Commissioner of Internal Rev. v. Textile Mills S. Corp. , 117 F.2d 62 ( 1940 )

BIGGS, Circuit Judge.

Facts.

Textile Mills Securities Corporation, the respondent taxpayer, is a Delaware corporation. Its charter is not in evidence, but it is stipulated that the taxpayer’s business activities included trading in securities, investing in properties and acting as an agent for foreign and domestic principals. It also appears that all of the taxpayer’s officers had connections either by way of official position or stock ownership in one or more textile manufacturing corporations. These officers were in touch with German textile corporations whose properties had been seized by the Alien Property Custodian during the first World War under the provisions of the Trading with the Enemy Act, 50 U.S.C.A. Appendix. In 1924 the taxpayer was employed by these German interests to represent them in the United States with the object of presenting their cause to Congress, and the ultimate recovery by the claimants, under anticipated legislative enactments, of their properties or compensation therefor. The properties had an estimated aggregate value of $60,000,000. Under the terms of the contracts under which the taxpayer was employed, in the event of success, the taxpayer was to receive as compensation ten per centum of the amount or value of the properties recovered. The expenses and costs incident to the undertaking were to be borne by the taxpayer. The obligations created by these contracts of retainer were to cease at the close of the Second Session of the Sixty-Ninth Congress unless the legislation sought had been enacted prior to adjournment.

The taxpayer worked vigorously to procure the desired legislation. It employed various persons and organizations, including the Ivy Lee organization, Warren F. Martin, J. Reuben Clark and F. W. Mondell. The Lee organization took charge of publicity, made arrangements for speeches and kept in touch with the press to the end that there might be editorial comment and news items. We think that it may be assumed with fairness that these news stories and editorials were to be favorable to the proposed legislation. Mr. Martin, who had been a former Special Assistant to the Attorney General, and Mr. Clark, who had been a former solicitor in the State Department, prepared brochures entitled, respectively, "Status of Ex-Enemy Property, Interpretation of Treaties and Constitution” and “American Policy Relative to Alien Enemy Property”. The last is a comprehensive study of the history of the treatment of persons and property in war. Mr. Mondell, who is an attorney and a former member of Congress, was employed by the taxpayer to make proposals and suggestions to members of Congress to promote the speedy passage of the desired legislation. Mr. Mondell also appeared as counsel in hearings before the Alien Property Custodian and certain tribunals on behalf of .the taxpayer’s clients.

A bill for the settlement of war claims was introduced into and passed by the House of Representatives during the Second Session of the Sixty-Ninth Congress, but did not pass the Senate prior to adjournment. Before the beginning of the First Session of the Seventieth Congress, the taxpayer negotiated new contracts with its clients substantially similar in terms to those which had terminated except for the fact that these new contracts provided for the payment of 3% of the amount or value of property recovered by the claimant and for an additional 2% of the money or property paid over by the United States within one year after the enactment of favorable legislation. In short, the contingent compensation was reduced from 10% of the recovery to a maximum of 5% of the recovery. The new contracts provided that the taxpayer should pay the costs and expenses incurred by it in the performance of its obligations under the contracts. Messrs. Lee, Martin, Clark and Mondell continued their efforts on behalf of the taxpayer. The Seventieth Congress passed the “Settlement of War Claims Act of 1928”, 45 Stat. 254, 50 U.S. C.A. Appendix, §§ 9, 10, 20 et seq. At this time the services of all the persons named except Mr. Mondell terminated. Mr. Mondell continued to render services during the remainder of the year 1928 and thereafter. His services may be characterized as purely legal and consisted of appearances and arguments before the Alien Property Custodian and certain tribunals.

The taxpayer paid to the four men named various sums for their services and reported a net loss for the year 1929 of $101,405.56 and a net loss of $134,797.93 for the year 1930. We are concerned only with the year 1931 for the taxpayer pursuant to statutory authority carried forward to that year its net loss for 1929 and 1930, resulting in a net loss for 1931 of $7,615.15. The Commissioner refused to accept the losses claimed, disallowing as deductions the sums paid or credited by the taxpayer to Messrs. Lee, Mondell, Martin and Clark for the services performed by them. The Commissioner now concedes that the amounts credited to Mr. Mondell in 1929 were for services rendered “in connection with particular claims of petitioner’s principal, after the enactment of the ‘Settlement of War Claims Act of 1928’ ”, in other words was compensation for legal services, not for procuring legislation, and therefore were properly deductible. The taxpayer claimed that the sums paid or credited to Messrs. Lee, Martin and Clark were deductible as ordinary and necessary expenses paid or incurred during the taxable year in carrying on a trade or business as provided by Section 23(a) of the Revenue Act of 1928, c. 852, 45 Stat. 791, 26 U.S.C.A. Int.Rev.Acts, page 356, and were not prohibited by Article 262 of Treasury Regulations 74 as promulgated under that act. The Commissioner contended to the contrary. The Board held in favor of the taxpayer¹ and the petition at bar followed.

The Law.

It should be observed that a contract for allegedly procuring the very legislation here involved was twice passed upon by the Court of Appeals for the District of Columbia in two cases, viz., Gesellschaft Fur Drahtlose Telegraphie M. B. H. v. Brown, 64 App.D.C 357, 78 F.2d 410, and Brown v. Gesellschaft Fur Drahtlose Telegraphie M. B. H., 70 App.D.C. 94, 104 F.2d 227, certiorari denied 307 U.S. 640, 59 S.Ct. 1038, 83 L.Ed. 1521, the court having before it a suit brought by an attorney to collect a contingent fee for services rendered by him in part in promoting the remedial legislation. In the first case cited the court held the contract to be void as against public policy, stating, page 412 of 78 F.2d, that there is “* * * a general condemnation of contracts for the procuring of legislation, especially where the legislation is remedial and provides for the assertion of claims against the government, and the contract is for a contingent portion of a claim that may be given legal status through success in securing the legislation. Such contracts are illegal as tending to corrupt by improper influence the integrity of our political institutions. It is incumbent, therefore, upon the courts to pronounce void any such contract in which the ultimate or probable tendency would be to corrupt or mislead the judgments of legislators in the performance of their duties”, citing Marshall v. B. & O. R. Co., 16 How. 314, 14 L.Ed. 953. While the decision in Marshall v. Baltimore & Ohio Railroad Company was based in part upon the concealment of the lobby and the lobbyist, the general principles there enunciated are applicable to the case at bar for in our opinion those principles have not been modified by the decision in Steele v. Drummond, 275 U.S. 199, 48 S.Ct. 53, 72 L.Ed. 238. In the case last cited the Supreme Court pointed out that Drummond was not employed by Steele or the railroad company to secure the passage of the desired ordinance, but was himself interested in that very end as an owner of property.

The contracts between the taxpayer and its clients were to procure “favor legislation” as distinguished from “debt legislation”. See the cases cited, page 229 of 78 F.2d, note 7 to Brown v. Gesellschaft Fur Drahtlose Telegraphie M. B. H., supra. Compensation for procuring the legislation was upon a contingent basis. In the light of both of these considerations, the contracts were null and void. The services performed by the taxpayer and its agents were rendered without suggestion of corruption and, with the exception hereinafter referred to, were not unethical, but as was stated in Hazelton v. Sheckells, 202 U.S. 71, 79, 26 S.Ct. 567, 568, 50 L.Ed. 939, 6 Ann. Cas. 217, “The objection to them rests in their tendency, not in what was done in the particular case.” Such contracts as were here made possess a tendency unduly to influence legislative action and to destroy the integrity of legislative institutions. The function of Congress in passing the War Claims Act was purely legislative. It was enacting a remedial statute and providing a method for the adjudication of claims thus created before another tribunal. A distinction is properly made between contracts for contingent compensation for the prosecution of a debt or contract claim even though such a debt or claim may require legislation and appropriation, and “favor legislation” which creates a debt or claim. The second is prohibited; the first is permissible provided the interest is disclosed and the methods employed are legitimate.

As found by the Board of Tax Appeals, the Lee organization was employed to handle matters of publicity, “including the making of arrangements for speeches, contacting the press, in respect of - editorial comments, and news items.” Obviously these news items and editorial comments did not appear under the stated sponsorship of the taxpayer or its clients. The reader of such news comments and editorials including members of Congress could not have known that they emanated from a source inspired by self-interest. Such practices tend to poison public opinion and should be condemned. See Marshall v. B. & O. R. Co., supra; Providence Tool Company v. Norris, 2 Wall. 45, 17 L.Ed. 868; 6 Williston on Contracts, p. 4879; 17 C.J.Contracts § 213. The services rendered by the Lee organization were in and of themselves not otherwise than contrary to public policy.

The taxpayer expended the sums paid td the three individuals named, and now sought to be deducted, in the execution of a void contract. In our opinion such expenditures cannot be deemed to be ordinary. They are outside "the norm of ordinary business conduct. A proper construction of Section 23(a) requires its words to be given their “popular or received import”. See Deputy v. DuPont, 308 U.S. 488, 493, 60 S.Ct. 363, 366, 84 L.Ed. 416, and Welch v. Helvering, 290 U.S. 111, 54 S.Ct. 8, 78 L.Ed. 212. Moreover, even if this were not so, the payment of moneys for carrying out a purpose contrary to public policy is by no means ordinary. The great weight of authority supports this view. See Burroughs Bldg. Material Co. v. Commissioner, 2 Cir., 47 F.2d 178; Chicago, R. I. & P. Ry. Co. v. Commissioner, 7 Cir., 47 F.2d 990, certiorari denied, 284 U.S. 618, 52 S.Ct. 7, 76 L.Ed. 527; Great Northern Ry. Co. v. Commissioner, 8 Cir., 40 F.2d 372, certiorari denied, 282 U.S. 855, 51 S.Ct. 31, 75 L.Ed. 757, and United States v. Sullivan, 274 U.S. 259, 47 S.Ct. 607, 71 L.Ed. 1037, 51 A.L.R. 1020.

Quite apart from the foregoing, however, we cannot perceive how the taxpayer’s lobbying expenses under the circumstances of the case at bar can be deemed to be necessary expenses in the light of the principles enunciated by the Supreme Court in its decision in Kornhauser v. United States, 276 U.S. 145, 48 S.Ct. 219, 72 L.Ed. 505, and Deputy v. DuPont, supra, 308 U.S. page 494, 60 S.Ct. 363, 84 L.Ed. 416, for there is nothing contained in the stipulation of facts nor any finding by the Board that the services performed by the taxpayer or its agents were the moving or a contributing cause of the passage of the War Claims Act. We cannot perceive how proximate causation can be established between the efforts of lobbyists and the passage of desired legislation except where the efforts extend to actual corruption of individual members of a legislative body for, if the methods employed by the lobbyist be those of permissible persuasion, the legislative body still exercises its freedom of mind and independence of action. As that is the situation ordinarily to be presumed in the absence of a showing to the contrary, there is then interposed between the lobbyist and the law which he desires enacted an independent legislature. The business of the legislature remains the passage of legislation for the public good. It follows that the payments here sought to be deducted could not proximately have served the taxpayer’s business and were, therefore, unnecessary as a matter of law. In a far truer sense they resulted proximately from the business of the United States.² Where the law thus determines the want of necessity for expenditures in the operation of a business, it is neither appropriate nor allowable for the Board of Tax Appeals or the courts to find otherwise in fact because of asserted special purposes or needs of the particular business.

The conclusion, that money spent for lobbying purposes is not deductible as an ordinary and necessary business expense within the intent of the Revenue Acts, is further confirmed by the implication to be derived from recurrent Treasury Regulations denying to corporations the right to deduct such expenditures as donations for business purposes. Thus, Article 262 of Regulations 74, promulgated under Sec. 23 (n) of the presently applicable Revenue Act (1928), provides in part, that “Sums of money expended for lobbying purposes, the promotion or defeat of legislation, the exploitation of propaganda, including advertising other than trade advertising, and contributions for campaign expenses, are not deductible from gross income”. A similar provision was contained in T. D. 2137, 17 Treasury Decisions, Internal Revenue (1915) (pp. 48, 57-58), later appearing as Article 562 of Regulations 45, promulgated under the Revenue Act of 1918. The same provision has appeared without change in regulations promulgated under the Revenue Acts of 1921, 1924, 1926, 1928, 1932, 1934, 1936 and 1938. See Article 562 of Regulations 62, 65 and 69, Article 262 of Regulations 74 and 77, Article 23 (o)-2 of Regulations 86 and Article 23 (q)-l of Regulations 94 and 101. It may be argued that Article 262 of Regulations 74 is in excess of the Treasury’s power to promulgate interpretive regulations for the more efficient administration of the Revenue Acts, in that, this particular regulation, which purports to interpret a statutory provision having to do with charitable contributions made by individuals, applies to corporations. Nevertheless, the regulation conforms in purpose with the congressional intent as restricted by the allowance of deduction for business expenses to such as are ordinary and necessary in law as well as in fact. This may not only be reasonably inferred from the legislative history of the repeated enaat-ments of the particular statutory provision without congressional disapproval or rejection of the regulation but that such was and is the congressional intent has more lately been impliedly confirmed by express statutory enactment.

By Sec. 23 (q) of the Revenue Act of 1936, c. 690, 49 Stat. 1648, 26 U.S.C.A. Int.Rev.Acts, pages 830, 831, Congress for the first time permitted corporations to deduct, within prescribed limits, donations for charitable uses if “no substantial part of the activities of [the donee] is carrying on propaganda, or otherwise attempting, to influence legislation” etc.³ If money paid to lobbyists were an ordinary and necessary business expense to a corporation, within the intent and understanding of Congress, then the denial by Sec. 23 (q) of the right to deduct a contribution when used by the donee .for such inhibited purpose could serve no effective end, for, as a business expense, the expenditure would none the less be deductible under Sec. 23(a) of the Act of 1936, 26 U.S.C.A. Int.Rev.Acts, p. 827. Furthermore, the allowance of deduction for business expenses under Sec. 23 (a) of the Act of 1936 is specified in the very same words used in Sec. 23(a) of the Act of 1928. Consequently, moneys spent for lobbying not being ordinary and necessary business expenses under Sec. 23(a) of the Revenue Act of 1936, as Sec. 23(q) clearly implies, such expenditures are likewise not ordinary and necessary business expenses under Sec. 23(a) of the Act of 1928. In expressly denying by Sec. 23 (q.) of the Act of 1936 any right to a corporate taxpayer to deduct contributions for lobbying, it was the evident intent of Congress to make sure by positive legislative direction that the privilege there granted to corporations of making deductible contributions for charitable uses should not be laid hold of by a taxpayer to gain a credit against tax liability for expenditures which were not, and never had been, deductible as business expense.

For the reasons stated, we conclude that the sums paid by the taxpayer to the three individuals referred to are not ordinary and necessary expenses paid or incurred in carrying on any trade or 'business. Accordingly, the Commissioner was right in disallowing the credits claimed for the sums so expended.

The Right of the Court to Sit En Banc.

This case was originally heard by three circuit judges but before its decision this court, by special order, directed that it be reheard by the court en banc, consisting of the five circuit judges of the circuit in active service. The case has now been heard and considered by the court en banc. The order for rehearing was entered pursuant to Rules 4 and 5 of this court, effective March 1, 1940, which are set out in a footnote.⁴ The authority of a ’circuit court of appeals thus to provide for sittings to be held by all the circuit judges has been questioned in the Ninth Circuit.⁵ We therefore, deem it important to consider this question. We begin its consideration with a brief reference to the history of the federal judicial system.

The Judiciary Act of September 24, 17S9, 1 Stat. 73, set up three categories of federal courts, the Supreme Court, the circuit courts and the district courts, and these courts continued to exist as thus set up (except as to the circuit courts for the period from February 13, 1801, to July 1, 1802) until the effective date of the Judicial Code, January 1, 1912, 28 U.S.C.A. § 1 et seq., when the circuit courts went out of existence. The original scheme was for the Supreme Court to be held by justices appointed to it, the district courts to be held by district judges appointed to them, and the circuit courts to be held by supreme court justices and district judges sitting together. In 1802 provision was made for the definite assignment of the Supreme Court justices to the several judicial circuits. When thus assigned and holding circuit court they became known as circuit justices. See Sec. 605, Rev.St. 28 U.S.C.A. § 217. The law was that the circuit justice of the circuit and the district judge of the district in which a circuit court was held might hold the court together or either of them might hold it separately.

The burden upon the Supreme Court justices at circuit became too heavy and by the Act of April 10, 1869, c. 22, § 2, 16 Stat. 44, it was enacted “That for each of the nine existing judicial circuits there shall be appointed a circuit judge, who shall reside in his circuit, and shall possess the same power and jurisdiction therein- as the justice of the Supreme Court allotted to the circuit.” This provision was carried into Sec. 607 of the Revised Statutes. The circuit judges thus appointed soon became primarily responsible for holding the circuit courts, largely relieving the circuit justices of this work.

The business of the circuit courts continued to increase, particularly in the Second Circuit, and by the Act of March 3, 1887, c. 347, 24 Stat. 492, the President was directed to appoint for the Second Circuit “another circuit judge, who shall have the same qualifications and shall have the same power and jurisdiction therein that the present circuit judge, has under existing laws.” By the Act of March 3, 1891, c. 517, § 1, 26 Stat, 826, the President was directed to appoint “in each circuit an additional circuit judge, who" shall have the same qualifications, and shall have the same power and jurisdiction therein that the circuit judges of the United States, within their respective circuits, now have under existing laws.” Thus after the passage of this act, which, as we shall see, also created the circuit courts of appeals, there were in each circuit two circuit judges, except in the Second in which there were three.

In the light of this background we turn to the provision of Sections 2 and 3 of the Act of March 3, 1891, c. 517, 26 Stat. 826, 827, 28 U.S.C.A. §§ 212, 216, which created the circuit court of appeals.- These sections were as follows:

“Sec. 2. That there is hereby created in each circuit a circuit court of appeals, which shall consist of three judges, of whom two shall constitute a quorum, and which shall be a court of record with appellate jurisdiction, as is hereafter limited and established. * * *

“Sec. 3. That the Chief-Justice and the associate justices of the Supreme Court assigned to each circuit, and the circuit judges within each circuit, and the several district judges within each circuit, shall be competent to sit as judges of the circuit court of appeals within their respective circuits in the manner hereinafter provided. In case the Chief-Justice or an associate justice of the Supreme Court should attend at any session of the circuit court of appeals he shall preside, and the circuit judges in attendance upon the court in the absence of the Chief-Justice or associate justice of the Supreme Court shall preside in the order of the seniority of their respective commissions.

“In case the full court at any time shall not be made up by the attendance of the Chief-Justice or an associate justice of the Supreme Court and circuit judges, one or more. district judges within the circuit shall be competent to sit in the court according to such order or provision among the district judges as either by general or particular assignment shall be designated by the court: Provided, That no justice or judge before whom a cause or question may have been tried or heard in a district court, or existing circuit court, shall sit on the trial or hearing of such cause or question in the circuit court of appeals. ij£ % * »

It will be seen that no provision was made for the appointment of a new group of judges to serve as judges of the circuit court of appeals which the act created. On the contrary it is clear that the court was intended to be held by three judges drawn from the three existing groups of judges who were by section 3 made “competent to sit as judges of the circuit court of appeals within their respective circuits,” namely, the circuit justice of the circuit, the circuit judges of the circuit, and the several district judges within the circuit. By the later provisions of the section it is likewise apparent that the circuit justice and the circuit judges were the groups from which the judges of the new court were primarily to come, since it was only if three judges from these groups could not attend that district judges were to be called on. We stress the significant feature of the arrangement, which was that the court was to be staffed by judges who were not permanently appointed to it, but who were to be drawn from time to time from existing groups of judges having pri- . mary responsibility for holding other courts, namely, the circuit justices for the Supreme Court, the circuit judges for the circuit courts and the district judges for the district courts.

This situation continued until the passage of the Judicial Code of March 3, 1911, c. 231, 36 Stat. 1087. By Section 117 of the Code, 36 Stat. 1131, 28 U.S.C.A. § 212, the provisions of Section 2 of the Act of 1891, supra, were codified without material change, as follows: “Sec. 117. There shall be in each circuit a circuit court of appeals, which shall consist of three judges, of whom two shall constitute a quorum, and which shall be a court of record, with appellate jurisdiction, as hereinafter limited and established.”

The Judicial Code abolished on its effective date, January 1, 1912, the existing circuit courts, thus depriving the circuit judges of the courts for which they had been primarily responsible since 1869. We think the Code contemplated that the circuit judges should thereafter be ex officio judges of the circuit court of appeals rather than that they should be merely competent to sit in the court — which was their previous status. Although no express provision to this effect appears in the Code as originally enacted, it seems to us to be fairly inferable from two other provisions of the Code. The first is that Sec. 120 of the Code, 36 Stat. 1132, 28 U.S.C.A. § 216, into which the provisions of Section 3 of the Act of 1891, supra, were carried eliminated the circuit judges from the classes of judges described as “competent to sit” in the court, while retaining in that category “The Chief Justice and the associate justices of the Supreme Court assigned to each circuit, and the several district judges within, each circuit.” The other provision supporting the inference is that although the circuit judges- were no longer referred to as “competent to sit”, later provisions of the same section which yrere also carried forward from Section 3 of the Act of 1891, supra, clearly showed that the circuit judges were intended to hold the circuit court of appeals and that the district judges should only be designated to attend if the court could not be made up by the attendance of the circuit justices and circuit judges. It must be conceded, however, that the Judicial Code did leave the relation of the circuit judges to the circuit court of appeals in some doubt.

At the time of the passage of the Judicial Code there were, as appears from Section 118 of the Code (36 Stat. 1131), four circuit judges in the Second, Seventh and Eighth Circuits. In view of the fact, as we have seen, that the Code in Section 117 carried forward the provision of Section 2 of the Act of 1891 that the circuit court of appeals should consist of three judges, an anomalous situation was created with regard, at least, to the Second, Seventh and Eighth Circuits if the Code made the circuit judges ex officio judges of the court, since in each of those circuits there were four circuit judges. Since their circuit courts had been abolished, these judges had no court at all except the circuit court of appeals, but they obviously could not all be members of a court of three. A serious question thus was presented as to whether the circuit judges had become ex officio judges of the circuit court of appeals, and as to whether the circuit court of appeals in those circuits having more than three circuit judges consisted of all the circuit judges or only three of them, and if the latter, which three.

It was evidently to answer these questions that the Act of January 13, 1912, c. 9, 37 Stat. 52, was passed. This act amended Section 118 of the Judicial Code, 28 U.S.C.A. § 213, which had gone into force twelve days previously, by adding thereto the express provision that' “The circuit judges in each circuit shall be judges of the circuit court of appeals in that circuit, and it shall be the duty of each circuit judge in each circuit to sit-as one of the judges of the circuit court of appeals in that circuit from time to time according to law.”

When the bill which became the Act of 1912 was under consideration in the Senate, Senator Sutherland who was in charge of the bill stated in debate (47 Cong. Record 2736) : “It makes no -change whatever in the existing law except to make it clear that the circuit judges in the various circuits of the United States shall constitute the circuit court of appeals.” The report of the Committee on the Judiciary to the House of Representatives (House Rep. 199, 62d Cong., 2d Sess.) likewise said: “This bill deals with a defect in existing law. It makes it clear that the circuit judges shall constitute the circuit court of appeals.” We think this legislative history makes doubly certain what is apparent from the act, namely, that its effect was to make clear that the circuit judges, who theretofore had been primarily responsible for holding the circuit courts, should thereafter instead constitute the circuit court of appeals. The necessary effect of this provision was that in the case of each circuit having more than three circuit judges the size of the court was increased to equal the number of circuit judges authorized by law.

It may be suggested that the provision of the Act of 1912 that it should be the duty of each circuit judge to sit in the circuit court of appeals “from time to time according to law” indicated that the judges were to rotate in sitting. But the sitting is to be “according to law” and we find no provision in the statutes referring to or regulating the designation or assignment of circuit judges to sit in the court “from time to time”. On the other hand, Section 126 of the Judicial Code, 36 Stat. 1132, 28 U.S.C.A. § 223, regulates the times when the circuit courts of appeals shall sit. It is doubtless to these provisions of law that the Act of 1912 refers, thus making it the duty of the circuit judges to sit in the court at the times which the law fixes for its sessions.

We think it necessarily follows from what has been said that the effect of the passage of the Act of 1912 was to amend by implication Section 117 of the Code, which provided that the court should consist of three judges, so as to provide that in the Second, Seventh and Eighth Circuits the court should consist of four judges. The further necessary effect was that thereafter as additional circuit judges were authorized the size of the circuit court of appeals of the particular circuit was thereby increased. Consequently, by the Act of June 10, 1930, c. 438, 46 Stat. 538, 28 U.S.C.A. § 213d, the Circuit Court of Appeals for the Third Circuit was increased to four judges and by the Act of June 24, 1936, c. 753, 49 Stat. 1903, 28 U.S. C.A. § 213d — 1, to five. It is interesting to note that the Act of 1936 which added the fifth judge in the Third Circuit, directed the President “to appoint an additional circuit judge of the United States Circuit Court of Appeals for the Third Circuit.” This act clearly contemplated an addition to the court as well as to the number of circuit judges in the circuit and confirms the construction of the statute, which we have adopted.

Other considerations confirm our conclusion that this court consists of five judges, not three. We have seen that under the amendatory Act of 1912 all five circuit judges of the circuit are judges of the circuit court of appeals. It has always been the practice of the court for all the circuit judges to join in the adoption of rules of court and in the appointment of the clerk and librarian of the court. Conceding this, it may be suggested that but three judges may sit in the court to hear and decide appeals. The act, however, is not capable of such construction. The language is “There shall be in each circuit a circuit court of appeals, which shall consist of three judges”. It is not provided that the court, merely when hearing and deciding appeals, shall consist of three judges.

Furthermore, since the act is completely silent as to the manner in which the circuit judges who are to sit in particular sessions of the court are to be selected (a further persuasive indication that all are entitled to sit) if the court consists of three judges only it would appear that the first three circuit judges who ascended the bench at the opening of the term would constitute the court and as such would have power to make rules and orders of procedure limiting the activities of their fellow judges or excluding them entirely from service in the court. Obviously a construction of an ambiguous statute which, would countenance such an absurd situation, improbable as it is, ought not to be entertained.

A court, as distinguished from the quorum of its members whom it may authorize to act in its name, cannot consist of less than the whole number of its members. The whole cannot be less than the sum of its parts. To hold otherwise is not merely to affirm a plain contradiction in terms, but is also to destroy the authority of the court as a court and to open the way to possible confusion and conflict among it's personnel and in its procedure and decisions. For an apt illustration see the conflict in decisions disclosed in John Hancock Ins. Co. v. Bartels, 308 U.S. 180, 60 S.Ct. 221, 84 L.Ed. 176. It cannot be presumed that Congress intended any such result when it increased the number of circuit judges above three. ' What we have said makes clear why we cannot agree with Judge Denman’s contrary conclusion in Lang’s Estate v. Commissioner, 9 Cir., 97 F.2d 867. We conclude that this court has power to provide, as it has done by Rule 4 (1), for sessions of the court en banc, consisting of all the circuit judges of the circuit in active service. The court which heard the reargument of the present case was accordingly lawfully constituted.

What has been said does not affect in any way the provision of Section 117 of the Judicial Code, 36 Stat. 1131, 28 U.S.C.A. § 212, that two judges of this court shall constitute a quorum. Consequently it is entirely competent for the court to provide, as it has done by Rule 4, that three judges shall sit to hear all matters unless otherwise specially ordered and that two judges shall constitute a quorum. It has been the practice for the circuit courts of appeals to sit in groups of three judges. We think the practice is an excellent one which should be followed in all but exceptional cases. Where, however, there is a difference in view among the judges upon a question of fundamental importance, and especially in a case where two of the three judges sitting in a case may have a view contrary to' that of the other three judges of the court, it is advisable that the whole court have the opportunity, if it thinks it necessary, to hear and decide the question. Common sense and sound practice dictate that the five judges of this court should be in a position to decide the principles of law and practice to which the court is to be committed. We think the statute does not stand in the way and that the court has the power under existing statutes to sit en banc.

Conclusion.

A majority of the court having concluded that the decision of the Board of Tax Appeals should be reversed, an order will be entered reversing that decision and remanding the cause with the direction to redetermine the tax in accordance with the view expressed by the majority.

I am authorized to state that Judge JONES concurs in this opinion.

1 38 B.T.A. 623.

2 In this connection it should be noted that Section 12 of the Trading with the Enemy Act, 50 U.S.C.A. Appendix § 12, provides in part that “After the end of the war any claim of any enemy or an ally of enemy to any money or other property received and held hy the alien property custodian or deposited in the United States Treasury, shall he settled as Congress shall direct * *

3 Repeated verbatim in Sec. 23 (q) of the Revenue Act of 1938, c. 289, 52 Stat. 447, 460, 464, 26 U.S.C.A. Int.Rev.Acts, page 1016.

4 Rule 4 (Constitution of the Court. Quorum) is as follows:

“1. The Court — Judges Who Constitute It — Number of Judges to Sit. The court consists of the circuit justice, when in attendance, and of the circuit judges of the circuit who are in active service. District judges and retired circuit judges of the circuit sit in the court when specially designated or assigned as provided by law. Three judges shall sit in the court to hear all matters, except those which the court by special order directs to be heard by the court en banc.

“2. Quorum — Adjournment of Court in Absence of — By Whom Adjourned. Two judges shall constitute a quorum. If a quorum does not attend on any day appointed for holding a session of the court, any judge, who does attend may adjourn, the court from time to time, or, in the absence of any judge, the clerk may adjourn the court from day to day.

“3. Quorum — Interlocutory Orders in Absence of. Any judge attending when less than a quorum is present may make all necessary interlocutory orders relating to any matter pending in the court preparatory to the hearing or decision thereof.”

Rule 5 (Assignment of Judges) is as follows :

“1. By Whom AssignetB-Disqualification of Assigned Judge — Designation of Substitute. The three judges who are to sit in the court at each daily session shall be designated by the senior circuit judge from time to time with the concurrence of a majority of the circuit judges who are in active service. If a judge so designated is unable to attend or is disqualified to sit in a particular matter the senior circuit judge shall designate an active circuit judge to sit in his stead, or, if no active circuit judge is qualified and able to sit, a retired circuit judge or a district judge of the circuit.

“2. Cases to Be Heard by Judges So Assigned. All matters pending in the court, except further proceedings in appeals and petitions previously heard on the merits and matters directed to be heard by the court en banc, shall be heard and decided by the judges who have thus been assigned to sit in the court at the time of hearing, if practicable.

“3. Exceptions. Further proceedings in appeals and petitions previously heard on the merits, except petitions for rehearing, shall be heard and determined by the judges who heard the original appeal or petition, if practicable, and may be heard at any time when the court is not otherwise in session. Petitions for rehearing shall be disposed of in the manner provided by Rule 35. If a rehearing is granted the reargument shall be heard by the judges who heard the original argument, if practicable, unless it is directed to be heard by the court en banc.”

5 Lang’s Estate v. Commissioner, 97 F.2d 867.