Wisconsin Cent. Ry. Co. v. United States

Full title: WISCONSIN CENT. RY. CO. v. UNITED STATES

Court: Court of Claims

Date published: Jun 2, 1930

41 F.2d 870 (Fed. Cir. 1930)

Opinion

No. J-20.

June 2, 1930.

Suit by the Wisconsin Central Railway Company against the United States.

Petition dismissed.

This is a suit by the plaintiff to recover a certain capital stock tax assessed against it, together with interest and penalties, paid under protest.

The tax was assessed for the period beginning July 1, 1920, and ending June 30, 1921, under section 1000 of the Revenue Act of 1918.

The sole question involved is whether or not plaintiff was "carrying on or doing business" within the meaning of said section.

This case having been heard by the Court of Claims, the court, upon the report of a Commissioner and the evidence, makes the following special findings of fact:

(1) The plaintiff was duly organized as a corporation for the sole purpose of maintaining and operating a railroad which had already been constructed for public use in the conveyance of persons and property, pursuant to section 1820 of the Revised Statutes of Wisconsin, 1878, c. 87.

(2) Section 1828 of chapter 87, and section 1748 of chapter 85 of the Revised Statutes of Wisconsin conferred upon the plaintiff the powers which are ordinarily granted to railroad companies.

(3) On or about the first day of April, 1909, the plaintiff duly executed and delivered to the Minneapolis, St. Paul Sault Ste. Marie Railway Company, hereinafter called "Soo company," an instrument letting and demising all of its property of every character to the Soo company for a period of 99 years, which it was authorized to do by the laws of Wisconsin. A copy of said lease is made appendix A to these findings and is made a part hereof by reference.

(4) Previous to the execution and delivery of the lease the Soo company purchased outright 50½ per cent. of all of the common stock and acquired control of more than 90 per cent. of all of the preferred stock of the plaintiff. Complete control of the preferred stock (except the right to sell it) was acquired through a preferred stock exchange agreement made between the Soo company and the owners of the preferred stock. At or about the time the lease was delivered the Soo company elected a majority of the board of directors of the plaintiff. Certain officers of the plaintiff resigned, and their places were filled by officers of the Soo company. The remaining members of the plaintiff's staff were made officers and employees of the Soo company. The general offices of the plaintiff at Chicago were abolished and all the records of the plaintiff were removed to the general offices of the Soo company at Minneapolis, Minn.

(5) Immediately after the execution and delivery of the lease the Soo company, as lessee, took exclusive possession of all of the property of the plaintiff. It published and issued to all officers and employees of the plaintiff and to all concerned a notice stating that the Soo company had leased the Wisconsin Central Railway and would thereafter operate the same as a part of its system to be known as the Chicago division, that all persons then holding positions with the Wisconsin Central Railway would thereafter be subject to the authority and control of the Soo company and its officers; notices were published to the effect that the Soo company would thereafter transact in respect to the Chicago division all business relating to freight and passenger traffic. About the same time the Soo company published and issued a notice addressed to agents and foreign roads stating that the Wisconsin Central Railway had by lease passed under the control of the Soo company, and that all correspondence relating to overcharges or loss and damage claims growing out of business transacted on the Chicago division should be addressed to the freight claim agent of the Soo company. The Soo company also published and issued its notice addressed to foreign lines, stating that the properties of the Wisconsin Central had been leased to the Soo company, and that thereafter settlements should be made with the Soo company.

(6) These circulars were carried out in all respects. The Soo company took possession and control of all of the property of the plaintiff, and has ever since operated its railroad lines as the Chicago division without any direction or supervision by Wisconsin Central officials or Wisconsin Central directors. All bills of lading and agreements with shippers for handling freight on the Chicago division have been made in the name of the Soo company. All tickets and baggage checks for the transportation of baggage and passengers on the Chicago division have been made in the name of the Soo company. All tariffs covering business to be transacted on the Chicago division have been made and filed in the name of the Soo company. All reports required to be made by public authorities in connection with business of the Chicago division have been made in the name of the Soo company. The Wisconsin Central, when required to report, has reported as a nonoperating company. All litigation growing out of the operation and management of the Chicago division has been handled by and in the name of the Soo company. The Soo company has conducted all accounting in connection with the Chicago division. The freight terminals at St. Paul and Minneapolis owned and previously used by the Wisconsin Central were sold by the officers of the Soo company, corporate officers of the Wisconsin Central, executing the deed. The Soo company organized a corporation called the Central Terminal Railway Company, which acquired in Chicago, property on which freight terminals were constructed. Bonds were issued by the Central Terminal Railway Company, secured by a mortgage on its property, the Soo company executing all such bonds jointly with the Central Terminal Railway Company, thereby assuming responsibility for the payment of both principal and interest thereon. These freight terminals cost approximately $8,000,000. When the lease was delivered, the Wisconsin Central had the right to use the passenger station of the Illinois Central and certain freight terminal and trackage in Chicago. The arrangement with the Illinois Central was terminated. The Soo company then negotiated with the Baltimore Ohio Railway Company for the use of its passenger terminals in Chicago, and for certain trackage rights. The right to use the passenger station and certain tracks of the Baltimore Ohio was acquired in a 99 year lease from the Baltimore Ohio to the Soo company, terminating at the same time that the lease from the Wisconsin Central to the Soo company expires. The Soo company has no line into Chicago except over the Chicago division.

(7) The corporate organization of the Wisconsin Central has been kept up; each year a meeting of its stockholders has been held in Milwaukee, Wis., as required by the Wisconsin law. Each year a representative of the Soo company, being the owner of the majority of the common stock and having the right to vote nearly all of the preferred stock, has attended the meetings at Milwaukee and nominated and voted for the directors. Certain corporate officers have been elected annually. The president of the Soo company has been elected president of the plaintiff. As a rule the vice president of the Soo company has been elected vice president of the plaintiff. The secretary and treasurer of the Soo company have been elected secretary and treasurer of the plaintiff.

(8) On May 17, 1920, the plaintiff entered into the following agreement with the Soo company:

"Memorandum of agreement made this first day of June, 1920, between the Minneapolis, St. Paul Sault Ste. Marie Railway Company, hereinafter called the `Soo Company,' and the Wisconsin Central Railway Company, hereinafter called the `Central Company'.

"Witnesseth: Whereas the Central company requires the following additional equipment for its railway, to wit: 12 freight locomotives, to be manufactured by the American Locomotive Company, New York, and numbered 3000 to 3011, both inclusive, hereinafter designated as `freight locomotives'; and

"Whereas at a special meeting held on the 17th day of May, 1920, the president of the Central company was duly authorized to acquire for its use, said `freight locomotives'; and

"Whereas the Central company has requested the Soo company to include said `freight locomotives' in a car trust arrangement which the Soo company is about to make through Wm. A. Read Company of New York for certain rolling stock required by the Soo company for its own railway, and has also requested the Soo company to advance the purchase price of said `freight locomotives' for and on behalf of said Central company; and

"Whereas said request was duly granted by resolution adopted by the board of directors of the Soo company at a meeting held on the 18th day of May, 1920; and

"Whereas the Soo company is willing to include said `freight locomotives' in said car trust arrangement and to advance the purchase price thereof for and on behalf of said Central company, upon the terms and conditions hereinafter set forth.

"Now, therefore, in consideration of the premises and the mutual covenants and agreement hereinafter set forth, it is hereby agreed between the parties as follows:

"1. The Central company agrees to accept said `freight locomotives' upon the terms and conditions of said car trust arrangement and to pay forthwith to the Soo company upon demand; an initial payment of 25% of the cost of said `freight locomotives,' plus freight charges from Dunkirk, New York, to Chicago, Illinois, together with inspection fees and all other incidental expenses involved; a cash discount of 4% of the notes, or other evidences of indebtedness, executed and delivered by the Soo company for the purchase price of said `freight locomotives'; also its equitable proportion of all disbursements and expenses made or incurred in connection with said car trust arrangement, including the expense of underwriting all equipment notes or other evidences of indebtedness, counsel fees and registration of recording fees; also its equitable proportion of the compensation to be paid to the vendor or vendors, trustee or trustees, pursuant to said car trust arrangement; also to pay to the Soo company beginning June 1st, 1921, and each year thereafter, one-tenth of the remaining 75% of the cost price of said `freight locomotives'; also to pay semiannually each year, December 1st and June 1st, interest on all deferred payments of the purchase price of said freight locomotives at the rate of 7% per annum.

"The Central company also agrees to pay such additional sums as may be necessary to cover the expenses of changes, alterations, or additions to the specifications covering such freight locomotives, in short, the Central company agrees to do everything necessary to be done on its part in order to enable the Soo company, without the use of its own funds, to promptly fulfill all its obligations in respect to said `freight locomotives' in accordance with said car trust arrangement.

"2. The Soo company agrees that it will make for the Central company all payments for said freight locomotives aforesaid and fulfill every obligation in respect thereto imposed by said car trust arrangement. That upon delivery of said freight locomotives it will place the same in service upon the railway of the Central company and subject the same to all the terms of the lease between the parties hereto of April 1st, 1909. That upon the full performance and termination of said car trust arrangement, and the full performance of this agreement by the Central company, the Soo company will cause the title of all of said `freight locomotives' to be vested in the Central company, subject to the lease dated April 1st, 1909, aforesaid.

"3. It is mutually agreed between the parties that the Soo company shall have and retain a lien upon all of said `freight locomotives' to secure the due performance by the Central company of all of its obligations aforesaid, and that in case of default by the Central company in providing the necessary funds to make the payments provided for in said car trust arrangement, the Soo company may withdraw any or all of said `freight locomotives' from the service of the railway of the Central company, and put the same in service upon its own line, or may charge the Central company with such per diem rentals for the same as will secure the payment of the amount in default, or may suffer such default to continue to the end of the term of said car trust arrangement, unless sooner made good, and may then appropriate a sufficient number of `freight locomotives,' and as it may choose, to reimburse itself for all the expenditures made in fulfillment of said car trust arrangement, for which the Central company has not furnished the necessary funds as provided herein, together with interest at 7% per annum from the date of the default or defaults in respect thereto.

"In witness whereof, the parties have caused this agreement to be executed by their presidents or vice presidents, and attested by their secretaries or assistant secretaries under their corporate seals the day and year first above written.

"Wisconsin Central Railway Company,

"By G.R. Huntington, Vice President. "Attest:

"G.W. Webster, secretary. "Minneapolis, St. Paul Sault Ste. Marie Railway Company, "By E. Pennington, President. "Attest: "G.W. Webster, Secretary."

Said agreement of May 17, 1920, relating to purchase by plaintiff of locomotives was entered into by plaintiff pursuant to the following resolution of its board of directors unanimously adopted at a meeting held May 17, 1920:

"Whereas the Wisconsin Central Railway Company, hereinafter designated as the `carrier,' requires for immediate use on its railway twelve (12) additional freight locomotives to be manufactured by the American Locomotive Company, of New York, and numbered 3000 to 3011, both inclusive, hereinafter designated as `freight locomotives'; and

"Whereas it is to the advantage of the carrier to include said freight locomotives in a car trust arrangement which the Minneapolis, St. Paul Sault Ste. Marie Railway Company, hereinafter called `Soo company', is about to make through William A. Read Company of New York for certain rolling stock required for use on its railway and to arrange with the Soo company to advance the purchase price for said freight locomotives for and on behalf of this carrier. Now, therefore,

"Resolved, That the president or vice president of the carrier be, and he hereby is, authorized to acquire said freight locomotives and with the consent of the `Soo company' to include the same in said car trust arrangement.

"Resolved further, That if the board of directors of the Soo company shall consent to include said freight locomotives in said car trust arrangement and shall authorize its officials to advance the purchase price for said freight locomotives for and on behalf of this carrier, then the president or vice president of the carrier be, and he hereby is, authorized to make with the Soo company, the contract which is herewith submitted dated the 1st day of June, 1920, with such amendments or modifications as may reasonably be required by the Soo company and also to execute and deliver for and in the name of the carrier any other instruments and to do any other acts which may be deemed necessary or proper in order to fulfill the purpose of this resolution, and to insure prompt and faithful compliance with all reasonable requirements of the Soo company in the premises."

On March 10, 1922, plaintiff's directors passed a resolution similar to the above resolution approving the purchase by the Soo company of additional locomotives and other equipment for use on its lines during the years 1920 and 1921, and agreeing to reimburse the Soo company for moneys advanced for said equipment.

The following additions were made to plaintiff's equipment during the year 1920:

12 locomotives .......................... $628,289.09 Locomotive fire doors ................... 1,437.00 Locomotive air pumps and brakes .............................. 782.66 Locomotive engineers' foot warmers ............................. 1,085.64 Locomotive superheaters ................. 4,794.03 Locomotive — Miscellaneous .............. 931.14 Box car safety appliances ............... 610.10 Box car — Miscellaneous ................. 153.24 Box car cover plates .................... 410.20 Refrigerator cars — Miscellaneous ....... 20.23 Passenger coaches — Miscellaneous ....... 524.64 7 company service cars .................. 2,625.00 ___________ Total ............................... 641,662.97

The following additions were made to plaintiff's equipment during the year 1921:

Locomotives — Superheaters, fire doors, and air pumps ......... $13,093.25 Locomotives — Electric lights ......... 365.10 Locomotives — Miscellaneous ........... 190.87 650 box cars .......................... 1,306,635.78 Box cars — Reenforced ends ............ 1,793.59 Box cars — End lining ................. 1,232.09 Box cars — Center sills ............... 3,496.72 Vegetable cars — Miscellaneous ........ 151.12 25 automobile cars .................... 15,263.50 1 flat car ............................ 285.00 Flat cars — Miscellaneous ............. 20.04 Ballast cars — Draft gears ............ 51.76 Furniture cars — Draft gears .......... 43.92 1 dining car .......................... 57,985.86 3 company service material cars ............................... 762.25 Company service cars — Misc betterments ........................ 1,221.87 Rebuilding equipment — Various ........ 268,459.42 __________ 1,671,052.14

The Soo company advanced for the purchase of new equipment for plaintiff the sum of $636,825.79 during the period from March 1, 1920, to August 31, 1920, and the sum of $1,390,096.33 during the calendar year 1921.

During the years 1920 and 1921, plaintiff paid its notes in amounts of $355,964.84, $173,415.44, and $128,423.44 in payment for new railway equipment.

(9) During the period beginning June 30, 1919, and ending June 30, 1921, meetings of the stockholders and directors were held as follows:

A meeting of the directors was held on July 7, 1919. At this meeting the directors of the plaintiff approved of the agreement between the Soo company and the Director General in respect to taking over the entire railroad system of the Soo company, including the Chicago division. The Director General required the Soo company to include in this agreement the Chicago division and would not recognize the Wisconsin Central Railway Company as a party.

Another meeting was held on the 3d day of September, 1919. The only business transacted was the adoption of a resolution declaring a semiannual dividend on the preferred stock.

Another meeting was held on the 8th day of October, 1919. The only business transacted was to ratify the leasing of part of the station grounds at Marshfield to one Miller, and authorizing him to mortgage the improvements which he was constructing on the premises. This ratification was necessary in order to enable Miller to mortgage the improvements, the Wisconsin Central having title to the station grounds.

The next meeting was held March 9, 1920. A vacancy in the board of directors was filled and certain changes in officers were made. Another semiannual dividend on the preferred stock was declared.

The provisions of section 2094 of the transportation act relating to the government guarantee of compensation during the six months' period were also accepted.

During federal control certain changes were made in the trackage and facilities at and near Chippewa Falls and Eau Claire, Wis., for the joint operation of such facilities owned by the Chicago, Milwaukee St. Paul Railway Company and the Wisconsin Central Railway Company.

At said meeting held March 9, 1920, plaintiff's board of directors took the action noted in the following minute:

"Whereas the Chicago, Milwaukee St. Paul Railway Company and the Wisconsin Central Railway Company have for many years jointly operated certain trackage and facilities in Chippewa Falls and between that city and Eau Claire and desire to further extend such joint operation to the end that so far as practicable their railways shall be converted into one railway in and between said cities and jointly operated as such in the interest of economy; and

"Whereas a proposed agreement, dated April 15, 1919, has been prepared to that end and to the satisfaction of the presidents of said companies and the Federal managers of said railways, to which proposed agreement the Director General of Railroads and the Minneapolis, St. Paul Sault Ste. Marie Railway Company have been made parties, all of which appears by the final draft thereof herewith submitted to the directors; and

"Whereas the directors being fully advised in the premises and believing it for the best interests of this company that such agreement should be made: Now, therefore,

"Resolved, That the president and secretary of this company be, and they are hereby, authorized and directed to execute said proposed agreement as submitted to the directors on behalf of this company in quadruplicate originals and affix thereto its corporate seal; and, further,

"Resolved, That Walter D. Hines, Director General of Railroads, and Minneapolis, St. Paul Sault Ste. Marie Railway Company be, and they are hereby, requested to consent to the making of such agreement by joining in the execution thereof; and, further,

"Resolved, That a certified copy of these resolutions be furnished to the Director General of Railroads and to the Minneapolis, St. Paul Sault Ste. Marie Railway Company."

The sale of four parcels of land, no longer required in connection with the operation of plaintiff's railway, for the total sum of $8,665 was approved at this meeting. Negotiations for said sale were carried on by the real estate agent of the Soo company at plaintiff's expense. The proceeds of said sale were disposed of in accordance with the first general mortgage and first refunding mortgage of plaintiff.

On May 11, 1920, an annual meeting of the stockholders was held. Directors were nominated and elected. The acceptance of section 2094 of the transportation act was approved. The stockholders also approved the execution of the agreement changing the facilities at Chippewa Falls and Eau Claire before referred to.

A meeting of the directors was held May 17, 1920. Officers of the Wisconsin Central were elected. The execution of the agreement before referred to between the plaintiff and the Soo company respecting the purchase and title to such equipment, its allocation to the Chicago division, and the basis for reimbursing the Soo company was approved.

A meeting was held on September 9, 1920. The directors approved of compliance with the regulations of the Department of the Interior respecting the filling of a certain bridge owned by the plaintiff and of the execution of the agreement required by the Department of the Interior. Similar action was taken respecting a quitclaim deed releasing the interest of the plaintiff in a certain alley to which the plaintiff had title. The sale of certain property no longer required for common-carrier purposes to one Atwood, and the proceeds to be disposed of in accordance with the mortgages before referred to was approved. Another semiannual dividend on the preferred stock was declared.

A meeting was held on March 8, 1921. One director resigned and another was elected in his place. A semiannual dividend on the preferred stock was declared. A report was also made of the cremation of certain securities.

The annual meeting of the stockholders of the Wisconsin Central was held at Milwaukee May 10, 1921. Certain persons were nominated and elected as directors.

A meeting of the directors was held May 16, 1921, and the same persons were elected officers of the Wisconsin Central as were elected in 1920.

At the meeting of the stockholders held in 1920, the Soo company voted all of the stock, aggregating 211,896 shares, with the exception of 52 shares which were also voted by representatives of the Soo company.

At the meeting of the stockholders held in 1921, there were voted 222,385 shares of stock. All but 4,000 were voted by representatives of the Soo company, and the owner of the 4,000 voted for the directors nominated by the Soo company.

At a meeting of the board of directors of the plaintiff company held on September 8, 1921, its president and vice president were authorized to execute and deliver to the Soo company, promissory notes of the plaintiff company as follows:

Six promissory notes, each payable on or before 10 years after date, with interest at the rate of 6 per cent. per annum, payable semiannually; each of four said notes shall be for the principal sum of $500,000; one of said notes shall be for the principal sum of $100,000, and the remaining note shall be for the sum of $205,822.44, making in all the sum of $2,305,822.44, for which amount the plaintiff was indebted to the Soo company for losses incurred by it in the operation of plaintiff's properties, and for taxes and interest on funded debt for the period from September, 1920, to June, 1921.

In order to secure the said notes the president and vice president of the plaintiff company were authorized to assign and deliver to the Soo company, first and refunding mortgage bonds issued pursuant to such first and refunding mortgage of plaintiff company. The Interstate Commerce Commission refused to approve the issuance of such notes and securities by the plaintiff company, and the loan as authorized by plaintiff's board of directors was not consummated.

(10) The lease from the plaintiff to the Soo company covered certain land-grant lands owned by the plaintiff. The mortgage required all proceeds from land grant lands to be turned over to the trustee named in the mortgage. The Soo company also took charge of the land grant lands. It negotiated certain sales of lands and certain sales of timber thereon; it also negotiated for the leasing of certain iron ore or minerals found in the property. The proceeds of all such transactions, after deducting expenses and taxes, were turned over to the trustees under said mortgage. All advertising in connection with the sale of such lands was done in the name of the Soo company. All employees connected with this work were employed by the Soo company. Pay rolls, salary vouchers, and expense accounts were made on Soo Line forms. Stationery, letterheads, envelopes, and things of that kind were in the name of the Soo company. The land department, which handled these matters, has always been listed in the Railroad Guide as the land department of the Soo Line. All circulars and maps used in connection with the work were issued in the name of the Soo company. The same is true of newspaper advertising. The Wisconsin Central or its officers or directors have not participated in any of this work, except officers of the Wisconsin Central have executed instruments relating to such lands when change of title was involved.

All expenses connected with the sale and care of said lands were paid out of the income therefrom. The circulars issued by the Soo company advertising said lands for sale showed plainly that they were Wisconsin Central land grant lands.

The gross sales of land grant lands, and expenses incurred in connection therewith, during the year 1920 were as follows:

The gross sales of the land department for the year were 13,031.29 acres for .............. $199,168.45 Less cancellations ................... 35,097.23 ___________ Net sales ........................ 164,071.22 =========== Town-lot sales (26 lots) amounted to ...................... 1,200.00 Timber sales amounted to ............. 132,532.90 The royalties accrued during the year from iron ore mined from the company's land amounted to ................. 137,210.01 The gross receipts from lands, lots, timber, royalties, deferred payments, interest on deferred payments, rents, etc., were ................ 418,876.53 The expenses of the land department, including taxes and the cost of caring for the property, were ............... 110,555.05 114364-30 — 2

The gross sales of land grant lands, and expenses incurred in connection therewith, during the year 1921 were as follows:

The gross sales of the land department for the year were 8,488.79 acres for ............... $142,291.57 Less cancellations ................... 34,482.33 ___________ Net sales ........................ 107,809.24 =========== Town-lot sales (280 lots) amounted to ...................... 3,810.00 Timber sales amounted to ............. 48,471.00 The royalties accrued during the year from iron ore mined from the company's land amounted to ................. 73,835.79 The gross receipts from lands, lots, timber, royalties, deferred payments, interest on deferred payments, rents, etc., were ................ 357,844.81 The expenses of the land department, including taxes and the cost of caring for the property, were ............... 116,250.82

(11) The lease under consideration does not require the Soo company to pay any stipulated rental to the plaintiff. It requires the Soo company to account to the plaintiff for the net earnings on the Chicago division, and for this purpose to keep a separate system of accounting for earnings and expenses on the Chicago division during the term of the lease. When the Soo company took possession, an inventory was taken as provided in article XXVI of the lease. Entries were made on the records of the Soo company, transferring certain accounts from the Wisconsin Central books to the Soo books. From that time on receipts and expenditures in connection with the Chicago division were handled through the Soo books. At the end of each month the earnings and expenses of the system were apportioned between the Soo division and the Chicago division as nearly as possible on the basis of the actual income and expenses of said divisions. All the details covering operation of the Chicago division, such as waybills, per diem records, station records, bills, vouchers, etc., were recorded on the Soo records. The entry on the Wisconsin Central records was a final summing up. The Soo company made reports to the Interstate Commerce Commission for the entire system, including the Chicago division. Transactions relating to additions and improvements to the Chicago division were also handled through the Soo records. Then a summing up of what was added to the property or deducted from it was impressed upon the Wisconsin Central books. To illustrate: Materials and supplies were charged on the Soo company books to begin with to "materials and supplies." It would go into the operating ledger first as a system figure, then if used on the Chicago division it would be posted as used on the Chicago division. So few entries were made in the Wisconsin Central books that it took a very small part of the time of one man. To begin with, an effort was made to apportion the earnings between the Chicago division and the Soo division based on the rate in the territory. After 1916, freight earnings were apportioned according to mileage. An effort was made to divide the earnings and expenses fairly. The agreement for government control was made with the Soo company alone. No entries were made in the records of the Director General respecting the Wisconsin Central. The Soo company transacted all this business and kept all the records. Final settlement was made for the entire system with the Soo company. When the compensation was paid by the Director General it was then apportioned between the Soo division and the Chicago division.

When the lease was made the Soo company was an originating carrier. Its principal traffic, namely, grain and its products, livestock, lumber, and forest products, originated on its own line. It had no line into Chicago. From a traffic standpoint it was desirable for the Soo to have a line into Chicago. This would furnish an outlet for business originating on its line and securing for it the advantage of interchanging with large trunk lines having their termini in Chicago.

(12) Balance sheet of the plaintiff as of July 1, 1919, and June 30, 1920, is made appendix B to these findings, and is made a part hereof by reference.

Net additions and betterments were made to the Chicago division during this period aggregating $196,277.98. The work was all done and the material was all furnished by the Soo company; where contracts were entered into in connection with the work, they were made in the name of the Soo company.

The net decrease in equipment amounting to $87,868.02 represents equipment owned by the plaintiff and leased to the Soo company which was destroyed or retired and not replaced.

The increase in the sinking fund of $102,780.99 represents proceeds of the land grant obtained and disposed of as before stated.

The deposit with the trustee of $3,285.00 covers sale of certain property covered by the mortgage no longer required for railroad purposes, and handled by the right of way agents of the Soo company.

Increase in land grant account of $183,412.53 represents merely a change in accounting.

Decrease in material loaned amounting to $12,594.62 represents material returned previously loaned. Decrease in Ashland county courthouse bonds represents bonds retired by Ashland county. Increase in Wisconsin Central Land Company advances represents advances made to the Wisconsin Central Land Company in connection with the purchase of additional right of way by the Soo company in connection with its operation of the Chicago division.

Discount on funded debt amounting to $21,780.79 represents the discount amortized during the period.

Decrease in the first general mortgage bonds amounting to $146,000 represents bonds purchased and retired by the trustee from proceeds of the land grants.

Decrease in the M. S.T. mortgage bonds of $5,000 represents reduction of outstanding bonds due to the operation of the sinking fund.

Decrease in equipment notes series C, E, and F of $301,162.56 represents retirements and repayments made as provided in the equipment trust agreements.

Increase in audited vouchers of $401,010.37 was largely due to the fact that a voucher of approximately $400,000 was taken into account in favor of the Agents Bank of Montreal to pay interest due on bonds July 1. The actual payment or transfer of cash was made as of July 1, 1920. There was no corresponding transaction as of July 1, 1919, since the interest was both audited and paid during the year ending June 30, 1919.

The increase in tax liability of $262,848.93 represents state and local taxes accrued for the period March 1, 1919, to June 30, 1920. There were no taxes for the period ending June 30, 1919, since they were paid by the United States Railroad Administration.

The earnings, expense account, and the capital income account were handled as stated in finding 11.

The material and supplies account of $500,000 represents the inventory value of materials and supplies taken over by the Soo company as of April 1, 1909, when the lease was executed and delivered. Although the amount of material used on the Chicago division has since varied, no change has been made in the fixed figure of $500,000.

The advance account is a segregation of the amounts of cash that the Soo company has paid over into the treasury of the Wisconsin Central to be used in paying the interest on the funded debt.

The cash book contains a separation of the items included therein between the Wisconsin Central Railway and the land department.

During the fiscal years ending June 30, 1920 and 1921, the cash received by the Wisconsin Central Railway Company may be grouped as follows:

Interest on bank deposits made by the Soo company.

Sales of land no longer required for transportation purposes.

Rentals collected by real estate agent of the Soo company. (Other rentals were taken into Soo Line cash accounts.)

Cash advances from Soo Line.

The payments made from these receipts may be grouped as follows:

Taxes. (Other taxes paid on Wisconsin Central property were paid from the Soo Line cash book.)

Rent of Central Terminal property. (This item occurs on the Wisconsin Central cash book only in 1920; in 1921 the rental was paid by the Soo Line and charged against the Wisconsin Central Railway Company on the Soo Line books.)

Payments to fiscal agents of Soo Line of funds with which to pay maturing interest coupons, dividend checks, and payment back to Soo Line of principal on equipment contracts.

The debit items of the land department represent the amounts collected from the sale of land grant lands and the interest on the unpaid land contracts, also iron ore royalties received from mines on land grant lands.

Land department credits include the expenses of taxes on the land grant property and the cost of advertising and selling this land.

In addition are the payments made to the trustees of the Wisconsin Central Railway Company first general mortgage, which mortgage is a first lien on the land grant lands and under the terms of which the Wisconsin Central Railway Company must pay over to the trustees the net cash receipts. All the records in connection with the operation of land grant lands are kept and accounted for separately.

Aside from land department items, the largest amounts included in the cash book are the periodical payments by the Soo Line to the Wisconsin Central Railway Company, and the payment by the Wisconsin Central Railway Company of that same money on the same day to the fiscal agents with which to make the principal, interest, and dividend payments mentioned above.

Balance sheet of the plaintiff as of July 1, 1920, and June 30, 1921, is made appendix C to these findings and is made a part hereof by reference.

(13) The right of way department of the Soo company handled right of way matters pertaining to the Chicago division. It was sometimes necessary to acquire more land than needed for right of way purposes in order to secure a reasonable price. Where such parcels of land were substantial in character, it would be taken in the name of a subsidiary company to avoid incumbering the title by liens of mortgages of carrier. The Wisconsin Central Land Company was used for this purpose. If disposed of later, conveyance would be executed by the Wisconsin Central Land Company. The business was transacted by the right of way department of the Soo company without securing any authority or approval from the Wisconsin Central Railway Company. The officials of the land company executed the deeds or contracts.

Leases of portions of the right of way pertaining to the Chicago division for industrial purposes were made by the Soo company and in the name of the Soo company, and rentals collected by the right of way department of the Soo company were turned over to the treasurer of the Soo company.

During the fiscal year ending June 30, 1920, plaintiff received as rentals from said properties the sum of $8,189.63. During the fiscal year ending June 30, 1921, plaintiff received as rentals from said properties the sum of $7,700.44.

The right of way department of the Soo company also handled rental of other property owned by the Wisconsin Central. There was but little of such property. It consisted of old buildings not needed for railroad purposes. In some instances statements or bills were made by agents of the Soo company in the name of the Wisconsin Central covering such rentals.

During the period involved, namely, from July 1, 1919, and ending June 30, 1921, there were nineteen such transactions. These transactions were handled by representatives of the Soo company.

Pursuant to order of the Interstate Commerce Commission, effective January 1, 1919, authorities for expenditure were made out in each case. The authority in each case was made out on forms of the Soo company, designating the Wisconsin Central as owner of the property which had been leased to the Soo company. Each of these authorities was signed by E. Pennington, president, and by G.R. Huntington, vice president and general manager of the Soo company. The Wisconsin Central had no general manager during this period. The business was completed, the deed or contract was executed in each case before the authority was issued.

During the years involved, namely, from July 1, 1919, to June 30, 1921, there were twelve transactions for which plaintiff received the sum of $22,127.30. Negotiations for these sales were handled by representatives of the Soo company at plaintiff's expense. Deeds to said properties were executed by plaintiff except when title was held in name of plaintiff's subsidiary companies, Wisconsin Central Land Company and Tri-State Land Company, in which event the deeds were executed by said companies.

(14) Plaintiff's income account for the year ended December 31, 1920, is as follows:

Operating income .......................................................... $57,825.30 Nonoperating income: Joint facility rent income ............................... $29,060.22 Miscellaneous rent income ................................ 29,043.13 Income from lease of road: U.S. Govt. standard return for operation of W.C. Ry. Co. for January and February, 1920 ................................................... 575,981.04 Estimated amount of guaranteed compensation due from U.S. Govt. thru M. St. P. S.S.M. Ry. Co., under sec. 209, transportation act of 1920, for period March 1, 1920, to August 31, 1920 .... 1,727,943.10 Miscellaneous nonoperating physical property ............. 96,194.84 Income from funded securities ............................ 6,132.49 Income from unfunded securities and accounts ............. 3,358.08 ___________ Total nonoperating income .......................................... 2,467,712.09 ______________ Gross income ....................................................... 2,525,538.20 Deductions from gross income: Hire of equipment ........................................ 89,811.20 Joint facility rents ..................................... 273,486.60 Rent for leased roads .................................... 240,000.00 Miscellaneous rents ...................................... 6,000.00 Interest on bonds ........................................ 1,457,019.42 Interest on equipment obligations ........................ 51,105.28 Amortization of discount on funded debt .................. 24,510.97 Miscellaneous income charges ............................. 55,646.87 ___________ Total deductions from gross income .................................... 2,197,580.34 ______________ Net income transferred to profit and loss ............................. 327,957.86 Plaintiff's income account for the year ended December 31, 1921, is as follows: Net operating revenue ..................................................... $1,130,152.29 Railway tax accruals .................................... $924,306.48 Uncollectible railway revenue ........................... 7,810.21 ___________ 932,116.69 ______________ Operating income ..................................................... 198,035.60 Nonoperating income: Joint facility rent income .............................. 93,698.88 Miscellaneous rent income ............................... 27,939.02 Miscellaneous nonoperating physical property ............ 60,985.56 Income from funded securities ........................... 5,919.69 Income from unfunded securities and accounts ............ 1,943.48 Income from sinking and other reserve funds ............. 37.69 Miscellaneous income .................................... 168,063.26 ___________ 358,587.58 ______________ Gross income ......................................................... 556,623.18 (15) The Commissioner of Internal Revenue required the plaintiff to file a return and to pay a capital stock tax for the year beginning July 1, 1920, and ending June 30, 1921. The plaintiff duly protested the payment of such tax on the ground that it had not been

Gross income brought forward ........................................ 556,623.18 Deductions from gross income: Hire of equipment ....................................... 568,771.18 Joint facility rents .................................... 750,058.82 Rent for leased roads ................................... 240,000.00 Miscellaneous tax accruals .............................. 28,827.37 Interest on funded debt ................................. 1,546,481.63 Interest on unfunded debt ............................... 37.51 Amortization of discount on funded debt ................. 20,676.40 Miscellaneous income charges ............................ 167,284.83 ____________ 3,322,137.74 ____________ Net deficit transferred to profit and loss ............................ 2,765,514.56 carrying on or doing any business within the meaning of the revenue act. The Commissioner decided that the plaintiff was liable for such tax, and required plaintiff to file a return for said taxable year, and assessed against the plaintiff a tax of $11,551, and also required the plaintiff to pay penalties and interest amounting to $785.47, or a total of $12,336.47. Thereafter the plaintiff duly made and filed with said Commissioner a claim for abatement of said tax, penalties, and interest so assessed, on the ground that the plaintiff had not been carrying on or doing business as aforesaid, and was not subject to such tax, penalties, or the payment of said interest. The said claim for abatement was thereafter wholly rejected by said Commissioner, and said Commissioner demanded from the plaintiff payment of said tax, penalties, and interest. Pursuant to said assessment and demand for payment, plaintiff paid under protest to the Commissioner on or about April 18, 1923, said tax, penalties, and interest amounting to $12,336.47. Thereafter and prior to the commencement of this action, plaintiff made and filed with the Commissioner its claim for a refund of said payment and a demand for the refund thereof, which claim and demand was on the 3d day of December, 1924, wholly rejected and refused.

(16) The plaintiff has not assigned its claim for the capital stock tax, penalties, and interest paid as before stated, or any part thereof. The plaintiff is a citizen of the United States and has at all times borne true allegiance to the government of the United States, and has not in any way voluntarily aided, abetted, or given encouragement to rebellion against said United States government.

John L. Erdall, of Minneapolis, Minn. (George F. Snyder, of Washington, D.C., on the brief), for plaintiff.

Lyndon H. Baylies, of Washington, D.C., and Herman J. Galloway, Asst. Atty. Gen. (McClure Kelley and C.M. Charest, both of Washington, D.C., on the brief), for the United States.

Before BOOTH, Chief Justice, and LITTLETON, GREEN, and WILLIAMS, Judges.

WILLIAMS, Judge.

This is a suit to recover the sum of $12,336.47, assessed against the plaintiff and paid by it under the provision of section 1000 of the Revenue Act of 1918 ( 40 Stat. 1057, 1126), as capital stock taxes for the taxable year ending June 30, 1921.

The plaintiff company was incorporated in July, 1899, for the purpose of maintaining and operating certain lines of railway already constructed, extending from Chicago, Ill., Minneapolis and St. Paul, Minn., and certain points in Wisconsin and Michigan. These lines connected at Minneapolis and St. Paul, and also at Duluth and Superior, Wis., with the lines of the Minneapolis, St. Paul and Sault Ste. Marie Railway Company, commonly known as the Soo company, which owned and operated a railway system extending westward from Minneapolis to the state of Montana, northward to the Canadian border, and eastward into the states of Wisconsin and Michigan.

The Soo company's principal traffic consisted of grain, livestock, lumber, and forest products, originating on its own lines. It desired to obtain an outlet for this traffic to Chicago and to obtain the advantage of an interchange of traffic with the trunk line railroads having their termini in that city. On April 1, 1909, the plaintiff and the Soo company entered into a contract whereby it was agreed that the Soo company should operate the plaintiff's railways for a period of 99 years. The reasons actuating the plaintiff and the Soo company in entering into the said agreement is set out in the following pertinent paragraphs of the preamble of the said contract, which reads as follows:

"Whereas, the lines of railway of the lessor and the lessee are so situated at some points that they can be lawfully connected and operated together to constitute one continuous main line, and at other points are connecting and intersecting, and the lessee is authorized to lease and operate the lines of railway of the lessor; and

"Whereas, it is deemed for the best interests of the parties hereto that these various lines of railway should be operated together, while still retaining the separate corporate existence and status in law of the parties hereto; and

"Whereas, in order to effectuate and carry out such purpose, it is essential that there should be but one management and one administration of the operation of the two systems of railway. * * *"

In article one of the instrument the lessor let and demised to the lessee its railways and other properties.

Article two reads as follows: "The lessee shall, immediately upon the execution of this agreement, have sole control of all said properties and of all operations of said railways, and of every part thereof, and all officers, agents, and employees of the lessor having to do with such control and operation, shall yield prompt and complete obedience to the authority of the lessee with respect to the control and operation of said railways, and other properties covered hereby."

In article three the lessee is granted sole control of all the funds and other assets of the lessor.

Article four provides in part as follows: "The lessor shall and will maintain during the existence of this lease its corporate existence and organization, and shall and will from time to time, and at all times when necessary, do each and every and all lawful acts requisite to renew, perpetuate, and maintain its corporate existence and organization, and shall and will exercise each and every corporate act which it can now, or at any time hereafter may lawfully exercise to enable the lessee to enjoy and avail itself of and exercise every right, franchise, and privilege hereby granted, and to properly manage and operate the demised premises according to the terms of this lease, and the lessor shall not and will not commit or omit, and shall not suffer or allow to be committed or omitted, any act whereby the possession, management, and operation by the lessee of the demised premises shall be in any wise abridged or obstructed, or by which the corporate existence and powers of the lessor may be in any wise annulled, abridged, or affected. * * *"

In article five the lessee is granted the right to manage, operate, and administer all the railways and other properties covered by the lease, with the following proviso:

"* * * if in the judgment of the lessee it becomes necessary or expedient to operate any of said railways, terminal facilities, or other appurtenances owned by the lessor, or the use of which is secured to it by lease or other contract, permit, or privilege, by and through the corporate organization of the lessor, the lessee shall have the full right and power to require such operation by the lessor under the direction and supervision, however, of the lessee: And, provided further, That all expense of such management and administration shall be paid out of the earnings of the properties hereby demised." Article six reads as follows: "The lessor shall and will from time to time hereafter make, do, seal, execute, acknowledge, and deliver, or cause to be made, done, sealed, executed, acknowledged, and delivered, all and such further acts, matters, things, contracts, agreements, leases, and assurances in the law for better assuring and confirming unto the lessee all and singular the premises, estates, leaseholds and property hereby demised, or intended so to be, as shall be necessary or proper for better effectuating and carrying out the provisions, objects, and purposes of this lease, as may be required by the lessee."

Article nine contains the following provisions: "The lessor shall provide for such reasonable changes and improvements of its railway and equipment covered hereby, and for the building, lease, or purchase of such reasonable additional railway and equipment as the parties hereto shall from time to time determine for the best interest of the properties of the lessor covered hereby, and shall supply the necessary funds for said purposes in such manner and upon such securities as it shall, with the consent of the lessee, determine to be best: Provided, however, That if the lessor shall be unable to supply such necessary funds in the manner and upon the securities consented to by the lessee, then the lessor shall not be required to provide such changes, improvements, additional railway or equipment."

Article ten provides that the lessee shall have the right to purchase additional rolling stock and equipment, to be paid for by the lessor.

Article eleven provides for the payment of dividends to the stockholders of the lessor from net earnings.

Article fifteen contains the following: "* * * All expenses that may be incurred for the joint benefit of the railway of the lessor and the railway of the lessee shall be borne by the lessor and lessee in such fair and equitable proportion as may be agreed upon by the parties hereto. * * *"

Articles sixteen, seventeen, and eighteen contain covenants and agreements that the lessee shall pay interest, taxes, and other expenses out of earnings of the demised railways; shall keep the properties insured; and shall assume and perform all contractual obligations of the lessor.

Article nineteen reads as follows: "The lessee hereby covenants and agrees that it shall and will, so far as it lawfully can at all times, during the existence of this lease, transact over the property hereby demised, all the freight and passenger business which it can control, destined to or through any point or points reached by the railroad lines hereby demised, when such lines can be utilized for such business; and that it shall not and will not during the existence of this lease without the consent of the lessor make any agreement, traffic contract, lease, or paper writing of any kind whatever, which shall in any way directly or indirectly evade in any particular the obligations hereof, or which shall permit any traffic of any kind that might produce a revenue to the lessor to be in any way diverted from the property hereby demised, or to be transacted by any other person or persons, corporation or corporations whatsoever."

In article twenty-one the lessee is required to keep separate books of accounts with respect to all business of the demised railways.

Article twenty-five provides for the payment of all expenses of management and operation out of earnings of the railways and other properties of the lessor.

Immediately after the execution of the said contract the plaintiff company turned over to the Soo company its railways, motive power, rolling stock and other equipment, and certain lands including a large acreage of land grant lands, and since that time the Soo company has been engaged in the active control and management of the plaintiff's properties under the name of the Chicago division of the Soo system. While the contract entered into between the plaintiff and the Soo company is denominated as a lease in the contract, and while the parties to the contract are designated therein as lessor and lessee, there is no stipulation for the payment of a definite rental to the plaintiff by the Soo system. The general provisions of the contract indicate that the arrangement between the two companies was more in the nature of an operating agreement than an ordinary lease. Under the various articles of the contract the Soo system agrees to efficiently manage, maintain, and operate the plaintiff's railway properties at the plaintiff's cost, and to account to the plaintiff for the net profits of the business.

The plaintiff was required by the terms of the contract to maintain its corporate existence and organization, and to "exercise each and every corporate act which it can now, or at any time hereafter may, lawfully exercise to enable the lessee to enjoy and avail itself of and exercise every right, franchise, and privilege hereby granted, and to properly manage and operate the demised premises according to the terms of this lease."

The plaintiff has maintained its corporate existence and organization since entering into the contract with the Soo company for the operation of its properties, and has from time to time performed such corporate acts as were required and necessary to enable the Soo system to manage and operate the plaintiff's properties in accordance with the provisions and terms of the said agreement.

The sole question to be determined by the court is whether or not the corporate acts of the plaintiff in connection with the operation of its properties subsequent to the execution of its contract with the Soo company, particularly during the taxable year ending June 30, 1921, were of such nature and character as to constitute the "carrying on or doing business" within the meaning of section 1000 of the Revenue Act of 1918, c. 18, 40 Stat. 1057, 1126, which is as follows:

"(a) That on and after July 1, 1918, in lieu of the tax imposed by the first subdivision of section 407 of the Revenue Act of 1916 —

"(1) Every domestic corporation shall pay annually a special excise tax with respect to carrying on or doing business, equivalent to $1 for each $1,000 of so much of the fair average value of its capital stock for the preceding year ending June 30 as is in excess of $5,000. In estimating the value of capital stock the surplus and undivided profits shall be included; * * *

"(c) The taxes imposed by this section shall not apply in any year to any corporation which was not engaged in business (or in the case of a foreign corporation not engaged in business in the United States) during the preceding year ending June 30. * * *"

On May 17, 1920, the plaintiff's board of directors at a regular meeting passed resolutions authorizing the purchase of 12 locomotives for use on its lines, the funds for such locomotives to be advanced by the Soo company. Afterwards, on June 1, 1920, the plaintiff entered into an agreement with the Soo company whereby it agreed to reimburse it for the advances made for the purchase of the said locomotives.

On March 10, 1922, the plaintiff company again passed a resolution approving the purchase by the Soo company of the locomotives and other equipment for use on its lines during the years 1920 and 1921, and agreed to reimburse the Soo company for such equipment. The Soo company charged the account of the plaintiff with the sum of $636,825.79 for such equipment purchased during the period from March 1, 1920, to August 31, 1920, and the sum of $1,390,096.33 for such equipment purchased during the year 1921.

During the years 1920 and 1921, the plaintiff paid its notes in the amount of $355,964.85, $173,415.44, and $128,423.44, in payment for new railway equipment.

During the year ending June 30, 1920, the plaintiff received the sum of $168,597.79 from the sale of 11,260,045 acres of land grant lands, including a small number of town lots; and during the year ending June 30, 1921, the plaintiff received $80,776.46 from the sale of 5,375.65 acres of land grant land; and during the years ending June 30, 1920 and June 30, 1921, the plaintiff received upwards of $21,000 from the sale of land other than land grant lands.

Negotiations for the sale of the lands aforesaid were conducted by representatives of the Soo company, the deeds to the said properties being executed by the plaintiff except in cases where title to such lands was held in the name of the plaintiff's subsidiary companies, the Wisconsin Central Land Company and the Tri-State Land Company, in which case the deeds were executed by said companies.

At a meeting of its board of directors, March 9, 1920, the plaintiff's officers were authorized to execute an agreement providing for the joint operation by the plaintiff and the Chicago Milwaukee St. Paul Railway of a line of railway extending from Eau Claire to Chippewa Falls, Wis., including certain trackage facilities, which agreement was later duly executed.

At a meeting held on September 9, 1920, plaintiff's board of directors approved the compliance with the regulations of the Department of the Interior respecting the filling of a certain bridge owned by plaintiff and by the execution of an agreement required by the Department of the Interior. Action was also taken approving the making of a quitclaim deed releasing the interest of the plaintiff in a certain alley to which it had title. Also approval was made of the sale of certain property owned by the plaintiff and no longer required for common carrier purposes, also a semiannual dividend was declared on preferred stock.

The plaintiff's board of directors at a meeting held on September 8, 1921, by formal resolutions authorized its president and vice president to issue to the Soo company six promissory notes aggregating the sum of $2,305,822.44 in payment of amounts due the Soo company for losses incurred in operating the plaintiff's properties during the period from September, 1920, to June 1, 1921, the said notes to be secured by the assignment and delivery to the Soo company of the plaintiff's first and refunding mortgage bonds, such notes, secured as aforesaid, to be used by the Soo company as collateral in securing additional funds necessary for the proper management, maintenance, and operation of the plaintiff company's properties. The delivery of the notes and securities authorized by the plaintiff company's board of directors was not consummated because of the refusal of the Interstate Commerce Commission to approve the same.

The plaintiff as before stated maintained its corporate existence at all times subsequent to the execution of its contract with the Soo company, held regular stockholders' and directors' meetings, elected corporate officers, declared and distributed dividends, and performed such acts in relation to the management and operation of its properties by the Soo company as it was required to do under the terms of the contract. The Commissioner of Internal Revenue determined and held that these acts, of the plaintiff in its corporate capacity, constituted "carrying on or doing business" within the meaning of the statute, and levied and collected the taxes in question.

The question of what constitutes "carrying on or doing business" has been before the courts in numerous cases. The decided cases are uniform in holding that a capital stock tax is an excise laid upon the privilege of doing business in a corporate capacity. Washington Water Power Company v. United States, 56 Ct. Cl. 76; Flint v. Stone Tracy Company, 220 U.S. 107, 146, 31 S. Ct. 342, 55 L. Ed. 389, Ann. Cas. 1912B, 1312.

The rule is also well established that the amount of business transacted by a corporation alone is not determinative of whether or not such corporation is "carrying on or doing business."

In Von Baumbach v. Sargent Land Company, 242 U.S. 503, 517, 37 S. Ct. 201, 204, 61 L. Ed. 460, it is stated: "* * * the Act requires no particular amount of business in order to bring a company within its terms. * * *"

In Edwards, Collector v. Chile Copper Company, 270 U.S. 452, 46 S. Ct. 345, 346, 70 L. Ed. 678 it was held that where two corporations took part in carrying on one business they were each subject to the tax. The court said: "There was some suggestion that there was only one business and therefore ought to be only one tax. But if the one business could not be carried on without two corporations taking part in it, each must pay, by the plain words of the Act."

In Von Baumbach v. Sargent Land Company, supra, the court announced the following rule as a test for determining when a corporation is carrying on or doing business: "It is evident, from what this court has said in dealing with the former cases, that the decision in each instance must depend upon the particular facts before the court. The fair test to be derived from a consideration of all of them is between a corporation which has reduced its activities to the owning and holding of property and the distribution of its avails, and doing only the acts necessary to continue that status, and one which is still active and is maintaining its organization for the purpose of continued efforts in the pursuit of profit and gain, and such activities as are essential to those purposes."

The Chevrolet Motor Company v. United States, 64 Ct. Cl. 211, was a case where the plaintiff corporation, organized primarily for the purpose of manufacturing and selling automobiles, had, prior to the taxable periods in question, transferred all its assets and good will, exclusive of certain shares of common stock which it then owned in the General Motors Corporation, to that company and retired from the business of manufacturing and selling motor vehicles, this business of the plaintiff corporation being taken over and continued by the General Motors Corporation. While the Chevrolet Motor Company after the transfer of its assets and business to General Motors Corporation owned a majority of the stock of such corporation, it took no part in its corporate capacity in the management and control of the affairs and business of the General Motors Corporation. In passing upon the question of whether certain corporate activities of the Chevrolet Motor Company constituted doing business, this court said:

"Many close and doubtful cases have been before the courts, but where a manufacturing corporation, organized for profit and gain, continues after the disposition and sale of its good will and manufacturing assets to maintain its corporate entity and carry on with its remaining assets, engaging in business transactions inimical to the processes of final liquidation, all of which results in profit to its stockholders, it can hardly escape the classification of doing business. * * *

"If the plaintiff had done no more than receive and distribute dividends upon its General Motors stock to its shareholders and borrow funds to maintain and increase their value, the contention made for judgment in this case might be meritorious. But the findings disclose that it did a great deal more. While it discontinued to manufacture motor vehicles, it did not reduce its activities to a mere holding company. It continued a series of business transactions designed and intended to facilitate the successful conduct of the corporation in which it owned a controlling stock interest. * * *

"While plaintiff's officers drew no salary and it maintained no expensive organization and had reduced its overhead to the minimum, a fact accounted for in the transfer of the entire organization of the plaintiff to the General Motors Corporation on the date of sale, nevertheless it continued to function in a way that clearly demonstrates that what was done was not a mere passive, inert activity looking toward the liquidation of its assets or the usual activities of a holding company, but a lively participation in the activities of two other corporations linked with it, and whose success and profits redounded beneficially to the plaintiff. The plaintiff loaned its corporate powers to other corporations, engaged in and became an important instrumentality in their business transactions. Surely this is carrying on business. If not, it is difficult to characterize it."

We believe the activities of the plaintiff in this case constituted the "carrying on or doing business" within the principles announced in the cases cited. During the taxable period in question the plaintiff purchased locomotive cars and other equipment for use in the operation of its railways; entered into obligations and agreements with respect to an additional right of way; executed conveyances to numerous parcels of real estate owned by it; issued its promissory notes for sums of money; entered into a contract or lease for the operation of another line of railroad for use in the operation of its properties; kept its corporate organization intact; elected corporate officials from time to time, and declared and distributed dividends among its stockholders.

These activities on the part of the plaintiff were all necessary acts to enable the Soo company to maintain and operate the plaintiff's railway properties in accordance with the terms and provisions of the lease or agreement entered into by and between plaintiff and the Soo company. These activities were not, in our opinion, merely incidental to the operation of the plaintiff's railway properties by the Soo company but were essential and necessary acts in the operation of the properties. They were acts that could not have been performed by the Soo company, acting in its own name.

While the Soo company under its contract with the plaintiff had the active control and management of the plaintiff's properties, and while the corporate activities of the plaintiff company before stated were performed on the orders and by the direction of the Soo company, they were nevertheless the acts of the plaintiff company in its own corporate capacity.

The plaintiff had obligated itself in article 4 of the contract to "maintain its corporate existence and organization, * * * and exercise each and every corporate act which it can now or at any time hereafter may lawfully exercise to enable the lessee to enjoy and avail itself of and exercise every right * * * to properly manage and operate the demised premises according to the terms of this lease. * * *"

The corporate activities of the plaintiff were in strict accord with the terms of the contract, and while such activities were not numerous, and were perhaps not of major importance, they were nevertheless required for the proper management and operation of the plaintiff's properties by the Soo company.

These facts bring the plaintiff company within the rule announced in Edwards, Collector v. Chile Copper Company, supra, that, where a business cannot be carried on without two corporations taking part in it, they are each liable for the tax.

The plaintiff was engaged in the "carrying on or doing business" within the meaning of the taxing statute, and the Commissioner of Internal Revenue properly and legally assessed and collected the taxes in question.

Plaintiff's petition is accordingly dismissed. It is so ordered.