Helvering v. Scottish American Inv. Co., 5122-5124.

• Decision Date: 08 November 1943
• Docket Number: No. 5122-5124.,5122-5124.
• Citation: 139 F.2d 419
• Parties: HELVERING, Com'r of Internal Revenue, v. SCOTTISH AMERICAN INV. CO., Limited. SAME v. SECOND BRITISH ASSETS TRUST, Limited. SAME v. BRITISH ASSETS TRUST, Limited.
• Court: U.S. Court of Appeals — Fourth Circuit

139 F.2d 419 (1943)

HELVERING, Com'r of Internal Revenue, v. SCOTTISH AMERICAN INV. CO., Limited. SAME v. SECOND BRITISH ASSETS TRUST, Limited. SAME v. BRITISH ASSETS TRUST, Limited.

Nos. 5122-5124.

Circuit Court of Appeals, Fourth Circuit.

November 8, 1943.

Warren F. Wattles, Sp. Asst. to Atty. Gen. (Samuel O. Clark, Jr., Asst. Atty. Gen., Sewall Key, Samuel H. Levy, and Helen Goodner, Sp. Assts. to Atty. Gen., on the brief), for petitioner.

Marion N. Fisher, of New York City (William H. Harrar, of New York City, on the brief), for respondents.

Before PARKER, SOPER, and DOBIE, Circuit Judges.

DOBIE, Circuit Judge.

Scottish American Investment Company, Limited, British Assets Trust, Limited, and Second British Assets Trust, Limited, are all corporations organized under the laws of Great Britain. Each has its principal office in Edinburgh, Scotland. For convenience, the three corporations are hereinafter called the Trusts. The Trusts were engaged in the business of investing the funds of their security-holders. These investments were made primarily for the purposes of security of principal and adequacy of income.

On December 2, 1936, the Trusts had over $40,000,000 invested in securities in the United States. Walter A. Cooper, C.P. A. (hereinafter called Cooper), had been engaged by Scottish American Investment Company, Limited, for the purpose of making an audit of this Company's sales of securities and profits for a period of years prior to 1936. Cooper was a partner in the accounting firm of Barrow, Wade, Guthrie & Co., of New York City.

In September and October, 1936, Cooper and Breeding (an employee of the Barrow-Wade firm) discussed in Scotland with officers of the Trusts the problem of opening an office for the Trusts in the United States. In that connection, the possible advantages of such an office as to taxes in the United States were considered. Cooper and Breeding, however, returned to the United States without any agreement having been reached as to the opening of an office for the Trusts in the United States.

Each of the Trusts, by cable on December 2, 1936, appointed Cooper its assistant secretary and authorized him to open offices for the Trusts in the United States. Letters to Cooper, of even date, confirmed the cable and contained further instructions. Cooper, immediately upon receipt of the cable, rented office space of two rooms in the Equitable Building in New York, on the floor just below the offices of the Wade-Barrow firm. A lease of one year was executed, with a designated portion of the offices assigned to each of the Trusts. Cooper seemed to act with unusual speed to set in motion the activities of the offices of the Trusts. The New York banking firms having custody of the securities of the Trusts were furnished with the names of new nominees for these securities. The American corporations, whose securities were owned by the Trusts, were notified to send reports, statements and notices, and to pay dividends, to the New York offices of the Trusts. Employees were engaged, a telephone (connected through the switchboard of the Wade-Barrow firm) was installed, and a system of book-keeping and accounts was set up.

As assistant secretary, Cooper had the same measure of authority as any officer or director of the Trusts at the home office in Scotland. Definite authority was given to Cooper: (1) To collect and deposit in the bank accounts of the Trusts dividends on the American securities; (2) to draw on these accounts up to $5,000 a month and to pay local expenses of the New York office; (3) to keep complete records of the American securities; (4) to make periodic reports (usually once a week) by cable and/or letter concerning economic and political developments in the United States; (5) to complete and file federal income-tax and capital-stock-tax returns; (6) to forward plans of corporate reorganizations and to make definite recommendations to the Trusts concerning the action to be taken by the Trusts in connection with such reorganizations; (7) to dispose of stock rights and scrip; (8) to act, under certain circumstances, on proxies; (9) to designate the specific stock certificates to be transferred upon a sale by the Trusts of less than all of their holdings in a particular corporation.

We are here concerned with income taxes of the United States on the Trusts for the calendar years of 1936 and 1937. The three cases were argued together and may be disposed of in a single opinion. The Board of Tax Appeals (hereinafter called the Board, and now the Tax Court of the United States) decided that the Trusts were resident foreign corporations and taxable accordingly.

Whether or not the Trusts are taxable as resident foreign corporations depends on whether or not the Trusts had "an office or place of business" within the United States under section 231(b) of the Revenue Acts of 1936 and 1938, 26 U.S.C.A. Int. Rev.Acts, pages, 907, 1097, which reads:

"§ 231. Tax on Foreign Corporations

* * * * *

"(b) Resident corporations. A foreign corporation engaged in trade or business within the United States or having an office or place of business therein shall be taxable without regard to the provisions of subsection (a), but the normal tax imposed by section 13 shall be at the rate of 22 per centum instead of at the...