to reality as to contravene the Fifth Amendment. Curiously enough, the reason which it had assigned before the Commissioner for the allowance of its proposed amendment was that the erroneous return had been made "before Taxpayer was aware that excess profits taxes would be computed upon such purported 'declared valuation.'" In other words, the taxpayer did not complain that it was being prevented by its mistake from returning the actual value of its capital or say that it desired to do so, but merely wanted to be allowed to gamble on the future with its eyes open. The government challenged the right of the taxpayer to raise the question of constitutionality at all.
Mr. Justice Stone ignored the constitutional question, and his opinion only remotely, if at all, suggests the thought expressed in the foregoing part of this opinion and found in the Allied Agents decision -- that the act was intended to obtain a true and accurate valuation of capital as a basis for both taxes. He said (page 394 of 308 U.S., page 340 of 60 S. Ct., 84 L. Ed. 340), "Congress thus avoided the necessity of prescribing a formula for arriving at the actual value of capital for the purpose of computing excess profits taxes, which had been found productive of much litigation under earlier taxing acts * * *. At the same time it guarded against loss of revenue to the Government through understatements of capital, by providing for an increase in excess profits tax under § 216 ensuing from such understatements."
All this suggests that, had the question been dealt with, the act might have been sustained, even in the absence of any discernible purpose on the part of Congress to arrive, conveniently, promptly, and with fairness to the taxpayer, at the real value of its capital. But I think it unnecessary to go to that extent. In construing "declared value" there is no reason why it should be read as though it were merely "taxpayer's declaration," and ignore the word "value" altogether. That Congress expected the adjusted declared value to be an appraisement by the taxpayer or, at least, to bear some relation to actual value, is the conclusion which one would naturally draw from the fact that Sec. 701 (f) requires that it shall be declared "as of" certain specified dates. As was said in the Allied Agents case, Congress asked the taxpayer to fix the value, gave it an inducement to make it fair and reasonable, and waived the right to revise it.
In view of what appears to me to be the sounder reasoning and the unquestioned weight of authority, it is concluded that Sec. 701 (a) of the Revenue Act of 1934, is constitutional and a valid exercise of the taxing power.
The motion to dismiss is granted and the complaint dismissed.
The sections of the statute involved are as follows:
"Section [§ ] 701. (a) For each year ending June 30, beginning with the year ending June 30, 1934, there is hereby imposed upon every domestic corporation with respect to carrying on or doing business for any part of such year an excise tax of $1 for each $1,000 of the adjusted declared value of its capital stock. * * *
"(f) For the first year ending June 30 in respect of which a tax is imposed by this section upon any corporation, the adjusted declared value shall be the value, as declared by the corporation in its first return under this section (which declaration of value cannot be amended), as of the close of its last income-tax taxable year ending at or prior to the close of the year for which the tax is imposed by this section (or as of the date of organization in the case of a corporation having no income-tax taxable year ending at or prior to the close of the year for which the tax is imposed by this section). For any subsequent year ending June 30, the adjusted declared value in the case of a domestic corporation shall be the original declared value plus (1) the cash and fair market value of property paid in for stock or shares, (2) paid in surplus and contributions to capital, (3) its net income, (4) the excess of its income wholly exempt from the taxes imposed by Title I over the amount disallowed as a deduction by section 24 (a) (5) of such title, and (5) the amount of the dividend deduction allowable for income tax purposes, and minus (A) the value of property distributed in liquidation to shareholders, (B) distributions of earnings or profits, and (C) the excess of the deductions allowable for income tax purposes over its gross income; adjustment being made for each income-tax taxable year included in the period from the date as of which the original declared value was declared to the close of its last income-tax taxable year ending at or prior to the close of the year for which the tax is imposed by this section. The amount of such adjustment for each such year shall be computed (on the basis of a separate return) according to the income tax law applicable to such year.* * *"
"Section [§ ] 702. (a) There is hereby imposed upon the net income of every corporation, for each income-tax taxable year ending after the close of the first year in respect of which it is taxable under section 701, an excess-profits tax equivalent to 5 per centum of such portion of its net income for such income-tax taxable year as is in excess of 12 1/2 per centum of the adjusted declared value of its capital stock * * * as of the close of the preceding income-tax taxable year * * * determined as provided in section 701. * * *"
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