that at any previous time Mr. Davies had made any money out of the farm. He lived off it in part, he and his family, by getting his supplies from it, and that is properly to be considered as a part of his profits. Still there is no evidence of the value of those supplies or that added to his returns they made the venture profitable. The plaintiff has the burden and it is difficult to imagine how a farm which has been running the number of years which this had could be thought capable of turning a deficiency of 90 per cent into a profit.

This is a different case from Wilson v. Eisner, (C. C. A.) 282 Fed. 38. There Mr. Wilson ran a racing stable in Kentucky, and he made money on it for about a third of the time, though for two-thirds of the time he lost. The Circuit Court of Appeals said that, as he had sworn that he was running it as a business and in the hope of making money, the judge ought to have believed him and ought to have directed a verdict for him, corroborated as he was by the evidence of past years. In Plant v. Walsh, (D. C.) 280 Fed. 722, Judge Thomas thought that Mr. Plant's farm, which was very like this farm, was a business. First, it apeared affirmatively that Mr. Plant had just begun the farm, and although it had not yet begun to be profitable he said that he expected to make it so. Hence Judge Thomas thought that he was already conducting it for "gain or profit." But the learned judge went on to say obiter, in addition, that he did not think because the farm was conducted only for the pleasure of the owner and as a part of his estate as a country gentleman it was any less a business.

With the utmost deference I cannot altogether agree with that statement. It does seem to me that if a man does not expect to make any gain or profit out of the management of the farm, it cannot be said to be a business for profit, and while I should be the last to say that the making of a profit was not in itself a pleasure, I hope I should also be one of those to agree there were other pleasures than making a profit. Indeed, it makes no difference whether a man is engaged in a business which gives him pleasure, if it be a business; that is irrelevant, as was said in Wilson v. Eisner. But it does make a difference. whether the occupation which gives him pleasure can honestly be said to be carried on for profit. Unless you can find that element it is not within the statute, and I cannot see in this case even the first intimation of a reason to suppose that Mr. Davies

in his lifetime carried on this farm with the hope of a profit, or that if he had not got anything else out of it except the money which he did get he would have kept on.

I will therefore direct a verdict for the defendant.36

BECKER BROTHERS v. UNITED STATES

(Circuit Court of Appeals of the United States, 1925. 7 Fed. (2nd) 3. Am. Fed. Tax R.

37

-.)

ROGERS, Circuit Judge. . . . There remained another question which must now be considered. In ascertaining the net income upon which the tax is to be paid the corporation is entitled to deduct any of the losses incurred in carrying on its trade or business, and not compensated for by insurance or otherwise. The right to this deduction was denied to defendant both by the United States and by the court below, for an absolute and considerable loss which defendant sustained in the year 1914, and for which it received no compensation. It appears that on September 9, 1914, a judgment was entered against Becker Brothers for $36,541.15 for the infringement of a design patent for a piano case. 209 Fed. 233. 209 Fed. 233. An appeal was taken to this court 222 Fed. 902. At the time the appeal was taken, and to obtain a stay of execution, an agreement was made between the parties in accordance with which the amount of the judgment was deposited in escrow with a trust company awaiting the result of the appeal and to pay the judgment in case the appeal was unsuccessful. The judgment was sustained on the appeal as to the infringement but reversed as to the amount of the damages allowed, and the judgment as finally entered, and paid, amounted to $19,248.91. It is true this payment was made in the year 1916, but a deposit sufficiently large to pay the judgment had been deposited in escrow with a trust company in 1914 to await the result of the appeal. It should have been deducted when the assessment was made in June, 1921,

36 Suppose an anarchist explodes a bomb under T's home, wrecking it. Is the loss deductible as one "arising from fires, storms, shipwreck, or other casualty"? See I. T. 2037; Cum. Bull. III-1, p. 146.

Suppose T is compelled to pay $1500 damages on account of a personal injury caused by T's negligent driving of his automobile. May T deduct it as a loss "arising from . . . other casualty"? See Appeal of Oransky, (1925) 1 B. T. A. 1239.

37 The first part of the opinion, dealing with the question of the deduction by the corporation of certain amounts alleged to have been salaries, is omitted.

for the tax for the year 1914. At the time that assessment was made the Government perfectly well understood that the defendant herein had in 1914 set aside that sum and parted with its control of that amount to pay the judgment rendered against it in that year. The tax could only be levied upon net income, and in ascertaining what the net income for that year was the defendant was entitled to have deducted the $19,248.91 due on the judgment of 1914, the money to pay which the defendant had in that year deposited in trust and over which it had at that time lost possession and control. That this was a loss actually sustained by the defendant in carrying on its business is too evident to be denied.

The evidence discloses that the defendant never had been allowed to charge this loss off either in the year 1914, when it parted with the possession of the fund, or in any other year. This certainly was error. The defendant is entitled to have the tax for the year 1914 recomputed and in so doing the amount of $19,248.91 must be deducted from the defendant's net income for that year.

The question was not raised at the argument of this case that the loss which the defendant suffered in being compelled to pay this judgment for $19,248.91, because of the infringement of a patent, was a loss arising in an illegal transaction and therefore was not deductible. In Holmes on Federal Taxes (6th ed.) he stated that "losses in illegal transactions have been ruled not to be deductible, but it has been ruled in the case of corporations that losses sustained in ultra vires or illegal (in a sense limited to transactions which are merely void and unenforceable and not contrary to law) transactions are deductible." He then goes on to point out that losses have been held to be deductible in the case of (1) an amount paid pursuant to a judgment as damages for misrepresentation in a land sale, (2) an amount paid in compromise of a judgment against a taxpayer on account of dereliction and neglect of duty while acting as director of a bank, (3) an amount paid by a taxpayer in compromise of a judgment against him on account of secret profits made by him in connection with the purchase of land for a corporation formed by him and others. The rulings which have been made in all these instances have been made by the Department, and not by the courts who cannot be concluded by them. But we think it proper to say that, in our

opinion, a loss incurred because of an infringement of a patent is regarded by us as a deductible loss, and not as a loss in such an illegal transaction as should prevent its deduction. A party acting throughout in entire good faith may ultimately find that he has infringed a patent and must turn over his profits and pay damages in addition to the patentee. To say that he has acted illegally, and so cannot have the losses he has suffered thereby deducted in order to ascertain the net income upon which his tax is to be computed, is not required by any provision of the Statute or upon grounds of public policy.

In order to correct this error it does not necessarily follow that this case should be sent back for a new trial.

The court is without power to reduce a verdict and render judgment for a less amount unless the prevailing party consents to the reduction. But a court may give to a prevailing party the option of accepting a less sum or submitting to a new trial. As was said in Kennon v. Gilmer, 131 U. S. 22, the court "may order that a new trial be had unless the plaintiff elects to remit a certain part of the verdict, and that, if he does so remit, judgment be entered for the rest. Hopkins v. Orr, 124 U. S. 510; Arkansas Cattle Co. v. Mann, 130 U. S. 69. And if the pleadings and the verdict afforded the means of distinguishing part of the plaintiff's claim from the rest, this court might affirm the judgment upon the plaintiff's now remitting that part. Bank of Kentucky v. Ashley, 2 Pet. 32." The practice of permitting a remittitur is not an impairment of the constitutional right of trial by jury, Arkansas Valley Land & Cattle Company v. Mann, 130 U. S. 69, and that the appellate court, as well as a trial court, may permit a remittitur, see Washington & Georgetown Railroad Co. v. Harmon, 147 U. S. 571, 590.

Ordered that if the United States, within the next thirty days, shall produce and file in the office of the Clerk in this Court a certified copy of a remittitur, filed in the office of the Clerk of the District Court of the United States for the Southern District of New York, which remittitur shall be of so much of the tax as was in excess of the tax that would have been imposed for the year 1914, if the sum of $19,248.91 had been deducted from the amount upon which the tax for that year was computed, the judgment, less the amount so relinquished, will be affirmed; but if this is not done judgment will be reversed and a new trial granted.

IV. NET LOSSES

Revenue Act of 1924.

SEC. 206. (a) As used in this section the term "net loss" means the excess of the deductions allowed by section 214 or 234 over the gross income, with the following exceptions and limitations:

(1) Deductions otherwise allowed by law not attributable to the operation of a trade or business regularly carried on by the taxpayer shall be allowed only to the extent of the amount of the gross income not derived from such trade or business;

(2) In the case of a taxpayer other than a corporation, deductions for capital losses otherwise allowed by law shall be allowed only to the extent of the capital gains;

(3) The deduction for depletion shall not exceed the amount which would be allowable if computed without reference to discovery value; (4) The deduction provided for in paragraph (6) of subdivision (a) of section 234 of amounts received as dividends shall not be allowed;

(5) There shall be included in computing gross income the amount of interest received free from tax under this title, decreased by the amount of interest paid or accrued and losses sustained which is not allowed as a deduction by paragraph (2) of subdivision (a) of section 214 or by paragraph (2) of subdivision (a) of section 234.

(b) If, for any taxable year, it appears upon the production of evidence satisfactory to the Commissioner that any taxpayer has sustained a net loss, the amount thereof shall be allowed as a deduction in computing the net income of the taxpayer for the succeeding taxable year (hereinafter in this section called "second year"), and if such net loss is in excess of such net income (computed without such deduction), the amount of such excess shall be allowed as a deduction in computing the net income for the next succeeding taxable year (hereinafter in this section called. "third year"); the deduction in all cases to be made under regulations prescribed by the Commissioner with the approval of the Secretary.

(c) (1) If in the second year the taxpayer (other than a corporation) sustains a capital net loss, the deduction allowed by subdivision (b) of this section shall first be applied as a deduction in computing the ordinary net income for such year. If the deduction is in excess of the ordinary net income (computed without such deduction) then the amount of such excess shall be allowed as a deduction in computing net income for the third year.

(2) If in the second year the taxpayer (other than a corporation) has a capital net gain, the deduction allowed by subdivision (b) of this section shall first be applied as a deduction in computing the ordinary net income for such year. If the deduction is in excess of the ordinary net income (computed without such deduction) the amount of such