The opinion
LaNSdoN,
dissenting: I disagree with the majority opinion herein. The petitioner was organized and.in the taxable years was operated for the sole purpose of purchasing supplies for the use of the members of the California Fruit Growers Exchange, a cooperative organization that markets the agricultural commodities produced by its own members and no others. The stockholders or members of the petitioner are the component units of the Exchange and all the capital used is supplied by such members who accumulated, held, and used it for the purpose of their organization.
One of the major needs of the Exchange is box shook for making containers in which fruit is shipped to the markets. Without abundant supplies of shook accessible at economically advantageous prices, the Exchange would be unable to realize the purposes for which it was organized. In order to effect substantial savings on the cost of shook, the petitioner found it advisable to acquire suitable timber and create the agencies for converting the same into material for the use of its members. Box shook, as set forth in the majority opinion, does not require high grade timber in its production. In the lumber cut from the timber of the petitioner there is necessarily a considerable quantity grading so high that its use for shook would be uneconomical and wasteful. This high grade lumber was sold, in part at least, to the public. It seems clear that, such sales were a mere incident of the activities necessary to effect the purpose of the petitioner. If the membership had absorbed the entire output of high grade lumber none would argue that the petitioner is not entitled to exemption from tax under the provision of law upon which it'relies. The annual average sales of lumber to nonmembers in the taxable years were only slightly in excess of 10 per cent of the total sales of all supplies to members and the proceeds thereof, whether retained as operating capital, or distributed profits to the members, served the single primary purpose of the petitioner’s organization, which was to reduce the cost of necessary supplies for use in the production and marketing of fruit.
The record discloses that except in 1922 and 1923 petitioner’s sales of lumber to outsiders averaged less than 6 per cent of its -total turnover.. In those years there were heavy and damaging frosts in the citrus fruit belt which reduced production and the growers’ requirements for shook. This left an abnormal amount of material in the hands of the petitioner which sound business practice required that *330 it should dispose of on the best terms possible. It is obvious, therefore, that the sales of lumber in 1922 and 1923 are not indicative of any departure from the fixed policy of the petitioner, but resulted from extraordinary conditions over which it had no control.
It is apparent from the record that the manufacturing operations of the petitioner were not sufficiently extensive to supply the needs of its members for the quality of shook required in their business. The sale of higher grades of lumber to be used for jmrposes to which it was best adapted was in pursuance with an understanding with the Bureau of Forestry which was a part of the Departmental policy for the conservation of natural resources by the application of lumber and other products to the purposes for which they were best fitted. The sale of the higher grade lumber to outsiders and of some inferior shook to deciduous fruit growers enabled the petitioner to use the proceeds therefrom for purchasing, for its members much suitable shook that it was unable to produce in its own operation and obviated any necessity for using high grade material where lower grades were equally or more adequate.
It is also of record that the sales of lumber to outsiders were at a profit-making price, while the sales of supplies to members were approximately at cost. If the usual commercial profit is added to the total of sales to members, it is obvious that the transactions with nonmembers constitute much less than 10 per cent of the total yearly business of the petitioner. It is hardly conceivable that Congress would create an exempt status for organizations like the petitioner and then take away all the advantages of exemption by the application of a definition to permitted activities narrowly precluding operations essential to success. Aside from the sale of the relatively small amount of its lumber production to nonmembers, there is nothing in the record that indicates that the petitioner is not entitled to the exemption provided in section 231 (11) of the Revenue Act of 1921. Cf. Trinidad v. Sagrada Orden de Predicadores, 263 U. S. 578 .
ARuNdell agrees with this dissent.