1. A literal reading which leads to absurd results will be
avoided when the statute can be given a reasonable application
consistent with its words and purpose. P.
308 U. S.
394.
2. Sections 215 and 216 of the National Industrial Recovery Act
impose on domestic corporations an annual capital stock tax and an
annual tax on profits in excess of 12 1/2 percent of the capital
stock, both calculated on the basis of the value of the capital
stock as declared by the corporation's return for the first year in
which the tax is imposed, "which declaration of value cannot be
amended." For any subsequent year, the adjusted declared value
shall be the original declared value as changed by certain
prescribed capital adjustments.
Held:
(1) That the purpose is to allow the taxpayer to fix for itself
the amount of the taxable base with the proviso that the amount
thus fixed for the first taxable year shall be accepted, with only
such changes as the statute provides, for the purpose of computing
the capital stock and excess profits taxes in the later years. P.
308 U. S.
394.
(2) The phrase "first return" means a return for the first year
in which the taxpayer exercises the privilege of fixing its capital
stock value for tax purposes. P.
308 U. S.
395.
(3) This includes a timely amended return for that year. P.
308 U. S.
396.
3. A Treasury Regulation which changes an earlier construction
of a statute without serving any governmental convenience or
purpose
Page 308 U. S. 390
or embodying results of specialized departmental knowledge or
experience, and which contradicts the statutory purposes and the
plain meaning of its words, will not be followed. P.
308 U. S.
398.
4. An amendment of a statute passed for the purpose of
precluding for the future an earlier administrative construction
held not an adoption of that construction as the one
intended by the original enactment. P.
308 U. S.
398.
5.
Semble that retroactive declarations of legislative
intent, prejudicial to those who have acted under an earlier
statute whose construction seems clear, ought not to be implied
more than the legislative intention to give retroactive operation
to a new statute. P.
308 U. S.
400.
104 F.2d 24 reversed.
Certiorari,
post, p. 533, to review the affirmance of a
decision of the Board of Tax Appeals, 38 B.T.A. 141, approving a
deficiency assessment of excess profits tax.
MR. JUSTICE STONE delivered the opinion of the Court.
Decision in this case turns on the question whether a capital
stock tax return filed pursuant to § 215 of the National Industrial
Recovery Act of 1933, 48 Stat. 195, 207, may be amended within the
time fixed for filing the return.
Page 308 U. S. 391
Sections 215 and 216 of the National Industrial Recovery Act
impose interrelated taxes on domestic corporations -- namely an
annual capital stock tax and an annual tax on profits in excess of
12 1/2 percent of the capital stock, calculated on the basis of the
value of the capital stock as fixed by the corporation's return for
the first year in which the tax is imposed.
Section 215(a) imposes on domestic corporations an annual tax
with respect to carrying on or doing business for any part of the
taxable year at the rate of "$1 for each $1,000 of the adjusted
declared value of its capital stock." Section 215(f) provides
that,
"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. . . . For any subsequent year ending June
30, the adjusted declared value in the case of a domestic
corporation shall be the original declared value,"
as changed by certain prescribed capital adjustments occasioned
by increases and decreases of capital occurring after "the date as
of which the original declared value was declared." Section 216(a)
imposes an annual tax upon so much of the net income of a
corporation taxable under § 215(a) as is in excess of 12 1/2
percent of the
"adjusted declared value of its capital stock . . . as of the
close of the preceding income tax taxable year (or as of the date
of organization if it had no preceding income tax taxable year). .
. ."
It will be observed that, by § 215(a) and (f), the declared
value of capital stock which is made the basis of computation of
both taxes is not required to conform either to the actual or to
the nominal capital of the taxpaying
Page 308 U. S. 392
corporation, and that the declared value for the first taxable
year, with the addition or subtraction of specified items of
subsequent capital gains or losses is made the basis of the
computation of both taxes in later years. The taxpayer is thus left
free to declare any value of capital stock for its first taxable
year which it may elect, but, since the declared value for the
first year is a controlling factor for the computation of taxes for
later years, the statute provides that the declaration, once made,
cannot be amended. Because of the method of computation, increase
or decrease in the declared value of capital, and of the
corresponding tax, produces, as the case may be, a decrease or an
increase in the tax on excess profits.
In August, 1933, petitioner, a Texas corporation, mistakenly
believing that it was required to state the par value of its issued
capital stock in its tax return, filed a timely return for the year
ending June 30, 1933, declaring the value of its entire capital
stock to be $120,000 and paid the tax of $120. The date for filing
returns for that year having been extended to September 29, 1933,
T.D. 4368, 4386, petitioner before that date, filed an amended
return, declaring the value of its capital stock to be $250,000. On
March 15, 1934, petitioner filed its income and excess profits tax
return for the calendar year 1933. The Commissioner, having refused
to accept the amended capital stock return, gave notice of a
deficiency in the excess profits tax calculated upon the basis of
the capital stock value of $120,000 as declared in petitioner's
original return.
The Board of Tax Appeals determined that petitioner's capital
stock and excess profits tax should be computed on the basis of
$120,000 capital stock value as originally stated, instead of
$250,000 stock value declared in its amended return, found a
deficiency, and entered its order accordingly. 38 B.T.A. 141. The
Circuit Court of
Page 308 U. S. 393
Appeals for the Fifth Circuit affirmed, holding that § 215(f),
by its terms, precluded any amendment of the tax return for the
first year, even though made within the time allowed for filing the
return. 104 F.2d 24. We granted certiorari October 9, 1939, 308
U.S. 533, to resolve a conflict of the decision below with that of
the Court of Appeals for the Sixth Circuit in
Glenn v. Oertel
Co., 97 F.2d 495, and that of the Court of Claims in
Philadelphia Brewing Co. v. United States, 27 F. Supp.
583.
The Commissioner founds his argument in support of the decision
below upon a literal reading of the introductory sentence of §
215(f) already quoted, which, he argues, precludes even a timely
amendment of the tax return for the first year, and upon the
administrative and Congressional interpretation of the statute. He
insists that the phrase "first return" in the clause "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)," means the first paper filed by the taxpayer as a
return, and that these words plainly forbid any amendment of the
declared value of the capital stock, even though made within the
time allowed for filing the return.
In making these contentions, the Commissioner concedes that the
amount of the declared value of capital fixed for the first year is
a matter of indifference to the Government, since the statute
leaves the taxpayer free to declare any amount which its fancy may
choose, and that, for any reduction in capital stock tax effected
by the declaration of a low value of the capital stock, there is an
accompanying increase in excess profits taxes. He concedes that, if
petitioner had filed but a single return on the date of filing the
amended return, stating the value of the capital stock as $250,000
instead of $120,000, the Government would have been concluded by
the taxpayer's declaration, and that it has long been the
practice
Page 308 U. S. 394
of the department, in the cases of other types of tax to accept
an amended return, filed within the period allowed for filing
returns, as the return of the taxpayer for the taxable year. He
concedes also, as he logically must, that the argument leads to the
conclusion that a mistake in the declaration of value, whether of
law or of fact, however serious and excusable, cannot be corrected
by a timely amendment of the return.
All statutes must be construed in the light of their purpose. A
literal reading of them which would lead to absurd results is to be
avoided when they can be given a reasonable application consistent
with their words and with the legislative purpose.
Hawaii v.
Mankichi, 190 U. S. 197;
United States v. Katz, 271 U. S. 354;
Sorrells v. United States, 287 U.
S. 435,
287 U. S. 446;
Burnet v. Guggenheim, 288 U. S. 280,
288 U. S. 285;
Armstrong Paint & Varnish Works v. Nu-Enamel Corp.,
305 U. S. 315,
305 U. S.
332-333. Here, the purpose of the statute is
unmistakable. It is to allow the taxpayer to fix for itself the
amount of the taxable base for purposes of computation of the
capital stock tax, but with the proviso that the amount thus fixed
for the first taxable year shall be accepted, with only such
changes as the statute prescribes for the purpose of computing the
capital stock and excess profits taxes in later years. 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,
see Sen.Rep. 52, 69th Cong.,
1st Sess., pp. 11-12;
cf. Ray Consolidated Copper Co. v. United
States, 268 U. S. 373,
268 U. S. 376.
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.
It is plain that none of these purposes would have been
thwarted, and no interest of the Government would have
Page 308 U. S. 395
been harmed, had the Commissioner, in conformity to established
departmental practice, accepted the petitioner's amended
declaration. It is equally plain that, by its rejection, petitioner
has been denied an opportunity to make a declaration of capital
stock value which it was the obvious purpose of the statute to
give, and that denial is for no other reason than that the
declaration appeared in an amended, instead of an unamended,
return. We think that the words of the statute, fairly read in the
light of the purpose, disclosed by its own terms, require no such
harsh and incongruous result.
Section 215 nowhere mentions amendment of returns or amended
returns. It speaks of "declared value" for the first tax year, and
provides that the "declaration of value" cannot be amended. The
"declaration of value" is that of the corporation in its "first
return under this section." The "first return," as the context
shows, is the return for the first tax year of the taxpayer, and
the characterization of the return as "first" is obviously used to
distinguish the return made for the first year from the return "for
any subsequent year" in which the "adjusted declared value" is
required by the same section to conform to a formula based on the
"declared value" for the first year and which, for that reason,
"cannot be amended."
"First return" thus means a return for the first year in which
the taxpayer exercises the privilege of fixing its capital stock
value for tax purposes, and includes a timely amended return for
that year. A timely amended return is as much a "first return" for
the purpose of fixing the capital stock value, in contradistinction
to returns for subsequent years, as is a single return filed by the
taxpayer for the first tax year.
Glenn v. Oertel Co., supra;
Philadelphia Brewing Company v. United States, supra; see
also, similarly construing the phrase "first return" under §
114(b)(4) of the Revenue Act of 1934, 48 Stat. 680,
Page 308 U. S. 396
710;
C. H. Mead Coal Co. v. Commissioner, 106 F.2d 388,
390;
cf. Pacific National Co. v. Welch, 304 U.
S. 191,
304 U. S. 194.
Thus read, the statute gives full effect to its obvious purposes
and to the evident meaning of its words. To construe "first return"
as meaning the first paper filed as a return, as distinguished from
the paper containing a timely amendment, which, when filed is
commonly known as the return for the year for which it is filed, is
to defeat the purposes of the statute by dissociating the phrase
from its context and from the legislative purpose, in violation of
the most elementary principles of statutory construction.
Article 24 of Treasury Regulations 64 (1933 ed.), under § 215(f)
of the National Industrial Recovery Act, in force when the
petitioner filed its amended return, did not call for any different
construction from that which we have indicated is the correct one.
The article made no mention of the "first return." It pointed out
merely that the original declared value would be the basis of the
tax for the first and later years, and stated "This value once
having been declared may not subsequently be changed either by the
corporation or by the commissioner." This evidently refers to the
parenthetical clause of § 215(f) "which declaration . . . cannot be
amended," which phrase concededly does not preclude an effective
declaration of value in a timely amended return. [
Footnote 1]
Sections 215 and 216 of the National Industrial Recovery Act
were reenacted as §§ 701 and 702 of the 1934
Page 308 U. S. 397
Revenue Act, 48 Stat. 680, 769, 770. That act, § 703, amended
the National Industrial Recovery Act so as to provide that the
capital stock tax and excess profits tax imposed by §§ 215 and 216
of the act last mentioned should not apply respectively to any
taxpayer in any year except the years ending June 30, 1933, and
June 30, 1934. The amended Regulations 64 (1934 ed.), relating to
§§ 701 and 702 of the Revenue Act of 1934, are prefaced with the
statement,
"It must constantly be borne in mind that these regulations
relate only to the tax imposed by § 701 of the Revenue Act of 1934.
With respect to the tax imposed by § 215 of the National Industrial
Recovery Act, consult Regulations 64, edition of 1933."
This warning was repeated in Regulations 64, 1936 edition, under
the corresponding §§ 105 and 106 of the 1935 Revenue Act, 49 Stat.
1014, 1017-1019.
Since the regulations under the Revenue Acts for 1934 and 1935
are thus made inapplicable to the taxpayer's stock return under the
National Industrial Recovery Act for the year ending June 30, 1933,
they are without force for present purposes except as they are
persuasive commentaries on the meaning of the language of § 215(f)
of the National Industrial Recovery Act, which was carried forward
into later revenue acts. Article 41(d) of Treasury Regulations 64,
published under the 1934 Act, declared that "First return means the
first capital stock tax return filed by a corporation for its first
taxable year," a definition which was continued in Article 44 of
Regulations 64 (1936 ed.), under the corresponding § 105 of the
Revenue Act of 1935. Article 44 of the latter regulation for the
first time informed taxpayers that an effective declaration of
value for the first tax year could not be made in a timely amended
return, saying,
"A subsequent return declaring a different value, even though
filed before the expiration of the prescribed period, is therefore
not acceptable under the statute. "
Page 308 U. S. 398
On the argument, the Commissioner admitted that this ruling
served no administrative or governmental convenience or purpose
apart from compliance with the supposed command of the statute.
There is thus a complete absence of those reasons which ordinarily
lead courts to give persuasive force to an administrative
construction and which justify their acceptance of it in preference
to their own. The regulations have not been consistent in their
interpretation of the statute, and do not embody the results of any
specialized departmental knowledge or experience.
Cf. Brewster
v. Gage, 280 U. S. 327,
280 U. S. 336;
Sanford's Estate v. Commissioner, ante, p.
308 U. S. 39. No
one, not even the Government, will be prejudiced by its rejection,
and, as we have said, the construction flies in the face of the
purposes of the statute and the plain meaning of its words.
Judicial obeisance to administrative action cannot be pressed so
far.
It is said that Congress, by the change of the language of the
capital stock provisions adopted in the 1938 Revenue Act, has
attributed to the earlier statute the same meaning as that ascribed
to it by the administrative construction. It is familiar doctrine
that Congress, by reenacting a section of the Revenue Act without
change, approves and adopts a consistent administrative
construction of it. But here, the argument is that, by amendment of
the statute, which would preclude such a construction in the
future, Congress has also declared that the departmental
construction was that intended by the earlier Congress which
enacted the statute.
Section 601 of the 1938 Act, 52 Stat. 447, 565, in addition to
other changes in the capital stock and excess profits tax
provisions, prescribed that the "adjusted declared value" should be
determined with respect to three-year periods, beginning with the
year ending June 30, 1938, and denominated the first year of each
period
Page 308 U. S. 399
a "declaration year." Section 601(f)(2) provided that the
declared capital stock value for purposes of the tax shall be the
value as declared by the corporation "in its return for such
declaration year (which declaration of value cannot be amended)."
Since, under the new legislation, the return for the declaration
year for each three-year period, and not that for the first tax
year of the taxpayer, is controlling, there was no occasion for
repeating the phrases "first year" and "first return" which had
appeared in the earlier legislation, and the new section dropped
from the statute the words which had given rise to the earlier
administrative construction. This was pointed out by the house
committee report recommending the amendment, [
Footnote 2] stating that the change would serve to
permit the taxpayer to amend its declaration by timely amendment of
the return for the declaration year and adding, "denial of all
opportunity for correction appears unduly restrictive."
It must be assumed that Congress was aware through its
committees of the change in the regulations which in 1936 had
construed the statute as precluding an effective declaration in a
timely amended return, and of the litigation then pending in this
case and in
Glenn v. Oertel Co.,
Page 308 U. S. 400
supra, in which the departmental construction had been
challenged as "unduly restrictive." In the face of the legislative
expression of dissatisfaction with the earlier statute as
construed, Congressional purpose to declare that such was the
intended meaning is not to be inferred merely from the fact that
the amendment providing for the future said nothing as to the past.
If we are to draw inferences, it would seem as probable that
Congress was content to leave the problems of the past to be solved
by the courts where they were then pending, rather than to preclude
their solution there. Action so ambiguous in its implications as to
the past is wanting in that certainty and evident purpose which
would justify its acceptance as a legislative declaration of what
an earlier Congress had intended, rather than an effort to make
clear that which had been rendered dubious by unwarranted
administrative construction.
Cf. Jordan v. Roche,
228 U. S. 436,
228 U. S. 445;
Helvering v. New York Trust Co., 292 U.
S. 455;
Noble v. Oklahoma City, 297 U.
S. 481,
297 U. S. 492.
Retroactive declarations of legislative intent prejudicial to those
who have acted under an earlier statute whose construction seems
clear, it would seem, ought not to be implied more than the
legislative intention to give retroactive operation to a new
statute.
See Hassett v. Welch, 303 U.
S. 303,
303 U. S. 314,
and cases cited;
cf. Noble v. Oklahoma City, supra.
Reversed.
[
Footnote 1]
The Government concedes in its brief that the parenthetical
clause "which declaration . . . cannot be amended" continued in the
capital stock tax section, § 601, of the 1938 Revenue Act, 52 Stat.
447, 565, does not preclude an effective declaration of value in a
timely amended return for the first tax year. If the phrase "first
return" in § 215(f) had that effect, then the parenthetical phrase
concededly prohibiting amendments in tax returns of later years
would have been superfluous.
[
Footnote 2]
"The new section also alleviates the rigid provision of section
105(f) of the 1935 act that the valuation shall be as declared by
the corporation in its 'first' return. Errors of calculation or
other errors sometimes occur in first returns, and denial of all
opportunity for correction appears unduly restrictive. Accordingly,
the word 'first' as it appears the second time in section 105(f) of
the 1935 act, as amended, is eliminated from the corresponding
language appearing in subsection (f)(2) of the new section. This
will serve to give a corporation the right, so long as it acts
within the time allowed for filing its return (including the last
day of any extension period) for the year for which a declaration
of value is required, to file subsequent returns for that year
showing a different valuation, the valuation shown by the last
timely return being binding."
H.Rept. 1860, Committee on Ways and Means, 75th Cong., 3rd
Sess., p. 62.