STONE, Circuit Judge.
This is a petition for review of an order of the Board of Tax Appeals denying a redetermination of income tax for 1928 [712]*712assessed against respondent by the Commissioner of Internal Revenue.
For years prior to 1928, respondent corporation had been engaged in retail business. On June 18, 1928, the stockholders of respondent (three in number) resolved to form a corporation to be known as the Peterson Investment Company. July 2d, respondent gave an option on certain assets to the Grand Union Company. July 6th, this option was accepted. July 14th, the Peterson Investment Company was organized and its entire stock acquired by respondent in exchange for the real estate, buildings, investments, and some miscellaneous assets of respondent — the property so exchanged included all owned by respondent except the assets covered by the option. Such stock was immediately distributed to the three stockholders of respondent. July 24th, there was a supplemental agreement to the option between respondent and the Grand Union Company. August 22d, a stockholders’ meeting of respondent adopted a resolution whereby it was provided that all moneys received under the contracts with the Grand Union Company should be at once distributed to the three stockholders “in the proportion of their respective stockholdings” in respondent “upon the assumption by the stockholders of all the corporate debts of Minnesota Tea Company in order to enable the company to hold all the corporate stock [in the Grand Union Company] or securities received by it for its assets on such sale thereof without being compelled to sell any part of the same.”1 August 23d, the contracts were performed by the transfer of all these assets of respondent to the Grand Union Company in return for 18,000 shares of common stock of that company and $426,-842.52 in cash. Immediately, this cash was distributed to the three stockholders in proportion to their respective holdings in respondent and the stockholders assumed payment of like proportionate parts of the corporate indebtedness of respondent, amounting to $106,471.73. This assumed indebtedness has been paid by the stockholders.
Both the Commissioner and the taxpayer assumed this entire transaction to be a reorganization . within section 112 of the Revenue Act of 1928 (45 Stat. 791, 816 [26 U.S.C.A. § 112 and note]). Though so assuming, the Commissioner assessed a tax against $106,471.73, which was the indebtedness of respondent a'ssumed and paid by its stockholders as above. Upon appeal by respondent to the Board of Tax Appeals, the Board, of its own volition, examined and determined that the transaction was not a reorganization within section 112 but was a sale of assets by respondent to the Grand Union Company. On petition to review, this court held the transaction was within section 112 and remanded the matter to the Board for further proceedings. Minnesota Tea Co. v. Com’r, 76 F.(2d) 797. The Supreme Court granted certiorari (296 U.S. 562, 56 S.Ct. 107, 80 L.Ed. 397) and affirmed the decision of this court (296 U.S. 378, 56 S.Ct. 269, 80 L.Ed. 284).
On retrial, the Board determined there was no tax liability as to the $106,471.73, representing the above indebtedness. The Commissioner brings this petition for review to question that ruling.
The issue is well and concisely stated in the opinion of the Board as follows: “The petitioner [taxpayer] contends that immediately upon the receipt of the Grand Union shares and the $426,842.52, it distributed the money in pursuance of the plan of reorganization, and that the situation is squarely within section 112 (d) (1), Reve[713]*713nue Act of 1928 [26 U.S.C.A. § 112 and note] providing that ‘no gain shall be recognized.’ The respondent urges that the shareholders’ assumption of the corporate debts prevents the amount of $106,-471.73 from being regarded as a distribution by the corporation, and hence that it may not escape recognition as part of the corporation’s gain.”
The plan of reorganization is an exhibit introduced in evidence before the Board but not included in the record here. In view of the decision of the Supreme Court in this case and the tacit agreement of the parties that this payment to the stockholders was “in pursuance of the plan of reorganization,” as required by section 112 (d), we assume this to be true and further consideration of the issue before us is based thereon. Without such assumption, we should have to have before us the “plan” and to determine whether this payment was in pursuance thereof.
The determination of the issue before us depends upon certain legal principles in conjunction with the construction of the act here involved. Those principles are as follows. It is an exemption from taxation which is here claimed by respondent and upon it lies the burden of establishing the right thereto [Gregory v. Helvering, 293 U.S. 465, 469, 55 S.Ct. 266, 267, 79 L.Ed. 596, 97 A.L.R. 1355; New Colonial Ice Co. v. Helvering, 292 U.S. 435, 440, 54 S.Ct. 788, 790, 78 L.Ed. 1348; Bowers v. Lawyers’ Mortg. Co., 285 U.S. 182, 187, 52 S.Ct. 350, 352, 76 L.Ed. 690]; for income tax purposes, the component parts of a single transaction cannot be treated separately [Bassick v. Commissioner, 85 F.(2d) 8, 10 (C.C.A.2) certiorari denied 299 U.S. 592, 57 S.Ct. 120, 81 L.Ed. -; Ahles Realty Corp. v. Commissioner, 71 F.(2d) 150, 151 (C.C.A.2) certiorari denied 293 U.S. 611, 55 S.Ct. 141, 79 L.Ed. 701; Prairie Oil & Gas Co. v. Motter; 66 F. (2d) 309, 311 (C.C.A.10)]; payment of a debt is income to the debtor for taxation purposes [Helvering v. Midland Mutual Life Ins. Co., 57 S.Ct. 423, 81 L.Ed. - [Feb. 15, 1937]; Raybestos-Manhattan v. United States, 296 U.S. 60, 64, 56 S.Ct. 63, 65, 80 L.Ed. 44, 102 A.L.R. 111; Douglas v. Willcuts, 296 U.S. 1, 8, 56 S.Ct. 59, 62, 80 L.Ed. 3, 101 A.L.R. 391; Old Colony Trust Co. v. Commissioner, 279 U.S. 716, 729, 49 S.Ct. 499, 504, 73 L.Ed. 918; United States v. Boston & Maine Railroad, 279 U.S. 732, 49 S.Ct. 505, 73 L.Ed. 929; and applying this rule in reorganization matters and exchanges see West Texas R. & D. Co. v. Commissioner, 68 F.(2d) 77, 80 (C.C.A.10) and The Liquidating Co. v. Commissioner, 33 B.T.A. 1173, 1184] ; distribution within the reorganization provisions of the Revenue Acts means distribution to stockholders and not payment of corporate debts [West Texas R. & D. Co. v. Commissioner, 68 F.(2d) 77, 80 (C.C.A. 10)].
The reorganization provisions (section 112 (a) and (d) of the Revenue Act of 1928 reveal (as pertinent here) the following: First, that the provisions that no gain or loss is recognized from certain exchanges do not grant an exemption and are.
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STONE, Circuit Judge.
This is a petition for review of an order of the Board of Tax Appeals denying a redetermination of income tax for 1928 [712]*712assessed against respondent by the Commissioner of Internal Revenue.
For years prior to 1928, respondent corporation had been engaged in retail business. On June 18, 1928, the stockholders of respondent (three in number) resolved to form a corporation to be known as the Peterson Investment Company. July 2d, respondent gave an option on certain assets to the Grand Union Company. July 6th, this option was accepted. July 14th, the Peterson Investment Company was organized and its entire stock acquired by respondent in exchange for the real estate, buildings, investments, and some miscellaneous assets of respondent — the property so exchanged included all owned by respondent except the assets covered by the option. Such stock was immediately distributed to the three stockholders of respondent. July 24th, there was a supplemental agreement to the option between respondent and the Grand Union Company. August 22d, a stockholders’ meeting of respondent adopted a resolution whereby it was provided that all moneys received under the contracts with the Grand Union Company should be at once distributed to the three stockholders “in the proportion of their respective stockholdings” in respondent “upon the assumption by the stockholders of all the corporate debts of Minnesota Tea Company in order to enable the company to hold all the corporate stock [in the Grand Union Company] or securities received by it for its assets on such sale thereof without being compelled to sell any part of the same.”1 August 23d, the contracts were performed by the transfer of all these assets of respondent to the Grand Union Company in return for 18,000 shares of common stock of that company and $426,-842.52 in cash. Immediately, this cash was distributed to the three stockholders in proportion to their respective holdings in respondent and the stockholders assumed payment of like proportionate parts of the corporate indebtedness of respondent, amounting to $106,471.73. This assumed indebtedness has been paid by the stockholders.
Both the Commissioner and the taxpayer assumed this entire transaction to be a reorganization . within section 112 of the Revenue Act of 1928 (45 Stat. 791, 816 [26 U.S.C.A. § 112 and note]). Though so assuming, the Commissioner assessed a tax against $106,471.73, which was the indebtedness of respondent a'ssumed and paid by its stockholders as above. Upon appeal by respondent to the Board of Tax Appeals, the Board, of its own volition, examined and determined that the transaction was not a reorganization within section 112 but was a sale of assets by respondent to the Grand Union Company. On petition to review, this court held the transaction was within section 112 and remanded the matter to the Board for further proceedings. Minnesota Tea Co. v. Com’r, 76 F.(2d) 797. The Supreme Court granted certiorari (296 U.S. 562, 56 S.Ct. 107, 80 L.Ed. 397) and affirmed the decision of this court (296 U.S. 378, 56 S.Ct. 269, 80 L.Ed. 284).
On retrial, the Board determined there was no tax liability as to the $106,471.73, representing the above indebtedness. The Commissioner brings this petition for review to question that ruling.
The issue is well and concisely stated in the opinion of the Board as follows: “The petitioner [taxpayer] contends that immediately upon the receipt of the Grand Union shares and the $426,842.52, it distributed the money in pursuance of the plan of reorganization, and that the situation is squarely within section 112 (d) (1), Reve[713]*713nue Act of 1928 [26 U.S.C.A. § 112 and note] providing that ‘no gain shall be recognized.’ The respondent urges that the shareholders’ assumption of the corporate debts prevents the amount of $106,-471.73 from being regarded as a distribution by the corporation, and hence that it may not escape recognition as part of the corporation’s gain.”
The plan of reorganization is an exhibit introduced in evidence before the Board but not included in the record here. In view of the decision of the Supreme Court in this case and the tacit agreement of the parties that this payment to the stockholders was “in pursuance of the plan of reorganization,” as required by section 112 (d), we assume this to be true and further consideration of the issue before us is based thereon. Without such assumption, we should have to have before us the “plan” and to determine whether this payment was in pursuance thereof.
The determination of the issue before us depends upon certain legal principles in conjunction with the construction of the act here involved. Those principles are as follows. It is an exemption from taxation which is here claimed by respondent and upon it lies the burden of establishing the right thereto [Gregory v. Helvering, 293 U.S. 465, 469, 55 S.Ct. 266, 267, 79 L.Ed. 596, 97 A.L.R. 1355; New Colonial Ice Co. v. Helvering, 292 U.S. 435, 440, 54 S.Ct. 788, 790, 78 L.Ed. 1348; Bowers v. Lawyers’ Mortg. Co., 285 U.S. 182, 187, 52 S.Ct. 350, 352, 76 L.Ed. 690]; for income tax purposes, the component parts of a single transaction cannot be treated separately [Bassick v. Commissioner, 85 F.(2d) 8, 10 (C.C.A.2) certiorari denied 299 U.S. 592, 57 S.Ct. 120, 81 L.Ed. -; Ahles Realty Corp. v. Commissioner, 71 F.(2d) 150, 151 (C.C.A.2) certiorari denied 293 U.S. 611, 55 S.Ct. 141, 79 L.Ed. 701; Prairie Oil & Gas Co. v. Motter; 66 F. (2d) 309, 311 (C.C.A.10)]; payment of a debt is income to the debtor for taxation purposes [Helvering v. Midland Mutual Life Ins. Co., 57 S.Ct. 423, 81 L.Ed. - [Feb. 15, 1937]; Raybestos-Manhattan v. United States, 296 U.S. 60, 64, 56 S.Ct. 63, 65, 80 L.Ed. 44, 102 A.L.R. 111; Douglas v. Willcuts, 296 U.S. 1, 8, 56 S.Ct. 59, 62, 80 L.Ed. 3, 101 A.L.R. 391; Old Colony Trust Co. v. Commissioner, 279 U.S. 716, 729, 49 S.Ct. 499, 504, 73 L.Ed. 918; United States v. Boston & Maine Railroad, 279 U.S. 732, 49 S.Ct. 505, 73 L.Ed. 929; and applying this rule in reorganization matters and exchanges see West Texas R. & D. Co. v. Commissioner, 68 F.(2d) 77, 80 (C.C.A.10) and The Liquidating Co. v. Commissioner, 33 B.T.A. 1173, 1184] ; distribution within the reorganization provisions of the Revenue Acts means distribution to stockholders and not payment of corporate debts [West Texas R. & D. Co. v. Commissioner, 68 F.(2d) 77, 80 (C.C.A. 10)].
The reorganization provisions (section 112 (a) and (d) of the Revenue Act of 1928 reveal (as pertinent here) the following: First, that the provisions that no gain or loss is recognized from certain exchanges do not grant an exemption and are. not so intended but operate only as a postponement of the tax until gain is clearly realized by a future sale or exchange amounting thereto; second, that where money and/or property, other than stock or securities in the new reorganized company or in a participating corporation are received, a gain from the exchange is recognized as realized but not in excess of such money and property; third, that the provisions as to distribution to stockholders of such money and/or property had as a main purpose to prevent tax evasions through distribution as capital gains what was in effect dividends out of earnings — thus avoiding higher surtax rates. These three conclusions as to the construction of the statute are based on the wording of the act and the clarifying Congressional Reports.2
[714]*714Applying the above principles of law and the three above conclusions to the situation here, there results the following: (a) Respondent received, along with 18,000 shares of stock in the Grand Union Company, $426,842.52 in cash; (b) this cash, if undistributed by respondent to its stockholders, would have constituted a realization upon the exchange to that amount and, therefore, would be subject to taxation against it as gain in so far as it constituted a capital gain; (c) if this entire [715]*715amount be distributed absolutely to the stockholders, they and not it would be subject to such realization and to taxation thereon, under the applicable provisions of the act, as' upon individual incomes; (d) respondent received an advantage from the acquisition of this money from the Grand Union in that it secured the payment of its indebtedness in the sum of $106,471.73; (e) the paynient of this indebtedness by the stockholders was a condition attached to and governing the distribution3; (f) such payment was thus assumed and was made; (g) such payment reduced, by $106,471.73, the amount realized by the stockholders for their own benefit on the distribution; (h) respondent received the full benefit of this payment to the same extent as though it had retained that amount from distribution and applied it to payment of such indebtedness; (i) this sum cannot be regarded as gain to the stockholders and they could not be taxed individually therefor; (j) this was not a genuine distribution of this sum but a circuitous retention and application thereof by the respondent; (k) it is taxable to the respondent.
“Where the legal effect of a transaction fits the plain letter of the statute, the tax is held payable, ■ unless there is clearly revealed in the act itself or in its history a definite intention to exclude such transactions from the operation of its applicable language” (Helvering v. Midland Mutual Life Ins. Co., 57 S.Ct. 423, 426, 81 L.Ed. - [Feb. 15, 1937]) and (from the same opinion) “There is nothing unfamiliar in taxing on the basis of the legal effect of a transaction.”
The result is that the determination of the Board must be reversed and the cause remanded to the Board with instructions to set aside the order here under review and to proceed to ascertain the amount, if any, of gain by respondent from the transaction with the Grand Union and of the tax due (up to $106,471.73) upon such gain.