PUNITIVE DAMAGES INCLUDABLE IN GROSS INCOME.

                SUPREME COURT OF THE UNITED STATES

This litigation involves two cases with independent factual backgrounds yet presenting the identical issue. The two cases were consolidated for argument before the Court of Appeals for the Third Circuit and were heard en banc. The common question is whether money received as exemplary damages for fraud or as the punitive two-thirds portion of a treble-damage antitrust recovery must be reported by a taxpayer as gross income under Section 22 (a) of the Internal Revenue Code of 1939. ¹ In a single opinion, 211 F.2d 928, the Court of Appeals affirmed the Tax Court's separate rulings in favor of the taxpayers. 18 T. C. 860; 19 T. C. 637. Because of the frequent recurrence of the question and differing interpretations by the lower courts of this Court's decisions bearing upon the problem, we granted the Commissioner of Internal Revenue's ensuing petition for certiorari. 348 U.S. 813.

The facts of the cases were largely stipulated and are not in dispute. So far as pertinent they are as follows:

     Commissioner v. Glenshaw Glass Co. -- The Glenshaw Glass

It is conceded by the respondents that there is no constitutional barrier to the imposition of a tax on punitive damages. Our question is one of statutory construction: are these payments comprehended by Section 22 (a)?

The sweeping scope of the controverted statute is readily apparent:

"SEC. 22. GROSS INCOME.

Nor can we accept respondents' contention that a narrower reading of Section 22 (a) is required by the Court's characterization of income in Eisner v. Macomber, 252 U.S. 189, 207, as "the gain derived from capital, from labor, or from both combined." ⁶ The Court was there endeavoring to determine whether the distribution of a corporate stock dividend constituted a realized gain to the shareholder, or changed "only the form, not the essence," of his capital investment. Id., at 210. It was held that the taxpayer had "received nothing out of the company's assets for his separate use and benefit." Id., at 211. The distribution, therefore, was held not a taxable event. In that context -- distinguishing gain from capital -- the definition served a useful purpose. But it was not meant to provide a touchstone to all future gross income questions. Helvering v. Bruun, supra, at 468-469; United States v. Kirby Lumber Co., supra, at 3.

Here we have instances of undeniable accessions to wealth, clearly realized, and over which the taxpayers have complete dominion. The mere fact that the payments were extracted from the wrongdoers as punishment for unlawful conduct cannot detract from their character as taxable income to the recipients. Respondents concede, as they must, that the recoveries are taxable to the extent that they compensate for damages actually incurred. It would be an anomaly that could not be justified in the absence of clear congressional intent to say that a recovery for actual damages is taxable but not the additional amount extracted as punishment for the same conduct which caused the injury. And we find no such evidence of intent to exempt these payments.

It is urged that re-enactment of Section 22 (a) without change since the Board of Tax Appeals held punitive damages nontaxable in Highland Farms Corp., 42 B. T. A. 1314, indicates congressional satisfaction with that holding. Re-enactment --particularly without the slightest affirmative indication that Congress ever had the Highland Farms decision before it -- is an unreliable indicium at best. Helvering v. Wilshire Oil Co., 308 U.S. 90, 100-101; Koshland v. Helvering, 298 U.S. 441, 447. Moreover, the Commissioner promptly published his nonacquiescence in this portion of the Highland Farms holding ⁷ and has, before and since, consistently maintained the position that these receipts are taxable. ⁸ It therefore cannot be said with certitude that Congress intended to carve an exception out of Section 22 (a)'s pervasive coverage. Nor does the 1954 Code's ⁹ legislative history, with its reiteration of the proposition that statutory gross income is "all-inclusive," ¹⁰ give support to respondents' position. The definition of gross income has been simplified, but no effect upon its present broad scope was intended. ¹¹ Certainly punitive damages cannot reasonably be classified as gifts, cf. Commissioner v. Jacobson, 336 U.S. 28, 47-52, nor do they come under any other exemption provision in the Code. We would do violence to the plain meaning of the statute and restrict a clear legislative attempt to bring the taxing power to bear upon all receipts constitutionally taxable were we to say that the payments in question here are not gross income. See Helvering v. Midland Mutual Life Ins. Co., supra, at 223.

Reversed.

MR. JUSTICE DOUGLAS dissents.

MR. JUSTICE HARLAN took no part in the consideration or decision of this case.

¹ 53 Stat. 9, 53 Stat. 574, 26 U. S. C. Section 22 (a).

² For the bases of Glenshaw's claim for damages from fraud, see Shawkee Manufacturing Co. v. Hartford-Empire Co., 322 U.S. 271; Hazel-Atlas Glass Co. v. Hartford-Empire Co., 322 U.S. 238.

³ See Hartford-Empire Co. v. United States, 323 U.S. 386, 324 U.S. 570.

⁴ See note 1, supra.

⁵ 38 Stat. 114, 167.

⁶ The phrase was derived from Stratton's Independence, Ltd. v. Howbert, 231 U.S. 399, 415, and Doyle v. Mitchell Bros. Co., 247 U.S. 179, 185, two cases construing the Revenue Act of 1909, 36 Stat. 11, 112. Both taxpayers were "wasting asset" corporations, one being engaged in mining, the other in lumbering operations. The definition was applied by the Court to demonstrate a distinction between a return on capital and "a mere conversion of capital assets." Doyle v. Mitchell Bros. Co., supra, at 184. The question raised by the instant case is clearly distinguishable.

⁷ 1941-1 Cum. Bull. 16.

⁸ The long history of departmental rulings holding personal injury recoveries nontaxable on the theory that they roughly correspond to a return of capital cannot support exemption of punitive damages following injury to property. See 2 Cum. Bull. 71; I-1 Cum. Bull. 92, 93; VII-2 Cum. Bull. 123; 1954-1 Cum. Bull. 179, 180. Damages for personal injury are by definition compensatory only. Punitive damages, on the other hand, cannot be considered a restoration of capital for taxation purposes.

⁹ 68A Stat. 3 et seq. Section 61 (a) of the Internal Revenue Code of 1954, 68A Stat. 17, is the successor to Section 22 (a) of the 1939 Code.

¹⁰ H. R. Rep. No. 1337, 83d Cong., 2d Sess. A18; S. Rep. No. 1622, 83d Cong., 2d Sess. 168.

¹¹ In discussing Section 61 (a) of the 1954 Code, the House Report states:

     "This section corresponds to section 22 (a) of the 1939 Code.