J. Newton Seitz Shoe Co. v. Commissioner

*747OPINION.

The only issue to be considered in this proceeding is whether the petitioner was affiliated with the Maryland Shoe Co. and the Newton Shoe Co., for the year 1921, within the meaning of section 240 of the Revenue Act of 1921, which provides as follows:

Sec. 240. (c) For tbe purpose of this section two or more domestic corporations shall be deemed to be affiliated (1) if one corporation owns directly or controls through closely affiliated interests or by a nominee or nominees substantially all the stock of the other or others, or (2) if substantially all the stock of two or more corporations is owned or controlled by the same interests.

Petitioner does not base its claim for affiliation upon the control or ownership by it of the stock of the Maryland Shoe Co. and the Newton Shoe Co., but the claim is based upon the second provision of the statute just quoted. Petitioner rests its claim for affiliation upon the facts that J. Newton Seitz was in active management of all three corporations, that the three corporations were in fact one economic unit, and that there has been no dissenting voice raised by the other stockholders concerning the business management of J. Newton Seitz. The evidence of record does show that J. Newton Seitz was in active management of the three corporations and there is no evidence to the effect that the other stockholders did other than acquiesce in his management. The statute, however, requires that substantially all the stock be owned or controlled by the same inter*748ests. Two corporations may, in fact, represent an economic unit and have a common directing head, but there must exist an ownership or control of the stock by the same interests. We have repeatedly stated that intercompany relations or the absence of them, without the necessary stock ownership or control, as provided by the statute, is not sufficient to permit or require affiliation. Greenville Coaling & Export Corporation, 4 B. T. A. 183.

In the instant case, Charles M. Berlow and Gordon Goldsmith owned, without qualification or limitation, 33⅓ per cent and 50 per cent of the outstanding capital stock of the Newton Shoe Co. and the Maryland Shoe Co., and we are unable to find that they parted with the control of their stock during the year 1921. The same may be said concerning Joseph W. Hahle and Laura Sussman.

Counsel for petitioner, in brief filed in this cause, states the claim of petitioner in the following language:

The claim of petitioner is that, although the ownership of stock is not sufficient, under the revenue law, to permit affiliations, under the decisions of this Board, actual control is sufficient for this purpose.

and cites the decisions rendered in the Appeal of Isse Kooh, 1 B. T. A. 624, Hagerstown Shoe & Legging Co., 1 B. T. A. 666, and Midland Refining Co., 2 B. T. A. 292. When the facts in the decisions relied upon are analyzed, it is evident that there existed facts to support the conclusion that there was control of the stock, which facts are absent in the case at bar. The term, “ substantially all,” is one that should not be given a narrow or technical interpretation, but we can not go so far as to say that the ownership or control of 50 per cent of the stock complies with the statutory requirement that substantially all the stock must be owned or controlled. Nor can we give an interpretation to the statute at variance with its mandate, as suggested by counsel for petitioner.

Our attention is called to the fact that the income for the year in question arises by reason of a book profit resulting from the dealings of petitioner with the two corporations in question, and that this hardship should be overcome by permitting affiliation. We can not make our decisions to fit the exigencies of each particular case so that there may be a relief from or an imposition of a tax. If the three corporations had made earnings during the year in question so that a substantial tax resulted, petitioner could, with force, contend that substantially all the stock was not owned or controlled by the same interests and that each corporation should pay its own separate tax.

Judgment will be ordered for the respondent.