Unaka & City Nat. Bank v. United States , 50 F.2d 1031 ( 1931 )

HICKS, Circuit Judge.

Under the provisions of the Judicial Code, section 24, par. 20 (U. S. C. Title 28, § 41 [20]; 28 USCA § 41 [20]) appellant, Unaka & City National Bank, sued the United States, appellee, to recover $1,276.04, being income tax and interest thereon for the year 1921. Upon the hearing, the suit was dismissed. The facts are embodied -in an original and supplemental stipulation.

Prior to September 11, 1920, the Unaka National Bank and the City National Bank were separate banking institutions located in Johnson City, Tenn. On that date they consolidated under the provisions of the Act of Nov. 7, 1918, c. 209 (Tit. 12, § 33 et seq., U. S. C. [12 USCA § 33 et seq.]), and became the Unaka & City National Bank, the appellant. This statutory procedure is rather simple. Omitting details, consolidation is accomplished upon such terms and conditions as are lawfully agreed upon by-.a majority of the board of directors of each bank, ratified and confirmed by the affirmative vote of the shareholders owning at least two-thirds of the outstanding capital stock of each bank, and approved by the Comptroller of the Currency.

It is stipulated that, as a result of the combination, appellant acquired all of the properties, both real, personal and mixed, and assumed all the liabilities of the Unaka Bank & City Bank, and that it issued its capital stock to the stockholders in the same proportion to their holdings of stock in the old Unaka Bank and City Bank. The supplemental stipulation goes into particulars as to the method pursued in effecting the consolidation. It sets forth that on September 11, 1920, the Unaka Bank went into voluntary liquidation or dissolution (see title 12, § 181 et seq., U. S. C. [12 USCA § 181 et seq.]), and no longer had any corporate existence except for the closing of its affairs; that the City Bank changed its title to the Unaka & City National Bank of Johnson City, Tenn. (see title 12, § 30, U. S. C. [12 USCA § 30]), and increased its capital stock $200,000 (see title 12, §§ 57, 58, U. S. C. [12 USCA §§ 57, 58]); that appellant, by the issuance' of stock, paid for the assets it had acquired from the Unaka Bank through the consolidation; that the stockholders of appellant were the same individuals who had been stockholders in the old, constituent banks. With the assets of the Unaka Bank the appellant acquired the banking house for the sum of $38,-500, this being the exact amount the Unaka Bank had paid for it in 1901. On June 29, 1921, appellant sold this banking house for $60,000. Its March 1, 1913, value was $51,-260.

The proper basis upon which to compute appellant’s profit is the point in issue. Appellant claims that this basis is the March 1, 1913, value. Appellee insists that it is the cost to appellant of the property acquired in. September, 1920. If appellee is right, appellant’s net taxable profit was $21,500, the amount upon which it paid. If appellant is right, its taxable profit was only $8,739.60, and it is entitled to recover the excess payment. We think the controlling statute is section 202(a) of the Revenue Act of 1921, 42 Stat. 229“That the basis for ascertaining the gain derived or loss sustained from a sale or other disposition of property, real, personal, or mixed, acquired after February 28, 1913, shall be the cost of such property. * * *»

By giving to the language of the stipulations its plain and ordinary meaning, i. e., appellant acquired the banking house after February 28, 1913, it seems clear, therefore, that section 202(a) fixes the cost thereof to appellant as the basis for ascertaining its gain. However, appellant urges that this statute is not relevant, because, notwithstanding the stipulation to the contrary, the legal effect of the merger was not to vest the absolute ownership of the assets of the constituent banks in appellant, but rather to unite the two old banks under one head, retaining substantially their same corporate identity and assets, and that in this aspect the Unaka Bank, at the time of the sale of the banking house in 1921, was the real or beneficial owner thereof, and that, having acquired it before March 1,1913, the proper basis for computing profit is found in section 202(b) of the Revenue Aet of 1921.

To this contention we cannot agree. It is well understood that mergers, amalgamations, or consolidations of corporations may assume different forms and result in different relationships, but such considerations are not relevant here. We are dealing with a statutory consolidation the terms and conditions of which have been lawfully agreed upon, and, if the stipulations of fact are to be honored, it stands out that, pursuant thereto, appellant acquired the banking house for $38,500 on September 11,1920, and issued its stock in payment therefor. We think appellant’s contention is not only at variance with the undisputed facts, but is in conflict with title 12, § 34, U. S. C. (12 USCA § 34), the second section of the consolidation statute above referred to, which, upon the accomplishment of such statutory merger, vests all the rights, franchises, and interests of the constituent bank in every species of its property, personal and mixed, in the bank into which it is consolidated.

Appellant also relies upon section 202(b) of the Revenue Aet of 1918 as interpreted by articles 1567 and 1568 of Treasury Regulation No. 45. It is enough to say that said section 202(b) was repealed as of January 1, 1921, by section 1400 (a) of the Revenue Act of 1921 (42 Stat. 320).

We have examined section 202(e) with its paragraphs (1), (2) and (3), eited by appellant, but we find nothing relevant therein.

Our conclusion has further support in this: That in section 204(a) of the Revenue Act of 1924 (43 Stat. 253 [26 USCA § 935 (a)]) Congress did provide that where, in certain reorganization schemes, assets are transferred from one corporation to another, they shall retain the same basis in the new corporation as in the old. This is substantially the provision which appellant contends was applicable in 1921, but which the Ways and Means Committee of Congress in its “Statement of Changes in the Revenue Aet of 1921 by H. R. 6715 and the Reasons Therefor,” thought did not exist.

Judgment affirmed.