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court in the Davis case, wherein the court
speaks of taking from all receipts “certain
necessary items like cost of property sold”,
and contends that the respondent’s action
denies him the right to deduct from gross
receipts the cost of all items purchased by
him in the conduct of his business. In other
words petitioner denies that he can have
income in any amount until he has recovered
his aggregate cost, and his entire argument
is based upon the proposition that the denial
of the right to reduce gross receipts by
aggregate cost creates income where none in
fact exists and, therefore, makes the
application of 23(r) unconstitutional as to
his business.
That portion of petitioner’s argument
relative to the denial of his right to use
cost is answered in part by the court in the
Davis case, supra, wherein it states that a
net gain realized by a taxpayer from a
separate and distinct transaction constitutes
income that may, or may not, be subject to
tax depending upon whether the Congress has
allowed deductions which as a matter of
computation will relieve that income in whole
or in part from taxation, and by the further
statement that “net income for any taxable
period need not necessarily be the same as
net taxable income for that period, and the
variation may be to the extent that Congress
has seen fit either to allow, to limit, or to
deny deductions within its control as a
matter of grace.” (Emphasis supplied.) The
facts in this proceeding illustrate the truth
of the court’s observations. This petitioner
as a matter of fact lost money upon the basis
of his operations over the entire year, and
if all his losses were deductible he could
have no statutory net income. However, in
the absence of a statutory right to reduce
other income by losses from stock
speculations, and in view of the specific
limitation of 23(r), petitioner’s computation
must show a statutory net income subject to
tax. * * *
The foregoing disposes of all of petitioners’ contentions,
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