Brief for the Respondent in Opposition — Delta Air Lines, Inc. v. Edwards

°

OCT 17 1958

No. 387 -] JAMES R. BROWNING, Clerk

_ Sula Sqrene Geto fe Wed ie

- Ocroser Term, 1958

Detta Am Lines, Inc., PETITIONER .

W. Sam Epwarps, Administrator c. t. a. of the Estate

~ of Marton H. ALLEN, Deceased, RESPONDENT

¢

ON PETITION FOR A WRIT OF CERTIORARI TO THE UNITED

STATES COURT OF. APPEALS FOR THE FIFTH CIRCUIT

"BRIEF FOR THE RESPONDENT IN OPPOSITION

J. LEE RANKIN, ek;

. Solicitor General,

* CHARLES K. RICE,

Assistant Attorney peer

MELVA M. GRANBY, :

JOSEPH ‘KOVNER,

nae Attorneys,

| os Department of Justice,

Washington 25, D.C.”

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ae :

i Cases: ‘CITATIONS

. ; Breeze Corporatians y. United States, 117 F. Supp. 404... 7

Ay ~ Commussioner Vv. Dumart Textile Co., 142 F.2d 897... 7

| “Commissioner v. Hansen, No. 380, October Term, 1958. . Ss

‘4 Continental Tre iS L. Co. v. United. States, 286 U. s ;

a ok eas a ce Oe eek es aes Ce ek bc kes i. oe

— v. c ommassioner, 27 F. 2d 724; certiorari denied,

fp RE es abs ag hd sea Awa hae 6-4 Bos kh a wos 7

Delta Air “hide Inc. v. Summerfield, 347 U.S. 74... ti

> Heinz, H. J. Co. v. Granger, 147 F. Supp. 664.00... 7

Re i MceGuirl, Patrick, Inc. v. Commissioner, 74 F. 2d. 729.

: certiorari denied, 295 U.S. 748. 2.......0.0. 08 00..00585 7

: « Midwest Motor Express v. Commissioner, 251 F.. 2d

405, pending on petition for certiorari, No. 359, this

Term ..... SEPA) Pe grea PSST ee 7

New York Cent. R. C ove C oR F. 2d 247.

.° certiorari denied, 296 U. 8. 653..4...6...\.....406.. ‘ ;

) Security Flour Mills Co. v. Commisstoner, RI S.281. |

Sharp v. Commissioner, 224 F. 24° 920........4..... 7

Texas Trailercuach v. Commissioner, 251 F. 2d 399... s

Statutes:

. Civil Aeronautics Act of 1938, ¢. 601, 52 Stat. 973: a

See. 405(a) (49 U.S.C. 1952 ed See 4850

See. 4061) 49 U.S.C. 1952 ed., See. 48600 yi

Sec. 406¢b) (49 U.S.C. 1952 ed., Sec. 486¢b) %

Internal Revenue Code of 1939: ae

) See. 41 (26 U.S.C. 1952 ed, See 4... 6. a A

"See. A2ta) (26 USC. 192 ed. See. A2tair.. j

on the Supreme Court of the United Bates

OCTOBER TERM, 1958

No, 387

Detta AiR LINEs,. INC., PETITIONER

v.-

~W. Sam Epw ARDS, Administrator ¢, t. a, of the Estate|

of Marion H., ALLEN, Deceased, RESPONDENT

ON PETITION FOR A WRIT OF CERTIORARI TO THE UNITED

‘STATES COURT OF APPEALS FOR THE -FIFTH CIRCUIT

BRIEF FOR THE RESPONDENT IN OPPOSITION

oe OPINIONS BELOW i

The opinion of the District Court (R. 77-81) is re-

‘ported at 150 F. Supp. 589. The ‘kone of the Court

of Appeals (Pet. 15-20) is reported at 255 F.2d —.

s

JURISDICTION

_ ‘The.judgment of the Court of Appeals was entered

-on May 23, 1958. (Pet. 20; R. 154.) - A petition for

_ rehearing was denied on June 24, 1958. (R. 165.) The

petition for a writ of certiorari-was filed on September

19, 1958. Jurisdiction of this © ourt is invoked undef

28 U.S.C., Section 1254.

9

aa

“te

.-

QUESTION PRESENTED. be : ty!

Whether, as the court below held, the taxpayer's right

to additional pay for trabisportation of air mail in 1940

did not become tinal and detinite in amount, and hence

“did not aeerue, until the determination ii 1942 of fair .

and reasonable ‘compensation therefor by the Civil

S Neronauties Board. . 9%

ay P °

™~

\.. STATUTES INVOLVED

The velevant provisions of Sections 41 and 42(a) of

the Interial Revenue Code of 1939 and Sections 405(a),

40600) and Chy of the Civil Aeronauties Act of 1928 are

set forth in the Appendix, infra, pp. 9-12.

. STATEMENT

The facts as stipulated (ROWG55), Found by the Dis-

triet Court (R. 77-81) and restated Drthe Court of Ap-

peals: (Pet. 15-20), may be stimmarized asfollows:

Delta Nir Lines, Ine. an air carrier of: persons, -prop-

ertyand tneil, is an accrual lisis“taxpavers Beginning

In 1954 it transported mail over Route 24 between Texas

and South. Carolina and’ intermediate points under a

contract with the Postmaster Creneral, (R.47, 50.) In

1956, the ‘hase rate for the carriage of this mail by

taxpayer was lived by the Thiterstate Commerce Con-

MissMn at 22eents per pity mile CRS S8.) Ind fine,

INS. the Civil Aeronautics Act of 1938 Was enacted

4 amd taxpayer was issued a certificate sof publie eon-

Venience and necessity hy the Civil Aeronauties Au-

et oritwe OR, OW) Section 40500) of the Act provided |

thatthe prior contraets for mail carriage shouldbe con:

Tinted in effect until the isstainice of a vertitiente of

vUbtie convenionee and necessity by the Authority: nl

Mot thereatter, until the Atithority tixed a rate under

e «

7

3

' | 6

Section 406 of the Act (Appendix, infra, pp. 11-12), the

carrier would be paid the rate previously fixed by the

Interstate’ Commerce Commission. (R.51.) Section

44i(a) of the Net authorized ‘the Authority to fix and

determine “the Tair and reasonable rates’? for such

gompensation upon its own initiative or upon a. petition

cof the Postmaster General'or an air carrier, (R.52.)>

On December 1, 1939, the Autherity, acting on its

oWn initiative, instituted proceedings to determine

Whether or not. the rates he ings paid to taxpayer for the,

transportation of mail Were fair ayd reasonable. (R.

a2.) The taxpayer did not request any new rates for

‘Route 24, but took the position that, sinee the Authority

instituted the proceeding, it should fix the rates based

on the service rendered. (R.53.) During the pendency

of this proceeding, the taxpayer continued to acerue

“and receive pay for its mail transportation at the rate

prevjously fixed hy the laterstate Commerce Commis-

sion, in accord with its’ consistent practice of aécruing

pay at the then current rates for mail transported in

each taxable vear, (R.52-55,54.) On January 21, 1942,

the Civil Aeronattics Board, sueeessor to the Authority,

issued its order GR. 53) and Opinion R. O4-151) fixing

aratecot thirty-one cents perpay-mile for the period

Beginning Decentber 1, 1939, sul terminating July 14,

DD eR. 58). Vader this order, the amount of tax-

payer's additional mail transportation pay for its fiseal

Jvear ending ine 30, 1910, was S98 1.86, Payinent of

Mis amount was received b iV the taxpayer during its

lise al vear ending June 30, 1942. and was ineluded as .

-ingeme in HS dneome tax return for that vear, CR. a5-

Hi ) a i , “9 ).

The question.in this case arises in eaameection with

the taxpayer's excess profits tax liability for 1944 and

”

™

4

1945, In filing its income and excess profits tax returns

for ‘those years, the taxpayer did not claim that the ad-

ditionfal mail pay accrued in 1940 for the purpose of

compi\ting. its 1940-base period income credit, but for

‘other Nasons reported no gXeess profits tax liability.

(R.47, 5%) Later, in June, 1943 Upon an examination

Of taxpayhr’s excess profits tax liability for 1944 and

M5, the Commissioner of -Interndl Revenue found

that the taxpayer was liable for excess profits taxes and

that there was a deficiency, (R49) The amount of the

deficiency, was absorbed hy mised tax credits and an

operating loss capry-back hut the interest on the deti-

cieney was due and ottstanding, ORL 49.) At this point,

taxpayer contended that it had no liability for EXCESS

profits taxes in 1944 and 1945 and the interest thereon,

on the ground that the additional mail pay properly

aeerued in 1940.° CR. 22.) The amounts invelved are

stipulated: if the additional mail pay did not acerne in

40, interést in the aggregate amount of #£75.363.15 was

due, (R23, MM.) This interest was paid by the taxpayers

under protest to the Collector yy Internal Revenue and

the instant suit was brought after denial of a claim for

refund.’ CR. 54-55.)

The Distriet Court held that. under the rule of Con-

fineutal TindeL. Cov. Vuited States, 286 US, 290, the

right to the additional, payments acertieds i? the years

the transportation was furnished. after enactment of

‘the Civil Neronanties Net of 1988, ORO80.). The € ‘ourt

of Appealy reversed, holding that. under the Conti .

mental Tie WL. Co. rule, the right to the additional

' The “Hit Wits berenael | eats’ Ohyee west tte ant the € ole ctor af | .

ternal Beverages tee what tye peavnert were mide Oh Oe Ti

apreal Woe token by the (rated States 9s “detendant” «ROs2)

hence the caption pt the appeal in the court beled. Urtited stat

oof Amerien vo Delta Air Lines. Ine.”

ev

. »

pay did not acerue until the determination of just and

reasonable rates of compensation was thade by the Civil

Aeromauties a: in 1942. ( Pet. 17-20.) '

ARGUMENT

7 ¥

The decision below carrectly Applies the established —

crule of law to the undisputed facts of the case, There

is no cotitliet of decisions and no other occasion for

further review,

1. The decision below-is correct. The basie rule is

that under Sections 41 and 42 of the 1989 Code (Ap-

when the right to receive it has beeome final and definite

inamount. Séearity Flour Mills Co. v. Commissioner,

21 US. 281. The decision in Continental Tie & L. ‘0.

vf united States, supra, prescribed the test for fixing

the date ‘of accrual in the situation where taxpayer's

rights await a determination by a Governmental agency.

pendix, infra, pp. 9-10) an item of income is acerued *

In such avase, the item acerues without formal agency

determination whyre the measuré of payment to be re-

ceived by the taxpayer ix fixed by the statute and: the

amount can be reasonably ascertained upomthe basis of

information imA@he possession of the taxpayer. In ( on-

tinental Tie & L. Co, the statute flatly ptevided that

any railroad taken over by the Government in World

War-] was vested with a right te reimbursement by the

Government for any ensuing déficits in its operation.

The amount of the deticit was established by the ear-

riers” own records and accordingly the Court held (yp.

* * * the taxpayer had. in its own books and ae-

counts data to whieh it could apply the ealeulations

required by the statute and ascertain the quantum

of the thy award within reasonable limits.

fy .

G

In the case at bar, the rule of Continental Tie & L.

€0., as the court below correctly noted. (Pet. 20), re-

quires the conclusion that the taxpayer's right to addi-

tional pay did not accrue until the determination of the

‘Board fixing fair and reasonable rates and the effective

date of the new rates. The Civil Aeronautics Act (see

Section 406, infra, pp. 10-11) does not provide any def-

inite measure of compensation or fix effective dates; it

leaves the determination of -rates to the-expert judg. .

Ment of the Board, stibject to review. by the COUNTS,

Delta Air Lines, Ine. y. Sum merfield, 347, US..74, Tax-

payer concededly made no effort to estimate what rate

would be fixed under the Act: instead, it accrued pay at

the existing rate and. simply afvaited the determination

| of the Board. a 6

Reference to the opinion of the sSoard (R. 94-121)

quickly dispels the sugeéstjo= that its determination

Wits a mere ministerial duty. Before reaching its judg-

ment as to the fair and reasonable rates needed to eom-

pensate the carrier for transportation of mail and. with

‘its other reveiiues, te assure the maintenance and de-

Velopment of an adequate air transportation system for

commerce, postal service: and defense of the United®

States, the Board analyzed existing rate schedules. re-

Viewed the carrier's equipment program, decided what

ems were to be iheluded in operating income, what

caljustinents should be made in depreciation charges.

and what effect Was to be given operating losses ona

eetment of the route. Moreover: there was no possible:

Way by whieh the MXpayer could tell in advanee what

effective date the Board would consider proper if. it

decided to tix a neay rate, . |

In similir cireumistances, ie. where the’ amount of

mie award is dependent igpon the exercise of admitis-

en .

7

: é :

trative judgment, the courts have uniformly held that

the right to income does not aeerue until the judgment

_is made. Midwest Motor Express v.-C ommissioner,

251. 2d 405 (CLA, 8th), pending on petition for writ

“of certiorari? No, 359, this Term; Sharp vy. Commis-

sioner, 224 F.2d 920 (CLA. 6th): New York Cent. R.

Co. v. Commissioner, 79 F.2d 247 (CLA, 2d), certiorari

denied, 296 U.S, 653; Patrick MeGuirl, Inc. vo Commis:

sioner, 74 EF, 2b 729 (CLA, 20), certiorari de nied, 2O5

US. 748; Breeze Corporations vo U nited States, WAT BL

Supp. 404 (C018) YE A. Meine Co, y. (ranger, 147 PF.

Supp. 664 (W.D.-Pa.).° Sinee Continental Tie de 1.

Co, the Courts of Appeals have had no difficulty in

distinguishing the ‘situation where the statute fixes

the measure of compensation to be paid and where

that. measure may he. applied by the t taxpayer on the

aay of information in his possession. ( om missioner

*. Dumari Tertile Co 142 F.2d 897 (CLA, 2d) sand’ see

Dally v. Comsmisnioner, 227 F. 2d 724 (CLA, 9th),

‘certiorari denied, 351 U S. 908, ie

. There is no conflict ef decisions, As already noted,,

the Court of Appeals correctly applied the tule ‘of

Continental Tie & L. Co, And there is uo merit. in the

suggestion (Pet, 8-11) that there is conflict with cases

invelvi ine the acerual of reserves by antomobile dealers,

© The question presented in the automobile-dealer "* re-

serve’? cases is whether an aceryal basis taxpayer whe

sells property and receives partof hisgainon the sale in

cash and part in the formofa credit froma finance com.

pany the latter portion to be ultimately satisfied either

hy payment in cash or by offset against the taxpayer's

~ whligations——is required. to report the amount of gain

*

* The petition aa Midwest Motor w as filed on-other grounds

g . f

so credited (as well as the gain in cash) as income for —

the year in which the credit is made.’ See the Govern-

ment's petition for certiorari in) Commissioner v.

Hansen, No, 380, October Term, 1958,

The instant ease and eases sueh as HMeiesen are alike

only in that beth involve application of the same under:

Iving principle, (a principle well settled and net) ine

dispute in either case), ec that income accrues when

the right te,receive ‘it becomes tinal, and definite in

amount. That principle applies, ofjeourse, te a wide,

Variety of unrelated transactions. [tis apparent that

“the transactions invelved in dealer ‘reserve’? cases

are wholly ungelated to thes? in the ease at bar, When

rights hecoame tinal as between seller and: tinanee com

pany under arrangements peculiar te installment buy

ing certainly sheds ne light on the issue when this

i Xpayer became entitled te final and definite award —

of mail pay."

CONCLUSION wear

The petition fora writ of certiorari shouldbe denied.

Respectfully submitted,

’ Tas J. Lek RANKIN,

Solicitor Geueral,

(Hartes K. Rick,

oo . suk Assistant Attorney General,

; Meuva M. Ginaxey. |

Josernu Kovnen, > |

| —Atforneys.

OcroBer, 198, : ;

‘The court below did not, as taxpaver eontend- Pet ty

Its lee tspon Hpon Ts ras Trath reach \ Come modsvnn ¥- D5) ] 4

395 (CUA. Sth. a ease involving dealer reserves: it meroly er

that ease (Pet) 19) for the underlying rule,

‘ 9

APPENDIX

Tnterual Revenue Code of 1939;

Sec. 41. Generar Reve.

The net income shall be computed pen the basi-

of the taxpayer's annual accounting pyriod (tise!

vear or ealendar vear, as the ease may be) in aecord

ance with thecmethed of accounting regularly em

ploved in keeping the hooks of sueh taxpayer: but if

ne seh method of aecounting has bebin se employed,

or if the method emploved does not clearly retleet the

income, the computation shall he made in accordance

with sueh method as in the opinion of the Commis

simier does clearly retleet the imeeme. TP the. tay

payer's annual accounting period is other than a

fiscal vear as defined in section 48 or if the taxpayer

has ne anal accounting period or does not keep

hooks. the net in ome shall be computed qr the Te

of the calendar ye ir.

(26 TUS 1952 ed. See. 417

Sec. 42. Peetoo is Watow Drews oF Ginoss PNeowe

INenepen,

(a) [AS aime aded hy See. TH of the Re ‘vemne Aet

of IH, e FIZ. 55 Stat. OST] Geferal Rule. The

smmeint of all items of gross income shall be itelucded

in, the gioss income for the taxable vear in which |

received by fhe taxpayer. unless. under nietherd-

of iecount ing permitted cnder section Oh any

Heh. “Meunt sane to be pivperly aecounted for as

of a different: pe ‘ried: Fn the ease of the death of

taxpayer there shall bee invelindeed ine computing net

ieonne for the taxable period in whieh falls the date

of his death, amounts accrued up te the date of bi-

a

9 10

death if not otherwise ae ineludible in respect

of such period or a prior period,

* ; “: eae * %

(26 U.S.C, 1952 ed.. See. 42.) é

Civil Acronauties Act of 19338, «, GOL, 52 Stat. Q73:

Sev. 405. (a) Each contract bet ween the United

States and any-person for the carriage of mail, en-

i=

tered into or continued. under the provisions of the.

Air Mail Act of 1994, as amended, andg-each contract

for the carriage of mail by aircraft in’ Alaska, shat!

he continued in effect: until canceled sin accordance

with this subsection. Each such contract shall he ean

celed upon the issuance to the holder of such contract

of a certificate of public’ convenience and wecessity

authorizing the trauspertation of mail by aireratt

between the peints covered by such contract. or upon

- the failure of the holder of such contract to apply ter

such certificate within one hundred and twenty days:

after the date of enactment of this act, or upon a

determination by the Authority that such certitieate

should yot be issued. Until the Aithority fixes rates

under Section 406 of this Act, the Postmaster Gen

eral shall pay compensation for the: transportation

of mail by direraft at the rates provided by each sich

contract or, where rates have been heretofore or shal!

héreatrer be tived lye orders of the Lnterstatée (on

Merce Commission. purstiant to proceedings/itet i

tuted prior te the date ofenaetment of this Net, shill a

pay compensation for steh transportation in accord

anee With sueh orders as if this Net Shad mot been

enacted,

* / # * * *

(49, UUS.C. 1952 ed. See 485.)

11

Sec, 406, (a) The Authority is-empowered and,

‘directed, Upon its own initiative or upon petition 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 compensa. -

tion for the transportation of mail by aireraft, the

facilities used dnd useful therefor, and the services

connected therewith (incliding the transportation

of mail by an air carrier by other means than aircraft

Whenever such ‘transport tation iS incidental to the

_transpoytation of mail by aireraft or.is made neces-

sary by conditions of emergency arising from air-

craft: operation), by each holder, of a certificate

authorizing the transportation of mail by aireratt,

and tomiake such rates effective from such date as it

shall determine to be proper; (2) to prescribe the

method or methods, by aircratt-mile,. pound-mile,

weight, space, or any cumbination thereof, or other- fy

wise, for ascertaining such rates of compensation for,

each’ air cafrier or class of air carriers; and (3) to

publish the same ;and the rates so fixed and deter-

mined shall be paid by the Postmaster General from.

appropriations for the: transportation of mail by

aireraft.

(b). In fixing and determining fair and reasonable

rates of compensation under this, section, the Author-

ity, considering the conditions petuliar to) trats-

portation by aircraft and to the particular air carrier

oy class of air carriers, may fix diffe ‘rent rates for

‘different air carriers or classes: of air carriers, and

different classes af service. In determining the rate

in each case, the regret’ shall take inte consider:

ation, wmneng other factors, the condition that sich

airearriers nay hold and operate under cértiticates

aithorizing the carriage of mail only by” provid:

Ig necessary and adequate facilities and service

cg ee

lz

for the transportation of mail; such. standards re-

specting the character and quality, of service to be

rendered by air carriers as maybe prescribed by or

pursuant to law; and the need of each such air car-

rier for compensation for the transportation of mail

sufficient to insure the performance. of such service,

-and, together with all-other revenue of the air carrier,

to enable such air carrier under honest, economical,

_and efficient management, 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, the Postal Service,

and ‘the national defense. .

7

a * Ce, OMe ‘* *

(49 U.S.C. 1952 ed., Sec. 486.)

a

“US GCOVEANMENT PRINTING OFFICE 1980) © Geasez 4

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