pay annually a special excise tax with respect to the carrying on or doing business by such corporation, joint-stock company or association, or insurance company, equivalent to 50 cents for each $1,000 of the fair value of its capital stock and in estimating the value of capital stock the surplus and undivided profits shall be included:

*

It was held in that decision that this tax should not be included as an element of cost.

The tax there considered was of the same general nature as the capital stock tax here involved, except that by allowing the taxpayer to place its own value on its capital stock with respect to the present tax Congress avoided the necessity of prescribing a formula for arriving at the actual value of the capital-a problem which had been found productive of much litigation under the earlier act—and at the same time provided proper safeguards against loss of revenue to the Government through understatements of capital. Haggar Company v. Helvering, 308 U. S. 389, 394.

It will be noted that the above-mentioned decision of June 28, 1918, was rendered without reference to any particular contract or claim but on a wholly abstract question. Subsequently, however, the Court of Claims in the case of Cramp & Sons Ship Co. v. United States (72 Ct. Cls. 146) considered the question whether this special excise tax should be included as an item of cost under a naval shipbuilding contract executed on a cost-plus-profit basis containing the following provisions:

The actual cost shall include the following, and items similar thereto in principle:

(d) A proper proportion of taxes of all kinds accrued during the taxable year with respect to the business or property.

The court held that the tax was a proper item of cost since, being an excise tax, it was within the express terms of the contract. The court stated in part, "It was in fact and in truth a cost of doing business and there is no legal obstacle in the way of the Government taking the same into consideration in determining the amount to be paid to a contractor for articles manufactured for the Government."

Presumably the regulations to which your letter refers are those entitled "Regulations Prescribing Method of Determining Profit" approved May 4, 1939, by the United States Maritime Commission. Section 7, subsection 7.48, thereof provides:

Tares.-Income and excess profits taxes and surtaxes whether Federal, State or other may not be taken into account. Franchise and excise taxes, property taxes (except taxes on property held in reserve or for investment, or for other extraneous purposes), social security taxes and the like (not including payments deducted from or chargeable to employees or officers) and capital stock taxes other than taxes upon the issue or transfer of securities may be taken into account. In the case of State income taxes payable upon alternative

bases, the portion thereof, if any, deemed to be franchise or excise tax shall be determined to the satisfaction of the Commission.

Subsection 7.23 of said section provides in part:

Unreasonable charges.-Excessive or unreasonable payments, whether in cash, stock, or other property shall not be taken into account.

Thus, although it is specifically provided that capital stock taxes "may be taken into account," the extent to which this is to be done is limited by virtue of the last quoted provision to that part of the payment which meets the test of reasonableness. Certainly that part of the capital stock tax payment as may be based on a figure in excess of the actual value of the capital stock is "excessive or unreasonable," especially when viewed as being only a substitute for a tax on earnings which is specifically excluded as a cost item by the above-quoted regulations.

It is stated in your letter that the Commission contemplates instructing its auditors that in cases where a corporation has a consistent history of a reasonable capital stock valuation "prior to the effective date of the Revenue Act imposing the present excess profits taxes" that such valuation may be used in computing the allowable portion of the capital stock tax payment. It is assumed you have reference not to the "excess profits tax" imposed by section 710 of the Internal Revenue Code, as amended (Second Revenue Act of 1940, 54 Stat. 975) but to the "declared value excess-profits tax" provided for in section 600 of said Code, supra. See in this connection the acts of October 8, 1940, 54 Stat. 1008, and September 20, 1941, 55 Stat. 703.

Based upon such assumption there would appear to be no reason why the auditors of the Maritime Commission should not be instructed as you suggest with respect to contracts of the Commission, governed by the regulations above quoted wherein express provision is made for capital stock taxes as an item of cost. In this connection there is enclosed for your information and reference a copy of a recent decision of this office dated June 2, 1942, B-25554, 21 Comp. Gen. 1082, involving the question of capital stock taxes under a contract providing for the determination of costs in accordance with T. D. 5000.

(B-25754)

PAY-ADDITIONAL-SEA DUTY-NAVY OFFICER SICK IN HOSPITAL A Navy officer who was in a sea-duty status when admitted to a hospital for treatment without an order granting him sick leave or detaching him from duty is entitled, while in the hospital, to the additional pay for sea duty authorized by section 18 of the act of March 7, 1942, except that if the

vessel aboard which he had been serving was lost, there has been a detachment in fact, without the necessity of orders, terminating his sea-duty status.

A Navy officer who was in a sea-duty status when admitted to a hospital for treatment is not entitled to the additional pay for sea duty authorized by section 18 of the act of March 7, 1942, from the date of his orders detaching him from his vessel, such a case being distinguishable from the case of an officer who is serving aboard a vessel and is subsequently detached there from pursuant to orders received on board.

Assistant Comptroller General Elliott to the Secretary of the Navy, June 10, 1942:

There has been received your letter of April 29, 1942, as follows:

There is forwarded herewith a letter from the Bureau of Supplies and Accounts, Navy Department, dated April 24, 1942, with enclosure of copy of communication from the Medical Officer in Command, U. S. Naval Hospital. Corona, California, relative to the question of the sea duty status of Lieutenant (j. g.) Joseph H. Seaver, E-V (S), U. S. Naval Reserve, for pay purposes.

Your decision is requested as to the effective date of detachment of Lieutenant (j. g.) Seaver from sea duty for pay purposes within the meaning of Section 18 of the Act approved March 7, 1942 (Public Law 490-77th Congress), under the conditions stated in the enclosure.

By direction of the Secretary of the Navy.

There was attached to your letter a radio communication from the Commanding Officer of the Naval Hospital at Corona, Calif., as follows:

NAVAL COMMUNICATION SERVICE,

NAVY DEPARTMENT.

COPY OF AIRMAILGRAM

151015

From: MEDOF COMM NAV HOSP CORONA CALIF
Action: BUNAV

LV

IN CREDITING ARREAS OFFICERS REQUEST ADVICE PROPER DATE DETACHMENT SEA DUTY X LIEUT JUNIOR GRADE JOSEPH H SEAVER NAVRES X BUNAV ORDERS DETACHED VESTAL 11 JAN 1942 ORDERS DELIVERED HOSPITAL MARE ISLAND 16 JAN OFFICERS ENDORSEMENT ON ORDERS RECEIVED 20 JAN

Reference: (a) ALNAV-51 NO 110345 MARCH 11 1942

(b) BUNAV ORDERS NO 68278-14 OF 11 JAN 1942 (NAV-31-ICS JAN 11) TOR COMMOFF 0133/18

BUNAV/ACTION

Also, a letter from the Chief of the Bureau of Navigation dated April 24, 1942, as follows:

Subject: Lieutenant (jg) Joseph H. Seaver, E-V (S), U. S. N. R., sea duty status of for pay purposes.

References: (a) N. M. S. Hospital Form 1 dated December 16, 1941, from the Naval Hospital, Pearl Harbor, T. H., to BuNav with endorsement.

(b) N. M. S. Hospital Form 1 dated December 19, 1941, from the Naval Hospital, Pearl Harbor, T. H., to BuNav with endorse ment.

(c) Report of Medical Survey at the U. S. Naval Hospital, Mare Island, California, dated January 9, 1942.

(d) BuNav letter Nav-31-ICS 16576 dated January 11, 1942, to Lieutenant (jg) Joseph H. Seaver, E-V (S), U. S. N. R.

(e) N. Nav. 17 (Aug., 1927) dated February 20, 1942, from U. S. Naval Hospital, Corona, California, to BuNav.

(f) Airmailgram 151015 of April 1942, from the Medical Officer in Command, Naval Hospital, Corona, California, to BuNav.

Enclosure: (A) Copy of reference (f).

1. By reference (a) Lieutenant (jg) Joseph H. Seaver, E-V (S), U. S. N. R., was admitted on December 7, 1941, to the U. S. Naval Hospital, Pearl Harbor, T. H., from the U. S. S. Vestal.

2. By reference (b) Lieutenant (jg) Seaver was transferred on December 18, 1941, from the U. S. Naval Hospital, Pearl Harbor, T. H., to a U. S. Army transport for further transfer to a hospital on the mainland.

3. By reference (c) Lieutenant (jg) Seaver was admitted to the U. S. Naval Hospital, Mare Island, California, on December 25, 1941, with the recommendation that he be sent to the U. S. Naval Hospital, Corona, California, for further treatment.

4. By reference (d) Lieutenant (jg) Seaver was detached from duty on board the U. S. S. Vestal by the Bureau of Navigation orders 16576 of January 11, 1942, and ordered to continue treatment at the Naval Hospital, Mare Island, California.

5. By reference (e) Lieutenant (jg) Seaver reported to the U. S. Naval Hospital, Corona, California, on February 20, 1942, in compliance with Bureau of Navigation letter 19426 of February 10, 1942.

6. By reference (f) and as indicated by enclosure (A), the Medical Officer in Command of the Naval Hospital, Corona, California, has requested advice as to the proper detachment date from sea duty for the purposes of adjusting Lieutenant (jg) Seaver's pay accounts.

7. It is requested that the Comptroller General render a decision in the case of Lieutenant (jg) Seaver on the basis of the facts of the case as submitted herewith, in order that the subject officer's pay accounts may be properly adjusted. It is noted that neither of these officers is charged with the duty of paying officers of the Navy.

Section 18 of the act of March 7, 1942, Public Law 490, 56 Stat. 148, provides:

Hereafter the base pay of any enlisted man, warrant officer, or nurse (female) in the military or naval forces of the United States shall be increased by 20 per centum and the base pay of any commissioned officer in such forces shall be increased by 10 per centum for any period of service while on sea duty, or duty in any place beyond the continental limits of the United States or in Alaska, which increases in pay shall be in addition to pay and allowances as now authorized: Provided, That the per centum increases herein authorized shall be included in computing increases in pay for aviation and submarine duty: Provided further, That this section shall be effective from December 7, 1941, and shall cease to be in effect twelve months after the termination of the present war is proclaimed by the President.

In construing section 1571 of the Revised Statutes it was held by the former Comptroller of the Treasury that an officer of the Navy who was admitted to a hospital for treatment without an order granting him sick leave or detaching him from duty is not thereby detached from his vessel nor is the character of his service changed thereby, and while in the hospital he is entitled to the pay pertaining to the duty to which he was assigned immediately prior to admission into the hospital. See 5 Comp. Dec. 297; 15 id. 733 and cases therein cited. That interpretation of section 1571 of the Revised Statutes then in effect is applicable with respect to section 18 of the act of March 7, 1942. It

should, of course, be understood that these precedents were with respect to vessels to which the officer could return upon recovery. Where the vessel has been lost there has been a detachment in fact without-the intervention or necessity of orders and where the officer is removed to a hospital in such a case he is not after the loss of the vessel on sea duty. See in this connection 19 Comp. Gen. 300. See, also, B-24335, April 17, 1942, 21 Comp. Gen. 932, to you, and B-25847, May 25, 1942, 21 Comp. Gen. 1050, to the Secretary of War.

On the facts presented a more precise answer cannot be given except to say that in no event may sea duty pay accrue subsequent to January 10, 1942, the officer not having been on the vessel subsequent to December 7, 1941, but in naval hospitals from and after that date, the case being different from one in which the officer is serving aboard a vessel and is subsequently detached therefrom pursuant to orders received on board the vessel.

(B-26111)

CONTRACTS-EIGHT-HOUR LAW-APPLICABILITY TO ARMY, NAVY, AND COAST GUARD CONTRACTS; PENALTY WAIVER AUTHORITY Section 5 (b) of the act of June 28, 1940, suspending the eight-hour law of 1912 with respect to persons engaged upon work covered by Army, Navy, and Coast Guard contracts, was rendered inoperative by section 303 of the act of Sep tember 9, 1940, which, in further amending the eight-hour law of 1912, permits the employment of laborers and mechanics in excess of 8 hours per day if they be paid time and one-half for the excess. Where a War Department contract properly includes a provision for a penalty for each violation of the eight-hour law of 1912, as amended by section 33 of the act of September 9, 1940, unless the contractor's laborers and mechanics are paid time and one-half for all hours worked in excess of 8 hours per day, the authority to withhold from the contract price the amount due as penalties is vested in the Government as a matter of contractual right, and there is no legal authority to refrain from the assessment and collection of such amount. Acting Comptroller General Elliott to the Secretary of War, June 12, 1942: I have your letter of May 16, 1942, as follows:

On January 5, 1942, Atlanta Laundries, Inc., a Georgia corporation having its place of business in Atlanta, Georgia, submitted a bid for the performance of laundry services to Camp Gordon. This bid was the lowest received, and as a result contract No. W 355 QM-1 was entered into between the War Department and Atlanta Laundries, Inc.

Paragraph 20 of this contract provided that:

"No laborer or mechanic doing any part of the work contemplated by this contract, in the employ of the contractor or any subcontractor contracting for any part of said work contemplated, shall be required or permitted to work more than eight (8) hours in any one calendar day upon such work at the site thereof, except upon condition that compensation is paid such laborer or mechanic in accordance with the provisions of this article. The wages of every laborer and mechanic employed by the contractor or any subcontractor engaged in the performance of this contract shall be computed on a basic day rate of eight hours per day and work in excess of eight hours per day is