Opposition Brief — United States Graphite Co. v. Sawyer

E

t

INDEX

Page

RT en ee ene eer er emer ey y 1

te os ya nn es | ne le eee or ee ee 1

FE PTT DOT ET piaaearte ee 2

Statute and regulations involved . Pe Ue eR 3

AN Be ney ele stances Eee Ue Fe nee 3

SE Fa eer Ee ar a hee ee Op 13

RT deals eek dg Sin ru here ee tek Wa AO we 21

ep Skid kim once ox eee ee Led eae ete eid ek es 23

CITATIONS

Cases :

mene ¥, Nagle, B00 VU. B. GIG. 65s cee ees 14, 16

Alaska Smokeless Coal Co. v. Lane, 250 U. S. 549 Mises 14

American Twist Drill Co., 11 T. C. 200................ 21

Carrick v. Lamar, 116 U. i RS eee Wee ae 14

Decatur v. Paulding, 14 Pet. 497................... 14, 15, 22

Duncan Townsite Co. v. Lane, 245 U.S. 308............ 22

First Securities Corp. v. oe ade 103 F. 2d 1011 22

Gaines v. Thompson, 7 Wall. 347. te re 14

ne Vs POU, GIO Wi. De BOR, . 6c oc re cs eee ias cues 14,15

Heiner v. Diamond Alkali Co., 288 U. S. 502........... 22

Helvering v. Inter-Mountain Life Ins. Co., 294 U. S.

rs ee ME ad he eo eae bos VERS Be bo 28 22

Hurley v. Kincaid, 285 U. 8. 95...................... 21

I.C.C. v. New York, N. H. & H. R. Co., 287 U. 8.178... 14

James F. Waters, Inc. v. Commissioner, 160 F. 2d 596... 22

Litchfield v. Register and Receiver, 9 Wall. 575......... 14

Miguel v. McCarl, 291 U. 8. 442....... ih ok Pe ae oe 14

ee SPUN) GED Wy Oe ss se es oe cere eee ne vee 14,15

New Colonial Ice Co. v. Helvering, 292 U. S. 435........ 22

Riverside Oil Co. v. Hitchcock, 190 U.S. 316......... 14, 16

United States v. Milnor Corp., 85 F. Supp. 931. 21

United States ex rel. Chicago Gt. Western R. R. v. ‘< C. C.,

ES a ae ee 14

United States ex rel. Girard Co. v. Helvering, 301 U. S

ASIN a A 14

Warner Valley Stock Co. v. Smith, 165 U. S. 28........ 14

Welch v. Obipso Oil Co., 301 U. S.190................ 22

West v. Hitchcock, 205 U.S. 80....................... 14

Wilbur v. United States, 281 U.S. 206................. 14

Williamsport Co. v. United States, 277 U.S. 551........ 22

SS og SS er rrr rer 14, 15, 16

(1)

Il

Statutes:

Page

Administrative Procedure Act, 5 U.S.C. 1011.......... 10

Internal Revenue Code, 54 Stat. 998, as amended, 26

U.S.C. 124:

en aah ue tee ok att ae 5, 16

RR on ald evi Wia Vb eh tee kein dees 5, 23

REAR SERES Scat BOHR Ot eee me 6, 18, 23

SS rk oan ky laa Slee 8 swe « Op 1 4

RE 0G Oa ot aan rn eles ics se 34605 25

Joint Resolution of October 30, 1941, 55 Stat. 757...... 5

Second War Powers Act, 50 U.S.C. App. 631........... 12

Miscellaneous:

Army-Navy Regulations, 7 F. R. 4233, as amended Octo-

ee se vic vk pp od oo ve PR RA 7, 25

Regulations of the War Production Board, December 17,

iP hss doy «aie oo eh ed 94 8, 27

Amended Regulations of the War Production Board of

po eS ee 8, 28

Executive Orders:

Wee Ge © rr OE gc cee dase ves eeee a hes 12

a av enews races eeesas 12

No. 9406, December 17, 1943, 8 F. R. 16955. ....... 3, 8, 26

No. 9429, March 2, 1944, 9 F. R. 2487............. 8, 27

No. 9638, October 4, 1945, 10 F. R. 12591......... 3,12

No. 9809, December 12, 1946, 11 F. R. 14281....... 3

No. 9841, April 23, 1947, 12 F. R. 2645............ 3

Proclamation No. 2669, 10 F. R. 12475................ 10

Treasury Regulation No. 111, Section 29.1246 ........ 17

ee

—

Gnthe Supreme Court of the Gnited States

OcToBER TERM, 1949

No. 532

THE UNITED STATES GRAPHITE COMPANY, PETI-

TIONER

Vv.

CHARLES SAWYER, SECRETARY OF COMMERCE

ON PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS FOR THE DIS-

TRICT OF COLUMBIA CIRCUIT

BRIEF FOR THE RESPONDENT IN OPPOSITION

OPINIONS BELOW

The opinion of the United States District Court

for the District of Columbia (R. 87-92) is reported

at 71 F. Supp. 944. The per curiam opinion of the

United States Court of Appeals for the District

of Columbia Circuit, affirming the opinion below

(R. 105), is reported at 176 F. 2d 868.

JURISDICTION

The judgment of the Court of Appeals was

entered on February 28, 1949 (R. 111). A peti-

(1)

enn

2

tion for rehearing in banc, filed on March 11, 1949

(R. 112), was denied on October 13, 1949 (R. 122).

The petition for writ of certiorari was filed on

January 9, 1950. The jurisdiction of this Court

is invoked under 28 U.S.C. 1254.

QUESTION PRESENTED

On October 8, 1940, Congress enacted Section

124 of the Internal Revenue Code which provides

that taxpayers who build emergency facilities cer-

tified by the Secretaries of War or the Navy as

essential to the expansion of the nation’s rearma-

ment program may elect to deduct amortization

of the cost of those facilities as a federal tax de-

duction over five years. On May 9, 1944, peti-

tioner applied to the War Production Board, as

successor to the Secretaries of War and the Navy,

for a necessity certificate covering machinery al-

ready acquired and to be thereafter acquired. On

July 17, 1944, the War Production Board, acting

in accordance with policies set forth in pertinent

Executive Orders and Regulations promulgated

under Section 124, declined certification of ma-

chinery acquired prior to that date and granted

certification of 35 per cent of the cost of machinery

thereafter to be acquired. In this proceeding,

petitioner seeks mandatory orders to compel re-

spondent, as suecessor to the War Production

Board,’ to certify 100 per cent of the cost of the

1 Respondent’s predecessors were, in the order named, as

follows: Temporary Controls Administrator, Civilian Produc-

tion Administrator, Chairman of the War Production Board.

—_—

machinery denied certification and 100 per cent

of the cost of the machinery which was certified

as to 35 per cent of its cost. The question pre-

sented is whether both courts below erred in re-

fusing to compel a different treatment of peti-

tioner’s application by the issuance of mandatory

orders.

STATUTE AND REGULATIONS INVOLVED

Section 124 of the Internal Revenue Code, 26

U.S.C. 124, and the Executive Orders and Regula-

tions issued thereunder are set forth in pertinent

part in the Appendix, infra, pp. 23-29.

STATEMENT

On July 17, 1944, the War Production Board,

pursuant to Executive Orders and to its Regula-

tions (Appendix, infra, pp. 26-29), promulgated

under Section 124 of the Internal Revenue Code,

issued to petitioner a percentage necessity cer-

tificate authorizing the amortization of 35 per

cent of the cost of certain facilities, thereafter to

be acquired, as a tax deduction over a period of

five years (R. 17). Certification was denied

facilities acquired by petitioner prior to July 17,

1944 (R. 35). This action, brought on Septem-

ber 9, 1946, attacks the validity of the Executive

“Orders and Regulations and prays that respondent

be ordered to issue necessity certificates for 100

per cent of the cost of all facilities procured be-

(Executive Order 9841, April 23, 1947, 12 F. R. 2645; Execu-

tive Order 9809, December 12, 1946, 11 F. R. 14281; Executive

Order 9638, October 4, 1945, 10 F. R. 12591; Executive Order

9406, December 17, 1943, 8 F. R. 16955.)

eee een a

4

tween December 28, 1943, and December 15, 1944.

In opposition to this application for mandamus,

respondent filed motions to dismiss and for sum-

mary judgment (R. 41, 87), supported by the

affidavit of Sidney T. Thomas, Chief of the Tax

Amortization Branch, Civilian Production Ad-

ministration (R. 41-52).2,- On June 27, 1947, the

District Court for the District of Columbia

granted respondent’s motion for summary judg-

ment on the ground that respondent’s construction

of Section 124 was reasonable and could not be set

aside in this action for mandamus (R. 91-92). A

majority of the Court of Appeals for the District

of Columbia Circuit (Edgerton and Clark, JJ.)

affirmed per curiam on the opinion below, with

Judge Wilbur K. Miller dissenting, on February

28, 1949 (R. 111). A petition for rehearing in banc

was denied on October 13, 1949 (R. 122).

A brief summary of the purposes and adminis-

tration of Section 124 is necessary for an under-

standing of the issues raised herein. At the be-

ginning of the war emergency in 1940, the officials

in charge were faced with the problem of financ-

ing the additional production capacity which was

critical to the rearmament program. Two alter-

natives were available—government ownership of

2 Mr. Thomas was, during the period here involved, Acting

Chief of the Tax Amortization Branch, War Production Board.

The substance of the affidavit is derived in part from a report,

dated February 15, 1945, by the then Under Secretary of War,

Robert P. Patterson, to the Secretary of War on the adminis-

tration of Section 124 (R. 52-79).

—

the expanded facilities,’ or private financing. As

to the second source of capital ‘‘for part of the

needed expansion’’ (R. 53), it was found that in-

dustry was reluctant to risk capital in a program

of plant expansion and conversion which might

not be operative long enough to repay the cost of

facilities having limited use if the usual rate of

amortization for taxation were employed (R. 42).

To overcome this obstacle, Congress, on Octo-

ber 8, 1940, enacted Section 124 of the Internal

Revenue Code as part of the Second Revenue Act

of 1940. 54 Stat. 998. Section 124 estimated the

probable duration of the emergency at five years,

and allowed taxpayers, who built emergency facili-

ties certified as essential by the Secretaries of War

or the Navy,‘ the election of deducting amortiza-

tion of the adjusted basis of an emergency facility

over a period of sixty months. Section 124(a).

Certification was to be under regulations pre-

scribed by the Secretaries of War and the Navy

with the approval of the President. Section

124(f)(1). The amortization period could be

5

*The Government, acting through Reconstruction Finance

Corporation and Defense Plants Corporation, constructed and

owned many emergency facilities. In other instances, con-

tracts were executed which provided that the taxpayer would

expend its own funds for the construction of new facilities

and would be reimbursed by the Government over a period of

sixty months, title being transferred to the Government at the

termination of the contract.

*As enacted, certification was to be made jointly by the

National Defense Advisory Commission and the Secretaries

of War or the Navy. The Commission’s certifying authority

Mond —_n by Joint Resolution of October 30, 1941, 55

at. 757,

So

terminated by Presidential proclamation of the

end of the emergency, or by certification by the

Secretaries of War or the Navy to the Commis-

sioner of Internal Revenue that an emergency

facility ceased to be necessary in the interest of

national defense. Section 124(d) (1).

A detailed description of the successful adminis-

tration of Section 124 as part of the plant ex-

pansion program is set forth in the Thomas

affidavit and Patterson report (R. 41-79). Facili-

ties valued at approximately five billion dollars

were certified under Army and Navy administra-

tion (R. 75-76). For the purpose of this proceed-

ing, it is only important to note the changes in

policy and application made necessary by develop-

ments in rearmament needs. By the Spring of

1943, it had become apparent that the chief limit-

ing factor in war production no longer was plant

capacity but materials and manpower. Maximum

war production now required, not an encourage-

ment of facility expansion, but a curbing of it.

Up to that time, almost as much effort had heen

devoted to the construction of necessary facilities

as to the actual production of arms and munitions.

(R. 72-73).

Concluding that ‘‘the need for amortization as

an inducement to the private financing of such

facilities had come practically to an end’’ (R. 77).

the War Department, on June 25, 1943, requested

the advice of the Office of War Mobilization.

After full consideration, the Director of War

———

7

Mobilization directed the War and Navy Depart-

ments to discontinue certification but suggested

that the issuance of certificates for facilities for

military or naval supply might still be authorized

in exceptional and limited cases where the need

had been determined before expansion (R. 74).

Accordingly, an amendment to the Regulations

was approved by the President on October 5, 194°

(8 F. R. 13824).° It provided that, with the excep-

tion of facilities contracted for before the date of

the amendment, no facility could be considered for

certification unless the certificate was issued he-

fore the facility was acquired. Appendix, infra,

p. 25. It also provided that further certifica-

tion would be made only in cases of a shortage of

facilities or supplies required for military or

naval uses, and then only after consideration of

the relative advantages of government financing

and private financing with amortization (R. 74;

Appendix, infra, p. 26). Simultaneously, the

technical services of the War Department were

advised that, where additional facilities were re-

quired and private companies which could pro-

vide them were unwilling to finance them without

amortization, arrangements should be made for

government financing (R. 74). The “* * *

clear intention was to obtain substantial termina-

tion of the issuance of certificates’’ (R. 46).

5 It should be noted that, contrary to petitioner’s statements

(Pet. 6, 27), this change in policy, and the issuance of regula-

tions which embodied it, antedated the transfer of the certifica-

tion function to the War Production Board.

8

This basic change in the administration of Sec-

tion 124 was widely publicized, appeared in the

Federal Register, and copies of the amendment to

the regulations were sent to all taxpayers who had

previously filed applications, including petitioner

(R. 46; and see fns. 7, 10, infra, pp. 9, 12).

On December 17, 1943, the power to issue neces-

sity certificates in all future cases was transferred

by Executive Order 9406 (8 F. R. 16955) from

the Secretaries of War and the Navy to the Chair-

man of the War Production Board. See R. 73-75.

On the same date, the President approved regula-

tions prescribed by the Chairman of the War Pro-

duction Board which, in so far as the issues herein

are concerned, were the same as the above-de-

scribed Army-Navy regulations issued on Octo-

bed 5, 1943 (R. 46-47; Appendix, infra, p. 27;

8 F. R. 16964). Both Executive Order and Regu-

lations specified that necessity certificates should

not be issued unless the Chairman of the War

Production Board determined prior to the be-

ginning of construction or date of acquisition

(1) that the facilities are clearly necessary for the

war effort, and (2) that it is to the advantage of

the Government that the facilities be privately

financed (R. 46-47).°

Thus, the decision on which the issuance of a

necessity certificate was based required considera-

® These principles were repeated in Executive Order 9429

(9 F. R. 2487) on March 2, 1944, and in the Amended Regula-

tions of the War Production Board of March 2, 1944 (9 F. R.

2492) (Appendix, infra, pp. 27-29).

tion of complex factors. More careful recogni-

tion of the relative advantage of public ownershi p

and private financing under Section 124, now

made possible by achieved plant expansion, was

required by the ever increasing impact of the

amortization privilege on the revenue structure

(R. 45). Amortization, an abnormal tax deduc-

tion, involved a loss of revenue to the Government

which, in the case of companies in the higher tax

brackets, might amount to 81% of the cost of the

facilities (R. 80, 85). And if the facilities con-

cerned could reasonably be considered useful after

the war to the applicant in his regular business, or

to anyone else, the Government, if it financed the

facilities, would be able to recoup a part of its

cost by sale or other disposition after the war

(R. 48).

To implement the Presidential directive that

necessity certificates would thereafter be issued

only where it was to the advantage of the Govern-

ment that the facilities in question be privately

financed, a memorandum was prepared by the Tax

Amortization Branch, War Production Board on

February 9, 1944, to control processing of applica-

tions." The memorandum advised that (R. 80):

9

* * * * *

In determining whether it is to the ad-

vantage of the Government that the facilities

7 As shown above, pp. 7-8, the Executive Orders and regula-

tions issued pursuant thereto, here in issue, were duly pub-

lished in the Federal Register. Memoranda and circulars

10

be privately financed, consideration must be

given to the probable marketability or useful

value of the facility after the war. It is

recognized that there is no way by which post-

war value can be definitely determined at this

time. Any facility which will not have a

reasonably wide market may be assumed to

to have relatively little post-war sales value,

and therefore, it would be to the best interest

of the Government that it be privately

financed. On the other hand, if a facility ap-

pears to be of such a type that it would have

a reasonably wide market after the war, it

may generally be assumed that, provided the

DPC or other government agency is willing

to purchase it, it would be to the advantage

of the Government that it be publicly rather

than privately financed with a 100 percent

certificate. It may still be advantageous to the

Government to have private financing under

a certificate if a percentage certificate were

issued, such percentage being based, for ex-

ample, on excess cost attributable to the war.’

* * * * *

issued for the guidance of Government officials in processing

applications for the amortization privilege under Section 124

were, of course, matters of internal management and Federal

Register publication was not required. It should be noted

that the amortization program under Section 124 was termi-

nated, on September 29, 1945, prior to the effective date of

the Administrative Procedure Act, 5 U.S.C. 1011. See

Proclamation No. 2669, 10 F. R. 12475.

8A circular dated March 8, 1944, approved by J. A. Krug,

then Vice-Chairman of the War Production Board, set forth,

the following criteria for preparation of recommendations for

necessity certificates (R. 84):

* * * * *

.02 In the event that amortization should be allowed,

a

11

After surveys of current and pre-war costs of

many types of facilities, the basic standard for

partial certification was fixed at 35 per cent of

eurrent costs. Departure from this figure, when

justified by evidence, was authorized and partial

certification in fact ranged from 20 per cent to

80 per cent (R. 49, 51).°

On May 29, 1944, after the foregoing principles

had been established, petitioner applied to the

War Production Board for a necessity certificate

determination as to whether it should be 100% or partial

should be made as follows:

1. One hundred percent certificate will be given only

when facilities to be amortized are wholly designed to

manufacture end product exclusively for war purposes or

for essential civilian use, and it is not reasonable to assume

that they may be useful after the war.

2. Partial certificate representing excess construction

or acquisition costs over pre-war costs will be given when

facilities to be amortized are wholly designed to manu-

facture end product exclusively for war purposes or for

essential civilian use and it is reasonable to assume that

they may be useful after the war.

3. Partial certificate will be given in appropriate per-

centages under certain other circumstances of an erdinery €x T°

nature. The following are examples:

a. When part of the facilities are appropriate for

government financing and part for a 100% certificate,

a percentage certificate may be issued for the entire

project at a percentage which will result in same amount

of tax amortization that would have been allowed had

the individual items been considered separately.

* * * * *

* These general principles and policies were applied to 11,435

applications for necessity certificates by the War Production

Board. Of these, 2,074 were approved, 4,268 were denied in

part, 3,671 were totally denied, and 1,422 were withdrawn. In

approximate dollar value, the total amount covered by applica-

tions for certificates was $1,498,730,000. Of this amount,

Tee was approved and $797,5€7,000 was denied

. 51).

12

for facilities for its new plant.’® At various dates

from October 21, 1943, to December 16, 1943,

priorities had been granted by the War Produc-

tion Board for the purchase of such facilitie.,”

and acquisition and installation had began on

December 28, 1943. Procurement of the facilities

was completed on December 15, 1944 (R. 13).

On July 17, 1944, the War Production Board

sent to petitioner a ‘‘ Letter of Predetermination”’

which stated, in accordance with the Executive

Orders and Regulations, that facilities acquired

subsequent to the date of the letter were eligible

for tax amortization on a 35 per cent basis (R.

35). After petitioner filed an affidavit showing

10 Tn 1943, demand for Graphitar, a graphite product manu-

factured by petitioner for use in the fabrication of marine and

aircraft engines, began to exceed the capacity of petitioner's

plant and plans were made to more than double the plant

capacity (R. 7). On June 27, 1943, petitioner filed an applica-

tion under Section 124 with the Secretary of War for a neces-

sity certificate for the cost of a new plant. On October 28,

1943, the Secretary of War issued a necessity certificate for

100 per cent of the cost of the plant (R. 11). A priority was

granted on October 29, 1943, and petitioner began construc-

tion (R. 10).

The priority issued to petitioner was AA-3, but there were

several priorities higher than this on the preference scale. It

should be noted in this connection that the granting of

priorities called for different considerations and for the applica-

tion of different standards than those entering into the is-

suance of necessity certificates. The power to grant priorities

was derived from an entirely separate law, the Second War

Powers Act (50 U.S.C. App. 631), and was administered under

different Executive Orders—No. 9040 (7 F. R. 527); No. 9125

(7 F. R. 2719); No. 9638 (10 F. R. 12591). The issuance of

a priority was in no sense a determination of necessity within

the meaning of Section 124. Countless items were acquired

by virtue of priorities for which tax amortization would not

have been and was not granted.

11 See fn. 10, supra.

——

13

the cost of facilities acquired on or after July 17,

1944, the War Production Board, on August }

1944, issued petitioner a necessity certificate dated

July 17, 1944. The certificate provided (R. 17):

It Is Hereby Certified that the facilities

described in the attached Appendix A (con-

sisting of 9 pages)” are necessary in the inter-

est of national defense during the emergency

period, up to 35% of the cost attributable to

the construction, reconstruction, erection, in-

stallation or acquisition thereof, * * *,

On September 9, 1946, petitioner filed this suit,

alleging that it was wrongfully denied amortiza-

tion of $175,813.35. Of this amount, $77,195.99

represents facilities acquired prior to J uly 17, 1944,

and $98,617.36 represents 65 per cent of the cost

of facilities acquired after J uly 17, 1944 (R. 24).

As indicated above, p. 4, both courts below

declined to issue the requested orders.

ARGUMENT

In this proceeding for mandamus, petitioner

seeks to compel respondent, in his official capacity

(R. 1), to do two things: (1) to issue a certificate

for 100 per cent of the cost of facilities as to which

certification was denied; and (2) to issue a certifi-

cate for 100 per cent of the cost of facilities as to

which only 35 per cent of the cost was certified.

Appendix A listed the facilities shown in petitioner’s

application for a certificate. Facilities designated as having

been received before July 17, 1944, were crossed over in the

form of an “X” by red pencil (R. 17).

14

Both courts below have held that respondent’s

refusal to grant such certificates is grounded upon

a reasonable interpretation of respondent’s dis-

cretionary powers under Section 124. The ques-

tion raised herein, whether such reasonable exer-

cise of discretion may be set aside by mandamus,

is not novel and has uniformly been answered by

this Court in the negative.” Decatur v. Paulding,

14 Pet. 497, 515; Gaines v. Thompson, 7 Wall. 347;

Litchfield v. Register and Receiver, 9 Wall. 575,

577; Carrick v. Lamar, 116 U.S. 423, 426; River-

side Oil Co. v. Hitchcock, 190 U.S. 316, 324; West

v. Hitchcock, 205 U.S. 80, 85; Ness v. Fisher, 223

U.S. 683, 691-692; Alaska Smokeless Coal Co. v.

Lane, 250 U.S. 549, 555; Hall v. Payne, 254 U.S.

343, 347; Work v. Rives, 267 U.S.175, 183; Wilbur

v. United States, 281 U.S. 206, 218; 7. C. C. v. New

York, N. H. & H. R. Co., 287 U.S. 178, 203 ; United

States ex rel. Chicago Gt. Western R. R.v.1I.C.C.,

294 U.S. 50, 62; United States ex rel. Girard Co.

v. Helvering, 301 U.S. 540, 543; Adams v. Nagle,

303 U.S. 532, 542.

The rule is precisely stated in Wilbur v. United

States, supra, at pp. 218-219:

Mandamus is employed to compel the per-

formance, when refused, of a ministerial duty,

13 Whether this be called an action for an order in the

nature of a writ of mandamus or for a mandatory injunction,

is immaterial. In substance and effect a mandatory injunc-

tion is the precise equivalent of a writ of mandamus, and its

issuance is governed by identical considerations. Gaines V.

Thompson, 7 Wall. 347, 352; Miguel v. McCarl, 291 U.S. 442,

452; cf. Warner Valley Stock Co. v. Smith, 165 U.S. 28, 33.

—_—7"~

this being its chief use. It also is employed

to compel action, when refused, in matters

involving judgment and discretion, but not

to direct the exercise of judgment or discre-

tion in a particular way nor to direct the re-

traction or reversal of action already taken

in the exercise of either.

* * * Where the duty in a particular situa-

tion is so plainly prescribed as to be free

from doubt and equivalent to a positive com-

mand it is regarded as being so far ministerial

that its performance may be compelled by

mandamus, unless there be provision or im-

plication to the contrary. But where the

duty is not thus plainly prescribed but

depends upon a statute or statutes the con-

struction or application of which is not free

from doubt, it is regarded as involving the

character of judgment or discretion which

cannot be controlled by mandamus.

And it applies with as much force to the construc-

tion of statutes as to the determination of ques-

tions of fact. Decatur v. Paulding, supra; Ness

v. Fisher, supra; Hall v. Payne, supra; Work v.

Rives, supra. Even if his construction of the stat-

ute be erroneous, mandamus will not issue to com-

pel the administrative official to act upon one con-

struction rather than another. The interpretation

need only be reasonable. ‘‘Whether he decided

right or wrong, is not the question. Having juris-

diction to decide at all, he had necessarily juris-

diction, and it was his duty to decide as he thought

— cm

16

the law was, and the courts have no power what-

ever under those circumstances to review his deter-

mination by mandamus or injunction.” River-

side Oil Co. v. Hitchcock, supra, at pp. 324-325,

And see Work v. Rives, supra, at 183; Adams vy.

Nagle, supra, at 542.

Accordingly, to obtain the relief which it here

asks, petitioner must affirmatively demonstrate

that the action taken by respondent’s predecessors

was completely arbitrary and devoid of authority

under Section 124. The petition falls far short

of the required showing. It discloses, at best, an

alternative reading of Section 124 and the scope

of administrative power thereunder—an inflexible

reading which fits the needs of petitioner’s case

but which was rejected, as not corresponding either

to the complex requirements of national rearma-

ment or to the intent of Congress by all the respon-

sible executive officials, including the President,

who administered the plant expansion program,

and by both courts below."

In effect, petitioner reads Section 124 as if if

14 Tn saying that all responsible executive officials concurred

as to the proper interpretation and administration of Sec-

tion 124 in so far as here under attack, 7.e., the changed policy

of administration inaugurated by the Secretaries of War and

Navy and followed by the War Production Board, we are not

unmindful of petitioner’s repeated insistence that a different

view was taken by the Commissioner of Internal Revenue

(Pet. 2-3, 9, 35-39). The administration of Section 124 and

the power to issue war necessity certificates thereunder was

not, in any way, delegated to or entrusted with the Commis-

sioner of Internal Revenue. It was essentia! that the adminis-

tration of Section 124 be in the same hands that controlled

the complex and constantly changing needs of the overall war

program. The Commissioner’s sole function in the picture was

—

were a rigid contract between Congress and indus-

try.” Petitioner ignores the vital control dele-

gated by Congress to the Executive branch over

the administration of Section 124, a control appar-

ent in the terms of the act itself and underscored

if the statute be placed, as it must be, in its proper

setting. The entire expansion of needed plant

capacity for the reaarmament program might pos-

sibly have been accomplished through Government

ownership of all facilities. A great part of our

expanded plant capacity was publicly financed and

constructed. However, in view of the need for

haste, as the then Under Secretary of War Robert

P. Patterson pointed out in his report to the Sec-

retary of War on the administration of Section

124, we had to expand to the full ‘“‘within the

framework of the system of private enterprise,

not only because that was the system in which we

17

to prescribe the methods to be employed in preparing returns

by taxpayers who had received war necessity certificates.

However, if the Commissioner’s views be considered relevant

to the present case, it should be noted that his view accords

with and recognizes the position taken by those officials who

administered the amortization program. Section 29.124-6 of

Treasury Regulation No. 111, quoted on page 63 of the peti-

tion, specifically recognizes partial certification for amortiza-

tion purposes. This recognition of partial certification de-

stroys petitioner’s reliance on the Commissioner’s regulation,

as to the 35 per cent certificate here under attack. There is,

of course, nothing in the Commissioner’s regulations which

gives aid or comfort to petitioner’s other contention, namely,

that the issuance of a war necessity certificate should be com-

pelled where it was totally denied as to facilities acquired be-

fore the date of application.

15 Petitioner does not contend that the actions of the re-

spondent’s predecessor were not authorized by the regulations

then in effect. His contention is rather that the regulations

were not authorized by the statute (R. 90-91).

sin een a

18

believed, but also because it was the system we had’”’

(R. 77-78). Therefore, for part of the needed

expansion of capacity, it was thought desirable,

particularly in view of the short-term and spec-

ialized nature of many of the projects, to encour-

age the investment of private capital by the grant

of a tax privilege. Section 124 was enacted in 1940

to provide that encouragement and to supplement

Government financing.

Section 124 was an emergency measure in a field

‘* * * full of technical and difficult detail * * *”’

(R. 77). In order that its objective might be

achieved with protection against waste and abuse,

Congress provided for a great deal of flexibility

in its administration. The Secretaries of War and

Navy, subject to the approval of the President,

were given a rule-making power as to certification

of facilities. Section 124(f)(1). Power to ter-

minate the amortization privilege entirely or in

particular cases, when warranted, was granted.

Section 124(d) (1).

By the end of 1943, the character of the para-

mount needs of the rearmament program had

changed. The critical factor no longer was addi-

tional plant capacity, but the utilization of exist-

ing capacity. In fact, there was need to curb and

control expansion so as to channel men and re-

sources into production. It was then both possible

and necessary to give consideration to the ever-

increasing impact of amortization upon the public

revenue. As stated above, p. 6, approximately 5

19

billion dollars of expanded capacity was financed

under the Section 124 privilege during the Army-

Navy administration of the statute. Accordingly,

the general amortization program was terminated

except as to unusual and limited cases. To con-

trol and limit amortization effectively, Executive

Orders and regulations were prescribed which di-

rected that no facilities would be certified unless

the certifying authority determined prior to the

acquisition of the facilities that they were physi-

cally necessary and that it was to the advantage

of the Government that they be privately financed

under Section 124 rather than by the Government."

Applying these principles in the instant case, the

War Production Board declined to certify facili-

ties which had been acquired prior to any deter-

mination of necessity and certified that only 35

per cent of the cost of facilities thereafter to be

acquired was necessary (R.50). The Board found,

as to the partially certified machinery, that it was

likely to have a broad market and general value

at the end of the war and be of use for normal

peacetime production (R. 50).

16 Tf the facilities concerned could reasonably be considered

useful after the war to the applicant in his regular business,

or to anyone else, the Government, if it financed the facilities,

would be able to recoup a part of its cost by sale or other dis-

position after the war. Thus, where the facilities had rela-

tively little post-war value, it was in the best interests of the

Government to grant a necessity certificate. On the other

hand, it was to the Government’s advantage that facilities

with post-war value be publicly financed. Alternatively, it

might be advantageous to the Government that facilities with

post-war value be privately financed under less than 100 per

cent of cost amortization. See R. 48 and 80.

~ neg

20

The establishment of the above described policy

and its application in this case was a reasonable

exercise of discretionary powers necessarily

granted to the certifying authorities and well

within the scope of their rule-making and termina-

tion powers. On broad grounds, therefore, peti-

tioner’s challenge must fail.

The same result obtains if the petition be viewed

more narrowly. Petitioner’s fundamental conten-

tions appear to be: (1) that petitioner has a right

to file an application for a certificate within 6

months after the facilities have been acquired ; and

(2) that, as to facilities certified as necessary, peti-

tioner has an automatic right to 100 per cent amor-

tization of the cost of its facilities certified as nec-

essary. In basing its prayer for mandatory orders

on these contentions, petitioner overlooks the

actual facts in the case. Assuming that petitioner

had a right to file an application within six months

after acquisition of the facilities, it could not com-

pel favorable action on the application. There can

be no doubt that certifying authorities exercised

discretion in passing upon applications. Thus,

as to its pre-acquired machinery never found to

be necessary and as to which certification was

declined, the order which petitioner seeks would

not be one directing the performance of a ‘‘mere

ministerial act.’’ On the contrary, such an order

would constitute certification by the court.

The same analysis applies to the machinery

which was partially certified. Petitioner continu-

ally makes the incorrect assumption that such

machinery was certified as necessary in its entirety,

that the certification was improperly conditioned,

and that the only remaining problem is to direct

recognition of the 100 per cent amortization privi-

lege which automatically flows from certification.

The letter of predetermination and the certificate,

the basic evidence as to the nature of the deter-

mination made, merely state that the machinery

was necessary up to 35 per cent of its cost (R. 17,

35). There is nothing to indicate that any certifi-

cation would have been made, had the certifying

authorities been compelled to choose between 100

per cent or nothing. Again, an order changing the

39 per cent certificate to a 100 per cent certificate

would not be a mere correction but would, in fact,

be a certification by court order.

21

CONCLUSION

For the foregoing reasons, we submit that the

petition should be denied.” We think it relevant

to note the necessarily disruptive and unsettling

result of petitioner’s view, particularly in the

budgetary and tax fields.” Of. H urley v. Kincaid,

? United States v. Milnor Corp., 85 F. Supp. 931 (E.D. Pa.)

and American Twist Drill Co. 11 T. C. 200 (Pet. 17-19), are

not in conflict with the instant case. Neither of these two cases

involve the question whether mandamus would issue to review

the decision of the certifying authority to require a predetermi-

nation of necessity and to grant only a partial certificate.

The magnitude of reopening the amortization program

cannot be over emphasized. Eleven thousand four hundred

and thirty-five applications were received and considered by

the War Production Board. Of these, 2,074 were approved,

4,268 were denied in part, 3,671 were totally denied, and 1,422

were withdrawn. In approximate dollar value, the total

22

285 U.S. 95, 104; Duncan Townsite Co. v. Lane,

245 U.S. 308, 311-312; Decatur v. Paulding, 14 Pet.

497, 516. Force is added to this consideration by

the fact that petitioner is requesting judicial inter-

vention to obtain a tax concession, a matter of

legislative grace in which courts have been tradi-

tionally reluctant to interfere with administrative

determinations. Williamsport Co. v. United States,

277 U.S. 551; Hemer v. Diamond Alkali Co., 288

U.S. 502, 507; New Colonial Ice Co. v. Helvering,

292 U.S. 435, 440; Helvering v. Inter-Mountain

Life Ins. Co., 294 U.S. 686, 689; Welch v. Obispo

Oil Co., 301 U.S. 190; James F. Waters, Inc. v.

Commissioner, 160 F. 2d 596 (C.A. 9); and see

First Securities Corp. v. Clements, 103 F. 2d 1011

(C.A. 6).

Respectfully submitted,

J Pup B. PERLMAN,

Solicitor General.

H. G. Morison,

— Attorney General.

SAMUEL D. SLADE,

yj? BENJAMIN FORMAN, |

Attorneys.

Frsruary, 1950.

amount covered by applications for certificates was $1,498,-

730,000. Of this amount, $701,163,000 were approved and

$797,567,000 denied (R. 51). The reopening now of all these

applications may well be an insurmountable undertaking.

The Department of Commerce has dismissed all former

Civilian Production Administration and War Production

Board employees who were employed in the Tax Amortiza-

tion Branches thereof and is now merely a custodian of the

records.

a ————2 ee os

23

APPENDIX

Section 124 of the Internal Revenue Code, 54

Stat. 998, as amended by the Act of October 21,

1942, 56 Stat. 798, 849-851, 26 U.S.C. 124, provides

in pertinent part as follows:

(a) General rule. Every person, at his elec-

tion, shall be entitled to a deduction with

respect to the amortization of the adjusted

basis (for determining gain) of any emer-

gency facility (as defined in subsection (e)),

based on a period of sixty months. Such amor-

tization deduction shall be an amount, with

respect to each month of such period within

the taxable year, equal to the adjusted basis

of the facility at the end of such month divided

by the number of months (including the month

for which the deduction is computed) remain-

ing in the period. Such adjusted basis at the

end of the month shall be computed without

regard to the amortization deduction for such

month. The amortization deduction above

provided with respect to any month shall,

except to the extent provided in subsection (g)

of this section, be in lieu of the deduction with

respect to such facility for such month pro-

vided by section 23(1), relating to exhaustion,

wear and tear, and obsolescence. The sixty-

month period shall begin as to any emergency

facility, at the election of the taxpayer, with

the month following the month in which the

facility was completed or acquired, or with

the succeeding taxable year.

* * * * *

(d) Termination of amortization period.

24

(1) If the President has proclaimed the

ending of the emergency period (as defined

in subsection (e) ), or if the Secretary of War

or the Secretary of the Navy has, in accord-

ance with regulations prescribed by the Presi-

dent, certified to the Commissioner that an

emergency facility ceased, on the date specified

in the certificate, to be necessary in the inter-

est of national defense during the emergency

period, and if the date of such proclamation or

the date specified in such certificate occurs

within sixty months from the beginning of the

amortization period with respect to such emer-

gency facility, then the taxpayer may elect (in

accordance with paragraph (4) of this sub-

section) to terminate the amortization period

with respect to such emergency facility as of

the end of the month in which such proclama-

tion was issued or in which occurred the date

specified in such certificate, whichever is the

earlier. In such case the amortization period

with respect to such facility shall end with

the end of such month in lieu of the end of the

sixty-month period.

* * * * *

(f) Determination of adjusted basis of

emergency facility. In determining, for the

purposes of subsection (a) or subsection (h),

the adjusted basis of an emergency facility—

(1) There shall be included only so much

of the amount otherwise constituting such ad-

justed basis as is properly attributable to such

construction, reconstruction, erection, installa-

tion, or acquisition after December 31, 1939,

————

25

as either the Secretary of War or the Secre-

tary of the Navy has certified as necessary in

the interest of national defense during the

emergency period, which certification shall be

under such regulations as may be prescribed

from time to time by the Secretary of War

and the Secretary of the Navy, with the ap-

proval of the President.

* * * * *

(3) The certificate provided for in para-

graph (1) shall have no effect unless an appli-

eation therefor is filed before the expiration

of six months after the beginning of such con-

struction, reconstruction, erection, or installa-

tion or the date of such acquisition, or before

December 1, 1941, whichever is later, * * *

* * * * *

The relevant Executive Orders and Regulations

approved by the President, which were issued

under Section 124, provide in pertinent part as

follows:

(1). 8 F.R. 13824 (October 5, 1943):

The Regulations governing the issuance of

Necessity Certificates under Section 124(f)

of the Internal Revenue Code, prescribed by

the Secretary of War and the Secretary of the

Navy, and approved by the President May 22,

1942, as amended (7 F.R. 4233), are amended

as follows:

Add to paragraph 3a subparagraph, as fol-

lows:

(d) The construction, reconstruction, erec-

tion, installation, or acquisition of a facility

26

shall not be deemed necessary unless (1) the

beginning of the construction, reconstruction,

erection, installation, or the date of acquisition

of such facility, was prior to October 5, 1943;

or (2) an application for a Necessity Certifi-

cate describing such facility was filed before

October 5, 1943; or (3) the Secretary of War

or the Secretary of the Navy, in exceptional

cases, has determined prior to the beginning

of such construction, reconstruction, erection,

installation, or the date of such acquisition,

that there is a shortage of facilities for a sup-

ply required for military or naval uses and

that it is to the advantage of the Government

that additional facilities for such supply be

privately financed.

(2). Executive Order 9406, 8 F.R. 16955 (Decem-

ber 17, 1943):

* * * * *

3.(b) In acting upon applications for Nec-

essity Certificates filed on and after October

5, 1943, describing facilities the construction,

reconstruction, erection, or installation of

which was not begun or which were not ac-

quired prior to October 5, 1943, Necessity Cer-

tificates shall not be issued unless the Chair-

man of the War Production Board has deter-

mined prior to the beginning of the construc-

tion, reconstruction, erection, installation, or

the date of acquisition of the facilities (1)

that the facilities to be constructed or acquired

are clearly necessary for the war effort, and

(2) that it is to the advantage of the Govern-

commas

27

ment that such additional facilities be pri-

vately financed.

* * * * *

(3). 8 F.R. 16964 (December 17, 1943):

The following regulations are hereby pre-

scribed by the Chairman of the War Produc-

tion Board, with the approval of the President,

pursuant to the authority contained in Execu-

tive Order 9406, dated December 17, 1943.

* * * * *

(3)(e7* * *

(vi) Government and privately financed

facilities. Necessity Certificates will be issued

only where it is to the advantage of the gov-

ernment that the facilities in question be pri-

vately financed.

* * * * *

(4) Application must be filed before con-

struction ts begun or date of acquisition. The

construction, reconstruction, erection, installa-

tion or acquisition of a facility will not be

deemed necessary within the terms of these

regulations unless a determination of neces-

sity is made by the certifying authority prior

to the beginning of the construction, recon-

struction, erection, installation or date of acqui-

sition.

* * * * *

(4). Executive Order 9429, 9 F.R. 2487 (March

2, 1944):

* * * * *

3. (b) In acting upon applications for Nec-

essity Certificates filed on and after October

=

5, 1943 describing facilities the construction,

reconstruction, erection, or installation of

which was not begun or which were not ac-

quired prior to October 5, 1943, or for which

the applicant had not made contracts for the

construction, reconstruction, erection, installa-

tion or acquisition thereof prior to October 5,

1943, Necessity Certificates shall not be issued

unless the Chairman of the War Production

Board has determined prior to the beginning

of the construction, reconstruction, erection,

installation, or the date of acquisition of the

facilities (1) that the facilities to be con-

structed or acquired are clearly necessary for

the war effort, and (2) that it is to the advan-

tage of the Government that such additional

facilities be privately financed.

MG RRO EE

= * * * *

(5). 9 F.R. 2492 (March 2, 1944):

The amended regulations (December 17,

1943) governing the issuance of Necessity

Certificates under section 124(f) of the In-

ternal Revenue Code (8 F.R. 16964) prescribed

by the Chairman of the War Production

Board with the approval of the President

(supra) are amended as follows:

* * * * *

Section 4 is amended to read as follows:

(4) Application must be filed and deter-

mination made before construction is begun

or date of acquisition. The construction, re-

construction, erection, installation or acquisi-

—————————————

29

tion of a facility will not be deemed necessary

within the terms of these regulations unless a

determination of necessity is made by the

certifying authority prior to the beginning of

the construction, reconstruction, erection, in-

stallation or date of acquisition.

* * * * *

wv U. S. GOVERNMENT PRINTING OFFICE: t980 672218 ate