[321]*321OPINION.
Trammell:
The controversy in this proceeding raises two issues: (1) Did petitioner realize a profit of $50,000 on the sale of its intangible assets in November, 1919, and (2) is petitioner, under the provisions of the Revenue Act of 1918, entitled to have the good will acquired by it from the L. M. Stratton Co. included in the computation of its invested capital at a valuation of $50,000 ?
With respect to the first issue, petitioner contends that, notwithstanding the formal provisions of the written contract of November 29, 1919, it was intended thereby that it should sell, and that it did in fact sell, to the Piggiy Wiggly Stores, Inc., for a consideration of $100,000, the good will acquired by it from the L. M. Stratton Co. at a cost of $50,000, and the good will and Piggly Wiggly franchise acquired from the Saunders-Blackburn Grocery Co. at a like cost of $50,000, and that hence no profit was made on this transaction. Respondent contends that, under the express provisions of the written contract, petitioner sold to the vendee corporation for $100,000, the Piggly Wiggly contract or franchise only, which it had theretofore [322]*322acquired at a cost of $50,000, and retained its good will, thus realizing a profit of $50,000, which amount respondent added to the reported income of petitioner.
Petitioner issued its stock of the par value of $50,000 to each of its two predecessor corporations, or' stock of a total par value of $100,000, for the good will acquired by it. No controversy is raised with respect to the value of the stock. At the hearing, respondent specifically admitted that petitioner paid $100,000 for its good will, and thus in effect that the stock was worth par.
It being uncontroverted that petitioner acquired at a cost of $100,000 the good will of its predecessor corporations, together with the Piggly Wiggly franchise, under the circumstances set out in our findings of fact, it remains to be determined whether petitioner sold its combined good will and the Piggly Wiggly franchise for $100,000, or whether' it retained the good will and sold only the franchise.
At the hearing, after introducing in evidence the written contract, petitioner offered oral testimony in support of its contention. Thereupon, respondent objected to the admission of such testimony on the grounds that the contract was free from any ambiguity and should speak for itself, and that its terms could not be modified, changed or explained by parol evidence. We have heretofore had occasion to consider this question, and have held that such evidence as between the Government and one of the parties to the contract is competent and admissible. Appeal of Converse & Co., 1 B. T. A. 742; Appeal of Arthur B. Grover, 3 B. T. A. 508.
L. M. Stratton, who was then president of petitioner and on its behalf signed the contract in question, testified as follows:
Q. Mr. Stratton, what was the intention of the parties to this contract as to the transfer of the good will of the Stratton Grocery Co. to the Piggly Wiggly Stores, Inc.?
A. It was to transfer at the same price at which it was acquired, from the L. M. Stratton Co. and the Saunders-Blaekburn Grocery Co. the item of good will and franchise rights we had on our books to the Piggly Wiggly Stores, Inc.
*******
Q. Was the amount of $100,000 referred to in paragraph 3 of the contract the same amount as was paid by the Stratton Grocery Co. for the good will of the L. M. Stratton Co. and the Saunders-Blaekburn Grocery Co.?
A. It was.
Q. Was it intended that that amount of $100,000 should cover exactly the same good will as was previously acquired in that way?
A. It was.
Without regarding this testimony as conclusive, we find, upon further examination of the evidence, corroborative facts which irresistibly lead to the same result. The Supreme Court of the United States has laid down the proposition that good will is inseparable [323]*323from the business in connection with which it was created. In Metropolitan Bank v. St. Louis Dispatch, Co., 149 U. S. 436-451, Mr. Chief Justice Fuller, speaking for the court, at page 446, said:
Undoubtedly, good will is in many eases a valuable thing, although there is difficulty in deciding accurately what is included in the term. It is tangible only as an incident, as connected with a going concern or business having locality or name, and is not susceptible of being disposed of independently.
Again in the case of Sawilowsky v. Brown, 288 Fed. 533, the Circuit Court of Appeals, Fifth Circuit, said:
Good will and trade-names or trade-marks connected with a business are destroyed by a sale of the business without the good will and trademarks * * *.
To the same effect also In re Jaysee Corset Co., 201 Fed. 179.
The undisputed evidence shows that petitioner sold, transferred and delivered to the Piggly Wiggly Stores, Inc., its stock of merchandise, its delivery equipment, retail stores, fixtures, and the lease on its business premises. It also transferred to the vendee practically its entire organization of employees, including its president, who had been largely instrumental in building up its good will. Thus, having divested itself of the means of carrying on its business, it ceased to be a going concern, to which good will could attach. Having sold and transferred its business, to which the good will was inseparably attached, it follows-that the good will went with it, whether or not such good will was specifically included in the purchase price. It is immaterial that petitioner later changed its name, acquired the business of another going concern having an entirely different clientele, and thereafter operated such business at a new and different location.
But it is contended by the respondent that even though petitioner intended and attempted to sell its good will to the Piggly Wiggly Stores, Inc., it nevertheless retained its good will by reason of the fact that it acquired the assets of the W. C. Early Co. and thereafter operated a somewhat similar business at a different location.
The facts show that on November 10, 1919, when L. M. Stratton and Saunders reached their verbal agreement in Washington for the sale of petitioner’s assets to the new Piggly Wiggly Corporation, the negotiations for the purchase of the Early Company had not been started, nor were they in contemplation. Upon the return of L. M. Stratton to Memphis and after he had informed his brother, A. C. Stratton, of the proposed sale of petitioner’s assets, the latter, some days thereafter, instituted the negotiations which led to the contract between petitioner and the W. C. Early Co. While it is true that this contract was actually signed four days prior to the date on which the written contract was signed for the sale of petitioner’s assets to the Piggly Wiggly Corporation, it was the intention [324]*324of the parties that the contract with the Early Company should not be carried out until after the completion of the transfer of petitioner’s business to its vendee.
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[321]*321OPINION.
Trammell:
The controversy in this proceeding raises two issues: (1) Did petitioner realize a profit of $50,000 on the sale of its intangible assets in November, 1919, and (2) is petitioner, under the provisions of the Revenue Act of 1918, entitled to have the good will acquired by it from the L. M. Stratton Co. included in the computation of its invested capital at a valuation of $50,000 ?
With respect to the first issue, petitioner contends that, notwithstanding the formal provisions of the written contract of November 29, 1919, it was intended thereby that it should sell, and that it did in fact sell, to the Piggiy Wiggly Stores, Inc., for a consideration of $100,000, the good will acquired by it from the L. M. Stratton Co. at a cost of $50,000, and the good will and Piggly Wiggly franchise acquired from the Saunders-Blackburn Grocery Co. at a like cost of $50,000, and that hence no profit was made on this transaction. Respondent contends that, under the express provisions of the written contract, petitioner sold to the vendee corporation for $100,000, the Piggly Wiggly contract or franchise only, which it had theretofore [322]*322acquired at a cost of $50,000, and retained its good will, thus realizing a profit of $50,000, which amount respondent added to the reported income of petitioner.
Petitioner issued its stock of the par value of $50,000 to each of its two predecessor corporations, or' stock of a total par value of $100,000, for the good will acquired by it. No controversy is raised with respect to the value of the stock. At the hearing, respondent specifically admitted that petitioner paid $100,000 for its good will, and thus in effect that the stock was worth par.
It being uncontroverted that petitioner acquired at a cost of $100,000 the good will of its predecessor corporations, together with the Piggly Wiggly franchise, under the circumstances set out in our findings of fact, it remains to be determined whether petitioner sold its combined good will and the Piggly Wiggly franchise for $100,000, or whether' it retained the good will and sold only the franchise.
At the hearing, after introducing in evidence the written contract, petitioner offered oral testimony in support of its contention. Thereupon, respondent objected to the admission of such testimony on the grounds that the contract was free from any ambiguity and should speak for itself, and that its terms could not be modified, changed or explained by parol evidence. We have heretofore had occasion to consider this question, and have held that such evidence as between the Government and one of the parties to the contract is competent and admissible. Appeal of Converse & Co., 1 B. T. A. 742; Appeal of Arthur B. Grover, 3 B. T. A. 508.
L. M. Stratton, who was then president of petitioner and on its behalf signed the contract in question, testified as follows:
Q. Mr. Stratton, what was the intention of the parties to this contract as to the transfer of the good will of the Stratton Grocery Co. to the Piggly Wiggly Stores, Inc.?
A. It was to transfer at the same price at which it was acquired, from the L. M. Stratton Co. and the Saunders-Blaekburn Grocery Co. the item of good will and franchise rights we had on our books to the Piggly Wiggly Stores, Inc.
*******
Q. Was the amount of $100,000 referred to in paragraph 3 of the contract the same amount as was paid by the Stratton Grocery Co. for the good will of the L. M. Stratton Co. and the Saunders-Blaekburn Grocery Co.?
A. It was.
Q. Was it intended that that amount of $100,000 should cover exactly the same good will as was previously acquired in that way?
A. It was.
Without regarding this testimony as conclusive, we find, upon further examination of the evidence, corroborative facts which irresistibly lead to the same result. The Supreme Court of the United States has laid down the proposition that good will is inseparable [323]*323from the business in connection with which it was created. In Metropolitan Bank v. St. Louis Dispatch, Co., 149 U. S. 436-451, Mr. Chief Justice Fuller, speaking for the court, at page 446, said:
Undoubtedly, good will is in many eases a valuable thing, although there is difficulty in deciding accurately what is included in the term. It is tangible only as an incident, as connected with a going concern or business having locality or name, and is not susceptible of being disposed of independently.
Again in the case of Sawilowsky v. Brown, 288 Fed. 533, the Circuit Court of Appeals, Fifth Circuit, said:
Good will and trade-names or trade-marks connected with a business are destroyed by a sale of the business without the good will and trademarks * * *.
To the same effect also In re Jaysee Corset Co., 201 Fed. 179.
The undisputed evidence shows that petitioner sold, transferred and delivered to the Piggly Wiggly Stores, Inc., its stock of merchandise, its delivery equipment, retail stores, fixtures, and the lease on its business premises. It also transferred to the vendee practically its entire organization of employees, including its president, who had been largely instrumental in building up its good will. Thus, having divested itself of the means of carrying on its business, it ceased to be a going concern, to which good will could attach. Having sold and transferred its business, to which the good will was inseparably attached, it follows-that the good will went with it, whether or not such good will was specifically included in the purchase price. It is immaterial that petitioner later changed its name, acquired the business of another going concern having an entirely different clientele, and thereafter operated such business at a new and different location.
But it is contended by the respondent that even though petitioner intended and attempted to sell its good will to the Piggly Wiggly Stores, Inc., it nevertheless retained its good will by reason of the fact that it acquired the assets of the W. C. Early Co. and thereafter operated a somewhat similar business at a different location.
The facts show that on November 10, 1919, when L. M. Stratton and Saunders reached their verbal agreement in Washington for the sale of petitioner’s assets to the new Piggly Wiggly Corporation, the negotiations for the purchase of the Early Company had not been started, nor were they in contemplation. Upon the return of L. M. Stratton to Memphis and after he had informed his brother, A. C. Stratton, of the proposed sale of petitioner’s assets, the latter, some days thereafter, instituted the negotiations which led to the contract between petitioner and the W. C. Early Co. While it is true that this contract was actually signed four days prior to the date on which the written contract was signed for the sale of petitioner’s assets to the Piggly Wiggly Corporation, it was the intention [324]*324of the parties that the contract with the Early Company should not be carried out until after the completion of the transfer of petitioner’s business to its vendee. The money to be paid by petitioner for the Early assets was to come from the proceeds of the sale of its business to the Piggly Wiggly Corporation. After the transaction had been completed, petitioner possessed substantially only liquid assets, consisting principally of stocks, bonds, and money in bank, of the total value of about $600,000. These assets were then used by petitioner to carry out its obligations under the Early contract. At that time, petitioner had divested itself of all the facilities of a going concern, and with the exception of the assets received from the sale of its business, retained only its corporate franchise. With the assets of the principal part of which it received from the sale of its business, it acquired another business. An appreciable time intervened during which petitioner was not a going concern in the sense that it possessed a business to which good will could attach. It was no longer operating the business in connection with which its good will had been created. That. business, as a going concern, consisting of a plant, equipment, fixtures, stock of merchandise, an established location, a large force of trained employees, and the goad will which attached to all these elements as a whole, was then owned, in the possession of, and being operated by the Piggly Wiggly Stores, Inc.
In Washburn v. National Wall Paper Co., 81 Fed. 17, 20, the court said:
If good will be a “ parasite,” it is a “ parasite ” of the business from which it sprung, not of the mere machinery by which that business was conducted.
In the light of all the facts and circumstances disclosed by the evidence, we are satisfied that it was the intention of the parties that petitioner should sell and that Piggly Wiggly Stores, Inc., should purchase, at a valuation of $100,000, the same intangible assets which petitioner had theretofore acquired at a like cost. Accordingly, no profit was realized by petitioner, and respondent erred in adding the sum of $50,000 to petitioner’s income for the taxable year involved herein.
The material facts respecting the second issue are admitted. Petitioner acquired the good will of the L. M. Stratton Co. subsequent to March 3, 1917, to wit, in 1919. It paid $50,000 par value of stock for such good will. At the time of organization, the stockholders of the L. M. Stratton Co. acquired, and for some time thereafter retained, more than 50 per cent of petitioner’s stock. Thus, an interest or control in the good will, amounting to more than 50 per cent, remained in the same persons. The provisions of the Revenue Act of [325]*3251918, applicable to these facts, are contained in section 331, the pertinent part of which reads as follows:
Sko. 331. In the case of the reorganization, consolidation, or change of ownership of a trade or business, or change of ownership of property, after March 3, 1017, if an interest or control in such trade or business or property of 50 per centum or more remains in the same persons, or any of them, then no asset transferred or received from the previous owner shall, for the purpose of determining invested capital, be allowed a greater value than would have been allowed under this title in computing the invested capital of such previous owner if such asset had not been so transferred or received; * * *
Petitioner in its brief states that while it can not be denied that the stockholders of the L. M. Stratton Co. did acquire more than a 50 per cent control in its stock, such acquisition resulted from the regulations imposed by the Capital Issues Committee, a Governmental agency, and placed it in a position whereby it is being made to suffer at the hands of another branch of the Government. Petitioner then argues that such a situation was never intended in the administration or enforcement of any Federal law, and suggests that this Board has ample power and discretion to correct such a condition.
With this contention we are unable to agree. We find in the Revenue Act of 1918, no exception to the provisions of section 331, and we can not read into the law an exception not by express provision or fair implication contained therein. The facts hereinabove set out come squarely within the purview of section 331. It follows, therefore, that in determining the invested capital of petitioner for the year 1919, the good will which was transferred to it by and which it received from the L. M. Stratton Co. can not be allowed a greater value than would have been allowed the former owner, if such asset had not been so transferred.
There is no evidence before us to show what value, if any, would have been allowable under said Revenue Act in computing the invested capital of the previous owner of said asset, if it had not been transferred to petitioner. Accordingly, we must approve the action of respondent in respect of this item.
Reviewed by the Board.
Judgment will he entered on 15 days’ notice, wnder Rule 50.