Appeal from the District Court of the United States for the Eastern Division of the Northern District of Illinois; Charles Edgar Woodward, Judge.
Before ALSCHULER, EVANS, and SPARKS, Circuit Judges.
ALSCHULER, Circuit Judge.
Appellant unsuccessfully brought suit against the collector of internal revenue to recover taxes alleged to have been unlawfully collected.
Appellant is an Illinois corporation, organized in 1914 to carry on a hunting club. It owns upwards of 800 acres of land in Mason county, Ill., used as a hunting preserve. Its membership is limited to seventeen. Its property at the time in question was worth about $135,000.
Article X of its by-laws provides: "Transfers of Membership. Any person wishing to transfer his membership shall first tender the same to the Club, and should the Club decline to purchase, he may transfer the same to any person who shall be elected to membership, as provided in Article XI of these By-Laws, and such person shall thereupon, on paying into the Treasury the sum of One Hundred Dollars, be entitled to all the privileges of the Club. But in cases where the transferee so elected to membership is the father or son of the transferer no transfer fee shall be paid."
During the tax year three memberships were sold, at approximately $6,000 each, to persons who were accepted as members, and who also paid $100 each to the club as a membership transfer fee. The price of the membership was in each case paid to the seller, or, if deceased, to his personal representatives, and no part of it was received by the club. On the assumption that the price paid was an initiation fee within the meaning of the statute, the statutory ten per cent. tax thereon was levied, and was paid by the club, which brought this suit for its refund.
Section 413(a) of the Revenue Act of 1928 (45 Stat. 864, 26 USCA § 872) so far as here material, is:
"(a) Section 501 of the Revenue Act of 1926 is amended to read as follows:
Sec. 501. '(a) There shall be levied, assessed, collected, and paid a tax equivalent to 10 per centum of any amount paid --
'(1) As dues or membership fees to any social, athletic, or sporting club or organization, if the dues or fees of an active resident annual member are in excess of $25 per year; or
'(2) As initiation fees to such a club or organization, if such fees amount to more than $10, or if the dues or membership fees, not including initiation fees, of an active resident annual member are in excess of $25 per year. * * *
'(d) As used in this section, the term "dues" includes any assessment irrespective of the purpose for which made; and the term "initiation fees," includes any payment, contribution, or loan required as a condition precedent to membership, whether or not any such payment, contribution, or loan is evidenced by a certificate of interest or indebtedness or share of stock, and irrespective of the person or organization to whom paid, contributed, or loaned.'"
Appellant contends that the price paid represents a transaction wholly between the purchaser and the seller of the membership, wherein the club had no beneficial part or interest, and it is in no sense an initiation fee. It further contends that such a tax would in any event be void as a direct tax on property, not ...