The opinion of the court was delivered by: ABRUZZO
The plaintiff is a New York corporation specializing in the design, development and production of technical equipment requiring a high degree of professional research and engineering.
This action is for a refund claimed by the plaintiff to be excess profits taxes paid for the fiscal year ending July 31, 1951. After payment had been made and within the required time the plaintiff filed a claim for refund with the District Director of Internal Revenue, Brooklyn, New York (Ex. A annexed to the complaint). A small portion of the claim was allowed, the balance disallowed, and this action based upon that disallowance was commenced in June, 1955. The amount sought to be recovered is $ 13,020.
The agreement under which this suit was commenced is dated July 27, 1951 (Pltf's Ex. 9). This agreement at page 1 contains a list of the items to be furnished by the plaintiff to the defendant but the single item in dispute is numbered 1 and reads as follows:
Item Articles or Services Total Price
1 Prepare and furnish in
the form of ozalid
transparencies a complete
set of detail manufacturing
and group lists. $44,000.00
The only testimony drawn during the trial was that of John C. Slocum, vice president and secretary of the plaintiff.
The plaintiff cites 26 U.S.C.A.Excess Profits Taxes, § 456(a)(1) and (2), Internal Revenue Code of 1939 as amended by the Excess Profits Tax Act of 1950, and Regulation 130, Section 40.456-2(b), supporting his contention.
The applicable portions of Section 456 read as follows:
' § 456. Abnormalities in income in taxable period
'(a) Definitions. For the purposes of this section --
'(1) Abnormal income. The term 'abnormal income' means income of any class described in paragraph (2) includible in the gross income of the taxpayer for any taxable year under this subchapter if it is abnormal for the taxpayer to derive income of such class, or, if the taxpayer normally derives income of such class but the amount of such income of such class includible in the gross income of the taxable year is in excess of 115 per centum of the average amount of the gross income of the same class for the four previous taxable years, or, if the taxpayer was not in existence for four previous taxable years, the taxable years during which the taxpayer was in existence.
'(2) Separate classes of income. Each of the following subparagraphs shall be held to describe a separate class of income:
'(A) Income arising out of a claim, award, judgment, or decree, or interest on any of the foregoing; or
'(B) Income resulting from exploration, discovery, or prospecting, or any combination of the foregoing, extending over a period of more than 12 months; or
'(C) Income from the sale of patents, formulae, or processes, or any combination of the foregoing, developed over a period of more than 12 months; or
'(D) Income includible in gross income for the taxable year rather than for a different taxable year by reason of a change in the taxpayer's method of accounting.
'All the income which is classifiable in more than one of such subparagraphs shall be classified under the one which the taxpayer irrevocably elects. The classification of income of any class not described in subparagraphs (A) to (D), inclusive, ...