In the 1935 case of Manhattan General Equipment Co. v. Commissioner of Internal Revenue, the U.S Supreme Court ruled on a tax dispute between the company and the IRS. The issue at hand was whether or not certain payments made by Manhattan General Equipment Company to its president were deductible as ordinary and necessary business expenses under section 234(a)(1) of the Revenue Act of 1928. These payments were part compensation for services rendered and part repayment for money advanced by him to meet operating expenses during a financial crisis in previous years. The court held that these repayments could be considered as income when received but are not deductible from gross income because they are essentially capital expenditures rather than ordinary business expense deductions permitted under Section 23(a). Therefore, it upheld lower courts' decisions denying deduction claims made by Manhattan General Equipment Co., thereby ruling in favor of the Commissioner of Internal Revenue.

In the dissenting opinion for Manhattan General Equipment Co. v. Commissioner of Internal Revenue, Justice Stone disagreed with the majority's interpretation of tax law and its application to this case. He argued that the company should be allowed to deduct losses from their income taxes because they were incurred as part of a legitimate business operation, not due to fraud or illegal activities as suggested by the majority. Furthermore, he contended that these losses were directly related to maintaining their business operations during a difficult economic period and thus should be considered ordinary expenses under existing tax laws rather than extraordinary ones which are non-deductible. In his view, denying such deductions would unfairly penalize businesses struggling in tough economic times while benefiting those who manage to stay profitable despite similar challenges.