58 T.C. 389">*389 OPINION

Respondent determined a deficiency in petitioners' Federal income tax for 1967 in the amount of $ 1,659.47. The only issue for decision is whether a portion of the payments received by petitioners during 1967 as consideration for the sale of a patent was unstated interest within the meaning of section 483. ¹

58 T.C. 389">*390 All the facts have been stipulated and are found accordingly.

At the time their petition was filed, petitioners were legal residents of Randolph, Wis. They filed their joint income tax return for 1967 on a cash basis with the district director of internal revenue, Milwaukee, Wis. For convenience, Curtis T. Busse will be referred to herein as petitioner.

Sometime prior to March 20, 1958, petitioner invented new and useful improvements involving a method and machine for stacking cans on pallets. On March 20, 1958, petitioner 1972 U.S. Tax Ct. LEXIS 114">*117 sold an undivided 50-percent interest in the invention to his brother, Gilbert Busse.

On March 21, 1958, petitioner applied for a patent in respect to such improvements and on August 16, 1960, there was issued to him U.S. Letters Patent No. 2,949,179, entitled "Machine for Stacking Cans on Pallets" (hereinafter referred to as the patent). From that date to January 1, 1966, petitioner was the outright owner of a 50-percent interest in the patent. Under the assignment of March 20, 1958, the initial owner of the other 50 percent was Gilbert Busse. He died on July 10, 1962, and his interest in the patent passed to his widow, Marcella J. Busse.

On January 2, 1966, Busse Bros., Inc. (hereinafter the corporation), was organized under the laws of the State of Wisconsin. From the time of the incorporation through the date of the trial of this case on November 1, 1971, petitioner owned exactly 50 percent of the issued and outstanding stock of the corporation. The other 50 percent of the stock was owned by Marcella J. Busse.

On January 2, 1966, petitioner, Marcella J. Busse, and the corporation entered into an oral agreement whereby petitioner and Marcella J. Busse sold to the corporation1972 U.S. Tax Ct. LEXIS 114">*118 their entire right, title, and interest in and to the patent. This oral agreement was reduced to writing in an assignment (hereinafter the assignment) executed on April 28, 1967. As consideration for the sale, petitioner and Marcella J. Busse received the corporation's promise, pursuant to the assignment, to pay to them for the life of the patent --

periodic installments in the amount of 5% of Assignee's net selling price (as hereinafter defined) of palletizers and depalletizers (including parts and kits therefor) sold by assignee which are covered by any claim of said Patent No. 2,949,179.

During the calendar years 1966 and 1967, the corporation paid petitioner $ 31,433.40 and $ 36,029.01, respectively, as his 50-percent share of the periodic installments. Petitioner, on his Federal income tax returns for 1966 and 1967, reported those amounts as long-term capital gain.

In the notice of deficiency, respondent determined that, of the 58 T.C. 389">*391 $ 36,029.01 received by petitioner in 1967, $ 3,017.20 was ordinary income in that it represented unstated interest within the meaning of section 483. The imputed interest, determined under the formula prescribed in section 483, was computed1972 U.S. Tax Ct. LEXIS 114">*119 for 1967 as follows:

The question is whether the present transaction falls within the unstated-interest provisions of section 483. ² Subsection (f)(4) of that section excepts from the unstated-interest provisions any payments made pursuant to transfers described in section 1235 (a), ³ relating to the sale or exchange of patents. On facts almost identical to the present ones, this Court, in Floyd G. Paxton, 53 T.C. 202">53 T.C. 202 (1969), held that no portion of the payments received in exchange for the patent in that case was unstated interest within the provisions of section 483. We concluded that the exception prescribed by subsection (f)(4) of that section applied even though the taxpayer's right to capital gain treatment of his receipts did not stem from section 1235 but was prescribed by other provisions of the Internal Revenue Code of 1954, 1972 U.S. Tax Ct. LEXIS 114">*120 as amended. No appeal was taken from that decision.

1972 U.S. Tax Ct. LEXIS 114">*121 In ordinary circumstances, where an issue has been decided so recently, we would merely state in a subsequent case our adherence to 58 T.C. 389">*392 the prior opinion. However, respondent urgently insists that our interpretation of sections 483(f)(4) and 1235(a) in Paxton was "unrealistically narrow, is erroneous and should not be followed." He asks us to "look beyond the literal wording" of that section in order to effectuate its underlying purpose, and to hold that the exception laid down by section 483(f)(4) to the imputed-interest provision applies only if the sale of a patent qualifies for capital gain treatment under section 1235.

Respondent argues that section 1235 was enacted to encourage inventive activities by granting inventors capital gain treatment on the sale of their patents. He contends that the section 483(f)(4) exception to imputed interest was inserted to assure that the incentive provided by section 1235 would not be reduced by treating any of the capital gain as imputed ordinary interest income. Since petitioner's right to capital gain treatment of his receipts from his patent is not derived from section 1235 but from other Code provisions, ⁴ respondent maintains1972 U.S. Tax Ct. LEXIS 114">*122 that it would be illogical to conclude that Congress intended the section 483(f)(4) exception to apply in a situation like this one. His argument is keyed to the proposition that "the instant deferred sale to a related corporation was not a 'transfer,' as that term is defined in section 1235(d)," and that the transaction should be viewed as an ordinary sale of a capital asset rather than a "transfer" of a patent within the meaning of section 1235(a).

This Court has recently stated that, in construing the Code, it will seek to effectuate the congressional intent rather than follow "a slavish unreasoning adherence to the literal reading of the statute." International Trading Co., 57 T.C. 455">57 T.C. 455, 57 T.C. 455">461 (1971), on appeal (C.A. 7, May 1972 U.S. Tax Ct. LEXIS 114">*123 11, 1972). However, there is "no more persuasive evidence of the purpose of a statute than the words by which the legislature undertook to give expression to its wishes." United States v. Amer. Trucking Ass'ns., 310 U.S. 534">310 U.S. 534, 310 U.S. 534">543 (1940); Silvio Gutierrez, 53 T.C. 394">53 T.C. 394, 53 T.C. 394">400 (1969), affd.    F.2d    (C.A.D.C. 1971). Unless the language of the statute is plainly at variance with the legislative policy, we cannot look beyond the normal meaning of the words chosen by Congress. We cannot depart from the statutory language to effectuate what we may merely surmise was the congressional purpose. Cf. General Electric Co. v. Burton, 372 F.2d 108, 111 (C.A. 6, 1967). Respondent's argument must be examined in the light of these principles.

Prior to the enactment of section 483, an individual could sell a capital asset on an installment basis without making any specific provisions 58 T.C. 389">*393 for interest payments on the installments. In such cases, the full difference between the cost or other basis for the property and the sales price usually was treated as capital gain to the seller. Thus, 1972 U.S. Tax Ct. LEXIS 114">*124 the parties could, by the wording of the sales agreements, partially determine the character of the income received from a sale. The committees of Congress were of the view that "manipulation of the tax laws in such a manner * * * [was] undesirable" and recommended "corrective action" in the form of what ultimately became section 483. H. Rept. No. 749, 88th Cong., 1st Sess. (1963), 1964-1 C.B. (Part 2) 196; S. Rept. No. 830, 88th Cong., 2d Sess. (1964), 1964-1 C.B. (Part 2) 606.

Section 483 provides, in general terms, that if property is sold for payments, part or all of which are due more than 1 year after the date of the sale, and if no interest payments are required or if the specified interest is to be computed at an unreasonably low rate, then part of each payment shall be treated as interest. But this provision does not apply to all contracts of sale. It contains several specific exceptions. The one with which we are here concerned is that in section 483(f)(4) which provides that section 483 "shall not apply to any payments made pursuant to a transfer described in section 1235(a) (relating to sale or exchange of patents)."

1972 U.S. Tax Ct. LEXIS 114">*125 What kind of "transfer" is "described" in section 1235(a)? That subsection provides generally that a "transfer" of property consisting of all substantial rights to a patent or an interest therein by a holder shall be considered the sale or exchange of a capital asset held for more than 6 months. This rule is to be applied regardless of whether or not payments in consideration of the transfer are (1) payable over a period coterminous with the transferee's use of the patent, or (2) contingent on the productivity, use, or disposition of the property transferred.

Standing alone, these provisions of section 1235(a) describe precisely petitioner's transfer. Respondent at least implicitly concedes that this is true, but he points out that section 1235(d) limits the application of section 1235(a) by providing that section 1235(a) "shall not apply to any transfer, directly or indirectly," between related persons, including a sale to a related corporation. Since the sale by petitioner was to a related corporation, respondent contends that such sale is not governed by section 1235 and, therefore, is not "described in section 1235(a)" within the meaning of that phrase as used in section 483(f)(4).

1972 U.S. Tax Ct. LEXIS 114">*126 Respondent's position depends on the premise that section 483(f)(4) should not be read literally but that the phrase "described in section 1235(a)" should be interpreted as meaning "governed by or qualifying under section 1235(a)." Although respondent concedes that petitioner is entitled to long-term capital gain treatment of the proceeds of his patent sale, he points out that such treatment is not attributable to section 58 T.C. 389">*394 1235(a) but to other Code provisions. On this ground he would impute interest to petitioner.

However, respondent offers no explanation why, if his position is correct, section 483(f)(4) refers to section 1235(a) rather than to section 1235 as a whole. ⁵ Moreover, when the Treasury Department had the opportunity to interpret the language of section 483(f)(4) so that it would serve what respondent now says was its legislative purpose, it did not promulgate regulations which support his present position. Rather, section 1.483-2(b)(4), Income Tax Regs., states:

Sales or exchanges of patents. Section 483 does not apply to any payments made pursuant to a transfer described in section 1235(a) (relating to sale or exchange of patents). The preceding1972 U.S. Tax Ct. LEXIS 114">*127 sentence does not apply to transfers which are not described in section 1235(a) but which receive capital gain treatment under another section of the Code.

Thus, the regulation refers to transfers which are not "described in section 1235(a)"; it does nothing to limit the section 483(f)(4) exception where, as in the instant case, the transfer is "described in section 1235(a)" but receives capital gain treatment under other provisions of the Code.

As this Court noted in 53 T.C. 202">Floyd G. Paxton, supra at 206:

The clear language of both the statute and the regulation supports petitioner's position. As petitioner says, the transaction which he entered into with * * * [the corporation] is a transaction described in section 1235(a) even though that section is made inapplicable to him by the provisions of section 1235(d). * * *

Furthermore, we have found no persuasive evidence 1972 U.S. Tax Ct. LEXIS 114">*128 that Congress wanted to restrict the benefits of section 483(f)(4) in the manner advocated by respondent. Clearly, the expression of congressional intent found in the Senate Finance Committee report does not show a desire to adopt a policy which restricts those benefits only to situations where capital gain treatment is allowed by section 1235. Indeed, that report (S. Rept. No. 830, 88th Cong., 2d Sess. (1964), 1964-1 C.B. (Part 2) 505) broadly states (p. 607) that "[section 483] is not to apply in the case of payments with respect to patents, which are treated as capital gain under present law."

Nor does the limitation on the scope of the section 483(f)(4) exception follow necessarily from the reasoning behind the adoption of section 1235. As respondent correctly represents, section 1235 was designed to encourage inventors by relaxing and clarifying the requirements for obtaining favorable, capital gain rates for the proceeds derived from the sales of their inventions. S. Rept. No. 1622, to accompany H.R. 8300 (Pub. L. No. 591), 83d Cong., 2d Sess., pp. 113-114, 58 T.C. 389">*395 438-441 (1954). In line with this objective, the benefits of section 1235 were1972 U.S. Tax Ct. LEXIS 114">*129 extended only to "holders" -- i.e., the inventors and those individuals, other than employers and persons related to inventors, who helped finance the inventors' projects. Sec. 1235(b). These favorable rules are to be applied to all inventors, both professionals and amateurs, as well as their financiers. The incorporation of section 1235(a) into section 483(f)(4) merely extends the legislative policy of encouraging the inventive work of such persons.

Admittedly, not all sales made by holders of patents are governed by section 1235. Sec. 1.1235-1(b), Income Tax Regs.⁶ Certain sales, such as the one in the instant case, are excluded from the application of that section by section 1235(d), relating to transfers between related persons, and are controlled by other provisions of the Code. However, we find nothing in the legislative policy underlying section 1235(d) which indicates that such sales by holders were not intended to fall within the subsection 483(f)(4) exception.

1972 U.S. Tax Ct. LEXIS 114">*130 Subsection (d) was included in section 1235 in order to forestall possible abuses of the favorable treatment afforded by that section ⁷1972 U.S. Tax Ct. LEXIS 114">*131 to sales of patents. It excludes from the operation of section 1235 sales of patents "within essentially the same economic group." S. Rept. No. 1622, to accompany H.R. 8300 (Pub. L. No. 591), 83d Cong., 2d Sess., p. 441 (1954). ⁸ Significantly, subsection (d) does not achieve its objective, as argued by respondent, by defining the term "transfer"; rather, it provides that subsection (a) "shall not apply" to certain types of transfers. The result is that subsection (d) limits the application of section 1235 but does not restrict the scope of the definitional or descriptive provisions found in subsections (a) and (b). Consequently, references in other Code provisions to section 1235(a) relate to all patent transfers made by holders. Respondent's argument appears to ignore this difference in the structures and legal effects of subsections 58 T.C. 389">*396 (b) and (d), ⁹ a difference which we are unable to find was merely fortuitous.

1972 U.S. Tax Ct. LEXIS 114">*132 Moreover, the benefits conferred by sections 483(f)(4) and 1235 are different, and we do not think it unreasonable that the transactions to which those benefits are extended may differ. Section 1235 was intended to clarify and, in certain cases, extend the area in which capital gain treatment may be obtained on transfers of patents. ¹⁰ However, as noted above, to avoid expanding the area in which such transfers within the same economic group are entitled to capital gain treatment, Congress adopted the exclusionary provisions of subsection (d). Respondent concedes that by excluding from the operation of section 1235 transfers to related persons, Congress did not preclude them from receiving capital gain treatment. In the words of the regulation, "The tax consequences of such transfers shall be determined under other provisions of the internal revenue laws." Sec. 1.1235-1(b), Income Tax Regs.

1972 U.S. Tax Ct. LEXIS 114">*133 Section 483(f)(4), on the other hand, does not involve a question of expanding favorable tax treatment in cases of transfers within an economic group. Rather, it exempts from the operation of the imputed-interest provisions all capital-gain-producing transfers of patents by 58 T.C. 389">*397 the favored group of individuals (holders). We can conceive of no legislative policy reason why patent transfers by holders to related persons which are taxed in the same manner as other patent transfers by holders should be treated differently for purposes of section 483(f)(4). Certainly, there are no reasons which are so obvious as to warrant our disregard of the plain language of section 483(f)(4) and the regulations issued thereunder.

We adhere to our decision in 53 T.C. 202">Floyd G. Paxton, supra. Our study of sections 483 and 1235 fails to disclose any clearly defined legislative policy which is at plain variance with the language of section 483(f)(4). We conclude that Congress intended, as it stated, to extend the exception to the imputed-interest provisions to all transfers of patents described in section 1235(a).

Decision will be entered for the petitioners.