Fine
v.
War Contracts Price Adjustment Bd.

This case is not covered by Casetext's citator
Tax Court of the United States.Oct 7, 1947
9 T.C. 600 (U.S.T.C. 1947)

Docket No. 148-R.

1947-10-7

LEON FINE, D/B/A LEON FINE & COMPANY, PETITIONER, v. WAR CONTRACTS PRICE ADJUSTMENT BOARD, RESPONDENT.

G. L. Weisbard, Esq., and Joseph Kamfner, Esq., for the petitioner. Robert H. Winn, Esq., for the respondent.


Petitioner, since 1939, has been engaged in business as manufacturer's agent. In 1943 he received commissions of $36,598.51, based upon the amounts of contracts for commodities having a war-end use. Of such amount, $19,131.44 was based on amounts of contracts procured by him for his principals and $17,467.07 was compensation for field services in connection with contracts of his principal. Held, (1) since the sum of $17,467.07 was not contingent upon the procurement by petitioner of the contracts or subcontracts upon the amount of which the compensation was based, such amount, although determined with reference to the amount of contracts or subcontracts, was not received by petitioner under a subcontract as defined in section 403(a)(5)(B) of the Sixth Supplemental National Defense Appropriation Act, as amended, and hence is free of renegotiation; (2) since the remaining compensation of $19,131.44 admittedly received under subcontracts within section 403(a)(5)(B) does not exceed $25,000, it is exempt from renegotiation under section 403(c)(6); and (3) if petitioner's contracts were held to fall under section 403(a)(5)(A), they are nevertheless free from renegotiation under section 403(c)(6), because his entire compensation was less than $500,000. G. L. Weisbard, Esq., and Joseph Kamfner, Esq., for the petitioner. Robert H. Winn, Esq., for the respondent.

The War Contracts Price Adjustment Board determined that $11,683.08 of the profits realized by petitioner during the year 1943 on contracts and subcontracts subject to renegotiation was excessive. Notice of such determination, dated December 19, 1944, was sent to petitioner. The present proceeding is brought in this Court pursuant to section 403(e) of the Renegotiation Act (Sixth Supplemental National Defense Appropriation Act, 1942, as amended).

Paragraph 4 of the amended petition is as follows:

4. The determination of excessive profits set forth in said order is based upon the following errors:

(a) The respondent, in arriving at said determination, erroneously included in its computation of petitioner's excessive profits for the year 1943, compensation received or accrued by petitioner during such year under his employment contract with Raymond De-Icer Co., Inc., of Los Angeles, California, dated May 15, 1943, effective July 1, 1943, in the amount of $17,467.07 contrary to the provisions of Section 403(a)(5)(B) and Section 403(c)(6) of the Sixth Supplemental National Defense Appropriation Act as amended by Section 701(b) of the Revenue Act of 1943.

(b) Respondent, in computing the aggregate of amounts received or accrued by petitioner in 1943 under his subcontracts, as defined in Section 403(c)(6) of the aforementioned Act, erroneously failed to give effect to expenses properly incurred by petitioner in connection with said subcontracts in the amount of $9,055.46.

(c) Respondent in arriving at its determination of excessive profits failed to give due consideration to all factors required under Section 403(a)(4)(A) of the aforementioned Act.

In its answer to the amended petition, respondent prays that the Court determine petitioner's excessive profits for 1943 to be $11,598.51.

FINDINGS OF FACT.

The petitioner is an individual, doing business during the year 1943 as Leon Fine & Co. in Chicago, Illinois.

During 1943 petitioner received compensation from various business organizations in the form of a certain percentage of sales of commodities in the total amount of $48,014.97, of which $36,598.51 was received on contracts which had a war-end use within the meaning of the Renegotiation Act. The names of the organizations from which compensation was received, the rates of commission on which the compensation was based, the total amount received from each organization, the amount received on contracts having a war-end use within the meaning of the Renegotiation Act, and the amount received on contracts having a nonwar or civilian use, are as follows:

+----+ ¦¦¦¦¦¦ +----+

Receipts

Organization Commission Total Civilian War-end percentages use use Chefford Master Mfg. Co 3 $292.70 $292.70 Do 5 1,480.04 1,480.04 Maurey Mfg. Co 5 63.61 63.61 Do 7 1/2 715.17 715.17 Spun Steel Corporation 10 2,110.13 $1,669.70 440.43 Trayer Products Co 5 and 7 1/2 10,964.30 10,964.30 Do 7 1/2 1,377.91 1,377.91 Raymond DeIcer Co. (Connecticut 5 5,175.19 5,175.19 partnership) Raymond DeIcer Co. (California 4 1/2 17,467.07 17,467.07 corporation) Kigel Clothing 7 1/2 4.50 4.50 Do 10 6.60 6.60 Kilborn-Sauer Co 10 2,681.60 2,681.60 Precision Parts Co 3 24.34 24.34 Do 5 252.21 252.21 Visex Corporation 10 4,075.02 4,075.02 Warner Machine Products, Inc 5 1,324.58 1,324.58 Total 48,014.97 11,416.46 36,598.51

During 1943 the petitioner incurred in connection with his business expenses amounting to $15,099.97, a reasonable portion of which, properly attributable to the receipts of $36,598.51, is $9,055.46.

The petitioner's annual net income for the years 1936 to 1940, inclusive, did not exceed $5,000. The gross and net earnings of petitioner for the years 1941, 1942, 1944, and 1945 were as follows:

+--------------------------------+ ¦Year¦Gross earnings¦Net earnings¦ +----+--------------+------------¦ ¦1941¦$7,062.60 ¦$4,251.13 ¦ +----+--------------+------------¦ ¦1942¦16,976.78 ¦11,033.75 ¦ +----+--------------+------------¦ ¦1944¦48,908.13 ¦18,874.08 ¦ +----+--------------+------------¦ ¦1945¦26,694.46 ¦1,567.47 ¦ +--------------------------------+

The net worth of the petitioner, employed in his business during 1943, was as follows: January 1, 1943, $3,118.63, and December 31, 1943, $5,312.51.

The petitioner was born in South Africa and was brought to Chicago, Illinois, by his parents, subjects of Great Britain, in 1904, he being then six months old. He became a naturalized citizen of the United States in 1927 at Chicago.

He received a grammar school education and 4 years of technical training in public schools of Chicago. After his graduation from Lane Technical High School in 1924, he was employed as a clerk in the office of Drive-It-Yourself System and remained with that organization until 1928, at which time he was assistant general supervisor. From 1928 to 1930 he was employed by a retail automobile agency as salesman of cars, and he has ever since engaged in sales work. In 1935 he was employed as salesman of automotive replacement parts by Alloy Manufacturing Co. of Chicago, and during his 3 years with that company he was promoted from salesman to sales manager and then to general manager. During his employment sales were increased from approximately $2,300 per month to about $24,000 per month. In September 1938, and for 11 months thereafter, petitioner was employed by a newly organized corporation, Steel Parts Manufacturing Corporation. He was responsible for the development of the automotive replacement parts line to be dealt in, which consisted of approximately 180 various items.

In August 1939 petitioner determined to establish himself in the manufacturer's agency business, and he did so at 624 South Michigan Avenue, Chicago, Illinois, doing business there since then as Leon Fine & Co.

In the winter of 1939 petitioner first made contact with Edward Koppelman, president, general manager, and one of the principal stockholders of Millkop Manufacturing Co., which was engaged in the manufacture of windshield wiper replacement and repair parts and the rebuilding of windshield wipers. At first petitioner was paid a straight sales commission, ranging from 7 1/2 per cent to 12 1/2 per cent. Later, petitioner had complete direction of the company's sales. He appointed sales representatives in various parts of the country and made visits to their offices to explain the line and work with them. For such services he received a 2 1/2 per cent overriding commission on sales made by such sales representatives.

Koppelman engaged Horace G. Raymond, an engineer connected with Raymond Engineering Laboratories, to develop a new windshield wiper motor. After the motor had been developed, it was patented and the Visex Corporation was formed.

During 1940 and 1941 Koppelman, who was also an engineer, and Raymond collaborated in the designing and development of a deicing panel for visual surfaces of aircraft. Although aircraft engineers had given a great deal of time to the de-icing of airplanes wings, tails, carburetors, and propellers, they had not given much attention to the de-icing of visual surfaces, such as the pilot's and co-pilot's windshields. As early as the spring of 1940 petitioner and Koppelman visited the Miscellaneous Equipment Laboratory at Wright Field, Materiel Command, at Dayton, Ohio, at which time they explained the use and advantages of the Raymond de-icer shield or panel to the officer in charge. Late in 1940 a test was made of the de-icer by the chief engineer for American Air Lines.

In 1941 Raymond and Koppelman formed a Connecticut partnership known as the Raymond De-Icer Co. Petitioner, as manufactuer's representative, was assigned the territory from the Rocky Mountains to the Appalachian Mountains for the sale of the de-icer panel or shield to aircraft manufacturers, at a commission of 5 per cent. After the partnership was formed, de-icer panels were sold to Curtiss-Wright and Douglas airplane manufacturers.

Raymond, Koppelman, and petitioner were of the opinion that the de-icer would become essential equipment on airplanes. Consequently, a California corporation, known as ‘Raymond De-Icer Co., Inc.,‘ was formed as successor to the Connecticut partnership. Its offices were located at Los Angeles, California, to take care of the requirements of west coast manufacturers of aircraft.

In June 1943 the Production Division of Materiel Command at Wright Field issued a directive, known as TWX-299, to all Army Air Force districts, ordering the installation of de-icer shields of the Raymond De-Icer Co. manufacturer, or its equal, on aircraft of the C-60, or larger, type. Except for a few minor technical changes, the directive covered the type of equipment as shown by a blueprint of the de-icer dated January 7, 1941. The de-icer was accepted for pilot, co-pilot, and bombardier use on cargo and bomber type planes.

The petitioner's employment as manufacturer's agent of the Connecticut partnership was terminated as of June 30, 1943, and under date of May 15, 1943, petitioner was employed as ‘field representative‘ for Raymond De-Icer Co., under the terms and conditions as follows:

You will use your best efforts in our behalf and your best skill in performing the field services from time to time designated to you in connection with the performance of our contracts. Generally you shall not be required to render such field services outside the area of the United States east of the Rocky Mountains and west of the Appalachian Mountains.

For your services hereunder, you will be paid a sum equal to 4 1/2 per cent of the amounts collected by us on all specific projects and orders referred to you for field work, which sum shall cover your compensation and necessary expenses. In connection with the performance of this contract you shall personally defray and bear all expenses incurred by you in connection therewith, including traveling, office, assistants, etc., which are not to be charged to Raymond De-Icer Co. Inc., except as in specific instances may in writing be authorized in advance. You shall likewise maintain at your own expense in Chicago, Illinois an office for said company. In absence of express written authorization in each instance obtained, you shall have no authority to incur or create any indebtedness or liability for or in the name of the corporation.

Statement will be sent to you between the tenth and twelfth day of each month showing all collections by us on the specific projects in connection with which you are entitled to compensation and checks covering such compensation will accompany such statements. Such projects shall be limited to the specific designations and shall not be deemed to include subsequent projects or orders, though with the same parties and at the same locations, unless specifically designated. In event we are required to make any refunds out of collections so made, proportionate deduction will be made from compensation subsequently payable to you.

This agreement shall continue for a period of one year from date hereof unless previously terminated by either of the parties on ninety days written notice to the other.

You further agree not to divulge to anyone except to officials of the Raymond De-Icer Co. Inc. any and all trade information you may receive, including lists of customers, prints, correspondence, etc., all of which are to be returned to and delivered to the Raymond De-Icer Co. Inc. upon termination of this agreement for any reason. This agreement shall be binding upon the parties hereto, their heirs, executors, administrators and assigns.

All obligations and payments hereunder shall be subject to all applicable laws, rules and regulations and shall be subject to adjustment or modification thereunder or in accordance therewith as to all matters past, present or future.

In selling de-icers and servicing contracts it was necessary to obtain various information and data, including specifications of planes and the amount of heat obtained from the plane's heating plant. The correlation of the information obtained from the airplane manufacturers was necessary for the manufacture of suitable de-icers and fittings for their attachment. It was also necessary to obtain schedules of deliveries, to check and make certain of the issuance of priorities, and to follow through on procurement.

The de-icer was attached as an integral part on certain planes. On others, only brackets and clamps were attached to the windshields and the de-icers were carried in a bag as standard equipment or accessory, to be attached when necessary.

Subsequent to June 30, 1943, as field representative for Raymond De-Icer Co., it was necessary for petitioner to travel to various aircraft manufacturers, to Wright Field at Dayton, Ohio, and Air Service Command at Fairfield, Ohio, to gather and compile information of a very confidential nature. This information was correlated and forwarded to the various plants in California and Long Island City, New York. Major Balashov, one Ammerman, and petitioner developed a spare-parts program for the Raymond de-icer shield for the Air Service Command at Patterson Field. The above work was done at the direction of Raymond De-Icer Co., which instructed petitioner where to go and whom to see and required reports to be made to it and exacted compliance with its instructions.

Petitioner was not a graduate engineer, but, because of his association with Koppelman and Raymond, and his connection with them as sales representative, he gained a thorough knowledge of the use, application, and installation of the de-icer equipment and was able to advise on its proper installation.

Subsequent to June 30, 1943, in connection with his employment as a field or service representative of Raymond De-Icer Co., petitioner was not required to obtain any orders for the de-icer equipment. Although the amount of $17,467.07 received by petitioner during the year 1943 from Raymond De-Icer Co. was determined with reference to the amount of its contract or contracts with a Department, or of its subcontract or subcontracts, payment of no part of the amount of $17,467.07 was contingent upon the procurement by petitioner of a of a contract or contracts with a Department, or of a subcontract or subcontracts. The amount represents 4 1/2 per cent on the sales price received by the corporation on certain of its contracts or subcontracts.

Petitioner first became manufacturer's agent for Trayer Products Co. of Elmira, New York, in December 1939, on a commission basis of 7 1/2 per cent. During the prewar years he directed its sales policy in the middle west on automotive spring shackles and replacement parts therefor and secured the accounts of several nationally known firms for the company. Through his knowledge of the company's capacity, the kind and type of products it was able to make, the facilities of the War Production Board, and study of its weekly bulletins, petitioner negotiated for and effected contracts between the company and the Government, or others, for the manufacturer of products having a war-end use.

During 1943 petitioner made several trips to Elmira for the purpose of obtaining information and data, which he in turn presented to interested prime contractors or subcontractors. In one or two instances the engineers of the company developed short-cuts in the production of a certain part it had contracted to make. This information was furnished to petitioner, who passed it on to the War Production Board at Army Ordnance, so that the information could be used by other manufacturers to expedite the manufacture of such part.

In negotiating and servicing contracts, petitioner was able to handle some of the engineering problems which arose. On one or two occasions the assistance of an engineer of the company was required.

The Chefford Master Manufacturing Co. and the Maurey Manufacturing Co. informed petitioner that they had available machine or time capacity and were interested in securing contracts for additional work. The petitioner checked with the War Production Board, found parts that were necessary for war-end use, obtained blueprints and information necessary for their manufacture, and submitted such information and data to his principals, who thereupon submitted quotations. After contracts were negotiated and effected, there was considerable follow through work done on such contracts by petitioner.

The petitioner was representative in the middle west for Spun Steel Corporation, which manufactured an automobile jack.

During 1943 petitioner spent about 167 days in travel, principally on business connected with war contracts. During that year he usually worked from nine o'clock in the morning to five-thirty or six o'clock in the afternoon, frequently working nights, Saturdays, and Sundays. On his visits to Wright Field, he generally arrived there at about eight or nine o'clock in the morning and left as late as five-thirty or six o'clock in the afternoon. Except for a period of a few days, petitioner took no vacation in 1943.

Petitioner's reputation as a manufacturer's representative in the automotive and aviation replacement parts industry in 1943 was that he was honorable, very capable, and a hard worker.

OPINION.

VAN FOSSAN, Judge:

As a result of renegotiation proceedings initiated by the Services and Sales Renegotiation Section of the Office of the Under Secretary of the Navy, acting on behalf of the War Contracts Price Adjustment Board, it was determined by such section that petitioner's profits for the year 1943 were excessive in the amount of $11,683.08, which, after adjustment for a tax credit of $7,055.40, required a refund to the United States of $4,627.68. The War Contracts Price Adjustment Board adopted the determination as its determination. In its answer to the amended petition, the respondent asks that we determine petitioner's excessive profits in the calendar year 1943 to be $11,598.51, or the difference between the statutory floor of $25,000 and petitioner's gross receipts of $36,598.51 in connection with contracts for products having a war-end use.

The petitioner, in 1943, received compensation in the total gross amount of $36,598.51, of which amount $19,131.44 represented commissions on the amount of contracts or subcontracts procured by him for his principals and $17,467.07 represented commission at 4 1/2 per cent upon the amount of certain contracts or subcontracts of Raymond De-Icer Co. of California. The payment of no part of this latter amount was contingent upon the procurement by petitioner of any such contracts or subcontracts. There is no dispute about these facts. They were conceded by respondent.

It is contended by petitioner that his compensation to the extent of $17,467.07, the amount received from Raymond De-Icer Co. of California, is free of renegotiation since it was not derived pursuant to a contract or arrangement as defined in section 403(a)(5)(B) of the Sixth Supplemental National Defense Appropriation Act, as amended, and that, therefore, the balance of his compensation, $19,131.44, the amount received under contracts within the meaning of section 403 (a) (5) (B), is less than the minimum of $25,000 exempt from renegotiation under section 403 (c) (6).

SEC. 403. (a) For the purposes of this section—(5) The term ‘subcontract‘ means—(A) Any purchase order or agreement to perform all or any part of the work, or to make or furnish any article, required for the performance of any other contract or subcontract, but such term does not include any purchase order or agreement to furnish office supplies; or(B) Any contract or arrangement other than a contract or arrangement between two contracting parties, one of which parties is found by the Board to be a bona fide executive officer, partner, or full-time employee of the other contracting party, (i) any amount payable under which is contingent upon the procurement of a contract or contracts with a Department or of a subcontract or subcontracts, or determined with reference to the amount of such a contract or subcontract or such contracts or subcontracts, or (ii) under which any part of the services performed or to be performed consists of the soliciting, attempting to procure, or procuring a contract or contracts with a Department or a subcontract or subcontracts; Provided, That nothing in this sentence shall be construed (1) to affect in any way the validity or construction of provisions in any contract with a Department or any subcontract, heretofore at any time or hereafter made, prohibiting the payment of contingent fees or commissions; or (2) to restrict in any way the authority of the Secretary or the Board to determine the nature or amount of selling expenses under subcontracts as defined in this subparagraph, as a proper element of the contract price or as a reimbursable item of cost, under a contract with a Department or a subcontract.

Mr. Vinson of Georgia. * * * What selling is necessary in such a situation as this? Agent after agent who appeared before the committee admitted that little, if any, selling is required in these days. This is particularly true on repeat orders. Once a company has demonstrated its ability to produce, order after order keeps coming in, until even its expanded capacity is taxed, and there is a huge backlog which it will take months and even years to complete. And it must be remembered that appended to all this are contingent fees, mounting, ever mounting, as the war program expands.I am not prepared to say that in peacetime, and even at the beginning of the emergency, some of these representatives may not have served a useful function. They may have helped bring together Government and business, by persuading manufacturers that they could make something needed in the war program, and convincing Government officials to give them an opportunity to show what they could do. They may have made some suggestions for the adaptation of peacetime production to war requirements. Now that the help with priorities, they may expedite payments, they may generally service the contracts, but all this is certainly not worth anything like the huge sums they are receiving. Scarcely ever do they have a technical engineering background or experience. Hence they cannot perform engineering services. That is done by the engineers and designers in the services, and the engineering departments of the contractors. In short, they act as nothing more than intelligent conveyors of information between their principals and the Government departments.

(6) This subsection shall be applicable to all contracts and subcontracts, to the extent of amounts received or accrued thereunder in any fiscal year ending after June 30, 1943, whether such contracts or subcontracts were made on, prior to, or after the date of the enactment of the Revenue Act of 1943, and whether or not such contracts or subcontracts contain the provisions required under subsection (b), unless (A) the contract or subcontract provides otherwise pursuant to subsection (i), or is exempted under subsection (i), or (B) the aggregate of the amounts received or accrued in such fiscal year by the contractor or subcontractor and all persons under the control of or controlling or under common control with the contractor or subcontractor, under contracts with the Departments and subcontracts (including those described in clause (A), but excluding subcontracts described in subsection (a) (5) (B)) do not exceed $500,000 and under subcontracts described in subsection (a) (5) (B) do not exceed $25,000 for such fiscal year. If such fiscal year is a fractional part of twelve months, the $500,000 amount and the $25,000 amount shall be reduced to the same fractional part thereof for the purposes of this paragraph.

The petitioner and respondent agree that the phrase in section 403 (a) (5) (B), ‘determined with reference to the amount of such a contract or subcontract or such contracts or subcontracts,‘ must be construed in connection with the statutory language quoted in the footnote. The respondent, however, seeks to limit the reference for purposes of construction to the words ‘contract or contracts with a Department or of a subcontract or subcontracts‘ so that the whole clause would read: ‘determined with reference to the amount of a contract with a Department or subcontract or contracts with a Department or subcontracts.‘ Petitioner argues that reference to the preceding language may not be so limited and that ‘such‘ contract or contracts or ‘such‘ subcontract or subcontracts relate back to the phrase ‘the procurement of‘ a contract or contracts with a Department.

Although the question at issue was that of jurisdiction, the construction of the above statutory language was considered and discussed in George M. Wolff v. Edward Macauley, Acting Chairman, United States Maritime Commission, 8 T.C. 146. In that case the respondent took the position that the petitioners were subcontractors as described in section 403 (a) (5) (B) and that by reason thereof they were excluded under section 403 (e) (2) from filing a petition with this Court for redetermination. After reviewing the legislative history of the section, this Court said:

With this legislative history in mind, we must determine whether the petitioners, on the basis of the four subcontracts in question, are subcontracts described in section 403 (a) (5) (B). We do not think they are as to subcontract 16 and purchase order No. 71742 merely because in the former case their fee was to be computed on the total amount of contracts approved for the construction of buildings and in the latter was based on 5 per cent of estimated costs. Certainly their fee was not ‘contingent upon the procurement of a contract * * * with a Department or of a subcontract,‘ nor do we think it may be said that it was ‘determined with reference to the amount of such a contract or subcontract‘ that is, a contract or subcontract procured by petitioners. In other words, the phrase ‘determined with reference to the amount of such a contract,‘ etc., may not be isolated, as the respondent would have it, but must be construed in connection with the preceding language and in the light of the purpose sought to be accomplished by Congress. So construed, the language of the statute aptly applies to manufacturers' agents and sales engineers who procure Government contracts for their principals and whose compensation is contingent upon the business they are able to obtain for the principals or fixed by the amount of such business.

See also Iverson & Laux, Inc. v. James Forrestal, Secretary of the Navy, 6 T.C. 247.

Herein, as in the Wolff case, the petitioner was not a subcontractor within the meaning of section 403 (a) (5) (B) merely because his compensation was based or computed upon the amount of the contracts or subcontracts procured by his principal. Since petitioner's compensation of $17,467.07 received from Raymond De-Icer Co. was not based or contingent upon the amount of contracts procured by him for his principal, it was not derived pursuant to subcontracts as defined in section 403 (a) (5) (B), as construed in the Wolff case.

We conclude, therefore, that petitioner's 1943 compensation of $36,598.51 was free of renegotiation to the extent of $17,467.07. Subtracted from the total, this leaves but $19,131.44 of his compensation about which there is no dispute. However, since this amount, admittedly received on subcontracts within section 403 (a) (5) (B), is less than $25,000, it is exempt from renegotiation under section 403 (c) (6).

While no contention has been made that petitioner's contracts fall within the definition of section 403 (a) (5) (A), we may say in passing that petitioner's entire compensation obviously is less than the $500,000 minimum limit applicable to section 403 (a) (5) (A) contracts by virtue of section 403 (c) (6). The result, therefore, would be the same in either case.

Reviewed by the Court.

An order will issue in accordance herewith.

HARRON, J., dissenting: It is my understanding that this case is of importance as a test case, to test the meaning of the words used in (i) of section 403(a)(5), with respect to the fees paid to petitioner under his contract with Raymond De-Icer Co. The question is whether petitioner's contract of May 15, 1943, with Raymond De-Icer Co. was a ‘subcontract‘ within the meaning of (i) of section 403(a)(5)(B).

If petitioner had agreed in the Raymond contract to solicit or attempt to procure a contract with a Department, or subcontracts, it would be a subcontract under (ii) of section 403(a)(5)(B); or if any amount payable to petitioner under the Raymond contract had been contingent upon the procurement of a contract with a Department, or subcontract, the Raymond contract would be a subcontract under (i) of section 403(a)(5)(B). The terms of the Raymond contract did not embrace either of the above factors. However, Raymond had certain contracts or subcontracts with a Department or Departments, and the agreement with petitioner provided that his fees would be determined with reference to such Department contracts. That is the purport of the provision in the second paragraph of the agreement, and it is found as a fact that $17,467.07, represented 4 1/2 per cent on the sales price received by Raymond on certain of its contracts (meaning contracts with Departments).

It is the view of the majority that (i) in section 403 (a) (5) (B) is limited to an arrangement under which one party is to receive as compensation for his services, an amount determined with reference to the amount of a contract with a Department which he procures. That construction of the pertinent part of section 403 (a) (5) (B) was made in Wolff v. Macauley, 8 T.C. 146, was not reviewed by the Court.

If the Congress intended that (i) should be limited to arrangements with agents where the agent procured a contract with a Department for his principal, there would seem to have been little reason for (ii) in section 403 (a) (5) (B). That clause becomes a tautological clause, unnecessarily repeating part of what would be covered by (i), if the view of the majority is correct.

Searching the record to learn the intent of the legislators, I find significant statements of Mr. Vinson of Georgia in the Congressional Record for April 20, 1943, at page 3687 (edition of the daily printing of the Record), where he speaks, not of the services of agents in procuring a contract, but of the payments to such agents, afterward, in servicing a contract with a Department. Part of his statement is set forth in the margin.1

In the record of the hearings before the Committee on Naval Affairs (Senate), 78th Cong., 1st sess., on H.R. 1900, May 12, 1943, Jacob E. Davis, Special Assistant to the Under Secretary of the Navy, stated at page 17, as one of the objectives in dealing with the problem of fees of brokers and agents, as follows:

* * * First, to prevent the unwarranted expense to the Navy caused by the inclusion of these exorbitant fees in the selling price of the contracts to which they were referable; * * *

I am of the opinion that (i) in (B) of section 403 (a) (5) is clear in its wording, although awkward, and that it provides that the term ‘subcontract‘ shall include an arrangement whereunder the compensation payable is determined with reference to the amount of a contract with a Department, or of a subcontract, regardless of whether the payee, a representative of the principal, did or did not procure the contract with the Department to which the fee is referable. This construction of (i) finds support, in my opinion, in the explanation given in Report 353 of the Committee on Naval Affairs of the House, 78th Cong., 1st sess., at page 6, which is quoted in the Wolff case, supra, notwithstanding the opposite view thereof which was taken in the Wolff case. I believe (i) is broad in its terms and that the Congress was attempting to reach, for renegotiation, all fees paid to agents of principals which would enter into the costs to be paid by the Government under contracts with principals who paid fees to agents; and that, in order to reach all fees of agents which, in the last analysis, the Government would be paying as part of the cost of a war contract, the legislators worded (i) to include fees which would be referable to a war contract whether or not the agent procured the contract to which the fee is referred. The record of the legislators' considerations shows that they were concerned about fees for ‘servicing‘ contracts which the agent did not procure. Since the view adopted by the majority serves to narrow the scope of (i) in a way which I believe was not intended, I respectfully dissent.

TURNER and OPPER, JJ., agree with this dissent.