The opinion
MaddeN, Judge,
dissenting:
Our question is whether the payment made in 1937 to the plaintiffs for their stock was, in the circumstances here present, a “distribution by a corporation in complete cancellation or redemption of a part of its stock * * which is the definition given in Section 115 (i) to the words “amounts distributed in partial liquidation” which are used in subsection (c) of that section in the Revenue Act of 1936, which subsection required the profits included in amounts so “distributed” to be returned 100% for taxation no matter how long the stocks had been held.
The court holds that their transaction is not covered by the statutory language; that the transaction did not result in “complete cancellation or redemption of a part” of the corporation’s stock, because of the provision of the amended charter that any issued stock redeemed, purchased, or otherwise acquired by the corporation might be sold by the corporation at whatever price the board of directors fixed. This provision, the court holds, made the stock purchased from the plaintiffs and others “treasury stock” not completely can-celled or redeemed. I do not agree. The board of directors, in its resolution of October 3, 1934, expressed its intention to reduce the number of shares of preferred stock to 18,000, and in its resolution of May 8, 1935, authorized its treasurer to notify all holders of Class A preferred stock of its offer to “purchase for retirement” a sufficient number of shares “to complete its financial program.” That the directors intended to eliminate the purchased shares from the corporation’s financial structure is plain. Stockholders who, like the plaintiffs, also owned common stock of the corporation might well have been willing to sell their preferred stock for retirement, when they would not have been willing to sell it for reissue to compete for the future earnings of the corporation, or to compete in the market with the shares of preferred stock which the stockholders retained. The officers of the corporation did “cancel” the stock as effectively as that could be done by physical acts. None of it was ever reissued.
If a taxing body had imposed a per share tax on the corporation’s capital, surely it would not have been taxable on *174 these shares. I think the provision in the amended charter authorizing the corporation to reissue acquired stock was intended only to remove any legal question as to whether the mere acquisition by the corporation of its own stock would, ipso facto, prevent its reissue, and was not intended to tie the corporation’s hands so that it could not, if it so desired and intended, cancel some of its stock. The provision in the resolutions adopted in January of 1932, 1933, and 1934 that the shares purchased under those resolutions should be can-celled, but without prejudice to the right of the corporation to reissue them, was omitted from the resolution of October 3,1934, and subsequent resolutions, and its omission, in connection with the language and conduct which followed, shows, I think, that the corporation intended to “completely cancel” the shares acquired thereafter.
The court holds that the statutory language of Section 115 (c) and (i) does not fit the transaction here involved because the payment made to the plaintiffs was not a “distribution” but was the mere payment of a price for the purchase of some shares. In the statute, Congress was dealing with a number of different kinds of dispositions by a corporation of its accumulated earnings, and was attaching different consequences, in re taxability, to them. It was, it seems, seeking a neutral word which would not, in itself, connote that the disposition referred to was a dividend, or so like a dividend that it ought to be taxed as such, or was a mere payment of a purchase price, which ought to be taxed like the sale of a horse. Congress was devising a meticulous statutory scheme for dealing with the problem of the disposition by corporations of their accumulated profits to their stockholders, as distinguished from their spending those profits with outsiders. I can think of no generic word more suitable for the purpose than the word “distribution.”
That Congress did not use the word “distribution” in the sense of the payment of a dividend is evident, since dividends ordinarily regarded as such, and by the statute taxed as such, are only one of many kinds of payments dealt with by Section 115, whose heading is “Distributions by Corporations.” And Section 115 (g), in providing for the special treatment of a “distribution” in cancellation of stock which, *175 because of its time and manner, is essentially equivalent to the declaration of a taxable dividend, recognizes that many other “distributions” are not dividends or their equivalents. The only other meaning, narrower than “payment,” which occurs to me for possible application to the word “distribution” in this connection, is “pro rata payment” among all holders of the stock in question. But that would mean that if a corporation had reserved the right to call for retirement a specified number of its shares, at one time, or at specified times, by lot, or by selection made by the board of directors, the payments would not be “amounts distributed in partial liquidation” nor taxable as such under Section 115 (c). Yet I have no doubt that such payments would be so taxable. The final call which would bring in all the remaining outstanding shares of the kind subject to call would, by any possible meaning of the word “distribution,” be taxable as a “partial liquidation” under Section 115 (c). I see no reason why those stockholders should be taxed three times as much as the ones whose stock was called earlier.
The plaintiffs’ stock was not called pro rata, or by lot, or by selection of the board of directors, or at all. It was purchased as a result of a general offer made by the corporation to its stockholders, which reminded them that it could call their stock, but that instead it was offering the call price to those willing to sell. It thus offered an opportunity for self-selection, and the plaintiffs sold a part of their stock. If after having purchased all the stock it could get from willing sellers, the corporation had needed more and had called it pro rata from all stockholders, that would have been a “distribution,” but it would be hard to find a reason why the stockholders, including the plaintiffs, should pay three times as much taxes on their surrenders of stock in response to the call as on their earlier sales.
The court’s decision really, it seems to me, is aimed at the equity and wisdom of Section 115 (c) of the 1936 Act. ' That the criticism has validity is shown by the fact that Congress repealed the part of it here in litigation in 1942. Its apprehension, in 1936, that dispositions by corporations to their stockholders were so fraught with possibilities of evading taxes that so-called “partial liquidations” must be taxed sub *176 stantially like ordinary income, yielded in 1942 to recognition that real evasions could be adequately taxed under Section 115 (g), and that other partial liquidations belonged, in fairness, with complete liquidations, in the taxing scheme. But the nonretroactive repeal in 1942 of the provisions of the statute under which the plaintiffs were taxed in 1937 is not a reason why we should now give the former statute a narrower construction than we would have done before it was modified.
Jowes, Judge, took no part in the decision of this case.