
    BREEZE CORPORATIONS, INC. v. THE UNITED STATES
    [No. 49453.
    Decided January 5, 1954]
    
      
      Mr. Sydney A. Gutkin for the plaintiff. Mr. David Beck was on the brief.
    
      Mr. H. S. Fessenden, with whom was Mr. Assistant Attorney General 27. Brian Holland, for the defendant. Messrs. Andrew D. Sharpe, Lee A. Jaekson, and Joseph H. Sheppard were on the brief.
   Littleton, Judge,

delivered the opinion of the court:

The plaintiff, who prepared and filed its excess profits tax return for the calendar year 1945 in accordance with the accrual method of accounting, seeks a refund of excess profits taxes for that year in the amount of $54,573.58 with appropriate interest thereon. The plaintiff accrued and included in gross income in 1945 an estimate of the amount it believed would be due from war contracts canceled in that year. Included in this estimate was a claim against American Bosch Corporation for $75,796.65, representing part of the inventory believed to be allocable to the terminated portion of plaintiff’s contract with that corporation. This claim was subsequently settled in 1949 for $22,356.77. The plaintiff’s claim for refund was disallowed by the Commissioner of Internal Revenue on the ground that the $75,796.65 had been properly accrued by plaintiff in 1945. After this suit was instituted the Government conceded that the original accrual in 1945 was incorrect in amount and stated that it should be adjusted to reflect the amount actually received by plaintiff. The plaintiff contends that the accrual and inclusion of all or any part of the $75,796.65 claim in 1945 was erroneous because there was no definitely fixed, determined and enforceable right in plaintiff for that or any reasonably ascertainable amount before settlement in 1949. The plaintiff further contends that if Regulation 111, Section 29.42-1, as amended by T. D. 5405, and Mimeograph 5897 are applicable, they are invalid, upon facts such as we have here, insofar as they require accrual of a claim before the right to payment becomes fixed and the amount is reasonably ascertainable. The Government contends the accrual of $22,356.77 as income in 1945 is necessary in order to clearly reflect income for that year. To resolve these contentions requires a rather lengthy recitation of the facts.

The plaintiff reported as income in its income and excess profits tax return for the year 1945 the sum of $7,790,539.43, representing the gross value of its charges covering cancellation of war contracts received prior to December 31, 1945. In its return plaintiff reported an adjusted excess profits net income in the amount of $1,579,289.80. Included in the computation of its excess profits net income was the amount of $1,400,000, of which $1,200,000 represented the amount estimated as of December 31, 1945, to be collectible over and above the inventory value of 1945 war contract cancellations. The balance of $200,000 represented estimated additional sales on contract terminations. Included in the $1,400,000 estimate was an estimate of the value of 1,167 pumps which subsequently became a claim against the American Bosch Corporation (hereinafter designated Bosch) in the amount of $75,796.65. This claim of $75,796.65, which is the center of the dispute in this case, had not been approved or allowed as to amount or allocability by the Navy Department (hereinafter designated Navy) or Bosch during the year 1945.

The claim involved the allocability of these 1,167 pumps to a contract under which Pratt & Whitney Aircraft was the prime contractor with Navy, Bosch was the first tier subcontractor and plaintiff was the second tier subcontractor. The plaintiff manufactured pumps of the kind in question for use in radio ignition shielding apparatus under a prime contract with Navy as well as under its subcontract with Bosch. Navy undertook the settlement of all of plaintiff’s terminated contracts under the terms of the Contract Settlement Act of 1944. After plaintiff submitted a list of physical inventories considered by it to be applicable to the terminated contracts, they were checked and it was determined that the 1,167 pumps were not properly allocable to the prime contract with Navy but might be allocable to the Bosch contract. Thereafter, on November 4, 1946, plaintiff presented its first formal claim against Bosch with respect to the 1,167 pumps, in the form of Settlement Proposal No. 4. On January 17, 1947, in accordance with the Contract Settlement Act of 1944, plaintiff and Bosch entered into a “Partial Final Settlement Agreement,” reserving the right in Article 4 for the plaintiff to make further claim against Bosch or Navy with respect to the 1,167 pumps that were then the subject of negotiation with Navy under plaintiff’s prime contract with Navy. The maximum amount of recovery as to these pumps was limited to $100,000, exclusive of interest thereon.

Immediately following the execution of the Partial Final Settlement Agreement of January 17, 1947, negotiations to bring about a settlement of the 1,167 pumps claim were commenced. By communication dated January 20,1947, instructions were issued by Navy to its representative stating that before any settlement could be made with respect to the 1,167 pumps a determination of their allocability to the Bosch contract would have to be made.

In a Navy interdepartmental communication dated April 8,1947 (Finding 19), it was stated that Navy was closing its files with respect to the plaintiff’s claim for reimbursement for the 1,167 pumps because, in the opinion of Navy, plaintiff had not established its right to assert such a claim. The letter also stated that this decision had been conveyed to the contracting parties.

On May 6, 1947, Bosch wrote to plaintiff relative to the above interdepartmental communication, a copy of which had been received by Bosch (Finding 20). Bosch informed plaintiff that in accordance with the Navy’s decision, Bosch considered the matter of plaintiff’s claim finally closed.

In answer to a letter from plaintiff, Navy, on June 12, 1947, wrote to plaintiff and stated that plaintiff’s claim had not yet been established; that its recourse was to be had up the contractual chain, and that Navy stood ready to expedite consideration of all claims established under the Contract Settlement Act, or otherwise.

At a conference in June 1947 plaintiff was again informed by Navy that it had no claim because the pumps were anticlockwise, whereas the Bosch contract required clockwise pumps. There was also some question as to the number of pumps ordered, which was subsequently decided favorably to plaintiff. Navy then referred plaintiff to Bosch. However, Bosch took the position that Navy was in charge of the settlement of the claim because Bosch had assigned plaintiff’s contract to Navy for settlement and Navy was acting as Bosch’s agent in the negotiations.

Sometime in 1948, after plaintiff had a conference with the Secretary of the Navj’, another contracting officer was assigned to investigate plaintiff’s claim against Bosch. Negotiations were had with this contracting officer and a settlement was finally reached on the basis of assigning the sum of $73 per pump for apparatus cost, less rework charge of $8 per pump for conversion from anticlockwise to clockwise operation, making a net amount of $65 per pump, which was applied to approximately 342 of the 1,167 pumps involved. The criterion used for application to only 342 of the pumps was not disclosed by Navy. On October 7,1948, in accordance with the Contract Settlement Act of 1944, plaintiff and Bosch entered into a “Final Settlement Agreement” which was approved and allowed by Navy and plaintiff received payment of $22,356.77 from Bosch on February 4,1949.

On November 24, 1947, plaintiff had filed a timely claim for refund of excess profits taxes paid by it for the year 1945. The claim was for $54,573.58 which represented the amount of excess profits taxes paid because of plaintiff’s inclusion in its excess profits net income of the $75,796.65 Bosch claim. In making its claim for refund, plaintiff relied on the grounds asserted in this proceeding. The plaintiff’s claim was disallowed on September 15, 1949.

The plaintiff contends that the accrual in 1945 of all or any portion of its claim against Bosch for payment of the 1,167 pumps was erroneous because the facts show that there was no definitely fixed, determined and enforceable right to payment of a reasonably ascertainable amount before final settlement in 1949. The plaintiff also contends that if Regulation 111, Section 29.42-1, as amended, and Mimeograph 5897 are applicable they are invalid insofar as they require accrual of a claim before there is a fixed right to payment of a reasonably ascertainable amount. The Government contends that the accrual as income in 1945 of the $22,356.77 ultimately received by plaintiff in 1949, in settlement of its claim, is necessary in order to clearly reflect income for 1945, because the cost of the pumps which represented the claim was deducted as expense in 1945; the plaintiff actually estimated and accrued the claim in that year; it is only where the liability itself is in dispute that the accrual may be deferred until the question has been resolved and, therefore, since Bosch had not denied the claim in 1945 plaintiff had a fixed and undisputed right to payment in that year; Regulation I'll, Section 29.42-1, as amended, and Mimeograph 5897 required accrual in that year; and because on the facts of the case plaintiff had a fixed right to a reasonably ascertainable amount in that year.

The applicable sections of the Internal Revenue Code, Sections 41 and 42 respectively provide:

The net income shall be computed upon the basis of the taxpayer’s annual accounting period * * * in accordance with the method of accounting regularly employed in keeping the books of such taxpayer * * *.
The amount of all items of gross income shall be included in gross income for the taxable year in which received by the taxpayer, unless, under methods of accounting permitted under section 41, any such amounts are to be properly accounted for as of a different period * * *.

The cases uniformly agree that before an item of income may be accrued, there must be a fixed, determined and enforceable right to receive a reasonably ascertainable amount. This principle has its counterpart in the necessity of a fixed liability to pay a reasonably ascertainable amount to support an accrued deduction.

We first consider the Government’s contention that the accrual of the $22,356.77 as income in 1945 is necessary because the cost of the pumps was deducted as an expense in that year. Although it is a fundamental rule that returns reflect true income, and expenses should, where possible, be offset against income to which they were attributable, this does not devitalize the considerations leading to the holding in innumerable cases that before an amount can be accrued, there must be a fixed right to receive or obligation to pay a reasonably ascertainable amount. The Tax Court has held that the accrual of an item as income in a particular year is not required merely because the expenses attributable to that item were deducted from gross income in that year. Foster Wheeler Corp. v. Commissioner, 20 T. C. No. 4; Globe Corp. v. Commissioner, 20 T. C. No. 37. We agree with this holding.

It is true, as the Government asserts, that plaintiff actually estimated and accrued the claim in 1945 but we do not deem that fact significant where, as here, plaintiff’s right to receive all or any part of the amount so accrued was unsettled. Foster Wheeler Corp. v. Commissioner, supra.

The Government argues, citing Hershey Creamery Co. v. United States, 122 C. Cls. 423 as supporting authority, that it is only where the liability itself is in dispute that the accrual may be deferred until the question has been resolved, and therefore since Bosch had not denied the claim in 1945, plaintiff had a fixed and undisputed right to payment in that year. The Hershey Creamery Co. case, supra, does not support that proposition. It held that where the liability itself is definitely fixed “the mere fact that the exact amount of liability has not been definitely fixed will not prevent the deduction so long as a basis exists by which the amount due could have been estimated within reasonable limits.” The record herein indicates that in 1945 plaintiff had not reached the stage in its business operation of submitting or asserting the claim against Bosch. Consequently, it is difficult to comprehend how the failure of Bosch to deny the claim or dispute the amount thereof before it had even been asserted established a definite right in plaintiff to payment of the claim. It cannot be stated as a general rule that failure to deny a claim in a particular year requires that it be accrued in that year. When a fixed right to payment arises, is frequently dependent upon the facts of each case. We stated in Schoellhopf Aniline & Chemical Works v. United States, 77 C. Cls. 529, 539, that in order for income to be accrued there must be admitted liability arising on account of the transaction. We do not consider the failure of Bosch to deny the plaintiff’s claim in 1945 established its right to payment of any reasonably ascertainable amount.

We come now to the Government’s contention that Regulation 111, Section 29.42-1, as amended, and Mimeograph 5987 required accrual of the Bosch claim in 1945. The plaintiff contends that if the Begulation and Mimeograph are applicable they are invalid insofar as they require accrual of a claim before there is a fixed right to receive a reasonably ascertainable amount. The pertinent portion of the Regulation in question states:

Except as otherwise stated in this subsection, such items as claims for compensation tinder canceled Government contracts constitute income for the year in which they are allowed or their value is definitely determined, if the return is filed on the accrual basis * * *. In the case of a termination of a war contract as defined by section 3 of the Contract Settlement Act of 1944 (or the termination of any other Government contract as to which the right to compensation is definitely fixed and the measure thereof is determinable with reasonable accuracy) , if the return is rendered on a basis other than cash receipts and disbursements * * * constitute income for the taxable year in which falls the effective date of the termination.

The applicable portion of the Mimeograph in question states:

(2) Taxable tears ending on or aeter jult 21,1944.
In case a war contract is terminated within a taxable year ending on or after July 21, 1944, the income from the contract termination shall be included in computing gross income for the taxable year of the contract termination. * * *
(3) Adjustment oe return.
If the income from the contract termination which, under the above subparagraph * * * is to be taken into account * * * for the year of the contract termination, is not definitely ascertained at the time of filing the return, the contractor shall include in his return a reasonable estimate of such income * * *. When the correct amount of such income from the contract termination is ascertained, an adjustment shall be made for the year for which such income was included. (Cf. Continental Tie & Lumber Co. v. United States, 286 U. S. 290 [Ct. D. 494; C. B. XI-1, 260 (1932).])

The Continental Tie & Lumber Co. case, supra, was relied upon by the Commissioner of Internal Revenue as authority for the promulgation of Mimeograph 5897 which applies Regulation 111, Section 29.42-1, as amended. That case dealt with the Transportation Act of 1920 which made the Federal Government liable to railroads that sustained a ■ deficit due to the operation of the railroads by the Government. The Court held that the Act itself gave the taxpayer railroad a definite and fixed right to payment by the Government. The Court also stated that all that remained was a mere administrative procedure to ascertain the amount to be paid; that since the Interstate Commerce Commission required a standard and uniform system of accounting, the taxpayer was furnished with instructions as to how the amount should be calculated, and because the taxpayer had all the data necessary to ascertain the amount on its books of account, there was no reason why a reasonable estimate should not be made in the year that the right became fixed.

The tenor of the Regulation and Mimeograph seem to indicate they were predicated upon the assumption that the Contract Settlement Act of 1944 gave the subcontractors a fixed and enforceable right in the year the contract was terminated to a reasonably ascertainable amount for their claims. This assumption would be erroneous because the Act did not vest in the subcontractors any fixed right to be paid a reasonably ascertainable amount for their claims. The Act itself does not make the Government liable to subcontractors when the claim is of the nature involved in this case. Kal Machine Works, Inc. v. United States, 107 C. Cls. 202; Precision Metal & Machine Co. v. United States, 107 C. Cls. 219; Rumsey Mfg. Corp. et al. v. United States Hoffman Machinery Corp., 187 F. 2d 927; Apex Electrical Mfg. Co. v. Commissioner, 16 T. C. 1171, affd., per curiam, 202 F. 2d 151.

The Apex Electrical Mfg. Co. case, supra, heavily relied on by plaintiff, is similar in many respects to the case at bar. There the taxpayer on the accrual basis had received about $290,000 in 1947 as final settlement of a claim for anticipated profits arising out of the cancellation in 1942 of a war subcontract. The Commissioner of Internal Revenue, pursuant to Regulation 111, Section 29.42-1, as amended, and another part of Mimeograph 5897, determined that the proper year for accrual was 1944. The Commissioner contended that the Contract Settlement Act of 1944 gave to the taxpayer a definite and fixed right to receive compensation and all that remained was a determination as to the amount, which could be estimated with reasonable accuracy in 1944. The Commissioner also contended that the Regulation and Mimeograph were in accord with the standard accrual accounting practice. In holding for the taxpayer the Tax Court said that the Commissioner’s determination was contrary to the established general principles of accrual accounting as to accepted standard practices and also for tax purposes. The court further stated that the taxpayer did not have a fixed right aside from the Contract Settlement Act of 1944, and concluded, after a careful analysis of the Act, that its passage did not ripen in the taxpayer any fixed right to payment of its claim. The Tax Court further held that the amount was not capable of being estimated within reasonable limits until final settlement was reached in 1947.

The Regulation and Mimeograph could be construed to require the plaintiff to accrue the claim, in question here, in 1945 regardless of whether it had a fixed right to receive payment of a reasonably ascertainable amount in that year. But since the Contract Settlement Act did not ripen in the plaintiff a fixed and enforceable right to payment of a reasonably ascertainable amount as did the Transportation Act of 1920, the Continental Tie & Lumber Co. case, supra, would not be authority for such a construction.

Moreover, the decision of the Supreme Court in Security Flour Mills Co. v. Commissioner, 321 U. S. 281, seems clearly to preclude the Commissioner from allocating the income to a taxable year other than the year in which a fixed right to receive or pay a reasonably ascertainable amount existed. The Court in discussing the purpose and narrow scope of the Commissioner’s power to shift income and expense from one year to another stated (p. 285) :

* * * But we think it was not intended to upset the well understood and consistently applied doctrine that cash receipts or matured accounts due on the one hand, and cash payments or accrued definite obligations on the other, should not be taken out of the annual accounting system and, for the benefit of the Government or the taxpayer, treated on a basis which is neither a cash basis nor an accrual basis, because so to dowould, in a given instance, work a supposedly more equitable result to the Government or to the taxpayer * * *
The uniform result has been denial both to Government and to taxpayer of the privilege of allocating income or outgo to a year other than the year of actual receipt or payment, or, applying the accrual basis, the year in which the right to receive, or the obligation to pay, has become final and definite in amount.

Therefore, if we construed the Regulation and Mimeograph to require an accrual regardless of whether a fixed right to payment of a reasonably ascertainable amount existed in the taxable year, they would be invalid as an unauthorized and unreasonable exercise of the Commissioner’s authority under Sections 41 and 42 of the Internal Revenue Code.

However, we believe that they can be construed to mean that a fixed right to payment of a reasonably ascertainable amount must exist as a condition to their application. Therefore the controversy resolves itself to the question of whether the plaintiff’s claim represented a fixed right to payment of a reasonably ascertainable amount in 1945.

The estimate of the inventory believed by plaintiff to be allocable to the terminated portion of the contract had not been approved or allowed in 1945 by Navy or Bosch, as to its value, or allocability to the terminated contracts. The record clearly indicates that neither Navy nor Bosch approved or allowed its allocability until 1949 and then only to the extent of less than one-third of the original claim. Although it may seem, and the Government assumes, that the books of the parties should readily indicate whether the 1,167 pumps were allocable to the terminated contracts and consequently the right to payment of a reasonably ascertain- ; able amount was present in 1945, this was not the case. The voluminous correspondence, the various conferences, the multiple partial settlement agreements, the complete denial at one time of the claim, and the continuous negotiations over a period of several years resulting in a settlement for less than one-third of the original claim sufficiently demonstrate that there was a serious dispute as to whether any or all of the pumps were allocable to the terminated contracts. Therefore, it is apparent that both the right to payment and the amount, if any, payable remained uncertain until settlement of the dispute in 1949.

We therefore conclude that the accrual in 1945 of any amount believed due on the Bosch claim would have been erroneous because the plaintiff did not have a fixed, determined and enforceable right to a reasonably ascertainable amount in that year. The Government concedes that if we find the income was not properly accrued in 1945, the proper year of accrual would be 1949. Accordingly, the entire accrual of the Bosch claim for 1945 should be eliminated and the $22,356.77 actually recovered by plaintiff should be accrued and included in its gross income for 1949. The plaintiff is entitled to recover the excess profits taxes paid with the interest allowed by law on the $75,796.65 accrued and included as income in its 1945 tax return.

Entry of judgment is suspended pending the filing of a stipulation showing the amount that the Government is entitled to offset against the judgment because of the adjustment of the plaintiff’s income tax for 1949.

Madden, Judge; Whitaker, Judge; and Jones, Chief Judge, concur.

FINDINGS OF FACT

The court, having considered the evidence, the report of Commissioner George H. Foster, and the briefs and argument of counsel, makes findings of fact as follows:

1. Plaintiff is a New Jersey corporation, with principal office in the City of Newark, County of Essex, New Jersey.

2. The taxes involved are excess profits taxes paid by plaintiff.

3. The taxable period is the calendar year 1945. During this period plaintiff was engaged in the manufacture and sale of aircraft parts and accessories, several contracts with respect to which were terminated during such period.

4. May 15, 1946, the plaintiff filed with the Collector its corporation income and excess profits tax return for the calendar year 1945, prepared in accordance with the accrual method of accounting. The return disclosed an income tax liability of $153,727.46 and an excess profits tax liability of $1,275,443.53, which amounts were assessed and paid to the Collector.

5. The plaintiff reported in its tax return for the year 1945 the sum of $7,790,539.43, and the returns showed that the plaintiff included such amount as representing the gross value of its charges covering cancellation of war contracts received prior to December 31, 1945. This amount is made up of $7,590,539.43, representing the accrual on the books at December 31,1945, plus $200,000, representing excess of estimated claim values over book values.

6. In its return for the calendar year 1945, the plaintiff reported excess profits net income in the amount of $1,936,-712.36, and adjusted excess profits net income in the amount of $1,579,289.80, after application of the specific exemption of $10,000 and the excess profits credit (based on income) of $347,422.56.

7. Included in the computation of the foregoing excess profits net income was the amount of $1,400,000, of which $1,200,000 represented the amount estimated at December 31, 1945, to be collectible over and above the inventory value of 1945 war contract cancellations, and the balance of $200,000 represented estimated additional sales on contract terminations.

8. The aforesaid estimate of additional sales in the amount of $1,400,000, so included in gross income, embraced a claim against the American Bosch Corporation (hereinafter designated “Bosch”) in the amount of $75,796.65. This claim had not been approved or allowed as to value or allocability by the Navy Department or Bosch in 1945. Although included in the $1,200,000 estimate, the claim as such, against Bosch, was at no time during the year 1945 accrued on the books of plaintiff. The latter part of April 1946, plaintiff reappraised its collection possibilities as to these claims and increased their value to $1,400,000, which was the amount included in plaintiff’s gross income for tax purposes when its return was filed.

9. This claim of plaintiff against Bosch involved the allocability of 1,167 pumps to a contract under which Pratt & Whitney Aircraft was the prime contractor, Bosch was the first tier subcontractor and plaintiff was the second tier subcontractor. Pumps of the kind in question were used in radio ignition shielding apparatus, and were being manufactured by plaintiff under a prime contract with the Navy as well as under the Bosch contract, more particularly in question herein.

10. Subsequent to termination, the plaintiff submitted to the Navy representatives a list of physical inventories considered by plaintiff to be applicable to the terminated contracts. The Navy Department undertook settlement of all of plaintiff’s terminated contracts under the terms of the Contract Settlement Act of 1944. The inventories were checked, and it was determined that said pumps were not properly allocable to the prime contract but might be allo-cable to the Bosch contract.

11. Thereafter, on November 4,1946, plaintiff presented its first formal claim against Bosch, with respect to the 1,167 pumps, in the form of Settlement Proposal No. 4. The termination inventory schedule attached to Settlement Proposal No. 4, reflects that the total cost of the 1,167 pumps amounted to $85,191; that the total charges to convert the pumps from anticlockwise to clockwise pumps amounted to $9,336; that a credit in the amount of $58.35 was due Bosch; and that the net amount of the claim was $75,796.65. The record does not disclose whether the pumps to be supplied under plaintiff’s prime contract with the Navy operated clockwise or anticlockwise; nor does it appear whether or not plaintiff purchased anticlockwise pumps with the intention of converting them to clockwise operation.

12. The Commissioner of Internal Bevenue, upon subsequent audit and review of the plaintiff’s excess profits tax return for the calendar year 1945, determined plaintiff’s correct excess profits tax liability to be in the amount of $1,194,167.29 and proposed an overassessment in plaintiff’s excess profits taxes for 1945 in the amount of $81,276.24. The amount of the proposed overassessment, after adjustment not here material, was made the subject of a refund which was paid to plaintiff September 9, 1949.

13. The overassessment was based, in part, upon the elimination from plaintiff’s gross income of the amount of $117,252.57. Such elimination represented an adjustment to plaintiff’s termination claims account by reason of its having reported income from contract terminations in excess of the amounts actually collected.

14. The elimination of the foregoing amount from plaintiff’s gross income did not include the sum of $75,796.65 which was the claim asserted by plaintiff against Bosch.

15. On or about January 17,1947, and in accordance with the Contract Settlement Act of 1944, the plaintiff and Bosch entered into a “Partial Final Settlement Agreement,” pursuant to which certain matters pertaining to the termination of subcontracts itemized therein were settled, except as to the rights and liabilities of the parties set forth in Article 4 thereof. The exception related to the 1,167 pumps set forth in plaintiff’s Settlement Proposal No. 4.

16. Pursuant to Article 4 (a) of the agreement of January 17,1947, the plaintiff reserved the right to make further claim against Bosch under the subcontracts, and against the United States Government, for certain additional materials and related costs which were then the subject of negotiations between plaintiff and the Navy Department, in connection with the termination of plaintiff’s prime contract, No. N 288 s-20743, “to the extent that said materials and related costs may be found allocable to the subcontracts by the Contracting Officer cognizant of the applicable prime contract or contracts, together with such profit and interest thereon as may be agreed upon by the parties hereto subject to the approval of the said Contracting Officer. In no event shall such reimbursement exceed the amount of $100,000 exclusive of interest thereon.”

17. By communication dated January 20,1947, instructions were issued by the Bureau of Aeronautics Contracting Officer, Navy Department, to Bureau of Aeronautics representative, East Hartford, Connecticut, relative to the then current status of plaintiff’s claim, Settlement Proposal No. 4. The communication predicated any proposed settlement of plaintiff’s claim upon prior determination of allocability of the pumps. In this communication of January 20, 1947, there was enclosed a memorandum dated October 7,1946, relative to Contract N 288 s-20743 in which it was stated that the claim for $95,709, which included the amount of $85,191 for the 1,167 pumps, “not allowed in termination for the reason that it is not allocable to the terminated part of the contract.”

18. By communication dated April 1, 1947, from plaintiff to Bosch, relative to the terminated contracts, plaintiff referred to copies of purported final settlement agreement, previously signed by plaintiff and transmitted to Bosch under date of February 18, 1947, and requested information as to when it might expect payment of its claim from Bosch. A copy of said communication was sent to the Navy Department, Bureau of Aeronautics, Attention: Mr. Stoll. The copies of the purported agreement herein referred to were never executed by Bosch.

19. By communication dated April 3, 1947, from Navy Department, Bureau of Aeronautics Contracting Officer, H..H. Stoll, to Bureau of Aeronautics representative, East Hartford, Connecticut, copies of which were transmitted to plaintiff and Bosch, the said contracting officer stated that “Breeze Corporation is currently engaged in an attempt to establish its right to assert a claim for reimbursement for certain inventory identified and submitted in support of an alleged claim on Proposal No. 4 (CA 3620)” and “advice is given that it is the opinion of the Bureau of Aeronautics Contracting Officer that the right of the Breeze Corporation to assert a claim on behalf of the disputed inventories under the subject terminated prime contracts has not been established. It is to be noted that this information has been conveyed to each of the contracting parties and interested Government personnel * * * and is to be considered as a direct notice of the final determination of the contracting officer and accordingly, the Bureau of Aeronautics is closing its files in respect to this matter.”

20. By communication dated May 6, 1947, from Bosch to plaintiff, Bosch stated that it had received a copy of the April 3, 1947, communication referred to in finding 19. It further stated:

* * * As appears in this communication the Contracting Officer has finally determined that the portion of the inventory which is the basis of the claim for $76,435.02, as set forth in your proposal number four of your claim No.. CA 3620, is not applicable to the contracts referred to in the communication, and that “the right of the Breeze Corporation to assert a claim on bebalf of the disputed inventory under the subject terminated prime contracts has not been established.”
Apparently your letters of April 1 were written prior to receipt by you of a copy of the Contracting Officer’s determination.
Our records indicate that in the Partial Final Settlement Agreement, dated the 17th day of January 1947, there was reserved, exclusive of interest applicable to claim amounts approved as set forth in Article two (2), the sum (not to exceed $100,000) that would be determined to be due in respect of the disputed inventory and profit and interest thereon.
Accordingly, it would appear that the determination of the Contracting Officer finally closes the matter.

21. By communication dated June 4, 1947, from plaintiff to Contracting Officer Stoll, Bureau of Aeronautics, plaintiff requested copies of letters referred to by said contracting officer in the latter’s communication of April 3, 1947.

22. By a communication dated June 12, 1947, from Contracting Officer Stoll, plaintiff was informed that the basic communication of which plaintiff had received a copy, “was correspondence between Government activities and accordingly of no direct concern” to plaintiff; that the “purpose of supplying a copy to subcontractor * * * [plaintiff] was to inform it of the position of the Government, i. e., that nowhere in the contractual chain has subcontractor * * * established its right as of this date, to assert an additional termination claim under Contracts NOa(s) 1339, 2345 and 6027, as terminated.” The letter concludes:

As stated repeatedly to various representatives of the Breeze Corporations, Inc., by telephone and in personal conferences, all recourse is to be had up the contractual ■ chain. The Bureau of Aeronautics stands ready at all times to expedite consideration of all claims established under the Contract Settlement Act, or otherwise.

23. In June 1947, plaintiff’s treasurer, Fred G. Shupp, conferred with Contracting Officer Stoll in Washington, who informed plaintiff that it had no claim on the subject of the contract with Bosch, for the reason that the pumps which were the subject of the claim operated anticlockwise, whereas the pumps required under the Bosch contract operated clockwise, and also that there was some question about the proper number of pumps ordered for the Bosch contract. This latter question was subsequently decided favorably to the plaintiff.

24. Upon the suggestion of Contracting Officer Stoll, Mr. Shupp subsequently went to Bosch, whose representatives stated that the Navy Department was in charge of the settlement of the claim. It was the position of Bosch that plaintiff’s contracts had been assigned to the Navy Department for settlement and that that Department was acting as agent for Bosch in the negotiations. However, at no time did Bosch deny or affirm plaintiff’s right to assert the claim.

25. In 1948, Mr. Shupp, on behalf of plaintiff’s claim, made an appointment with the then Secretary of the Navy, as a result of which a Mr. Cooney was assigned as Contracting Officer to investigate and dispose of plaintiff’s claim against Bosch. In September 1948, Mr. Cooney made a personal inspection at plaintiff’s plant, and negotiations were had with him which resulted in the preparation and execution of a final settlement agreement. The settlement therein agreed upon was based on assigning the sum of $73 per pump for apparatus cost, less a rework charge of $8 per pump for conversion from anticlockwise to clockwise operation, making a net amount of $65 per pump, which was applied to approximately 342 of the 1,167 pumps involved.

26. October 7, 1948, and in accordance with the Contract Settlement Act of 1944, the plaintiff and Bosch entered into a “Final Settlement Agreement.” Pursuant to the terms of the foregoing agreement of October 7,1948, the plaintiff was to receive from Bosch, “subject to the approval of the cognizant Contracting Officer” and “upon presentation of properly certified invoices or vouchers,” the amount of $22,356.77 in complete and final settlement of its claim under Article 4 (a) of the “Partial Final Settlement Agreement” dated January 17, 1947. The agreement was approved by the Navy Department, and the plaintiff received payment in the amount of $22,356.77, on February 4,1949.

27. Claim for refund of excess profits taxes for the year 1945 in the amount of $54,573.58 and alleging the grounds asserted in this proceedings, was filed by plaintiff with the Collector on November 24, 1947. Notice of disallowance of this claim was sent to plaintiff on September 15, 1949.

28. Additional claim for refund of excess profits taxes for the year 1945 in the amount of $38,610 and alleging the grounds asserted in the alternative in this proceeding, was filed by plaintiff with the Collector on February 7,1949. No action has been taken by the Commissioner of Internal Beve-nue of this claim.

CONCLUSION OF LAW

Upon the foregoing findings of fact, which are made a part of the judgment herein, the court concludes as a matter of law that the plaintiff is entitled to recover.

On a stipulation signed by the parties, it was ordered on May 4, 1954, that judgment for the plaintiff be entered for $58,111.34 with interest as provided by law, and further that defendant is entitled to an offset of $961.70 with interest as provided by law. 
      
       1944 Cum. Bull. 154.
     
      
       1945 Cum. Bull. 181.
     
      
       58 Stat. 649, 665, 41 U. S. C. §§ 101 et seq.
     
      
       26 U. S. C. §§ 41. 42.
     
      
      
        United States Cartridge Co. v. United States, 284 U. S. 511; Continental Tie & Lumber Co. v. United States, 72 C. Cls. 595, affd., 286 U. S. 290; Spring City Foundry Co. v. Commissioner, 292 U. S. 184; United States v. Safety Car Heating & Lighting Co., 297 U. S. 88; Schoellkopf Aniline & Chemical Works et al. v. United States, 77 C. Cls. 529; Lichtenberyer-Ferguson Co. v. Welch, 54 Fed. (2d) 570; United States v. Harmon, 205 Fed. (2d) 919 ; Durr Packing Co., Inc. v. Shaughnessy, 81 Fed. Supp. 33 (D. C. N. Y.), affd., per curiam 189 Fed. (2d) 260, cert. denied, 342 U. S. 850 ; Apex Electrical Mfg. Co. v. Commissioner, 16 T. C. 1171, affd., per curiam 202 Fed. (2d) 151; Foster Wheeler Corp. v. Commissioner, 20 T. C. No. 4 (promulgated April 6, 1953) ; Globe Corp. v. Commissioner, 20 T. C. No. 37 (promulgated May 7, 1953).
     
      
      
        United States v. Anderson, 269 U. S. 422 ; Lucas v. American Code Co., Inc. 280 U. S. 445; Lucas v. North Texas Lumber Co., 281 U. S. 11; Dixie Pine Products Co. v. Commissioner, 320 U. S. 516 ; Security Flour Mills Co. v. Commissioner, 321 U. S. 281; Canton Cotton Mills v. United States, 119 C. Cls. 24; Hershey Creamery Co. v. United States, 122 C. Cls. 423.
     