United States v. CLEVELAND, P. & ER CO.

• Decision Date: 05 February 1929
• Docket Number: No. 15171.,15171.
• Citation: 34 F.2d 316
• Parties: UNITED STATES v. CLEVELAND, P. & E. R. CO. Inc.
• Court: U.S. District Court — Northern District of Ohio

34 F.2d 316 (1929)

UNITED STATES v. CLEVELAND, P. & E. R. CO. Inc.

No. 15171.

District Court, N. D. Ohio, E. D.

February 5, 1929.

The United States Attorney, for plaintiff.

Tolles, Hogsett & Ginn, of Cleveland, Ohio, for defendant.

JONES, District Judge.

This matter is for consideration upon a motion for judgment on the pleadings, consisting of a petition and an answer. In view of the admissions in the answer, the undenied allegations of the answer, and the written stipulation of facts filed by the parties, one question only appears to be for decision: Were the defendant and the Cleveland, Painesville & Ashtabula Railroad Company affiliated during the taxable years 1918 and 1919, within the meaning of section 240 of the Revenue Act of 1918 (40 Stat. 1081), and for that reason entitled to make a consolidated return under that taxing statute?

The defendant was organized under the laws of Ohio in 1895 for the purpose of constructing, maintaining, and operating a line of electric railway between Cleveland and Painesville, Ohio. In April, 1901, The Cleveland, Painesville & Ashtabula Railroad Company was organized under the laws of Ohio for the purpose of constructing, maintaining, and operating a line of electric railway from Painesville to Ashtabula. At the same time, the defendant amended its articles of incorporation to authorize construction of an electric line from Painesville to Ashtabula. The rights of way and other property acquired by the defendant for such purpose were sold to purchasers who in turn transferred them to the Ashtabula Company for the consideration of 9,990 shares of the 10,000 shares of the authorized capital stock of the Ashtabula Railroad Company. The line from Painesville to Ashtabula connecting with the terminal of the defendant at Painesville was constructed by the Ashtabula Company and thereafter by traffic agreements the transportation equipment of the two companies was operated from Cleveland to Ashtabula over the tracks of both.

Commencing in June, 1906, and from time to time thereafter, the defendant acquired shares of the capital stock of the Ashtabula Company by purchase, so that in the calendar years 1918 and 1919 the defendant owned 7,090 shares of the stock of the Ashtabula Company, had substantially the same directors and managing officers, and from June, 1906, and during the years 1918 and 1919, the lines and properties of both companies were operated as a single line of electric railway. Actual expenditures for operation of the Ashtabula Company and general expenses of both, arbitrarily apportioned, were billed to the Ashtabula Company. Notes were given each year for such expenditures by the Ashtabula Company, but never paid. Such indebtedness increased over the period of years, so that in 1918 and 1919 the principal amount of such notes due the defendant from the Ashtabula Company was $240,309.02. In the two taxable years in...