# Petition for Writ of Certiorari — Delta Air Lines, Inc. v. Edwards

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Petition for Writ of Certiorari
- **Published:** January 1, 1958
- **Citation:** 358 U.S. 882

## Text

| EP Ww 1956

a JAMES Rt ‘VNING.. Cler
b ye |
| IN THE
» rte COURT OF THE UNITED STATES.
|. 887_
pe . >
; DELTA AIR LINES, INC.,
- Petitioner, *

7
‘

Vv.

W. SAM EDY; | DS, Administrator c. t. a. of the Estate
of Marion H. Allen, Deceased,
; Respondent.

PETITION FOR WRIT OF CERTIORARI
To the United States Court of Appeals
for the Fif h Circuit.

{ .
» P

~ JAMES N, FRAZER,
a,’ / po RICHARD S. MAURER,
| 09 WILLIAM LINKOUS, JR.,
“7 ~~ SELLIOTT GOLDSTEIN,

‘Attorneys for Petisioner. ited
(Of: ‘Counsel:

POWELL, GOLDSTEIN, FRAZER & “MURPHY,
“1130 Citizens & Southern National Bank ~—s
- Atlanta 3, Georgia.

»

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—— -- e+ — .

"St. Lovie Law Paixtine Co., Inc., 415 N. Eighth’Street. CEntral 1-4477.
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| aii pinl-indioanininglt COE CRETE ELE EEE ee .

Statement of dhe case. oo. e eee. Peer ees ,
Reasons for granting the writs........ ee A A ew
~ Argument esegcenes | Medan sama: ean rare: fe en ae
Cynelusion . 2... SRO ee sr re et Ae een BS
Appendix ie idea that prier contracts for mail carriage ‘should be
> \gontinued on a temporary basis CR. 51). Seetion 405 (a) -
YM hie Act provided that, after passage of the Act in June,
> 1038, each contract with an air carrier ‘for the carriage
of mail should be cancelled upon issuance toe the holder
of such contract of a certificate of public convenience and
necessity authorizing the transportation of mail by air?
eraft between the points cove req hy the contract. Under
) the provisions of Seetion 401 (©) (1) of the Act a ser:
7 tifleate of public conveniene e and necessity was awe sded
to Delta for its route No. 24 oy Febrnary 25, 1959. Section
405 (a) of the Act further provided that until the Civil
g © Aqronantics Authority fixed rates under Section 406 of
' the Aet, the Postmaster General should ply compensa-
tion at the rate in effect at the-time of the passage of the
Act. Pursuant: to this prov ision, Delta: received payments
for mail carried during the period commencing December
1.2039, at the rate previously fixed by the Inters: atte (‘om-

merce Commission (R. 41).

4
For purposes of computing its income from the carriage
of mail by air Delta since its organization cousistently ac.
erued and recorded in its reéovds income front the carriage
of mail by air in, the month in whiely the mail was carried,
rather than in the month in which pay was received ‘by
it from the United: States of America. As. of the end of
each month, the mail pay properly aceruable ‘to it was +
computed by Delta by multiplyipg: the ‘‘units of service"
‘(the measure of, mail carried) times the mail pay rate
then current... The ainount thus computed was added to
income for tha:smonth, a corresponding amount being. set
up as,an account receivable (R. 99). ‘During the period
of the mail rate proceeding, which included its fiseal year
ending June 30, 1940, Delta’s base period for coniputation
of its World Wai IT excess “profits tax, Delta accrued its
— payment for the carriage of mail at the rate in effect prior
to the passage of the Civil Aeronauties Act (R. ol). On
January 29, 1942, the Civil Acronauties Board, successor
to the Civil Acroni ities Authority, promulgated an order.
fixing a mail rate for Delta’s route No. 24 of thirty-one
cents per pay mile for the period beginning December 1,
1939, and terminating July 14, 1941. The amount de ter.
- mined as being due to Delta for additional mail transpor-
tation pay for its fiseal vear ending June 30, 1940 was
$45,951.86. This amount was received by Delt during

its’ fiscal year ending June: 10, 1942 (RL 58 , 4).

“The: de tormination of the amount of mail pay due Delta,
Was a determination ‘of the amount of pay necessary for.
the carrier to ‘break .even’? in’ its operations, and: to”
allow it a standard return of eight? per eent on its iivest-

~

_ ment. No- questions ‘were raised by the Postmaster’ Gen-

eral, or disedssed by the Civil Aeronautics Board in the.

proceedings to determine Delta's ‘compe usation with refer-

ence to the amount due for Delta’s fiscal vear ending June

30, 1940. Delta’s records, at the end cof the period, dis-

closed its total revenues, its cost of operation, and ‘its in-
e °

.

7

,

-

- Lee : : a ~ ai nee 7
vested capital: “Tts -equipnnie ut sconsisted ofe only 5 Lock-
hood hk leetra 10 passe nger planes, which were supple wperited

for a period of 3 months: by 4 reconditioned D2 14 pars:
senget plane s (R.94-151).- iS ; ae

Delta’ S EXCESS profits tax for iis fiscal year ‘ending June
30, E44 and June 30, 1945 was meaxtirod by its net, come |
for its fiseal, vear 1940. In ascertaiming its 1940) base

period net income for its excess profits tax computations

‘forthe fiscal years 1944 and 1945, Delta did not include
— the $43,951.86 CR. 54). If this amount was income prop-

erly accruable in 1940, its base period net income ‘credit:

would have been such that it wotld haye had no liability:

for excess profits tax for its fiseal years 1944 and 1945. -

~The Collector of Internal Revenue, in connection with -
an examination of Delta’s returns for the years 1944 and

1945, determined that there was a deficieney in excess: .

profits tax for the years I44 and 1945, which was OX

’ tinguished by the application of an unused excess profits

tax credit carry-bac k, and the application of an operating

.
a

— foss carry-back (Re 49):> The Collector .did not. include

the aforesaid $43,931.86 in Delta’s base period net income
and assessed. interest on-the deficiency in excess’ profits
tax i the amount of $75,363.15, which was paid ly Delta
(R. 49, 50). Delta, alleging that the $45,951.86 should prop-
erly be included in base period net income, filed a claim
for refund of this sum which was denied, and .thereafter
bronght ‘suit in the ‘United States Distriet Court for -the

Middle District: of Georgia (R. 10). ° Se Was en-
1 (

tered for Deltaafnd the Collector appealed (R81, 82). On -
Appeal, the Circuit ¢ ‘ourt of Appeals for the Fifth C init
reversed the decision of the Distriet Court and rendered.
judgment for the Collector .(R. 154). “

Jurisdiction of the District ¢ ‘ourt in this action is based |
= Section 1340 @f the Judivial Code (28 -U. S..C.
1540). r es . 3, ' >

s
d

. ‘
a ie

P | roa .

» REASONS FOR GRANTING THE WRIT.

. "Phe deeision. of Lhe Courtebelow in the instant ease is
in eh with thetleci ‘sion of this Court. in Continental
Tie & Lumber Co. Vv. United States. 286 UL So 200, Whieh

wi ‘Sion. is’ controlling 4 in'this case, S43

“That case involved’ ‘the t taxability of Colupensation pay-
able by the: United States at ‘a rate determined by oa
governmental administrative ‘agency, the "Interstate Com-
merce Commission, to a regulated haaike carrier by rail”
/pursuant to Standards prescribed: by an Act of Congress.
That situation is identical ie principle‘and closg in factual
situation to thit of the inst; mt dase. There this Court lieldf
that acerual for income tax: purposes did not depend upon
the actual receipt of the funds by the carrier nor the date
of the fixing of the exact amount pavable, . Instead, it held
the compensation to ber aceruable in the year the Net oft
Congress became effective and i which a reasonable esti-
mate oof the amount of the payment could have been made
by the carrier using the pbrescribed standards, There is
nothing in that holding to. distinguish ‘it from the instant
eases Tt should have been followed by the Court below as
the controlling authori ity.

The decision of the Court below is based upon its
decision. in Texas Trailercoath. ne., v. Commissioner, 251
ee 395. The deci ‘ision of: urt Wlow, and that deci-
sion, are im conflict. with he decision of the Court. of
Appeals for the 7th ¢ ircuit, in Baird v. Commissioner,
fe oe decided Jute 20, 1958, and:the decision of thre
Court of Appeals for the 6th Cirenit in Schaeffer v. Com.
‘missioner, ... I. 2 ve dee ‘ided August 20, 1! 5S, :

These cases involve the 1 taxnbility of so-called “dealer
reserves" * as income to dealers ‘in personal or real property,
‘The number of recent. cases in Ww hich this exact pointehas

} e o
a /

Po |

,
Pd

. . ‘ . ° °

been raised and decided attests to itssearremey and: ime
portance. Tn addition to the eases cited above, the Phird,
Fourth, Kighth and. Ninth .Cireuits have handed ‘down
decisions, cited below, on, the dealer veserve: issue, all in

conflict: with tiv“elted decisions of the Sixth and Seventh

Circuits, Literally billions of dollars are involved annually
in transactions giving vise to dealer reserves, A pecogni-

» tion of the imports wee, of this segment of this COUNTEY 's, »

* economy requires that) the doubt now existing as to the
“correct method of: taxing hese reserves be put to rest.

-It is and must “he conceded that ‘the compe nsation paid i
Delta for the carriage in 1940 of mail should be ine luded in

its 1940, income, notwithstanding the year in’ which pay-
ment was received, Sitgjlarly:, it is and must be conceded, on
equitable grounds, that the compensation fixed by the Civil
Acrotiauties Board (formerly the Citi Acronauties Author-
ity) as fair and reasonable conipensatiofiytor the carriage
_ of mail during its base period should heva part of its base
period net income for the purposes. of excess profits tax.

From the date of the Civil Acronmauties Authority's order,”

‘instituting a ‘proceeding to fix a,rate of compensation for
- Delta, Delta became acéyutractor with the United States
of America entitled to payment ona ‘fair and reasonable’
basis. Any sums paid to it pending a decision of the Civil
Acronauties Authority. ‘were understood to he only ad-
vances or payments on account. After the fitial decision
of the Civil Aeronautics Board, the amounts previonsly

received were credited ‘against: the amount due, and the .
difference paid to Delta...

The sole question before the District Court was whether »

the compensation, as finally determined, was inc Tudil le
De Ita’s base periodgnet income.

Se

ee

— oe
ARGUMENT. *
On the stipulations and record befoke it, the District
Court found, assan ultimat 't, that a proper determina

tion of Delta's excess profits eredit required thee inelusion
of this compensation in its base period net income, ee

tinental Tie & Luinber Co. v. United States, 2sii UU.

200 (1948), requires that the carrier include in incoine a
compensation due it‘for the carriage of mail whieh might

he ascertained With reasonable aecuracy at the close‘of the
fiscal period in question. Even if, ‘for purposes of income
fax, the compensation involved were not. ineludible in 1940

_tncome, forthe purposes of the determination of Whether

the carrier's 1944 and 1945 income was “excessive,” the
determination by the Civil Aeronauties Board%of proper
compensation during the base period should be determina.

tive of its baee period net’ income. ; “

Under both the income and excess profits tax law,
accrual of an item of income may nok, be deferred merely
because the precise amount whieh will be collected is
uneertain. [f a definite obligation exists on the part of the
debtor to pay, then even though the amount ultimate ly to

“be paid be measured by it formnla, Which requires future

computation, the acerual system of. accouiting requires
inclusion of the amount estimated to.be due in income for
the vear in which’ sert ices aire ventioved Schaeffer v. Com.
missioner, ... I. 21 : Baird v. Commissioner,
P. od 4.2. Ta‘the octal that the holding of the Court
below indTexas Trailercoach, Fe., v. ‘Commissioner, ,51 F.
2d 395, contliets with this principles that decision is Crre-
Heats and should be overruled. 5. c

; The Schaeffer and Baird cyses, fog the Sixth: and
Seventh Circuits, respectively, as well as the Texas Trailer.
coach case, involve a factual situation very’similar in prin-

. ciple to that under consideration here. All involve the

} ‘

.

-- 4°. 3

taxability of so-callbd ‘dealer reserves’? representing a
percentage withheld: by finance companies from the price
at which they agree to purchase. commercial paper. These
transactions arise when a dealer in personal property makes
sitles on conditional sale or title-retention contracts and
asstens the evidence of indebtedness to a finance company
on a distount basis. The reserve withheld by the finance
compriuny tay be ; ngiplied to satisfy losses pnd is ordinarily
“payable te the dealer only upou certain contingencies and.
nlycon a piecemeal basis,

The Cirenits. haye split: sharply on the question of in-
clndibility in ste ry dealers’ income of the amount held in
the reserve by finance companies, As has’ already heen:
noted, the Sixth and Seventh Cirenits have reac head a con
trary ¢ conclusion. to ‘that Teached by the Court below in
Texas Trailercoach, Inc. v. Commissioner, supra, ujon
which is bottomed its decision bere, The extreme impor tance
of the problem: ix evislenced by the fact thitt decisions on
the same point have recently been handed@down by thes

~ FouWh Circuit in Johnson v. Commissioner, ~ wo. ad 952,
the Eighth Cirenit in Glover v. Commissioner, 25:3 F.-2:

se B&B. atid the Ninth Cireuit in Hansen v. Commissioner, ...
F.2d ..., decided August 4,-1958, all reaching the Same
result us the Texas Trailercoach case. An older decision
by the Third Cirenit in Keasbey & Mattison Co. v. U. . §.,
141 FL 2d 165, presents a <quilar holding. = +

*

‘ ;
The fact that no less than six decisions on this we fea
‘Cirenit Courts of Appeal have been hanes! down Gthia
thie last three vears—-five of them being decided this year,
together with the fact that a sharp conf
between the cirenits, make imperative a

is developed
e by this

‘. - . e
Court. *4
t ; ae | . *. * . °
We wish we the interrelation between these
. =
dealer reserte

uses dind the instant ease. We note again

-

% .

=

ra

6

that the Court Idaw cited its Texas Trailercoach decision
Un stating the rule regarding the proper time to acerue in-

. ae

ta : ; +

come, It also cited and discussed the decision of thy: ¥
Court in Continental Tie & Lumber Co. v. United.States,
supra, upon which we rely as the controlling authority,
The Court below, however, flatly held that the ‘rule in «
Continental Tie & Lumber’ Co. v. United States, ‘supra,

-* . Be ie . . “
“requires a conclusion contrary-to that for which the tix:

er

payer’ contends” (Opinion, page 6). This is in glaring
contrast to the decision of the ixth Circuit in Schaeffer Vv.
Commissionér, supra, wher the court. sustaining the
contention of the Commydsioner that. the dealer reserve

represented aceruable income to the taxpayer, cited the’
Continental Tie & Lumber Co. case as standing for the
followin’ proposition:

- “The facet that the exact amount toe be paid is yt
determined until a later-svear is not material.” ;

Schaeffer v.*Commissioner, ... I°. 2] au

Thus it would appear that not ouly is there a split: be
. . a ‘o@ . . ‘
tween. the Ctrenits ow the dealer reserve ISSUC, aN issue |

quite siinilar in principle to the question involved here, bit
that there is also a conflict as to the correct interpretation
of this Court's ruling in Continental Tie & Lumber Co. v.
United States, ~uprag which the Court below relied upon
heavily in-its deeision and whieh is factually almost. oi)
all féurs with the instant situation. . For this additional

Le

reason, certiorari should be eranted. Ps sre,

——

Notwithst#nding any.of these decisions, however, proper
accounting methods required the inelision by Delta in its
THO cincome of its receipts from the cart age of mail dur
ing this period, in the amount finally, determined. In -
clusion of the entire amount of mail pay due to Delta for
the vear WHO in its 140 Het income properly reflected: irs
base period net income. for purposes of Excess. profits tay,
and-met the test fixed by the Infernal Revenne Code of”
“proper accounting’? [Section - 42 (a) Internal Revenue’ {

a ea . :

Code, 1 MY. Delta coris sistentiy k + ‘yt its hooks on the ace real
uiethod, ineluding in ineoue ened month the amount of
mail pay attributable tu the carriage -of wail during that.
month, regardless of the mouth or ygar tn whieh: payment
Was received, U pon the passage of the Civil Aeronautic .
Act, all payments to it became © pavnents On aecount’,
the Net fiNing, as aomatter of law, Delta's right to receive
fair and reasonable compensation for its carriage of mail
by air Prom the date that the Civil Aeronautics \uthey
ity (later the Ci#il Aeronautics Board) notified Delta: of
its Intention to determine the amount of its cou pensation,
both the carrier and the Postinaster Generil were on wotico!
that all sums received were payments on account. Delta’.
records were kept in aveordance: with regulations pronat:
wated by the Civil Neronanties Authority, and clearly ve
lected its total Income, Gis investment, its non-mail rev
enue and its revente from mail receipts. No dispute ex
isted with respect towny of the items entering, inte’ a ale
termination, of fair wid reasonable compensation Heth tenses
Delta and the Postmaster General, nor was an V isstie miiseds
or discussed with respeet to these. Under these ciremun
stances, invorder to determine fair and reasonable. eom
pensation for the year ending June 30, 140, all that wa-
required was a simple comput itien as to the amount Neco.
~ary to break even: and return the standard SO on Deltal.
investiment,

In the absence Gf the recent Texas Trailercoach riutine.
j seers apparent that the Court be abe would have tonne
hoe difficulty in applying the rnle in Continental Tie &
Lumber Co. v. United States, ~npraccte this ease so as te
affirm the ruling of the Distriet Court. The attempt of the
Conrt be low to distinguish the Continental: Tie &, Lumber
Co. case by xeferring to the — of this ¢ ‘ourtain Delta |
Air Lines v. Summerfield, 247 U.S. 74, is astonishing. The’
court stated that Seetion 406 (0b) of the Civil Neronauties
‘Act of 1988 included factors tthe tittetis iy formula that -

coma net have been determined by the t taxpayer from its
books and records’ and categorie ally. stated that: s*ahy
tlonbt'as to this will be dispelled by an ex aminationgot the
opinion in Delta Air Lines v. Summerfield . * (Opinion,
P.O). The latter case held that the Civil Aeronauties Board
ePredy in applying’ the formulacoutlines in, Seetion 406. (b+

ot the Net lw se pay Wine the peteruationgl from the loti.

te operations ot T the areier in tlete viiining its * TT ten

camipensation, Aside from the fact that the opinion: i
That casecloids virtually no Support to the stateme mt on

the Court below as te the faetors contained i Seetion
406 OD). the case is wholly inappasite to our sittation on
Its fiaets. De Ita Nir Lines diwing P40 was a tiny domestic

cain carrier with a maximum of nine planes fying only two
routes, Here there was ne sueh complex problem as wile

presented by the situation in the Summerfield case where
loreign as well as domestic sperations were involved cas

ering aomultitude of routes over niany thonsands of
tries, . j

ae ns «
Rar from -supperting the holding of the court bel ‘low, wi

feel that the Summerfield case, if it has atv signifieany:
here, supports the bobling of the District Court, whied
reversed by the decision under review. The Summ

ease wonld seem ta budieate that, even in the case of a

livge international air carrier, the rate of mail pax is de
tertuiteal principally fron finaneial date found i In the books
aed records cot the cenrries Netheng in thet Opinion in
ications the any isrky other factor was considered by the Bedine

Pais te alty, his ease lias alreidly Jrceeeny sleoeialonl ly thi-

comet “in Continental Tie & Lumber Co. v. United States,

“ors a. Phete. hs court rrertere| thre: Ancient of the Gov

eihmient in faver of acerning compensation before ‘the
avard’ wis ether piticl or compaiitee)s

The Gove rhitient itsists that while ‘udjust
men itsor settlements of prinetple . i the OMIM Essie!

might vary the amount tebe jwarded, the petitioner's
cise presented problems net differing from: those von
Fromting HanY business conéeras whieh keep. ECOUEL
onan aeertal basis ane’ have te estimate Por the tay
eur Hearne Te he. pecoived Ont: transgetienis nn
~dlonbiediy allocahte ter strech vear Nelritting threepes

milage Ines Lieres ees mtd elise Peper ies, a RW iee ATT

PablWaen’s gestitmate aimed the damomnt awarebee! bythe

Ceorpepeebss tenn, thraeser, SVs the Ciavernrient, eotlel, ts in

es . ‘ : ss .
~Vuthar plas. have Teeny) tel pistes! by un saelelitivnal

AUssesstnent ana claim Torre Lrnel ley Hl cletedrrrines .

thet: nae thre sre nit oligos.”
% ‘ Se

After kia all Of the various factors tending te ma!
inaccurate any estimate "by the carrier. prior te the ae
‘ ston hy the Commissiog. this coirt found in faver oc the

peat stating:
fe
pite oF these inherent sliffientties we

a Lee oust i
think if was

:

sible for a carrier to dseertiann with
reasonable achhrgev the amount of the aware ter ie
pried by the Government, Subsequent te its order of
aie 1a, 1920, the Corsunission miuade Tr PAT, weprelnnent
“ae alteration of the rules with respect te the inferns
tien to be furnished wider. 204. Obvionsty the dete
hal to be obtained trons thee railway’ = Ievok< ane, se
comnts and from entries wherein all imade prior te
“Mareh 1, Theo. These aveettnt« oe Oe ae ae
formation that coukd ever he available fonching rele
Vint eNpendit ures, ws a he petitienier Was toroniptls
“Gnfortied bay thie téirehes oof ° Cd ye ~Upopelernien tend hs
the inst PPT igen isstuead lyn bien S’sedichéehaanieen cd Pai
miethiod to be followed: in tlloeating chuaries te opera
Nien during periods wtedler inetiiny Tt clive niet sapepeecay
that Fy prenper ofTeort weogled met. bisever cole tisineed st veontele
appre innately in mene with what the C‘conesntsds=ieony
LY inniaatyeds foul.” ; poe .

P
nee

.

This is the: exaet cresult called for in this ehse. The
failure of the Court below to follow the clear riling in the

Continental Tie & Lumber Co. case demands that) is Court
erant the petition for certiorari. .

CONCLUSION.

id

For the for: olny reasons, this petition for aw rit cof

ve riiorari shoutd be: ranted,

Respectfully Submitted, | ‘

JAMES N. FRAZER,

* ad
_
g ‘ r ‘ . . ;
RICHARD S. MAURER,
: | WILLIAM LINKOUS, JR,
ELLIOTT GOLDSTEIN,
y, — Attorneys for Petitioner
‘ : é
- e ; } ae a P
OF Connsel: : . .

POWELL, GOL, DSTE IN, i" R. \ZE: R & MURPHY,
L120 Citizens & Southe ‘rh, National Bank Building...
Atlanta 2, Georeia,

Septeniber, PHS:

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_ — lo |
me = Qa °
_. APPENDIX.
Opinion.
United States of America,’ *
.: | - i 4 .
Delta Mir Lines, Ine.

No. 16868, *.
Pa ‘ : P . °

United States Court of Appeals
Fifth Circuit.

May 25, 1958...
Rehearing Denied June 24, 1998,

— Action by taxpayer for refund of interest patd on-excess
profits tax deficiencies, The United States District Court
tor the Middle Distriet ‘of Georgia. T. Jloyt Davis, Chief
Judge, entered Aue: vient for taxpayer and the sovernment
appealed: — The Court of Appeals, Jones, Circuit) Judge,
held that where amount of additional mail transportation
pay for taxpayer for al fiseal year ending June 30, 1940;
received by taxpayer daring its fis@al vear ending June 30,
M2, was not an amount whieh could have been ascer
‘ained by taxpayer with reasonabic accuracy tn 1940, ane
could not have heen dete rinined by taxpayer from its book.
cand vecords in 1940, such amount was not properly acern-
ahle my taxpawer'’s: tise al Year 140 for exeess profits tas

PUT pase ~ F
Reversed and rendered.

John No Stull, Acting Asst. Atty. Gen, Lee A. Jackson,
J. Henry Kutz, Attys. Washington, D.C. Charles Ko Rice,
Asst. Atty. Gen. Sheldon 1. Pink, Atty. Klovd M. Buford,
Asst. UES, Atty., Washington, D.C) (Prank O. Evans,

Oo

e4-

Whee i

U.S. Atty, Jack J. Gautier, Asst. U, S. Atty., Macon, Ga.
on the brief), forcappellant, ,
James x, Frazer, Illiott Goldstein, Atlaita, Ga., Richard
S.eMaurer, William JLinkous, Jr. Athaita,: Ga. Attys,
Powell, Goldstein, Frazer & Murphy, Atlanta, Ga., of coun-

~ sel, for appellee,

- Before Jones, Brown and Wisdom, Cirenit Judges.‘
@ : ‘ . :

Jones, Circuit Judee. 3 . :

The appellee, Delta Air’ Lines, Ine... here sometimes
caullgd: Delta, is-an air-carrier-of passengers, freight and
mail. It opérated Route 24 between Texas and South Caro-
lina, serving points in those states and in. those Iving be
tween them. Over this rente Delta transported mail under
a contract’ with the Postmaster: General, The. Interstate
Commerce Commission fixed a rate of 20 cents per airplane
mile for transporting a muti load not exceeding 300 pounds
with a base mileage of 105,000 miles per month. The\Civil
Acronauties Act of 1938, 52 Stat.977, 49 U.S, C._A;, “S\4ul
et seq, Was enacted in June of that year. Delta was is.
suedia Certificate of Rubhe Convenience and Necessity by
the Civil Aeronanties Authority, kere sometimes called the
C, AL AL Section 405 (at) of. the’ Act provided that prior.
contracts for mail varriage should be continued on ‘condi-
tions there, provided and that the Postmaster Genera!
should) make patents at the contact rate or.the rate
fixed iby the Interstate Commere® Commission, - Under
authorizing provisions of the Aet! the (. A. A. on Decem-

"Car The Authority iS empowered and directed, upon its own

SMmtative or upon penition of the Postmaster General or an air ear-
ner. (1) to tix and detekmine from time to time. after notice an
hearing, the fair and reasonable rates of compensation fer the
transportation of mail by aircraft. the facilities used and userul
therefor, and the*services connected therewith (includinig the-trans
portation of mail be an air cartier by other means than wireratt

/ Whenever suclY transportation iNuncidental to the transportation of
mail by aireraft or is made necessity by conditions of emergency:

-

7

‘

her 1, 150, instituted upon its own initiative a proceeding
to determine whether the compensation being paid to Delta
for transporting: mail was fair and reasonable, During
the petideney of this proceeding Delta received ‘payment
for mail carriage at the 2a cent pay-niile rate cs Délta filed

its Federal income tax returns onan aeernal basis. Dur:

ing the period of the mail rate preceeding Delta accrued
‘and paid tai « on its mail set saa Carnings at the 2

cent rate, ‘

On Janu: yea), 1942, the Civil ‘Nevonaanties Boards here.

Sees the CL ALB. snecessor to the CoA, A. promulgated

rising from aireragt, oper: ation). by each bolder of a ‘certitiente
Jothorizing the ransportatin of mail bv-sireraft. and to male -
wh rates effective from stich date as it shall de termine to be proper:
(21\-to ive scribe the method of methods, by aireratt-mile, «pared

_ nite. weight space, or any combination thereof, or Stherwice, for

ascent: lining such rates of compensation for each aire arrier or claves
of air carriers: ane (3) to peblish the same: and the rites so fixe |
and de termined Srall he paid by the Postmaster General from iy
preprittions for the transportation of mail by aireraft.

"(ha In fixine Md cetermining fuirtand reasonable r ates aff eye
g

“pensation meer this section, the Author itv, considering ane com yt

Hons peculiar te transportation by aireraft and to the particnl wont
c artier or chtsstof air carriers, may fix different rates for Ajfferent
carriers or classes « ‘f air carriers, and different’ classes of service.
In determining the rate in each case, the Authority shall take int»
consideration, among other @actors, the condition that such air cor.
ners may held andl oferate under. certificates authori izing the ear-
rage of mail only by pre widing necessary and adequate facilities and
service for the transportation of mail: such standards respecting the
charaeter and quality of-service*to be rendered bw air carriers os
may he press ribed by or purstant te law: and the need of eveh sect.
alrcearnier for competition for the tr: aMsportatton ef mah snft
cent to.insure the performance of pie h service, and. tegether wit
alother fevenne of the air eatrier, to enable sue h airocarner uncer
YonmesteconOomieal, and etiiotent im: InsAgement, to Mi vinta aed can

ctene the development of aintranspertution to the eXtept and of te

Haractér and quolita creavired for the commerce af the Petred
P - .* - %. . . .

States. tlie Postal Service and the national defewse” 49 SCL,
4&5. ;

= The ¢ anypientsat tion act: tally recemed by Delta for 10d the

eri tal Vear moths COMETOVET SN, Wits Rok Its cents ner pav-rnal: gl tege
tothe operation of more than the monthly base mileage of 105,000

.
Miles, | ; 3 ‘ a

w.°

an order fixing a mail rate for Delta of 31 cents per pay-
mile, for the period beginning December-1, 1959, and ter.’
minating July 14, 1941. The amount of additional mail
‘lransportation pay of Delta forits fiseal year ending Jane
DU, 1T94O, was $45,991, S6. This amount Was received hy:
Delta during its fiseal year ending June 30, 1942, and was
included as income by Delta in its income tax return for
that year. -Delta’s exeéss profits tax forcits fiscal: years *

ending June 30, 1944 and 1945, was measured by its net

income for its fiscal vear 1940.° Tn ascertaining. its 1949
hase period net income for its excess profits tax computa-
tions forthe fiscal years 1944 and 1945, Delta did not in-
clude the $43,031.86. If this amount Was, income properly
acernable i In P40, its base period net Income credit would
be such that it would have had no exeess profits tax for dts
fiscal years 1944 and 1945, - Conversely, if the amount was
not ’properly aceruable in. Delta's fiseal year 1940, then ex-
cess profits tax deficiencies existed for the fiscal years 1944
and 1945, and sue he detici ‘lencies were interest bearing, I;
there were deficione ies for excess profits taxes for the two!
Years, 1944 and 1945, the Jiabiity. for taxeswas- ~extift.
enished by loss carryvbacks from subsequent years, leaving
the interest opligation remaining? This interest, with in-
terest thereon, in the aggregate Amount of $75,363.15 Oy, Was
paid by Delta to the Colleetor of Internal Revenue. After
Claims for refund were filed and denied, Delta brought a
suit ooking wrefund of the amount of its payment.: The
District Court held that the pay for the “fiseal vear 140
‘mail transportation shonld: be acerned. as 1940 income for ,
computing base period Het ineome ‘for eXE Oss profits tax
purposes.! Judgthent was entered for Delta. The United’
States has appealed, ; ie

t Nanning v. Seeley Tube & Box Co. 338 US. 361, 70 8) Cr"
380, OF LL. Ed. 340: United States v: Keppers Cs., ie Oy B48°UL S

234, 73 S.Ct. 208, 99 LO Ed, 302.

* Delta Air Lines y. Edwards, D.C. 130 F, Supp. 389, *-

hoa
Ba: sically, ath is the. tight’ to receive and not: the actual
receipt that determines the inelusion of the Amount in
Kross ingome.”, Spring City Foundry Coow, Vommiissioner,
2go® U.S. 182, $4 S. Ct. G44, 645, as 43. Ed. 1200. kn other
words it has been stated, “The itor result hap deen
denial both to government and %o t: axpayer of the privilege
of allocating income or ounteo: toca ‘véear other than) the
vear of actual: receipt or payment, or, applying the acernal
basis, the vear in which the right - receive, or the obliga.
‘tion to’ pay, has become final amd detinife in) amount.”
Security, Flour Mills Co. vy. eget 521 U.S. 2st,
64S. Ct. A906, 599, 88 LL. ld. 725. See Dixie Pine Products
Co. v. Conmissioner, 320 U.S. ‘. 016, GES. Ct. 364, SS I. heel.
pA Teas Trailercoach, Ine. . Commissioner, 5 Cir, 199s,
! :

I". Zeb OM,

The District Court hased its decision primarily upon the

*

precedent of Continental Tie & Lumber’ Co. ve United.

States, PRG ULS, on, 92S. Cte 020, 76 LL, wed. 1111. There

if was held that where the taxpayer has in its own books

and accounts all of the data required to ascertain with rea

- sonable accurac the amount that ‘would be paid, that
amount should | ccrued, during the vear in which the

right was fixed. "The doctrine of the ¢ ‘ontinentai’ “Tie case:

hats Laie thus state “d:

a

o% *

matures, even although the ministerial act of compiat.
ing the amount. oceurs: in the subsequent vear, nd this

although the administrative procedure to ascertain the

amount to be paid is that of a public commission.”

Dally vy Commissioner, 9 Cir, 1955, 227°R. 2d 724, 726.

Sce Trwinev. Commissioner, 3 Cir. 1956, 238 BL 2d S74;
- Midwest Motor Express, Ine, v. Commissioner, S Cir,
1,251 F.2d 405, kee Up . et

“The determination to be made under 49 UL S. A., 486,
Was. nottone which could have been ascertained by thes ti fx -

Fd

* income May not. he de ferred after the right.

©

‘by

reali

ete this will he dispel

= ce
payer with any reasonable aceuraéy. Factors are included
in Section 486 (hb) which could hol haves been determined °
by the taxpayer from itggbooks and records: Any doubt
Dy a examination vf the opin.
jon in Delta Air Lines y.BSummerfield, 347 U.S. 74, 74 82
2 BOW, OSL. Kds-513, rehearing denied a4. s. 74, 748.

J 2.98 L. Ba. 1078, where the Supreme Court aflirmyed
‘ic District of Columbia Court of Appeals in its reversal
of a Civil Aeronautics Board order in whic +h the-Board had .
Inisconstrucd the formula set forth i in Section 486 (b). The.

case involved the taxpayer's forei ‘en pagent The rale
stated in Continental Tie & leumber Conv. F nited States,

supra, req uifes a conclusion, contrary to that for whieh.
re oO.

‘thie f taxpayer contends, :
. ve

“The judgment ofthe District Court is here reversed and
rendered for the United States.

Reyer xe angen ndered, . ; . @

‘ .
.

F Judgment.
Extract from the Minutes of Mity 2a, 1958.
ve United. States of Ameriea,
o <
Versus

Delta Air oe

Thig.

No, 16868,
This cause cate on to be heard on the transcript of the
record Prom the United States District Court for the ‘Mid-
le District of Georgia, and avas argued by counsels , es

yi staan ‘ration W hereat; It is now he ré sbi aud ®:
ad jndyed dy this Court thuat the Judgment of the sald Dis.
triet Court in this cause. he, atid the sanmte cis: ‘hereby, res
versed and rendered for the U hited States,

@

at i

i

Internal Revenue Code (1s 0)s

Sec, 41, General Rule. _ | ‘ a

7

The net income shall be computed upon the basis:

oof the ti payer's -annial atecogay tine perbod (fiscal
Year or @ ondar year, as the case may be) in accord

© @ ance with the anethod of fcecounting regularly ein
ployed in keeping the books of such taxpayer; but. if

no such method of accounting “has beer so employed,
sor if the ‘method employed does not clearly reflect
the income, the computation Shall he made in ac cord:
ance with such method as in the opinion of the Com-
tissioner does Clearly reflect the ingomes If the tax ,
payer’s annual accounting period is other than a

~ fiscal vear as defined in Section 48 or if the taxpaver
has no annual acequnting period or does not keep

_ books, the net income shall be computed on the basis

"of the. calendar vear, a! : _

=

See. 42. Period. “it Which Items of Gross Income -
Included «+ tn

(a) General Rule. The anount of all items of gross
income shall be included in the eross income for the
taxable ‘vear in which received by the taxpayer, unless,

Uider methods of accounting permitted und section
» AT, any such aionnts are to be properly accounted Yor |

ascot a different period. In the case of the death of

a taxpayer whose net income. is computed upon the ©
lhasis of the accrual method of accounting, amounts
lexogpt amounts includible in computing a partner's
het income under seetion IS82) accrued only by reason
of Yhe death of the taxpayer shall hot be ineluded in
computing giet income for the period sin which falls
the date of the taxpaver’s death. p

4

na = . @
§ Sec. 727. Exempt Corporations. © =
The following corporations, except-a member of an
affiliated group of corporations filing consolidated re-
turns under “Section 141 (1. RC. 1989), shall be exempt
from the tax imposed by this sube ‘hapter:

(hh) Any corporation subject to the provisions «of
Title IV of the Civil ‘Acronauties Act of 19: 8, in the
LTORs income #f which -for any taxable year beginning,
after December 21, 1950, there is includible COMpetiaa-
tion received from the: United States for the trans

- portation of mail by aireraft: if, after excluding from
itS e¢ross income such’ compensation, its adjusted ex
cess profits net income for such year is zero or less,
Such exclusion from-gross income for such year shall
itlso he. made in computing, the unused excess profits
credit adjustment for any other taxable year, but- only
for the purpose of determining whether the corpora.

tion is exempted by this subsection from the tax ‘iin.
posed by this chapter for such other taxable vear.. |

The Civ ANeronauties Set af 193s:

Section 405. (a)—52 Stat. 994, 49 U. S. C. 485.

Bach contract between the United States and uny
person for the carriage of mail entered intovor con.
tinged under the provisions of the Aiy Mail Act of
R034, as amended, and-each contract for the carriage
of mail by aireraft: ine Akiska, shall be continued in |
effect until canceled in acedrdanee with this subsection.
Rach such contract shall be canceled upon’ the issu:
anee to the holder of such contract of a certificate of
public convenience and necessity author ‘izing the trans.
portation of rail by aireratt between the points eov-
ered by such contract, or upon the failure of the holder

, é: ; |

é ; , or
of such contract to apply for such certifieate - within
one hundred and twenty days after the date of enact-
ment of this aet, or upon a determination by “the

o Authority that such certificate should not be issued.

Until the? Authority fixes rates under Section 406 of
this Act the Postniaster General shall pay Compensa-
tion for the transportation of mail by aireraft at the
rates provigled by eagh, such contract or, w here rates
have been#heretoforé or shall hereafter be fined by
orders of the Interstate: Commerce Commission, pur-
suant to proceedings instituted prior .te the date of
enactment. gf this Act, shall pay — for such
transportation in accordance with such orders as if this
Act had not been enacted.

Section 406-52 Stat. 994, 49 U.S.C. 486. 9 * -

~ (a) The ¥uathority ix empowered and directed, upon
its own initiative or upon a pe tition of the Postmaster
General or an air carrier, (1) to fix and determine
from time to time, after notice and hearing, -the fair .
and reasonable rates of compensation for the transpor-
tation of mail by aircraft, the facilities used and use-

ful therefor, and the services connected therewith (in-

chiding the transportation of mail by an air carrier
_ by other means than aireraft whenever such trans-
* portation is incidental to the transportation of mail
by aireraft or is made necessary by conditions of. -
emergency arising from airéraft operation), by ech
holder of a certificate authorizing the transportation
of mail by aireraft, and to make such rates effective
from such date as it) shall determine. te he proper:

2) to preseribe the method or methods, by aireraft-
mile, poundanile, weight, space, or any combination
thereof, or otherwise, for ascertaining such. rates of
compensation for each air carrier or class of air i a
riers; and (2) ‘te publish the same: and the rates | ~o

,

eT

i

-

fixed and determined: shall be paid by the Postmaster
General from appropri: tions for = transportation of
mail by aireraft,

-(b) In fixing’ and determitiing fair and reasonable
rates of- compensation under this section, the Board
considering the conditions peculiar’ to. transportation
by aireraft and to the particular air carrier or clas.
of aircarriers, may fix different-rates fordifferent air
carriers or phaines bf air carriers, aud different classes
of service, In determining the rate In Gach case, the
Board shall take into consideration, among other fac. * 4
tors, the condition that such air carriers may hold and |
operate under certificates authorizing the carriage of
mail ouly by providing necessary: and adequate facil-
‘ities and service for the transportation of mail; such
standards respecting the character and: quality -o!
service to be rendered by air carfiors’ as may be pre-
seribed by or pursuant to law; and. ‘the. need of each
such air carrier for compensation for the transporta:

7 tion of mail snfficient to insure the performance of
such service, and, together with all other revenue of
the air carrier, to enable such aif carrier under honest,
economical, and effie ‘ent managenient, to maintain‘and |
continue the development of air transportation to the
extent and of the character and quality required for,
the commerce of the United States, phe Postal Servi lew,
and the national defense, * % *

Certificate of Sérvice.

I certify that I have served the within Petition for Writ
of Certiorari to the United States Court of Appeals for the
Fifth Cirenit pursuant to the terms of paragraphs Tand 2°
of Rule 33 of the Revised Rules of the Supreme Court. 0!
the United States by. depositing a copy thereof in a United
“States post office, with air-mail postage prepaid and ad-

pe OD os \

dressed, to the Solicitor General, Department of: Justice,
Washington 25, 2. -C.. and by depositing a copy thereal
ina United States post office with airmail postage pre spraviel

and addressed to Mr. Prank O. EF Vans, USS. Attorney, Post
Aiflice Building, Macon, Georgia, attorney for respondent

herein: aa
This Septeriber eae OF
* di aUnnbes x. Frazer.
ae 5 Oy ¢ ‘Counsel for Petitioner,
»
eS ‘ ‘
- s
¢
es *

---

Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386419_0534%3A2. Public record. Not legal advice.