Action by the H.T. Hackney Company against the United States to recover the amount of an overpayment of income and excess profits taxes.

Judgment for plaintiff.

Plaintiff overpaid its income and excess profits tax in the total amount of $7,464.72 for the taxable years 1933 to and including the fiscal year ending June 30, 1936, by reason of erroneous valuation of inventories, which error was corrected for the fiscal years 1937, 1938 and 1939, and in this proceeding seeks to recover these overpayments under the provisions of Section 820 of the Revenue Act of 1938, § 3801, Internal Revenue Code, 26 U.S.C.A.Int.Rev. Code, § 3801.

The material facts are not in dispute and the questions presented are (1) whether plaintiff's claim comes within and may be allowed under the provisions of Section 820(b), and (2), whether the Commissioner of Internal Revenue made a determination within the meaning of Section 820(a)(1)(C) upon which the right to sue for the overpayments is conditioned.

Special Findings of Fact

1. Plaintiff, The H.T. Hackney Company, Inc., is a corporation, organized under the laws of Tennessee, and during the years 1933 through the year ending June 30, 1941, was engaged in the wholesale grocery business at Knoxville, Tennessee. It kept its books and made its returns on the accrual basis.

2. March 15, 1934, plaintiff filed an income and excess profits tax return for the calendar year 1933, which disclosed a net income of $11,806.40 and an income tax liability of $1,623.38. This tax was paid in quarterly installments on the dates and in the amounts as follows:

March 15, 1934 .................. $405.84 June 14, 1934 ................... 405.84 September 14, 1934 .............. 405.84 December 14, 1934 ............... 405.86 ________ Total ..................... 1,623.38

After examination, the Commissioner of Internal Revenue (herein referred to as the "Commissioner") determined a net income or $15,585.88 and a deficiency in income tax of $519.67 for 1933. This deficiency was assessed in January 1936 and paid on January 17, 1936, together with interest thereon of $57.42, the total payment being $577.09.

3. March 13, 1935, plaintiff filed an income and excess profits tax return for the calendar year 1934, which disclosed a net income of $39,299.27 and an income tax liability of $5,403.65. This tax was paid in quarterly installments on the dates and in the amounts as follows:

March 13, 1935 .................. $1,350.91 June 13, 1935 ................... 1,350.91 September 17, 1935 .............. 1,350.91 December 16, 1935 ............... 1,350.92 _________ Total ...................... 5,403.65

After examination, the Commissioner determined a net income of $38,290.88, and an income tax liability of $5,265.00 for 1934. On February 11, 1937, the overpayment of income tax of $138.65 for 1934 was refunded to plaintiff.

4. In 1935 plaintiff, with the approval of the Commissioner, changed its method of reporting income from the calendar-year basis to a fiscal-year basis, with its fiscal years ending June 30th. On September 16, 1935, plaintiff filed its income and excess profits tax return for the period January 1, 1935, through June 30, 1935, which disclosed a net income of $13,593.91 and an income tax liability of $1,869.16. This tax was paid in quarterly installments on the dates and in the amounts as follows:

September 17, 1935 ................ $467.29 December 16, 1935 ................. 467.29 March 16, 1936 .................... 467.29 June 15, 1936 ..................... 467.29 ________ Total ..................... 1,869.16

After examination, the Commissioner determined a net income of $16,100.94 and a deficiency in income tax of $344.72 for the period ending June 30, 1935. This deficiency was assessed in May 1937 and was paid on June 17, 1937, together with interest thereon of $35.88, the total payment being $380.60.

5. September 11, 1936, plaintiff filed its income and excess profits tax return for its fiscal year ending June 30, 1936, which disclosed a net income of $52,595.98, an income tax liability of $7,231.95, and a declared value excess profits tax liability of $346.73. These taxes were paid in quarterly installments on the dates and in the amounts as follows:

September 11, 1936 .............. $1,820.34 December 15, 1936 ............... 1,919.45 March 15, 1937 .................. 1,919.45 June 15, 1937 ................... 1,919.44 _________ Total ...................... 7,578.68

After examination, the Commissioner accepted the net income as reported on this return and the income tax liability as computed therein. Plaintiff was allowed an exemption from declared value excess profits tax of $46,301.35, which resulted in an overpayment of declared value excess profits tax of $32.00, which amount was refunded March 23, 1938.

6. September 15, 1937, plaintiff filed its income and excess profits tax return for the fiscal year ending June 30, 1937, disclosing a net income of $118,551.04, an income tax liability of $13,669.90, and a declared value excess profits tax of $83.32, of which $3,438.30 was paid on September 15, 1937, and $10,314.92 on January 4, 1938. Interest in the amount of $10.14 was assessed on the January 1938 assessment list, and was paid January 4, 1938.

7. Plaintiff, on September 15, 1938, filed its income and excess profits tax return for the fiscal year ending June 30, 1938, disclosing a net income of $75,058.73, and an income tax liability of $6,157.47, which was paid on the dates and in the amounts as follows:

September 16, 1938 .............. $1,539.42 December 16, 1938 ............... 1,539.35 March 16, 1939 .................. 1,539.35 June 16, 1939 ................... 1,539.35

8. September 15, 1939, plaintiff filed its income and excess profits tax return for the fiscal year ending June 30, 1939, disclosing a net income of $8,587.97, and an income tax liability of $161.03, which was paid September 18, 1939.

In January 1939, prior to the filing of the original return for the fiscal year 1939, plaintiff discovered that the manager of its Board Street branch store had been systematically inflating the inventories at that store during the period beginning in 1933 and ending December 31, 1938. Shortly after January 1, 1939, C.H. Gallaher, who had been the manager of the Board Street branch store during the period mentioned, was advised by plaintiff that he would be retired from active participation in the business of the company, and he informed plaintiff's president for the first time of the inflated inventories, but the amount by which the inventories had been inflated each year and the total inflation or overvaluation to that time were unknown and uncertain. In the return filed September 15, 1939, for the fiscal year ending June 30, 1939, plaintiff, therefore, used as an opening inventory the same figure used as the closing inventory in the preceding fiscal year knowing such figure to be erroneous, but the closing inventory stated in this return for 1939 was the actual and correct inventory for the fiscal year ending June 30, 1939. At the time of filing this return plaintiff intended to file an amended return correcting the inventory errors to June 30, 1938, and stating the correct opening inventory for 1939 and the correct operating profit for such year computed on the basis of correct opening and closing inventories, as soon as the amount and extent of the inflation to December 31, 1938 (six months following the close of the fiscal year 1938), could be determined, and this the plaintiff did on September 15, 1941.

9. Plaintiff carried on an investigation and audit to determine the extent to which the inventories had been inflated in each year and the total amount of such inflation to June 30, 1938, and by September 15, 1941, concluded that such inflation amounted to approximately $60,000, and on that date plaintiff prepared and filed an amended return for the fiscal year 1939, reporting therein an increase in net income of $75,226.66. On the basis of this amended return plaintiff voluntarily paid an additional tax of $11,168.60 on September 2, 1942, without assessment. At the same time (September 15, 1941) plaintiff filed an amended income and declared value excess profits tax return for the fiscal year ending June 30, 1938, on the same basis as the amended return for 1939, reporting therein a reduction in net income to $72,035, and disclosing an income tax liability for that year of $5,703.91. It also filed on the same date a claim for refund of $453.56 for its fiscal year ending June 30, 1938, which amount covered the difference between the tax paid for the fiscal year 1938 on the basis of the inflated inventories and the tax shown to be due on the amended return computed on the basis of reduced inventories. The following reasons were set forth as the basis of the claim for refund:

"In January, 1939, we decided to change Managers. When the Manager was notified of this and that the new Manager was to take charge and take Inventory, the Manager stated that his Inventory was inflated, and that they would not find the goods there by several thousand dollars. When the new inventory was prepared it had been inflated approximately $60,000.00. When we filed our tax return for the fiscal year ended June 30, 1939, we did not undertake to allocate this difference over the years affected. We were informed that in several instances Inventory losses were allowable for Income Tax Purposes in the year discovered, also that the Income Tax had been paid on inflated Income at the time or times inflation took place. We have had our auditors to prepare Gross Profit Percentage from Pay Cash Grocery Company, Knoxville, Tennessee. This Grocery company being controlled and operated by approximately the same interest. Adopting these percentages it appears that H.T. Hackney Co., Broad Street Branch, should have made a Gross Profit of $75,226.66 or a percentage of 9.37% on sales, instead of .42% Gross Profit Percentage Loss or a Gross Profit Loss of $3,257.80. Adopting these percentages it appears that H.T. Hackney Co., Broad Street Branch, should have made a Gross Profit of $70,866.22 or a percentage of 8.44% on sales, instead of 8.80% Gross Profit Percentage or a Gross Profit of $73,889.95 for the fiscal year ended June 30, 1938. We know that this loss could not reflect the true income for the year ended June 30, 1939, and that the inflation should be prorated and spread over several prior years. We believe the method used in our Income Tax Return for Income Tax purposes was correct and equitable to the company and the Government. The Excess Profits Act enacted during 1940 works a hardship on the company, if the distribution of Income is not adjusted to the proper years, therefore, we have prepared Amended Returns for the purpose of equitable distribution of income for Excess Profits Purposes, and if necessary, to pay the Income Tax, to obtain the proper distribution of Income over the Excess Profits Base Period years we are prepared to do so."

A similar statement was attached to the amended tax return for the fiscal year ending June 30, 1939.

10. In a sworn statement dated August 10, 1942, C.H. Gallaher, a stockholder, officer and manager of plaintiff's Broad Street branch store, located in Knoxville. Tennessee, stated that the inventory of merchandise on hand at the end of each of the years 1933 through June 30, 1938, of this store contained certain fixed amounts added for the purpose of inflating these inventories.

After plaintiff's amended return for its fiscal year 1939 and its amended return and claim for refund for its fiscal year 1938 had been filed, plaintiff's books and records were examined by an agent of the Internal Revenue Service, who worked with plaintiff's accountant over a period of three or four weeks. As a result of this audit, the extent of the inflation of the inventories and overstatement of income at the end of each year was determined to be as follows:

The examining agent and plaintiff's accountant agreed that their determinations of the amounts by which the inventories were overstated, were the most accurate estimates which they knew how to make on the basis of the available records and information.

12. Following the audit of plaintiff's books and records, Revenue Agent Tilton and Internal Revenue Agent in Charge, Polk, made and transmitted to the Commissioner and plaintiff a detailed audit report on the amended returns for 1938 and 1939, and claim for refund for 1938. This report set out the corrections and adjustments in the inventories at the beginning and end of each year from January 1, 1933, to June 30, 1938, as tabulated in finding 10. The report also included a detailed audit for the fiscal year 1937. The Commissioner accepted the determination made by the examining agent and plaintiff's accountant with respect to the amounts by which plaintiff's inventories were overstated and for the fiscal years ending in 1937, 1938, and 1939, specifically covered in the report, the Commissioner computed the additional tax for 1939; and for 1937 and 1938 allowed plaintiff credits and refunds as hereinafter shown.

13. The Commissioner determined that plaintiff's taxable income for the fiscal year ending June 30, 1938, had been overstated by reason of a $5,000 understatement of the cost of goods sold, as shown by the following adjustment:

Inventory beginning of year July 1, 1937, as per return ................... $333,828.84 Corrected inventory at July 1, 1937 ... 271,828.84 ___________ $62,000.00 Inventory at end of year June 30, 1938, as per return 278,793.29 Corrected inventory at June 30, 1938 ... 211,793.29 __________ 67,000.00 __________ Net increase in cost of goods sold .......... 5,000.00

The reduction of plaintiff's taxable income by this adjustment resulted in the determination of an overpayment of $750.30 for the fiscal year ending June 30, 1938. The Commissioner allowed plaintiff's claim for refund for the year ending June 30, 1938, and in May 1943, issued a certificate of overassessment which showed that $453.56 of this overpayment had been applied on April 6, 1943 against the interest due on the additional tax paid on the amended return filed by plaintiff for the fiscal year ending June 30, 1939. The balance of the overpayment for the fiscal year ending June 30, 1938, in the sum of $296.74, was applied against plaintiff's excess profits tax liability for the fiscal year June 30, 1941, as hereinafter more fully explained.

14. Plaintiff's net income for its fiscal year 1939 was determined by the Commissioner to have been understated by $67,000.00, representing the amount of the overstatement of its inventory at the beginning of the taxable year, and upon audit of the original and amended returns computed on additional tax of $10,251.21 for the fiscal year ending June 30, 1939, together with interest thereon of $2,020.88. The additional tax, which had been previously paid, and the interest were assessed on the January 1943 assessment list and were satisfied as follows:

Paid in cash, September 2, 1942 $11,168.60 Paid by credit, April 6, 1943 .... 453.34 Paid by credit, April 6, 1943 .... 453.56 Reduction in interest abated, August 10, 1943 ................ 196.59 _________ Total ......................... 12,272.09

15. September 13, 1941, plaintiff filed an income, declared value excess profits and defense tax return and an excess profits tax return for the fiscal year ending June 30, 1941, disclosing a net taxable income of $115,099.59 and an income tax liability of $27,623.90, and an excess profits tax liability of $1,106.09, which were paid in four installments as follows:

-------------------------------------------------- | Income | Excess | tax | profits | | tax -------------------------|-------------|---------- September 15, 1941 .... | $6,905.97 | $276.53 December 16, 1941 ..... | 6,905.97 | 276.53 March 14, 1942 ........ | 6,905.97 | 276.54 June 18, 1942 ......... | 6,905.97 | 276.49 --------------------------------------------------

After examination of plaintiff's books of account and records, a deficiency of $877.56 was determined in plaintiff's excess profits tax liability for the fiscal year 1941. This deficiency was not assessed, however, since overpayments of income taxes for the fiscal years 1937 and 1938, resulting from the overstatement of inventories for these years, as set forth in finding 10 above, was applied against plaintiff's excess profits tax liability for the fiscal year 1941, as provided by the provisions of Section 734 of the Internal Revenue Code, as amended. See 26 U.S.C.A.Int.Rev. Code, §§ 710-736. This adjustment eliminated all of plaintiff's excess profits tax liability for 1941 and resulted in a refund of this entire tax paid of $1,106.09, which was received by plaintiff in May 1943.

16. November 29, 1943, plaintiff filed four claims for refund for the taxable periods and in the amounts as follows:

Calendar year 1933 ............... $2,143.05 Calendar year 1934 ............... 2,750.00 Period January 1 to June 30, 1935 687.50 Fiscal year ended June 30, 1936 .. 1,964.73

Each of these claims was based on the ground that plaintiff's taxable income for the year involved had been overstated, due to its inventory being inflated at the end of the particular year involved, as set forth in finding 10 above, and each claim asserted that plaintiff, under the provisions of Section 3801 of the Internal Revenue Code was entitled to recover the amounts set forth therein.

17. September 14, 1945, the examining agent of the Internal Revenue Service who had examined plaintiff's books with respect to the tax returns and tax liability for the fiscal years 1937, 1938, and 1939, made a report regarding the claims for refunds referred to in the preceding finding. Except for an adjustment of $80.56 less than the amount of overpayment which plaintiff claimed for the year 1933, the examining agent and the Internal Revenue Agent in Charge recommended that plaintiff's claims for refund be allowed in full for the overpayments shown. Plaintiff has agreed to this adjustment of $80.56, thereby reducing its claim in this action to the sum of $7,464.72 instead of $7,545.28, claimed in the petition.

18. However, on May 23, 1946, the same examining revenue agent, namely, A.C. Tilton, and Joe F. Hale, Internal Revenue Agent in Charge, who had approved and transmitted the first audit report of revenue agent Tilton made a second report respecting plaintiff's claims for refund for the taxable years 1933 through 1936. As stated the first audit report detailed the amounts by which the inventories in each year had been inflated and the total accumulated inflation at the beginning and end of each year or taxable period, set forth the correct opening and closing inventories, computed the correct operating profits and net income, and computed the correct tax liability and the exact overpayments in each year due to the overstatements of inventories and operating profit. The second report of agent Tilton and Internal Revenue Agent in Charge Hale was in all respects the same as the first report of September 14, 1945, so far as the inventory adjustments were concerned, but they recommended to the Commissioner of Internal Revenue (a copy of such report and recommendation being mailed to plaintiff) that plaintiff's claims for refund for 1933 to 1936, inclusive, be rejected for reasons which were stated as follows:

"Each of the above-listed claims was based on corrected inventories and a corresponding adjustment in the net income for these years. Taxpayer claims the adjustments are permissible under Section 3801 of the Internal Revenue Code.

"Section 3801 of the Internal Revenue Code provides for the correction of the effect of certain types of errors and further states that no correction is permissible unless an inconsistent position is adopted in a determination. For the purpose of this Section (b) states that its provisions may be applied when a determination under the income tax laws (1) `requires the inclusion in gross income of an item which was erroneously included in the gross income of the taxpayer for another taxable year.'

"The use of an incorrect inventory for a prior year, either at the beginning or close of a taxable year is not an item which was incorrectly included in the gross income of the taxpayer for another taxable year within the meaning of Section 3801 of the Internal Revenue Code."

19. The original detailed audit report of revenue agent Tilton, dated September 10, 1942, which was approved and transmitted to the Commissioner and plaintiff December 18, 1942, by Internal Revenue Agent in Charge Marsh L. Polk, with reference to plaintiff's inventories, tax liability, amended returns and claim for refund for the fiscal years 1938 and 1939, set forth on pages 5 and 6 the exact amounts and totals by which the inventories from 1933 to and including the opening inventory for the fiscal year 1939 had been inflated and overstated, as determined and agreed upon. This report showed the accumulated inflation at the end of each calendar or fiscal year and the amount of inflation during each year, and set forth that the total accumulated overstatement to June 30, 1938, was $67,000. The Commissioner approved this report and these findings.

The first detailed audit report dated September 14, 1945, with reference to the claims for refund and mentioned in findings 17 and 18, recomputed the plaintiff's income and tax liability for each of the years 1933 to and including the fiscal year 1936, and the overpayments resulting from the overstatements in cost or value of the inventories and operating profits, and the Commissioner accepted this report and made no changes at any time in these computations. However, he took no action on the claims for refund filed by plaintiff for the years 1933 to 1936, inclusive, until after the receipt of the second report above mentioned in which it was recommended that the claims for refund be disallowed. The Commissioner adopted the second recommendation and, without changing any of the computations or the overpayments shown in the first report dated May 6, 1946 (transmitted May 23, 1946), notified plaintiff by registered mail on September 25, 1946, that its claims for refund for the years 1933 to June 30, 1936 (finding 16), had been disallowed, the notice of rejection stating as follows:

"Reference is made to the revenue agent's report dated May 6, 1946, with respect to your tax liability. A copy of the report was forwarded to you, and you were informed that the claim or claims for refund indicated above would be disallowed.

"In accordance with the provisions of section 3772(a)(2) of the Internal Revenue Code [26 U.S.C.A.Int.Rev. Code, § 3772(a)], this notice of disallowance in full of your claim or claims is hereby given by registered mail."

20. The overpayments claimed herein by plaintiff for the taxable years 1933 to and including the fiscal year ending June 30, 1936, in the total amount of $7,464.72 resulted entirely from overstatements of inventories in the original returns and the subsequent adjustments in and reductions of such inventories for the years involved. Except as stated herein, no part of the taxes paid by plaintiff for the years beginning January 1, 1933 and ending June 30, 1936, have been refunded or credited to plaintiff.

LITTLETON, Judge.

Plaintiff overpaid its income tax for the calendar years 1933 and 1934; for the fiscal period ending June 30, 1935, and for the fiscal years ending June 30, 1936 to 1938, inclusive. These overpayments resulted from the computation of excessive operating profit for each year by reason of overvaluation on plaintiff's books and in its returns of the closing merchandise inventory for 1933, and the opening and closing inventories for each year thereafter to and including the closing inventory for the fiscal year ending June 30, 1938.

Plaintiff discovered the error in January 1939 (six months after the close of the fiscal year 1938), but before the cumulative effect of the erroneous overstatements could be worked out and corrected, the original return for the fiscal year 1939 was prepared and filed by plaintiff on September 15, 1939, and the operating profit shown therein was computed on the basis of a correct closing inventory and on overvalued opening inventory. At the time this return was prepared and filed it was the intention and understanding of plaintiff that an amended return for that year would be filed as soon as the correct or approximately correct opening inventory could be determined (finding 8). By using the inflated opening inventory and a correct closing inventory for the fiscal year 1939, plaintiff's operating profit and net income were understated.

During a period beginning in the early part of 1933 and ending December 31, 1938, a manager of one of plaintiff's branch stores systematically inflated the inventory at the branch store managed by him. He did this without plaintiff's knowledge in order that the earnings of his store would compare favorably with the earnings of other branch stores operated by plaintiff. The discrepancy was first discovered by plaintiff about January 10, 1939, when the branch manager was retired. None of plaintiff's property was taken by the branch manager, but his store did not have on hand the inventory reported by him with the result that this branch store, and, therefore, the plaintiff, did not actually realize in the taxable periods involved the income reported by plaintiff in its returns for those periods. Plaintiff commenced an investigation and audit to determine the correct inventories and correct income, and upon completion thereof found that as a result of the amount erroneously added to the closing inventory for each taxable period from January 1, 1933, to June 30, 1938, the closing inventory for the fiscal year 1938 and the opening inventory for the fiscal year 1939, as well as the opening and closing inventories for each prior year, had been greatly inflated and overstated. From this investigation plaintiff concluded that the closing inventory for 1938 and the opening inventory for 1939 had been overstated and overvalued by approximately $60,000.

An amended return reporting an increase of $75,226.66 in net income for the fiscal year 1939 was, therefore, prepared and filed, and at the same time an amended return for 1938 was filed showing a decrease in net income for that year from $75,058.73 to $72,035, and an overpayment of $453.56. A claim for refund and credit for 1938 accompanied this return. This claim for refund, for the fiscal year ending June 30, 1938, was a timely claim under the ordinary statute of limitations relating to refunds, and it was considered and allowed in the amount of $750.30 in a final determination by the Commissioner in 1943. In his audit of the return for 1938 and his final determination and disposition of the refund claim, the Commissioner determined, on the basis of a revenue agent's audit report, the amounts by which the opening and closing inventories for that year and each of the prior years, back to the calendar year 1933, had been overstated. The year 1938 involved all the inventory errors that had been made and which had accumulated to June 30, 1938. The accumulated inflation to June 30, 1937, was $62,000, and the Commissioner reduced the opening inventory for the fiscal year 1938 by that amount. The inventory during the year was further inflated by $5,000, and the Commissioner reduced the closing inventory by $67,000 ($62,000 plus $5,000).

These inventory adjustments produced an additional tax of $10,251.21 for the year 1939. The plaintiff, by an amended return theretofore filed, corrected the opening inventory for the fiscal year beginning July 1, 1938, and ending June 30, 1939, and on September 2, 1942, voluntarily paid an additional tax of $11,168.60, in excess of the tax of $161.03, paid on the original return.

As we have said, plaintiff became aware of the fact that its inventories to June 30, 1938, had been inflated long before it made its original return for 1939 but was not in possession of sufficient facts to enable it to correct the opening inventory and state its correct income for the fiscal year 1939 when it filed its original return at the time required. The plaintiff's correction in the fiscal year 1939, with the approval of the Commissioner, of the erroneous overstatements in inventories and operating profits included in income in prior years, had the effect of shifting an item of income to 1939, that is, portions of the operating profits computed for such prior years, in the total amount of $67,000, in which year such income was again taxed.

The Commissioner, in May 1943, refunded by credit the overpayment by plaintiff for the fiscal year 1937, under Section 734 of the Internal Revenue Code, as amended, Repealed Nov. 8, 1945, 26 U.S.C.A.Int.Rev. Code, §§ 710-736, and that year is not here involved. Plaintiff overpaid its tax for the four taxable periods here involved, as follows:

Calendar year 1933 ............... $2,062.49 Calendar year 1934 ............... 2,750.00 First six months of 1935 ......... 687.50 Fiscal year ended June 30, 1936 .. 1,964.73 _________ Total ....................... 7,464.72

The sole cause of these overpayments was the erroneous inclusion in net income for each year of an item of income, to wit, excessive operating profit, determined and computed upon the basis of erroneous and overvalued inventories. Unless plaintiff is given judgment for these overpayments it will be denied the relief for which we think Congress intended to provide by Section 820 of the Revenue Act of 1938, 26 U.S.C.A Int.Rev. Code, § 3801.

On the merits plaintiff's claim is governed by our opinion and decision in Gooch Milling Elevator Company v. United States, Ct.Cl., 78 F. Supp. 94. Plaintiff filed claims for refund for the taxable years and period here involved, within one year after the Commissioner's final determination on the allowance of plaintiff's claim for refund for the fiscal year 1938 (findings 13 and 16). The claims here involved were formally disallowed on September 25, 1946, on the sole ground that the term "item" used in Section 820(b) does not include the result flowing from an increase or decrease in operating profit or loss through adjustments in two or more years in the cost or value of inventories. We have held in the Gooch Milling Elevator Company case, supra, that this interpretation of Section 820 is too limited and is, therefore, incorrect. On the authority of that case plaintiff is entitled to recover.

Counsel for defendant argue, however, that plaintiff may not recover on the asserted ground that there was no final determination within the meaning of Section 820(a). It is argued that plaintiff's rights must be based solely upon what was done by the Commissioner with respect to the fiscal year 1939, and since there was not a closing agreement under § 606 of the Revenue Act of 1928 as amended by § 801 of the Revenue Act of 1938, 26 U.S.C.A.Int. Rev. Code, § 3760, this suit may not be maintained. We do not agree. We think it is clear that there was a final determination within the language and intent of subsection (a)(1)(C)(i) of Section 820, when the Commissioner, in a final determination on the claim for refund for 1938, gave authoritative sanction to the inconsistent treatment by plaintiff in its amended returns for 1938 and 1939 with that which had occurred in the years 1933 to and including the fiscal year ending June 30, 1938. What occurred with respect to the fiscal year 1939 is, in our opinion, unimportant under the facts in this case, insofar as plaintiff's right to recover is concerned. For the year 1939 plaintiff voluntarily corrected the inventory errors so far as that year was concerned, and reported and paid the additional tax due before it was determined and assessed by the Commissioner. It is true that the Commissioner thereafter approved what plaintiff had done, but so far as Section 820 is concerned, he did more than merely give approval to an amended return when he made an authoritative and final decision and determination allowing and disposing of the claim for refund for the fiscal year 1938. Subsection (a)(1)(C)(i) provides as follows:

"(a) Definitions. For the purpose of this section —

"(1) Determination. The term `determination under the income tax laws' means — * * *

"(C) A final disposition by the Commissioner of a claim for refund. For the purposes of this section a claim for refund shall be deemed finally disposed of by the Commissioner —

"(i) as to items with respect to which the claim was allowed, upon the date of allowance of refund or credit or upon the date of mailing notice of disallowance (by reason of offsetting items) of the claim for refund, * * *."

In commenting on the above-quoted subsection the Senate Finance Committee stated in its report on Section 820 (Rep. No. 1567, 75th Cong., 3rd sess.), at page 50, in part, as follows:

"Inasmuch as an adjustment should not be made until the inconsistent position asserted by the taxpayer or the Commissioner has been successfully maintained, subsection (b) is not operative until there is a final `determination' which gives authoritative sanction to the inconsistent action. Subsection (a) describes the types of determinations which are prerequisite to the operation of this section." [Italics supplied.]

We find nothing in the language of Section 820, or its history, that would compel the conclusion, under facts such as we have here, that plaintiff's right to maintain this suit should be held to be governed solely and entirely by the action of the Commissioner in approving plaintiff's amended return for 1939, and assessing, in part, the additional tax previously paid on the basis thereof. The Commissioner appears to have taken this view concerning Section 820(a). After he had made a determination in January 1943, finally disposing of the claim for refund for 1938, he allowed plaintiff a refund by credit in May 1943, of the overpayment for 1937 resulting from the inventory error, and his disallowance of the claims for refund for 1933 to 1936, inclusive, was not based upon the absence of a final determination within the meaning of subsection (a) but upon the ground that the result flowing from corrections of inventory errors and adjustments of operating profits did not come within the provisions of subsection (b) of Section 820.

The facts bring this case within the letter as well as the spirit of the statute, both with respect to the merits and plaintiff's right to recover the overpayments involved. Section 820 is a relief provision and we interpret its provisions accordingly.

Judgment is, therefore, entered in favor of plaintiff for $7,464.72, with interest at six percent per annum as provided by law. It is so ordered.