Before PHILLIPS, HUXMAN, and MURRAH, Circuit Judges.
This is an appeal from a judgment on claims for refund of surtaxes on undistributed profits taxes for the years 1936 and 1937.
First National Building Corporation*fn1 was incorporated under the laws of Delaware in 1930 for the sole purpose of erecting, owning, and operating the First National Building in Oklahoma City, Oklahoma. At all times here material, it had outstanding 57,463 shares of no par value common stock which had been issued for $574,630, and 8,209 shares of preferred stock of the par value of $100 per share, which had been issued for $820,900. All of such stock was issued and paid for in cash in 1933 and years prior thereto.
The Building Corporation Articles of Incorporation provide: "The holders of the preferred stock * * * shall be entitled to receive dividends at the rate of six and one-half (6 1/2) per cent per annum, and no more, payable out of the surplus of the corporation semi-annually, as and when declared and set apart by the Board of Directors. The dividends on the preferred stock shall be cumulative and shall be payable before any dividends on the common stock shall be paid or set apart, so that if in any year dividends amounting to six and one-half (6 1/2) per cent shall not have been paid thereon, the deficiency shall be payable as and when the Corporation shall have a surplus available therefor before any dividends shall be paid upon or set apart for the common stock." (Italics ours.)
Sections 2066 and 2067 of the Revised Code of Delaware (1935), Ch. 65, §§ 34 and 35 in part provide:
"34. The directors of every corporation created under this Chapter, subject to any restrictions contained in its Certificate of Incorporation, shall have power to declare and pay dividends upon the shares of its capital stock. * * * (Italics ours.)
"35. No corporation created under the provisions of this Chapter, nor the Directors thereof, shall pay dividends upon any shares of the corporation except in accordance with the provisions of this Chapter, * * *."
Section 2046 of the Revised Code of Delaware (1935), Ch. 65, § 14, in part provides: "If the Board of Directors shall not have determined (a) at the time of issue of any shares of the capital stock of the corporation issued for cash * * * what part of the consideration for such shares shall be capital, the capital of the corporation in respect of such shares shall be an amount equal to the aggregate par value of such shares having a par value, plus the amount of the consideration for such shares without par value." (Italics ours.)
The Building Corporation had an operating deficit at the end of 1935 of $87,707.88, at the end of 1936 of $78,348.84, and at the end of 1937 of $45,115.98.
On December 27, 1935, the Building Corporation, after all of its outstanding stock had been issued for cash, undertook to set up on its books $568,885.70 of its paid-in capital as a surplus.
In its income tax return for 1934, the Building Corporation showed a gross income of $394,543.35, deductions of $393,421.50, and a net income of $1,121.85. In such return, it estimated the life of its building at 40 years and claimed depreciation on the basis of 2 1/2 per cent per annum. The Commissioner, on redetermination, estimated the life of the building at 66-2/3 years, fixed the rate of depreciation at 1 1/2 per cent per annum, and made a deficiency assessment accordingly. The Building Corporation paid the additional tax under protest and filed a claim for refund, which was denied. It then brought an action, numbered 6534 in the court below, on the claim for refund, and on March 1, 1941, recovered a judgment on its claim. In its return for the years 1935 to 1940, inclusive, the Building Corporation claimed depreciation at the rate of 2 1/2 per cent per annum.On redetermination, the Commissioner fixed the rate of depreciation at 1 1/2 per cent per annum and assessed deficiencies accordingly. The Building Corporation paid the additional taxes under protest, and filed claims for refund.
Thereafter, the Building Corporation brought three actions in the court below, one on the claims for refund for the years 1935, 1936, and 1937, one on the claim for refund for the year 1935, and one on the claims for refunds for the years 1939 and 1940.
The sole issue in each of the several actions brought on claims for refund was the life of the building and the rate of depreciation. While an appeal was pending from the judgment in 6534, and the other actions were pending, a settlement was reached under which the Building Corporation agreed to accept refunds for the years 1934 to 1940, inclusive, based on a rate of ...