[1254]*1254OPINION.
Littleton:
The principal complaint of the petitioner in this proceeding is that the Commissioner in 1925 reversed a ruling of Commissioner Osborn made in 1916 with respect to deductions which it was entitled to take in its income-tax return for the fiscal year ended June 30, 1917. The petitioner contends that the functions of a' Commissioner of Internal Revenue are to some extent judicial and that his decision can not be reviewed and reversed by a successor in office, and in support of such proposition cites the case of Bates & Guild Co. v. Payne, 194 U. S. 106, wherein it is stated:
The rule upon this subject [the right of one executive officer to overrule a predecessor in office] may be summarized as follows: That where the decision of questions of fact is committed by Congress to the judgment and discretion of the head of a department, his decision thereon is conclusive; and that even upon mixed questions of law and fact, or of law alone, his action will carry with it a strong presumption of its correctness, and the courts will not ordinarily review it, although they may have the power, and will occasionally exercise the right of so doing.
It is pointed out that section 13(b) of the Revenue Act of 1916, provided that:
Every corporation * * * shall * * * render a true and accurate return of its annual net income in the manner and form to be prescribed by the Commissioner of Internal Revenue, with the approval of the Secretary of the Treasury, and containing such facts, data, and information as are appro[1255]*1255priate and in the opinion of the commissioner necessary to determine the correctness of the net income returned and to carry out the provisions of this title.
The Act of October 3,1917, added (section 213):
That the Commissioner of Internal Revenue, with the approval of the Secretary of the Treasury, shall make all necessary regulations for carrying out the provisions of this title, and may require any corporation, partnership, or individual, subject to the provisions of this title, to furnish him with such facts, data, and information as in his judgment are necessary to collect the tax imposed by this title.
In our opinion the contention of the petitioner upon this point is sufficiently met by the decision of the court in the case of United States v. Updike, 1 Fed. (2d) 550. The letter of October 20, 1916, sent by Commissioner Osborn to the attorneys for the petitioner was not a regulation “prescribed by the Commissioner of Internal Revenue, with the approval of the Secretary of the Treasury.” It was advisory merely. It simply gave the inquirer the Commission’s opinion and ruling as to the proper interpretation of the law as applied to the facts stated by the inquirer, which facts were not as fully stated as in the instant findings of fact. Clearly, an advisory letter on a question of law written by a Commissioner can have no binding effect upon his successor in office. An erroneous interpretation of a statute by the Commissioner does not conclude the United States on a subsequent modification of the ruling or create equities-in favor of the petitioner requiring the judicial adoption of the first interpretation. Goldfield Consolidated Mines Co. v. Scott, 247 U. S. 126.
A further contention made by the petitioner is that the profit on silk shipped by it to the United States from Japan accrued in Japan and not in the United States and that the petitioner did not have any taxable income derived from sources within the United States. A consideration of this question requires a determination of the meaning of the phrase “ from all sources within the United States,” contained in section 10 and in section 12(b) of the Revenue Act of 1916. We think that where a foreign corporation sells goods at a profit in the United States it derives an income from a source within the United States within the meaning of the statute. We have held, that where goods are manufactured abroad by nonresident alien individuals and sold in this country, the entire profit constitutes “ gross income from sources within the United States ” within the meaning of section 213(c) of the Revenue Act of 1918. Birkin v. Commissioner, 5 B. T. A. 402. We think that a like ruling must be made under the Revenue Act of 1916 with respect to a foreign corporation purchasing goods outside of the United States and selling them within the United States. The purchase price is paid by an indi[1256]*1256vidual residing in the United States. The income of the seller is derived from the sale and flows to the seller from the purchaser.
The petitioner objects to the tax liability determined by the Commissioner as computed upon the entire profit derived from silk shipped to the United States, that is, upon the difference between the cost of the silk in Japan and the sale price fixed in the contract of sale made in the United States. Its contention is that in the ordinary transaction of purchase and sale of personal property where the purchase precedes the sale no profit is made until the property is sold; that under such circumstances it might justly be said that the profit or income was derived from the place in which the sale was made; but that that would not be true in the instant case since the petitioner sold goods which it did not own and therefore derived no profit at the time of the sale; that it required a subsequent purchase to consummate the transaction; that whether the petitioner obtained a profit at all or suffered a loss depended entirely upon the skill and judgment with which the purchase was made; that any profit, if profit there was, accrued at the time of the purchase and not at the time of the sale and that, inasmuch as the purchase was in Japan, the profit was realized in Japan.
The evidence upon this point is not as detailed as might be desired. The agent of the petitioner in the United States took orders for silk or entered into contracts for the sale of silk. Ho copies of the contracts are before us. Neither are we in possession of copies of the shipping documents which might have a bearing upon the case. We can see no basis, however, for the contention of the petitioner that the profit on the sale is not derived from a source within the United States merely because the date of sale precedes the date of purchase. The source of the income was not changed by reason of that fact.
The relationship of the petitioner to Morimura, Arai & Co. is not entirely clear. This concern was apparently a partnership with its principal office in New York City, which acted solely as agents for the corporation. The conditions under which they acted and the method under which the petitioner compensated them for services rendered are not revealed. There appears to be no question, however, but that they were transacting business in the United States in the name of the petitioner. Laurentide Co. v. Durey, 231 Fed. 223.
The petitioner alleges error on the part of the Commissioner in refusing to allow the deduction of $271,168.93 made by the petitioner in its return and representing commissions in Japan for the buying of the silk pursuant to the ruling of the former Commissioner of Internal Revenue.
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[1254]*1254OPINION.
Littleton:
The principal complaint of the petitioner in this proceeding is that the Commissioner in 1925 reversed a ruling of Commissioner Osborn made in 1916 with respect to deductions which it was entitled to take in its income-tax return for the fiscal year ended June 30, 1917. The petitioner contends that the functions of a' Commissioner of Internal Revenue are to some extent judicial and that his decision can not be reviewed and reversed by a successor in office, and in support of such proposition cites the case of Bates & Guild Co. v. Payne, 194 U. S. 106, wherein it is stated:
The rule upon this subject [the right of one executive officer to overrule a predecessor in office] may be summarized as follows: That where the decision of questions of fact is committed by Congress to the judgment and discretion of the head of a department, his decision thereon is conclusive; and that even upon mixed questions of law and fact, or of law alone, his action will carry with it a strong presumption of its correctness, and the courts will not ordinarily review it, although they may have the power, and will occasionally exercise the right of so doing.
It is pointed out that section 13(b) of the Revenue Act of 1916, provided that:
Every corporation * * * shall * * * render a true and accurate return of its annual net income in the manner and form to be prescribed by the Commissioner of Internal Revenue, with the approval of the Secretary of the Treasury, and containing such facts, data, and information as are appro[1255]*1255priate and in the opinion of the commissioner necessary to determine the correctness of the net income returned and to carry out the provisions of this title.
The Act of October 3,1917, added (section 213):
That the Commissioner of Internal Revenue, with the approval of the Secretary of the Treasury, shall make all necessary regulations for carrying out the provisions of this title, and may require any corporation, partnership, or individual, subject to the provisions of this title, to furnish him with such facts, data, and information as in his judgment are necessary to collect the tax imposed by this title.
In our opinion the contention of the petitioner upon this point is sufficiently met by the decision of the court in the case of United States v. Updike, 1 Fed. (2d) 550. The letter of October 20, 1916, sent by Commissioner Osborn to the attorneys for the petitioner was not a regulation “prescribed by the Commissioner of Internal Revenue, with the approval of the Secretary of the Treasury.” It was advisory merely. It simply gave the inquirer the Commission’s opinion and ruling as to the proper interpretation of the law as applied to the facts stated by the inquirer, which facts were not as fully stated as in the instant findings of fact. Clearly, an advisory letter on a question of law written by a Commissioner can have no binding effect upon his successor in office. An erroneous interpretation of a statute by the Commissioner does not conclude the United States on a subsequent modification of the ruling or create equities-in favor of the petitioner requiring the judicial adoption of the first interpretation. Goldfield Consolidated Mines Co. v. Scott, 247 U. S. 126.
A further contention made by the petitioner is that the profit on silk shipped by it to the United States from Japan accrued in Japan and not in the United States and that the petitioner did not have any taxable income derived from sources within the United States. A consideration of this question requires a determination of the meaning of the phrase “ from all sources within the United States,” contained in section 10 and in section 12(b) of the Revenue Act of 1916. We think that where a foreign corporation sells goods at a profit in the United States it derives an income from a source within the United States within the meaning of the statute. We have held, that where goods are manufactured abroad by nonresident alien individuals and sold in this country, the entire profit constitutes “ gross income from sources within the United States ” within the meaning of section 213(c) of the Revenue Act of 1918. Birkin v. Commissioner, 5 B. T. A. 402. We think that a like ruling must be made under the Revenue Act of 1916 with respect to a foreign corporation purchasing goods outside of the United States and selling them within the United States. The purchase price is paid by an indi[1256]*1256vidual residing in the United States. The income of the seller is derived from the sale and flows to the seller from the purchaser.
The petitioner objects to the tax liability determined by the Commissioner as computed upon the entire profit derived from silk shipped to the United States, that is, upon the difference between the cost of the silk in Japan and the sale price fixed in the contract of sale made in the United States. Its contention is that in the ordinary transaction of purchase and sale of personal property where the purchase precedes the sale no profit is made until the property is sold; that under such circumstances it might justly be said that the profit or income was derived from the place in which the sale was made; but that that would not be true in the instant case since the petitioner sold goods which it did not own and therefore derived no profit at the time of the sale; that it required a subsequent purchase to consummate the transaction; that whether the petitioner obtained a profit at all or suffered a loss depended entirely upon the skill and judgment with which the purchase was made; that any profit, if profit there was, accrued at the time of the purchase and not at the time of the sale and that, inasmuch as the purchase was in Japan, the profit was realized in Japan.
The evidence upon this point is not as detailed as might be desired. The agent of the petitioner in the United States took orders for silk or entered into contracts for the sale of silk. Ho copies of the contracts are before us. Neither are we in possession of copies of the shipping documents which might have a bearing upon the case. We can see no basis, however, for the contention of the petitioner that the profit on the sale is not derived from a source within the United States merely because the date of sale precedes the date of purchase. The source of the income was not changed by reason of that fact.
The relationship of the petitioner to Morimura, Arai & Co. is not entirely clear. This concern was apparently a partnership with its principal office in New York City, which acted solely as agents for the corporation. The conditions under which they acted and the method under which the petitioner compensated them for services rendered are not revealed. There appears to be no question, however, but that they were transacting business in the United States in the name of the petitioner. Laurentide Co. v. Durey, 231 Fed. 223.
The petitioner alleges error on the part of the Commissioner in refusing to allow the deduction of $271,168.93 made by the petitioner in its return and representing commissions in Japan for the buying of the silk pursuant to the ruling of the former Commissioner of Internal Revenue. In place of such deduction the Commissioner has allowed the deduction of a portion of the actual expenses of the [1257]*1257business in Japan. No evidence is before this Board that the petitioner paid any commissions in Japan for the purchase of silk. In the absence of such evidence the disallowance of the" deduction by the Commissioner must be approved.
The petitioner also alleges error on the part of the Commissioner in refusing to allow the deduction of $16,950 discount made by the petitioner in its return. The record contains no evidence upon this point. The deficiency letter would indicate that the Commissioner allowed the deduction of all the discount which the petitioner contended for when the audit of its tax return was under consideration by the Commissioner prior to the determination of the deficiency. In the absence of evidence the action of the Commissioner in disallowing this deduction must be likewise approved.
The petitioner further alleges error on the part of the Commissioner in refusing to allow the deduction of $15,896.50 expenses of the petitioner in the conduct of its cotton business in the United States. The Commissioner has apparently determined the deductions from gross income in accordance with the provisions of law applicable to returns made under the Revenue Act of 1918. The Revenue Act of 1916 is quite different from the Revenue Act of 1918 in this respect, since it permits a foreign corporation deriving income from sources, within the United States to deduct from gross income:
First. All the ordinary and necessary expenses actually paid within the year out of earnings in the maintenance and operation of its business and property within the United States, including rentals or other payments required to be made as a condition to the continued use or possession of property to which the corporation has not taken or is not taking title, or in which it has no equity. (Sec. 12(b).)
Since commissions for the purchase of cotton were paid in connection with the operation of the petitioner’s business within the United States, they are deductible from gross income under the express provisions of law applicable to returns under the Revenue Act of 1916.
The last issue presented by the petitioner is whether the Commissioner erred in computing the 4 per cent tax imposed by section 4 of the Revenue Act of 1917 upon one-half of the net income for the fiscal year ended June 30, 1917, after deducting therefrom the profits tax imposed by the Revenue Act of 1917 instead of upon the 1917 portion of the net income reduced by the profits tax.
Counsel for petitioner in support of this point cites and relies upon the decision of the Circuit Court of Appeals, Third Circuit, in United States v. Semple, 10 Fed. (2d) 1023, affirming the decision of the District Court in Semple v. United States, 7 Fed. (2d) 1023, decided upon that court’s decision in Semple v. Lewellyn, 1 Fed. [1258]*1258(2d) 745, in which, it was held that only that portion of the income earned during that portion of the calendar year 1917 falling within the fiscal year was subject to the 4 per cent tax, and insists that the Board should overrule its decision in the Appeal of F. J. Thompson, Inc., 1 B. T. A. 535, and the decisions in the Appeals of Mesa Milling Co., 2 B. T. A. 770; Phoenix Seed & Feed Co., 2 B. T. A. 909; St. Louis Screw Co., 2 B. T. A. 649; Bray & Kates Co., 3 B. T. A. 1316; and Manville Jenckes Co., 4 B. T. A. 765, in which the decision in the Appeal of F. J. Thompson, Inc., was followed.
In the decision of the Board in the Appeal of F. J. Thompson, Inc., supra, the decision of the District Court in Semple v. Lewellyn, supra, was considered and analyzed with the utmost care and a different conclusion from that arrived at by the learned court was not lightly reached. In the Appeal of Mesa Milling Co., supra, in which the Board was asked to overrule its decision in the F. J. Thompson, Inc., appeal, it was said.
We have carefully reconsidered tlie decision in that appeal in the light of the arguments of counsel for the taxpayer. The rule laid down in the Act for the treatment of the excess-profits tax credit seems to us to be clear, and does not call upon us to interpret the congressional intention for the purpose of determining that Congress meant that the credit should be treated or tax computed otherwise than as provided in the Act.
In the present proceeding we have carefully reconsidered our decision on this question in the light of the argument of counsel, and we have carefully studied and considered the decisions of the courts in the cases of United States v. Semple, supra; Curtis & Co. Mfg. Co. v. United States, 62 Ct. Cls. 115; 5 Am. Fed. Tax Rep. 6025, and, also, the per curiam opinion of the Circuit Court of Appeals for the Second Circuit in Bowers v. Carl Schoen Silk Corporation, 16 Fed. (2d) 1014, but notwithstanding our great respect for and deference to the opinions of these courts, we are not persuaded that our conclusion as announced in former decisions is erroneous. The opinion of the Circuit Court of Appeals for the Second Circuit in Bowers v. Carl Schoen Silk Corporation, supra, was as follows:
We see no reason to depart from- the result of decisions already made. See United States v. Semple, 10 Fed. (2d) 1023; Curtis, etc. v. United States, Court of Claims No. 83, October Term, 1926.
There is no indication in any of the cases dealing with this question that the court had before it the Board’s decision in the F. J. Thompson, Inc., appeal, or the reasoning upon which it was based.
Judgment will he entered on 15 days’ notice, under Rule 50.
Phillips concurs in the result only,