Webb Press Co. v. Commissioner

WEBB PRESS CO., LTD., PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Webb Press Co. v. Commissioner

Docket No. 7070.

United States Board of Tax Appeals

9 B.T.A. 238; 1927 BTA LEXIS 2633;

November 22, 1927, Promulgated

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The income derived from certain contracts to erect and install cotton compresses held to be taxable in the year 1921.

E. W. R. Ewing, Esq., for the petitioner.

A. George Bouchard, Esq., for the respondent.

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MORRIS

This is a proceeding for the redetermination of a deficiency in income and profits taxes for the year 1920 in the sum of $22,027.34. At the hearing petitioner's counsel expressly waived all of the issues raised by the pleadings except the question of whether the income from certain contracts entered into by the petitioner in 1920 is taxable in the year 1920.

FINDINGS OF FACT.

Petitioner is a corporation organized under the laws of the State of Louisiana with its principal place of business at Minden.

During the year 1920 and previous years petitioner was engaged in marketing cotton compresses made under patents owned by Robert D. Webb, president of the petitioner. The royalty arrangement existing between petitioner and Webb in the year in question is the same as that set forth in , which provides for the distribution of net profits from the manufacture and sale of compresses in the amounts of two-thirds to Webb and one-third to the petitioner.

On May 13, 1920, petitioner entered into a contract with J. H. W. Steele, Galveston, Tex., and A. J. Dossett, Waco, Tex. (hereinafter referred to as the purchasers), providing for the erection and installation by the petitioner of two regular standard high density compresses and two high density compress attachments on premises to be provided by the purchasers in Galveston, in consideration of the payment of $202,800, to be paid:

$12,000.00 on presentation of bills lading showing that the first high density compress has been shipped.

$12,000.00 during the erection of this press, and by the time it is completed to pay for freight, labor, materials, etc., during the construction, as the bills for same are presented.

$12,000.00 on the day this first high density press is erected and connected to the boiler plant of the parties of the second part, ready for operation, making $36,000.00 cash payments.

$12,000.00 on presentation of the bills lading showing that the second high density compress has been shipped.

$12,000.00 during the erection of this press, and by the time it is completed, to pay for freights, labor, material, etc., as the bills for same are presented during the construction.

$12,000.00 on the day this second high density press is erected and connected to the boiler plant of the parties of the second part on said premises in Galveston, ready for operation. Making $36,000.00 cash payments on this second press.

$4,800.00 on presentation of the bills lading showing that the first high density attachment has been shipped.

$4,800.00 during the erection of this attachment, and by the time it is completed to pay for freights, labor, material, etc., as the bills for same are presented, during the erection.

$4,800.00 on the day this first attachment is erected and connected to the 80" press of the parties of the second part on said premises in Galveston, ready for operation. Making $14,400.00 cash payment on this first attachment.

$4,800.00 on presentation of the bills lading showing that the second high density attachment has been shipped.

$4,800.00 during the erection of this attachment, and by the time it is completed to pay for freights, labor, material, etc., as the bills for same are presented, during the erection.

$4,800.00 on the day this second attachment is erected and connected to the 80" standard Webb press of the parties of the second part on said premises in Galveston, ready for operation. Making $14,400.00 cash payments on this second attachment.

$3,500.00 Jan. 1st, 1921.	$3,500.00 May 1st, 1923.
$3,500.00 May 1st, 1921.	$3,500.00 Jan. 1st, 1924.
$3,500.00 Jan. 1st, 1922.	$3,500.00 May 1st, 1924.
$3,500.00 May 1st, 1922.	$3,500.00 Jan. 1st, 1925.
$3,500.00 Jan. 1st, 1923.	$3,500.00 May 1st, 1925.
Making $35,000.00 time payments on the first compress.
$3,500.00 Jan. 1st, 1921.	$3,500.00 May 1st, 1923.
$3,500.00 May 1st, 1921.	$3,500.00 Jan. 1st, 1924.
$3,500.00 Jan. 1st, 1922.	$3,500.00 May 1st, 1924.
$3,500.00 May 1st, 1922.	$3,500.00 Jan. 1st, 1925.
$3,500.00 Jan. 1st, 1923.	$3,500.00 May 1st, 1925.
Making $35,000.00 time payments on the second compress.
$2,000.00 Jan. 1st, 1921.	$2,000.00 Jan. 1st, 1923.
$2,000.00 May 1st, 1921.	$2,000.00 May 1st, 1923.
$2,000.00 Jan. 1st, 1922.	$2,000.00 Jan. 1st, 1924.
$2,000.00 May 1st, 1922.	$2,000.00 May 1st, 1924.
Making $16,000.00 time payments on the first attachment.
$2,000.00 Jan. 1st, 1921.	$2,000.00 Jan. 1st, 1923.
$2,000.00 May 1st, 1921.	$2,000.00 May 1st, 1923.
$2,000.00 Jan. 1st, 1922.	$2,000.00 Jan. 1st, 1924.
$2,000.00 May 1st, 1922.	$2,000.00 May 1st, 1924.
Making $16,000.00 time payments on the second attachment.

The above contract contained a provision whereby "the title to the compresses, machinery, etc., furnished by the party of the first part is to remain in said party of the first part until fully settled for as herein provided," and it was further provided that "during the first thirty days after the erection of each of these two presses, and each of the two attachments, it is to be tested and if found to meet the guarantee herein given, it is to be at once accepted and the said notes covering the time payments on that particular press or attachment, as the case may be, are to be at once properly executed in accordance herewith, together with the security securing same, by the parties of the second part and delivered to the party of the first part, endorsed by the said Dossett and Steele, all as herein provided."

On June 24, 1920, another contract was entered into between the petitioner and the parties hereinabove mentioned, providing for the erection and installation of one high density compress on premises to be provided by those parties in Galveston, in consideration of the sum of $73,500, to be paid -

$12,500.00 Cash on presentation of bills lading showing that this press has been shipped.

$12,500.00 During the erection of this press, and by the time it is completed to pay for freights, labor, material, etc., as the bills for same are presented.

$13,500.00 On the day this press is erected and connected to the boiler plant of the party of second part, ready for operation in the usual way.

Making $38,500.00 cash payments.

$3,500.00 Jan. 1st, 1921.	$3,500.00 May 1st, 1923.
$3,500.00 May 1st, 1921.	$3,500.00 Jan. 1st, 1924.
$3,500.00 Jan. 1st, 1922.	$3,500.00 May 1st, 1924.
$3,500.00 May 1st, 1922.	$3,500.00 Jan. 1st, 1925.
$3,500.00 Jan. 1st, 1923.	$3,500.00 May 1st, 1925.

Making $35,000.00 time payments.

That contract also provided that "title to the compress, etc., furnished by the party of the first part is to remain in said party of the first part until fully settled for as herein provided," and also that: "During the first thirty days after the erection of this press on said premises in Galveston it is to be tested, and if found to meet the guarantee herein given it is to be at once accepted, and the said ten notes are to be at once properly executed in accordance herewith, together with the security securing same, and delivered to the party of the first part by the parties of the second part; said ten notes being endorsed as herein provided, by said Dossett and Steele."

In accordance with the terms of these contracts the compresses were inspected and accepted by the purchasers on January 13, 1921, and the final settlement with cash payment and notes was agreed upon on that date. Promissory notes consummating these transactions were dated January 22, 1921, and at the same time a deed of trust on these machines was executed by the purchasers securing the payment of said notes.

It was the petitioner's accounting practice to take into its books the income from such contracts in the year in which the contracts were made, provided they were completed, but not otherwise.

Petitioner realized a net income of $94,055.45 on these machines, which was included in its income for the year 1921. The respondent eliminated this income in his computation of the net income for the year 1921 and added that amount, less $62,840.86, royalties to be paid to Webb, to petitioner's income for 1920, making a net addition to the income for 1920 of $31,214.59.

OPINION.

MORRIS: In view of our decision in , wherein the facts and circumstances were practically identical with those in this proceeding, we consider it unnecessary to resort to a lengthy discussion in reaching our conclusion. In that case, as in this, the title to the compresses contracted to be sold was in the petitioner until fully settled for as provided for in the contract. A test and acceptance was provided as a condition precedent to the passage of title in that case as in this. In that case we held that the transaction was not completed until the compress was tested and accepted by the purchaser.

In this proceeding the presses contracted for were not inspected and accepted by the purchaser until January 13, 1921, at which time the final settlement with cash payment and notes was agreed upon; therefore, the income derived from the sales of these presses is not taxable in 1920 as contended by respondent.

Judgment will be entered on 15 days' notice, under Rule 50.

Considered by TRAMMELL, MURDOCK, and SIEFKIN.