OPINION.
SteRNhagen:The Commissioner determined deficiencies in petitioner’s income taxes for 1924, 1925, 1926, and 1927. Those for 1924, 1925, and 1927 have been entirely settled by a stipulation, and paid. For 1926 the deficiency was determined to be $15,342,369.45, and the controversy turns upon whether transactions whereby the petitioner acquired the assets of the Fisher Body Corporation resulted in gain; which, under the Revenue Act of 1926, section 203, properly escapes recognition, as contended by petitioner, or resulted in taxable profit by way of a liquidation distribution, as contended by respondent. The facts have been stipulated in detail and need not be specially found. They can be briefly stated. The plan is the same as that considered in Charles T. Fisher, 34 B. T. A. 1215.
The petitioner, a Delaware corporation with principal office at Detroit, Michigan, is engaged in the manufacture and sale of automobile parts. In June 1926 it owned 1,402,920 shares, or about 58 percent, of the outstanding common stock of the Fisher Body Corporation, a New York corporation, which manufactured automobile bodies and parts and furnished petitioner with all bodies required by it, under a 10-year contract beginning November 1, 1919. For a 6-month period ending June 30, 1926, the Fisher Body Corporation’s sales amounted to about $126,000,000, and about 87.27 percent of its business was done with petitioner.
For reasons germane to its business, petitioner, in the early part of 1926, decided to acquire the assets of the Fisher Body Corporation. After preliminary negotiations, the two corporations adopted a plan whereby, in June 1926, the Fisher Body Corporation trans*524ferred all its assets to petitioner in exchange for 1,600,000 of petitioner’s common shares and the assumption by petitioner of all the liabilities of the Fisher Body Corporation. The Fisher Body Corporation immediately distributed the 1,600,000 shares among its shareholders and dissolved. As a shareholder of the Fisher Body Corporation, petitioner received in the liquidation 935,280 of its own common shares, represented by certificate WC 21242.
The 1,600,000 common shares of petitioner which the Fisher Body Corporation received consisted of 638,401 shares of original issue, 26,319 shares of treasury stock, and 935,280 shares represented by certificate' WC 21242, which, on June 23, 1926, had been borrowed for 30 days from the General Motors Securities Co., an unaffiliated corporation, for use in carrying out the plan. Petitioner was to return 935,280 shares to the Securities Co. upon receipt by petitioner of its distributive part of the 1,600,000 shares. The stipulation states that it was intended that full title pass from the Securities Co. to petitioner in order that petitioner might pass full title to the Fisher Body Corporation, and it was expected that petitioner would receive back this certificate as its distributive share in the liquidation of the Fisher Body Corporation, and would then return it to the Securities Co. in full satisfaction of its obligation. The same certificate was returned to the Securities Co. on July 1,1926.
. The fair market value of 1,600,000 common shares of petitioner on June 30, 1926, was $237,500,000, or 148^ a share. The fair market value of a share on July 1, 1926, was 147yg. The value of its own shares which petitioner received on the liquidation of the Fisher Body Corporation was $138,830,625; the cost of its 1,402,920 shares of Fisher Body Corporation stock was $31,254,825. The Commissioner determined that the difference of $107,575,800 was taxable gain.
The petitioner contends that no gain from the above transactions may be recognized in 1926 because they constituted a statutory reorganization, Bevenue Act of 1926, sec. 203 (b) (2)1 or (3).2 Beorgani-zation is defined as, among other things, a merger, including the acquisition by one corporation of substantially all the properties of another, sec. 203 (h) (1) (A) .3 The petitioner acquired all the prop*525erties of the Fisher Body Corporation in exchange for its own shares, and, therefore, so much of what was done falls clearly within the statutory definition of reorganization. Charles T. Fisher, supra. The acquisition of the Fisher properties was the paramount object to be achieved, for purely business reasons, and therefore Gregory v. Helvering, 293 U. S. 465, is inapplicable. What the parties wanted was that petitioner should own and operate the Fisher plant and business as part of its own business, and everything that was done was in adjustment to that end. The borrowing of shares and their transfer, the liquidation and dissolution of the Fisher Corporation, and the return of the borrowed shares, were incidents of this paramount purpose, Charles T. Fisher, supra. Therefore, when it appears that the acquisition of the properties is itself a statutory reorganization in which gain or loss escapes recognition, it is not easy to say that the same gain or loss is nevertheless to be recognized in an incidental transaction used in carrying the purpose to completion. And, of course, it is not necessary, or indeed proper, to conclude how this reorganization may affect the taxes of the participants in future years.
This reorganization was planned and accomplished in 1926, when the law of the subject was still uncertain in respects no longer doubtful. Since Helvering v. Minnesota Tea Co., 296 U. S. 378, it is clear that the absence of liquidation and dissolution does not prevent the recognition of a statutory reorganization. A liquidation which follows but is not essential to a reorganization which is not a merger or consolidation under (A) of the definition, may result in taxable gain under section 201 (c).4 Liquidating Co., 33 B. T. A. 1173. But where the liquidation and dissolution are essential to the reorganization because the reorganization is by way of merger in its broad sense, Pinellas Ice & Cold Storage Co. v. Commissioner, 287 U. S. 462, they do not serve to justify recognition of gain under section 201, which escapes by virtue of section 203. “Both can have effect, and if one does somewhat overlap the other the taxpayer should not be denied, for that reason, what one paragraph clearly grants him.”' Helvering v. Minnesota Tea Co., supra.
If, however, the liquidation of the Fisher Body Corporation be separately regarded, wherein the petitioner, being the holder of *5261,402,920 Fisher shares which had cost it $31,254,825, received 935,820 •of its own shares, worth $138,830,625, it involves no gain -which may be recognized. In this, the situation is in all substantial respects like that in Helvering v. Winston Brothers Co., 76 Fed. (2d) 381. a case which had full consideration in the Board, 29 B. T. A. 905; 28 B. T. A. 1248, and was affirmed by the United States Circuit Court of Appeals for the Eighth Circuit.
There is argument by the Commissioner that gain resulted from the transactions with the Securities Co., either because the use and return of the borrowed 935,280 shares is upon analysis similar to a short sale, or because the borrowing created a debt to the Securities Co. in the amount of the value of the shares when borrowed, which was discharged by the shares received from the Fisher Body Corporation in exchange for the Fisher shares, which had a lower cost. Cf. Kirby Lumber Co. v. United States, 284 U. S. 1. Both of these arguments are based upon concepts of the arrangements with the Securities Co. at variance with the true fact. This was simply a borrowing by petitioner of 935,280 shares to be used for a few days and returned in kind. There wras no financial debt, but only a potential .liability in damages for failure to return the shares. The return of -.the shares involved neither gain nor loss. The analogy of a short sale falls because the borrowed shares were not used to effectuate a sale or a ■ covering purchase, but in perfecting a reorganization wherein gain or Joss is not to be recognized.
The respondent’s determination as to 1926 is reversed.
Reviewed by the Board.
Judgment will be entered itnder Rule 50.
Turner dissents.(2) No gain or loss shall be recognized if stock or securities in a corporation a party to a reorganization are, in pursuance of the plan of reoi’ganization, exchanged solely for stock or securities in such corporation or in another corporation a party to the reorganization.
(3) No gain or loss shall be recognized if a corporation a party to a reorganization exchanges property, in pursuance of the plan of reorganization, solely for stock or securities in another corporation a party to the reorganization.
(h) As used in this section and sections 201 and 204—
(1) The term “reorganization” moans (A) a merger or consolidation (including the acquisition by one corporation of at least a majority of the voting stock and at least a majority of the total number of shares of all other classes of stock of another corporation, or substantially all the properties of another corporation) * * *.
(c) Amounts distributed in complete liquidation of a corporation shall be treated as-in full payment in exchange for the stock, and amounts distributed in partial liquidation of a corporation shall be treated as in part or full payment in exchange for the stock. The gain or loss to the distributee resulting from such exchange shall be determined under section 202, but shall be recognized only to the extent provided in section 203. In the case of amounts distributed in partial liquidation (other than a distribution within the pi'Ovisinns of subdivision (g) of section 203 of stock or securities in connection with a reorganization) the part of such distribution which is properly chargeable to capital account shall not be considered a distribution of earnings or profits within the meaning, of subdivision (b) of this section for the purpose of determining the taxability of subsequent distributions by the corporation.