This writ of certiorari was granted limited to a single narrow point in the law of income taxes. 317 U.S. 612, 63 S.Ct. 41, 87 L.Ed. --. The sum in question was received as part of the compensation in a condemnation proceeding instituted by the City of New York. Payment was made several years after the actual taking. The issue concerns the nature of that portion of the payment which is called 'interest' by the Greater New York Charter and which the owner must receive, in addition to the value of the property fixed as of the time of the taking, to produce, when actually paid, the full equivalent of that value. Was this portion a capital gain or ordinary income?
The writ was granted because of conflict upon the point between this case below, Commissioner v. Kieselbach et al., 3 Cir., 127 F.2d 359 and Seaside Improvement Co. v. Commissioner, 2 Cir., 105 F.2d 990.
The taxpayers owned a piece of realty in the City of New York. In December, 1932, that city's Board of Estimate passed a resolution which directed that upon January 3, 1933, the title in fee to a large part of the parcel would vest in the city. The condemnation proceeding, of which the resolution was a part, was pursuant to Sec. 976 of the Greater New York Charter, as amended by Laws 1932, c. 391, § 1, which provides in part as follows: 'Upon the date of the entry of the order granting the application to condemn, or of the filing of the damage map in the proceeding, as the case may be, or upon such subsequent date as may be specified by resolution of said board, the city of New York shall become and be seized in fee of or of the easement, in, over, upon or under, the said real property described in the said order or damage map, as the board of estimate and apportionment may determine, the same to be held, appropriated, converted and used to and for such purpose accordingly. Interest at the legal rate upon the sum or sums to which the owners are justly entitled upon the date of the vesting of title in the city of New York, as aforesaid, from said date to the date of the final decree shall be awarded by the court as part of the compensation to which such owners are entitled.' The city took possession on the date named in the resolution and received all rents thereafter accruing. The Supreme Court of New York entered its final decree in the proceedings on March 31, 1937. It was for $73,246.57 and was stated to be the just compensation which the owners were entitled to receive. Payment was made on May 12, 1937. It has been stipulated that: 'The amount of said payment was computed by adding to the principal amount of $58,000.00, interest thereon as provided by Section 976 of the Greater New York Charter, in the sum of $15,246.57, computed at the rate of 6% per annum from January 3, 1933, to May 12, 1937, or a total of $73,246.57.' We accept as a fact that the $58,000, principal amount just referred to, was as petitioners allege, an award to them. We assume it was the value on January 3, 1933, of this property then taken by the city.
Section 22 of the Revenue Act of 1936, c. 690, 49 Stat. 1648, 1657, 26 U.S.C.A.Int.Rev.Acts, page 825, contains the general definition of gross income. It reads as follows:
'(a) General Definition. 'Gross income' includes gains, profits, and income derived from salaries, wages, or compensation for personal service, of whatever kind and in whatever form paid, or from professions, vocations, trades, businesses, commerce, or sales, or dealings in property, whether real or personal, growing out of the ownership or use of or interest in such property; also from interest, rent, dividends, securities, or the transaction of any business carried on for gain or profit, or gains or profits and income derived from any source whatever. * * *'
The taxpayers' basis on the condemned property was around $42,000. In their original return the difference between the basis and the total sum received was treated as capital gain and only a percentage was returned as income pursuant to Sec. 117, 26 U.S.C.A. Int.Rev.Acts, page 873. The Commissioner assessed a deficiency on the portion of the award computed as interest on the ground that such portion was ordinary income. The Board of Tax Appeals, 44 B.T.A. 279, reversed the Commissioner and the Circuit Court of Appeals, 127 F.2d 359, in turn, held with the Commissioner.
