Appeal, No. 18, May T., 1963, from judgment of Court of Common Pleas of Dauphin County, No. 350 Commonwealth Docket, 1959, in case of Commonwealth of Pennsylvania v. General Electric Company. Judgment affirmed.
John McI. Smith, with him Nauman, Smith, Shissler & Hall, for appellant.
Edward T. Baker, Deputy Attorney General, with him Walter E. Alessandroni, Attorney General, for Commonwealth, appellee.
Before Bell, C.j., Musmanno, Jones, Cohen, Eagen, O'brien and Roberts, JJ.
OPINION BY MR. JUSTICE BENJAMIN R. JONES
This appeal involves a construction of the term "gross receipts" as contained in the statutory definition of the denominator*fn1 of the gross receipts fraction of the formula used to determine net income subject to tax under the "Corporate Net Income Tax Act" of 1935.*fn2 Specifically, did the utilization by a taxpayer of tax anticipation notes (1% Treasury Certificates of Indebtedness) to pay federal income taxes result in "gross receipts" includable in the denominator of the third fraction of the taxpayer's corporate net income return for 1955?*fn3
General Electric Company (taxpayer), a New York corporation with its fiscal offices outside Pennsylvania, on and after August 2, 1954 in New York State purchased, either by original subscription or on the open market, $72,000,000 U.S. Treasury Certificates
of Indebtedness, 1% Tax Anticipation Series, 1955. While such purchases in the amount of $72,000,000 are directly involved in this controversy, counsel have stipulated that the factual situation surrounding the purchase and ultimate disposal of $42,000,000 of such certificates is illustrative of the entire problem and so we consider the lesser, rather than the larger, amount of the entire purchases.
On July 16, 1954, the U.S. Treasury offered for public subscription $3,500,000,000 1% Treasury Certificates of Indebtedness, Series "C", 1955, Tax Anticipation Series. These certificates, dated August 2, 1954, bore interest at 1% per annum from the date of issue and were payable at maturity on March 22, 1955 and were not to be "subject to call for redemption prior to maturity". It was provided that such unregistered certificates would "be accepted at par plus accrued interest to maturity in payment of income and profits taxes due March 15, 1955". On original subscription, the taxpayer purchased $20,000,000 of these certificates and, thereafter, on the open market, an additional $22,000,000. On March 7 and 8, 1955, the taxpayer delivered to the Federal Reserve Bank of New York (Bank) certificates aggregating $42,000,000 face value and received from the Bank certain receipts. These receipts, addressed to the Director of Internal Revenue at Albany, N.Y. (Director), recited that Treasury Certificates of Indebtedness aggregating $42,266,959.12 ($42,000,000 principal and $266,959.12 interest) were held by the Bank "for redemption and application of the proceeds in payment of taxes due" on March 15, 1955 from the taxpayer. As of March 15, 1955, the taxpayer delivered these receipts in the amount of $42,266,959.12 to the Director in part payment of taxpayer's first quarterly installment of federal income taxes.*fn4
Taxpayer claimed that the entire amount of the principal and interest constituted "gross receipts" which should be included in the denominator of the gross receipts fraction in calculating its 1955 net income tax. The Commonwealth took the position that, while the amount of interest was includable as "gross receipts", the amount of the principal was not. After exhaustion of the administrative procedures under the Act, the taxpayer appealed to the Court of Common Pleas of Dauphin County. After a trial without jury and upon stipulated facts, ...