The opinion of the court was delivered by: MODARELLI
These actions are claims for refunds of corporate taxes. In an order by this court dated May 18, 1954, Barber Oil Corporation, etc. v. Manning, etc., Civil 129-53, was consolidated for trial with Barber Oil Corporation, etc. v. Manning, etc., Civil 692-53; it was also ordered that the initial determination by this court would be on two questions of law: (1) Whether plaintiff's unadjusted basis for the property interests in Venezuela sold by it on July 11, 1946, is the fair market value of the property exchanged for such interests on July 12, 1923, (reduced by the cash received by plaintiff in the July 12, 1923 transaction); and (2) the issue relating to plaintiff's basis for depreciation on the vessel SS Caribbean. The parties have filed a stipulation of facts and a supplement thereto. There has been oral argument and briefs have been submitted.
Plaintiff is a Delaware corporation, with its principal place of business in New York City. Plaintiff was the surviving corporation from the merger on April 30, 1947, of Barber Asphalt Corporation, a New Jersey corporation, into its wholly owned subsidiary, Brighton Corporation, a Delaware corporation.
On or about May 5, 1944, plaintiff as common parent corporation of an affiliated group of corporations, timely filed with defendant Manning its consolidated corporation income tax return for the taxable year 1943. Plaintiff paid $ 683,460.54, the amount of tax shown to be due on its return. Pursuant to a deficiency assessment, plaintiff made additional payments for the taxable year 1943 in the amount of $ 116,506.34, plus $ 25,316.99 interest. Of the principal amount paid, $ 197,697.05 was refunded to plaintiff by the United States Maritime Commission on July 22, 1949, pursuant to the provisions of the Merchant Ship Sales Act of 1946, 50 U.S.C.A.Appendix § 1742, relating to the adjustment of price on the sale of merchant ships by the Maritime Commission to United States citizens and requiring certain tax adjustments.
On or about May 11, 1945, plaintiff timely filed with defendant Manning its consolidated corporation income tax return for the taxable year 1944. Pursuant to that return plaintiff paid $ 929,541.72, plus $ 22.25 interest; $ 92,892.23 was refunded to plaintiff by the United States Maritime Commission on July 22, 1949, for the above -mentioned reason; also $ 7,094.66 was credited by the Commissioner in 1948 against plaintiff's liability for taxes of other years.
On or about May 8, 1947, plaintiff timely filed with defendant Manning its consolidated corporation income tax return for the taxable year 1946 and paid a tax of $ 6,398,482.82. On July 22, 1949, plaintiff paid to the Maritime Commission additional income tax for the taxable year 1946 in the amount of $ 135,310.36 pursuant to the provisions of the Merchant Ship Sales Act; that payment and the above-mentioned payments by the Maritime Commission to the plaintiff were effected by credits and debits against balances due from and to plaintiff by the Commission on the purchase price of a certain vessel purchased by plaintiff from the Commission. Plaintiff paid to defendant Lambert additional income tax for the taxable year 1946 in the amount of $ 28,551.45, with interest in the amount of $ 9,782.59 pursuant to a deficiency assessment dated February 11, 1953.
Plaintiff filed with defendants timely and sufficient claims for refunds of corporation income tax for the years 1943, 1944, and 1946. The Commissioner of Internal Revenue disallowed in full certain of those claims. Thereafter plaintiff commenced these actions.
(1) The Venezuelan Oil Royalty Issue
In 1912, Valladares at the direction of plaintiff assigned the concession to The Caribbean Petroleum Company, a wholly owned subsidiary of plaintiff. The authorized capital stock of Caribbean was $ 1,000,000 divided into 10,000 shares of $ 100 each. At the time of the assignment, there were 7,500 shares of Caribbean issued and outstanding, all of which belonged to plaintiff. At or about the same time, plaintiff obtained an option to acquire a 75% interest in the Vigas Concession covering the right to explore for and exploit all petroleum discovered in certain other areas in Venezuela.
On January 17, 1913, plaintiff contracted with The Anglo-Saxon Petroleum Company, Ltd. The contract provided, in part, that Anglo-Saxon was to form a company named The Burlington Investment Company, Ltd., which was to have a capital of 1,000,000 pounds divided into 500,000 Preference Shares of one pound each and 500,000 Ordinary Shares of one pound each. Burlington was to purchase from plaintiff all of the 7,500 outstanding shares of Caribbean and plaintiff was to transfer to Burlington its Vigas option. The consideration to the plaintiff was French francs equivalent to $ 750,000; reimbursement of plaintiff's expenses in connection with the Valladares Concession and the Vigas Concession from July 31, 1912, to the date of delivery to Burlington of the Caribbean stock; 500,000 pounds to be satisfied by the allotment to plaintiff or its nominees of all the Ordinary Shares of Burlington credited as fully paid. Further, plaintiff was to provide Caribbean with sufficient cash to enable Caribbean to discharge its debt existing at the time of the transfer of its shares to Burlington. Any cash in excess of the amount required for this purpose was to be repaid to plaintiff. Finally, in consideration for turning over 250,000 Ordinary Shares of Burlington stock to Anglo-Saxon plaintiff was to receive (and later did receive) the sole right of exploiting asphalt within the limits of the Valladares Concession. Caribbean was to agree (and later did agree) not to sell knowingly any of its crude oil or products for street or road making purposes except to the plaintiff.
Burlington subsequently formed Colon Development Company, Ltd., to exercise plaintiff's Vigas option; upon exercising the option Colon issued 75% of its stock to Burlington.
From 1913 to 1923, Anglo-Saxon, Burlington, and plaintiff each made certain loans to Caribbean. These loans were subsequently, but prior to 1923, converted into capital stock of Caribbean. As a result by 1923 plaintiff, Anglo-Saxon, and Burlington were all shareholders of Caribbean. Plaintiff also hold minority interests in other companies organized by Anglo-Saxon.
On July 12, 1923, plaintiff (and its wholly owned subsidiary, The Barber Asphalt Company) held the following interests in Burlington, Caribbean, and other companies organized by Anglo-Saxon: 248,255 Ordinary Shares of stock of Burlington; $ 4,604,177.92 par value of stock of Caribbean; $ 6,250 par value of stock of Petroleum Utensils ...