44 F.2d 543 (4th Cir. 1930), 2996, Duke Power Co. v. Commissioner of Internal Revenue

Docket Nº:2996.
Citation:44 F.2d 543
Case Date:October 21, 1930
Court:United States Courts of Appeals, Court of Appeals for the Fourth Circuit

Page 543

44 F.2d 543 (4th Cir. 1930)




No. 2996.

United States Court of Appeals, Fourth Circuit.

October 21, 1930

J. H. Marion, of Charlotte, N.C. (H. H. Shelton, of Washington, D.C., on the brief), for petitioner.

Randolph C. Shaw, Sp. Asst. to Atty. Gen. (G. A. Youngquist, Asst. Atty. Gen., Sewall Key, Sp. Asst. to Atty. Gen., and C. M. Charest, Gen. Counsel, Bureau of Internal Revenue, and Allin H. Pierce, Sp.

Page 544

Atty., Bureau of Internal Revenue, both of Washington, D.C., on the brief), for respondent.

Before PARKER, circuit Judge, and GRONER and ERNEST F. COCHRAN, District Judges.

GRONER, District Judge.

There are two questions involved on this appeal.

The first is this: Where three corporations are affiliated within the meaning of section 240(c) of the Revenue Act of 1921, and the parent corporation has elected to file a separate income tax return, may the two subsidiary corporations file a consolidated return?

The second is: Should interest payments received by one member of the group from another be included in its gross income where the members of the group are required by law to file separate returns?

The Board of Tax Appeals answered the first question in the negative, and the second in the affirmative.

Appellant is the successor of the Southern Power Company, the corporation against which the deficiency in tax here involved was asserted. In the years 1922 and 1923, Wateree Electric Company, Southern Power Company, and Catawba Manufacturing & Electric Power Company were affiliated within the meaning of section 240 of the Revenue Act of 1921. The Wateree Company owned substantially all of the stock of the Southern Company, and the Southern Company owned all of the stock of the Catawba Company. The Wateree Company filed a separate return of its income. The Southern and Catawba Companies filed a consolidated return. The tax in suit results from the disallowance by the commissioner of the filing of a consolidated return by the two last-named companies, and arises out of the fact that during 1922 and 1923 the Southern Company advanced large sums of money to the Catawba Company on open account, and set up against the latter company an interest charge of 6 per cent. per annum, which interest was paid by the Catawba Company out of funds advanced by the Southern...

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