Commissioner of Internal Revenue v. Scottish American Inv Co 54 220 222

• Decision Date: 04 December 1944
• Docket Number: Nos. 52,s. 52
• Citation: 65 S.Ct. 169,323 U.S. 119,89 L.Ed. 113
• Parties: COMMISSIONER OF INTERNAL REVENUE v. SCOTTISH AMERICAN INV. CO., Limited, and five other cases. to 54 and 220 to 222
• Court: U.S. Supreme Court

323 U.S. 119

65 S.Ct. 169

89 L.Ed. 113

COMMISSIONER OF INTERNAL REVENUE

v SCOTTISH AMERICAN INV. CO., Limited, and five other cases.

Nos. 52 to 54 and 220 to 222.

Argued Nov. 16, 1944.

Decided Dec. 4, 1944.

Mr. J. Louis Monarch, of Washington, D.C., for Commissioner of Internal Revenue.

Mr. Marion N. Fisher, of New York City, for the taxpayers, Scottish American Investment Co., Ltd., and others.

Mr. Justice MURPHY delivered the opinion of the Court.

We are confronted here with another aspect of the problem of the judicial reviewability of Tax Court determinations.

The three taxpayers involved in these cases are investment trusts organized under the laws of Great Britain, with principal offices in Edinburgh, Scotland. Each is engaged in the business of investing the funds of its security holders for the primary purpose of deriving income from investments. The Tax Court, formerly known as the Board of Tax Appeals, has held that these taxpayers had an 'office or place of business' within the United States during the four years in question and hence were entitled to be taxed as resident foreign corporations under Section 231(b) of the Revenue Acts of 1936 and 1938, 26 U.S.C.A. Int.Rev. Code, § 231(b). 47 B.T.A. 474. Such a holding would result in substantial tax savings that would be unavailable to them had they not maintained such an office in this country. The tax returns for the various years having been filed in different collectors' offices, the Commissioner appealed to two Circuit Courts of Appeal.¹ The Circuit Court of Appeals for the Fourth Circuit, dealing with the 1936 and 1937 tax returns, affirmed the Tax Court's decision as to those years. Helvering v. Scottish American Inv. Co., 4 Cir., 139 F.2d 419. But the Circuit Court of Appeals for the Third Circuit, considering the identical facts and substantially the same statutes and regulations, held that the taxpayers did not have an office or place of business within the United States during 1938 and 1939; the decision of the Tax Court as to those years was accordingly reversed. Helvering v. Scottish American Inv. Co., 3 Cir., 142 F.2d 401. The irreconcilable conflict between the two courts below led us to grant certiorari.

The Tax Court made virtually undisputed findings of fact which need not be repeated here in detail. In brief, it was found that the three taxpayers jointly appointed a member of an American accounting firm as their assistant secretary. He was instructed to establish and maintain an office in the United States for them in order to obtain better representation of their interests in this country, large amounts of American securities being held as investments by them. By establishing this office they also sought to obtain certain tax advantages. The office was accordingly opened and two full-time assistants to the assistant secretary were employed. The American securities were kept in the custody of two banks, through which the securities were bought and sold, and assistance on certain matters was obtained from the accounting firm. This office of the taxpayers kept full records concerning all American holdings, collected and received dividends on such holdings, acted on proxies and performed other duties relative to the maintenance of these investments. The assistant secretary made periodic financial, economic and political reports to the home offices, as well as specific reports concerning particular holdings. United States tax returns were prepared in this office and local expenses were disbursed therefrom. All decisions as to the buying and selling of securities and as to investment policies, however, were made by the home offices in Edinburgh.

Certain inferences and conclusions were then drawn from these facts by the Tax Court. It refused to consider each separate activity in this office apart from its integral relation to the entire investment trust business and was of the opinion that 'an office handling affairs to this extent must be regarded as real and substantial. It was here that a very large part of the affairs of petitioners in this country were taken care of.' The Tax Court further concluded that this office was not a sham but was a place for the necessary transaction of the American affairs of the taxpayers; 'the office was used for the regular transaction of business and not as a place where casual or incidental transactions might be, or were, effected.'

Utilizing the provisions of Section 231(b) and of the regulations promulgated thereunder,² the Tax Court reached the ultimate conclusion that the taxpayers maintained an office or place of business within the United States and were therefore entitled to be taxed as resident foreign corporations. There is no charge here that the Tax Court failed to follow the applicable statutes or regulations. No clear cut mistake of law is alleged. Nor are any constitutional issues involved. The sole issue revolves about the propriety of the inferences and conclusions drawn from the evidence by the Tax Court. The taxpayers claim that these determinations are supported by substantial evidence and hence were not reversible by an appellate court. The Commissioner charges that the facts demonstrate that the American office was not intended to be used for the transaction of the regular business of making investments and that it was improper as a matter of law to classify the taxpayers as resident foreign corporations.

The answer is to be found in a proper realization of the distinctive functions of the Tax Court and the Circuit Courts of Appeal in this respect. The Tax Court has the primary function of finding the facts in tax disputes weighing the evidence, and choosing from among conflicting factual inferences and conclusions those which it considers most reasonable. The Circuit Courts of Appeal have no power to change or add to those findings of fact or to reweigh the evidence. And when the Tax Court's factual inferences and conclusions are determinative of compliance with statutory requirements, the appellate courts are limited to a determination of...