*1129OPINION.
Littleton :Section 207 (a) (2) of the Revenue Act of 1917 provides that the term “ invested capital ” shall mean:
* * * Tlie actual cash value of tangible property paid in other than cash, for stock or shares in such corporation * * * at the time of such payment * * *: Provided, That (a) the actual cash value of patents * • * * ■ paid in for stock or shares in such corporation * * * at the time of such payment, shall be included as invested capital, but not to exceed the par value of such stock or shares at the time of such payment. * * *
Section 326 of the Revenue Act of 1918 provides as follows:
(a) That as used in this title the term “invested capital” for any year means * * *
(4) Intangible property bona fide paid in for stock or shares prior to March 3,1917, in an amount not exceeding (a) the actual cash value of such property at the time paid in, (b) the par value of the stock or shares issued therefor, or (c) in the aggregate 25 per centum of the par value of the total stock or shares of the corporation outstanding on March 3, 1917,' whichever is lowest; * * * Provided, That in no case shall the total amount included under Paragraphs (4) and (5) exceed in the aggregate 25 per centum of the par value of the total stock or shares of the corporation outstanding at the beginning of the taxable year; * * *
Under the provisions of the 1917 Act, patents paid in for stock are not affected by the 20 per cent limitation on intangibles, as provided in subsection (b) of the proviso, but the value at which patents may be included in invested capital is limited to the par value of the stock issued therefor. Under the provisions of the 1918 Act the value at which the patents may be included is limited, in this *1130case, to 25 per cent of $346,000, the par value of the stock outstanding on March 3, 1917, or the actual cash value of the patents at the time paid in, whichever may be the lower.
The value of these patents for invested capital and depreciation purposes is sought to be established: First, upon an appraisal by the directors — these being men of many years’ experience in the water-meter business and acquainted with patent values ; secondly, by expert testimony; thirdly, the purchase for cash within the first year of the organization of the company by persons familiar' with the business of $122,500 of stock preferred as to assets in the event of dissolution; fourthly, the superiority of the meter under the Gamón patent through or by reason of accuracy in measurement, low initial cost, simplicity of construction, facility of repair' and lower up-keep cost. The Commissioner for the first time, in the brief filed, objects to the expert testimony contained in the stipulation on the ground that this testimony is not based upon the proper foundation and is unfortified by any data. It was stipulated that the expert testimony could be produced in this case as set forth in the findings of fact. Such evidence is competent and admissible. Its weight is for the Board to determine.
The Gamón Meter Company was incorporated November 22, 1910, for the purpose of manufacturing water meters under nine basic patents, issued during that year to Ernest E. Gamón, who, for many years, had been engaged in the water-meter business. On December 12, 1910, the company purchased the business of Gamón, including the patents issued and applied for, the same being inventoried and appraised at $200,000; the consideration paid therefor being $198,-500 in common stock ($10,000 of which was later returned to the company) and $1,500 in preferred stock. The incorporators and directors of taxpayer were experienced water-meter engineers and constructors. From experience they knew that a new type of water meter could not be successfully manufactured and marketed without the necessity of several years being spent in advertising and demonstrating. They knew also that, under usual and ordinary circumstances in that business, no net profit would accrue from the manufacture and sale of water meters for five or six years after the organization of the company. The men who subsequently became connected with the Gamón Company were men also familiar with the water-meter business.
At the time of organization of the company, persons closely associated with Gamón purchased for cash $58,000 of the preferred stock of the company, and during 1911 twenty-six persons familiar with the water-meter business purchased preferred stock of the company at par, in amounts ranging from $500 to $25,000, a total of $122,500; the purchaser of $25,000 of this stock at par being M. D. Perkins, who, since 1898, had been president of a company engaged in the manufacture and sale of water meters. The preferred stock .was 7 per cent cumulative with equal voting rights, being preferred as to assets in case of liquidation, the principal asset of the Gamón Meter Company being the patents.
The evidence shows that the men who became interested in the Gamón meter recognized a decided improvement in the water meter under his patent; furthermore, that this patent had an inherent and substantial value in the beginning destined ultimately, in their *1131opinion, greatly to enrich the original investors. The officers of the corporation, as well as the purchasers of the stock of the Gamón Meter Company, at about the time of and soon after its organization, were familiar with the water meters then in use and manufactured by some eight corporations throughout the United States. They also knew that the greatest earnings from the sale of water meters would naturally come from municipalities. They knew further that it necessarily required from one to two years’ test period to convince municipalities of the merits of a meter before changing from a water meter already in use. Three prominent engineers and patent attorneys of more than twenty years’ experience in the water-meter business, and of wide experience in connection with patents, considered the patents acquired by the corporation from Ernest E. Gamón to be of a cash value in November, 1910, of $200,000.
It appears from the record that this company manufactured articles other than water meters. It had Government contracts during 1916. In that year sales of articles other than water meters were about equal to their water-meter business. The profits in that year alone were over three times the combined profits of the five preceding years during which sales had consisted exclusively of water meters. The company also engaged in the snap-fastener business and in the manufacture of piston rings, prior to the time that it formed a separate organization to conduct those activities. We can not definitely determine from the record the extent to which the patents were instrumental in producing the financial success of the company for several years subsequent to the time they were paid in, or to what extent the activities in other lines, some of which obviously caused losses, reduced or increased the annual profits. We do observe, however, that the total cumulative dividends on the preferred stock were not paid in full during the twelve years for which figures have been presented. With a life of but five years more for the patents, it would appear that if they had an actual cash value of $200,000 in 1910, the value would have been demonstrated to a greater extent during 12/l7ths of the life of the patents; at least to the extent of the payment of all cumulative preferred stock dividends by that time.
It appears from the evidence that the valuation of $200,000 for the patents at the time paid in was predicated to a considerable extent upon future hopes and not altogether upon what the patents were actually worth in cash at that time. The experience of the men interested in the patents perhaps justified their belief that they would ultimately prove successful and result in large earnings, but the Revenue Act contemplates a cash value at the time the patents are paid in. Congress recognized the difficulty of proving with absolute accuracy the actual cash value of intangibles, when it provided in the Revenue Act of 1918 three bases for the inclusion of intangibles in invested capital. No hard and fast rule can be laid down for determining the value of intangibles for invested capital and depreciation purposes. Value is a question of fact. Evidence which would establish a value in one instance might not under peculiar circumstances surrounding an asset of the same nature support any value whatever. It is the duty of the Board to determine in each case such value as is warranted by the evidence.
Under the facts in this appeal, it is the opinion of the Board that the patents involved had an actual cash value on December 12, 1910, *1132for invested capital, of $75,000, and on March 1, 1923, for exhaustion, of that amount less exhaustion at the rate of 1/I7th per annum from 1910.
Section 1331 of the Revenue Act of 1921, defines affiliation under the Act of 1917 as follows:
(b)ITor the purpose of this section a corporation or partnership was affiliated with one or more corporations or partnerships (1) when such corporation or partnership owned directly or controlled through closely affiliated interests * * * all or substantially all the stock of the other or others, or (2) when substantially all the stock of two or more corporations * * * was owned by the same interests: Provided, That such corporations or partnerships were engaged in the same or a closely related business, or one corporation or partnership bought from or sold to another corporation or partnership products or services at prices above or below the Current market, thus effecting an artificial distribution of profits, or one corporation or partnership in any way so arranged its financial relationships with another corporation or partnership as to assign to it a disproportionate share of net income or invesced capital. * * *
Upon the evidence before the Board, the Gamón Meter Company, hereinafter called the Gamón Company, and the Specialty Products Company, hereinafter called the Specialty Company, were not affiliated during 1917, within the meaning of the section above quoted. The business of manufacturing snap fasteners for ladies’ dresses is not the same nor a closely related business to that of manufacturing water meters. There were no inter-company transactions such as the Act defines. The separate organization of the Specialty Company, on the contrary, was for the very purpose of keeping the snap-fastener business off the books of the Gamón Company, giving thereby, in the operation of the joint enterprises, no appearance of any connection between the Specialty Company and the Gamón Company. There were no sales between the two companies effecting an artificial distribution of profits, nor was any method resorted to so as to assign to one a disproportionate share of the net income or invested capital. Affiliation for 1917 depends upon whether the facts bring the case within the terms of the proviso. Since the facts in this appeal clearly show that these two companies do not fall within the proviso of section 1331, they can not be held to have been affiliated.
The provision of section 240 of the Revenue Act of 1918, relating to affiliation, provides:
* * * (b) Ror the purpose of this section two or more domestic corporations shall be deemed to be affiliated (1) if one corporation owns directly or controls through closely affiliated interests or by a nominee or nominees substantially all the stock of the other or others, or (2) if substantially all the stock of two or more corporations is owned or controlled by the same interests. * * *
Under this section affiliation for 1918 and subsequent years may result, although there were no inter-company transactions, commingling of accounts, or other elements set forth in the proviso applicable to the 1917 law. This appeal, therefore, if one for consolidated returns, must come within subdivision (1) of clause (b). That subdivision imposes three tests relative to stock ownership or control, any one of which permits consolidation—
(1) Ownership of substantially all;
(2) Control of substantially all through closely affiliated interests;
(3) Ownership of a part and control of amounting to substantially all.
*1133The Commissioner contends that the evidence in this appeal does not show that the stock owned by Huguley was controlled either practically or in any other manner by the Gamón Company; that, with the exception of a difference in the amount of stock owned, each stood upon the same plane, the fact that the minority stockholder agreed to vote his stock in harmony with the Gamón Company not being important as showing control by that company. He further contends that, upon the incorporation of the Specialty Company, the disunification became complete; and that, whereas formerly the Gamón Company owned the snap-fastener business, conducting it as a branch, it is now only a stockholder in another corporation, which in turn owns and operates the business, the earnings of which belong to another, 20 per cent of which the Gamón Company could never claim; that what was formerly one unit has now become two units; and that the Gamón Company did not legally own or control substantially all of the stock of the Specialty Company. It is further pointed out by the Commissioner that had the Gamón Company owned substantially all of the stock of the Specialty Company, or had it legally controlled substantially all of the stock, then there would have been a real unity, in which case the two corporations could have been considered as identical in substance and therefore treated under the statute as one.
As the Board has pointed out in Appeal of Isse Koch & Co., 1 B. T. A. 624, the control contemplated by the statute is practical and actual control of stock and not technical legal control. We are of the opinion from the evidence in this appeal that the Gamón Company controlled all of the stock of the Specialty Company, and that the interests of the Gamón Company and Huguley were closely affiliated. The Gamón Company owned 80 per cent of the stock, and, while it did not own the remaining 20 per cent, which had been given to Huguley, it actually controlled that stock in the years involved as completely as if it had owned it.
The evidence shows that in July, 1917, the Gamón Company commenced the manufacture of snap fasteners for ladies’ dresses, the same being carried on under its name and in its plant with machinery theretofore used for other purposes, but adaptable to the manufacture of snap fasteners. At that time, desiring to increase its output, it acquired for cash the plant of Huguley, a competitor, arranging with him to manage the snap-fastener branch of its business. In August, 1917, taxpayer organized a corporation under the name of the Specialty Products Company for the purpose of carrying on its snap-fastener business. . The costs of acquirement of a competitor’s plant, improvement of the same, the extension of its own plant for the manufacture of snap fasteners, and the cost of organization of the Specialty Company were paid by the taxpayer. The total of such expenditures, including advances to the Specialty Company, amounted in 1917 to $30,109.08, in 1918 to $57,352.39, and up to December 31, 1919, to approximately $100,000. fío one other than the Gamón Company at any time advanced or invested any money or other thing of value in the Specialty Company.
Upon organization in August, 1917, the Specialty Company issued $50,000 common stock, $40,000 represented by 400 shares issued *1134in the names of the officers of the Gamón Company, the same stock being immediately endorsed by them and placed in the treasury of the Gamón Company; and the remaining $10,000 of stock, represented by 100 shares, being issued in the name of Huguley, the manager of the snap-fastener branch of the taxpayer’s business. Huguley had, however, no financial interest in the business of the Gamón Company other than as an employee in the snap-fastener department. He had no connection with the organization of the Specialty Company. He paid nothing for the 100 shares of stock of this corporation issued to him, nor did he at any time invest in the Specialty Company any money or other thing of value. His former business had been acquired for cash by the Gamón Company prior to the organization of the Specialty Company and he had been employed to manage the snap-fastener department of the business at the moderate salary of $50 per week. He had perfected an automatic machine for the manufacture of snap fasteners; therefore, the officers of the Gamón Company felt that the expected success of the Specialty Company would depend to a large extent upon Huguley’s efforts and his knowledge of the business. It was their intention, at the time they gave him 100 shares of the stock in the Specialty Company, that he should measure future increases in salary by dividends upon the stock, depending upon his successful operation for the taxpayer of that establishment. At the time of the incorporation of the Specialty Company, Hughley was informed of the intention to issue to him 100 shares of stock in the new corporation, being at the same time informed of the purpose of the organization; also of the fact that the stock would be issued to him only upon the condition that he would at all times accord with whatever action the Gamón Company should take in respect to the affairs of the Specialty Company; that he would always vote the stock as the directors of the Gamón Company desired it voted, and that he would not sell or dispose of the stock, except with the consent of the Gamón Company. This was agreed to by Huguley, the agreement being strictly carried out during the years involved. The evidence also shows that the Gamón Company caused the 100 shares of stock to be issued to Hug’uley only on condition that it would at all times control the same. The question, therefore, is: Did the Gamón Company own or control substantially all of the stock of the Specialty Company? The uncontradicted facts, in our opinion, show that the Gamón Company actually controlled all the stock. It knew that if the business of the Specialty Company should grow, as was .hoped, the question of increased salary would arise. In anticipation thereof, as well as to encourage Huguley to make the business a success by providing an incentive for him in the expectation of receiving dividends measured by the success of the business, this stock was issued to him without consideration, and on condition that it would be controlled by the Gamón Company. In these circumstances, during the years 1918, 1919, and 1920, the Gamón Company, being the owner of 80 per cent of the stock, actually controlled the remaining 20 per cent owned by Huguley until that stock was acquired by it in 1923. Accordingly, it is held that the Gamón Company and the Specialty Company were affiliated during these years.