323 Opinion of the Court United States. Accordingly, the defendant concludes that the interest at issue in this case had its source within the United States. We think the defendant cannot see the forest for the trees. The method of payment of this interest reveals the true nature of this arrangement. When the bank received excess interest from the foreign purchasers, the excess interest was placed in a trustee account from which the bank distributed it to the plaintiff. Indeed, the trial commissioner has found that such excess interest was collected by the bank on behalf of the plaintiff.2 We believe that the acceptance of defendant's position here would frustrate that commerce between American businessmen and their Latin-American counterparts which it was the purpose of § 109 to encourage. In A. P. Green Export Company v. United States, 151 Ct. Cl. 628, this court expressed its view on the legislative intent of § 109. We said at p. 633: The announced legislative purpose of section 109 was to encourage domestic corporations to engage in foreign commerce. European countries had granted tax concessions to their nationals engaged in Western Hemisphere trade. The Congress was thus moved to grant similar tax credits to our domestic corporations thereby permitting them to compete on equal footing. Without such tax assistance Western Hemisphere trade would in many instances not be profitable enough to pursue. It would run counter to this construction of § 109 to permit the financing aspect of these contracts to obscure the true source of this interest income, i.e., interest payments by foreign purchasers, situated in Brazil and Chile, to an American seller. The mere fact that these payments were distributed by the Export-Import Bank of Washington cannot shift their source from Latin America to Washington. Viewing the entire transaction involved in the instant case as a whole, we conclude that the plaintiff qualifies as a § 109 corporation for the year 1952 and is entitled to a credit under § 26 (i) (2). Therefore the plaintiff is entitled to recover and judgment 2 Finding 22. Findings of Fact 154 Ct. CI. will be entered to that effect, with the amount of recovery to be determined in further proceedings pursuant to Rule 38 (c). It is so ordered. DURFEE, Judge; LARAMORE, Judge; MADDEN, Judge; and WHITAKER, Judge, concur. FINDINGS OF FACT The court, having considered the evidence, the report of Trial Commissioner Roald A. Hogenson, and the briefs and argument of counsel, makes findings of fact as follows: 1. The petition in this case was filed pursuant to the provisions of section 1491, Title 28 of the United States Code for the recovery of income taxes for the calendar year 1952. 2. Plaintiff is a Delaware corporation with its office and principal place of business located at 150 East 42nd Street, New York, New York. During the period herein involved until July 31, 1952, one-half of plaintiff's voting stock was owned by International General Electric Company, Inc., and thereafter by General Electric Company. The other half of plaintiff's voting stock was owned by Westinghouse Electric International Company. On December 27, 1939, plaintiff was registered with the Federal Trade Commission as a "Webb-Pomerene Act Corporation" pursuant to the provisions of Title 15, U.S.C. §§ 6165. At all times material herein, plaintiff was engaged primarily in the business of selling and financing the sale of equipment for the electrification of railroads in South America. This equipment was manufactured by General Electric Company and Westinghouse Electric Company. They sold it to plaintiff which in turn sold it to the foreign customers. On September 6, 1940, plaintiff was authorized by the Government of Brazil to do business in Brazil as a foreign corporation. During the period herein involved plaintiff maintained an office at Sao Paulo, Brazil, staffed by its own employees. During the taxable year plaintiff had no employees in the United States. Some services were performed for plaintiff in the United States by employees of and in the offices of International General Electric Company, Inc., or General Electric Company, and Westinghouse Electric Com 323 Findings of Fact pany, which expenses were charged to plaintiff. Plaintiff's books of account were maintained and its tax returns filed on the accrual basis and on the basis of a taxable year ending on December 31. 3. Plaintiff's income tax return for the calendar year 1952 was filed with the District Director, Upper Manhattan District, New York, New York (hereinafter referred to as the "District Director") and disclosed an income tax liability of $80,865.70 which was paid. Thereafter, on April 8, 1957, the Commissioner of Internal Revenue (hereinafter referred to as the "Commissioner") determined a deficiency in tax in the amount of $31,943.48, which deficiency was paid by plaintiff on or about July 2, 1957, together with deficiency interest thereon. 4. In determining the deficiency referred to in finding No. 3, the Commissioner determined that plaintiff for the year 1952 did not qualify as a Western Hemisphere Trade Corporation under section 109 of the Internal Revenue Code of 1939 (hereinafter referred to as the "1939 Code") and was therefore not entitled to the credit provided for by section 26 (i) (2) of the 1939 Code. For the years 1950 and 1951, plaintiff claimed on its tax returns and was allowed the credit granted to Western Hemisphere Trade Corporation. 5. On October 12, 1940, the State of Sao Paulo, Brazil, entered into a contract with plaintiff and Companhia de Mineracao e Metalurgia Brasil-"Cobrasil" providing, among other things, for the supplying by plaintiff of electric locomotives and related equipment necessary for the electrification of the section of the Sorocabana Railway between Sao Paulo and Santo Antonio, Brazil. The total contract price for the equipment to be supplied by plaintiff was $6,388,295.00, exclusive of interest. This contract is hereinafter referred to as "Contract EEC-1." The Sorocabana Railway was an agency of the State of Sao Paulo, Brazil. 6. On December 29, 1944, the Estrada de Ferro Central do Brasil (hereinafter called "Central Railway") entered into a contract with plaintiff providing, among other things, for the supplying by plaintiff of electric locomotives and related equipment necessary for the electrification of a section of Findings of Fact 154 Ct. Cl. the railway line of the Central Railway. The total contract price for the equipment to be supplied by plaintiff was $6,029,535.00, exclusive of interest. This contract is hereinafter referred to as "Contract EEC-2." The Central Railway was a federal Brazilian railway operating in Brazil. 7. On May 24, 1945, the Sorocabana Railway entered into a contract with plaintiff providing, among other things, for the supplying by plaintiff of electric locomotives and related equipment necessary for the electrification of the section of the Sorocabana Railway between Santo Antonio and Bernardino de Campos, Brazil. The total contract price for the equipment to be supplied by plaintiff was $9,498,601.84, exclusive of interest. This contract is hereinafter referred to as "Contract EEC-3." 8. On September 6, 1946, La Empresa de los Ferrocarriles del Estado de Chile (hereinafter called "Chilean State Railways") entered into a contract with plaintiff providing, among other things, for the supplying by plaintiff of electric locomotives and related equipment for use by the Chilean State Railways. The total contract price for the equipment to be supplied by plaintiff was $3,988,418.06, exclusive of interest. This contract is hereinafter referred to as "Contract EEC-4." The Chilean State Railways was an agent of the Chilean government operating in Chile. 9. Before entering into Contracts EEC-1, EEC-2, EEC-3 and EEC-4, plaintiff negotiated with the Export-Import Bank of Washington (hereinafter called the "Bank") in order that the latter would agree to finance a part of the transaction under each contract up to 70 percent of the value of the equipment to be supplied. The Bank is a government agency established by Congress for the purpose of financing the export of goods. The sources of its income are from interest earned on foreign obligations purchased in financing export shipments. 10. Under Contract EEC-1 the Sorocabana Railway issued the following promissory notes to the order of plaintiff as payee: (a) Twenty (20) series "A" notes dated March 17, 1941, due semiannually from March 31, 1943 to September 30, 1952, each providing for the payment of $276,413.54. Of this 323 Findings of Fact sum, $223,590.33 represented principal payments and $52,823.21 interest. Interest payable by Sorocabana Railway was computed at the rate of 4.50 percent per annum beginning October 1, 1942. (b) Twenty (20) series "B" notes dated March 17, 1941, due semiannually from March 31, 1943 to September 30, 1952, each providing for the payment of $118,462.95. Of this sum, $95,824.42 represented principal payments and $22,638.53 interest. Interest payable by Sorocabana Railway was computed at the rate of 4.50 percent per annum beginning October 1, 1942. The total interest to be paid by the Sorocabana Railway had been calculated over the life of the notes divided by the number of notes so that each note in each series included a pro rata or level amount of principal and interest. Each note in each series was initially placed in escrow with a New York bank. The first six of the series "A" and "B" notes were released from escrow to plaintiff on April 10, 1941 as an initial payment on the contract. The remainder of the notes were released from escrow to plaintiff against shipments of material. Title to the materials shipped by plaintiff passed in Brazil to the Sorocabana Railway. Plaintiff supervised the installation of the equipment in Brazil. 11. Under date of December 2, 1940, plaintiff and the Bank entered into a letter agreement under which the Bank agreed to purchase from plaintiff without recourse as to principal the 20 series "A" notes of the Sorocabana Railway at their principal amount less a 5 percent discount. In this agreement plaintiff and the Bank agreed in part as follows: When presenting each Series A note to you [the Bank] for purchase we [plaintiff] will give you an undertaking, in writing *** that upon payment of each of such Series A notes purchased by you, we will pay you an amount necessary to enable you to recover 4.50 percent interest to the maturity date thereof on the outstanding principal balance of [a]ll Series A notes then held by you, Likewise, you [the Bank] agree to pay us any amount when collected by you on any of said notes at maturity which may exceed your interest and principal requirements at such maturity, ** |