Old Colony R. Co. v. Commissioner, 284 U.S. 552 (1932)
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U.S. Supreme Court OLD COLONY R. CO. v. COMMISSIONER OF INTERNAL REVENUE, 284 U.S. 552 (1932)
[Page 284 U.S. 552, 555]
bonds are issued by a corporation at a premium the net amount of such premium is gain or income which should be amortized over the life of the bonds. [Footnote 1]
In making return for 1921, the Old Colony Railroad Company deducted from gross income the full amount paid during the year as interest to holders of its bonds. These had been issued at various dates between 1895 and 1904, and the subscribers had taken them at prices in excess of par. The total of the premiums thus paid the company was $199,528.08. At the dates of issuance of the bonds, and until 1914, the company kept its accounts on a cash basis and credited the sums so received in an account designated 'Premium on Bonds.' In the last-named year, the Interstate Commerce Commission ordered that they should be amortized over the periods of the respective lives of the bonds. The company complied under protest, extinguished by appropriate entries the ratable proportion of the premiums for the years prior to 1914, and thereafter reported to the Commission as income a yearly ratable proportion of the remainder of the premiums, but entered the same on its books in the profit and loss account (a surplus account) and not as income. The proportion of the premiums attributable to 1921 and reported to the Commission as income for that year was $6,960.64, but the company did not in its tax return include this figure in gross income or deduct it from the amount of interest paid on its bonds. [Footnote 2] The Commis-
[Page 284 U.S. 552, 556]
sioner, in his audit of the return, made no adjustment in the item of interest paid, but added the sum of $6,960.64 to the company's gross income for 1921 and found a resulting deficiency in the amount of tax. Upon a petition for redetermination the Board of Tax Appeals held that the Commissioner erred in treating this amount as taxable income of the year in question. [Footnote 3]
The Commissioner asked reconsideration, asserting that the mere form of the calculation by which he arrived at a redetermination of the tax was immaterial and that the result was correct since the year's proportion of amortization of bond premiums was in reality a deduction from the stipulated interest paid the bondholders. The Board adhered to its ruling. 4 The Circuit Court of Appeals adopted the Commissioner's view and reversed the Board. [Footnote 5] The court distinguished its earlier decision in
[Page 284 U.S. 552, 557]
Commissioner v. Old Colony R. R. Co., supra, note 3, stating that its attention had not been called to the fact that the profit made in the years prior to 1913 was not being taxed, but was used only to determine the expense of the payment of interest on the bonds for the year 1921. We granted certiorari. 284 U.S. 606, 52 S. Ct. 34, 76 L. Ed. -.
The regulations state that the net amount of premium is gain or income. Necessarily, then, the premium is gain or income of the year in which it is received. The provisions of the Revenue Acts of 1918, 1921, 1924, and 1926 are the same as respects gross income of corporations and deductions therefrom. The regulations under the relevant sections of the acts of 1918, 1924, and 1926 employ substantially the same phraseology as that found in those issued under the 1921 act. [Footnote 6] The repeated re-enactment of a statute without substantial change may amount to an implied legislative approval of a construction placed upon it by executive officers. National Lead Co. v. United States, 252 U.S. 140, 40 S. Ct. 237; United States v. Farrar, 281 U.S. 624, 50 S. Ct. 425, 68 A. L. R. 892; Poe v. Seaborn, 282 U.S. 101, 116, 51 S. Ct. 58.
[Page 284 U.S. 552, 563]
it is applicable; and that, so far as the deduction of interest on indebtedness is concerned, the fact that a premium was paid does not operate to reduce interest paid on bonded indebtedness within the meaning of the revenue acts.
The judgment is reversed. Footnotes
Footnote 1 Act of November 23, 1921, c. 136, 213, 234, 42 Stat. 227, 237, 254. Treasury Regulations 62, art. 545.
Footnote 2 By lease dated February 15, 1893, still in force, petitioner leased all its property to the New York, New Haven & Hartford Railroad Company; the lessee agreeing to operate and maintain petitioner's railroad, to assume the payment of the principal of and interest upon its bonded indebtedness and other obligations, and to pay a certain additional sum as rental. Although the bonds in question were issued after the effective date of the lease, they were the direct obligation of petitioner, and it remained liable for the payment of interest. Petitioner bases certain arguments upon the fact that in the tax year under review it charged itself with bond interest received from the lessee and took credit for the same amount as interest paid to bondholders. These facts are unimportant in the view we take of the case. We shall treat it as if the lease were nonexistent, and the bonds had been issued by a company operating its own property.
Footnote 3 18 B. T. A. 267. In reaching this conclusion, the Board followed its earlier decision in Old Colony Railroad Company v. Commissioner, 6 B. T. A. 1025, wherein it had held that under similar provisions of the Revenue Act of 1918 (40 Stat. 1057) and a like treasury regulation the premiums were income in the year in which they were received, thus becoming a part of the company's capital prior to the adoption of the Sixteenth Amendment and not taxable. See Doyle v. Mitchell Bros. Co., 247 U.S. 179, 38 S. Ct. 467; Lynch v. Turrish, 247 U.S. 221, 38 S. Ct. 537; Southern Pacific Co. v. Lowe, 247 U.S. 330, 38 S. Ct. 540; Goodrich v. Edwards, 255 U.S. 527, 41 S. Ct. 390. The Board's holding was affirmed in Commissioner v. Old Colony R. R. Co. (C. C. A.) 26 F.(2d) 408. See, also, Chicago, R. I. & P. R. R. Co. v. Commissioner (C. C. A.) 47 F.(2d) 990.
Footnote 4 18 B. T. A. 267.
Footnote 5 (C. C. A.) 50 F.(2d) 896.
Footnote 6 Regulations 45, Art. 544; Regulations 62, Art. 545; Regulations 69, Art. 545; Regulations 74, Art. 68.
Footnote 7 Note 1, supra.
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