HUNT, Circuit Judge
(after stating the facts as above). The main points urged by plaintiff in error are: That the Associated Pipe Line Company is not a corporation organized for profit; that it is not carrying on or doing business within the meaning of the Corporation Tax Law; that the plaintiff in error had no net income during the year 1909 and was entitled to deduct from its gross income interest paid by it.
[1] We cannot uphold the argument that the agreement between the companies had the effect of making the Associated Pipe Line Company merely “the agent of Associated Oil Company and Kern Trading & Oil Company * * * as a convenient instrument for the construction, maintenance, and operation of pipe lines for the joint use of its owners,” neither of which requires them for their entire length for the transportation of oil from oil fields. Corporate organ! [803]*803zation was to acquire, own, maintain, and operate pipe lines to transport oil within California, and the activities of the corporation harmonized with the avowed purposes of its creation. It had a large business of transporting oil through pipe lines; it paid the Kern Company for a line that had been constructed from Volcan to Delano; it constructed and operated a pipe line from Delano to Port Costa, the payment for which work was advanced by the Kern Company as the moneys were required. The advances, amounting to nearly $5,000,000, were credited to the Kern Company as cash on the books of the Associated Pipe Dine Company, although not against its stock subscription. Subsequently an entry was made as of December 31, 1911, transferring the advances on the books of the company to the capital stock account.
The plaintiff in error also constructed another pipe line from Mari-copa to Port Costa, commenced in October, 1908, and operated the line in the early part of 1910. That advances made in connection with the construction of these pipe lines were made in equal proportion by the Kern and the Associated Oil Companies is not of special moment, beyond the fact that on advances made by the two companies the interest charge, over which this controversy has arisen, accrued. It seems that each company was allowed interest from the date it made its advances up to the time of the adjustment of the respective advances. It is explained that when the return of annual net income for 1909, showing $149,352 interest on open accounts, was made, this was interest accruing on the amount advanced by the Kern Company for the line which was then in operation, while for the advances which had been made by the Associated Oil Company no interest was allowed in 1909 and none charged until the line was in operation. However the pipe line company carried, on its books, accounts for the Associated Oil Company and the Kern Company in .which they were credited with-their cash advances as they were made from time to time, and no entry was made in the books with regard to payment for the capital stock of $7,000,000 until December 31, 1911, at which date both lines had been constructed.
The secretary and auditor of the Associated Pipe Dine Company testified that the motive for making the interest charge of $149,352 was to equalize the investment in the pipe line, the two companies being entitled to 50 per cent, usage each, and he described the Associated Pipe Dine Company books as only “a clearing account,” and the entry as “a mere matter of adjustment between the two owning companies tc equalize the use of the capital investment,” and said that the present practice was for the companies to make adjustments between themselves, and that, if the Associated Oil Company had used the pipe line 55 per cent, and the Southern Pacific 45 per cent., then the Associated Oil Company paid to that company its percentage on the 5 per cent, that it had used its line.
The return made by the Associated Pipe Dine Company was as by a corporation organized for profit, and the return showed that it had accumulated money. It is hard to conceive that the formation of the corporation was had with a view other than the realization of profit. [804]*804It may be that the stockholders in the Associated Pipe Line Company took the profit away from the corporation, but it is clear that the way in which the money was made was by a corporate organization; and the corporation, having achieved the object of its creation, became subject to the imposition of the tax with respect to doing business. In Von Baumbach v. Sargent Land Co., 242 U. S. 503, 37 Sup. Ct. 201, 61 L. Ed. 460, a corporation was created “to unite in one ownership the undivided fractional interests of its various stockholders in lands,” and to “own such property, and, for the convenience of its stockholders, to receive, and distribute to them,” the proceeds of the disposition of such property at such times and in such amounts and in such a manner as determined by the board of directors. The Supreme Court found no difficulty in concluding that such a corporation was organized for profit and did not come within the exceptional character of charitable or eleemosynary' corporations, and the court after examining the earlier corporation tax cases, held that the corporation was carrying on business and said:
“Tile fair test to be derived from a consideration of all of them [the cases] is between a corporation wbicb bas reduced its activities to the owning and holding of property and the distribution of its avails and doing only the acts necessary to continue that status, and one which is still active and is maintaining its organization for the purpose of continued efforts in the pursuit of profit and gain, and such activities as are essential to those purposes.”
The court emphasized the view that the Corporation Tax Law requires no particular amount of business in order to bring a company within its terms. The activities considered brought the corporation there in question within that line of the decisions which have held that such corporations were doing business in a corporate capacity within the meaning of the law. McCoach v. Mine Hill R. R. Co., 228 U. S. 295, 33 Sup. Ct. 419, 57 L. Ed. 842, illustrates the distinction. There a railroad corporation turned over.its entire property under a lease to another company, and even ceased to exercise its power of eminent domain. It was held not to be engaged in business. The Associated Pipe Line Company appears, to have been active, and to be maintaining its organization for the purposes for which it was created; it has expended and received money, has borrowed money, has constructed pipe lines, has allowed itself to be charged interest, .has had dealings with its stock and stockholders concerning moneys received, and in 1909 was actually transporting oil and performing its corporate functions.
[2] We now inquire into net income during 1909. The company returned the total amount of paid-up capital stock outstanding at the close of year 1909 as “not adjusted,” and the total amount of bonded or other indebtedness as “not ádjusted,” and the gross income as $773,-774.81. It deducted the total amount of ordinary and necessary expenses, including interest charge, $674,232.23, and depreciation, $99,-542.58; total deductions, $773,774.81; “net income nil.” According to the findings, none of the capital stock of the corporation was paid until December 31, 1911.
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HUNT, Circuit Judge
(after stating the facts as above). The main points urged by plaintiff in error are: That the Associated Pipe Line Company is not a corporation organized for profit; that it is not carrying on or doing business within the meaning of the Corporation Tax Law; that the plaintiff in error had no net income during the year 1909 and was entitled to deduct from its gross income interest paid by it.
[1] We cannot uphold the argument that the agreement between the companies had the effect of making the Associated Pipe Line Company merely “the agent of Associated Oil Company and Kern Trading & Oil Company * * * as a convenient instrument for the construction, maintenance, and operation of pipe lines for the joint use of its owners,” neither of which requires them for their entire length for the transportation of oil from oil fields. Corporate organ! [803]*803zation was to acquire, own, maintain, and operate pipe lines to transport oil within California, and the activities of the corporation harmonized with the avowed purposes of its creation. It had a large business of transporting oil through pipe lines; it paid the Kern Company for a line that had been constructed from Volcan to Delano; it constructed and operated a pipe line from Delano to Port Costa, the payment for which work was advanced by the Kern Company as the moneys were required. The advances, amounting to nearly $5,000,000, were credited to the Kern Company as cash on the books of the Associated Pipe Dine Company, although not against its stock subscription. Subsequently an entry was made as of December 31, 1911, transferring the advances on the books of the company to the capital stock account.
The plaintiff in error also constructed another pipe line from Mari-copa to Port Costa, commenced in October, 1908, and operated the line in the early part of 1910. That advances made in connection with the construction of these pipe lines were made in equal proportion by the Kern and the Associated Oil Companies is not of special moment, beyond the fact that on advances made by the two companies the interest charge, over which this controversy has arisen, accrued. It seems that each company was allowed interest from the date it made its advances up to the time of the adjustment of the respective advances. It is explained that when the return of annual net income for 1909, showing $149,352 interest on open accounts, was made, this was interest accruing on the amount advanced by the Kern Company for the line which was then in operation, while for the advances which had been made by the Associated Oil Company no interest was allowed in 1909 and none charged until the line was in operation. However the pipe line company carried, on its books, accounts for the Associated Oil Company and the Kern Company in .which they were credited with-their cash advances as they were made from time to time, and no entry was made in the books with regard to payment for the capital stock of $7,000,000 until December 31, 1911, at which date both lines had been constructed.
The secretary and auditor of the Associated Pipe Dine Company testified that the motive for making the interest charge of $149,352 was to equalize the investment in the pipe line, the two companies being entitled to 50 per cent, usage each, and he described the Associated Pipe Dine Company books as only “a clearing account,” and the entry as “a mere matter of adjustment between the two owning companies tc equalize the use of the capital investment,” and said that the present practice was for the companies to make adjustments between themselves, and that, if the Associated Oil Company had used the pipe line 55 per cent, and the Southern Pacific 45 per cent., then the Associated Oil Company paid to that company its percentage on the 5 per cent, that it had used its line.
The return made by the Associated Pipe Dine Company was as by a corporation organized for profit, and the return showed that it had accumulated money. It is hard to conceive that the formation of the corporation was had with a view other than the realization of profit. [804]*804It may be that the stockholders in the Associated Pipe Line Company took the profit away from the corporation, but it is clear that the way in which the money was made was by a corporate organization; and the corporation, having achieved the object of its creation, became subject to the imposition of the tax with respect to doing business. In Von Baumbach v. Sargent Land Co., 242 U. S. 503, 37 Sup. Ct. 201, 61 L. Ed. 460, a corporation was created “to unite in one ownership the undivided fractional interests of its various stockholders in lands,” and to “own such property, and, for the convenience of its stockholders, to receive, and distribute to them,” the proceeds of the disposition of such property at such times and in such amounts and in such a manner as determined by the board of directors. The Supreme Court found no difficulty in concluding that such a corporation was organized for profit and did not come within the exceptional character of charitable or eleemosynary' corporations, and the court after examining the earlier corporation tax cases, held that the corporation was carrying on business and said:
“Tile fair test to be derived from a consideration of all of them [the cases] is between a corporation wbicb bas reduced its activities to the owning and holding of property and the distribution of its avails and doing only the acts necessary to continue that status, and one which is still active and is maintaining its organization for the purpose of continued efforts in the pursuit of profit and gain, and such activities as are essential to those purposes.”
The court emphasized the view that the Corporation Tax Law requires no particular amount of business in order to bring a company within its terms. The activities considered brought the corporation there in question within that line of the decisions which have held that such corporations were doing business in a corporate capacity within the meaning of the law. McCoach v. Mine Hill R. R. Co., 228 U. S. 295, 33 Sup. Ct. 419, 57 L. Ed. 842, illustrates the distinction. There a railroad corporation turned over.its entire property under a lease to another company, and even ceased to exercise its power of eminent domain. It was held not to be engaged in business. The Associated Pipe Line Company appears, to have been active, and to be maintaining its organization for the purposes for which it was created; it has expended and received money, has borrowed money, has constructed pipe lines, has allowed itself to be charged interest, .has had dealings with its stock and stockholders concerning moneys received, and in 1909 was actually transporting oil and performing its corporate functions.
[2] We now inquire into net income during 1909. The company returned the total amount of paid-up capital stock outstanding at the close of year 1909 as “not adjusted,” and the total amount of bonded or other indebtedness as “not ádjusted,” and the gross income as $773,-774.81. It deducted the total amount of ordinary and necessary expenses, including interest charge, $674,232.23, and depreciation, $99,-542.58; total deductions, $773,774.81; “net income nil.” According to the findings, none of the capital stock of the corporation was paid until December 31, 1911. If we accept this finding as true, clearly the plaintiff in error in 1909 had no paid-up capital stock and was therefore [805]*805not in a position to include the interest charge in arriving at what its net income was.
It is argued that, although the moneys were not entered in the capital stock account on the pipe line company books until December, 1911, the fact was there was no net income by way of interest on advances because such advances were not made by plaintiff in error and the interest was not earned by or payable to the pipe line company, and that the pipe line company was merely the conduit through which the Associated Oil Company paid the Kern Company the interest on the advances by the Kern Company. We gather the contention to be that the fact was that when the pipe line company was created the Kern Company transferred to it the then-existing pipe line from Volcan to Delano, and agreed to advance the cost of constructing the extension from Delano to Port Costa, and that this was the consideration for the issuance of the stock of the pipe line company to the Associated and the Kern Companies; that construction was commenced in 1907 and the line operated in 1908; that up to December 31, 1909, the advances for cost of the line from Volcan to Delano, and of the extension from Delano to Port Costa, amounted to about $5,000,000 upon which interest for 1909 was $149,352; and that stock of the par value of this amount had therefore been paid for up to December 31, 1909.
But this reasoning seems to lead to the conclusion that the advances that were made were in payment of capital stock, and, if such is the correct view, there was a sale of stock and no indebtedness.
The plainer view seems to be that there was an indebtedness on account of advances, but that there was no paid-up capital stock at the time of the return, and therefore that, as a matter of law, no interest could be deducted.
[3] An income tax agent in the Internal Revenue Department testified, over the objection of the plaintiff in error, that in 1915, when he investigated the books of the pipe line company, he had a conversation with the auditor of the plaintiff in error, and that the auditor then stated to him that the capital stock of the corporation had not been paid up to December 31, 1909, when the tax in question was assessed, and that the matter had not been adjusted. The objection was based upon the ground that any statement by the auditor, unless authorized by the corporation through its board of directors, would not be binding upon the company.
We think that the ruling of the court was correct. Lane v. Boston & Albany R. R., 112 Mass. 463; Lynchburg Tel. Co. v. Booker, 103 Va. 594, 50 S. E. 148.
The judgment is affirmed.