US SUPREME COURT DECISIONS

During the period 1942-1946, petitioner purchased 18 government-build ships from the United States Maritime Commission for $46,973,167 after a trade-in allowance for four of its own ships. Petitioner then chartered the ships back to the Government, receiving $13,430,431 in charter hire, on which petitioner paid federal income taxes. The subsequently enacted Merchant Ship Sales Act of 1946 provided for sale of war-built ships well below the Commission's wartime prices. By treating wartime sales as made when the Act was passed, § 9 afforded ship purchasers like petitioner an opportunity to apply for downward adjustment by reducing the purchase price paid to the new statutory price and unwinding the wartime transactions, including tax payments. Section 9(c)(1) required an applicant for adjustment to agree, inter alia, that pre-Act government charter hire received be treated for federal tax purposes as not having been received or accrued as income, but as a repayment of the purchase price. Petitioner applied for and, by agreement, was given, such an adjustment, the statutory sales price being fixed at $17,685,424 (giving petitioner a gross sales price adjustment of $29,287,743), and the unwinding of the pre-Act transactions left the Government a net credit after appropriate tax adjustments of $8,818,838, which reduced petitioner's net 1946 sales price adjustment to $20,468,904. In its federal income tax returns for 1947-1950, petitioner took depreciation on the vessels on the basis of the $17,685,424 statutory sales price, but, in 1959, sued for a refund, contending that its real cost (and hence its basis for depreciation) was the difference, amounting to $26,504,263, between the original sales price and the net 1946 sales price adjustment credited to petitioner. The Government contended that, under the statutory scheme, petitioner's real cost was $17,685,424 statutory sales price. The difference of $8,818,838 between the two figures was the net credit in the Government's favor received by petitioner in charter hire from the Government, and which petitioner contended was received as income, and therefore could not be taken to reduce its cost; while the Government, chanrobles.com-red

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conceding that amount to have been originally received as income, contended that it had to be treated under the statutory unwinding scheme as a return of capital. The District Court upheld petitioner's position, and the Court of Appeals reversed.

Held: under the Act, the $8,818,838 net charter hire must be treated as a return of capital against petitioner's original purchase price of the ships, which, thus, along with the 1946 lump sum payment to petitioner of $20,468,904, reduced petitioner's cost, and hence its basis for depreciation, to $17,685,424, the statutory sales price. Pp. 381 U. S. 260-270.

(a) To realize the statutory purpose of putting petitioner and the Government in the positions they would have occupied had the sales been made on the 1946 statutory enactment date, petitioner had to refund the $8,818,838 net charter hire. P. 381 U. S. 261.

(b) Though petitioner received $20,468,904 in the form of a lump-sum payment as of 1946, it had also received $8.818.838 in 1942-1946 in government payments which, but for its ownership of the ships (which the Act unwinds), it would not have received. P. 381 U. S. 262.

(c) As part of the statutory unwinding, petitioner's income taxes were recomputed on the statutory assumptions that it did not receive charter hire on the 18 ships bought from the Government in 1942-1946, but that it did receive charter hire on the four ships it traded in, and interest on its investment in the 18 ships. P. 381 U. S. 263.

(d) Petitioner's position would result in the anomaly that, due to the unwinding operation, it would pay no federal income taxes on the $8,818,838, which it claims as income. P. 381 U. S. 264.

(e) Petitioner's position that the original ship acquisition costs be adjusted to 1946 prices, but that its costs, as a basis for depreciation, should relate back to the original acquisition dates, contravenes the terms and legislative history of the Act, the date of whose enactment fixes the sales prices, and its purpose of putting pre-Act and post-Act purchasers "on exactly the same basis." Pp. 381 U. S. 264-265.

(f) Congressional passage in 1950 of a "clarifying" amendment to the 1946 Act which would have provided the tax result urged by petitioner, vetoed by President Truman, would not supplant the contemporaneous intent of the Congress which enacted the Statute. Fogarty v. United States, 340 U. S. 8 followed. Pp. 381 U. S. 268-270.

330 F.2d 128 affirmed. chanrobles.com-red

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