Marton v. COMMISSIONER OF INTERNAL REVENUE, Docket No. 104285.

• Decision Date: 25 June 1942
• Docket Number: Docket No. 104285.
• Citation: 47 BTA 184
• Parties: ESTATE OF ALEXANDER MARTON, DECEASED, BY BARONESS ELIZABETH HATVANY-MARTON, AS EXECUTRIX, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
• Court: U.S. Board of Tax Appeals

47 B.T.A. 184 (1942)

ESTATE OF ALEXANDER MARTON, DECEASED, BY BARONESS ELIZABETH HATVANY-MARTON, AS EXECUTRIX, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Docket No. 104285.

Board of Tax Appeals.

Promulgated June 25, 1942.

John J. Sweedler, Esq., for the petitioner.

J. R. Riggles, Esq., for the respondent.

Respondent has determined a deficiency of $780 in income tax for the taxable year ending December 31, 1936. The issues are (a) whether the total amount received in that year by petitioner's decedent, a nonresident alien, from a sale of motion picture rights to the Metro-Goldwyn-Mayer Corporation, was income from sources within the United States, and (b) whether the tax payable is at the rate of 10 percent under the Revenue Act of 1936 or 4 percent under the prior act.

FINDINGS OF FACT.

In addition to the stipulation of facts included herein by reference, we find upon the evidence that the Metro-Goldwyn-Mayer Corporation in its production and leasing of motion pictures received income from domestic and foreign sources in the following percentages for the years 1937 to 1940, inclusive.

                ----------------------------------------------------------------------------------------------
                                                                            | Sources within | Sources without
                                   Year                                     |  United States |   United States
                ------------------------------------------------------------|----------------|----------------
                1937 ______________________________________________________ |         59.8   |          40.2
                1938 ______________________________________________________ |         58.3   |          41.7
                1939 ______________________________________________________ |         60.5   |          39.5
                1940 ______________________________________________________ |         69.4   |          30.6
                Average for the 4 years ___________________________________ |         62.3   |          37.7
                ----------------------------------------------------------------------------------------------
                

OPINION.

LEECH:

Briefly, the facts are that the petitioner is the executrix of the estate of Alexander Marton who, in his lifetime, was a citizen and resident of Budapest, Hungary, where he was engaged in the publishing business. At no time had he an office or place of business in the United States.

On or before June 4, 1936, petitioner's decedent and one Eugene Heltai, also a nonresident alien, jointly sold and conveyed to the Metro-Goldwyn-Mayer Corporation, a United States corporation, the motion picture rights to a novel or play written by Heltai and published by petitioner's decedent, entitled "Silent Knight."

The agreement of sale of these motion picture rights was negotiated in New York City but was executed by petitioner's decedent and Heltai in Budapest, Hungary. Payment of the consideration was made in New York City to the agent of the owners of these rights. The contract of sale specified that the world-wide rights for the production of the work in motion pictures was conveyed.

Of the consideration paid, petitioner's decedent's share was $13,000. A withholding tax of 4 percent was retained by the agent and paid to the collector of internal revenue. The balance, $12,480, was forwarded to petitioner's decedent.

The deficiency arises through the action of respondent in computing tax at the rate of 10 percent under section 143 of the Revenue Act of 1936. Against the amount so computed he has given credit for the tax at the rate of 4 percent withheld and paid by decedent's agent.

Petitioner contends first that the tax is not to be computed upon the total consideration received by her decedent because the rights conveyed were the world rights and that the only portion of the consideration constituting income from sources within the United States is the portion paid for the United States rights, covered by copyright taken out in this country, which was specifically assigned at the time of the transfer. It is not contested that the parties to the agreement made no segregation of the amounts paid for the United States rights as distinguished from the rights in other parts of the world. However it is argued that a reasonable segregation may be made, based on the percentage of the total income of the Metro-Goldwyn-Mayer Corporation from its activities, derived from sources within the United States and sources without the United States, for the four years following the acquisition of such rights by that corporation. It is admitted that the corporation has never yet made use of the rights it thus acquired.

We think that a segregation of the purchase price upon the basis of income derived by the corporation...