The opinion
Murdoch, A, dissenting: This petitioner acquired 120,000 shares of its own $25-par-value capital stock in May 1950 by the payment of over $6 million of its cash to the former owners of those shares. The payment for each $25-par-value share averaged over $52 per share. The majority opinion holds that the total assets of this corporation in 1952 included those 120,000 shares at a value of over $6 million. A tentative excess profits credit is computed by taking 12 per cent of the first $5 million, 10 per cent of the second $5 million, and 8 per cent of the balance of the total assets. The 120,000 shares next are regarded as “inadmissible assets” and about 35 per cent of the total assets being “inadmissible assets” (principally, if not entirely, the 120,000 shares of its own stock), the tentative credit is reduced by this percentage. This results in a credit which is less by a substantial amount than the credit would be if the 120,000 shares of its own capital stock had not been regarded as assets of the petitioner. Sandoval Zino Co., 29 T.C. 1055 , is cited for the proposition that a corporation’s own stock once issued, reacquired and held as treasury stock, is an “inadmissible asset.” I dissented in the case.
Section 436, under which this credit is allowed, is entitled “Excess Pkofits Credit — Based on Invested Capital.” The petitioner here, having paid over $6 million to the former stockholders for the 120,000 shares of its own stock, obviously had less assets and less invested capital thereafter than it had before. The more than $6 million of cash which it paid for those shares was an asset, but was no longer an asset when the corporation parted with it. Its own shares which it thus acquired were not assets in any real sense and certainly no longer represented any capital invested in the corporation. The credit involved here is to be computed on the invested capital of the corporation, and it seems obvious that the $6 million included in total assets and,included in “inadmissible assets,” representing these 120,000 shares, does not represent any invested capital, does not represent an asset of the corporation, and should not enter into the computation either of total assets or “inadmissible assets” in the computation of the credit in question.
Pierce, J., agrees with this dissent.