[786]*786MARIS, Circuit Judge.
This is a petition to review a decision of the Board of Tax Appeals wherein the Board adjudged Budd International Corporation liable for deficiencies in its income and undistributed profits taxes for the years 1936 and 1937. The facts are stated in detail in the opinion of the Board of Tax Appeals, 45 B.T.A. 737. We set out herein only such of the facts as are necessary for an understanding of the issues raised by the petition.
The taxpayer was incorporated in 1930. By a series of exchanges more fully described later in this opinion the Edward G. Budd Manufacturing Company and J. Henry Schroder & Co., an English banking house, became the owners of all its outstanding shares of preferred and common stock, the Manufacturing Company acquiring a majority of the common and Schroder & Co. a majority of the preferred. In 1935 the taxpayer was called upon by the Manufacturing Company to procure some funds for it. The taxpayer owned shares of Pressed Steel Company of Great Britain, Limited, which had an immediate sales value. These shares were sold in February, 1936. The common shares were purchased by Schroder & Co. and the British Pacific Trust, Ltd. for $5,601,315.54 and the preference shares by Schroder & Co. for $503,303.93. Schroder & Co., which acted as the taxpayer’s banker in this transaction, credited the taxpayer’s account with $6,105,619.47. The taxpayer applied $3,908,604 of this credit to redeem its preferred shares owned by Schroder & Co. and to pay the dividends accrued on those shares. Schroder & Co. deducted $252,789.71 as its charge for expenses of the sale and gave the taxpayer credit for the remaining $1,922,386.34. The taxpayer applied these funds as follows:
Retirement of preferred stock owned by the Manufacturing Company and dividends thereon ................. $ 456,000.00
Reserve for federal and state taxes ................... 811,000.00
Dividends on common stock.. 654,858.00
Cash remaining in the taxpayer’s treasury ......... 528.34
Total .......... $1,922,386.34
The first question presented by the petition for review is whether the taxpayer in calculating its undistributed profits tax is entitled to the credits allowed by Subsection (c) (1) of Section 26 of the Revenue Act of 1936, 26 U.S.C.A. Int.Rev.Acts, page 836, and by Subsection (g) which was added to Section 26 by Section 501 (a) (3) of the Revenue Act of 1942, 26 U.S.C.A. Int.Rev.Acts.
Subsection (c) (1) of Section 26 of the Revenue Act of 1936 permits a corporation which is subject to the surtax imposed upon corporate undistributed profits by Section 14 of that act, 26 U.S.C.A. Int. Rev.Acts, page 823, to compute its undistributed net income by taking credit for so much thereof as it is prohibited from paying to its stockholders in the form of dividends by “a provision of a written contract executed by the corporation prior to May 1, 1936, which provision expressly deals with the payment of dividends.” Before the Board of Tax Appeals the taxpayer argued that such a written contract prohibiting the payment of dividends to the holders of the common stock was embodied in its amended articles of incorporation and was set forth in the preferred stock certificates. The Board disposed of this argument by ruling that neither charter nor stock certificate could satisfy the statutory requirement of a written contract. This ruling is contrary to our decision in Lehigh Structural S. Co. v. Commissioner, 3 Cir., 1942, 127 F.2d 67, where the sole question was whether a stock certificate could be a contract within the meaning of Section 26 (c) (1) of the Revenue Act of 1936. We held that it could be.1
It was undisputed in the Lehigh Structural Steel Co. case that the charter and certificates were executed by the taxpayer in writing prior to May 1, 1936, and that the payment of dividends to the holders of the common stock was expressly prohibited until a certain portion of the taxpayer’s net income had been paid into a preferred sinking fund. We held that the requirements of Section 26 (c) (1) were fully met and that the taxpayer was entitled to the claimed credit in computing its undistributed net income. In the present case it is undisputed that the amended articles of incorporation and the preferred stock certificates which included certain provisions of the amended articles were executed prior to May 1, 1936. There is, however, a controversy as to whether the provisions of the amended articles and [787]*787preferred stock certificates are such as to be a direct prohibition against the payment by the taxpayer of dividends to the holders of the common stock.
Insofar as pertinent the amended articles of incorporation and preferred stock certificates provide that until all the preferred stock shall have been retired the taxpayer shall set aside as a sinking fund out of any earned surplus or net profits remaining after payment of dividends on the preferred stock a sum sufficient to purchase preferred stock equal to 3% of the largest number of shares of preferred ever issued and outstanding at any one time. It is then provided that “In no event so long as any of the preferred stock shall be outstanding shall any dividend whatever be paid or declared or any distribution made upon the common stock * * * until * * * full provision for the sinking fund, both current and accumulated, shall have been made.”
The amended articles of incorporation and preferred stock certificates thus do embody a contract prohibiting the taxpayer from paying dividends to the holders of the common stock until the taxpayer has paid into a sinking fund each year an amount equal to 3% of the preferred stock. It follows that to the extent of the sinking fund payment the taxpayer was entitled to a credit in computing its undistributed net income and that the Board erred insofar as it ruled that Section 26 (c) (1) of the Revenue Act of 1936 did not entitle the taxpayer to such a credit.
In this court the taxpayer also urges that by virtue of Subsection (g), which was added to Section 26 of the Revenue Act of 1936 by Section 501 (a) (3) of the Revenue Act of 1942, it is entitled to credit in an amount equal to the profits from the sale of its Pressed Steel shares which it distributed in redemption of its preferred stock. To the extent that this distribution in redemption of the preferred stock satisfied the taxpayer’s obligation to pay an amount equal to 3% of that stock into the sinking fund for its redemption, it was, as we have seen, allowable as a credit under Subsection (c) (1). The remainder of the distribution is allowable, if at all, only under Subsection (g). That subsection is by the express terms of Section 501(b) of the Revenue Act of 1942, 26 U.S.C.A. Int.Rev. Acts, made effective as of the date of the enactment of the Revenue Act of 1936. Subsection (g), however, was actually added to Section 26 after the decision by the Board in this case and consequently was not considered by the Board in arriving at its decision.
Section 26(g) provides:
“In the case of a corporation the following credits shall be allowed to the extent provided in the various sections imposing tax— * * *
“(g) Stock redemption credit. An amount equal to the portion of the recognized gain, realized within the taxable year and prior to March 3, 1936, from the sale or other disposition of a capital asset, which, pursuant to a contract, was distributed prior to such date to shareholders in redemption in whole or in part of preferred stock and which is not otherwise allowable as a credit under any other provision of this section or section 27.”
To entitle the taxpayer to the credit allowed by Subsection (g) the distribution of the gain from the sale of the capital asset in redemption of the preferred stock had to be made prior to March 3, 1936 and pursuant to a contract. It is undisputed that negotiations for the sale of the Pressed Steel shares began November, 1935, and that the sale was made in January, 1936, and consummated in February, 1936, when the proceeds were distributed. The requirement that the distribution be before March 3, 1936 was thus fully met.
Was the distribution of the proceeds from the sale of the Pressed Steel shares made “pursuant to a contract” within the meaning of this subsection? It is undisputed that there was no written contract embodied in a single document expressly providing for such a distribution. The Commissioner argues that such a contract is required. We cannot agree. In contrast to Subsection (c) (1) of Section 26 which requires a “written contract” containing a provision which “expressly deals with the payment of dividends”, Subsection (g) merely requires distribution “pursuant to a contract”. We do not think that the two provisions are so far in pari materia as to require that the language of the one shall be read into the other. Such was clearly not the intention of Congress in enacting Subsection (g) as appears from its legislative history.
The problem to which that subsection is directed was brought to the attention of Congress by representatives of this taxpayer. They pointed out the inequity [788]*788of imposing a fax by way of penalty upon a corporation for failure to distribute’ profits through dividends if there were no profits available for such distribution 'by reason of a transaction consummated before the enactment of the act.2 It is clear that Congress, when it added Subsection (g) to Section 26 by Section 501 (a) (3) of the Revenue Act of 1942, did so for the express purpose of providing relief from the undistributed profits tax for those corporations which in good faith had distributed all the profits from the sale of a capital asset to their preferred stockholders prior’to" the suggestion by the President in his message to Congress on March 3, 1936 that an undistributed profits tax be imposed upon undistributed corporate profits. It is equally clear that Congress had this taxpayer in mind as one of the corporations, if not the only corporation, ' which would be subjected to hardship unless some ameliorating legislation were enacted. We think that Subsection (g) must be construed as applicable to any distribution of the character described therein if made pursuant to- a binding agreement, even though that agreement is wholly or partly oral and even though, if written, it is not contained in a single instrument. . ■
The testimony of the men who negotiated the sale of' the Pressed Steel shares on behalf of the taxpayer, the.cablegrams and correspondence between the taxpayer and Schroder' & Co. and between Schroder & Co. and the Bank of England would indicate that 'it was an essential provision of Schroder & Co.’s agreement with the taxpayer for the purchase of the Pressed Steel shares that the taxpayer’s preferred stock held by Schroder & Co. be redeemed out of the proceeds of the sale. The Board found as a fact that “During the course of negotiations, Schroder insisted on the retirement of its shares of petitioner’s preferred as a condition of any trade with it”. 45 B.T.A. 743. The Board did not determine whether this condition actually became a part of the contract into which the negotiations culminated, since,at the time of its decision Subsection (g) had not been enacted. A finding that theré was a contract between the taxpayer'and Schroder & Co. providing that a portion of the gain from the sale of the Pressed Steel shares should be distributed in redemption of part or all of the taxpayer’s preferred stock is, however, a necessary basis for the allowance of the taxpayer’s claim for a credit under Subsection (g). The cause must, therefore, be remanded to the Tax Court, pursuant to the Commissioner’s - motion, for a finding as to this basic fact and an appropriate application of the law to the fact as found.
The Commissioner argues that even if it be conceded that such a contract existed it provided for the redemption of the preferred stock held by Schroder & Co. only and not for the redemption of the whole issue. Consequently, he says, the contract did not satisfy Subsection (g). Assuming the correctness of the premise, we see no merit in this point. The subsection refers to redemption of preferred stock “in whole or in part”. There is no basis for holding that the partial redemption mentioned in the subsection refers only to a pro rata payment to all stockholders and not to a full payment to less than all. The reason for the enactment of the subsection applies equally to either case.
The second question raised by the taxpayer’s petition is whether the gain from the sale of the Pressed Steel common shares should be based upon the cost of those shares to the taxpayer in 1930 or their cost in 1926 to the Manufacturing Company, which transferred them to the taxpayer in 1930. Before considering this question it is necessary to set out the facts regarding the acquisition by the taxpayer of, the Pressed Steel shares from the Manufacturing Company. The Manufacturing Company is a manufacturer of all-steel automobile bodies, the manufacture of which involves the utilization of numerous patents, special processes and a special shop technique for mass production. In 1926 as part of its campaign to exploit foreign markets the Manufacturing Company acting together with Schroder & Co., caused the incorporation of Pressed Steel Company of Great Britain, Limited, to manufacture and sell in Great Britain all-steel automobile bodies which utilized the Manufacturing Company’s patents, processes and shop technique. [789]*789Pressed Steel issued 64-% of its common shares to the Manufacturing Company and the remainder of the common shares to Schroder & Co. It was stipulated that the cost of the Pressed Steel common shares to the Manufacturing Company was $1,000,-000. In addition the Manufacturing Company subscribed to 1000 of the preference shares of Pressed Steel. It paid $344,458.-L01 on account, leaving 30% of the subscription price unpaid. The Manufacturing ■Company also purchased a majority of the common stock of Ambi-Budd Prcsswerk G. m.b.H., a German corporation which manufactured automobile bodies. Schroder & Co. also had an interest in that corporation. In order to provide a medium for the conduct of the Manufacturing Company’s foreign business and to supply funds needed by Ambi-Budd the Manufacturing Company, Schroder & Co., and the J. ITcnry' Schroder Banking Corporation of New York agreed in April, 1930 to incorporate the taxpayer. The taxpayer was incorporated in Delaware in August, 1930. In September, 1930, in accordance with the April agreement the Manufacturing Company transferred to the taxpayer all its common and preference shares of Pressed Steel, all its shares of common stock of Ambi-Budd, the royalties and other benefits to become due under the Manufacturing Company’s contracts with Citroen, Am-bi-Budd and Pressed Steel, and other miscellaneous assets in Europe. The Manufacturing Company promised to assign to the taxpayer licenses for the use of future patents and processes, to give advice and information on operation, to underwrite the taxpayer’s obligation to pay dividends on its preferred shares, and to subscribe and pay for additional shares should the taxpayer be called upon to pay (he remaining 30% of its subscription to the Pressed Steel preference shares. On its books the taxpayer entered the assets received by it from the Manufacturing Company at $4,650,000 itemized as follows:
7% Cumulative Participating Preference Shares of Pressed Steel Co., Ltd. (1000 shares of £100 par value each), less 30% uncalled; Ordinary Shares of Pressed Steel Co., Ltd. (38,-400 shares of £10 par value each) ................... $2,350,000.00
Common Capital Stock of Ambi-Budd Prcsswerk ... 500,000.00
Patents and Process Rights, Contracts and Goodwill as valued by Board of Directors as at date of acquisition $1,800,000.00
$4,650,000.00
The taxpayer issued 360,000 shares of common stock to the Manufacturing Company. It promised to pay to the Manufacturing Company $344,458.01 and to assume the Manufacturing Company’s obligation for the 30% balance due on its subscription to the Pressed Steel preference shares. Simultaneously and pursuant to the April and September agreements the Manufacturing Company subscribed for 76,572 preferred and 76,572 common shares of the taxpayer’s stock for $3,350,-025, and Schroder & Co., having previously agreed to take up 68,572 shares of each class, paid $3,000,025 to the Manufacturing Company which immediately paid this' amount, together with $350;000 to the taxpayer. Thereupon the taxpayer paid the Manufacturing Company $350,000 in accordance with its promise (the exact promise was to pay $344,458.01). The taxpayer then issued 76,572 preferred and 76,572 common shares to the Manufacturing Company, which simultaneously transferred 68,572 of each to Schroder & Co. After the consummation of these transactions the Manufacturing Company held 8,000 or 10.45% of the taxpayer’s preferred shares and 368,000 or 84.29% of its common shares. Schroder & Co. held the remainder, 68,572 preferred and an equal number of common.
Under these circumstances the taxpayer argues that the proper basis for calculating the gain from the sale of the Pressed Steel shares was their cost to the taxpayer in 1930; that the cost to the taxpayer should be measured by their then fair market value; and that their fair market value at that time was $3,500,000. The Board accepted, arguendo, the taxpayer’s contention that the proper basis was the cost of the shares to the taxpayer in 1930 but ruled against the taxpayer because it concluded that the evidence produced by the taxpayer did not establish that the market value of the shares was more than $1,000,000.
The Commissioner contends that Section 113 (a) (8) (A) of the Revenue Act of 1936, 26 U.S.C.A. Int.Rev.Acts, page 862, and Section 112 (b) (5) of the Revenue Act of 1928, 26 U.S.C.A. Tnt.Rcv.Ac'ts, [790]*790page 377,3 are applicable and that under their provisions the taxpayer must calculate its gain by using the cost of the shares to its transferor in 1926 as the proper cost basis.
Section 113 (a) (8) (A) of the Revenue Act of 19364 provides that where a corporation has acquired property by the issuance of its stock or securities in a transaction described in Section 112 (b) (5) of the act the basis is the same as it would be in the hands of the transferor. Section 112 (b) describes certain types of exchanges in which no gain or loss is recognized for tax purposes. One such type of exchange described in paragraph (5) of the subsection 5 is where a person transfers property to a corporation solely in exchange for stock or securities in such corporation and immediately after the exchange is in control of the corporation. The Commissioner says that this is exactly what took place in 1930. According to his view of the facts the Manufacturing Company transferred property to the taxpayer (this property including, inter alia, Pressed Steel common shares and $3,350,-025 in cash) and received in exchange all the outstanding shares of common and preferred stock of the taxpayer. The Manufacturing Company, he contends, was thus in control of the taxpayer immediately after the exchange. This exchange, according to the Commissioner, was a separate and distinct transaction from another exchange which took place simultaneously and in accordance with the April, 1930 agreement between the Manufacturing Company and Schroder & Co. In that exchange Schroder & Co., having subscribed to 68,572 each of the taxpayer’s preferred and common shares, paid $3,000,025 to the Manufacturing Company and the Manufacturing Company immediately transferred those shares to Schroder & Co.
Although there was a lapse of time between the issuance of the taxpayer’s-, shares and their receipt by Schroder & Co. and although they were not transferred directly to Schroder & Co. but through the Manufacturing Company, the-lapse of time was insignificant and the Manufacturing Company was but a conduit. The entire operation was in accordance with a prearranged plan. The separate transfers were but component steps of a single transaction. It is well settled that for income tax purposes such a transaction should be viewed as a whole. Diescher v. Commissioner of Internal Revenue, 3 Cir., 1940, 110 F.2d 90, 91; Hazeltine Corporation v. Commissioner of Internal Revenue, 3 Cir., 1937, 89 F.2d 513, 518; Bassick v. Commissioner of Internal Revenue, 2 Cir., 1936, 85 F.2d 8, 10; Halliburton v. Commissioner of Internal Revenue, 9 Cir., 1935, 78 F.2d 265, 267. If the 1930 transaction is viewed in that manner we see-that what took place was that two parties,, the Manufacturing Company and Schroder [791]*791& Co., transferred their properties to the taxpayer and received its stock in exchange.
The concluding clause of Section 112 (b) (5) states that where the exchange is for property received from two or more persons the provision that no gain or loss shall be recognized is applicable “only if the amount of the stock and securities received by each is substantially in proportion to his interest in the property prior to the exchange.” The taxpayer contends that the amount of stock received by the Manufacturing Company and Schroder & Co., respectively, was not in proportion to the interest of each in the property prior to the exchange and that Section 112 (b) (5) is therefore inapplicable. According to the taxpayer the Manufacturing Company transferred properly worth $4,650,000 and received stock worth $3,508,107.20, whereas Schroder & Co. transferred property worth $3,000,025 and received stock worth $4,141,917.80. Translated into percentages the Manufacturing Company contributed 61% of the property and received 46% of the stock and Schroder & Co. contributed 39% of the property and received 54% of the stock. If the method which the taxpayer used in arriving at the values stated was proper it must be con-eluded that a change in proportionate interests resulted from the exchange and that it is, therefore, not a transaction of the type described in Section 112 (b) (5).
The total value of the properties transferred by the Manufacturing Company and Schroder & Co. respectively was recorded on the books of the taxpayer at $7,650,025. To arrive at the Manufacturing Company’s property contribution the taxpayer deducted from this amount $3,-000,025 which had been paid by Schroder & Co. in cash. This left $4,650,000 as the Manufacturing Company’s contribution, The method used by the taxpayer to determine the value of the stock received by the Manufacturing Company and by Schroder & Co. was somewhat more complicated. The value of the stock which the taxpayer issued was recorded on its books at $7,450,025.6 The preferred stock was without par value. However, upon liquidation and before payment to the common stockholders the preferred stockholders were entitled to receive $52 per share. To arrive at the value for the common stock the taxpayer dedueted the total liquidating value of the preferred stock at $52 per share or $3,981,744 from the value of the property, It divided the remainder, $3,668,281 by 436,572, the total number of shares of common stock. This resulted in a value of $8-40t per share for the common stock, Fhe Manufacturing Company received 368,000 shares of common at $8.40+ per share or $3,092,107.20 and 8,000 shares of preferred at $52 per share or $416,000, a total for both classes of $3,508,107.20; Schroder & Co. received 68.572 shares of common at $8.40+ per share or $576,173.80 and 68,572 shares of preferred at $52 per share or $3,565,744, totalling for both classes $4,141,917.80. This procedure was used by the Board of Tax Appeals and approved in United Carbon Co. v. Commissioner of Internal Revenue, 4 Cir., 1937, 90 F.2d 43 and Commissioner of Internal Revenue v. Lincoln-Boyle Ice Co., 7 Cir., 1937, 93 F.2d 26, and we are satisfied that its use was appropriate here. We think the taxpayer has proved that the exchange resulted in a change in the proportionate interests of the Manufacturing Company and Schroder & Co. The 1930 exchange was, therefore, not a transaction of the type described in Section 112 (b) (5). It follows that Section 113 (a) (8) (A) was not applicable to it and that the proper cost basis of the Pressed Steel shares was their cost to the taxpayer rather than their earlier cost to its transferor,
The Commissioner contends, and the Board found, that the taxpayer has not established by the evidence that the cost to it °f the Pressed Steel shares in 1930 was greater than the cost to its transferor for the shares in 1926. As proof of the cost to the taxpayer of the Pressed Steel cornrnon shares in 1930 the taxpayer offered the testimony of four witnesses who gave their opinion as to the fair market value of those shares in that year. Mr. Sinclair, the chief fiscal officer of Pressed Steel throughout the period and Mr. Reed, the former treasurer of the Manufacturing Company, placed the fair market value at $3,500,000 and upwards; Mr. Coward and Mr. Fuller placed it at $2,000,000 and upwards. The cost to the taxpayer of the Pressed Steel shares was not their fair market value, however, but rather the fair market value of the stock of the taxpayer which it issued in exchange for them. It is true that it has been held that where all the capital stock of a newly formed cor[792]*792poration is issued for property and there is no other method of measuring the fair market value of the stock so issued its fáir market value on that date may be taken' to be the equivalent of the fair market value of the property received -in exchange for it. Hazeltine Corporation v. Commissioner of Int. Revenue, 3 Cir., 1937, 89 F. 2d 513.
Under the facts of the present case, however, this principle is of no aid in determining the cost "of the Pressed Steel common shares to the taxpayer. Let us assume for the purpose of discussion that the taxpayer has established that the fair market value of the Pressed Steel'common shares in 1930 was $3,500,000. Had the taxpayer issued its 360,000 shares solely in exchange for the Pressed Steel shares the principle would apply and it could properly be determined that the value of the 360,000 shares issued by the taxpayer for the Pressed Steel common shares and hence the cost to the taxpayer of the latter shares was $3,500,000. However,' when the taxpayer issued its' 360,000 shares it received in' exchange not only 'the 38,400 Pressed Steel common' shares but also Pressed Steel preference shares, shares of Ambi-Budd common.'stock and a heterogeneous collection of,other European assets of 'the Manufacturing Company, as well as' an agreement by the Manufacturing Company to perform future services in the operation of licenses, contracts and patent processes. Although the hook value, of some of these assets is recorded in the taxpayer’s books the fair market value of all the assets- on the day of transfer has. not been, and probably could not be, shown. Furthermore, even if we should ignore the value of the other assets acquired by the taxpayer, and assume that the 360,000 shares of ■ the taxpayer’s common stock were worth $3,500,000, the asserted value of the Pressed Steel common shares, so that each' share was worth $9.72+ we would still be unable to 'solve the problem here presented since we have no way of determining how many of the 360,000 shares were issued for the Pressed Steel common shares and how many for the other assets, acquired by the taxpayer at the same time. In short there are in this case too many unknown factors to permit of a valuation of. the taxpayer’s common shares by the application of a rule intended to provide a practical solution of the problem where there is but one unknown quantity.
The fair market value of the Pressed Steel shares was, therefore, of no-aid in determining the value of the stock issued by the taxpayer. We agree with the Board that the taxpayer failed to prove the actual cost to the taxpayer of the Pressed Steel common shares and that the figure of $1,000,000 which had been originally used by the taxpayer and accepted by the Commissioner as the cost basis for calculating the gain from the sale of those shares, must, therefore, be allowed to stand.
The decision is reversed and the causéis remanded to the Tax Court of the United States for further proceedings not inconsistent with this opinion.