399

Opinion of the Court.

The Board of Tax Appeals reversed the Commissioner and the Circuit Court of Appeals, in turn, held with the Commissioner. 127 F. 2d 359.

We agree with the Court of Appeals. The sum paid these taxpayers above the award of $58,000 was paid because of the failure to put the award in the taxpayers' hands on the day, January 3, 1933, when the property was taken. This additional payment was necessary to give the owner the full equivalent of the value of the property at the time it was taken. Whether one calls it interest on the value or payments to meet the constitutional requirement of just compensation is immaterial. It is income under § 22, paid to the taxpayers in lieu of what they might have earned on the sum found to be the value of the property on the day the property was taken. It is not a capital gain upon an asset sold under § 117. The sale price was the $58,000.3

The property was turned over in January, 1933, by the resolution. This was the sale. Title then passed. The subsequent earnings of the property went to the city. The transaction was as though a purchase money lien at legal interest was retained upon the property. Such interest when paid would, of course, be ordinary income.

From the premises that the value at time of the taking plus compensation for delay in payment equals just compensation, United States v. Klamath Indians, 304 U. S. 119, 123, and that a good measure of the necessary additional amount is interest "at a proper rate," Seaboard Air

The involuntary character of the transaction is not significant. Helvering v. Hammel, 311 U. S. 504, 510.

No review is sought of the holding that transfer of property through condemnation proceedings is a sale within the meaning of § 117 of the Revenue Act of 1936. Commissioner v. Kieselbach, 127 F. 2d 359, 360.

See also Shoshone Tribe v. United States, 299 U. S. 476, 496; Phelps v. United States, 274 U. S. 341; Brooks-Scanlon Corp. v. United States, 265 U. S. 106; Liggett & Myers Co. v. United States, 274 U. S. 215.

Line Ry. Co. v. United States, 261 U. S. 299, 306, petitioner contends that as just compensation requires the payment of these sums for delay in settlement, they are a part of the damages awarded for the property. But these payments are indemnification for delay, not a part of the sale price. While without their payment just compensation would not be received by the vendor, it does not follow that the additional payments are a part of the sale price under § 117 (a). The just compensation constitutionally required is not the same thing as the sale price of a capital asset."

In Seaside Improvement Co. v. Commissioner, 105 F. 2d 990, 994, an opposite conclusion apparently was reached by treating the additional payments as part of the purchase price as well as part of "just compensation."

Petitioners urge that the additional sum paid should be construed as a part of the sale price, in analogy to decisions that such sums, when paid in condemnation proceedings by a state, are not interest entitled to exemption under § 22 (b) (4), Internal Revenue Code, as "interest upon the obligations of a state." The cases cited construe the quoted phrase as designed to protect

sums.

The same principle is applicable to the New York decisions, holding that interest is a part of the condemnation award. Just compensation requires satisfaction for the delay by payment of the additional Matter of City of New York (West 151st St.), 222 N. Y. 370, 372, 118 N. E. 807; Matter of Minzesheimer, 144 App. Div. 576, 579, 129 N. Y. S. 779, affirmed 204 N. Y. 272, 97 N. E. 717; Matter of City of N. Y. (Bronx River Parkway), 284 N. Y. 48, 54, 29 N. E. 2d 465. The obligation to pay its value arises when the property is taken. Title then passes. Kahlen v. State of New York, 223 N. Y. 383, 389, 119 N. E. 883. Woodward-Brown Realty Co. v. City of New York, 235 N. Y. 278, 139 N. E. 267, is not to the contrary. It deals with the unity of a right of action on an award with interest, holding only one proceeding is authorized against the condemnor.

"Such additional sums are not considered normal interest but part of the compensation awarded for the property taken." 105 F.2d at 994. 7 Holley v. United States, 124 F.2d 909 (C. C. A. 6, 1942); Posselius v. United States, 90 Ct. Cls. 519, 31 F. Supp. 161 (1940); Williams

399

Opinion of the Court.

the states' borrowing power. In any event, the question here is not whether these sums are interest. They may not be interest and yet be other than part of the sale price. If not interest, they may be compensation for

the delay in payment.

Other contentions are made by the petitioners. It is said that in other situations interest on delayed payments has been treated as part of the principal received and not as normal income." By analogy it is urged that the same principle be applied here. The first three cases in the preceding note involved payments of awards in liquidation of claims against Germany allowed by the Mixed Claims Commission. See Settlement of War Claims Act of 1928, 45 Stat. 254. As the aggregate payments did not equal the taxpayers' basis, the decisions refused to consider as income the portions designated as interest on the ground that in liquidation the investment first must be restored before income is realized. Koninklijke Hollandische Lloyd v. Commissioner and Consorzio Veneziano etc. v. Commissioner applied the rule that payment for deferred compensation was not interest under § 119 (a)1o

10

Land Co. v. United States, 90 Ct. Cls. 499, 31 F. Supp. 154 (1940); Baltimore & Ohio R. Co. v. Commissioner, 78 F. 2d 460 (C. C. A. 4, 1935); U. S. Trust Co. of New York v. Anderson, 65 F. 2d 575 (C. C. A. 2, 1933).

8 "Nor is it quite accurate to say that interest as such is added to value at the time of the taking in order to arrive at just compensation subsequently ascertained and paid." United States v. Klamath Indians, 304 U. S. 119, 123.

9

Helvering v. Drier, 79 F. 2d 501 (C. C. A. 4, 1935); Commissioner v. Speyer, 77 F. 2d 824 (C. C. A. 2, 1935); Drier v. Helvering, 63 App. D. C. 283, 72 F. 2d 76 (1934); Consorzio Veneziano di Armamento e Navigazione v. Commissioner, 21 B. T. A. 984 (1930); N. V. Koninklijke Hollandische Lloyd (Royal Holland Lloyd) v. Commissioner, 34 B. T. A. 830 (1936).

10 This section specifies interest on interest bearing obligations of residents as one of the items of income from sources within the United States.

Statement of the Case.

317 U.S.

of the Revenue Act of 1932 or 1928. These decisions obviously are not in point on the question whether the additional payments in the present case are part of the sale price or other income under § 22. Nor do we find persuasive the cases refusing to allow an installment purchaser an interest deduction because of his deferred payments where the purpose was an arrangement for the payment of the purchase price." In the present case, the purchase price was settled as of January 3, 1933, when the property was taken over.

CORYELL ET AL. v. PHIPPS ET AL.

Affirmed.

CERTIORARI TO THE CIRCUIT COURT OF APPEALS FOR THE FIFTH CIRCUIT.

No. 246. Argued December 15, 1942.-Decided January 4, 1943.

1. Revised Statutes § 4283-the limitation of liability provisionshould be administered liberally. P. 411.

2. An individual owner of a vessel who selects competent men to store and inspect it, and who is not on notice as to the existence of any defect in it, can not, upon the theory that the "privity" and "knowledge" of his negligent agents are imputable to him, be denied the benefit of the limitation of liability under R. S. § 4283, as respects damage resulting from fire caused by an explosion on board during the period of storage. P. 412.

128 F.2d 702, affirmed.

CERTIORARI, post, p. 609, to review the affirmance of a decree of the District Court in admiralty, 39 F. Supp. 142, permitting limitation of liability in a suit to recover damages for the destruction of petitioners' vessels 11 Hundahl v. Commissioner, 118 F. 2d 349 (C. C. A. 5th, 1941); Henrietta Mills v. Commissioner, 52 F. 2d 931 (C. C. A. 4th, 1931); Pratt-Mallory Co. v. United States, 82 Ct. Cls. 292, 12 F. Supp. 1020 (1936); Daniel Brothers Co. v. Commissioner, 28 F. 2d 761 (C. C. A. 5th, 1928).

resulting from fire aboard a vessel owned by one of the respondents.

Mr. T. Catesby Jones, with whom Mr. Leonard J. Matteson was on the brief, for petitioners.

Mr. Chauncey I. Clark, with whom Mr. Eugene Underwood was on the brief, for respondents.

MR. JUSTICE DOUGLAS delivered the opinion of the Court.

Petitioners instituted a suit in Admiralty in the federal District Court to recover damages for the destruction of vessels owned by them as a result of a fire which occurred in June, 1935, while the vessels were afloat at Pilkington's storage basin at Fort Lauderdale, Florida. The fire was caused by an explosion of gasoline fumes in the engine room of the yacht Seminole, registered in the name of Seminole Boat Co. and owned by it. Prior to 1929 the Seminole was owned by respondent Phipps and his brother. At that time they transferred the yacht to the Seminole Boat Co., a Delaware corporation, all of the stock of which was issued to the two brothers. At the time of the fire, respondent Phipps still owned half of the shares of stock, the other half having been acquired by his sister. Neither she nor Phipps was an officer or director of the company.

Respondent Phipps was sued on the theory that he was the owner of the yacht and operated and controlled her and that the Seminole Boat Co. was a dummy corporation. In his answer, Phipps set up, inter alia, the defense of limitation of liability contained in R. S. § 4283, 46 U. S. C. § 183. The District Court found negligence on the part

1 That section, as it read at the time of the fire, provided: "The liability of the owner of any vessel, for any embezzlement, loss, or destruction, by any person, of any property, goods, or merchandise,