Opinion
No. H-106.
November 14, 1938. As Corrected on Denial of New Trial March 6, 1939.
Henry M. Ward, of Washington, D.C. (Brewster Steiwer, of Washington, D.C., on the brief), for plaintiff.
George H. Foster, of Washington, D.C., and James W. Morris, Asst. Atty. Gen. (Fred K. Dyar, of Washington, D.C., on the brief), for the United States.
Before BOOTH, Chief Justice, and GREEN, LITTLETON, WILLIAMS, and WHALEY, Judges.
Suit by the Federal Export Corporation against the United States to recover taxes alleged to have been overpaid for the year 1918, together with interest.
Judgment of dismissal.
This case having been heard by the Court of Claims, the court, upon the evidence adduced, makes the following special findings of fact:
1. Plaintiff is a New York corporation with its office and principal place of business at 42 Broadway, New York City.
2. At all times during the years 1918 and 1919 plaintiff was affiliated (because of stock relationships hereinafter more particularly shown in certain instances) with the following corporations, for which consolidated income and profits tax returns were filed for those years: Cosmopolitan Shipping Company, Lower Broadway Realty company, commercial Iron Steel Company, Anglo-Oriental Shipping Company, and New Mexico Central Railway Company.
On and after October 14, 1918, plaintiff was affiliated with the Sligo Iron Steel Company because of stock relationships hereinafter shown.
The above-mentioned corporations were determined by the Commissioner of Internal Revenue (hereinafter referred to as the Commissioner) to be affiliated for tax purposes, in accordance with the provisions of section 240 of the Revenue Act of 1918. 40 Stat. 1081, for the calendar years 1918 and 1919 except the Sligo Iron Steel Company, which was determined to be affiliated only from October 14, 1918.
3. On or about June 15, 1919, plaintiff, on behalf of itself and the affiliated corporations referred to in finding 2, filed a consolidated income and profits tax return for the calendar year 1918, showing a net income for the taxable year of $2,045,255.80, an invested capital of $2,746,958.89, and a total income and profits tax due of $1,486,145.12, on account of which plaintiff made payments as follows:
March 20, 1919 ........................ $393,958.43 June 16, 1919 ......................... 176,889.32 September 16, 1919 .................... 285,423.87 December 29, 1919 ..................... 285,423.87 ------------ Total ............................... 1,141,695.49
On or about November 25, 1919, plaintiff filed a claim for the abatement of the balance of the tax assessed, namely, $344,449.63, claiming that under provisions of sections 327 and 328 of the Revenue Act of 1918, 40 Stat. 1093, it had been overassessed at least to that extent.
4. On or about July 14, 1920, plaintiff filed a claim for refund of $836,245.37 for the calendar year 1918 on the ground that a net loss had been sustained by the consolidated group for 1919 which should be deducted from the consolidated net income for 1918 under the provisions of section 204(b) of the Revenue Act of 1918, 40 Stat. 1061.
5. As a result of a field investigation of the consolidated returns filed by plaintiff for the calendar years 1918 and 1919 the Commissioner notified plaintiff on or about February 25, 1923, that he had determined the consolidated net income of the group for 1918 to be $2,368,558.54, the consolidated net loss for 1919 deductible from the consolidated net income for 1918 to be $1,469,298.19, leaving the sum of $899,260.35 as the consolidated net income taxable for 1918 the consolidated invested capital in the amount of $2,172,627.30, and the total tax liability for the group, $582,251.76. However, since $4,114.30 had been assessed against the Lower Broadway Realty Company as a separate corporation, one of plaintiff's subsidiary companies, and paid by that company, the total tax liability of plaintiff and affiliated companies was reduced to $578,137.46. The Commissioner advised plaintiff further that inasmuch as the sum of $1,486,145.12 had been assessed against plaintiff and its affiliated companies, and its correct tax liability had been determined to be $578,137.46, a certificate of overassessment was being issued for the difference, namely, $908,007.66. Of the amount shown in the certificate of overassessment, $289,519.90 was abated and the balance of $618,487.76 was refunded to plaintiff April 1, 1923. The allowance shown in the certificate of overassessment of $908,007.66 took into consideration plaintiff's claim for abatement of $344,449.63 referred to in finding 3 and plaintiff's claim for refund of $836,245.37 referred to in finding 4.
6. February 7, 1924, the Commissioner communicated with plaintiff in regard to its request for consideration under the provisions of section 328 of the Revenue Act of 1918, 40 Stat. 1093, and suggested in effect that, since the limitation on refunds in favor of plaintiff for 1918 was about to expire, a claim for refund should be filed in order to protect the rights of plaintiff against the running of such limitation pending the consideration of the appeal for special assessment. In accordance with such suggestion plaintiff, on March 4, 1924, filed a claim for refund for 1918 of $1,141,695.49.
7. On or about April 30, 1925, plaintiff filed a further claim for refund for 1918 of $130,292.22, assigning as grounds therefor that such claim was being filed for the purpose of supplementing an informal claim previously filed with respect to depreciation of the Lower Broadway Realty Company, amortization of the Sligo Iron Steel Company, and a claim for special assessment.
8. Subsequent to the filing of the claims for refund referred to in findings 6 and 7, the Commissioner made a reaudit of the consolidated returns filed by plaintiff on account of itself and affiliated corporations for 1918 and 1919, giving consideration in such reaudit to the grounds advanced in the foregoing claims for refund. As a result of such reaudit the Commissioner advised plaintiff, January 21, 1926, of the issuance of a certificate of overassessment for 1918 of $5,438.01 and the rejection of the balance of those claims. In that determination the consolidated invested capital for 1918 was determined in the same amount as in the previous audit, namely, $2,172,627.30, and the income and losses of the several companies were determined as follows:
Name Income Loss
Federal Export Corporation ..... $352,500.32 ............ Cosmopolitan Shipping Company .................... 2,408,660.34 ............ Lower Broadway Realty Company .................... 42,356.20 ............ Commercial Iron Steel Company ................................... $40,597.02 Anglo-Oriental Shipping Company ................................... 6,678.44 New Mexico Central Railway Company ................................... 121,288.10 Sligo Iron Steel Company ................................... 276,741.80 ------------- ------------ Total .................... 2,803,516.86 445,305.36 ============= ============ Aggregate net income for the consolidated group ................................. 2,358,211.50
The only change made in that audit on account of income or loss of the respective corporations was an increase in the loss of the Sligo Iron Steel Company in the net amount of $10,347.04 on account of a depreciation and amortization adjustment.
In making that reaudit the Commissioner determined a net loss of $1,465,550.67 for the consolidated group for 1919 as follows:
Name Income Loss
Federal Export Corporation .............. $1,513,653.98 Cosmopolitan Shipping Company ................... $504,049.03 ............. Lower Broadway Realty Company ................... 144,785.03 ............. Commercial Iron Steel Company ............................... 4,322.02 Anglo-Oriental Shipping Company ............................... 4,614.47 New Mexico Central Railway Company ....................... 202,830.93 Sligo Iron Steel Company ............................... 470,887.55 ----------- ------------- Total ............... 648,834.06 2,196,338.95 =========== ============= Aggregate net loss for the consolidated group ............................. 1,517,504.89
In making his determination on reaudit the Commissioner reduced the losses of the several companies set out above, on account of losses resulting from the sale of certain assets (deemed by the Commissioner capital assets), before applying the aggregate net loss for 1919 as a deduction from the aggregate net income for 1918. The losses on the sale of those assets so determined were as follows:
Name Loss
Federal Export Corporation ................ $26,305.26 ................ 11,800.00 Cosmopolitan Shipping Company ............. 42,353.42 Anglo-Oriental Shipping Company 618.86 New Mexico Central Railway Company ........ 876.68 ---------- Total .................................. $81,954.22
By deducting those losses of $81,954.22 from the aggregate net loss previously computed of $1,547,504.89, the Commissioner determined a net loss for 1919 for the consolidated group of $1,465,550.67 which he deducted from the aggregate net income for 1918 of $2,358,211.50 and thereby arrived at a consolidated net income for tax purposes for 1918 of $892,660.83. On the basis of that net income and the consolidated invested capital heretofore referred to, namely, $2,172,627.30, the Commissioner determined an overassessment for the consolidated group as follows:
Previously assessed .............. $1,486,145.12 Previously allowed ............... 908,007.66 ------------- 578,137.46 Correct tax liability ............ 572,699.45 ------------- Overassessment ............... 5,438.01
9. On or about February 1, 1927, plaintiff filed a claim for refund of $578,137.46 for 1918 and assigned as grounds therefor that losses on the sale of Liberty Bonds in the amount of $80,458.68 had been improperly disallowed by the Commissioner in the determination of the consolidated net loss for 1919 and that plaintiff was entitled to a deduction for amortization in the amount of $614,665.13. The claim for refund was rejected by the Commissioner March 11, 1927.
10. After this suit had been instituted for the recovery of income and profits taxes for 1918, the Commissioner, at plaintiff's request, gave further consideration to certain of the contentions advanced by plaintiff and as a result thereof had certain recomputations made of the tax liability of plaintiff and its affiliated corporations for 1918. Since a net loss for 1919 was involved, the income and losses of the several companies for the two years were recomputed. As a result of such reconsideration and in his final recomputation, prior to entering into a stipulation with plaintiff and the filing of such stipulation with this court, as hereinafter shown, the Commissioner reduced the net income of the Lower Broadway Realty Company for 1918 from $112,356.20 to $7,284.94 by the allowance of additional depreciation in the amount of $35,071.26, and reduced the income of the same company for 1919 from $144,785.03 to $109,393.82, by an allowance of additional depreciation in the amount of $35,391.21. In the computation referred to in finding 8, in computing the consolidated net loss for 1919, the aggregate consolidated net loss for 1919 had been reduced by certain losses (which included losses on the sale of Liberty Bonds) on the ground that they were losses on the sale of capital assets and therefore not to be included in determining a consolidated net loss. In the final recomputation referred to in this finding, the Commissioner sought to allow the losses on the sale of Liberty Bonds as a part of the consolidated net loss for 1919, but in making the computation the Commissioner, instead of merely adjusting the consolidated net loss as previously determined by him on account of these items, further reduced the net income of plaintiff and increased the loss of the Cosmopolitan Shipping Company and thereby gave rise to duplicate deductions Which are included in the tabulations of incomes and losses as shown below, since these losses had already been considered in the prior computations in arriving at the net income of plaintiff and the net loss of Cosmopolitan Shipping Company. No other changes were made in the incomes or losses and the same invested capital ($2,172,627.30) was used as in prior computations.
As a result of these adjustments (including the duplicate deductions for losses on the sale of Liberty Bonds), the Commissioner recomputed the income and losses of the several companies for 1918 and 1919 as follows:
1918
Income Loss
Federal Export Corporation .... $352,500.32 ............ Cosmopolitan Shipping Company ...................... 2,408,660.34 ............ Lower Broadway Realty Company ...................... 7,284.94 ............ Commercial Iron Steel Company ................................... $40,597.02 Anglo-Oriental Shipping Company ................................... 6,678.44 New Mexico Central Railway Company ........................... 121,288.10 Sligo Iron Steel Company ................................... 276,741.80 ------------ ------------ Total ................ 2,768,445.60 445,305.36 ------------ ------------ Aggregate net Income for the consolidated group ................... $2,323,140.24
1919
Income LossCosmopolitan Shipping $461,901.61 .............. Company .............. Lower Broadway Realty 103,393.82 .............. Company .............. Federal Export .......................... fn1$1,539,969.26 Corporation .......... Commercial Iron Steel Company ................................ 4,322.02 Anglo-Oriental Shipping Company ................................ 4,614.47 Sligo Iron Steel Company ................................ 470,887.55 New Mexico Central Railway Company ........................ 202,860.93 ---------- -------------- Total ................ 571,295.43 2,222,644.23
When correction is made of the error made by the Commissioner in allowing losses on the sale of Liberty Bonds, the net income of Cosmopolitan Shipping Company is increased to $504,049.03, the net loss of plaintiff is reduced to $1,513,653.98, and the consolidated net loss for 1919 (on the group basis) is reduced to $1,581,194.66 instead of $1,649,647.36 as previously determined by the Commissioner as follows:
Aggregate net loss for the consolidated group .................................... $1,651,343.39 Losses on sale of capital assets not allowable in the computation of a net loss for 1919 deductible from 1918 income: Cosmopolitan Shipping Company ................. $206.00 Anglo-Oriental Shipping Company ................. 618.86 New Mexico Central Railway Company ......... 876.58 ------- 1,701.44 ------------ Consolidated net loss for 1919 as determined by the Commissioner ........ 1,649.647.36
Income Loss
Cosmopolitan Shipping Company ...................... $504,049.03 ............. Lower Broadway Realty Company ...................... 109,393,82 ............. Federal Export Corporation ................ $1,513,653.98 Commercial Iron Steel Company .................................. 4,322.02 Anglo-Oriental Shipping Company .................................. 4,614.47 Sligo Iron Steel Company .................................. 470,887.55 New Mexico Central Railway Company .......................... 202,860.93 ----------- ------------- Total ................... 613,442.85 2,196,338.95
Aggregate net loss for the consolidated group ........................................ $1,582,896.10 Losses on sale of capital assets not allowable In the computation of a net loss for 1919 deductible from 1918 income: Cosmopolitan Shipping Company $206.00 Anglo-Oriental Shipping Company ......................... 618.36 New Mexico Central Railway Company ....................... 876.58 --------- 1,701.44 ---------
Consolidated net loss for 1919 as revised by the elimination of the duplicate deductions .............. 1,581,194.66
The several amounts of income and losses set out above were in accordance with the books of the affiliated companies.
The Commissioner deducted the consolidated net loss of $1,649,647.36, as determined by him for 1919, from the aggregate consolidated net income for 1918, as determined by him, in the amount of $2,323,140.24, and arrived at a consolidated net income for tax purposes for 1918 of $673,492.88. On the basis of that net income and using a consolidated invested capital of $2,172,627.30, as determined in the previous computation, the Commissioner arrived at a total tax liability for the consolidated group of $392,105.06. An original tax had been assessed of $1,486,145.12, but that amount had been reduced by overassessments previously allowed in the amount of $913,445.67, thereby showing at the time this recomputation was made an amount assessed against plaintiff of $572,699.45. The difference between the last named amount and the tax liability as determined by the Commissioner in his recomputation, namely, $180,594.39, the Commissioner showed as an overassessment, and that result was made a part of a stipulation (in paragraph 10) filed in this court October 31, 1929.
11. Shortly after the filing of the stipulation referred to in the previous finding, this court decided the case of Swift Company v. United States, 38 F.2d 365, 69 Ct.Cl. 171, and after that case had been decided defendant filed a motion asking this court, among other things, to permit its withdrawal from paragraph 10 of that stipulation and assigned as the principal ground therefor that the consolidated net loss for 1919 had been applied in arriving at the overassessment of $180,594.39 in a manner contrary to the principle outlined in Swift Company v. United States, supra. As heretofore shown, the Commissioner had made his recomputation, as well as his prior computations, on a basis in which the consolidated net loss for the affiliated group for 1919 had been allowed as a deduction from the aggregate consolidated net income for 1918. The case of Swift Company v. United States, supra, laid down the principle, with limitations and modifications not here material, that each member of an affiliated group is a separate taxpayer and that accordingly the net loss of each individual corporation for 1919 should be applied separately against the net income (if any) of the same corporation for the preceding year, and that the net loss of one member of an affiliated group for 1919 can not be applied as a deduction from the net income of another member of the affiliated group for 1918. When that principle' is applied, using the amounts of income and losses as used by the Commissioner in his final computation, as shown in finding 10, after making correction of the duplicate deductions likewise referred to in that finding, a consolidated net income for 1918 is shown substantially in excess of that previously determined by the Commissioner in the computation in which the Commissioner made his final determination prior to the institution of this suit, and in which the Commissioner determined and allowed an overpayment.
12. Defendant's motion with respect to paragraph 10 of the stipulation was granted by the court with leave "given to either party to offer and have heard such evidence as it may see fit to produce, showing or tending to show the correct net income and invested capital of the plaintiff and its affiliated corporations for the calendar years 1918 and 1919."
Additional evidence was submitted with respect to the organization, financing, management, operation, and related questions pertaining to the several members of the affiliated group for the principal purpose of justifying the conclusion that a reallocation should be made of the income and losses previously determined of plaintiff and the Cosmopolitan Shipping Company.
13. Plaintiff was organized October 7, 1915, and had for its general purpose the carrying on of an export business. This business was begun as a result of war conditions and included the purchase and sale of commodities both at home and abroad, as well as both the exportation and importation thereof. Prior to October 7, 1915, the banking house of Raymond, Pynchon Company had acquired certain contracts for the delivery of horses, mules, and other supplies to the Republic of France, and upon its organization plaintiff accepted an offer from Raymond, Pynchon Company to assign and transfer the contracts to plaintiff in consideration for the issuance to Raymond, Pynchon Company, or its nominee, of plaintiff's entire capital stock of 3,000 shares of no par value. The contract was carried out by the assignment of the contracts to plaintiff and the issuance of 2,000 shares of stock to Raymond, Pynchon Company and 1,000 shares to S.C. Munoz, the nominee of Raymond, Pynchon Company, who had had some prior connection with the negotiations.
14. Raymond, Pynchon Company were financial agents of plaintiff and its subsidiaries until May 25, 1917, at which time that banking house was succeeded by Pynchon Company, which acted as financial agents of plaintiff and its subsidiaries until after 1919. The principal members of the firm of Raymond, Pynchon Company were Harry Raymond and George M. Pynchon, and these two individuals were members of the boards of directors of plaintiff and its several subsidiaries at all times material to this proceeding, and until after the end of 1919. Raymond was president of the Lower Broadway Realty Company and a vice president of plaintiff, Cosmopolitan Shipping Company, and Commercial Iron Steel Company. Pynchon was a vice president of plaintiff, Cosmopolitan Shipping Company, and Commercial Iron Steel Company. S.C. Munoz was likewise a director in each of these companies for the same period and was president of plaintiff, Commercial Iron Steel Company, Sligo Iron Steel Company, and New Mexico Central Railway Company. Augustus F. Mack (hereinafter referred to) was president of the Federal Shipping Company and its successor, Cosmopolitan Shipping Company, a vice president of plaintiff and of New Mexico Central Railway Company, and a director of each of the companies in the affiliated group. Victor M. Smith was president of the Anglo-Oriental Shipping Company.
The executive committee of plaintiff's board of directors was composed of Munoz, Raymond, Pynchon, Mack, and Fred L. Watson, treasurer of plaintiff, and while each member of the affiliated group operated as a separate corporate entity with its own officers, directors, bookkeeping system, and staff of employees, the general management of the enterprise was directed largely by the executive committee of plaintiff's board of directors. The stock of the several companies was owned or controlled, either directly or indirectly, by the Raymond and Pynchon group, S.C. Munoz and members of his family, and A.F. Mack and his wife, and the businesses of the several companies were operated in close relationship to each other.
15. At the inception of the enterprise cash for carrying on its operations was furnished by Raymond, Pynchon Company, and later from substantial profits arising from operations. The business expanded rapidly with the result that for the calendar year 1918 plaintiff showed the following gross revenues and cost thereof:
Total cost of Gross amount purchases of contracts and shipments
Machinery Department ....... $1,382,739.51 $1,272,833.38 Steel Department ........... 1,029,369.42 921,293.30 Export and Agency Department ................ 141,819.04 135,557.81 Food Products Department ... 1,201,169.13 1,136,513.80 Hay and Grain Department ... 125,768.98 119,251.44 ------------ ------------ 3,880,866.08 3,585,449.73
These revenues were exclusive of commissions of $680,887.42 received by plaintiff from its principal subsidiary, the Cosmopolitan Shipping Company, on account of shipping operations, more particularly referred to in finding 19, and of other items of income. For the same year the Cosmopolitan Shipping Company showed gross operating freight revenue of $4,954,529.35.
16. In connection with the operations of the various companies plaintiff, through its officials, entered into a contractual arrangement on April 27, 1917, with Harry C. Raymond, George M. Pynchon, and S.C. Munoz for their services. As a result of that arrangement salaries were paid during 1918 and charged to expense against the following companies:
Federal Export Corporation: S.C. Munoz, president ........................ $50,000 Harry C. Raymond, vice president .............. 35,000 George M. Pynchon, vice president ............. 35,000 Cosmopolitan Shipping Company: Harry C. Raymond, vice president .............. 25,000 George M. Pynchon, vice president ............. 25,000 Commercial Iron Steel Company and Sligo Iron Steel Company:
S.C. Munoz, president .......................... 10,000
The contractual arrangement for the services of the above individuals had continued in effect until December 17, 1918, at which time a resolution was adopted for the termination of such arrangement as of December 31, 1918, by a cash payment upon the best terms available, and upon concluding such arrangement to take up with the Cosmopolitan Shipping Company the question of what part of such payment should be borne by that company and what part by plaintiff. Pursuant to such resolution cash payments were made to Raymond and Pynchon of $67,500 each, and of that amount $90,000 was charged to the Cosmopolitan Shipping Company and the remainder, $45,000, to the Federal Export Corporation. These officers, however, continued to serve through 1919 as directors and officers of the group of companies but received no compensation other than heretofore shown. S.C. Munoz received a salary of $60,000 for 1919 from plaintiff and $1,500 in each of the years 1918 and 1919 as president of the New Mexico Central Railway Company. A.F. Mack, as president of the Cosmopolitan Shipping Company, received a salary from that company of $37,500 for 1918 and $24,999.99 for 1919. He also received from the New Mexico Central Railway Company a salary of $1,500 per year as vice president of that company for 1918 and 1919.
Salaries were also paid to other officials of the various companies in the group, with the result that the total salaries paid and allowed as deductions in the consolidated returns for 1918 and 1919 were as follows:
1918 1919
Federal Export Corporation ............. $198,000.00 $133,599.97 Cosmopolitan Shipping Company ................. 105,650.00 65,187.50 Commercial Iron Steel Company ................. 14,833.37 ................. Sligo Iron Steel Company ................. 2,666.63 22,666.68 Anglo-Oriental Shipping Company ................. 10,751.65 3,162.48 New Mexico Central Railway Company ......... 15,000.00 22,364.35
In some instances salaries were paid by one or more members of the affiliated group without regard to the fact that an officer or officers to whom such salary or salaries were being paid were at the same time rendering services to another member of the group to which no salary was charged. In his determinations the Commissioner allowed the salaries as claimed in the consolidated returns for 1918 and 1919. Legal advice for the group of companies for 1918 and 1919 was paid for by plaintiff in the amount of $20,000 each year and no part of this amount was charged against the accounts of the other companies. The Commissioner allowed deductions on account of these payments as claimed.
17. Since the shipping end of plaintiff's business was important and expanding very rapidly, the organizers of plaintiff secured the services of Augustus F. Mack, a man of large experience in that type of work, to become associated with plaintiff in directing the shipping end of the business. It was soon found expedient to organize a separate company, the Federal Shipping Company, to carry on the shipping business. That company was organized in 1916, with an authorized capital of $25,000, divided into 250 shares of common stock of a par value of $100. That stock was issued to and held by plaintiff until May 14, 1917, when for the stated purpose of separating and severing "the operations and ownership" of the Federal Shipping Company from plaintiff, it was distributed on a pro rata basis to the stockholders of plaintiff. The Federal Shipping Company continued to operate until about June, 1917, when because of the similarity of its name to that of another company, then in existence, it was decided to change the name of the Federal Shipping Company and that change was accomplished by the organization of the Cosmopolitan Shipping Company, and the merger of the two companies under the name of the Cosmopolitan Shipping Company. The Cosmopolitan Shipping Company had an authorized capital stock of 10,000 shares, the whole amount of which was issued and exchanged with the stockholders of plaintiff for the 250 shares of stock of the Federal Shipping Company, the exchange being made on a pro rata basis. As heretofore shown, Augustus F. Mack was president of the Federal Shipping Company and its successor, the Cosmopolitan Shipping Company, and was active in the direction of their affairs. He also devoted a substantial part of his time to the business of plaintiff and other affiliated companies.
18. After the organization of the shipping company (hereinafter sometimes referred to for convenience as the Cosmopolitan Shipping Company, since that company was in existence as successor to the Federal Shipping Company for the period involved) the Cosmopolitan Shipping Company had a complete organization as a shipping company with an operating department, traffic department, accounting department, credit department, bill of lading department, and other departments incidental to such business. In connection with the transporting of cargoes by the Cosmopolitan Shipping Company for plaintiff, the usual and regular custom was followed whereby the latter company paid to the former a commission of 5 per cent on the gross freight carried for plaintiff, and such payments were included in the gross income of the Cosmopolitan Shipping Company and allowed as a deduction to plaintiff. These payments were made in accordance with an agreement between the parties and were set forth in the books of the respective companies.
19. At or about the time of its organization plaintiff had secured charters for the operation of three boats for the carrying of cargoes between the United States and France, and upon the organization of the Federal Shipping Company the charters were turned over to that company. The operations under these charters were guaranteed by plaintiff's financial agents, Raymond, Pynchon Company. During the existence of the Federal Shipping Company operations under these charters were carried on by that company and later by its successor, the Cosmopolitan Shipping Company, and plaintiff received commissions on account of such operations. A boat covered by one of the charters was lost at sea prior to the expiration of its charter and the Cosmopolitan Shipping Company continued to operate the two other vessels under their charters until the charters expired in the latter part of 1917. Upon the expiration of these charters renewals were had in the name of the Cosmopolitan Shipping Company and that company continued its operations thereunder. In connection with negotiations leading to such renewals the owners of the vessels and other parties interested required that Pynchon Company, successors to Raymond, Pynchon Company, financial agents of plaintiff, and plaintiff should act as guarantors for the operations under the charters by the Cosmopolitan Shipping Company. The reason for such requirements was that Pynchon Company had a very high credit rating and plaintiff had acquired some credit standing during the short period of its operations, whereas the Cosmopolitan Shipping Company was relatively unknown from a credit standpoint.
20. The Cosmopolitan Shipping Company realized a net operating income during 1918 of $2,723,451.69 from the operation of the two boats whose charters were renewed as shown in the preceding finding, and that amount was included as a part of its income in the consolidated return filed for 1918. Included also in the consolidated return filed for 1918 was a deduction taken by the Cosmopolitan Shipping Company of $680,887.42 as a commission from the Cosmopolitan Shipping Company to the Federal Export Corporation under an agreement between the two companies for shipping operations. This return was made in accordance with the books of the affiliated companies. The commission was included by plaintiff in its income for 1918, and the same treatment was accorded both items by the Commissioner in the several computations hereinbefore referred to, that is, the commission was allowed as a deduction to the Cosmopolitan Shipping Company and treated as income to plaintiff.
21. From the time of its organization in October 1915, until May 1917, plaintiff, among other things, was engaged in the iron and steel business. May 14, 1917, plaintiff caused the Commercial Iron Steel Company to be organized, with an authorized capital stock of 1,000 shares without par value, and on the same day the entire authorized stock of that company was issued to plaintiff in consideration of the transfer to it of plaintiff's domestic steel business and $50,000 in cash. Thereafter and throughout 1918 and 1919 except to the extent of the operations of the Sligo Iron Steel Company, as hereinafter shown, plaintiff continued to handle its export steel business, shipping the steel through the Cosmopolitan Shipping Company, and the Commercial Iron Steel Company handled the domestic steel business.
July 26, 1917, plaintiff distributed the 1,000 shares of the capital stock of Commercial Iron Steel Company to the stockholders of plaintiff, certificates for such shares being issued to plaintiff's stockholders on the same basis that they held stock of the plaintiff. At all times thereafter until after the expiration of the year 1919 the stockholders of the plaintiff held stock in the Commercial Iron Steel Company in the same proportion that they held stock of plaintiff.
22. During 1917 and 1918 plaintiff and/or the Commercial Iron Steel Company had contracts with the United States and foreign governments for iron and steel products used in the prosecution of the World War. At that time it was difficult to purchase iron and steel products in the open market and, in order to carry out the foregoing contracts, plaintiff and/or Commercial Iron Steel Company, during the latter part of 1917, made an agreement with the Sligo Iron Steel Company of Connellsville, Pa., to take practically the entire output of its steel plant and, in furtherance of the operations of the Sligo Iron Steel Company, the Commercial Iron Steel Company found it necessary to make substantial advances to that company, the funds being supplied in large part to the Commercial Iron Steel Company by plaintiff.
23. About April 1, 1918, representatives of plaintiff and the Commercial Iron Steel Company became convinced that the Sligo Iron Steel Company would be unable to carry out its agreements and therefore opened negotiations for the acquisition or control of the Sligo steel plant and its manufacturing facilities in order to produce the iron and steel needed on their war contracts. After an examination of the books and records of the Sligo Iron Steel Company and an appraisal of its plant and inventory, an agreement was reached whereby on October 14, 1918, the Commercial Iron Steel Company purchased from the stockholders of the Sligo Iron Steel Company the entire issue of the capital stock of that company for $119,250 in cash. Between July 1917 and October 14, 1918, the Commercial Iron Steel Company had made advances from time to time to the Sligo Iron Steel Company to the extent that on October 14, 1918, there was owing by the latter company to the Commercial Iron Steel Company $545,415.13. The cash paid in the acquisition of the stock of the Sligo Iron Steel Company was set up on the books of the Commercial Iron Steel Company in an account designated "Investment Stock, Sligo Iron Steel Company." The advances were set up on the books of the Commercial Iron Steel Company in an account designated "Loans, Sligo Iron Steel Company," and were carried on the books of the Sligo Iron Steel Company as indebtedness by it to the Commercial Iron Steel Company. These accounts were carried on the books of the Commercial Iron Steel Company until 1922 when the entire plant of the Sligo Iron Steel Company was sold as hereinafter shown, and the accounts were closed out through the profit and loss account.
24. After the acquisition of the stock of the Sligo Iron Steel Company, officers and directors were placed in charge of that company who were likewise officers and directors of the plaintiff and other of its subsidiary companies, and thereafter its books were kept in the same offices as those of plaintiff. Likewise after that acquisition and during the war period the plant was operated for the production of articles contributing to the prosecution of the war. At the termination of the war plaintiff endeavored to operate the plant as a peace time operation, but without success. However, its corporate existence continued until the plant was sold for $50,000 in 1922, although operation ceased in 1920. From time to time plaintiff advanced money to the Commercial Iron Steel Company and directly to the Sligo Iron Steel Company, all advances to the Sligo Iron Steel Company being charged to the Commercial Iron Steel Company. As of December 31, 1918, the Commercial Iron Steel Company showed a liability on its books to plaintiff on account of such advances of $277,000 and as of December 31, 1919, of $875,776.
25. May 24, 1922, plaintiff filed a brief with the Commissioner claiming a deduction of $614,665.13 for amortization of war facilities as a result of the purchase on October 14, 1918, of all the stock of Sligo Iron Steel Company by the Commercial Iron Steel Co., determined as follows:
Cash paid for capital stock of Sligo Iron Steel Company by Commercial Iron Steel Company ......................... $119,250.00 Advances made to Sligo Iron Steel Company by Commercial Iron Steel Company from July 1917 to October 14, 1918 ... 545,415.13 ---------- Total ..................................... 664,665.13
Amount realized upon sale of Sligo Iron Steel Company's plant in 1922 ......... 50,000.00 ------------ Amortization claimed ........................ 614,665.13
26. April 9, 1923, plaintiff filed a brief with the Commissioner claiming a deduction for amortization of $58,645.14 based on expenditures made by the Sligo Iron Steel Company as a separate entity for additions to its plant from April 6, 1917, to December 31, 1917, at a total cost of $66,755.01, the balance of the facilities used by that company during the war period and on hand October 14, 1918, having been acquired prior to April 6, 1917. These additional facilities represented a portion of the plant of the Sligo Iron Steel Company as it existed on October 14, 1918, the date of purchase of the capital stock of that company by the Commercial Iron Steel Company, and these facilities were included in the assets sold in 1922. The amount of $58,645.14 was determined by using a proportionate part of the selling price of $50,000 received for the entire plant at the time of the sale.
27. In his audit of the consolidated return for 1918 as reflected in the certificate of overassessment of $908,007.66, referred to in finding 5, the Commissioner made no allowance for amortization on account of either the Commercial Iron Steel Company or the Sligo Iron Steel Company. However, in his reaudit of the returns as reflected in the certificate of overassessment for $5,438.01, referred to in finding 8, the Commissioner allowed amortization to the Sligo Iron Steel Company to the extent of $49,966.99, $11,499.25 of which, representing the proportionate amount allowable subsequent to October 14, 1918, was allowed as a deduction in determining the consolidated net income for 1918, the balance thereof being allowable as a deduction to the Sligo Iron Steel Company as a separate corporation, from January 1, 1918, to October 14, 1918.
28. The balance sheet of the Sligo Iron Steel Company as of October 14, 1918, based on its books as of that date, was as follows:
Assets Liabilities
Cash ............................. $10,404.91 ............. Accounts receivable .............. 15,573.97 ............. Machinery and equipment .......... 542,496.38 ............. Inventories ...................... 383,655.00 ............. Real estate ...................... 152,500.00 ............. Office building and equipment .... 20,000.00 ............. Trade marks and good will ........ 33,000.00 ............. Accounts payable ............................ $13,798.98 Commercial Iron Steel Co. (Current account) .......................... 92,415.13 Notes payable (Commercial Iron Steel Co.) ................................. 453,000.00 Preferred stock ............................. 250,000.00 Common stock ................................ 500,000.00 Deficit .................... 151,578.85 ............. ------------ ------------- Total ........................ 1,309,209.11 1,309,209.11
29. In a part of a stipulation filed in this proceeding which related to amortization on account of the Sligo Iron Steel Company's plant, the parties have set forth certain computations under contentions advanced by each of them and certain agreements as to the results which should follow in the event the court should make its decision with respect to the amortization allowance along any one of the several alternative lines mentioned. The stipulation with respect to these matters is contained in paragraphs 18 to 24, inclusive, of the Agreed Statement of Facts filed October 31, 1929, and these paragraphs are incorporated herein by reference.
30. During 1917 when there was need for steel rails abroad plaintiff's officers and directors conceived a plan of acquiring the properties of the Santa Fe Central Railroad Company, dismantling the railroad and selling the rails abroad. In pursuance of that plan and after investigation plaintiff purchased the bonds and, through a foreclosure sale, acquired the properties of that railroad in or about September 1917. In carrying out such plan plaintiff started to tear up the tracks for the purpose of selling the rails. However, when dismantling operations were started proceedings were begun by interested parties to stop the dismantling of the railroad and to compel the new owners to operate it. As a result of this opposition and of the orders and decrees issued on account thereof, together with the promise of local support and of the prospect for freight if the roadbed and rolling stock were improved, the plan for dismantling the railroad was abandoned and the New Mexico Central Railway Company, which, in the meantime, had been organized and whose stock was owned by plaintiff, proceeded to improve the roadbed, relay track, rebuild bridges, secure new equipment, and operate the railroad. The funds required for putting the railroad into operation were furnished by plaintiff and/or Cosmopolitan Shipping Company. The stock of the New Mexico Central Railway Company was held by plaintiff until about June 13, 1918, when it was transferred to the Cosmopolitan Shipping Company, which held the stock until after December 31, 1919.
31. While the New Mexico Central Railway Company realized operating revenue for 1918 of some $86,000, its operating expenses for that year were some $190,000, thus showing a loss from operations of approximately $104,000. Operating revenues for 1919 showed a substantial increase but operating expenses likewise increased, and there was shown a loss from operations of some $165,000. In order to meet the operating deficits and provide the New Mexico Central Railway Company with necessary funds, advances were at first made by plaintiff and later by the Cosmopolitan Shipping Company until after the end of the year 1919. These advances were entered on the books of plaintiff and the Cosmopolitan Shipping Company as loans to New Mexico Central Railway Company. These advances were made in the following manner: Whenever cash was needed by the New Mexico Central Railway Company for operations, equipment, or capital expenditures, an officer of that company would draw a draft on plaintiff's treasurer and upon notification, these drafts were paid either by plaintiff or Cosmopolitan Shipping Company. Upon payment of these drafts, demand notes with interest at 6 per cent were drawn for like amounts by New Mexico Central Railway Company in favor of the Cosmopolitan Shipping Company, whether the drafts had been paid by that company or plaintiff. The total of these advances for 1918 was $77,900, and for 1919 $347,380.03, the total of which, that is, $425,280.03, remained unpaid December 31, 1919. As heretofore shown, in several computations with respect to the consolidated returns of plaintiff and its subsidiaries for 1918 and 1919, the New Mexico Central Railway Company sustained a loss in each of these years and these losses were taken into consideration in arriving at the tax due for the consolidated group for these years.
About 1926 or 1927 the stock of New Mexico Central Railway Company was sold to the Atchison, Topeka Santa Fe Railway Company.
32. During the latter part of 1917 when plaintiff's business was increasing and when it was unable to secure additional space in the building then occupied by it, plaintiff acquired the capital stock of Lower Broadway Realty Company, which owned the building known as No. 42 Broadway, New York City. The offices of plaintiff and its subsidiaries were moved to this building about May 1, 1918, the Cosmopolitan Shipping Company occupying one floor and the plaintiff and the other subsidiaries another floor.
This is a suit to recover taxes alleged to have been overpaid for the year 1918, together with interest, aggregating about a million dollars. The plaintiff is what is commonly referred to as the parent company of six affiliates.
It appears that plaintiff on June 15, 1919, filed on behalf of itself and its affiliates a return for the year 1918 showing a tax of $1,486,145.12 and that payment was made of $1,141,695.49. In November, 1919, plaintiff filed a claim for abatement (requesting a special assessment) and on July 14, 1920, a claim for refund on the ground that a net loss had been sustained for the year 1919 which should be deducted from the 1918 consolidated return. As a result of this claim, the Commissioner of Internal Revenue audited the tax of the group and determined that $578,137.46 was the tax for the group to be paid by the plaintiff. A certificate of overassessment was issued, the unpaid portion of the original assessment abated, and $618,487.76 refunded.
Subsequently the Commissioner made a reaudit of the income of the group and issued a further certificate of overassessment for $5,438.01, and otherwise denied the claim for refund. In determining the tax at this time, the Commissioner computed the 1918 consolidated income and the 1919 consolidated loss and, after deducting the group loss from the group income, calculated the tax accordingly. In determining the amount of the 1919 loss which should be used as a deduction from the 1918 income, the Commissioner excluded a loss of about $80,000 from the sale of Liberty bonds as not deductible. A further claim for refund having been filed and denied, this suit was brought on March 15, 1927. Thereafter, the Commissioner at plaintiff's request gave further consideration to the question of the loss on the Liberty bonds and the correct 1918 taxable income. It was determined that additional depreciation should be allowed for both 1918 and 1919 for one of the affiliates and that the 1919 loss from the sale of Liberty bonds should be deducted from the 1918 income. A recomputation of the tax was then made which indicated an overpayment of $180,594.39. Later, a stipulation was filed in the case indicating that all issues were settled except the question of amortization of facilities of the Sligo Iron Steel Company, one of the affiliated companies, which question was left open to trial. After the stipulation was filed, this court decided the case of Swift Company v. United States, 38 F.2d 365, 69 Ct.Cl. 171. Subsequently, the defendant, considering that there had been an error made in the computation causing the loss on the Liberty bonds to be in effect deducted twice and also that the computation of plaintiff's tax was in error because it was not in accordance with the method laid down by this court in the Swift Case, filed a motion for leave to withdraw from paragraph 10 of the stipulation. This motion was sustained by the court with leave "given to either party to offer and have heard such evidence as it may see fit to produce, showing or tending to show the correct net income and invested capital of the plaintiff and its affiliated corporations for the calendar years 1918 and 1919".
After this suit was begun a recomputation was made of the consolidated net income of plaintiff for 1918 in accordance with the principles outlined in Swift Company v. U.S., supra. Taking the amounts of income and losses used by the Commissioner as a basis for the computation and allowing 1919 losses against 1918 income only in accordance with the court's decision in the Swift Case, it was found that instead of an overassessment as previously determined a very large amount would be due from the plaintiff. As the collection of this sum would in any event be barred, reference to it is made only for the purpose of explaining the situation under which the plaintiff brings this suit.
The first question to be determined is whether this court had a right to set aside the stipulation. It is contended by plaintiff that the rule is that a mistake of law will not justify the setting aside of a stipulation. Without determining whether this is the rule in other courts and in cases where the Government is not the defendant, it is not an invariable rule in this court. We think the court has power to prevent an injustice being done the Government when a stipulation has been inadvertently entered into by one of its attorneys even though the stipulation involves a matter of law. This court in the early case of Giddings v. United States, 29 Ct.Cl. 12, 15, held that where a case was submitted on stipulation either party should be allowed to withdraw it at any time before a decision is announced and in the case of Jones and Laughlins v. United States, 42 Ct.Cl. 178, it was held in substance that this court had the authority to set aside a stipulation involving a mistake of law in order to protect the Government and that when a claimant seeks to avail himself of a stipulation in writing signed by a representative of the Government he takes it subject to a motion of defendant's counsel to set the agreement aside. The prior action of this court with reference to the stipulation filed in the instant case was authorized and is reaffirmed.
There is no substantial dispute as to the facts in the case. The plaintiff claims that under them there is an overassessment of $120,075.07 for which sum it is entitled to judgment. On the authority of Swift Company v. United States, supra, the defendant insists that there is no overassessment and that plaintiff's petition should be dismissed. On the issue so raised the plaintiff contends —
(1) That the decision in the Swift Company Case is erroneous and should be reversed;
(2) That even if the Swift Company Case was correctly decided, when proper allocations are made, the plaintiff will be entitled to recover.
The contention of the plaintiff that the decision of this court in the case of Swift Company v. U.S., supra, was erroneous is based upon the theory that in computing the net income of a consolidated group of corporations the total of the losses of the separate corporations should be deducted from the total of the income of the several companies; or, as is stated in plaintiff's brief, group losses should be deducted from group income, and in accordance with this theory the plaintiff argues that the consolidated group is the taxpayer. To the contrary, we held in the Swift Company Case that "the separate corporations are the taxpayers, and the affiliated group is merely a tax computing unit, not a taxable unit." 38 F.2d 374. Following this principle, the court held in effect and showed by examples that losses of one company could be deducted only from the gains of that company and not from the consolidated income of the group regardless of the year for which the deduction was sought to be made. Indeed, we think it obvious that if the separate companies are held to be the taxpayers their income and losses must be determined separately in order to ascertain the basis for the amount of taxes to be paid by each.
The opinion in the Swift Company Case was rendered in 1930. Since that time the rules laid down therein have been repeatedly affirmed by various courts and the Board of Tax Appeals and the only dissent was made in a case which was disapproved by the Supreme Court. It is quite true that in many or possibly all of these cases the facts were not precisely the same and the discussion in part referred to the year for which the deduction was sought to be taken. But this makes no difference with the principle involved.
In Woolford Realty Co. v. Rose, 286 U.S. 319, 328, 52 S.Ct. 568, 570, 76 L.Ed. 1128, it was said:
"The fact is not to be ignored that each of two or more corporations joining (under section 240) in a consolidated return is none the less a taxpayer. Commissioner v. Ginsburg Co. (C.C.A.) 54 F.2d 238, 239. By the express terms of the statute, section 240(b), the tax when computed is to be assessed, in the absence of agreement to the contrary, upon the respective affiliated corporations `on the basis of the net income properly assignable to each.' `The term "taxpayer" means any person * * * subject to a tax imposed by this Act.' Revenue Act of 1921, § 2(9), 42 Stat. 227. A corporation does not cease to be such a person by affiliating with another." [Italics ours.]
The Supreme Court in the case last cited considered particularly the question as to the right of the Piedmont Company to deduct losses for a certain year, but it was said that its operations for that year having resulted in a loss there was nothing from which earlier losses could be deducted. It will be seen that this is in effect holding that losses, if deducted at all, must be deducted from the net income of the corporation sustaining the loss and where that company has no income for the particular year in question there can be no deduction. Such was the rule laid down in the Swift Company Case, which was cited with other cases as authority for the decision. Attention was called to the case of National Slag Co. v. Commissioner, 3 Cir., 47 F.2d 846, as favoring a different view, but this case was by implication disapproved. Among the cases approving the decision in the Swift Company Case is Commissioner v. Ben Ginsburg Co., 2 Cir., 54 F.2d 238, where the court affirmed the doctrine that "since each corporation of the affiliated group is a taxpayer, the net loss of each must be computed separately"; also that "the right of deduction of a net loss computed under section 206 is restricted to the computation of the net income of the taxpayer * * * and the deduction must be confined to the computation of the net income of the corporate entity." [Page 239.]
No case submitted to this court was more carefully considered than the Swift Company Case which we are now asked to reverse. Upon reconsideration, its reasoning meets with our entire approval and it is generally considered that its conclusions have become established and settled law. We have considered the committee reports on the bill and find nothing therein to the contrary of the construction we have given the statute. Accordingly, we decline to reverse the case and adhere to its principles.
As before stated, it is argued that even if the Swift Company Case was correctly decided, when proper allocations of certain losses and income are made, the plaintiff will be entitled to recover. Stating more particularly the contentions of the plaintiff with reference to these matters, we find that they are as follows:
(1) That $2,488,441.69 of earnings of 1918 recorded on the books of the Cosmopolitan Shipping Company should be allocated to the Federal Export Corporation, the plaintiff, so as to increase plaintiff's income from $352,500.32 to $2,840,942.01;
(2) That advances by the Federal Export Corporation made in 1919 to the Commercial Iron Steel Company and the Sligo Iron Steel Company to meet their operating deficits should be considered losses of the Federal Export Corporation for 1919; and
(3) That certain advances made by the Cosmopolitan Shipping Company in 1919 to meet the operating deficit of the New Mexico Central Railway Company should be considered losses of the Cosmopolitan Shipping Company for 1919.
The facts that pertain to these matters are fully set forth in the findings and it is not necessary to again set them out in detail.
With reference to the first of these matters, the findings show that the Cosmopolitan Shipping Company, having a complete organization as a shipping company, had an agreement with plaintiff, as successor to the Federal Shipping Company, by which the charters of three boats for the carrying of cargoes between the United States and France were transferred to it and a commission was to be paid plaintiff of 5 per cent on the gross freight. The Cosmopolitan Shipping Company realized a net income in 1918 of $2,723,451.69 from the operation of the boats, which amount was included as a part of its income in the consolidated return filed for 1918, which was made up in accordance with the books of the two companies. The return also included a deduction taken by the Cosmopolitan Shipping Company of $680,887.42 paid to the plaintiff as a commission in accordance with the agreement of the parties. The commission was included by plaintiff in its income for 1918 and both items allowed as returned.
The plaintiff says that the same persons acted as officials for both companies and argues that the books are not conclusive as to the nature of the transactions. That is sometimes true but here the two corporations acted as separate entities, kept separate books, made agreements with each other, and we think that the books show the facts as they really were, in accordance with which the plaintiff made a return to the Government. The allocation of income asked by the plaintiff must be denied.
In the second of the changes in allocation asked by the plaintiff it appears that plaintiff claims to be entitled to have the amounts advanced to the Commercial Iron Steel Company and the Sligo Iron Steel Company in 1919 charged as losses to it for that year. The stipulation of the parties made up from the books shows that in 1919 $470,887.55 was lost by the Sligo Iron Steel Company and $4,322.02 by the Commercial Iron Steel Company. As these two companies had been operating at a loss in 1918, under the decision of the Swift Case, their losses could not be taken as a deduction by the respective companies. Moreover these companies continued to exist after 1919 and there is nothing in the record from which a loss to the plaintiff in 1919 can be determined. On the contrary, so far as the evidence goes, it shows that these loans were not liquidated until later years. This change in allocation must be refused.
The third allocation contended for is to have the Cosmopolitan Shipping Company's net income for 1919 reduced by, certain advances made to the New Mexico Central Railway Company in the amount of $201,984.35.
The evidence shows that the plaintiff and the Cosmopolitan Shipping Company advanced money to the railway company in 1919 and that the railway company was then being operated at a loss. The evidence shows that in 1926 or 1927 the stock of the New Mexico Company was sold to the A.T. S.F. Ry. Co. but there is nothing in the record from which it can be determined when, if ever, it became evident that a loss was sustained by the Cosmopolitan Shipping Company and our conclusion is that a reallocation can not be made as asked by plaintiff.
In these matters plaintiff, long after the event and after its return had been made and audited and reaudited by the Commissioner in accordance with the books, and long after the decision in the Swift Company Case, attempts to pick out and have reallocated, in conflict with the bookkeeping records, these three items apparently in order to avoid the application of the rules laid down in the Swift Company Case.
It is argued that the cases of Atlantic City Co. v. Commissioner, 288 U.S. 152, 53 S.Ct. 383, 77 L.Ed. 667, and Burnet v. Aluminum Goods Co., 287 U.S. 544, 548, 53 S.Ct. 227, 77 L.Ed. 484, sustain plaintiff's contention as to the deductibility of the losses in question, but the first named case turned on the mere question of whether there was affiliation and the court held that there was none. In the Aluminum Co. Case there was a question with reference to the deductibility of a loss but the court said it was "conceded that the loss of respondent's advances to the sales company and the investment in its stock was sustained in 1917, [and] was deductible therefore, if at all, in that year." [Page 229.]
There is nothing in these decisions in conflict with the rule laid down in the Swift Case nor are they authority for holding that a loss occasioned by an advance is deductible in the year in which the advancement was made when there is no evidence showing that the loss was determined in that year.
The case of Autocar Co. v. Commissioner, 3 Cir., 84 F.2d 772, is also relied upon but the facts present an entirely different case. It was one in which the manufacturer sold its product through four agencies each incorporated at nominal capitalization. The Circuit Court of Appeals held (following the dissenting opinion of the Board of Tax Appeals) that there was no real sale made by the manufacturer to the selling agencies and that the selling agencies did not in fact act as separate entities and corporations. Consequently this case has no application.
Our final conclusion is that the rules laid down in the decision of the Swift Company Case must stand and the plaintiff it not entitled to have the reallocation made which it requests.
It follows that plaintiff's petition must be dismissed, and it is so ordered.