Before CLARK, FRANK and MEDINA, Circuit Judges.
May v. Heiner, 1930, 281 U.S. 238, 50 S. Ct. 286, 287, 74 L. Ed. 826, dealt with a trust reserving a contingent life estate to the settlor, Mrs. May, following a life estate to her husband. The Court held that § 302(c) of the 1926 Act*fn1 did not cover the settlor's life interest. In its opinion, the Court said: "The record fails clearly to disclose whether or no Mrs. May survived her husband. Apparently she did not. But this is not of special importance, since the refund should have been allowed in either event." If, then, § 302(c) had remained without amendment, May v. Heiner would have required a refund in the instant case.
However, the Joint Resolution of March 3, 1931, 46 Stat. 1516 - enacted to amend § 302(c) at the urgent prompting of the Treasury which was alarmed by the serious consequences to the fisc of the May v. Heiner interpretation - included the added phrase or "a transfer under which the transferor * * * for * * * any period not ending before his death * * *." In 1932, Congress amended § 302(c) by § 803(a) of the 1932 Act*fn2 which included a phrase - substantially like that added in the Joint Resolution - "for any period which does not in fact end before his death", and also a second new phrase, "for any period not ascertainable without reference to his death".
If we look solely to this statutory language, it is entirely clear that - without any assistance from or need for any interpretive Regulation - it covers a contingent life interest like that in the trust before us here. So the Seventh Circuit held in Commissioner of Internal Revenue v. Nathan's Estate, 7 Cir., 159 F.2d 546.
Appellants, however, point to the Committee Reports on the 1932 amendment.*fn3 These Reports state that the first pharse, "or for any period which does not in fact end before his death", is but "clarifying"; and they give as an illustrative example of its coverage a case where the settlor "is to have the income from and after the death of another person until his own death and such other person predeceases him." If those Reports control the interpretation of the statute, then this first phrase does not apply to the sort of contingent life estate, of a settlor who predeceases the preceding life tenant, considered in May v. Heiner, and we have the astonishing result that the Joint Resolution, which had added virtually the same phrase, failed of its intended purpose.*fn4
We must, then, construe an amendatory statute the text of which is clear and unambiguous - and undeniably reasonable if one accepts its literal meaning*fn5 - while its context - its "legislative history" - alone is ambiguous: (1) According to the older notion, the background or context which legitimately may be considered in construing legislation consists primarily of the circumstances surrounding the appeal to the legislature and the "mischief" or "evil" which the legislation aimed to remedy.*fn6 Here the literal text is entirely in accord with such circumstances and with the aim of the statute, i.e ., the undoing of the May v. Heiner interpretation. (2) More recently, it has become legitimate, in the federal courts, also to consider more or less what Continental lawyers call "travaux preparatoires,"*fn7 including Committee Reports. But in respect of the statute we are now considering, (2) is at odds with (1). We think it has never been sound doctrine that a court may look at the text of an Act only when the legislative history is ambiguous. But, even under such a doctrine, in the case of the 1932 amendatory Act, we think we would be obliged to stick to the text without regard to the context. Consequently, although we confess that our conclusion is not free from all possible doubts, we think that, because of the astonishing result of resorting to the Committee Reports, we should ignore those Reports to the extent that they war with the plain and reasonable meaning of the statutory language.
There is also the second statutory phrase, "for any period not ascertainable without reference to his death," which, glove-like, fits the facts here. This second phrase the Committee Reports apparently considered a change of substance.*fn8 To be sure, the Reports, in giving examples of the coverage of this second phrase, did not mention a case like that at bar where the settlor predeceases the holder of the preceding life interest. As, however, Congress deemed the addition of this second phrase a substantial change, it may well be that it was intended to eradicate any part of the May v. Heiner interpretation which the Joint Resolution of 1931 and the first phrase in the 1932 amendment may conceivably have left intact.
Accordingly, we agree with Commissioner of Internal Revenue v. Nathan's Estate, 7 Cir., 159 F.2d 546.*fn9 We find further support in the discussion of the "rationale" of May v. Heiner in the subsequent case of Commissioner of Internal Revenue v. Estate of Church, 335 U.S. 632, 645-646, 69 S. Ct. 322, 337, 93 L. Ed. 288.*fn10 It is difficult to believe that Congress, in the 1932 statute, did not thoroughly eliminate that much-criticized rationale.*fn11
2. In the Nathan's Estate case, the trust was created in 1941 after the issuance, in 1937*fn12 and 1938*fn13 of Regulations which unmistakably interpreted the statute to cover a contingent life estate like that of the settlor's here, even if the settlor dies before the preceding life interest. However, here Marks, the settlor, created the trust on December 21, 1935, when there was still outstanding an interpretative ruling, issued in 1934, which construed the 1932 statute as excluding such a contingent life estate.*fn14 Appellants contend that the settlor reasonably relied upon that 1934 interpretative ruling when he created the trust, and that therefore it would be unconstitutional to apply, retroactively, to this trust the interpretative Regulations promulgated subsequently in 1937 and 1938.
The record is barren of evidence that the settlor actually did rely on the 1934 ruling. Even if we were to presume reliance, and even if we assumed that, where there has been reasonable reliance on a valid interpretative ruling, a retroactive change in the administrative interpretation violates due process, still we think there would be these sufficient answers to appellants' contention:
(a) The Seventh Circuit in Nathan's Estate held, we think correctly, that the statute is so clear that it needs no administrative interpretation, that such an interpretation is supererogatory.*fn15 It follows that the 1934 ruling lacked validity, since it contradicted the statute, and that therefore the settlor's reliance is immaterial.
(b) The facts here show an absence of reasonable reliance by the settlor on the 1934 ruling, even if it be considered valid. For, as already noted, previous to his death, which occurred November 22, 1939, two Regulations - one in 1937 and another in 1938 - superseded the 1934 ruling, and specifically interpreted the statute as covering a trust containing a contingent life estate of the kind he reserved. The settlor thus had ample warning, and had ample time, to divest himself of his contingent life interest.*fn16 True, the trust seems to have been irrevocable. But, without revoking it, he could have released his interest. In the alternative, he could have given it to someone else; for, under the New York "law," applicable to ...