The opinion
Smith,
dissenting: The majority of the Board has held that the National Bank of Commerce is not entitled to have its tax liability for the four-month period ended April 30, 1920, computed under the provisions of section 328 of the Revenue Act of 1918. To that I can not agree.
The vice president of the National Bank of Commerce testified that it was primarily a farm bank; that it specialized in farm loans; that the great majority of such loans either were made or renewed during the first three months of the year, and that the placing of the income of the bank during such period on an annual basis would result in the reflection of an abnormal profit. At the taking of testimony in these proceedings the respondent was represented by able counsel. However, the testimony of the vice president was not broken down by cross-examination nor has it been discounted otherwise. The respondent has computed tax liability arising from the earnings over the four-month period by placing the petitioners on an annual basis. On the basis used by the respondent, the percentage of taxable net income to invested capital was 54.54 per cent, whereas the average percentage of taxable net income to invested capital for the preceding three years, based on a full year’s operation for each year, was 26.49 per cent.
In view of the foregoing I am convinced that the testimony of the vice president to the effect that the bank enjoyed a seasonal business and that the placing of its earnings for the four-month period on an annual basis would show an abnormal profit has been fully corroborated, and that a computation of petitioners’ tax liability for the period under review on an annual basis results in an abnormal distortion of the relationship between taxable net income and invested capital. Consequently, it appears to me that on this point the majority opinion, where it states—
* * * Much reliance is placed upon tlie fact that income was proportionately greater during the first months of the year than during the remainder of the year, due to the fact that this bank catered to farm loans which were made largely in January, February, and March, but we were furnished no information as to the extent of these loans, the relation which they bore to the total business done, or even an approximation as to how much income was affected or alleged to be distorted thereby. Certainly, the making of farm loans was by no means the only source of the bank’s income. In fact, one of the major reasons assigned for the high income was the oil boom, which was at its height in Wichita Falls during the period in question, and a reasonable conclusion which we think may be drawn from the evidence before us is that the large income is attributable more to that fact than to the fact that only the more profitable part of a seasonal business is being included in the period before us. * * *
deals in idle speculation as to what might have been the result had other or different testimony been offered. Such language does not *1094 impress me as resolving doubts in favor of the petitioners, which it is clear must be done. Gould v. Gould, 245 U. S. 151 ; United States v. Merriam, 263 U. S. 179 . More especially is this true, perhaps, in cases involving special assessment, since in such cases the proceedings before this Board are, for practical purposes, final. Cf. Blair v. Oesterlein Machine Co., 275 U. S. 220 ; Williamsport Wire Rope Co. v. United States, 277 U. S. 551 ; Clinton Corn Syrup Refining Co. v. United States, 280 U. S. 581 ; Live Stock National Bank v. United States, 36 Fed. (2d) 334.
At the time the merger took place there were set up on the books of the bank certain obligations which are referred to in the majority opinion as follows:
* * * jjot only were these debts not written off as required by statute in order to be deductible, but also there is no evidence before us from which we can say that they were determined to be worthless prior to April 80, 1920. * * *
While it may be true that the evidence does not show that the debts were ascertained to be worthless and while the evidence does show that they were not written off the books, it is a fact, abundantly supported by the testimony taken in these proceedings, that the officials of the bank at or prior to the time of the merger knew that such debts were worthless, but, nevertheless, carried them on their books as good accounts solely due to the fact that it was desired to make as good a showing as possible with respect to the assets to be carried into the merger. Having in mind the action of the respondent in computing tax liability on an annual basis, such facts impress me as revealing an abnormal condition which arose simply because the bank failed to take off-setting deductions.
I am content with the majority opinion respecting the item of $7,500 profit derived from the sale of a lease on the premises on which the bank conducted its banking business, although the effect of the respondent’s action in computing tax liability on an annual basis is to magnify such income. However, it is fallacious to say that there is nothing abnormal in a situation where a bank seizes assets on deposit with it, sells them for the purpose of recouping a loss occasioned through cashing a bad check by the owner of the assets, derives from the sale of the assets $15,195.40 more than the amount of the bad check and includes such excess receipts in net income. Aside from the question as to whether -the $15,195.40 should have been included in net income at all, it is inconceivable that such action represented a normal business transaction or that the amount of $15,195.40 constituted normal income. Especially is this true where the period during which this whole transaction occurred is placed upon a yearly basis for the purpose of computing income-tax liability.
*1095 In view of all the evidence before us I am convinced that the many peculiarities attendant upon the bank’s conduct of its business during the four-month period ended April 30, 1920, indicate abnormalities in income, the effect of which are greatly magnified by the computation of tax liability on an annual basis. For these reasons I am convinced that the National Bank of Commerce is entitled to the relief granted by section 328 of the Revenue Act of 1918.