*3008 The year in which certain real property was sold determined.
*996 By these proceedings, which were consolidated for hearing and decision, the petitioner seeks a redetermination of its tax liability for the fiscal years ended November 30, in 1920, 1922, 1923, and 1924, for which years deficiencies have been proposed in the respective amounts of $19,711.48, $1,873.17, $3,121.08, and $5,093.62. The sole issue is whether the profit realized on the sale of certain real property is taxable in the fiscal year 1920 or 1921. At the hearing respondent filed an amended answer to the amended petition filed under Docket No. 18941, asking that, in case we find that the sale was closed in the fiscal year 1920, the whole profit on the sale be taxed to petitioner in that year and that the proposed deficiency be increased to $67,246.95.
*997 FINDINGS OF FACT.
The petitioner, a Michigan corporation with principal offices at Detroit, prior to March 1, 1913, acquired approximately an acre of ground on Mack Avenue, Detroit, at a cost of $33,312.26. On September 24, 1920, the*3009 petitioner entered into the following written agreement for the sale of the property:
THIS CONTRACT, Made this 24th day of September, A.D. 1920, between Grace Harbor Lumber Company, a michigan corporation, of the City of Detroit, Wayne County, Michigan, party of the first part, and Roehm & Davison, Michigan corporation, of the saem place, party of the second part.
Witnesseth, the party of the first part, in consideration of the payments to be made and the agreements to be performed by the party of the second part, as hereinafter set forth, agrees to sell and convey to the said party of the second part, the following described land, situated in the City of Detroit, Wayne County, Michigan, to wit: Lots seven (7), eight (8), nine (9), sixty-one (61), sixty-two (62) and the north twenty (20) feet of lot fifty-nine (59) of Walker & Radcliffe's subdivision of that part of out lots nine (9) and ten (10) Whipple's subdivision of out lots twenty-six (26) and twenty-seven (27) Meldrum Farm, between Meldrum and Beaufait Avenues, and north of Berlin Street, Detroit, also that portion of out lot twenty-five (25) of the Meldrum Farm lying between lots sixty-one (61) and sixty-two (62) of said*3010 Walker and Radcliff's subdivision, for the sum of One Hundred and fifty-five Thousand ($155,000.00) dollars, which the said party of the second part agrees to pay to the said party of the first part as follows: Thirty Thousand ($30,000) dollars on the delivery hereof, the receipt whereof is hereby confessed and acknowledged, Twenty-five Thousand ($25,000) dollars on the vacating of the property by said first party and the balance of One Hundred Thousand ($100,000) dollars in yearly payments of Ten Thousand ($10,000) dollars payable on the first day of September, 1921, and on the first day of September every year thereafter until fully paid, with interest on all sums at any time unpaid hereon at the rate of six per cent per annum, payable semi-annually on the first days of March and September in each year until said sum is fully paid.
Said party of the second part further agrees to enter said premises for taxes in its own name and to pay within 30 days after the same shall become payable all taxes and assessments, extraordinary as well as ordinary, that may be levied thereon, including the taxes thereon for the year 1921.
Said party of the second part further agrees that it shall*3011 and will keep the buildings and improvements upon and to be replaced upon said premises insured in a responsible insurance company, and to an amount to be approved by said party of the first part, for the benefit of the party of the first part, until the purchase money is fully paid; and that said party of the second part shall and will keep the buildings and all other improvements upon said premises in good repair.
In case the party of the second part shall fail to pay all taxes and assessments or to insure the premises as hereinbefore provided, the party of the first part may pay and discharge said taxes and assessments and effect such insurance, and the amounts paid therefor by the party of the first part shall be deemed a part of the principal sum hereof, and become payable forthwith with interest at the rate of 7 per cent per annum until paid.
*998 Should any of the buildings now upon said premises be destroyed by fire before May 15th, 1921, then the insurance upon any such buildings shall belong to said first party and said second party shall not be entitled to any credit therefor.
Said party of the second part shall not use said premises or any part thereof as*3012 a lumber yard, or lease the same for that purpose.
In case said party of the second part shall make default in the payment of any of the installments of principal, interest, taxes or insurance above provided, and shall so remain for a period of thirty days, then said party of the first part may at its option, declare the whole purchase price of this contract immediately due and payable, anything herein contained to the contrary notwithstanding, and the waiver of any default by the party of the first part shall not extend to any other default.
It is Agreed, by the parties hereto, that the said party of the first part, on receiving the payment in full of said principal and interest and of all other sums chargeable in its favor hereon, and the performance of all the agreements of the party of the second part herein contained, in the manner and at the time above limited therefor, and upon the surrender of this contract shall and will at its own proper cost and expense furnish a good and sufficient Warranty Deed of said above described premises, free and clear of and from all liens and incumbrances, except such as may have accrued on said land subsequent to the date hereof, by or*3013 through acts or negligence of said party of the second part, and which deed shall contain the same building restrictions contained in this contract.
Said party shall have the right to remove any of the buildings or parts of said buildings now upon said above premises before said 15th day of May, 1921, except the brick garage.
It is Further Agreed, that this said party of the second part shall have possession of said land upon May 15th, 1921, and shall be entitled to retain possession thereof so long as there is no default upon its part in carrying out the terms of this contract.
It is Further Agreed, by the parties hereto, that time shall be of the essence of this contract and that if the said party of the second part shall fail to make any of the payments or perform any of the conditions above set forth, in the manner and at the time above limited therefor, the party of the first part shall, immediately after such failure, have the right to declare this contract void, and to retain whatever may have been paid hereon, and the premises, together with the buildings and improvements thereon, and may consider and treat the party of the second part as its tenant holding over without*3014 permission and may take immediate possession of the premises and remove the party of the second part therefrom.
It is Further Agreed, that the taking or obtaining possession of said premises by the party of the first part in case of default on the part of the party of the second part in any of the conditions and terms of this contract shall not prevent said party of the first part from instituting a suit at law to recover the balance due upon this contract, should he so elect.
It is Further Agreed, by the parties hereto, that the said party of the second part shall not assign this contract without the consent of the party of the first part being first endorsed in writing hereon and on the duplicate copy hereof held by the part of the first part.
The covenants, conditions and agreements herein contained shall be for the benefit of and binding upon the several parties hereto, and their respective successors, heirs, representatives and assigns.
*999 By the first of April, 1921, the petitioner had completed the removal of lumber and other material from the premises, and on or about that date, it notified the purchaser that it could have possession of the primises at*3015 any time thereafter. Possession was taken by the buyer on April 4, 1921.
The full purchase price of the land sold was paid as follows:
| September 24, 1920 | $30,000 |
| April 4, 1921 | 25,000 |
| September 1, 1921 | 10,000 |
| September 1, 1922 | 10,000 |
| March 22, 1923 | $20,000 |
| September 1, 1923 | 10,000 |
| September 8, 1924 | 10,000 |
| September 18, 1924 | 40,000 |
Interest was paid on the unpaid installments in accordance with the contract.
In and after September, 1920, the buyer was financially able to make good the promise to pay made in the contract of September 24, 1920.
The petitioner paid the city and county taxes on the property for the year 1920, on December 31, 1920, their due date. Petitioner's books were kept on the accrual basis.
All of the profit computed by the petitioner on the sale was reported in its return for the fiscal year ended in 1921. On an audit of the return, respondent determined that the March 1, 1913, value used by the petitioner in computing the profit returned was erroneous. He also determined that the sale was closed in the fiscal year ended in 1920 and taxed all of the profit to be realized on the sale on an installment basis.
OPINION.
*3016 ARUNDELL: The contract entered into on September 24, 1920, provided for an installment payment of $25,000 "on the vacating of the premises" by the petitioner; for the payment of interest on the unpaid purchase price from the date of the contract; for the entry of the premises for taxes in the name of the buyer; for the placement of insurance on the buildings and other improvements on the land for the benefit of the petitioner; for the delivery of possession "upon May 15, 1921," and gave the seller the right to declare the whole purchase price immediately due and payable in case the vendee defaulted in the payment of any of the installments of principal, interest, taxes or insurance, and remained in default for a period of 30 days. The buyer paid interest on the unpaid purchase price of the property from the date of the agreement. The record does not disclose whether the vendee entered the property for taxes in its name or whether it covered the improvements on the premises with insurance, as it agreed to. For reasons not explained, the petitioner paid the city and county taxes on the property for the year 1920.
*3017 *1000 A situation similar to the one here was before the court in the case of . The plaintiff in that case entered into a contract on November 20, 1919, with purchasers, at all times financially able to pay, for the sale of certain real property, conditioned alone on the title being found satisfactory to the vendees. In December, 1919, the purchasers notified the seller that title was satisfactory to them, and on June 1, 1920, in accordance with the terms of the contract, they paid the balance of the purchase price. Between December, 1919, and June, 1920, the seller was permitted to remain on the premises in consideration of its payment of taxes for one-half of the year 1920. After concluding that the dominion, control, burdens, and benefits of the property passed to the purchasers in the year 1919, the court, in holding that the profit realized on the sale was taxable in the year 1919, said:
As the contract for the sale of the property, fixing the terms of the sale made, the amount of the purchase price to be paid, and all other of its terms, including the present payment of $10,000, was performed*3018 in the year 1919, the amount of profits taxable must have been determined as of that year as readily and absolutely as the date the conveyance was delivered and the deferred payment made.
Counsel for the petitioner argues that the Davidson & Case Lumber Co. case is not in point, since the plaintiff in that proceeding remained on the property as a tenant after the sale was made absolute. At the time the contract in question here was entered into, the petitioner had a large quantity of lumber, doors, and other material on the premises which it desired to remove through sale in the regular course of its business as a retailer of lumber rather than transfer it to another yard at greater expense. Promptly upon the execution of the sale contract the petitioner proceeded to sell its stock of material without making any replacements. It had disposed of all the material by April 1, 1921, when it notified the buyer that it was ready to quit the premises and give the vendee possession. Petitioner's vice president in 1920 and 1921, in answer to a question propounded to him in cross-examination as to the reason the buyer took possession on April 4, 1921, about six weeks prior to May 15, 1921, testified*3019 as follows:
Just as we told them, they were to pay us $25,000 when we were ready to give them possession. We notified them that we were ready to give them possession and we would like the $25,000.
From this testimony, and the acts of the parties, together with the fact that the contract provided for the making of the second payment, not on May 15, 1921, but "on the vacating of the property," it appears that the parties to the contract intended May 15, 1921, to be the latest date on which to transfer physical possession of the *1001 premises, and that from September 24, 1920, the seller occupied the property with the permission of the vendee.
Petitioner's counsel concedes in his brief that a binding contract was entered into in 1920, that the vendee was at all times financially able to discharge its obligations under the agreement, and that the seller was also able and willing to carry out its part of the contract.
That the parties to the agreement intended to close the sale with the execution of the instrument seems clear from the fact that the vendee paid interest on the unpaid purchase price from the date of the contract and agreed to list the property for taxes*3020 in its name, pay all taxes and assessments, and cover the improvements on the land with insurance, all of which are acts incident to ownership of the property. According to our view of the transaction, the buyer's title to the property was as good in 1920 as it was in 1921, and the profit to be realized on the sale could have been determined as readily in the former year as in the latter one. With the exception of the second payment, the petitioner was as well off then as regards the closing of the deal as it was in the year 1921. Construing the contract as a whole in the light of the acts of the parties thereunder, we are of the opinion that the sale was closed in 1920, and that the profit to be realized on the transaction is taxable in that year. Upon the execution of the contract of sale on September 24, 1920, the purchaser held the equitable title to the property and the petitioner held the legal title in trust for the vendee. ; , and ; *3021 .
The purchase price of the property in question was $155,000, of which $30,000, or about 20 per cent of the sale price, was paid in the year 1920. The initial payment being less than 25 per cent of the purchase price, the petitioner is entitled by the provisions of sections 212(d) and 1208 of the Revenue Act of 1926, and regulations promulgated thereunder, to return the income from the transaction on the installment basis.
Judgment will be entered under Rule 50.