Whitaker, Senior Judge,
delivered the following opinion with which Dureee, Judge, concurs, and announced the judgment of the court:
Plaintiff sues for the refund of income taxes for the taxable year 1953, for which defendant asserted plaintiff was liable on the ground that it dealt in its own shares of stock as it might have done in the shares of another corporation. *641Section 39.22(a)-15 of Treasury Regulations 118, applicable to taxable year 1953, provides that “if a corporation deals in its own shares as it might in the shares of another corporation, the resulting gain or loss is to be computed as though the corporation were dealing in the shares of another.”
Plaintiff had purchased the shares, during the period January 2, 1930, to September 21, 1932, from its employees and on the open market. During the taxable year in question (1953), it distributed 6,571 of these shares to certain of its key employees pursuant to its stock bonus plan. Plaintiff’s tax returns reported the difference between the adjusted basis for this stock and its market value, when distributed, as capital gains. Subsequently, however, plaintiff filed a claim for refund, alleging that it realized no income upon the transaction. The claim was denied, and this suit followed.
Except for the fact that another tax year is involved, the facts and issues presented by this suit are virtually identical with those presented to us in the case of Hercules Powder Co. v. United States, 149 Ct. Cl. 77, 180 F. Supp. 363 (1960). In that case we held that plaintiff was not dealing in its own shares as it might have dealt in the shares of another corporation and that it therefore realized no taxable income for the years 1948-1952 by distributing treasury stock under its bonus plan. In the earlier case, the Regulation applicable to the taxable year 1952 was also section 39.22(a)-15 of Treasury Regulations 118. Section 29.22 (a)-15 of Treasury Regulations 111, which governed the years 1948-1951, contained identical language, insofar as this case is concerned, with section 39.22(a)-15.
Plaintiff says our earlier determination collaterally estops defendant from relitigating the question since the facts in the two cases are the same and there has been no change in the applicable law. We hold that defendant is estopped and, hence, we hold, as we did in the earlier case, that plaintiff is entitled to recover.
The landmark case on collateral estoppel is, of course, Commissioner v. Sunnen, 333 U.S. 591 (1948). In that case *642the Court said that “Blatters which were actually litigated and determined in the first proceeding cannot later be re-litigated. Once a party has fought out a matter in litigation with the other party, he cannot later renew that duel.” 333 U.S. at 598. While the Court held that this doctrine was applicable to tax as well as other litigation, it also said:
But collateral estoppel is a doctrine capable of being applied so as to avoid an undue disparity in the impact of income tax liability. A taxpayer may secure a judicial determination of a particular tax matter, a matter which may recur without substantial variation for some years thereafter. But a subsequent modification of the significant facts or a change or development in the controlling legal principles may make that determination obsolete or erroneous, at least for future purposes. If such a determination is then perpetuated each succeeding year as to the taxpayer involved in the original litigation, he is accorded a tax treatment different from that given to other taxpayers of the same class. * * *
* * * [A] judicial declaration intervening between the two proceedings may so change the legal atmosphere as to render the rule of collateral estoppel inapplicable. * * *
Id. at 599, 600.
The Government says that the facts in the two cases are different and that there has been a change in the “legal atmosphere.” First, is there a distinction between the facts in the two cases? The underlying events which gave rise to both controversies occurred prior to the first suit and are identical. The only variance in the facts in the two cases to which the defendant points is that the several corporate resolutions which implemented the bonus plan for the several years, of course, were not identical.
Plaintiff’s bonus plan was first instituted in 1912. At that time, the plan provided that all bonuses would be payable in stock of the company. The plan was amended in 1934 to permit bonuses to be paid either in stock or cash or a combination of the two. Bonuses were paid from 1912 to 1929, when plaintiff began a stock subscription program that permitted employees to purchase its shares on the installment plan, with payments deducted from their salaries. From *6431934 to 1936 plaintiff paid bonuses solely in cash because the exigencies of the Depression had increased the cash needs of its employees. In 1937 plaintiff resumed paying bonuses in both stock and cash. It did so thereafter, except in 1938, when no bonuses were paid, and during the war years, when all-cash payments were made to enable its personnel to buy Government bonds. After the war and during the years involved in these two suits, plaintiff paid the bonuses to its high-level executives and employees in treasury stock and cash. Cash payments were made to enable employees who received stock to pay the income tax imposed on their bonuses, so that they would not have to sell the stock in order to meet their tax liabilities.
During the tax years in question bonuses were paid in cash and stock. The sole difference was in the employees who received the bonuses and the amount of them. So far as the legal question posed is concerned, there is no difference in the facts.
As we have observed, plaintiff bought all the stock which it later distributed to its employees during the period of the Depression, from January 2,1930, to September 21,1932. The reason for the purchases was twofold — it bought about 12,000 shares from its employees who were unable to fulfill their commitments under its stock subscription plan, and it purchased approximately 23,000 shares on the open market, in order to support the price for its stock. The stock market debacle that took place at the onset of the Depression prevented plaintiff’s stockholders, who wished to sell their stock to get much-needed cash, from finding buyers, and the disastrous possibility of a further drastic price drop prompted plaintiff to make selective purchases in order “to provide an orderly retreat in the market.” [Finding 14.] Our commissioner’s finding to this effect is supported by the evidence.
To provide means for carrying out its bonus plan was no part of plaintiff’s purpose in purchasing this stock.
Plaintiff held this stock in its treasury and, after 1932, bought no more of it. Instead, plaintiff invested its cash surplus in the stock of other corporations and in Government *644bonds, which it sold when prices increased. In 1932 and 1934, plaintiff nsed some of its treasury stock to acquire control of two other businesses. Since 1934 it has distributed this stock only pursuant to its bonus plan.
Defendant says that the fact that the 1953 corporate resolution authorizing the issuance of bonuses must, of necessity, have been a different act from the prior resolutions and the fact that the identity of the recipients as well as the particular amount of cash and stock each received were different, render the doctrine of collateral estoppel inapplicable, but defendant has failed to show what significance these new factual elements have on the solution of the legal problem before us. We think they have none. The factual differences must be material ones. They must have legal significance. The question before us is whether plaintiff was dealing in its own Stock as it might have dealt in the stock of another corporation. We see no reason to change our determination of this question simply because plaintiff’s resolution to carry out the bonus plan for 1953 named different recipients and allocated different amounts to each from the persons and amounts specified in the 1952 resolution and those that had gone before it. It is admitted that the class of persons benefited, i.e., key executives and employees, did not change as between the two periods of time. Nor were the purpose and effect of the bonus plan any different. Hence, we must reject defendant’s contention that there is a significant factual distinction between the two oases.
Defendant does not assert that there has been a change in the statutes or the regulations, but it says that an intervening decision of this court has so altered the legal atmosphere as to require us to hold that it is not collaterally estopped. The expression “legal atmosphere” is taken from the Supreme Court’s opinion in the Bimnen case, sufra. We suppose it meant by this expression a change in the judicial construction of the law as applied to the same or similar facts. The law applicable to this case is the regulation stating that gain is derived by a corporation from dealing in its own stock *645if it deals in it as it could in the stock of another corporation. That law has not changed, but, if, after the Hercules Powder decision, we had held in some other case, whose facts were materially the same as in Hercules, that the corporation had dealt in its stock as it would have in the stock of another corporation, then the “legal atmosphere” would have changed, and collateral estoppel should not apply, for all corporations should be treated the same. Defendant says General Electric Co. v. United States, 156 Ct. Cl. 617, 299 F. 2d 942, cert. denied, 371 U.S. 940 (1962), is such a case. We do not agree.
In General Electric, we held that a corporate taxpayer that had acquired its own stock and had used it for the purpose, among other things, of giving bonuses to its employees pursuant to its bonus plan was dealing in such stock as it might have dealt in the stock of another corporation. The facts in General Electric were not the same as in Hercules Powder. General Electric acquired its supply of treasury stock, through open -market purchases and by the liquidation of a subsidiary, for the purpose of meeting its obligations under its bonus plan. Hercules Powder’s stock acquisitions had no relation to its bonus plan. In addition, General Electric frequently used its treasury stock to defray obligations other than those arising under its'bonus plan; it used the stock for charitable contributions and also issued it to its subsidiaries for their use in carrying out their own bonus plans. It carried the acquisitions of its own stock (more than 800,000 shares), which it had acquired over a period of 5 years, on its balance sheet under the heading of “investments” and said, in a note, it “was held for corporate purposes.”
All these facts led us to say:
Under some circumstances, it is true, that a corporation’s own stock held in its treasury is not an asset. Upon acquisition of it, absent an intention to use it as other property, the corporation’s equity capital is reduced by the amount of it. But, where a corporation acquires it for the purpose of holding it temporarily and later using it as it might use the stock of another corporation, or as it might use cash, it would seem that it is of the same character as any other stock the corporation *646might acquire. In such case, the corporation’s equity capital is not in fact reduced, because the treasury stock is earmarked for future disposition. It is somewhat in the same status as other outstanding stock while held in the treasury pending its disposition for a particular purpose, such as, e.g., for the purpose of discharging an obligation incurred or likely to be incurred.
156 Ct. Cl. at 626, 299 F. 2d at 947.
We thought that all of the factual circumstances in General Eleetrie distinguished that case from our earlier decision in Hercules Powder and that there was no conflict between the two cases. We did not overrule Hercules Powder but thought the facts of the two cases were so different as to require different conclusions.
In Penn-Texas Corp. v. United States, 158 Ct. Cl. 575, 308 F. 2d 575 (1962), the question was the taxability of the gain alleged to have been derived from the exchange of 8,927 shares of treasury stock (acquired for resale to employees or such other persons as the board of directors might deem advisable) for the patents and license agreements of Walter P. Jacob Industries, Inc. We held the corporation had realized no taxable gam. In support of our decision we cited both General Electric and Hercules Powder, each as an authoritative application of the law to its peculiar facts.
In distinguishing PenmrTexas from General Electric, we said:
Our conclusion that the Jacob exchange did not lead to taxable gain is consistent, as we have already indicated, with General Electric Co. v. United States, supra. Neither the acquisition nor the disposition of General Electric’s treasury shares is comparable to the taxpayer’s. General Electric received a large portion of its stock, on liquidation of its subsidiary, in return for the latter’s stock held by the parent; this transaction was deemed covered by the part of the Treasury Regulation specifically providing that “if the corporation receives its own stock as consideration upon the sale of property by it” the gain or loss must be taken into account. The other major difference between the cases is that General Electric regularly used its own stock to satisfy recurring needs. The shares not received *647through liquidation were deliberately acquired in order to fulfill the obligations of the parent company and its affiliates under various employee compensation plans and for charitable contributions (which could have been satisfied in cash, at least partially) — and treasury shares were regularly disposed of for those purposes under what was in effect a continuing program. On these findings, the court concluded that General Electric “was engaged in the enterprise of acquiring [its own stock] for the purpose of using it in the discharge of its obligations, in lieu of the payment of them in cash or using other stock to discharge them”; and that it actually and regularly used the shares so acquired in lieu of cash or stock in other corporations. That pattern and those circumstances do not exist in Colt’s case. [158 Ct. Cl. 575, 585.]
“That pattern and those circumstances” no more existed in Hercules’ case than they did in Golfs. We are still of the opinion that the decisions in Hercules Powder and General Electric are not inconsistent and that the General Electric opinion did not change “the legal atmosphere.”
It follows that defendant is collaterally estopped from relitigating this case, and that it was in error in imposing the tax that it collected from plaintiff. Plaintiff is entitled to recover.
Judgment will be entered in plaintiff’s favor and the case is remanded for further proceedings pursuant to Rule 47(c) (2) to establish the 'amount of the refund to which plaintiff is entitled.
Davis, Judge,
dissenting:
I do not agree that defendant is barred by collateral estop-pel from rehtigating the issue decided in Hercules Powder *648Co. v. United States, 149 Ct. Cl. 77, 180 F. Supp. 363 (1960). This suit involves a different tax year. In such a case, the Supreme Court has told us, the doctrine of collateral estoppel is inapplicable if (a) “the relevant facts in the two cases are separable, even though they be similar or identical” (Commissioner v. Sunnen, 333 U.S. 591, 601 (1948), emphasis added); or (b) there has been “a change or development in the controlling legal principles” {id. at 599), “a judicial declaration intervening between the two proceedings [which] may so change the legal atmosphere as to render the rule of collateral estoppel inapplicable” {id. at 600), or “a sufficient change in the legal climate” to render the bar unavailable {id. at 606). In my view, both of these alternatives are fulfilled here.
As Judge Whitaker’s opinion points out, many of the relevant facts are precisely the same, not separable from, those in the earlier litigation. But that is not true of all of the facts, and Sumen has confined collateral estoppel in tax cases to instances where “the very same facts and no others are involved in the second case” {id. at 601, emphasis added). Moreover, I consider the annual resolutions to be a critical element in the continued execution of the bonus plan. Nothing could be done until the resolution for the particular year was adopted — or apart from the terms of that resolution. Even if the wording of the resolution for the taxable year was identical with those in the prior case, the documents are, quite plainly, separate and distinct. Sumen declares that, if “the second proceeding may involve -an instrument or transaction identical with, hut in a form separable from, the one dealt with in the first proceeding,” then the “court is free in the second proceeding to make an independent examination of the legal matters at issue” {id. at 601). This principle is illustrated by the holding in Stamen itself. One tax issue concerned royalty payments growing, out of license contracts which were identical in all important respect with an earlier contract which had been the subject of the first *649tax decision. Tbe Supreme Court squarely held that “for income tax purposes, what is decided as to one contract is not conclusive as to any other contract which is not then in issue, however similar or identical it may (id. at 602, emphasis added).
There has also been, in my opinion, a “development in the controlling legal principles,” “a change in the legal atmosphere” and the “legal climate.” This standard does not mean that the earlier decision must have been overruled or limited strictly to its facts, or that the second ruling must necessarily be inconsistent with the first. The language used in the Swrmen opinion suggests, rather, that the second court should be freed from the prior determination if there has been some marked advance or alteration in relevant orientation, approach, reasoning or principles. Just such a change has occurred within this court, as a comparison of the opinion in Hercules Powder in 1960 with that in General Electric (and also in Perm-Texas) in 1962 will show. It makes no difference that the decisions may all be reconcilable on their differing facts; for the application of collateral estoppel, the significant point is that the court’s approach to this type of case has veered sharply since the first Hercules Powder. The way is therefore open for us to consider the issue, in the present context, on its merits.
On the merits I would hold for the defendant. Because of the intervening development, the former adjudication need not be followed, even as a precedent. See Mississippi River Fuel Corp. v. United States, 161 Ct. Cl. 237, 246 (1963), 314 F. 2d 953, 958 (concurring opinion). We can proceed de novo. This is not as clear a case for the Government as General Electric, but as I read the balance the needle does swing against taxpayer. Judge Jones’ dissent in *650the earlier ease is persuasive that the company dealt with the treasury stock, in and around the years of the bonus payments, as it could and would have dealt with another corporation’s shares, or with cash. That conclusion is underlined, for the present taxable year (1953), by the terms of the resolution implementing the bonus plan. The directors determined that “the portion of the bonus fund allocated to any individual may consist entirely of treasury stock, or entirely of cash, or partly of treasury stock and partly of cash, all in the discretion of the President” (finding 29). The equation, in the directors’ minds, between cash and the treasury stock is thus made plain on the face of the resolution. So far as the policy-making board was concerned, the entire bonus could as well have been paid in cash. For the year 1953, this effectively nullifies, I think, the assumption that the purpose of the bonus, at least in part, was to give the recipients a stake in the corporation. I do not say that tax-ability results simply because the company, if it had desired, could have substituted cash for the stock. My point is that this company actually contemplated using cash and affirmatively decided that it was immaterial in which coin the bonus was paid. This is a controlling circumstance showing that the taxpayer, in fact, dealt in its own shares as it might in cash or the stock of another firm. See General Electric Co. v. United States, 156 Ct. Cl. 617, 627-29, 299 F. 2d 942, 948-49 (1962), cert. denied, 371 U.S. 940 (1962); Penn-Texas Corp. v. United States, 158 Ct. Cl. 575, 581-85, 308 F. 2d 575, 578-80 (1962).
*651Jones, Senior Judge,
joins in the dissenting opinion.
PINDINGS OP PACT
' The court, having considered the evidence, the report of Trial Commissioner Wilson Cowen and the briefs and argument of counsel, makes findings of fact as follows:
1. The plaintiff is a Delaware corporation organized in 1912 with its principal place of business and general office in Wilmington, Delaware. It engages in the business of manufacturing and selling chemicals, including explosives, naval stores (tar, pitch, turpentine and other resinous products) and synthetic products.
2. The plaintiff’s Federal corporation income tax return for the calendar year 1953 was prepared on the accrual basis and was timely filed in 1954. The tax liability shown on the return was paid in quarterly installments in 1954 and a deficiency was paid in 1955, the total tax so paid amounting to $18,979,617.
3. The gross income reported on the plaintiff’s 1953 return included capital gains of which $385,598 was shown thereon to be gain from the sale of 6,571 shares of “Hercules Powder Co. Treasury Stock,” having a cost basis, including the expense of issuance, of $61,230 for a gross sales price of $446,828.
4. On March 14, 1957, the plaintiff timely filed a formal claim for refund for the calendar year 1953 in an amount of $100,255, which claim states as grounds and reasons for its allowance the following:
In the year 1953, taxpayer committed itself to the issuance of shares of its common Treasury stock having a market value of $446,828 to certain of its employees as additional compensation for the year 1953. The cost of this stock to taxpayer was $60,770. The excess of the market value over cost and expenses, amounting to $385,598, was taxed as a capital gain at the rate of 26% in 1953.
The taxpayer contends that this did not constitute trading in its own shares as it would in the shares of another corporation, and that no taxable gain resulted from this transaction.
*652This claim for refund was disallowed in full with statutory notice to the plaintiff in a registered letter dated August 4,1961.
5. The plaintiff first instituted its stock bonus plan in 1912. This plan provided in pertinent part that the bonuses of Hercules Powder Company would be granted in the common stock of the company. After amendment of the bonus plan in 1934, bonuses were payable in “stock of the company and/or cash.”
From 1912 through 1929, the plaintiff made bonus awards in treasury stock or in cash, the latter being awarded only upon the approval of the board of directors of plaintiff in light of the particular terms of the bonus plan in effect.
Plaintiff’s capital structure on December 31,1929, consisted of 200,000 shares of preferred stock, and 1,600,000 shares of authorized common stock, no par value, of which 114,241 shares of preferred and 598,000 shares of common were issued and outstanding. Part of this authorized common stock has remained unissued at all times since 1929. At all times material, the plaintiff’s stock was listed on the New York Stock Exchange. Under an amendment to the plaintiff’s charter in 1929, the board of directors was authorized to sell up to 80,000 shares of authorized unissued no par common stock to the employees free from stockholders’ pre-emptive rights. In 1929 the plaintiff had instituted a subscription program for its employees, allowing them to contract in writing to purchase a specified number of shares of common stock with payments to be deducted monthly from salary (or paid in cash following retirement or by executors or administrators after death) with provision that no fractional shares would be issued, and that such contracts would be canceled upon failure to continue agreed monthly payments for a period of four consecutive months or upon resignation or discharge from employment. The employees subscribed for 24,500 shares of the plaintiff’s common stock. These subscription agreements were suspended in 1931 and not reactivated until 1937.
*6536. On January 2, 1930, the plaintiff purchased shares of its own common stock and continued to do so during each month through September 21, 1932, in lots varying from one share to 1,600 shares. It purchased 7,359 shares in 1930, 23,417 shares in 1931, and 4,380 shares in 1932, a total of 34,886 shares.
7. More than one-third of the stock referred to in finding 6, supra, or in the neighborhood of 12,000 shares, was purchased from employees, some of whom had signed subscription agreements and chose not to continue their agreed monthly payments for financial reasons.
8. The balance of the stock, in the neighborhood of 23,000 shares, was purchased through brokers and on the open market.
9. At the time the plaintiff purchased its own shares and held them as treasury stock, no adjustments were made in the “Capital Stock” account to reflect any reduction in the amount of paid-in capital which, so far as these purchased shares were concerned, remained as shown before their purchase. In this respect, the capital stock account during the year 1953 continued to show the capital originally paid in for these shares. The plaintiff has not at any time retired any of the reacquired shares of its common stock by cancellation of such shares, nor has its certificate of incorporation been amended to reflect a reduction of its capital structure in the amount of the reacquired shares.
10. At all times material, these shares were reflected on the plaintiff’s books of account in an “Investment Securities” account as “Treasury Stock.”
11. In 1931 the plaintiff exchanged 10,000 shares of such treasury stock worth $105,000, together with $2,432,975 worth of bonds and cash, for all of the capital stock of the Paper Makers Chemical Corporation. The consideration paid by plaintiff was in the form and manner requested by the Paper Makers Chemical Corporation. At or about the time the transaction occurred (October 1931), 100 share lots of Hercules common stock were selling for about $35 per share.
*65412. In 1934 the plaintiff exchanged 800 shares of such treasury stock as part of the consideration for the purchase of the business of Universal By-Products Company. The total purchase price was about $161,000; the value of the 800 shares of treasury stock on the date of transfer was about $56,800.
13. Between January 2,1930 and December 21,1932, plaintiff sold 1,331 shares of its treasury stock on the open market through brokers.
14. In the period 1930-1932 in which plaintiff purchased shares of its own common stock, as shown in preceding findings, there was a general decline in the stock market and the market value of plaintiff’s stock dropped from $130 a share to $13 a share. In 1930 plaintiff had approximately 1,500 stockholders and its stock was largely held in the five Atlantic Coast states. Plaintiff’s stock, which was not listed on the New York Stock Exchange until 1928, had a relatively narrow market. When the stock market debacle occurred, stockholders who wanted to sell could find no buyers. Because of the decline of its business, the reduction in its inventories, and the decrease in its capital expenditures, plaintiff had a surplus of cash in its treasury.
Plaintiff’s primary purpose in acquiring its own stock during the period stated was to provide an orderly retreat in the market for its shares and to assist its employees who had purchased stock at pre-depression prices and were compelled to sell it for financial reasons. In 1929, when the company offered employees subscriptions to stock at $60 per share, some of them subscribed on an installment payment basis. Others borrowed money from the banks to buy the stock. Under the conditions prevailing in the stock market, the spread between the prices asked and the prices bid became excessive, and plaintiff endeavored to provide a market and to prevent these excessive spreads by buying stock when no buyers could be found and by selling the stock during times when there were recoveries in prices and no sales were available. The minutes of plaintiff’s Finance Committee reflect that it met frequently during the period mentioned and *655directed its treasurer to place orders with brokers for the purchase of relatively small amounts of Hercules stock and occasionally to place orders with brokers for the sale of small amounts of such stock. In all instances, the prices at which the treasurer wás directed to acquire the stock were less than the prices at which he was authorized to sell it. At a meeting of plaintiff’s Finance Committee on March 24, 1931, the question was discussed whether additional purchases of plaintiff’s common stock should be made at current prices of about $55 per share. The consensus of the committee was that plaintiff’s purchases of its own stock should be confined to offerings at $50 per share and that it might offer some of its treasury stock for sale at about $55 per share.
15. 'When plaintiff began the acquisition of its common stock for the purposes stated above, plaintiff had no fixed or declared intention as to the ultimate disposition of the stock. Plaintiff did not anticipate that it would be necessary to buy as many shares as it did in order to accomplish its purposes and it did not visualize that such quantities of its stock would be required, within any reasonable period of time, for the payment of bonuses to employees or for similar purposes.
16. During the depression, plaintiff invested some of its surplus cash in the stocks and securities of large companies such as American Telephone & Telegraph, the Texas Company, Bethlehem Steel, and Kennecott Copper. The stock in these concerns had a wide market and plaintiff’s investment in the stock was made with the intention that the stock could be resold and cash realized when the plaintiff needed it for its business purposes. Plaintiff also increased its investment in Government bonds by the purchase of 1 million dollars’ worth of such bonds about September 1,1931.
17. On August 5,1932, plaintiff’s Finance Committee met to consider whether it should purchase more of Hercules common stock or should buy additional shares of American Telephone & Telegraph stock. The minutes of the meeting read in pertinent part as follows:
* * * * *
The meeting was for the purpose of a discussion of the relative investment merit of the company’s own *656common stock versus American Telephone & Telegraph Company stock at present price ratios of six to seven shares of Hercules common for one share of American Telephone, particularly from the standpoint of whether the company should sell its American Telephone holdings and buy Hercules. The committee was unanimously favorable to this proposal in principle as representing fundamentally a favorable exchange basis. However, it was pointed out that offerings of Hercules common at current prices are scarce, and that the proceeds from the sale of only 100 shares of Telephone would provide funds for the purchase of as much Hercules common as would probably be offered in a month’s time. Particularly on account of the small amount involved, it was felt that the company might continue for awhile at least the policy heretofore followed of acquiring offerings of Hercules common, without the sale of a corresponding amount of Telephone.
An alternative proposal was that the company sell at this time a substantial quantity of Telephone, on the theory that current prices are temporarily too high, and hold the proceeds in reserve for future purchases of Hercules and/or the repurchase of the Telephone stock at a lower figure. Concensus [sic] of opinion of the committee was favorable to this proposal at a price of $116 per share or better for the Telephone.
* * ❖ * *
18. On December 31, 1932, the plaintiff held as treasury stock a total of 23,555 such shares of its own common stock and it has purchased no such shares since that date. This block of treasury stock increased in number of shares held to reflect a two-for-one stock split in 1937, and another two-foi'-one stock split in 1946. The amendments to the certificate of incorporation authorizing these splits stated that the number of shares in the treasury, as well as the number of shares issued and outstanding, was to be doubled. The stock split was to be effectuated by issuance of additional certificates of authorized but unissued stock. Pursuant to this authorization a certificate for 22,355 shares was delivered to the treasury on November 30,1937, and a certificate for 38,958 shares was delivered to the treasury on April 16, 1946.
1.9. The number of shares so held decreased in the amounts shown in findings 20 and 22 below, as the result of distribu*657tions to employees pursuant to the plaintiff’s bonus plan during each of the years 1933 through 1937, and 1948 through 1953, and as the result of exchanging 800 shares for the business of Universal By-Products Company in 1934.
20. On January 1, 1953, the plaintiff held 33,399 shares of reacquired common stock in its treasury from which it made the distributions of the 6,571 shares mentioned in finding 3 above. These 6,571 had been acquired in 1931. Increases and decreases in the number of shares held, after purchases and sales ceased on December 21,1932, were as follows:
Date recorded Number of shares Balance remaining Explanation 12-15-33., 6-15-34.. 2-28-35.. 4-30-35.. 1-3-36... I-29-36— II-30-37. 12-31-37., 4-16-46— 12-31-48. 12-31-49., 12-31-50., 12-31-51. 12-31-52. 12-31-53. 50 800 10 100 15 90 5,752 11,369 9,349 9,947 7,953 5,899 6,571 23,505 22,705 22,695 22,595 22,445 22,355 44,710 38,958 77,916 66,547 57,198 47,251 39.398 33.399 26,828 Class “A” Bonus. (*). Class “A” Bonus. Class “A” Bonus. Class “A” Bonus. Class “A” Bonus. Stock Split. Class “B” Bonus. Stock Split. Class “B” Bonus. Class “B ‘ Class “B Class “B Class “B Bonus. Bonus. Bonus. Bonus. Class “B” Bonus.**
* Exchanged as part of consideration for the business of another company, as stated above.
**This relates to the particular shares mentioned in finding above.
21. Class “A” and Class “B” bonus distributions were made in various years pursuant to a plan that was first put into effect in 1912 and which, as amended November 28,1934, was effective during the year 1953 as follows:
Besolved, that the Bonus Plan of the company heretofore existing be and the same is hereby altered, revised and amended, to read as follows:
1. The company will grant bonuses to employees contributing in an unusual degree to the welfare of the company by their inventions, ability, industry, or loyalty. Such bonuses may consist of stock of the company and/ or cash, as the Board of Directors shall from time to time determine. Awards will be made under one or both of the following classes:
*6582. Class “A” — Bonuses For Inventions Or Other Conspicuous Service — -to be given entirely irrespective of the company’s earnings, each case being considered on its merits without regard to position occupied or length of service of the employee; the awards to be made by the Board of Directors upon recommendations of the respective department heads, approved by the President.
Class “B” — Bonuses In The Nature of Profit Sharing Or Extra Compensation To Those Who Have Contributed Most In A General Way To The Company’s Success — The total amount of such bonuses to be awarded shall be determined by the Board of Directors each year.
The several department heads shall prepare lists of the employees whom they recommend for participation in such awards, classified according to the relative importance of such employees in the organization. Such lists shall be submitted to the President for approval, and he shall, in consultation with the several department heads at interest, allocate the total bonus award amongst the employees so recommended. The list of recommended awards shall then be presented to the Board for final approval and adoption.
No award shall be made to an employee under Class “B” unless he has been in the service at least two years.
3. The Board of Directors reserves the right to modify or cancel any bonus recommendation for reasons which to it may seem sufficient.
4. Employees who are also members of the Board of Directors may be awarded bonuses under the plan; provided, however, that no such awards shall be made unless the same is recommended by the President and the' Chairman of the Board.
5. No contractual obligation is assumed by the company under the plan, nor can any such rights be acquired hereunder. No legal rights in, or to, or under the plan are conferred upon any employee.
6. The company reserves the right, at any time, to alter, revise, amend, or terminate the plan when in the opinion of the Board of Directors such action may appear desirable or necessary.
T. The plan as herein set forth has been adopted effective November 28, 1934, and supersedes all previous bonus plans and amendments thereto.
*65922. During the years 1934-1953 the following distributions of cash and stock were made pursuant to the bonus plan referred to in finding 21 above:
Hercules Powder Company Bonus Statistics 1984-58
*660All distributions of stock pursuant to this bonus plan during the years 1934-1953 were made from treasury stocks; no distributions during this period were made from authorized but unissued stock.
23.The plaintiff’s treasury stock was acquired at an average cost, adjusted for splits of about $9.10 per share. Market prices were as follows:
Adjusted for splits* High Low-Average of high and low $32.50 21.25 14.50 7.38 17.16 20.41 22.50 37.50 46.25 43.50 50.75 50.25 40.13 37.63 43.50 44.50 57.88 72.25 63.00 57.25 53.00 69.50 79.00 78.25 74.75 $20.00 12.50 6.50 3.47 3.75 14.75 17.75 21.00 25.00 21.38 31.50 34.50 32.63 25.50 36.50 37.50 41.00 46.50 50.25 41.75 40.00 49.00 62.00 66.50 60.25 $26.25 16.88 10.50 5.42 10.45 17.58 20.13 29.25 35.63 32.44 41.13 42.38 36.38 31.56 40.00 41.00 49.44 59.38 56.63 49.50 46.50 59.25 70.50 72.38 67.50 Year 1929.» 1930 — _ 1931— 1932— 1933— 1934— 1935_ 1936_ 1937_ 1938— 1939— 1940— 1941— 1942— 1943— 1944— 1945— 1946— 1947— 1948— 1949— 1950— 1951_ 1962_ 1953—
*Two-for-one split November 23, 1937; Two-for-one split March 29, 1946.
24. From the time it was organized in 1912, it has been plaintiff’s policy to give its employees a proprietary interest in the company by means of stock bonuses and the employee stock subscription plan. Employees who received Class “B” bonuses were persons in responsible positions such as members of the executive committee, general managers, directors of sales and operations, plant superintendents, branch office managers, and key research men. The stock subscription program was, so far as the record shows, open to all employees.
25. From 1934 to 1936, bonuses to employees were paid in cash, because plaintiff felt that the employees needed cash in the years following the depression. By 1937 plaintiff decided that its employees were in a position to hold more of plaintiff’s stock. Only half of the bonuses were paid in *661cash. Income taxes had increased by then and this action was taken so that employees in the higher tax brackets would not have to sell the stock to pay income taxes thereon. Although only a small percentage of the bonus recipients were in the high tax brackets, plaintiff decided that it would be a wise policy to use a uniform basis for bonus distributions. No bonuses were paid in 1938. During the years affected by the war, bonuses were paid in cash so that employees could buy war bonds. In 1948, plaintiff resumed the practice of paying part of the bonuses in treasury stock, and this practice was continued through 1953. Because of the increase in income tax rates, only 25 percent of the bonuses were paid in treasury stock.
26. Prior to 1940 such treasury stock was carried as an asset on the plaintiff’s balance sheets. In 1940 and subsequent thereto, the consolidated balance sheets prepared by the public accountants engaged to make an independent audit of the plaintiff’s accounts for purposes of the plaintiff’s published annual report carried the treasury stock under the heading “Liabilities.” The consolidated balance sheet in the 1953 annual report was in pertinent part, as follows:
December 31, 1953
Total current liabilities_ $30, 555,273
Total Reserves_ 18,695,364
Stockholders’ Investment
Preferred, 5% cumulative, par value $100 (Authorized 200,000 shares) Issued 96,194 shares_ $9, 619,400
Common, no par value (Authorized 3,525,000 shares of which 49,465 shares are reserved for sale to employees) Issued 2,711,336 shares_ 16,945,850
Additional paid-in capital_ 6, 023,101
Net income invested in business_ 50, 531, 726
83,120,077
Stock Reacquired by company at cost (8,706 shares preferred and 26,828 shares common)_ 1,125,238
Total Stockholders’ Investment_ 81,994, 839
131,245,476
*66227. On the plaintiff’s books of account, the treasury stock was, at all times, carried in an “asset” account.
28. The closing balance sheet of the plaintiff (nonconsoli-dated), prepared by the plaintiff’s own accountants for the year 1953 and attached to its income tax return for that year, was in pertinent part as follows:
Hercules Powdee Company
BALANCE SHEEtC
Assets
Current Assets:
December 31,1953
Casia_ $16, 086,236
U.S. Treasury Savings Notes. 17,211,350
Aecoun-ts Receivable_ $14, 740, 498
Less Reserves-846,234
13, 894,264
Inventories:
Material, Supplies and Work in Process - 14,177, 607
Finished Products-13, 924,133
Total Current Assets_ 74,293, 689
Fixed Assets:
Plant and Property — at Cost_ 125, 437,980
Reserve for Depreciation and Amortization- 73,996,189
51,441, 791
Treasury Stock_. 1,125,238
Other Assets_ 297,300
Investment in Subsidiary Companies- 1, 361,056
Deferred Charges- 114,285
128, 633,259
29.The matter of paying Class “B” bonus awards for 1953 was considered by plaintiff’s board of directors at a meeting on November 25,1953, the minutes of which read in part as follows:
Pursuant to the action taken at the regular meeting of October 28, 1953, the matter of “B” bonus awards for the year 1953 was considered. After discussion, upon motion duly made and seconded, the following resolutions were adopted:
Resolved, That there be awarded employes as Class B bonuses under the company’s bonus plan for services *663performed during the year 1953 the total sum of approximately $1,800,000, payable in cash or treasury stock, or both;
Further Resolved, That the President, in consultation with the respective department heads at interest, proceed to a determination of the employes recommended for participation in such total bonus award, and the amount of the bonus to be allocated each such employe, said recommendations to be submitted at the regular Board of Directors meeting on December 30,1953;
Further Resolved, That the portion of the bonus fund allocated to any individual may consist entirely of treasury stock, or entirely of cash, or partly of treasury stock and partly of cash, all in the discretion of the President.
The plaintiff paid a total of $1,820,615 as Class “B” bonus awards with respect to 1953 pursuant to action taken by its board of directors at a meeting on December 30, 1953, the minutes of which read as follows:
Resolved, That the recommendations of the President presented to this meeting covering Class B bonus awards to employes of the company for services performed during the year 1953 be and the same are hereby approved and adopted, to be paid to the respective recipients on January 6, _ 1954, in cash and in stock, in accordance with the said recommendations; and be it
Further Resolved, That such awards shall not be modified or revoked; and be it
Further Resolved, That the Treasurer be and he is hereby authorized and directed to proceed forthwith to notify each recipient designated to receive a bonus in said recommendations of the amount of bonus awarded such recipient, and to take all necessary action to effectuate the payment of same as provided in this resolution.
30. The Class “B” bonus for 1953 was later accrued on the books of the plaintiff in the amount of $1,820,615 and, except for minor items, the following credits were made:
Investment Securities_$58,168
Salaries After Deductions_ 969, 936
Employees’ Tax Withheld_ 403, 851
Surplus Premium on Capital Stock Issued_ 388,200
31. The plaintiff had over 10,000 employees of whom approximately 1,240 received 6,571 shares of treasury stock, *664having an aggregate market value of $446,828, as additional compensation under its bonus plan. The excess of this market value over the plaintiff’s cost (cost basis of $60,770 plus expense of issuing new certificates of $460) for such stock was $385,598. This excess was reported as a long-term capital gain in 1958, and a tax in the amount of $100,255 paid thereon. No part of the tax which was paid thereon by the plaintiff has been refunded or repaid. The difference of $385,598 between the plaintiff’s basis for the stock and the market value of the stock when distributed as additional compensation to its employees, less the tax paid thereon, was credited by the plaintiff on its books to its capital surplus account.
32. With respect to the treasury stock which the plaintiff distributed to its employees in 1953, it charged the fair market value of the stock on its books to the account designated “ CB’ Bonus” expense account, which for accounting purposes was classified as “wage and salary costs”.
33. On its tax returns for the year 1953, the plaintiff reported the market values of the treasury stock as “salary or wages” paid, and deducted those amounts from gross income in determining the amount of taxable income for income tax purposes.
34. Upon resuming the distribution of treasury stock to its employees in 1948 in pursuance of its class “B” bonus plan, the plaintiff sent its employees a letter which contained the following paragraph:
For the first time since 1937 we are paying a part of the bonus — approximately 25% — in common stock of the company. We believe the key personnel who share in the bonus will appreciate this opportunity to increase their interest in the company and to participate as stockholders as well as employees in its continued growth and prosperity.
35. When the plaintiff distributed this treasury stock to its employees with respect to 1953, it informed each employee (on the stub of the actual bonus check) of the total amount of his bonus and the fair market value of the stock which was delivered to him. Plaintiff also sent the following let*665ter to each employee who received a Class “B” bonus in cash and stock in 1953:
The enclosed check and stock certificate are being sent to you with the company’s and my appreciation of your fine work during the past year.
Our company has made a lot of progress in ’53, and we enter the new year with the knowledge that we are well prepared to carry on the company’s business.
With all best wishes.
36. There were no written conditions imposed with respect to the receipt by an employee of the treasury stock which would preclude his selling the stock. A survey made by the plaintiff disclosed that of 1,240 employees who received treasury stock as a part of their 1953 Class “B” bonus, 1,033 still had the stock one year later.
CONCLUSIONS OE 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 plaintiff is entitled to recover in accordance with the opinion, and judgment is entered to that effect.
The amount of recovery will be determined pursuant to Buie 47(c) (2) of the Buies of this court.
In accordance with the opinion of the court and a memorandum report of the commissioner as to the amount due thereunder, it was ordered on January 8, 1965, that judgment for the plaintiff be entered for $108,798.64, together with interest as provided by law.