The opinion
Leech, /., dissenting: I respectfully dissent from the conclusion of the majority on issue 3. I disagree with the view that because the receipt by Nitze of the $32,674.50 represented a return of capital to him, the payment of this sum by the petitioner to him must be classed as a capital expenditure. The transaction in which petitioner and Nitze engaged was either a joint venture of both or the venture of petitioner alone. If it was a joint venture — and I think it was — then petitioner and Nitze merely jointly agreed to perform services for commissions. Nitze agreed to contribute the amount, not exceeding $50,000, necessary to defray the cost incurred by the parties in' rendering these services. He was to receive from the joint venture a fixed percentage of any net amount realized in commissions. Under a later modification of this agreement Nitze surrendered his right to receive any percentage of the net commissions and in consideration therefor the petitioner released Nitze from his obligation to render the service and agreed that Nitze should be repaid the amount of his advances under the original agreement, $32,674.50, out of the first commissions received.
After the modification of the original contract, commissions were received in 1940 by the petitioner and out of these funds $32,674.50 was paid to Nitze as the portion thereof due him under the modified agreement. This payment of course, as the majority holds, constituted, as to Nitze, the return of his investment in the joint venture. But when petitioner received these funds, under the modified contract he had no right to keep them. He was bound by the agreement to turn those particular funds over to Nitze. Thus this portion of the 1940 commissions was in fact the property of Nitze when received by petitioner and was therefore not taxable to the petitioner, as his income, as the majority concludes.
If the transaction between petitioner and Nitze was not a joint venture, but a venture of petitioner alone, the same result would follow. Nitze bought from petitioner and owned an asset, i. e., a right to a certain share in particular commissions. In 1940 petitioner bought this asset back at a cost of $32,674.50. During that year and the two following years, all of which are before us here, petitioner fully realized on — in effect disposed of — this asset in an amount in excess of that cost. If such cost can properly be allocated among the several contracts to which commission-sharing agreement applied, it should be so allocated. If not, and I think it can not be so allocated, then upon petitioner’s disposition of the asset for an amount exceeding its cost, his gain is not, as the majority holds, the gross amount he received from that disposition. The taxable gain is the amount thus received, reduced by that cost.
The petitioner appears to have included in his individual reported income the $32,674.50 advanced by Nitze and to have taken a deduction in the same amount for its expenditure for ordinary and necessary expenses of the venture. This was clearly an error, hut has had no effect for tax purposes because the income has been offset by a deduction in the same amount. It is true that the payment of this $32,674.50 to Nitze by petitioner was not a business expense, but, in my opinion, it is certainly in any event to be reflected in a computation of the net income to petitioner from the 1940 commissions.
Black, J., agrees with this dissent.