Appeal from the District Court of the United States for the Northern District of Illinois, Eastern Division; Chas. E. Woodward, Judge.
Before MAJOR, KERNER, and MINTON, Circuit Judges.
During July, 1933 and each month thereafter to and including March, 1939, the plaintiff-appellee, herein referred to as the Corporation, manufactured a toilet preparation known as Italian Balm, and was subject to a manufacturers' excise tax thereon, pursuant to Revenue Act 1932, § 603, 47 Stat. 169, 259, 26 U.S.C.A. Int. Rev. Code, § 3401.
In September, 1933 the Corporation began to manufacture and did manufacture each month to and including March, 1939, another toilet preparation known as Dreskin, also subject to the same tax. The Corporation on July 1, 1933 entered into a contract with the Campana Sales Company, herein referred to the Sales Company, for the exclusive distribution of its product. The Sales Company was owned through stock ownership by the same stockholders that owned and controlled the Corporation. The Corporation made its excise tax return on the basis of the price at which it sold its product to the Sales Company, and paid the tax on that basis. The Commissioner reassessed the tax of July, 1933, brushing aside the Sales Company and treating its contract as one not dealing at arm's length, and fixed the tax on the basis of the sale price obtained by the Sales Company. The Corporation paid the additional tax under protest and sued to recover the claimed excess. The Corporation recovered judgment below, and this Court in Campana Corporation v. Harrison, 7 Cir., 114 F.2d 400, decided that the transaction between the Campana Corporation, the manufacturer, and the Campana Sales Company was not an arm's length transaction, and that the tax should be assessed on the basis of the sale price received by the Sales Company and not on the basis of the sale price of the manufacturer to the Sales Company. This Court allowed the costs of selling and advertising as a deduction from such sale price.
In its returns following July, 1933 to and including March, 1939, the Cororation used as a basis from which to compute the tax its sale price to the Sales Company. The Commissioner reassessed the tax in each return on the basis of the sale price obtained by the Sales Company, that is to say, the basis of the computation of the tax by the Corporation and the Commissioner was the same as that employed by each of the parties in July, 1933, and litigated in Campana Corporation v. Harrison, supra. The Corporation paid the difference under protest and filed claim for refund; and upon denial thereof, it brought the present suit to recover the alleged excessive assessment. After September, 1933, the returns covered Dreskin as well as Italian Balm.
In its complaint the Corporation alleged that the articles were also through arm's length transactions and that it had not passed the tax on to the purchaser in the price of the article. Whether it was an arm's length transaction was material. If it were not, the contract with the Sales Company could be ignored and the price obtained by the Sales Company became the price of the manufacturing company, under our decision in Campana Corporation v. Harrison, 7 Cir., 114 F.2d 400. Whether the tax had been passed on to the purchaser also was material. If it had, the Corporation could not recover without the purchaser's consent.
In his answer, the Commissioner denied specifically that the articles were sold by the Corporation to the Sales Company in an arm's length transaction, and also denied that the Corporation had not passed the tax on.
The Corporation filed a motion for summary judgment, with affidavits to show that it had not passed on the tax. The Commissioner filed counter-affidavits and his motion for summary judgment, and the Corporation filed affidavits in rebuttal.These affidavits and the exhibits attached to them comprise over nine hundred pages of the record. The District Court sustained the motion of the Corporation for summary judgment.
The Commissioner has appealed, and has raised three questions in his brief:
First, Did the Court err in granting the Corporation's motion for summary judgment?
Second, Was the first case, Campana Corporation v. Harrison, 7 Cir., 114 F.2d 400, res judicata?
Third, Were the selling and advertising expenses properly deducted?
As to the first question. The purpose of Rule 56 of the Federal Rules of Civil Procedure, 28 U.S.C.A. following section 723c was to enable the court to enter summary judgment when the pleadings, and affidavits that may have been filed with the pleadings, clearly showed that there was no issue of fact to be tried. The court in such proceedings is not permitted to try on the affidavits submitted an issue of fact which is presented by the pleadings. In the case at bar, the Corporation alleged in its complaint that it bore the burden of the tax and that its dealings with the Sales Company were at arm's length. The Commissioner in his answer denied these allegations. This presented sharp, clear issues of fact. Affidavits were filed to prove and to disprove these issues of fact, and the court on these conflicting affidavits undertook to resolve the conflict. This action of the court was not proper on the motion for summary judgment. The affidavits did not demonstrate that there were no issues of fact; they demonstrated that ...