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369

FRANKFURTER, J., dissenting.

those which were attributable to sources within the United States but only if there were "fixed or determinable annual or periodical gains, profits, and income." Such has remained the law and controls this case. (Compare 26 U. S. C. § 211 (a) (1) (A), the applicable provision when the nonresident alien is not engaged in trade or business within the United States, with 26 U. S. C. § 211 (b), the section applicable when the nonresident alien has a place of business in the United States.)

The specifically defined receipts fixed or determinable annual or periodical gains, profits, or income-are not words giving rise to an exemption, and as such to be strictly construed. They are the controlling basis for taxation. To be taxable under § 211 (a) (1) (A) the proceeds must be from sources within the United States, as set forth in § 119 (a), but also of the nature defined in § 211 (a) (1) (A). See 54 Yale L. J. 879, 881-882 (1945); 48 Col. L. Rev. 967 (1948); cf. U. S. Treas. Reg. 111, § 29.143-2. Since the reach of § 211 (a) (1) (A) does not include the proceeds from a sale, receipts from a sale are not taxable even though such proceeds are from a source within the United States and, as such, are listed in § 119 (a) (5)-(6). The Regulations have made this explicit. U. S. Treas. Reg. 111, §§ 29.211-7, 29.143-2; see also S. Rep. No. 2156, 74th Cong., 2d Sess., p. 21 (1936); H. R. Rep. No. 2475, 74th Cong., 2d Sess., pp. 9-10 (1936).

The changes made in 1936 in the method of taxing income of a nonresident alien "not engaged in trade or business within the United States" make the taxing provisions coterminous, not with § 119 (a), but with § 143 (b), the section providing for withholding taxes at the source. Section 143 (b) emphasizes that proceeds within § 119 (a) do not come within the scope of § 143 (b) unless the additional qualification contained in § 143 (b) is also met. Section 143 (b) provides that the tax should be withheld on income which is "fixed or determinable an

FRANKFURTER, J., dissenting.

337 U.S.

nual or periodical gains, profits, and income (but only to the extent that any of the above items constitutes gross income from sources within the United States)

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26 U. S. C. § 143 (b). Here again, since "the income derived from the sale in the United States of property, whether real or personal, is not fixed or determinable annual or periodical income," it is not included. U. S. Treas. Reg. 111, § 29.143-2. Only by not observing the requirement that the proceeds must not only be from a source in the United States but also "annual or periodical" to be subject either to withholding under § 143 (b), or to taxation under § 211 (a) (1) (A), can it be said that proceeds which prior to 1936 were held to be under § 119 (a) (4) are ipso facto within § 211 (a) (1) (A) after 1936 regardless of the nature of the revenue.

Therefore, inquiry which seeks to discover prior practice as an aid to construction should properly address itself to whether such proceeds were withheld under § 143 (b) before 1936. Inquiry as to § 119 (a) is completely irrelevant because it is clear that before 1936 many items were included in § 119 (a) which were not withheld under § 143 (b). Since 1936 the only proceeds which are taxed to a nom esident alien not engaged in a trade or business in the United States are those which are "fixed or determinable annual or periodical gains, profits, and income," which is the only type of proceeds on which taxes were withheld at the source before as well as after 1936. Therefore Treasury practice regarding the withholding requirement prior to the 1936 legislation would. be relevant. There is a total absence of any showing. that the Treasury before 1936 regarded such proceeds subject to withholding under § 143 (b). And in the analogous situation of lump-sum payments for the absolute transfer of some but not all of the exclusive rights conferred by the patent law, courts have held such proceeds not subject to withholding under § 143 (b). Gen

369

FRANKFURTER, J., dissenting.

eral Aniline & Film Corp. v. Commissioner, 139 F. 2d 759 (C. A. 2d Cir.); cf. Commissioner v. Celanese Corp., 78 U. S. App. D. C. 292, 140 F. 2d 339.

The Regulations, to be sure, give "royalties" as an example of proceeds which are within the phrase "fixed or determinable annual or periodical gains, profits, and income." See U. S. Treas. Reg. 111, § 29.211–7. But proceeds sought to be brought within the term "royalties" must be of a nature which justifies that classification. Royalties are within the section only because they meet the above description. It completely ignores the intrinsic character of "royalties," and therefore the basis of including them in the larger category of "fixed or determinable annual or periodical gains, profits, and income," to infer that proceeds which do not meet that description but result from the use of another method of realizing economic gain from a property right-that of sale rather than a license producing a recurring income are also "royalties." See 48 Col. L. Rev. 967, 969 (1948). By such reasoning proceeds from the sale of a house would also be within § 211 (a) (1) (A) because another way that the owner could have realized gain on the property would have been to have leased it over its lifetime.'

Free judicial rendering of needlessly imprecise legislation is sufficiently undesirable in that it encourages Congress to be indifferent to the duty of giving laws attainable definiteness. Here we are dealing with legislation that is precise. Yet the Court chooses not to give it effect and it does so on the basis of fiscal considerations which Congress, by what it enacted, chose not to write into law.

"Rent is specifically included within § 211 (a) (1) (A); proceeds from the sale of real property, however, are excluded. U. S. Treas. Reg. 111, § 29.211-7.

FRANKFURTER, J., dissenting.

337 U.S.

It must be remembered that the problem here is not to determine what is income in either a constitutional or an economic sense. The proceeds from the sale of a house over and above its cost to the seller are as much income as is a judge's salary. Nor is the problem one of determining whether something which is usually regarded as income is to escape a tax because the parties by agreement act in such a way as to cause the proceeds to be received in a different manner. Cf. Lyeth v. Hoey, 305 U. S. 188. There is no suggestion that the transaction as it appears on the surface was not the transaction in truth. The fact that the incidences of income taxation may have been taken into account by arranging matters one way rather than another so long as the way chosen was the way the law allows, does not make a transaction something else than it truly is it does not turn a sale into a license. Helvering v. Gregory, 69 F. 2d 809, 810 (C. A. 2d Cir.). Therefore, the principle of tax evasion is irrelevant to the disposition of this case, except on the assumption that Congress itself evaded its own tax purposes and that the Court must close what Congress left open. It is taking too much liberty even with tax provisions to read out a defining clause that Congress has written in merely because Congress permitted desirable revenue to escape the tax collector's net. The only judicial problem is whether the proceeds constitute a type of income which Congress has designated as taxable. That type must have the characteristic of being "fixed or determinable annual or periodical gains, profits, and income." A lump-sum payment for an exclusive property right, transferable and transferred by the taxpayer, simply does not meet that qualification. Unless there is something inherent in the copyright law to prevent it, such a transaction is the familiar "sale of personal property." U. S. Treas. Reg. 111, § 29.211-7. Surely it is a sale of a capital asset. See Learned Hand, J., in Goldsmith v. Com

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FRANKFURTER, J., dissenting.

missioner, 143 F. 2d 466, 467 (C. A. 2d Cir.). As such it is not subject to the tax. The legislative history leaves no doubt on this point.

4. So far it has been assumed that these proceeds would be within § 119 (a) (4). But neither this Court nor Congress has ever said so; indeed no court other than the Court of Appeals for the Second Circuit, and the Tax Court (but only after its contrary determination was reversed by the Court of Appeals for the Second Circuit) has said so. But it is urged that a "long prior practice" of including under § 119 (a) (4) proceeds received as lump-sum payments for the absolute transfer of some but not all of the rights conferred by the copyright law, and therefore taxing them to nonresident aliens under the prior statute, prevents this Court from applying § 211 (a) (1) (A) according to the fair meaning of its own terms. It is suggested that, no matter what Congress has written on the statute books, it is to be assumed that Congress would not give up a source of revenue it had once tapped. This suggestion is made despite the fact that Congress said that it was changing the method of taxing the income of nonresident aliens and that it also said that certain items, previously taxed, would now be exempt. S. Rep. No. 2156, 74th Cong., 2d Sess., p. 21 (1936); H. R. Rep. No. 2475, 74th Cong., 2d Sess., pp. 9-10 (1936). What is this long prior practice that has encrusted the phrase, "royalties for the use of or for the privilege of using in the United States, patents, copyrights . . . and other like property," with a meaning that contradicts its own terms not otherwise defined by

The Reports in both the House and Senate say specifically that a result of § 211 (a) (1) (A) is that "such a nonresident alien will not be subject to the tax on capital gains. . . ." S. Rep. No. 2156, 74th Cong., 2d Sess., p. 21 (1936); H. R. Rep. No: 2475, 74th Cong., 2d Sess., pp. 9-10 (1936); see Fulda, Copyright Assignments and the Capital Gains Tax, 58 Yale L. J. 245, 259, 260-266 (1949).

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