Booth Fisheries Co. v. Commissioner of Internal Revenue, 5683.

• Citation: 84 F.2d 49
• Decision Date: 04 June 1936
• Docket Number: No. 5683.,5683.
• Parties: BOOTH FISHERIES CO. (OHIO) et al. v. COMMISSIONER OF INTERNAL REVENUE.
• Court: United States Courts of Appeals. United States Court of Appeals (7th Circuit)

84 F.2d 49 (1936)

BOOTH FISHERIES CO. (OHIO) et al. v. COMMISSIONER OF INTERNAL REVENUE.

No. 5683.

Circuit Court of Appeals, Seventh Circuit.

June 4, 1936.

John E. Hughes, of Chicago, Ill., for petitioners.

Robert H. Jackson, Asst. Atty. Gen., and Sewall Key and Berryman Green, Sp. Assts. to Atty. Gen., and Morton K. Rothschild, of Washington, D. C., for respondent.

Before SPARKS and ALSCHULER, Circuit Judges, and BRIGGLE, District Judge.

BRIGGLE, District Judge.

Petitioners and various other affiliated corporations filed through the parent corporation a consolidated tax return for the fiscal and taxable year ending April 30, 1930. The Commissioner determined a deficiency of $1,958.47, due to the disallowance by the Commissioner of certain losses of the Canadian subsidiaries of petitioners. The parent and some of the affiliated companies later became involved in bankruptcy and receivership proceedings, but those appealing are not so involved.

In their petition to the Board of Tax Appeals, petitioners alleged two errors of the Commissioner:

First. That the Commissioner erred in allowing insufficient rates of depreciation on certain properties of the taxpayers for the taxable year in question.

Second. That the Commissioner erred in failing to allow petitioners certain losses sustained by their Canadian subsidiaries.

On the first point the Board found in favor of the taxpayers and ordered that they be allowed increased depreciation at certain rates then determined. Responsive to the Board's decision the respondent redetermined the taxpayers' liability on account of this error and filed with the Board a statement showing an overassessment of $6,164.43, and that timely claim for such refund had been made. The Board failed to enter an order of overpayment as thus determined apparently for the reason that the parent corporation, the Booth Fisheries Company of Delaware, was not a petitioner before the Board.

No question is raised concerning the redetermination in regard to the overassessment except that petitioners assert that the Board should have directed return thereof to the Booth Fisheries Company of Ohio in pursuance of designation of the Ohio corporation as agent. This designation was executed by the parent corporation by its trustee in bankruptcy and by all other subsidiaries¹

Paragraph (a) of Article 16, Regulations 75 of the Treasury Department provides that the parent corporation shall, for all purposes in respect of the tax for the taxable year for which a consolidated return is made, act for the subsidiaries including claims for refunds. It recites that "refunds will be made directly to and in the name of the parent and will discharge any liability of the Government in respect thereof to any such corporation. * * *"

Paragraph (c) of this same Article is as follows:

"In the event that the parent corporation is contemplating dissolution, or is about to be dissolved, or if for any other reason its existence is about to terminate, it shall be its duty forthwith to notify the Commissioner of such fact and to designate another agent to act as agent in its place, to the same extent and subject to the same conditions and limitations as are applicable to the parent corporation."

It was pursuant to these provisions that the parent company filed the original claims for refund with the Commissioner on behalf of all the subsidiaries, and later upon the contemplated termination of the existence of the parent, the designation of the Ohio subsidiary as agent.

Respondent in his brief says that:

"Booth Fisheries Company (Delaware), the parent corporation, at the time of the Commissioner's deficiency letter, was in receivership and could not file a petition with the Board of Tax Appeals because of the receivership proceedings. The petitioners, under Article 16 (c) of Regulations 75 which had been duly complied with, therefore filed the petitions in the instant case, which not only raised the question of the Commissioner's disallowance of alleged losses sustained in the taxable year by the Canadian subsidiaries, but another issue from the decision of which by the Board it appears that there had been an overpayment of taxes for the taxable year by the affiliated group.

"The parent company made the overpayment of tax determined by the Board, and, prior to the institution of these proceedings, filed a claim for refund of the taxes overpaid as parent of the affiliated group."

Apparently, all formalities of the regulations have been complied with, the overpayment has been established before the Board and redetermined by respondent. We think it highly equitable and entirely consonant with the above-quoted regulation, and in the interest of a speedy termination of the entire matter that the overpayment in this respect be returned to the lawfully authorized agent of the parent corporation without further litigation.

On the second claim of petitioners it appears that in the consolidated return were included certain Canadian subsidiaries under the provisions of section 141 of the Revenue Act of 1928, 45 Stat. 791, 831, 832, 26 U.S.C.A. § 141 and note.

Subdivision (h) of this section provides that:

"In the case of a domestic corporation owning or controlling, directly or indirectly, 100 per centum of the capital stock (exclusive of directors' qualifying shares) of a corporation organized under the laws of a contiguous foreign country and maintained solely for the purpose of complying with the laws of such country as to title and operation of property, such foreign corporation may, at the option of the domestic corporation, be treated for the purpose of this title chapter as a domestic corporation."

In the prosecution of their claim before the Board of Tax Appeals, petitioners claimed the right to deduct a loss of $16,926.79, suffered by their Canadian subsidiaries which they asserted "were owned and maintained for the purpose of complying with the laws of a contiguous foreign country as to title and operation of property," claiming to fall within the provisions of subdivision (h) aforesaid. To substantiate this claim before the Board, petitioners offered in evidence the Companies' Act of Canada of 1927, c. 27, vol. 1, par. 19², and also offered as a witness the general manager of petitioners who testified: "I know the purpose for which this corporation was organized in Canada. It was to conform to Canadian requirements to make it possible to operate there." This was all that was offered on this question. The Board in its opinion, after reciting the evidence as above quoted, said, "The evidence of record is insufficient to establish the petitioners' claim. The record does not establish that any foreign subsidiary of the parent company operated at a loss. The contentions of the petitioners upon this point are not sustained."

Petitioners assert that the Board failed to...