In S. Rep. 1631, 340 U.S. 36">supra, p. 36, it is stated that to be entitled to any relief under section 722 the taxpayer must show "(3) Depression due to a profits cycle differing from the general business cycle." The petitioner has not shown in this proceeding that its business cycle differed materially in length and amplitude from the general business cycle; in fact, the effect of the depression which petitioner claims qualifies it for section 722 relief was permanent and characteristic of business in general1951 U.S. Tax Ct. LEXIS 44">*54 during the period involved. Hence, since we believe that to grant the relief which petitioner here seeks would be inconsistent with the principles of section 722 (b), we must conclude that it is not entitled to any relief under section 722.

That the principle of res judicata is applicable to tax cases is now well settled, and the single fact that the proceedings are for different tax years will not prevent its application. The case of New Orleans v. Citizens' Bank, 167 U.S. 371">167 U.S. 371, involved the question of whether a judgment 17 T.C. 755">*760 of a court of competent jurisdiction upholding a charter exemption from tax estopped the city from attempting to collect taxes for subsequent years contrary to the same exemption. In holding that res judicata barred the second proceeding the Court said:

The proposition that because a suit for a tax of one year is a different demand from the suit for a tax for another, therefore res judicata cannot apply, whilst admitting in form the principle of the things adjudged, in reality substantially denies and destroys it. The estoppel resulting from the thing adjudged does not depend upon whether there is the same demand1951 U.S. Tax Ct. LEXIS 44">*55 in both cases, but exists, even although there be different demands, when the question upon which the recovery of the second demand depends has under identical circumstances and conditions been previously concluded by a judgment between the parties or their privies. This is the elemental rule, stated in the text books and enforced by many decisions of this court.

The case of Tait v. Western Maryland Ry. Co., 289 U.S. 620">289 U.S. 620, involved suits for refund of Federal income taxes based on issues that had been litigated by the taxpayer before the Board of Tax Appeals and the Court of Appeals for earlier years. In that case, the collector, Tait, urged that res judicata was not applicable because the two proceedings involved taxes for different years. In answer to this the Court said:

The scope of the estoppel of a judgment depends upon whether the question arises in a subsequent action between the same parties upon the same claim or demand or upon a different claim or demand. In the former case a judgment upon the merits is an absolute bar to the subsequent action. In the latter the inquiry is whether the point or question to be determined in the later1951 U.S. Tax Ct. LEXIS 44">*56 action is the same as that litigated and determined in the original action. * * * Since the claim in the first suit concerned taxes for 1918 and 1919 and the demands in the present actions embraced taxes for 1920-1925, the case at bar falls within the second class. * * *

As petitioner says, the scheme of the revenue acts is an imposition of tax for annual periods, and the exaction for one year is distinct from that for any other. But it does not follow that Congress in adopting this system meant to deprive the government and the taxpayer of relief from redundant litigation of the identical question of the statute's application to the taxpayer's status.

The Court then referred to the fact that the doctrine of res judicata had been held applicable in suits relating to state taxes for different years and cited, among others, the case of 167 U.S. 371">New Orleans v. Citizens' Bank, supra. On this point, the Court concluded that:

It cannot be supposed that Congress was oblivious of the scope of the doctrine, and in the absence of a clear declaration of such purpose, we will not infer from the annual nature of the exaction an intent to abolish the rule in this 1951 U.S. Tax Ct. LEXIS 44">*57 class of cases.

In the Tait v. Western Maryland Ry. Co. case, supra, the collector suggested that facts were stipulated in the second case which were not made to appear in the first. These concerned the question of the identity of the taxpayers as the result of a foreclosure and reorganization. 17 T.C. 755">*761 But the Court pointed out that the Court of Appeals found that all of the facts in the second case were before it in the first. Accepting this finding, the Supreme Court said:

The petitioner may not escape the effect of the earlier judgment as an estoppel by showing an inadvertent or erroneous concession as to the materiality, bearing or significance of the facts, provided, as is the case here, the facts and the questions presented on those facts were before the court when it rendered its judgment. Compare Deposit Bank v. Frankfort, 191 U.S. 499">191 U.S. 499, 191 U.S. 499">510, 191 U.S. 499">511, 24 S. Ct. 154">24 S. Ct. 154, 48 L. Ed. 276">48 L. Ed. 276. The very right now contested arising out of the same facts appearing in this record, was adjudged in the prior proceeding.

In Commissioner v. Sunnen, 333 U.S. 591">333 U.S. 591, the Supreme Court was1951 U.S. Tax Ct. LEXIS 44">*58 again called upon to decide whether a judgment as to income tax liability for one year effects an estoppel to proceedings between the same parties for other years. The Court recognized that in matters of Federal taxation "Each year is the origin of a new liability and of a separate cause of action," and that a "subsequent modification of the significant facts or a change or development in the controlling legal principles" may make the determination in the earlier proceeding "obsolete or erroneous, at least for future purposes." On this point the Court further said:

And so where two cases involve income taxes in different taxable years, collateral estoppel must be used with its limitations carefully in mind so as to avoid injustice. It must be confined to situations where the matter raised in the second suit is identical in all respects with that decided in the first proceeding and where the controlling facts and applicable legal rules remain unchanged.

Upon consideration of the record in each of the proceedings instituted by this petitioner, we are of the opinion that the holding on the merits in Docket No. 10126 estops the petitioner from a trial on the merits in the proceeding1951 U.S. Tax Ct. LEXIS 44">*59 for later years, Docket No. 19646.

We have here the same parties in both proceedings. Although the causes of action are different in that different taxable years are involved, nevertheless "the matter raised in the second suit is identical in all respects with that decided in the first proceeding and * * * the controlling facts and applicable legal rules remain unchanged." 333 U.S. 591">Commissioner v. Sunnen, supra. In the present proceeding, the matter raised is whether the respondent erred in failing to allow excess profits tax relief under the provisions of section 722 (a) and (b) ( 5) of the Internal Revenue Code. This is the identical matter that was decided in the prior proceeding. There has not been any change in the controlling facts. The facts in the prior proceeding and those alleged in the present one are essentially the same. They deal with the petitioner's activities in the rental of real estate to Saks & Co. Accepting as facts the allegations of fact in the second petition, we do not find therein any difference sufficient to warrant a holding that the controlling facts in the two tax periods are changed. At the 17 T.C. 755">*762 hearing on the issue1951 U.S. Tax Ct. LEXIS 44">*60 of res judicata, counsel for the petitioner stated that "Every single fact on which we rely was found by the Court."

Nor has there been any change in the legal rules between the time of the decision in the proceeding for the year 1940 and the present time. The governing statutory provisions have remained the same, and we have found no intervening decisions that lay down any different rules.

But the petitioner insists that the matter of whether it was a member of an industry engaged in production was not raised, litigated, found, or decided in the prior case, and that under such circumstances collateral estoppel does not apply. It cites many cases which it says support its position. One of them is Dowd v. Cook, 340 U.S. 206">340 U.S. 206. That was a habeas corpus proceeding based upon a prison warden's suppression of appeal papers. The Court rejected the warden's plea of res judicata based on prior litigation in a State court. The Court first referred to a case holding that res judicata is not applicable to a decision on habeas corpus refusing to discharge a prisoner, and then pointed out that in the prior litigation the State "court made only one finding, 1951 U.S. Tax Ct. LEXIS 44">*61 and that pertained to a matter not now in dispute." We do not see the applicability of that case. Res judicata is admittedly applicable in tax cases, and here the matter in dispute is the same in both cases. Another case cited by the petitioner is United States v. Munsingwear, Inc., 340 U.S. 36">340 U.S. 36. There the United States had filed one suit for alleged violation of price fixing regulations and sought, in separate counts, an injunction and treble damages. On trial of the first count, the trial court held against the United States. It then dismissed the second count on the ground that the judgment in the injunction suit was res judicata of the other count. The dismissal was sustained by the Supreme Court which said that the case came within the principles laid down in Union Pacific R. Co. v. United States, 168 U.S. 1">168 U.S. 1, which held in part that res judicata applies "even if the second suit is for a different cause of action, the right, question of fact once so determined [in a prior suit] must, as between the same parties or their privies, be taken as conclusively established * * *." It is difficult to see wherein 1951 U.S. Tax Ct. LEXIS 44">*62 this case supports the petitioner's argument.

For other reasons the petitioner's argument on this point is not well founded. In the proceeding concerning the year 1940, it was neither found as a fact nor held in the opinion that the petitioner was "a member of an industry engaged in production," as stated in the petitioner's brief. In the opinion in the prior case, we analyzed section 722 (b) (5) under which the petitioner claimed relief, and noted the provision therein that relief thereunder was to be granted only if "the application of this section to the taxpayer would not be inconsistent with the principles underlying the provisions of this subsection, and with the conditions and limitations enumerated therein." Subsection 17 T.C. 755">*763 (b) (3) is one of the provisions of "this subsection." It was concluded that the petitioner had not shown "that its business cycle differed materially in length and amplitude from the general business cycle." Thus, the provisions of subsection (b) (3) were merely used to determine the application of the consistency test laid down in subsection (b) (5). This is short of any finding that the taxpayer was a member of an industry engaged in production. 1951 U.S. Tax Ct. LEXIS 44">*63 Parenthetically, the opinion in the prior case says nothing about the petitioner being "engaged in production" as alleged in the petitioner's brief. Subsection (b) (3) is divided into parts A and B. Part A deals with variant profits cycles, and part B deals with periods of high production and profits, and these provisions are expressed in the alternative. Therefore, it is not necessary that a taxpayer be engaged "in production" in order to test the applicability of the variant profits cycle provision.

Upon a reading of the entire opinion in the prior proceeding, it is clear that the reference therein to subsection (b) (3) is merely one of the reasons underlying the decision that the petitioner was not entitled to section 722 relief. The reasons given for a judgment do not constitute a ground for denial of the application of res judicata. The case of 167 U.S. 371">New Orleans v. Citizens' Bank, supra, involved a suit concerning local taxes as to which there had been an adjudication for a prior year. In holding that the adjudication for the earlier year barred the suit for the later year, the Supreme Court quoted a Louisiana case in which the opinion reads1951 U.S. Tax Ct. LEXIS 44">*64 in part:

Whether the reasons upon which it [the first judgment] was based were sound or not, and even if no reasons at all were given, the judgment imports absolute verity, and the parties are forever estopped from disputing its correctness.

The petitioner argues that a decision erroneous in law in a prior suit between the same parties on the same subject will not be recognized as effecting collateral estoppel, and cites in support thereof the case of St. John v. Wisconsin Board, 340 U.S. 411">340 U.S. 411. We need not go into an analysis of that case, which involved numerous questions (including injunctive and declaratory relief and conflict of laws) as we are not prepared to say that the decision in the prior case was erroneous in law.

Upon examination of the pleadings in both proceedings, the findings of fact, opinion, and decision in the prior proceeding, and the evidence in the prior proceeding and under the severed issue in this proceeding, and consideration of the arguments of the parties, it is our conclusion that the issue of res judicata must be decided in favor of the respondent. The parties in both proceedings are the same. The matter raised in1951 U.S. Tax Ct. LEXIS 44">*65 both proceedings is the same, namely, whether the petitioner is entitled to relief under the provisions of Internal Revenue Code section 722, subsections (a) and (b) (5), and there has been no change in the controlling facts and applicable legal rules 17 T.C. 755">*764 since the decision in the prior proceeding was rendered. Under these circumstances, we conclude that the petitioner is not entitled again to litigate before this Court its claim to relief.

Decision will be entered for the respondent.