Appeal of Cleveland & Mahoning Valley Railway Co.

4 B.T.A. 1040

• Court: United States Board of Tax Appeals
• Decided: September 25, 1926
• Docket: Docket No. 3692
• Status: Published

Opinion

OPINION.

Akundell :

The petitioner seeks affiliation with the Erie Railroad Co., not on the basis of stock ownership, but on the grounds (1) that the Erie Railroad Co. controls through closely affiliated interests, or by a nominee or nominees, substantially all of the petitioner’s stock, and (2) that substantially all of the stock of the petitioner is controlled by the same interests, namely, the Erie Railroad Co.

The Erie Railroad owns all the stock of the Nypano Railroad, and the Nypano controls by means of a long-term lease all the property, excepting the franchise, of the petitioner. The Erie owns none of the petitioner’s stock and the stockholders of the petitioner are different from those of the Erie and the Nypano.

We are not asked to determine whether there was a statutory affiliation between the Erie and Nypano companies. Assuming however for the purpose of discussion, that these two companies were affiliated, their control or the control of either of them over the property of the petitioner by virtue of the lease alone would not result in affiliation with the petitioner. Appeals of Old Colony Railroad Co., 1 B. T. A. 1067; Norwich & Worcester Railroad Co., 2 B. T. A. 215; Tunnel Railroad of St. Louis, 4 B. T. A. 596.

The petitioner says that control, within the meaning of the statute, is in the hands of the Erie Railroad by reason of the terms of the lease which impose limitations on its invested capital, its issuance of stock, its income, its expenditures for improvements, and its power of dissolution. These limitations on the acts of the petitioner perhaps do place a great measure of control over the petitioner in the hands of the Erie Railroad, but such control at most is a control over the property and business of the petitioner and does not constitute control of the stock. It is apparent that under the terms of the lease the petitioner is limited in the scope of its actions and it follows that to the extent of such limitation the stockholders are divested of the control which is ordinarily in the hands of the stockholders. Such control, however, is but a partial control and in our opinion does not meet the requirements of the statute. It will be noted that the words “ controls ” and “ controlled ” as used in section 240(b) of the Revenue Act of 1918 are not in any manner limited or qualified. In the absence of any qualification these words must be taken to mean full and complete control.

The petitioner alleges that the notice of deficiency from which it appeals constitutes a reversal of the holding of a former Commissioner on the question of affiliation and contends that one Commissioner is without authority to reverse the decision of his predecessor in office. The Commissioner in his answer to the petition filed denies that the petitioner and the Erie Railroad Co. were formerly held to be affiliated. No proof on this issue was offered by the petitioner and in view of the Commissioner’s denial we have no facts before us upon which to base a decision.

The petitioner also failed to offer any evidence in support of its claim for the computation of tax under section 328 of the Revenue Act of 1918, and we must accordingly approve the action of the Commissioner in this respect.

Judgment for the Commissioner.

SterNi-iageN dissents.