Reporter's Statement of the Case The Reporter's statement of the case: Mr. John E. Hughes for the plaintiff. Mr. William Cogger was on the brief. Mr. George H. Foster, with whom was Mr. Assistant Attorney General Frank J. Wideman, for the defendant. During 1931 plaintiff, as trustee, sold certain United States First Liberty Loan 32% bonds issued June 15, 1917, at a profit of $61,275.53 in excess of the cost of such bonds. A tax of $7,372.03 computed on such profit was paid. A claim for refund of $5,529.62 of such tax was filed. The first installment paid on March 15, 1932, was not included in this claim for the reason that it was barred at the time the claim was filed in 1934. Judgment is asked for the last-mentioned amount on the grounds, first, that the principal or par value of the bonds, amounting to $687,000, was exempt from tax under section 1 of the Act of April 24, 1917, 40 Stat. 35, and, second, that if the profit from the sale of such bonds was not exempted from taxation by the statute mentioned, the amount claimed should be refunded for the reason that Congress was without power to tax the bonds of the United States. The court, having made the foregoing introductory statement, entered special findings of fact as follows: Central Hanover Bank & Trust Company was duly appointed and, at all times hereinafter mentioned, the duly acting trustee for Lillia Babbitt Hyde under the last will and testament of Rebecca Babbitt. Plaintiff, as trustee, filed on March 15, 1932, an income tax return for 1931 showing a net income of $61,275.53 and a tax of $7,372.03 which was paid in equal quarterly installments on March 15, June 15, September 15, and December 15, 1932. The net income reported in this return was a profit resulting from the sale of $687,000 par value First Liberty Loan 32% bonds due in 1947 and issued June 15, 1917. These bonds were purchased by plaintiff in 1920 at a cost of $637,515.74, the then market price in the open market, and were sold by plaintiff in 1931 for the price of $698.791.27. Neither the purchase nor the sale of these bonds was made from or to the United States. The bonds were issued by the defendant Opinion of the Court at par to be redeemed at par with accrued interest on and after June 15, 1932, pursuant to an act of Congress of April 24, 1917. The Secretary of the Treasury, on April 22, 1935, called the bonds for redemption on June 15, 1935. May 16, 1934, plaintiff duly filed a claim for refund of $5,529.62 for 1931. This claim was rejected April 12, 1935. The court decided that plaintiff was not entitled to recover. LITTLETON, Judge, delivered the opinion of the court: During 1920 plaintiff, as trustee, purchased in the open market at a cost of $637,515.74 certain First Liberty Loan bonds of the par value of $687,000. The purchase price represented the then market value of the bonds. In 1931 these bonds were sold for $698,791.27, resulting in a profit of $61,275.53 from the purchase and sale. This profit was reported in the income-tax return filed for 1931 and an income tax computed thereon in accordance with the revenue act then in force was paid. The act of April 24, 1917, 40 Stat. 35, authorizing the issuance of these bonds provided in part as follows: "The principal and interest thereof shall be payable in United States gold coin of the present standard of value and shall be exempt, both as to principal and interest, from all taxation, except estate or inheritance taxes, imposed by authority of the United States, or its possessions, or by any State or local taxing authority." The first contention of plaintiff is that a tax on the profit from the sale of the bonds is a tax upon the principal of the bonds and violates the exemption clause of the statute quoted above. We are of opinion that a tax exacted on the profit from a sale was not a tax upon the principal of the bonds, and the income tax here involved was, therefore, legally collected. This question, it seems to us, was put at rest by the decision in Willcuts v. Bunn, 282 U. S. 216, which involved the right of the Federal Government to tax the profit from the purchase and sale of municipal bonds. In that case it was contended that the tax was illegally exacted for the reason that a tax on such profit was a tax on the bond which the Federal Government was without power to impose. The court distinguished between a tax on the prin Opinion of the Court cipal and interest of a bond and a tax on the gain from the purchase and sale thereof. At pages 227 and 228 the court said: But it does not follow, because a tax on the interest payable on state and municipal bonds is a tax on the bonds and therefore forbidden, that the Congress cannot impose a nondiscriminatory excise tax upon the profits derived from the sale of such bonds. The sale of the bonds by their owners, after they have been issued by the State or municipality, is a transaction distinct from the contracts made by the government in the bonds themselves, and the profits on such sales are in a different category of income from that of the interest payable on the bonds. Because the tax in question is described as an "income tax" and the profits on sales are included in "income", the distinction is not lost between the nature of a tax applied to interest and that of a tax applied to gains from sales. The federal income-tax acts cover taxes of different sorts. Brushaber v. Union Pacific Railroad Company, 240 U. S. 1, 17; Stanton v. Baltic Mining Company, 240 U. S. 103, 114. The tax upon interest is levied upon the return which comes to the owner of the security according to the provisions of the obligation and without any further transaction on his part. The tax falls upon the owner by virtue of the mere fact of ownership, regardless of use or disposition of the security. The tax upon profits made upon purchases and sales is an excise upon the result of the combination of several factors, including capital investment and, quite generally, some measure of sagacity; the gain may be regarded as "the creation of capital, industry, and skill." Tax Commissioner v. Putnam, 227 Mass. 522, 531. See, also, Marland v. United States, 78 C. Cls. 69, in which this court held that while the income from leases of stateowned school lands was exempt from Federal taxation, the profit made from the sale of such leases was taxable; and De Stuers v. Commissioner, 26 B. T. A. 201, in which it was held that where Second Liberty Loan bonds containing an exemption clause similar to the one involved in this case were purchased below par and sold at a profit, such profit was taxable. What has been said above disposes also of plaintiff's contention that the United States has no power to tax its own Reporter's Statement of the Case bonds. If a tax on the profit derived from the purchase and sale of municipal bonds did not constitute a tax on the bonds as was held in Willcuts v. Bunn, supra, we fail to see how the income tax involved in the case at bar can be said to be a tax by the United States on its own bonds. It is therefore unnecessary to discuss the second question raised by the plaintiff. The plaintiff is not entitled to recover and the petition is dismissed. It is so ordered. WHALEY, Judge; WILLIAMS, Judge; GREEN, Judge; and BOOTH, Chief Justice, concur. MCSHAIN COMPANY, INC., v. THE UNITED STATES [No. 43085. Decided May 4, 1936] On the Proofs Contract for construction work on Library of Congress Annex; finality of contracting officer's findings as to delay.—Where a Government contract provided that the findings of the contracting officer as to the cause and extent of delay by the contractor in the performance of the contract should be final and conclusive, neither the Comptroller General nor the courts can, in the absence of fraud or bad faith, go behind the decision, or findings, of the contracting officer. The Reporter's statement of the case: Mr. Prentice E. Edrington for the plaintiff. Mr. C. Keefe Hurley, with whom was Mr. Assistant Attorney General James W. Morris, for the defendant. The court made special findings of fact as follows: 1. Plaintiff is a corporation organized under the laws of the Commonwealth of Pennsylvania, with its principal office in the City of Philadelphia. 2. On January 3, 1934, plaintiff entered into a written contract with the defendant, which was represented by David Lynn, Architect of the Capitol, as contracting officer. Under the provisions of said contract, plaintiff agreed Reporter's Statement of the Case to excavate for and construct the foundations, foundation walls, columns, floor construction, etc., for an Annex to the Library of Congress, in the District of Columbia, in consideration whereof plaintiff was to receive $372,287. The contract and accompanying specifications are of record as plaintiff's Exhibit 2, and are by reference hereby made a part of this finding. 3. The contract provided that plaintiff should commence work within five days after receiving notice to proceed, and the work should be completed within 245 calendar days. On February 1, 1934, plaintiff received the notice to proceed and completion of the contract was required on or before October 4, 1934. 4. Article 9 of the contract provided: ARTICLE 9. Delays-Damages.—If the contractor refuses or fails to prosecute the work, or any separable part thereof, with such diligence as will insure its completion within the time specified in Article 1, or any extension thereof, or fails to complete said work within such time, the Government may, by written notice to the contractor, terminate his right to proceed with the work or such part of the work as to which there has been delay. In such event the Government may take over the work and prosecute the same to completion by contract or otherwise, and the contractor and his sureties shall be liable to the Government for any excess cost occasioned the Government thereby. If the contractor's right to proceed is so terminated, the Government may take possession of and utilize in completing the work such materials, appliances, and plant as may be on the site of the work and necessary therefor. If the Government does not terminate the right of the contractor to proceed, the contractor shall continue the work, in which event the actual damages for the delay will be impossible to determine and in lieu thereof the contractor shall pay to the Government as fixed, agreed, and liquidated damages for each calendar day of delay until the work is completed or accepted the amount as set forth in the specifications or accompanying papers, and the contractor and his sureties shall be liable for the amount thereof: Provided, That the right of the contractor to proceed shall not be terminated or the contractor charged with liquidated damages because of any delays in the completion of the work due to unforeseeable causes beyond the control and without the fault or |