713 Opinion of the Court To have held that for that purpose, net income included net. capital gains would have been to nullify the alternative treatment allowed by section 117 (c) (2). Here the limitation is on a credit to be allowed-an entirely different question. It is interesting to note that although both cases arise under section 117 (c) of the 1939 Code, the Government in Merrill argued that net income includes net capital gains, whereas here it contends that net income does not include net capital gains. There is further indication that the ruling was invalid.. Section 34 of the 1954 Code provides for a dividends received credit for individuals that is substantially the same as the corporate dividends received credit here in issue as the credit. is based on "taxable income," which corresponds to "net income" under the 1939 Code. Regulations (Regs. § 1.34-2) were issued under section 34 following the concept of Rev.. Rul. 54-28 in that they provided for an exclusion of net capital gains from the taxable income where the alternative tax on capital gains is imposed under section 1201 (b) (successor to section 117 (c)). This regulation was held invalid in Springs v. United States, 153 F. Supp. 514. The court there said: ***Section 34 allows a credit against income tax for dividends received by individuals. The credit is limited' to a certain percent of 'taxable income'. "Taxable income' is defined by Section 63 (a) 26 U.S.C.A. § 63(a) for all income tax purposes as gross income less deductions, except where the standard deduction is elected.. Unless there is some compelling reason to change the general definition of taxable income', the dividend' credit is plainly limited to the specified percent of gross income less deductions, or 'taxable income'. The regulation under attack, Treasury Regulation: § 1.34-2, provides that where the alternative tax on capital gains is imposed under Section 1201(b), 26. U.S.C.A. § 1201 (b), 'taxable income' in the dividend credit limitation means 'taxable income reduced by' 50% of capital gains. However, the alternative tax provision does not redefine 'taxable income' nor does it indicate that 'taxable income' should be reduced by capital gains. in computing the dividend credit limitation. Thus, the plain language of the statutes does not provide for the Opinion of the Court 148 C. Cls. reduction of 'taxable income' required by the regulation. The regulation was also held invalid on similar reasoning in Schultz v. United States, 156 F. Supp. 811, and in Cruickshank v. Riddell, 58–1 USTC 9169. None of these decisions were appealed by the defendant, and on June 16, 1958, T.D. 6297, IRB 1958–28.13, which amended the Regulations to conform to such decisions, was issued. The legislative history of Public Law 399 makes clear that Congress sought to reverse the effect of the position taken by Rev. Rul. 54-28 for the years 1952 and 1953. In H. Rep. No. 1356, 84th Cong., 1st Sess., 1956-1 C.B. 981, the House Ways and Means Committee stated: Your committee believes that the position in the ruling should be reversed for years prior to 1954 in order to provide a consistent policy for the period of the 1939 code. Under these circumstances and because your committee believes that since capital gains may be included in the ordinary corporate tax base and are excluded only in arriving at an alternative as distinct from a separate, tax the inclusion of such capital gains in income for purposes of computing these credits under the 1939 code appears entirely reasonable. The defendant contends that Public Law 399 in fact accepted the position taken by the Commissioner in Revenue Rulings 54-28, and 54-283, 1954-2 Cum. Bull. 177, which made Rev. Rul. 54-28 applicable to tax year 1952 and subsequent taxable years, as correct under the existing law. At page 7 of its brief, the defendant says: *** Certainly the Congress did not purport to declare Rev. Rul. 54-28 an erroneous interpretation of the law by recommending its reversal for the years prior to 1954. Rather, the Committee report gives two basic reasons for the enactment of Public Law 399: (1) “*** in order to provide a consistent policy for the period of the 1939 code"; and (2) ❝*** the inclusion of such capital gains in income for purposes of computing these credits under the 1939 code appears entirely reasonable". In any event, the deficiencies were properly collected in the first instance pursuant to Rev. Rul. 54-28; and Congress did not declare Rev. Rul. 54-28 an erroneous interpretation of the law. 713 Opinion of the Court We cannot agree that Public Law 399 accepted the position taken by the Commissioner as correct under the existing law, just as we could not agree with a contention that Congress did not accept the Commissioner's position as correct. We concur in the defendant's statement that Congress certainly did not purport to declare Rev. Rul. 54-28 an erroneous interpretation of the law. The Congress is well aware that its function is to legislate and not to pass upon the validity of administrative actions taken pursuant to a law it has enacted. By passing Public Law 399, Congress simply clarified its intent with respect to how it wanted section 117(c) (1) (a) applied to tax years 1952 and 1953. It is worth noting that after the enactment of Public Law 399, Rev. Rul. 56-151, 1956-1 Cum. Bull. 382 was issued. This ruling withdrew the application of Rev. Rul. 54–28 to years subject to the 1954 Code by stating that for such years the dividends received credit was to be based upon taxable income which included net capital gains. In enacting section 1201 of the 1954 Code, Congress stated that it "is derived from section 117 (c) of present law" and that "No substantial change is intended ***" S. Rep. No. 1622, 83d Cong., 2d Sess., p. 430. Since we find that Rev. Rul. 54-28 was not a valid interpretation of the 1939 Internal Revenue Code, because it was not consistent with the statutory language, plaintiff was entitled to the refund of the deficiency assessments irrespective of Public Law 399. Hence, plaintiff is entitled to interest on the deficiency assessments for the period of time they were held, and, inasmuch as interest on deficiencies under section 292 of the 1939 Code is assessed and "collected as a part of the tax," plaintiff is also entitled to recover the amounts it so paid, together with interest thereon. Having determined that plaintiff was entitled to the refunds irrespective of Public Law 399, we do not reach the question of the effect of the "no interest" provision of that Act. Similarly, we need not discuss the merits of the alternative arguments raised by both parties. Plaintiff's motion for summary judgment is granted, and defendant's cross-motion is denied. Opinion of the Court 148 C. Cls. Judgment will be entered for the plaintiff together with interest as provided by law. The amount of recovery will be determined pursuant to Rule 38 (c) of the Rules of this court. It is so ordered. BARKSDALE, District Judge, sitting by designation; MADDEN, Judge; WHITAKER, Judge; and JONES, Chief Judge, concur. In accordance with the opinion of the court and on a memorandum report of the commissioner as to the amount due thereunder, it was ordered on April 15, 1960, that judgment for the plaintiff be entered for $57,239.93, together with statutory interest on $39,262.75 of such amount as provided by law. ORDERS JANUARY 1, 1960 TO JANUARY 31, 1960 App. No. 6-59. January 15, 1960 The United States v. The Omaha Tribe of Nebraska, et al. Indian claim; appeal from Indian Claims Commission. In this case the following order was entered: This appeal from the Indian Claims Commission comes before the court on a stipulation for dismissal filed by the parties on January 14, 1960. Said stipulation requests that this appeal be dismissed for the reason that the parties have entered into a stipulation of settlement, filed with the Indian Claims Commission, Docket No. 225-A, which settlement has been by order of January 14, 1960, accepted by the Commission whereby the claims herein involved shall be settled and finally disposed of. Upon the basis thereof, IT IS ORDERED this fifteenth day of January 1960, that this appeal be and the same is dismissed. BY THE COURT. MARVIN JONES, No. 32-59. January 15, 1960 McGough Brothers. Contract. Upon consideration of defendant's motion for summary judgment and plaintiff's opposition thereto, together with oral argument and briefs of counsel, it was ordered that defendant's motion be denied. No. 429-58. January 29, 1960 Hugh N. Fleming, Jr. Civilian pay; reduction in force. Plaintiff, a civilian Government employee entitled to veterans' preference, sues 727 617448-62- 48 |