dissenting: I do not agree that this proceeding presents a proper case for special assessment, especially on the ground on which the majority opinion places it. The concluding part of the majority opinion reads, “There was an abnormality in petitioner’s capital of such magnitude as to entitle it to have its profits taxes computed under section 328 of the Revenue Act of 1921.” (Citing cases.) As I see it, there was not only no abnormality in petitioner’s capital of a large magnitude, but, on the contrary, there was no abnormality at all.
Petitioner was organized in 1909 with a cajoital stock of $6,800,000, divided into 136,000 shares of the par value of $50 each. All of these shares were subscribed for by stockholders of the Delaware, Lackawanna and Western Railroad Company and the full amount was paid in cash. The Commissioner allowed this invested capital in his computation and I fail to see where petitioner has any ground for complaint.
The majority opinion cites, in support of the conclusion reached, such cases as J. M. & M. S. Browning Co., 6 B. T. A. 914; Clarence Whitman & Sons Co., 11 B. T. A. 1192; Concrete Engineering Co., 19 B. T. A. 212. I do not think these cases are in point. These are cases where the corporation had acquired valuable assets and was prevented from including them in invested capital by reason of the prohibitions contained either in section 326(a)(3) or section 331 of the applicable revenue acts.
To illustrate, in Clarence Whitman & Sons Co., supra, Clarence Whitman, who had been carrying on a valuable business for many years, covenanted and agreed with the newly organized corporation, Clarence Whitman & Sons, Inc., that it should have the exclusive right to use his name in connection with its business throughout the world and that he would not use or willingly permit the use of his name in connection with a competing business. He also transferred to the newly organized corporation all the good will attaching to his name. On June 3, 1918, in consideration of the said transfer of good will and in consideration of the said agreements, *1335the corporation, Clarence Whitman & Sons, Inc., issued $1,000,000 par value of its common stock to Clarence Whitman. In that case we held that the trade name and good will which Clarence Whitman transferred to the corporation had a cash value at that time of at least $412,500. That amount was “ paid in ” to the corporation. But we further held that, on account of the provisions of section 331 of the Revenue Act of 1918, petitioner was not entitled to include these intangibles in invested capital, because they had cost the trans-ferror, Clarence Whitman, nothing.
We further held that this exclusion from invested capital by reason of a prohibition contained in the statute, coupled with the fact that these intangible assets were the principal factor contributing to the production of the income, created an abnormality, which entitled the taxpayer to special assessment.
This sort of a case, as I view it, is no precedent for the majority opinion of the Board in the instant case. In the instant case there has been no “ paying in,” so far as I have been able to find from the facts stated in the opinion, of intangible assets for capital stock as there was in Clarence Whitman & Sons, Inc., supra, or even for a nominal consideration as there was in J. M. and M. S. Browning Co., supra, and Concrete Engineering Co., supra. There was no “ paying in ” at all, so far as I have ascertained from the facts, by the Delaware, Lackawanna & Western Railroad Company of any assets, either tangible or intangible, to the newly organized corporation, Delaware, Lackawanna and Western Coal Company. The latter corporation was organized in the regular way and its entire capital stock was subscribed and paid for in cash to the amount of $6,800,000. Thereupon the newly organized corporation made an advantageous contract with the railroad company, but I can not see where that fact creates the slightest abnormality in petitioner’s invested capital.
The situation, it seems to me, is very similar to that which we had before us in the recent case of Western Indiana Gravel Co., 25 B. T. A. 654. In that case the Northern Railroad, a part of a system operated by the Cleveland, Cincinnati, Chicago & St. Louis Railroad, owned some valuable gravel pits which it was operating. The railroad was advised by its counsel that it did not have the necessary powers to sell its surplus gravel in the market. Thereupon certain individuals connected with the railroad and some of their associates organized the Western Indiana Gravel Company, with a capital stock of $100,000. Certain advantageous contracts were executed between the railroad and the newly organized corporation, Western Indiana Gravel Company. One hundred thousand dollars of the corporation’s capital stock was issued to these individual incorporators in consideration of a purported transfer of these valuable contracts *1336by them. The corporation sought to include this $100,000 in its invested capital for the taxable year which was before us. We said, “ No.” The contracts were not “ paid in ” to the corporation by these stockholders or anybody else. They were not the owners of the contracts. The corporation made the advantageous contracts itself with the railroad without cost; hence, the contracts cost it nothing and therefore did not represent any invested capital, and the corporation was not entitled to include the value of the contracts in its invested capital. In denying special assessment, we said:
It remains to decide whether the exclusion from invested capital of the value of the four contracts in itself creates an abnormality. It is perfectly clear, at the outset, that the mere statutory exclusion of an asset from invested capital does not of itself justify special assessment. Morris & Co., 1 B. T. A. 704; W. E. Beckmann Bakers’ & Confectioners’ Supply Co., supra; Sanford Cotton Mills, 14 B. T. A. 1210; Enameled Metals Co., 14 B. T. A. 1392; J. D. Williams, Inc., 22 B. T. A. 21.
Engrafted on this rule, however, is the exception adopted in J. M. and M. S. Browning Co., 6 B. T. A. 914, w'here the asset excluded for statutory reasons is a substantial part of its capital and productive of a very substantial part of the taxpayer’s income. Clarence Whitman & Sons, Inc., 11 B. T. A. 1192; Detroit Opera House, 13 B. T. A. 587; Rothschild, Colortype Co., 14 B. T. A. 718.
But the petitioner can not avail itself of this exception, for in the above cases the asset excluded for statutory reasons was paid in for stock, and while the asset was not part of the invested capital, as defined by the statute, it was nevertheless an unrecognized capital asset largely productive of the petitioner’s income, so that its exclusion would result in abnormality. Such is not the case here. The contracts were not paid in for stock, so that the petitioner has not met the first condition of its claim. Electric Appliance Co., 19 B. T. A. 707; Washington Electric Supply Co., 9 B. T. A. 1399.
The facts in Electric Appliance Co., supra, were substantially as follows: The Electric Appliance Company of Chicago, an Illinois corporation, had established a large and profitable business on the Pacific Coast as well as elsewhere. Due to California laws and other considerations, it was determined in 1905 to incorporate the San Francisco branch as a separate corporation, and this was done under the name of the Electric Appliance Company. This latter company succeeded to all the business and good will of the Illinois company in the California territory, without paying anything for it and the Illinois corporation withdrew from that field. The stock of the California corporation was not taken by the Illinois corporation, but most of it was taken by the stockholders of the Illinois corporation.
Fifteen years later, to wit, 1919 and 1920, the Electric Appliance Company ,of California, petitioner, asked for special assessment on the ground that this transaction back in 1905, whereby it succeeded to the business of a going concern without having to pay anything *1337for it, except to make payment for physical assets, created an abnormality in both its capital and income in 1919 and 1920, which would entitle petitioner to special assessment. This plea was denied on the authority of Moses-Rosenthal Co., 17 B. T. A. 622, and Coca-Cola Bottling Works of Pittsburgh, 19 B. T. A. 267. Cf. Washington Electric Supply Co., 9 B. T. A. 1399.
For the reasons stated, I do not believe that the situation in the instant case is one which calls for special assessment under sections 327 and 328 of the Revenue Act of 1921, and that special assessment should be denied.
Smith agrees with this dissent.