The opinion
Teussell,
dissenting: The record in this case establishes that during the years 1913, 1914, 1915, and 1916, the petitioner was engaged in a dredging enterprise for the United States, and that during those years it disbursed moneys necessary to carry on the dredging work and received other moneys in part compensation for such work; that during the four years named the petitioner disbursed $176,271.88 more than it received and thereby sustained an actual money loss of the said amount of $176,271.88. Thereafter, as a result of litigation prosecuted through the Court of Claims and the United States Supreme Court, petitioner recovered the amount of money disbursed in excess of the amount received, together with interest in the amount of $16,305.71, which was paid to the petitioner in the year 1920.
If the Government had paid to the petitioner the amount of the judgment, $176,271.88, during the years in which the work was done, the petitioner’s accounts for this dredging work would have exactly balanced as to receipts and disbursements and it would have had no gain and no loss as the result of the enterprise. The amount *459 of the judgment recovered in 1920, exclusive of the interest was, to use the language of the United States Supreme Court in United States v. Atlantic Dredging Co., 253 U. S. 12 , “compensatory of the cost of the work of which the Government got the benefit.”
The Revenue Act of 1918 levies income and profits taxes upon “gains or profits and income derived from any source whatever,” and in Eisner v. Macomber, 252 U. S. 189 , the Supreme Court defines income to he “ the gain derived from capital, from labor, or from both combined.” Gains, profits and income are not produced by the judgment of a court but must be derived from the use of capital or labor,, or both combined, in the circumstances, and conditions which form the basis of the litigation resulting in the jhdgment. The facts in the instant case show conclusively that, excluding the item of interest, the use of the petitioner’s capital and its employment of labor in the dredging enterprise produced no gains or profits.
While it is clearly established that during the years 1913 to-1916, inclusive, the petitioner sustained money losses in respect to this dredging enterprise aggregating $176,271.88, it may be true that in making the petitioner’s income-tax returns for those years it recouped some small portion of such losses by. reducing the amount of its income-tax liability for those years by using these losses as deductions. If such be the fact, and that can be clearly ascertained by an examination of petitioner’s income-tax returns for those years, the amounts by which petitioner’s tax liability for those years was reduced can now be determined and such amounts may be properly found to fall within the definition of income in the year 1920, when it was finally compensated for the losses sustained in the earlier years.
I am, therefore, of the opinion that in determining petitioner’s gross income for the year 1920 there should be added to the amount originally reported the $16,305.71 of interest received in 1920, together with the amounts by which its income taxes for the years 1913 to 1916, inclusive, were reduced by the use of the dredging enterprise losses as deductions from gross income for those years.
Smith concurs in the above dissent.