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decided: January 22, 1957.



Warren, Black, Reed, Frankfurter, Douglas, Burton, Clark, Minton, Harlan, Brennan

Author: Black

[ 352 U.S. Page 306]

 MR. JUSTICE BLACK delivered the opinion of the Court.

In 1940 this country embarked on the greatest program of defense preparedness in its history. Such an undertaking called for a vast expansion of the nation's industrial capacity. New and improved facilities were desperately needed, not only for the production of guns, planes and the other obvious weapons of war, but also for the innumerable items that are essential to the prosecution of large-scale conflict. This unprecedented program of expansion demanded the full and immediate cooperation of everyone who could lend assistance. While the Government attempted to secure the necessary facilities by building them itself or by extending emergency construction loans to private business, it soon appeared that these methods would not be adequate to meet the needs of defense. Private capital was called on for assistance in

[ 352 U.S. Page 307]

     the task. However business exhibited a reluctance to build new war plants because of widespread fears that such facilities would become wholly useless when the emergency had passed. In response to these fears, Congress acted to lessen the financial risks involved in the private construction of emergency facilities. Among other things it amended the 1939 Internal Revenue Code by adding §§ 23 (t) and 124,*fn1 which allowed business to write off the cost of new facilities as a deduction against taxable income within a period of five years or less, regardless of the actual economic life of the facilities, provided they had been certified by the proper executive agency as "necessary in the interest of national defense." This accelerated amortization privilege generally enabled those businesses receiving it to reduce their federal income taxes with the net result that a large part of the construction costs was, at least temporarily, borne by the Federal Government through a reduction in its tax receipts.

This case involves a question of the proper interpretation of § 124 (f), a vital part of these accelerated amortization provisions. The essential facts are not in dispute. During the Second World War the respondent Allen-Bradley Company produced radio parts and other materials needed by the Government to carry on the war. These products were in critically short supply and at the request of government procurement officers respondent repeatedly increased and improved its facilities in order to boost its output. In connection with such expansions it applied to the War Production Board, which was then the certifying authority, for certificates that the improvements were necessary to the national defense. The Board issued nine different certificates of necessity to respondent but the dispute here involves only three of these certificates. Each of these three stated that the facilities

[ 352 U.S. Page 308]

     covered by it were necessary in the interest of national defense but only up to a specified percentage of their total cost. This "partial certification" was made pursuant to a policy adopted by the Board in 1943 that it would certify essential facilities, which could reasonably be expected to have peacetime utility, only to the extent that their costs were attributable to the wartime increase in prices. Respondent accepted these partial certifications, proceeded with the expansion and in its tax returns for 1944 and 1945 deducted an amount based on the accelerated amortization of that part of the total cost which had been certified by the Board.

In 1953 respondent first raised the claim which is the basis of this suit that the Board had no authority to certify only part of the cost of a necessary emergency facility. Respondent concedes that the Board had discretion to refuse to issue any certificate at all, but contends that once it decided that a facility was necessary to the national defense its function was at an end and that any attempt by it to limit the certification to a part of the cost of such facility was a nullity. Therefore, respondent contends, it was entitled to accelerate the amortization of the full cost of those facilities covered by the three partial certificates and not just that part of the full cost which had been certified by the Board. On the basis of these contentions respondent filed the present action in the Court of Claims to recover an alleged overpayment of its 1944 and 1945 income taxes. The Court of Claims accepted respondent's arguments and rendered judgment for it. 134 Ct. Cl. 800. We granted certiorari, 351 U.S. 981, because of the conflict between this decision and that of the Court of Appeals for the Second Circuit in Commissioner v. National Lead Co., 230 F.2d 161.

The language of the crucial section 124 (f) is ambiguous. It specifies that in determining the amount of the

[ 352 U.S. Page 309]

     wartime construction costs which are to be available for the ...

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