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107 C. Cls.

INCOME TAX-Continued

Clark, 287 U. S. 410, and Deputy v. DuPont, 308, U. S.

488, distinguished. Id.
III. (3) In carrying on the campaign to restore confidence in the

holding company, and its various subsidiary corpora-
tions, the plaintiff neither bought nor took title to
stock nor sold any stock which it owned. Neither did
the subsidiary which conducted the campaign buy or
sell any stock to which it took or had title, and the
salesmen and dealers employed to assist in carrying
out the plan did not buy, or sell stock on their own
account and were simply compensated for their services
on a percentage basis, but this compensation while car-
ried on the books as “commissions" was not "brokerage
commissions" or "sales commissions" such as to be
classified as capital expenditures and not deductible
as ordinary and necessary expenses by a taxpayer en-
gaged in buying and selling securities. A. Harris &
Co. v. Lucas, 48 Fed. (2nd) 187. Cf. Commissioner

v. Heininger, 320 U. S. 467. Id.
IV. (4) The carrying out by plaintiff and its subsidiary of the

advertising and publicity campaign to restore public
confidence in the aftiliated group of corporations did
not involve capital transactions within the meaning

of the taxing statutes. Id.
V. (5) Of the total amount of $1,124,724.78 paid by plaintiff to

its subsidiary for the advertising and publicity cam-
paign, the right of the plaintiff to deduct the amount
of $805,376.76 as an ordinary and necessary business
expense cannot, on the facts, be distinguished from the
balance of such payment, amounting to $319,348.02,
which the Commissioner correctly allowed as a proper

expense deduction for 1936. Id.
VI. (6) No gain or loss is recognized upon acquisition of United

Carbon Company stock received by taxpayer as a re-
sult of the liquidation of Cosmos Carbon Company and
the Natural Gas Products Company, since the liquidat-
ing companies distributed the stock and the proceeds
of the sale of their assets pursuant to a plan of “re-
organization" within the meaning of Section 203 of
the Revenue Act of 1926. Transfer of 91.6 percent and
95.7 percent of transferors' assets was transfer of “sub-
stantially all” the assets and the intervening period
of time between the initial distribution and the final
distribution, during which the transferors reduced
their remaining assets to cash, does not affect the taxa-
bility of the transaction. Nelson, 477.

107 C. Cls.


INCOME Tax-Continued
VII. (7) Basis for the computation of profit on sale in 1929 of

United Carbon Company stock received upon a tax-
free exchange is the cost to taxpayer of an aliquot
part of his stock in the Cosmos Carbon Company and
in the Natural Gas Products Company which was ex-
changed for the stock of United Carbon Company.

VIII. (8) Gain or loss is to be recognized from acquisition by

corporation of its bonds at less than their face value,
under certain circumstances, although value of prop-
erty securing the property has declined more than the
difference between the face value and the purchase

price. Id.
IX. (1) A corporation was incorporated on June 27, 1941, and

the first meeting of the incorporators was held on
that date; a board of directors was elected, by-laws
adopted and the board authorized to issue shares of
capital stock. On June 26, the board held its first
meeting, at which officers were duly elected, who were
by resolution authorized to issue and deliver certain
shares of stock on terms and to parties set forth in
the resolution; and in addition the directors autho-
rized certain officers to enter into a certain agreement
and contract. On the following day, June 27, 1941,
the authorized shares of stock were issued as directed,
and paid for at the price stipulated; and the authorized
agreement and contract entered into and signed by
the parties thereto. No other business operations, for
which the corporation was organized, were carried on
by the corporation prior to July 1, 1941. It is held
that upon these facts and the applicable provisions
of the taxing act (Sections 1200 and 1202, Internal
Revenue Code, as amended by Section 301 (a), Revenue
Act of 1941) which imposed a special excise tax on the
right or privilege of carrying on or doing business in
corporate form, and under the applicable Treasury
Regulations, the making of the agreement and the
execution of the contract of June 27, 1941, constituted
the carrying on or doing business prior to July 1, 1941,
and the plaintiff is not entitled to recover on its first
cause of action in the instant case. North American

Aviation, Inc., 69.
X. (2) The phrase "doing business" is a comprehensive term and,

in particular, embraces any business activity as
that term is generally and ordinarily understood by

107 C. CLS.


the layman. Flint v. Stone Tracy Company, 220 U. S.
107. The exercise of business judgment in relation to
matters and activities for the carrying out of which the
corporation was organized has been held to be a busi-
ness activity sufficient to constitute doing business
within the meaning of the statute. Section Seven Cor.
poration v. Anglim, 136 Fed. (20) 155; Kettleman Hills
Royalty Syndicate No. 1 v. Commissioner of Internal
Revenue, 116 Fed. (20) 382. The entering into con-
tracts pursuant to a charter power before the corpora-
tion began the actual operation of the business was held
sufficient to sustain the excise tax with respect to the
carrying on or doing business. Cargill, Inc. v. United
States, 46 Fed. Supp. 712; Associated Furniture Corpo-
ration v. United States, 70 C. Cls. 517. See also Magru-

der v. W. B. & A. Realty Corporation, 316 U. S. 69. Id.
XI. (3) Treasury Regulations 64, in effect on June 30, 1941, re

lating to the special excise tax with respect to the
carrying on or doing business, are reasonable and prop
erly interpret and apply the special excise tax

provisions of the statute. (55 Stat. 687, 703.) Id.
XII. (4) A contract was entered into, on June 27, 1941, by the

United States on the one hand and by the plaintiff and
the General Motors Corporation, the principal subcon-
tractor, on the other hand, for the manufacture of cer-
tain specified airplanes ; the contract providing that in
addition to the cost of performance as defined therein
the plaintiff should be paid a fixed fee based on a per-
centage of the estimated cost. The sole business in
which plaintiff was engaged in 1941 was the prepara-
tion and the actual performance in part of the contract
of June 27, which contained certain provisions for re-
imbursement to plaintiff of the cost of performance
and in addition incorporated the then applicable regu-
lations and decisions of the Treasury Department,
which provided that excise taxes with respect to the
carrying on or doing business were held to be reim-
bursable items of cost of performance of cost-plus con-
tracts. The contract in suit further provided that cer-
tain other specified Federal and State taxes should not
be included as reimbursable items. Under the second
or alternative cause of action in the instant case it is
held that the plaintiff is entitled to recover the excise
tax paid, as a proper reimbursable item of cost in-
curred and paid for and incident to the performance of
the cost-plus-a-fixed-fee contract of June 27, 1941.
107 C. Cls.


Flint v. Stone Tracy Co., 220 U. S. 107; Wm. Cramp de
Sons Ship & Engine Building Co. v. United States,

72 C. Cls. 146. Id.
XIII. (5) Excise taxes such as are involved in the instant case,

frequently referred to as franchise or privilege taxes,
are recognized and uniformly treated, under Treasury
rulings and well established principles of accounting,
as an expense of doing business and as an allowable

item of cost of performing a contract. Id.
XIV. (6) The taxing statute and the contract in suit authorized

and permitted the plaintiff to declare the value of its
capital stock for all purposes and the amount of capital
stock tax reimbursable had no effect upon plaintiff's

fixed fee thereunder. Id.

See Employee, Discharge of, I, II,

See Contracts XXXI, XXXII.

I. Motor vehicles designed and constructed in accordance

with specifications for military use and designated in
the requisition made by the Republic of China upon the
Government of the United States, under the Lend-Lease
arrangement, as for “Army use"; were for military
and not for civil use within the meaning of the Trans-
portation Act of 1940. (54 Stat. 898, 954). Southern

Pacific Company, 167.
II. Furnishing of military equipment for the use of the Re-

public of China Army, under the Lend-Lease program,
was a sovereign act based on military considerations,
and where the same object, the defense of the United
States, could be obtained by supplying the Chinese
Army with military equipment as by supplying it to
the United States Army, at home, there is no dis-
tinction to be made in the nature of the transportation

under the land-grant acts. Id.
III. The terms “civil” and “military" as used in the Trans-

portation Act are mutually exclusive. Id.
IV, Under the provisions of the Transportation Act of 1940

(54 Stat. 898) making certain requirements for putting
into effect full nonland grant rates on Government
mail in accordance with rates set by the Interstate
Commerce Commission as reasonable without regard
to land-grant aid, it was provided that such rates
should not apply to any carrier applying therefor
107 C. Cls.


“until such carrier shall file with the Secretary of the
Interior, in the form and manner prescribed by him,
a release of any claim it may have against the United
States" in connection with the land grants. Releases
filed by the plaintiff on December 6, 1940, and on
December 11, 1940, did not comply with the regulations
theretofore promulgated by the Secretary. On Decem-
ber 28, 1940, the Secretary waived the prior regulations
and approved the releases, and it is accordingly held
that valid releases conforming to the statutory re-
quirements were not filed before December 28, 1940,
and plaintiff is not entitled to recover for services
rendered either for the period from December 6, 1940,
to December 27, 1940, inclusive, or from December 11,
1940, to December 27, 1940, inclusive, Southern

Pacific Company (No. 46018), 513.
V. The forced migration of persons of Japanese ancestry

from Pacific coast areas to War Relocation Centers
during the war with Japan originated in what the
military authorities considered a military necessity;
the military effort extended to the Relocation Centers;
the military aspect was not altered after the evacuees
were relocated; and the use of civilian agencies to
care for these people did not make the military neces-
sity something other than what it was from the
beginning to the end. Southern Pacific Company, No.

(46236), 525.
VI. The provision of food and shelter and other necessities

of life for the evacuees in War Relocation Centers, as
well as the measures undertaken for their protection
and for guarding them, were in accordance with the
policy of the United States in conducting civilized war-

fare on as high a scale as possible. Id.
VII. The shipments to the War Relocation Centers of non-

combat supplies for the use and benefit of the evacuees,
which shipments afford the basis of the instant suit,
were military property of the United States, moving
for military and not for civil use within the meaning
of Section 321 (a) of the Transportation Act of 1940,

and plaintiff is not entitled to recover.

See Taxes XI.

See Indian Claims I, II, III, IV, V.

See Contracts III.


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