OPINION.
Oppek :
The precise question to be decided has not previously come before us. Cases somewhat analogous have determined that profit from the disposition of Government bonds is taxable to a nonresident alien, even though the exemption of principal as well as interest was from "any and all taxation", Hubert De Stuers, 26 B. T. A. 201; that Federal obligations are subject to gift tax even though the principal thereof as well as the interest was specifically exempted from all taxation with certain stated exceptions which did not include that tax, Lawrence C. Phipps, 34 B. T. A. 641; affd., 91 Fed. (2d) 627, (C. C. A., 10th Cir.); and that securities of the character involved in the instant proceeding are subject to inheritance tax, even though the act under which they are issued is silent in this regard, Edgar A. Igleheart, Executor, 28 B. T. A. 888; affd., 77 Fed. (2d) 704 (C. C. A., 5th Cir.).
Petitioners rely almost entirely upon the inclusion in the legislation under review of the word "income" as opposed to "interest." They say, in effect, in the able and comprehensive treatment of the subject submitted in their behalf, that since income includes capital gains under the Sixteenth Amendment, Merchants' Loan & Trust Co. v. Smietanka, 255 U. S. 509, the word is to be read as including them for purposes of exemption when it appears in the Farm Loan Act under which these securities were issued.
In this position we are unable to concur. It may be observed first that it is not the word "income" alone but the phrase "income derived therefrom" which we are required to construe. Stewart v. United States, 24 Fed. Supp. 145. It can no longer be doubted that capital gain is income on which an income tax may be levied. See, e. g., Eisner v. Macomber, 252 U. S. 189. But it does not follow — considering the transactions of which the security is the mere object which must take place in order for income to result from a purchase or other acquisition and a sale or other disposition — that one can say that the income resulting is derived from tbe security itself. In Willcuts v. Bunn, 282 U. S. 216, 227, the Supreme Court said:
Because the tax in question is described as an "income tax" and the profits on sales are included in "income", the distinction is not lost between the nature of a tax applied to interest and that of a tax applied to gains from sales. The federal income tax acts cover taxes of different sorts. Brushaber v. Union Pacific Railroad Company, 240 U. S. 1, 17, 36 S. Ct. 236, 60 L. Ed. 493, L. R. A. 1917D, 414, Ann. Cas. 1917B, 713; Stanton v. Baltic Mining Company, 240 U. S. 103, 114, 36 S. Ct. 278, 60 L. Ed. 546. The tax upon interest is levied upon the return which comes to the owner of the security according to the provisions of the obligation and without any further transaction on his part. The tax falls upon the owner by virtue of the mere fact of ownership, regardless of use or disposition of the security. The tax upon profits made upon purchases and sales is an excise upon the result of the combination of several factors, including capital investment and, quite generally, some measure of sagacity; the gain may be regarded as "the creation of capital, industry and skill." Taw Commissioner v. Putnam, 227 Mass. 522, 531, 116 N. E. 904, 910, L. R. A. 1917F, 806.
The tax [is not] on the obligations of the State or municipality, or on the investment therein, as such . It would be far-fetched to say that such purchases and sales are instrumentalities of the State .
* the tax is not laid upon the contracts made by the State , or upon the amounts payable thereunder, but is laid upon the result of distinct transactions by private owners .
The word "income" may well have been used advisedly in the present connection to connote broader forms of receipt than interest without necessarily including therein the concept of capital gains. Dividends, rent, and similar items are income, see Brushaber v. Union Pacific Railroad Co., 240 U. S. 1, though evidently not interest. The periodic receipts procured from the investment of capital, which in respect to the ordinary Federal, State or municipal bond can be expected to embrace only interest in its technical sense, might well go far beyond this under the scheme envisaged by the Farm Loan Act. Farm loan bonds were not the obligation of the Federal Government. (Secs. 16, 21.) In lieu of this they were secured by a pool of farm-mortgage collateral deposited with a farm loan registrar. (Secs. 19, 22.) Upon tbe insolvency of a bank, a receiver is provided for (sec. 29) whose function it might be to take over not only the collateral but the underlying real estate and to operate it for the benefit of the bondholders. It could not have been clear that by the use of the term "interest" periodical payments to bondholders resulting from such operation would have been included. See Penn Mutual Life Insurance Co., 32 B. T. A. 839; affirmed on this point, 92 Fed. (2d) 962.
Nor is it by any means clear that even from the investor's standpoint the exemption from capital gains tax would have been an advantageous feature. As Mr. Chief Justice Hughes remarked in Willcuts v. Bunn, supra, p. 231:
While the tax is laid on gains, there is also a deduction for losses on sales, and whether investors in such securities would consider it an advantage if both provisions were eliminated is a matter of mere speculation.
It follows that the elaborate argument advanced here that Congress must have intended to include these exemptions solely because of its desire to make the securities attractive to purchasers is reduced to the purest conjecture.
In our view, therefore, the assumption that by the use of the phrase "income derived therefrom" Congress necessarily and unmistakably intended to include capital gains may not be indulged. That the term is merely susceptible of such an interpretation will not suffice because other considerations lead to the opposite conclusion. As we said in Hubert De Stuers, supra, 204.
An exempting statute such as this one should be strictly construed and the exemption allowed only where founded on plain language [citing cases]. We do not believe that a government, issuing its obligations at par, would have sufficient interest in the purchase and sale of those obligations below par to provide tax exemption in any case lor the profit derived from a purchase below par and subsequent redemption at par. The benefits, if any, which the government would thus derive would be unreasonably remote.
To the .use of the language in Willcuts v. Bunn, supra, petitioners object that, being unnecessary for the decision in the case, it should be disregarded. Without conceding that, an argument no less impelling flows from the direct decision in that case. Congress exempted these obligations from state, municipal, and local taxation to the same extent and by the use of the same language as from Federal taxation. It said:
farm loan bonds issued under the provisions of this Act, shall be deemed and held to be instrumentalities of the Government of the United States, and as such they and the income derived therefrom shall be exempt from Federal, State, municipal and local taxation. (See. 26.)
The doctrine of Willcuts v. Bunn, supra, that state obligations are not constitutionally exempt from a Federal capital gains tax, coupled with the recognition that similar principles govern state and Federal enjoyment of such immunities, Ambrosini v. United States, 187 U. S. 1, 7, leads inevitably to the conclusion that there was serious doubt whether the Congress was authorized to exempt these obligations from capital gains taxes of states, localities and municipalities. Since Congress should not be presumed to have undertaken to provide an immunity possibly beyond its power, United States v. Jin Fuey Moy, 241 U. S. 394, and since the language it used demonstrates that exemption from Federal and state taxation was to be identical, it follows that the words "income derived therefrom" are not in this context to be construed as including the gain, derived from such transactions as those now before us. See Plummer v. Coler, 178 U. S. 115, 134, 135.
Several further points remain to be considered. It is urged that, regardless of the use of the word "income", the exemption of the bonds themselves is sufficient, at least where sale or redemption took place at or below par. This contention is sufficiently answered by the decision in Hubert De Stuers, supra, and many similar cases. Exemptions so broad as to include "the bond" or "principal and interest" have repeatedly been held to be insufficient to prevent the operation of the taxing act upon collateral transactions of which the securities are the subject. Plummer v. Coler, supra; Edgar A. Igleheart, Executor, supra; Lawrence C. Phipps, supra; Central Hanover Bank & Trust Co. v. United States, 14 Fed. Supp. 541; certiorari denied, 300 U. S. 678; see Willcuts v. Bunn, supra. It is not clear that petitioners seek to make any distinction between those bonds which were sold at or below par and those which were redeemed. If such a contention were advanced we should not be able to accept it. The argument was made and answered in Hubert De Stuers, supra, and in our view the determination there is conclusive upon the question.
It is further contended that the income is clearly derived from the bonds when they are sold because were it not for the bonds this income could not have arisen. To this contention the same answer may be made. Were it not for the bonds they could not have been bequeathed by a decedent, Edgar A. Igleheart, supra; nor have been the subject of a gift, Lawrence O. Phipps, supra; nor of disposition by a nonresident alien, Hubert De Stuers, supra; nor of a sale, Central Hanover Bank & Trust Co. v. United States, supra.
Petitioners urge the legislative and administrative history of the subject as conclusive in their favor. In our view, however, the circumstances advanced to support this contention are far from sufficient. We are referred to no instances of a specific administrative reference to the taxability of capital gains on these securities save three. In all other cases set forth the statements used are in the same general, unspecific language as the statute itself. They are therefore no greater indication of administrative construction than is the wording of the act. The first instance specifically dealing with the question is an unpublished memorandum of the General Counsel of the Bureau of Internal Revenue, dated April 3, 1933, which concludes:
In the instant ease, the bonds in question were issued by this taxpayer, and purchased by it at a discount, both under specific authority of the Federal Farm Loan Act. As a result of the purchase, the taxpayer derived income within the meaning of the Revenue Act of 1928. Kirby Lumber Company v. United States, supra. Under such circumstances, it is the opinion of this office that the income so derived, was derived from the bonds as contemplated by the Federal Farm Loan Act. It is concluded, therefore, that the discount on the taxpayer's own, bonds purchased during the taxable year, constitutes exempt income and is, therefore, non-taxable. < (4) that the discount on the taxpayer's own bonds purchased during the taxable year constitutes exempt income and is, therefore, non-taxable.
This was followed by a circular letter dated May 2, 1933, and addressed by the Federal Farm Loan Bureau "To all joint Stock Land Banks", in which the statement is made: "Fourth: That the discount on, your own bonds purchased during the taxable year constitutes exempt income and is, therefore, non-taxable."
On February 28, 1935, the Assistant General Counsel for the Bureau of Internal Revenue issued a memorandum in which the following appeared:
It does not follow, because a joint stock land bank is exempt from tax upon the income resulting from a purchase of its own bonds, that the profit realized by an individual from a sale of such bonds is not taxable.
For an administrative determination to be so persuasive as to be of assistance in the construction of a statute it must be definitely settled, uniform, and of long standing. United States v. Missouri Pacific Railroad Co., 278 U. S. 269, 280; Alexander v. Cosden Pipe Line Co., 290 U. S. 484, 498; Central Real Estate Co., 17 B. T. A. 776, 780; affd., 47 Fed. (2d) 1046. It will at once be seen that the ruling urged here as an administrative construction complies with none of these requirements. On its face it purports only to affect the. banks themselves and not other individuals or corporations such as these petitioners. If by implication it could be more broadly construed, that possibility was soon destroyed by the memorandum issued less than two years later and specifically negativing any such construction. And in any event the original memorandum was in effect, without the benefit of the clarification of the later memorandum, for less than two out of the more than twenty years during which the act itself was operative. It is objected that the reasoning of the second memorandum is faulty. This seems to us to be beside the point. The argument is that the administrative construction was in accord with the position now being urged, but, at least taking the two memoranda together, that appears not to be correct. In fact, it may be that the earlier ruling rather than the later was erroneous, and it does not seem to us permissible for a litigant to rely upon one administrative construction as conclusive and in the same breath to seek to escape another by impugning its correctness.
And even if it be assumed that Congress was contemporaneously aware of any such construction, there was in the interim no reenactment or reaffirmance of the original section which could be said to place the stamp of Congressional approval upon the position so taken. Cf. Helvering v. Reynolds Tobacco Co., 306 U. S. 110. If any tiring the intermediate enactment dealing with the subject indicates the contrary. For the Eevenue Act of 1934 contains in section 22 a definition of gross income obviously broad enough to include these profits,* and the exempting provision contained in section 22 (b) (4) (B) covers only interest and no other category of income. As far as the record shows the first action taken by Congress which can be said to have recognized the existence of an administrative position in this regard was the passage of section 817 of the Eevenue Act of 1938 which was, as its legislative history shows, designed to correct only the narrow conception of the earlier ruling which the later ruling embodies.
Nothing to which we have been referred in the legislative history of section 26 of the Federal Farm Loan Act, save the section just cited, can be said to have any bearing upon the present problem. Here again such statements as appear are so general that they are no more illuminating as to the true meaning of the section than the language of the act itself. As to section 817 itself, if it be assumed that a later Congress may, by legislation not purporting to be retroactive, place a controlling interpretation upon the act of a much earlier Congress, it is still impossible to say that by the Eevenue Act of 1938 any such interpretation as that now pressed upon us was made. The reason for the enactment of section 817 clearly appears from the Committee Report: "This section subjects to federal income taxation the capital gain realized by a joint stock land bank on the purchase of its own obligations or of mortgages made by it. Under the Federal Farm Loan Act, however, which governs the taxability of obligations of joint stock land banks, such income is exempt. The Committee is of the opinion that such income ought to be taxed." It will be observed that this explanation limits the purview of the section to the realization of gain by a joint stock land bank on the purchase of its own obligations, the very limitation which was placed upon the 1933 ruling by that made in 1935. And in fact the section as originally introduced was also limited to that subject. The earlier draft appearing as section 816 read:
Notwithstanding the provisions of section 26 of the Federal Farm Loan Act, as amended, gain realized on the acquisition by a joint stock land bank of obligations issued by it or mortgages made by it if such obligations or mortgages are made or issued after the date of the enactment of this act shall not be exempt from federal income taxation.
Before final passage the section was amended to take its present form and to cover all profit from the purchase and sale of such bonds, but the reason for the broadening of the language does not appear, and under the circumstances it seems clear that it was merely so enacted with the familiar precautionary regard for the possibility that the exempting statute might later be construed in the way now contended for. This is far from permitting us to assume that it was a legislative construction of the earlier statute broader than that then being asserted by the administrative agency concerned. "The purpose of the variation may be to clarify what was doubtful and so to safeguard against misapprehension as to existing law." Helvering v. New York Trust Co., 292 U. S. 455, 468; Mead Corporation,, 38 B. T. A. 687, 705.
Finally, it is argued that, regardless of other considerations, respondent is now estopped to contend that the present petitioners are liable for these taxes. It appears that the petitioner Stewart was aware of statements made by officials of the Government, relating to tax exemption of farm loan bonds, that he examined such statements, that he construed them as applying to the present transactions, and that he relied thereon in connection with the purchases undertaken by him. It would seem a complete reply to this contention that, as we have said, the statements referred to are without application to the present situation, and that any error made in so applying them is attributable to petitioners.
To this statement it may be added, however, that ordinarily a representation of law will not support an estoppel, Sturm v. Boker, 150 U. S. 312; that the restriction unless otherwise provided upon the power of administrative officers to construe the law is well known and well established, Old Farmers Oil Co., 12 B. T. A. 203, 214; that the existence of the exemption here asserted was purely a question of the proper construction of the basic law; and that one who, notwithstanding these considerations, relies upon such statements if they are not justified by the law under which they are made must be held to have done so at his peril.
It does not follow that the petitioner, Agricultural Securities Corporation, is subject to the penalty imposed by section 291 of the Revenue Act of 1934 for failure to file a return. We have found as a fact that the return was actually filed, although not within the time prescribed by law, and that the failure to file it sooner was due to reasonable cause and not to willful neglect. Under these circumstances the provision is inapplicable.
Reviewed by the Board.
Decision will be entered wider Bule 50.
Federal Farm Loan Act, 39 Stat. 380, 12 U. S. C. 931:
Sec. 26. First mortgages executed to Federal land banks, or to joint stock land banks, and farm loan bonds issued under the provisions of this Act, shall be deemed and held to be instrumentalities of the Government of the united States, and as such they and the income derived therefrom shall be exempt from Federal, State, municipal, and local taxation.
« "Income may be defined as the gain derived from capital, from labor, or from both combined," provided it be understood to include profit gained through a sale or conversion of capital assets . [Page 207.]
The occasion for the foregoing discussion, as set forth in the opening sentence of the paragraph first quoted, is as follows :
"But it does not follow, because a tax on the interest payable on state and municipal bonds is a tax on the bonds and therefore forbidden, that the Congress can not impose a non-discriminatory excise tax upon the profits derived from the sale of such honds." [Emphasis added.]
This was evidently thought to be necessary in order to distinguish Pollock v. Farmers Loan & Trust Co., 157 U. S. 429, where the language used was:
"Another question is directly presented by the record as to the validity of the tax levied by the Act upon the income derived from municipal honds . But we think the same want of power to tax the property or revenues of the states or their instrumentalities exists in relation to a tax on the income from their securities [Emphasis added.]
See "Joint Stock Land Banks, Progress in Liquidation Including Statements of Condition", Report of U. S. Farm Credit Administration, U. S Government Printing Office, 1938, pages 8, 4, 47-51, e. g., page 48 being statement of condition of Chicago Joint Stock Land Bank In Receivership, wherein the following appears under "Liabilities" :
Interest on farm loan bonds:
Matured interest unpaid at date of receivership_$134, 955. 00
Unmatured interest accrued to date of receivership- 747, 672. 91
Total-$S82, 627. 91
Less liquidation dividend- 639, 905. 24
242, 722. 67
The fact that the 1938 Act (sec. 817) limited the term to interest, presumably in the strict sense, is inconsequential, since in the meantime joint stock land banks had been put in course of liquidation, Emergency Farm Mortgage Act of 1933, part 2, 48 Stat. 46, 12 U. S. C. 810. See footnote 4, supra.
See also Darby-Lynde Co. v. Alexander, 51 Fed. (2d) 56, 59; certiorari denied, 284 U. S. 666; Lester W. Fritz, 28 B. T. A. 408.
This concept floes not appear to Rave been impaired by later decisions culminating in Graves v. People of the State of New York ex rel O'Keefe, 306 U. S. 466. Speaking of the possible differences in the two immunities, the Supreme Court there said: "So far as now relevant, those differences have been thought to be traceable to the fact that the Federal Government is one of delegated powers in the exercise of which Congress is supreme; so that every agency which Congress can constitutionally create is a governmental agency." And again: "All the reasons for refusing to imply a constitutional prohibition of Federal income taxation of salaries of State employees, stated at length in the Gerhardt case, are of equal force when immunity is claimed from State income tax on salaries paid by the National Government or its agencies."
And see Graves v. New York, supra: " if it appears that there is no ground for implying a constitutional immunity, there is equally a want of any ground for assuming any purpose on the part of Congress to create an immunity."
"The application of a couple of simple tests should demonstrate this beyond peradventure of doubt.
i(i *
"Test Number Two: Recall that it is among the stipulated facts that every penny paid to the taxpayers on the surrender of the Kansas City Joint Stock Land Bank bonds was paid to them under and by virtue of the covenants of the bonds. In other words, every penny paid flawed directly from the bonds." Brief for petitioners, p. 16.
"Again, even if the words "income derived therefrom" are construed to mean "interest" only, still the exemption of the bonds themselves exempts the income involved in all the cases at bar. For a bond is only a promise to pay a certain amount — a right to receive the face amount thereof. If the bonds themselves are exempt, clearly any moneys received by a bondholder for his bond — up to the amount of its face value — is likewise exempt. Consequently even if we accept respondent's premise that capital gains are not exempt, only that amount received which is in excess of the face amount of the bonds sold or surrendered, is taxable." Reply brief for petitioners, p. 4.
See, e. g., footnote 9.
"The petitioner however seeks' to distinguish this case because the purchased bonds were not sold but were redeemed by the Government, a special qualifying circumstance not present in the above case [Willcuts v. Bunn, supra] and not distinct from the contracts made by the Government in the bonds themselves. The return in question, he argues, came 'to the owner of the security according to the provisions of the obligation and without any further transaction on his part' .
" The profit in this case was not paid as such by the United States, but resulted from purchases at low prices and retention until the bonds were redeemed when worth par. This profit resulted from a combination of several factors, including capital investment and probably some measure of sagacity. If profit results from these factors where there has been both purchase and sale in the ordinary sense, we see no reason to hold otherwise where there has been either an ordinary purchase or an ordinary sale, as where bonds subscribed for and obtained at par are later sold at a premium or where bonds have been purchased at less than the amount at which they are redeemed. In all such transactions capital has been invested. Generally some measure of sagacity has been a factor in the purchase as well as in the sale. The gain may be regarded as 'the creation of capital, industry, and skill' and a tax on it is not on the obligation of the United States." [Pp. 204, 205.]
"Tegt Number One: Eliminate the bonds entirely from the transactions in question and what is there left? Nothing. Without the bonds there could have been no transactions, no gains. The bonds are of the very essence, the proximate cause of the gain." [This is the omitted portion of the quotation in footnote 9, supra.]
SEC. 22. GROSS INCOME.
*
(b) Exclusions fbom Geoss Income. — The following items shall not be included in gross income and shall be exempt from taxation under this title :

(4) Tax-tree interest. — Interest upon (B) obligations of a corporation organized under Act of Congress, if such corporation is an instrumentality of the united States;
Hearings before Committee on Finance, U. S. Senate, 75th Congress, 3d session on H. R. 9682 [Rev. Bill 1938] pp. 641-3.
SEC. 817. INCOME FROM OBLIGATIONS AND MORTGAGES ISSUED BX JOINT-STOCK LAND BANKS.
Notwithstanding the provisions of section 26 of the Federal Farm Loan Act, as amended, in the case of mortgages made or obligations issued by any joint-stock land bank after the date of the enactment of this Act, all income, except interest, derived therefrom shall be included in gross income and shall not be exempt from Federal income taxation.
Senate Finance Committee Report, Revenue Bill of 1938, 75th Cong., 33 sess., Report No. 1567, p. 47.
Sec. 816, H. R. 9682, 75th Cong., 3d sess., Jan. 5 (Calendar day April 5), 1938.
E. g., Revenue Act of 1928, sec. 606, as amended by Revenue Act of 1938, sec. 801; Securities Act of 1933, 48 Stat. 85, as amended 48 Stat. 908, 15 U. S. C., sec. 77 s.