The opinion of the court was delivered by: FORMAN
This is a suit for the recovery of $4,868.85 representing capital stock taxes and interest paid by plaintiff for the year ending June 30, 1940.
Plaintiff was incorporated under the laws of the State of Delaware in the year 1925 for the purpose of conducting a general steamship business. Its charter also granted it power to effect a wide range of other objectives.
In 1937 plaintiff was engaged in the operation of the S. S. Mandalay as a summer excursion boat. In May of 1938, shortly after it had resumed its summer excursion business, the S. S. Mandalay sank in New York harbor as a result of a collision. In June, 1938, plaintiff recovered some $475,000 representing part of the insurance covering its loss of the vessel and the balance of its insurance claim was paid to it in 1942.
Plaintiff did not resume the operation of the excursion business but organized its wholly owned subsidiary known as Mandalay Line, Inc., which in turn purchased a vessel and engaged in such business. Plaintiff filed a corporation capital stock tax return for the taxable period ended June 30, 1940, in which the adjusted declared value of its capital stock was set forth as $4,324,458.77. It claimed an exemption from the tax on the ground that the corporation was not doing business during the taxable period involved. The exemption was rejected by the Commissioner of Internal Revenue and plaintiff thereupon paid to the defendant as Collector of Internal Revenue $4,756.40 as capital stock tax and $112.45 interest, making a total of $4,868.85, for which plaintiff claimed a refund which was likewise rejected by the Commissioner of Internal Revenue.
Thereupon, plaintiff brought this suit and upon the trial the parties agreed to practically all of the facts as set forth in a written stipulation of facts filed herein.
The authority for the tax is found in § 1200 of Chapter 6 of the Internal Revenue Code as follows: "(a) Domestic corporations. For each year ending June 30, beginning with the year ending June 30, 1939, there shall be imposed upon every domestic corporation with respect to carrying on or doing business for any part of such year an excise tax of $1 for each $1,000 of the adjusted declared value of its capital stock." 26 U.S.C.A. Int.Rev.Code, § 1200.
This was amended by the addition of the following section of the Revenue Act of 1940: "(c) Defense tax for five years. -- For the year ending june 30, 1940, and for the four succeeding years ending June 30, the rates provided in subsections (a) and (b) shall be $1.10 in lieu of $1." 26 U.S.C.A. Internal Revenue Acts, First Revenue Act of 1940, § 205.
The question to be decided is whether or not the plaintiff was "carrying on or doing business" within the meaning of the statute for the taxable period ending June 30, 1940.
It is conceded that after the sinking of the vessel "Mandalay" in 1938 the plaintiff did not engage in the excursion business. However, by specific resolution of its Board of Directors, plaintiff, on May 8, 1939, authorized its officers to "take steps to incorporate a subsidiary company under the General Corporation Act of the State of New York, to be known as Mandalay Line, Inc., with an authorized capital stock of $200,000.00, * * to subscribe and pay for 600 shares of that company when organized, of a par value of $100.00 each for the aggregate sum of $60,000.00; to vote same in favor of a plan to purchase the S. S. Bear Mountain from the U.S. Marshal for the sum of $50,000.00, payable $12,500.00 in cash and the balance on a mortgage of the new company; * * *". This direction was carried out and plaintiff furnished the down payment of $12,500 for the vessel for which it took an equivalent amount of stock. In the same month a further advance of $12,500 was made to the subsidiary for the purpose of reconditioning the vessel and again stock was taken by the plaintiff. In June of the same year another advance of $25,000 was made for similar purposes and to acquire equipment. Later another advance of $10,000 was made so that the subsidiary could take up a mortgage note given at the time of its purchase of the vessel. In each instance stock was issued to the plaintiff to represent the amount of these advances.
From November of 1939 until June of 1941, thirteen advances were made by plaintiff to the subsidiary in sums ranging from $1,000 to $12,000, aggregating the sum of $47,000 to meet operating expenses and payment on account of the purchase price of the vessel. These were considered as loans to the subsidiary.
The identical persons who were plaintiff's officers were officers of the subsidiary and they drew substantial salaries from plaintiff for the years 1938, 1939 and 1940.
In August of 1939, plaintiff's Board of Directors authorized it to purchase a mortgage in the sum of $10,000 from its president. Other meetings of the Board were held from time to time.
It sold its furniture to its subsidiary and moved its principal office from New York to ...