Messrs. William Stanley, of Washington, D.C., and Arthur F. Driscoll, of New York City, for petitioner.
Mr. Andrew D. Sharpe, Sp. Asst. to Atty. Gen., for the United States.
Mr. Justice McREYNOLDS delivered the opinion of the Court.
Both courts below ruled that gain derived by the petitioner from redemption of bonds during 1927, 1928 and [306 U.S. 436, 437] 1929 was not 'capital gain' within the meaning of the controlling statutes.
No contest exists concerning the facts. The narrow point as counsel agree is this-Must the redemption of bonds before maturity by the issuing corporation be treated as tantamount to a sale or exchange of capital assets within the meaning of section 208(a)(1), Revenue Act 1926, and section 101(c)(1), Revenue Act 1928.1
If redemption amounts to sale or exchange, the petitioner's gain was subject to taxation at the twelve and one-half per cent rate; otherwise, under normal and surtax rates.
Payment and discharge of a bond is neither sale nor exchange within the commonly accepted meaning of the words. The courts below found no sufficient reason for disregarding this and rightly applied the statutes under that view.
The Tax Acts of 1921, 1924, 1926, 1928 and 1932 contain like definitions of capital gain. From 1921 to 1929 the Commissioner held that such gain did not arise from redemption. In 1929 the Board of Tax Appeals held otherwise. Werner v. Commissioner, 15 B.T.A. 482. But in 1932 it definitely overruled that determination. Watson v. Commissioner, 27 B.T.A. 463. [306 U.S. 436, 438] The revenue Act 1934 (May 10, 1934, c. 277, 48 Stat. 680, 714-715) provides-
What we regard as the correct meaning of the definition of capital gain in the Revenue Act 1921 and its four successors is accentuated by long-continued executive construction, also the last conclusion of the Board of Tax Appeals.
The Circuit Court of Appeals below was right in holding that by the Act 1934 Congress did not attempt to construe the prior Acts and purposely made a material addition thereto. In Averill v. Commissioner of Internal Revenue, 101 F.2d 644, decided Dec. 28, 1938, the Circuit Court of Appeals First Circuit acted upon a different view. This conflict caused us to bring up the present cause notwithstanding the application for certiorari had been denied earlier in the term.
The challenged judgment must be
[ Footnote 1 ] Revenue Act 1921 (November 23, 1921, c. 136, 42 Stat. 227, 232) provides-
This provision without material change was reenacted by Revenue Act 1924 (June 2, 1924, c. 234, sec. 208(a)(1), 43 Stat. 253, 262); Revenue Act 1926 (February 26, 1926, c. 27, sec. 208(a)(1), 44 Stat. 9, 19); Revenue Act 1928 (May 29, 1928, c. 852, sec. 101(c)(1), 45 Stat. 791, 811, 26 U.S.C.A. 101 note); Revenue Act of 1932 (June 6, 1932, c. 209, sec. 101(c)(1), 47 Stat. 169, 191, 26 U.S.C.A. 101 note).