Commissioner of Internal Revenue v. East Coast Oil Co.

• Decision Date: 07 August 1936
• Docket Number: No. 7829.,7829.
• Citation: 85 F.2d 322
• Parties: COMMISSIONER OF INTERNAL REVENUE v. EAST COAST OIL CO., S. A.
• Court: U.S. Court of Appeals — Fifth Circuit

85 F.2d 322 (1936)

COMMISSIONER OF INTERNAL REVENUE v. EAST COAST OIL CO., S. A.^*

No. 7829.

Circuit Court of Appeals, Fifth Circuit.

August 7, 1936.

Robert N. Anderson, Sewall Key, and Berryman Green, Sp. Assts. to Atty. Gen., Robert H. Jackson, Asst. Atty. Gen., and Bruce A. Low, Sp. Atty., Bureau of Internal Revenue, of Washington, D. C., for petitioner.

George L. Buland, Ben C. Dey, and Charles L. Minor, all of New York City, and Victor Leovy, of New Orleans, La., for respondent.

Before FOSTER, SIBLEY, and WALKER, Circuit Judges.

FOSTER, Circuit Judge.

This is a petition by the Commissioner of Internal Revenue to reverse a decision of the Board of Tax Appeals. It appears that the commissioner assessed income and profits taxes against East Coast Oil Company, S. A., hereafter referred to as the company, for the years 1919, 1920, and 1921, totaling some $487,957. On petition of the company to the board the ruling of the commissioner was reversed and the board determined there was no deficiency. The question presented for decision is whether profits derived from sales of crude petroleum by the company was income derived from sources within the United States which is taxable, or was derived from sources without the United States, which is not, under the provisions of section 233 (b) of the Revenue Acts of 1918 and 1921 (40 Stat. 1077, 42 Stat. 254). We may briefly review the material facts and refer to the opinion of the board (31 B. T. A. 558) for a more complete statement of them.

East Coast Oil Company, S. A., is a corporation organized under the laws of Mexico, dealing in crude petroleum and having agents in the United States for the negotiation of sales. The profits sought to be taxed arose from sales of oil to parties in the United States through these agents, under contracts for future delivery, payment to be made to the company's agent in the United States after delivery. Some of the contracts provided for delivery f. o. b., others for delivery c. i. f. All the oil sold was produced in Mexico, part by the company and the balance of it purchased. All the oil was delivered to ocean carriers at the company's wharf in Tampico, Mexico. The c. i. f. contracts provided for ultimate delivery at points in the United States. The contracts stipulated that the oil should be merchantable, gravity 10 to 14 degrees Baume, sediment and water not to exceed 2 per cent. at 60 degrees F. The contracts contained a provision that the oil should be inspected, tested, and gauged by representatives of both parties at the place of delivery.

The initials f. o. b. and c. i. f. in sales contracts have a well-known meaning. The meaning of f. o. b. is that the goods are to be delivered to the carrier by the seller, free of cost to the buyer, and the buyer then pays the freight to destination and the insurance premium, if any. In a c. i. f. contract delivery is made to the carrier by the seller, without cost to the buyer, and the seller also pays the freight and insurance premium. It is well settled that under either form of contract title to the goods passes from the seller to the buyer on delivery of the goods to the carrier and delivery to the buyer of the bill of lading and other documents essential to show the sale. Cf. Thames & Mersey Ins. Co. v. U. S., 237 U. S. 19, 35 S.Ct. 496, 59 L.Ed. 821, Ann.Cas.1915D, 1087.

The commissioner admits that it is the general rule that title passes with delivery to the carrier, unless the contract of sale provides to the contrary. He contends that the contracts were modified by the provision for inspection and gauging of the oil at the place of delivery and title did not pass until the oil reached the points in the United States to which consigned. The commissioner also urges other provisions of the contract relative to their...