessarily refer to “the price of which the taxable article is sold.” (b) becomes material if the article is sold under any one of three conditions: (1) sold at retail, (2) sold on consignment, or (3) sold (otherwise than through an arm’s length transaction) at less than the fair *412market price. Concededly (1) and (2) have no application. (3) is material if the article is sold at less than the fair market price in the ordinary course of trade. Predicated upon the finding of the court that the taxable articles were sold at a price “not less than the fair market price” it appears that this provision has no application.
In my opinion, the tax basis is the price at which plaintiff sold its product to the sales corporation, including and excluding such items as are designated in 619(a). If this view is correct, the only portion of 619(b) pertinent to the. instant case is that found in the last clause which reads: “The tax under this title shall * * * be computed on the price for which such articles are sold, in the ordinary course of trade, by manufacturers * * *It would seem this language is applicable to this and the numerous preceding sections imposing a manufacturers’ tax. In this connection, it is pertinent to point out that the District Court, in addition to finding that plaintiff’s products were sold at their fair market price, found that they were “sold in the ordinary course of trade.” The opinion recognizes “that selling to an exclusive distributor was the common mode of business operation.”
Assuming, however, that 619(b) .(3) is applicable, plaintiff was entitled to recover upon establishing either, not both, of two conditions, (1) that its sales to Campana Sales Company were at not less than the fair market price or (2) that the sales were made through arm’s-length transactions.1 In other words, condition (2) is immaterial if (1) is established, and vice-versa.
The opinion, as I understand, holds that-the wholesale price of the sales company constitutes the tax basis for the plaintiff, notwithstanding that the price received by the. former was a fair market price. To me, this is a strained and unreasonable construction of the statute — never intended by Congress — and finds little, if any, support in the legislative history of the enactment. As pointed out in .the opinion, the success of both the plaintiff and the sales company was due largely to the expensive and extensive advertising done by the latter, which reached the total amount of one million dollars per annum. The wholesale selling price made the .basis of plaintiff’s tax liability includes cost of goods sold 33%, cost of sales 51%, and profit 16%. In other words, more than half of the wholesale price was represented by advertising and other costs incurred by the sales corporation, over which the plaintiff had no supervision, direction or control. As a result the fair market price of plaintiff’s product remained the same notwithstanding it had relieved itself of sales costs which amounted to more than it actually received for its product. The situation in this respect alone is convincing that such a basis for determining the selling price of plaintiff’s product is unreasonable, if not arbitrary.
The opinion discusses at length the phrase “otherwise than through an arm’s length transaction,” and concludes it was other than such a transaction. I do not take issue with, this conclusion, although I regard it as a debatable question. As I have endeavored to point out, however, the solution of the question is not decisive —in fact, it is immaterial in view of the premise which I accept that the products were not sold at “less than the fair market price.”
It must not be overlooked that the plaintiff is not charged with formulating a scheme or device with the purpose of evading taxation. Cases such as Griffiths v. Commissioner, 308 U.S. 355, 60 S.Ct. 277, 84 L.Ed. 319, and Higgins v. Smith, 308 U.S. 473, 60 S.Ct. 355, 84 L.Ed. 406, have no. application. On the contrary, the record leaves little, if any, room for doubt that the sale of plaintiff’s product to the sales corporation was bona fide and that the course ‘ of conduct was dictated and perhaps compelled by economic necessity without any taint of fraud or deception.
Without discussing the matter further, it is my conviction that thé judgment of the District Court should be affirmed.
This contemplates, of course, that the plaintiff has not passed on the additional tax or collected the amount thereof from its vendees. I agree with the opinion that plaintiff has met this requirement and, therefore, omit it from my dis-eussion.