In the case of General Gas & Electric Corp. v. Commissioner of Internal Revenue, 1938, the U.S Supreme Court was tasked with determining whether a corporation could deduct losses from sales of securities from its gross income for tax purposes. The General Gas and Electric Corporation had sold securities at a loss and sought to deduct these losses when calculating their taxable income. However, the Commissioner of Internal Revenue argued that such deductions were not permissible under existing tax law as they did not fall within any recognized category for deductions (such as business expenses or depreciation). The court sided with the Commissioner, ruling that corporations cannot deduct capital losses resulting from sales of securities unless those securities are directly tied to their trade or business operations.

In the dissenting opinion for General Gas & Electric Corp. v. Commissioner of Internal Revenue, it was argued that the majority's decision to allow a corporation to deduct losses from its income tax return when those losses were incurred by an affiliated company contradicted established principles of corporate law and taxation. The dissent emphasized that each corporation is considered a separate legal entity under the law, with its own rights and responsibilities distinct from those of any other entities with which it may be associated or related. Therefore, allowing one corporation to claim another’s loss as its own undermines this principle and creates inconsistencies in how corporations are treated under tax laws. Furthermore, they pointed out that such deductions could potentially lead to abuse through manipulation of intercorporate transactions solely for tax purposes.