Tonopah & TR Co. v. Commissioner of Internal Rev.

• Decision Date: 22 June 1940
• Docket Number: No. 9316.,9316.
• Citation: 112 F.2d 970
• Parties: TONOPAH & T. R. CO., Limited, v. COMMISSIONER OF INTERNAL REVENUE.
• Court: U.S. Court of Appeals — Ninth Circuit

112 F.2d 970 (1940)

TONOPAH & T. R. CO., Limited, v. COMMISSIONER OF INTERNAL REVENUE.

No. 9316.

Circuit Court of Appeals, Ninth Circuit.

June 22, 1940.

Albert R. Palmer and Harry W. Stelle, Jr., both of New York City, and Newlin & Ashburn, of Los Angeles, Cal. (Harry W. Stelle, Jr., of New York City, and A. W. Ashburn, of Los Angeles, Cal., of counsel), for petitioner.

Samuel O. Clark, Jr., Asst. Atty. Gen., and Sewall Key, Lee A. Jackson, and Ellis N. Slack, Sp. Assts. to Atty. Gen., for respondent.

Before DENMAN, MATHEWS, and HEALY, Circuit Judges.

DENMAN, Circuit Judge.

Petitioner, a New Jersey corporation, hereafter called "Tonopah", seeks review of a decision of the Board of Tax Appeals holding it liable for failing to withhold from interest paid in London in the tax year 1936, to certain alien holders of petitioner's bonds the percentage of interest due required by §§ 143(b) and 144 of the Revenue Act of 1936, 26 U.S.C.A. Int.Rev. Acts, pages 887, 888.

Tonopah contends that the interest moneys paid in London to the alien bondholders was interest money of which it did not have "control, receipt, custody, disposal or payment" within the provision of § 143(b) which provides: "All persons, in whatever capacity acting, including lessees or mortgagors of real or personal property, fiduciaries, employers, and all officers and employees of the United States, having the control, receipt, custody, disposal, or payment of interest * * * (but only to the extent that any of the above items constitutes gross income from sources within the United States), of any nonresident alien individual, * * * shall * * * deduct and withhold from such annual or periodical gains, profits, and income a tax equal to 10 per centum thereof * * *."

Tonopah contends that instead of the interest money being paid by it, it was paid by a British corporation, Borax Consolidated Ltd., hereafter called "Borax", over which it had no control. Borax owned all the stock of Tonopah, but no question is raised of identity of the two corporations, — each being engaged in a separate business and having separate taxable entities. Tonopah had no taxable income for the tax year in question or several years before. During all these years it had operated at a heavy loss.

Borax had guaranteed the payment, both principal and interest of Tonopah's bonds, and the Board, construing the conflicting evidence, found as an ultimate fact that Borax "paid such interest out of funds on deposit in England pursuant to its obligation to guarantee such payment." (Emphasis supplied.) Its holding is, "We agree with the contention of respondent. Borax was a British corporation with its principal office in London, England, and it paid such interest out of funds on deposit in England pursuant to its obligation to guarantee such payment."

Accepting this contention of the Commissioner, the...