*68 Decision will be entered under Rule 50.
In 1936 Ford Motor Company began the production and sale of Ford transit buses. Ford manufactured the chassis, had the body built thereon by Union City Body Company, and sold the completed buses through its transit bus dealer organization. Early in 1941 the petitioner was organized. It contracted with Ford to buy transit bus chassis and with Union City Body Company to build the bodies thereon. It then sold the completed buses through its transit bus dealer organization which it had taken over from Ford. The fair and just amount representing normal earnings to be used as the petitioner's constructive average base period net income determined.
*999 The respondent determined deficiencies and overassessments in the petitioner's income and excess profits taxes as follows:
| Overassessment | ||
| Deficiency in | of excess | |
| Year | income tax | profits tax |
| Jan. 31 to Nov. 30, 1941 | $ 1,265.77 | $ 4,083.13 |
| Ended Nov. 30, 1942 | 1,844.18 | 3,759.73 |
| Ended Nov. 30, 1943 |
The petitioner filed claims for relief and refund under section 722 of the Internal Revenue Code for each of the foregoing taxable years. *1000 The respondent determined that petitioner qualified for relief under section 722 (c) (1) of the Code and allowed in part petitioner's claims for refund for the fiscal period ended November 30, 1941, and the fiscal year ended November 30, 1942. With respect to the fiscal year ended November 30, 1943, he determined that recomputation of petitioner's excess profits tax liability on the basis of the constructive average base period net income found and determined would result in a tax liability greater than that computed without the benefit of section 722, and for that year the claim was disallowed in full. The only question presented for decision is whether $ 15,000, as*70 determined by the respondent, was a fair and just amount to be used as constructive average base period net income for petitioner under section 722 (a) of the Code, and if not, what would be a fair and just amount.
FINDINGS OF FACT.
Part of the facts have been stipulated and are found accordingly.
The petitioner is an Indiana corporation, organized on January 31, 1941, and has its principal office in Union City, Indiana. Its income and excess profits tax returns, prepared from books kept on an accrual basis, for the taxable years involved were filed with the collector of internal revenue for Indiana.
The authorized capital stock of the petitioner was $ 50,000 divided into 5,000 shares of common stock without par value. The authorized capital stock remained the same throughout the taxable years here involved. All of the petitioner's authorized capital stock of 5,000 shares was subscribed for by Union City Body Company, of Union City, Indiana, sometimes hereafter referred to as Union Body. On February 8, 1941, the officers of Union Body purchased 2,352 shares of stock in the petitioner and immediately thereafter sold it to Frank R. Geisler, general manager of the petitioner, for*71 $ 23,520. The remaining 2,648 shares of the stock were distributed by Union Body to its stockholders as a dividend.
Prior to 1936 Union Body built automobile and school bus bodies and bodies for other related types of transportation. In 1932 or 1933 it set up a distributorship of about twenty-five persons in various parts of the United States for school bus bodies. Beginning with 1936 and continuing thereafter, it built only commercial units such as bus bodies, truck cabs, special delivery bodies, and school bus bodies. It also manufactured an all-steel seat which was sold to the International Seat Corporation as distributor.
Union Body built school bus bodies on chassis produced by various automobile manufacturers including Ford Motor Company, of Dearborn, *1001 Michigan, sometimes hereafter referred to as Ford. Prior to 1936 Ford had never produced and marketed a transit bus -- the name used in the trade for a type of bus that handles traffic within a city. Nor had Union Body made any transit bus bodies. Early in 1936 Ford and Union Body began experimental work on a transit bus. Union Body was to develop and build the body and Ford was to revamp its chassis to meet *72 specifications for a transit bus. After Ford and Union Body had worked closely together for a number of months a demonstration bus known as the Ford transit bus was produced and Ford obtained a purchase order therefor from the Detroit Street Railway Company, sometimes hereafter referred to as Detroit Railway. In November 1936, the first bus was delivered under the order.
The original Ford transit bus was a 25-passenger bus, the smallest type that was sold for general city transit use. In 1936 the smaller buses were not in general use in the major cities, but there was a trend to them on the theory that they could be operated more economically than large buses. However, from the time Ford entered the transit bus field until the present time, the larger type buses have been more generally used in the cities.
Ford was reluctant to make a commitment with Union Body for a large quantity of transit bus bodies prior to the time it had obtained orders for the buses. Consequently, after Ford had obtained the Detroit Railway order, Union Body agreed to build bodies on purchase orders from Ford so that the bodies would be built as Ford sold the buses. Under that arrangement Ford would send*73 purchase orders to Union Body for a given number of buses and would deliver the required number of Ford bus chassis, the completed bus to be delivered to a designated Ford dealer for delivery to the customer. Union Body would then build a bus body on the chassis on a production line and when the bus was completed, deliver it as directed and bill Ford for the body.
During 1936 through 1940, H. D. Fitzgerald, president of Union Body, worked closely with Ford in the production of the Ford transit bus. He spent about one-third of his time at the Ford offices and was familiar with the methods employed by Ford in selling the Ford transit bus during those years. About the end of 1940, Ford and Union decided to change the arrangement under which the Ford transit bus had been produced and marketed. At the suggestion of Fitzgerald, it was decided that a new corporation would be formed to act as a national distributor for the buses. Ford would sell the chassis to it and it would be responsible for getting the body built on the chassis *1002 and for the distribution and sale of the completed bus. The petitioner was organized to perform such activities.
On February 11, 1941, the petitioner*74 entered into a contract with Ford, wherein Ford agreed to sell transit bus chassis, parts, and accessories to petitioner at such prices as were from time to time established by Ford (f. o. b. its plant in Dearborn, Michigan), plus a sum equal to, or in reimbursement for, any Federal, state, or municipal taxes imposed on the manufacture, ownership, use, or sale of the Ford products sold to petitioner. All prices were subject to change from time to time. Petitioner agreed to arrange for the mounting of a transit bus body on the chassis and sell the completed bus as a "Ford Transit Bus." Ford agreed to cooperate with the petitioner in engineering a transit bus body and to provide engineering services for any change occurring in the body. Petitioner agreed not to change or depart from the plans and designs approved by Ford. Petitioner agreed to maintain a place of business acceptable to Ford, to display Ford signs thereon, to use Ford tools and equipment recommended by Ford, and to avoid any trade practices injurious to the Ford name. Ford was to loan advertising signs to petitioner for use by it and its dealers. Petitioner agreed to furnish necessary advertising, which was to be*75 approved by Ford, at no expense to Ford, with the exception of service and inspection manuals which were to be furnished by Ford. The petitioner agreed to have one or more new Ford transit buses of current model available at all times, in good running order and presentable for demonstration purposes. The contract continued in effect throughout the taxable years involved.
In the negotiations with Ford prior to the formation of the petitioner and the negotiation of the contract thereafter, it was represented to Ford that, unless some other plan was mutually agreed upon (such as consignment of the chassis), Ford would be paid cash and a "floor plan" arrangement of financing would be employed if the volume was too great for the petitioner's capital. The contract as made provided that petitioner's purchases from Ford would be for cash unless the invoice indicated credit.
After entering into the contract with petitioner, Ford requested and obtained the resignations of all its transit bus dealers. At the same time, it asked them to sign a new dealership contract with petitioner, which they did. These dealers, twelve in number, were located in various large cities scattered throughout*76 the United States. With one or two possible exceptions, they had had transit bus dealerships with Ford since 1936.
On February 18, 1941, the petitioner entered into a contract with Union Body for the purchase of transit bus bodies to be mounted on *1003 Ford transit bus chassis. Union Body agreed to work with the petitioner and Ford on the plans, designs, and engineering of the bodies and agreed that the bodies would meet all the engineering and other requirements imposed on petitioner by its contract with Ford.
Upon organization of petitioner, H. D. Fitzgerald, who was president of Union Body and vice president of International Seat Corporation, became president of petitioner. W. E. Adelsperger, who was secretary-treasurer and general manager of Union Body, became secretary-treasurer of petitioner. Frank R. Geisler, who had been in charge of sales of transit buses for Ford and had been in charge of commercial car and transit bus sales at Ford's Dearborn branch, terminated his services with Ford and became vice president and general manager of petitioner, in charge of its sales. Others who terminated their services with Ford and entered the service of the petitioner, were*77 Ray Smith and Oscar Grundheid. Smith was employed by petitioner as a clerk and stenographer and was in charge of invoicing, collections, and the general routine matters of petitioner's office. Grundheid was employed as service billing clerk and was in charge of the service work.
The petitioner had no plant and did not itself perform any manufacturing operations. Its method of operation was to purchase from Ford a transit bus chassis, deliver it to Union Body which built a body on the chassis in accordance with designs and specifications worked out by Ford, petitioner, and Union Body. The completed bus was sold by petitioner to its dealer which in turn sold it to the ultimate customers.
The petitioner had its own advertising procedure, which it paid for, and it was the duty of petitioner's dealers to contact all the prospective purchasers in the respective territories allocated to them. Some dealerships were better than others because of the potential market existing in those territories and because of the greater ability of some of the dealers.
Prior to the formation of the petitioner, Ford had not only sold transit buses to Detroit Railway, but also had sold transit buses to*78 its dealers. The petitioner continued to sell such buses to Detroit Railway and also sold them to its dealers.
The transit buses sold to dealers by both Ford and the petitioner have been designated by the parties as "Standard," and those sold to Detroit Railway as "DSR." The price at which Ford sold the DSR buses is not known.
The following is a statement of the number of Standard buses delivered by Ford to dealers and Ford's selling price per bus and the *1004 number of DSR buses Ford delivered to Detroit Railway during the period from November 1, 1936, through December 31, 1939:
| Standard | |||
| DSR | |||
| Number | |||
| Number | Selling | ||
| price | |||
| 1936 | |||
| November | 20 | ||
| December | 1 | $ 2,925.00 | 125 |
| Total | 1 | $ 2,925.00 | 145 |
| 1937 | |||
| January | 10 | $ 2,925.00 | 14 |
| To Feb. 19 | 4 | 2,925.00 | 99 |
| February | 2 | 2,950.00 | |
| March | 37 | 2,950.00 | 111 |
| April | 40 | 2,950.00 | 84 |
| May | 15 | 2,950.00 | 46 |
| June | 34 | 2,950.00 | 1 |
| July | 12 | 2,950.00 | |
| August | 18 | 2,950.00 | |
| September | 17 | 2,950.00 | |
| October | 34 | 3,075.00 | |
| To Nov. 10 | 9 | 3,075.00 | 64 |
| November | 17 | 3,137.50 | |
| December | 16 | 3,137.50 | 84 |
| Total | 265 | $ 792,962.50 | 503 |
| 1938 | |||
| January | 4 | $ 3,137.50 | 51 |
| February | 6 | 3,137.50 | 51 |
| March | 8 | 3,137.50 | |
| April | 34 | 3,137.50 | |
| May | 31 | 3,137.50 | |
| June | 19 | 3,137.50 | |
| July | 2 | 3,137.50 | |
| August | 7 | 3,137.50 | |
| September | 0 | 3,137.50 | |
| October | 4 | 3,137.50 | |
| November | 9 | 3,137.50 | |
| December | 2 | 3,137.50 | |
| Total | 126 | $ 395,325.00 | 102 |
| 1939 | |||
| January | 10 | $ 3,137.50 | |
| February | 8 | 3,137.50 | |
| March | 34 | 3,137.50 | |
| April | 0 | 3,137.50 | |
| May | 11 | 3,137.50 | |
| June | 1 | 3,137.50 | |
| July | 1 | 3,137.50 | |
| To Aug. 21 | 4 | 3,137.50 | |
| August | 2 | 3,437.50 | |
| September | 0 | 3,437.50 | |
| October | 4 | 3,437.50 | 37 |
| November | 48 | 3,437.50 | 145 |
| December | 66 | 3,437.50 | 112 |
| Total | 189 | $ 628,987.50 | 294 |
*79 From the date of the production and delivery of the first Ford transit bus, in November 1936, until August 1939, the motor was in the front of the bus. In August 1939, the motor was changed to the rear of the bus. The chassis with the motor in the rear, or rear engine drive, was of a different design and a much better chassis than the former chassis. On August 21, 1939, Ford quoted to its dealers the following prices for a transit bus and chassis with a rear engine drive:
| Suggested retail | Wholesale price to | Wholesale price to | |
| price | Ford dealer * | bus dealer | |
| Ford transit bus | $ 4,600 | $ 4,120 | $ 3,437.50 |
| Ford transit bus chassis | 1,950 | 1,735 | 1,450.00 |
The foregoing prices were wholesale at Dearborn, and did not include tires, taxes, transportation, gasoline, oil, and antifreeze.
The selling prices, including installation but exclusive of price adjustments for extras and changes in specifications, at which Union *1005 Body sold bodies for Standard buses to Ford on the indicated dates, were as follows:
| Date | Price |
| Jan. 26, 1937 | $ 1,859.94 |
| Mar. 16, 1937 | 1,859.94 |
| Mar. 25, 1937 | 1,849.07 |
| Apr. 30, 1937 | 1,772.30 |
| July 29, 1937 | 1,768.32 |
| Oct. 1, 1937 | 1,877.62 |
| Nov. 3, 1937 | 1,876.55 |
| Mar. 25, 1938 thru Nov. 30, | |
| 1940 | 1,852.70 |
*80 On purchase orders beginning with October 29, 1936, and through October 25, 1939, Ford purchased DSR transit bus bodies from Union Body as follows:
| Date of purchase order | Number | Selling | Period of delivery |
| of bodies | price | ||
| Oct. 29, 1936 | 500 | $ 1,968.07 | Nov. 1936 through June 1937. |
| Nov. 18, 1937 | 250 | 1,999.54 | Nov. 1937 through Feb. 1938. |
| Oct. 25, 1939 | 500 | 2,130.95 | Oct. 1939 through Mar. 1940. |
The total production in the United States of city-type buses, such as the Ford transit bus, for 1936 through 1939, was as follows:
| 1936 | 5,800 |
| 1937 | 5,947 |
| 1938 | 3,606 |
| 1939 | 4,594 |
There was no organization comparable to the petitioner in existence in the United States during 1936 through 1939.
If the petitioner had been in existence during the years 1936 through 1939, and had had with Ford the same kind of contract it had during the years 1941, 1942, and 1943, its gross profit on the sale of a Standard bus would have been $ 185, and that on a DSR bus would have been $ 92.50.
The petitioner's excess profits credits computed under the invested capital method were $ 4,478.73, $ 6,525.59, and $ 8,531.44, for the period ended November 30, 1941, and for the fiscal years 1942*81 and 1943, respectively.
The petitioner filed claims for relief under section 722 (c) of the Internal Revenue Code for the taxable years involved and the relief claimed was based on a claimed constructive average base period net income of $ 62,590. The respondent determined that the petitioner's invested capital credit for the respective years was an inadequate standard for determining excess profits because the petitioner's business was of a class in which intangible assets not includible in invested capital under section 718 made important contributions to income. He further determined that $ 15,000 was a fair and just amount representing normal earnings to be used as a constructive average base period net *1006 income for the taxable years, and allowed in part the petitioner's claims with respect to the period ended November 30, 1941, and the taxable year 1942. For the taxable year ended November 30, 1943, the respondent's determination of a constructive average base period net income of $ 15,000 resulted in no reduction of petitioner's total tax liability because of the limiting provisions as to amount of tax prescribed in section 710 (a) (1) (B) of the Code, and petitioner's*82 claim for that year was rejected in full.
With 1939 equaling 100, the average base period net profit index figure, before Federal income taxes, for all corporations filing returns was 91.2. The corporate net profits used in arriving at this index figure were "less tax-exempt income and plus interest paid."
The fair and just amount representing normal earnings to be used as petitioner's constructive average base period net income is $ 17,929.92.
OPINION.
The parties are in agreement that the petitioner is qualified for relief under the provisions of section 722 (c) (1) of the Internal Revenue Code1 and, by reason thereof, is "entitled to use the excess profits credit based on income, using the constructive average base period net income determined under subsection (a)." 1
*83 In its claim for relief, the petitioner contended for a constructive average base period net income of $ 62,590. In its petition, the amount claimed was $ 61,195.54, while, on brief, it now argues that $ 64,268.42 *1007 is the fair and just amount to be used as its constructive average base period net income. It is the position of the respondent that the petitioner has failed to show any amount as a fair and just amount representing base period earnings which would result in an excess profits credit equal to that determined and used by him.
The petitioner recognizes that the determination of a constructive average base period net income must be based on an operation of the same type as that actually conducted by it during the taxable years. Tin Processing Corporation, 16 T.C. 713">16 T. C. 713. It has been unable to find any business in existence during the base period of the exact type of operation that its business was during the taxable years and, as a consequence, it urges that the base period experience of Ford with the Ford transit bus affords a proper basis upon which to construct what would have been its normal base period earnings if it had been *84 in existence.
One difficulty with that approach is that petitioner has not shown and, so far as appears, does not know what the transit bus earnings of Ford were during the base period. It has shown the number of bus bodies built for Ford by the Union City Body Company during the base period and what the latter received for such bodies. It has also shown the number of buses, both Standard and DSR, sold by Ford in the base period and the price Ford received for the Standard buses. It has not shown what Ford received for the DSR buses, nor the profit, manufacturers' or distributors', realized on either the Standard or DSR buses.
The nearest indication appearing of record of the profit, exclusive of manufacturers' profit on the bus chassis, realized by Ford in the base period related to Standard buses only and was as of August 21, 1939, and following. At that date Ford was paying Union Body $ 1,852.70 per bus body and was quoting the bus chassis to its bus dealers at $ 1,450. For the completed bus, body, and chassis, it was quoting to its bus dealers a price of $ 3,437.50, which, on the body and chassis prices just stated, would indicate a gross profit to it of $ 134.80 per bus. *85 Where no bus dealer had been appointed, Ford quoted prices to its regular Ford dealers which were considerably higher for both the completed bus and the chassis alone, than the above prices quoted to its regular bus dealers. The facts, however, show no buses sold by Ford in the base period at a price in excess of $ 3,437.50 per bus.
The petitioner and the respondent are in agreement that for the purposes here the provisions of E. P. C. 35, 1949-1 C. B. 134, are applicable, in that the constructive base period net income of the petitioner should be determined as in the case of a corporation which commenced business on December 31, 1939, and is qualified for relief under section 722 (b) (4) of the Code, and that for the purpose of determining the constructive level of petitioner's earnings at December *1008 31, 1939, the commencement of business may be assumed to have occurred on December 31, 1937. They are also in agreement that if petitioner had commenced business on December 31, 1937, under the same or comparable arrangement with Ford as existed in the taxable years, the buses sold by Ford in 1939 would have been a fair representation of the buses*86 which petitioner would have sold in 1939. From that point on, the determinations by petitioner and respondent of what would have been a fair and just amount representing normal earnings to be used as a constructive average base period net income are quite divergent.
The respondent, on the one hand, computes constructive 1939 gross profits for petitioner by treating the actual sales by Ford in 1939 as the constructive sales of petitioner for that year, and the $ 134.80 arrived at, as shown above, as the gross profit realized per bus. 2 He then deducts constructive administrative and sales expenses of $ 63,000, to arrive at constructive 1939 net income, to which he then applies the stipulated average base period index figure of 91.2 to determine constructive average base period net income. Cf. East Texas Motor Freight Lines, 7 T.C. 579">7 T. C. 579. The resulting figure indicates no basis for relief beyond that already allowed.
*87 The petitioner, on the other hand, arrives at its claimed constructive average base period net income by first computing separately an amount as constructive net income for each base period year, as was done in Lamar Creamery Co., 8 T. C. 928. Assuming that a fair and proper construction of the number of buses petitioner would have sold in each of the base period years could be made on the facts of record 3 by the method applied in Lamar Creamery Co., we would still not be able to complete the computation of constructive net income for each of the base period years, as was done in that case. In *1009 Lamar Creamery Co., we had proof of unit sales prices and unit costs of ingredients, processing, and operations, with the resulting unit profit for each of the base period years. In the instant case, we have no such proof. Instead, we are asked to accept the flat sum of $ 300 as the constructive gross profit which would have been realized on each Standard bus which would have been sold in all base period years and the flat sum of $ 150 as the constructive gross profit which would have been realized on the sale of each DSR bus, and arrive*88 at the constructive net income for each base period year by deducting as administrative and sales costs for each year a flat 39.7 per cent of the constructive gross profit for each year, computed as indicated. Certainly, in the absence of proof, we may not conclude that the gross profit per bus would or could, in reason, have been constant throughout the 4-year period, or that the percentage of gross profit absorbed by administrative and selling expenses per unit would similarly have remained constant, it being noted that the stipulated indexes of wholesale prices of all commodities, durable goods, and motor vehicles for the years 1936 through 1939 and the index for the same years for net profits of all corporations tend to indicate exactly the contrary. It is thus apparent that we are left in the instant case to the use of the general business index figures, as in East Texas Motor Freight Lines, supra, since petitioner has failed to supply better or more appropriate data, as in Lamar Creamery Co., supra.
*89 Since Ford actually sold 189 Standard buses and 294 DSR buses in 1939, and both parties have agreed that the buses actually sold by Ford in that year are a fair representation of the buses petitioner would have sold in 1939, it is wholly reasonable, we think, to use 189 Standard buses and 294 DSR buses as the buses petitioner would have sold in 1939, for the purpose of arriving at its constructive 1939 income.
As to constructive gross profit from bus sales, the respondent agrees to petitioner's position that its gross profit on DSR buses would have been one-half of its gross profit per Standard bus, but he does not agree to petitioner's claim that its gross profit would have been $ 300 per Standard bus. The petitioner's claim of the $ 300 figure is based on the assertion of that figure in the testimony of two of its officers and the statement in a letter dated September 8, 1943, from H. L. Moekle, then secretary of Ford, to the effect that if Ford had had an arrangement with petitioner during the base period similar to that in later years, the agreement, in his opinion, would have been such as to enable petitioner to realize "approximately the same margin of gross profit per unit" *90 as petitioner had realized under the February 1941 agreement.
*1010 As to Moekle's statement, the respondent properly points out that such determination of gross profit per bus would, for all practicable purposes, be a determination on the basis of post-December 31, 1939, events, which, under the statute, may not be done. See section 722 (a), supra. We find no merit in the argument of petitioner that for the purposes here such reference to its post-December 31, 1939, profits would be for the purpose of determining the nature of the taxpayer and the character of its business. Furthermore, it is to be noted that, although Moekle's testimony was taken by deposition, no effort was made in the course of his examination to obtain from him any amplification of the factual basis for the opinion expressed in his letter of September 8, 1943, or to show what, if any, ante-December 31, 1939, facts or events were taken into account. Also, in the normal course of events, it would have been reasonable for petitioner, in calling Moekle as a witness, to have sought some developments of facts which would have disclosed some information as to the profits Ford had actually realized during*91 the base period on its sales of both Standard and DSR buses. Furthermore, we cannot escape the impression, from the reading of Moekle's deposition, that assuming he had at one time been familiar with the details upon which his ultimate conclusions were based he had made no attempt to refresh himself as to those facts and in his testimony was speaking quite extemporaneously and "off the cuff." 4
The opinions of Fitzgerald and Adelsperger are little, if any, more impressive. Not only was careful attention given to their testimony at the time of the trial, but it has been re-examined in the light of the proposed findings and briefs of the petitioner, and we are unable to conclude that the testimony*92 in substance represents much, if anything, more than an assertion of the ultimate facts for which the testimony is claimed to be proof. We must have better proof than mere assertion of the claimed ultimate fact. Arden-Rayshine Co., 43 B. T. A. 314. In short, the only supporting detail of any moment for the gross profit claimed, is petitioner's actual experience in post-base period years, and Congress, as we have pointed out, has ruled out a taxpayer's experience in the excess profits years themselves as the basis for determining the extent by which those same profits were excessive.
It is true, as petitioner's counsel has pointed out, that the $ 134.80 computed as the gross profit per Standard bus, as shown above, was based on the quoted prices for the bus chassis and the completed bus to Ford's bus dealers from and after August 21, 1939, and that it was about that time that the motor was changed from the front of the *1011 chassis to the rear. It is argued that the manufacturing cost of the chassis was accordingly increased and, for that reason, $ 134.80 was not reasonably indicative of Ford's gross profit per Standard bus prior to August 21, *93 1939, when the chassis with the motor at the front was being used. The best evidence as to that, of course, would have been evidence as to what Ford's costs actually were. In lieu thereof, petitioner sought to substitute the speculative guesses or estimates of one of its officers as to the difference in cost to Ford of producing a bus chassis with the motor in front and a bus chassis with the motor in the rear. It was obvious that the witness did not know, even by hearsay, what the cost difference was, but was trying to project himself into the position of the manufacturer and thereby make his estimate or guess, and, after some colloquy, the inquiry was dropped, leaving petitioner to such argument as it felt just and proper on the facts which were known and established.
On the evidence, it is probable, we think, that Ford's cost in manufacturing the bus chassis with the motor to the rear was greater than the cost of manufacturing the chassis with the motor at the front, but that would not indicate that the gross profit to Ford for a Standard bus, prior to the advent of the chassis with the motor to the rear, was any greater than such gross profit thereafter. After the changeover, *94 Ford continued to pay Union Body $ 1,852.70 per Standard bus body, which price had remained unchanged since March 25, 1938. It increased its price for the completed Standard bus to its bus dealers from $ 3,137.50 to $ 3,437.50. It is thus apparent that this added $ 300 per Standard bus was accounted for in full as increased cost of the new bus chassis, or was in part an increase to Ford in the gross profit per Standard bus over the gross profit it had been realizing theretofore. Certainly we have no reason to conclude that the increase to Ford in the manufacturing cost of the new chassis over the cost of the old was more than the $ 300 by which the selling price of the completed bus was advanced. We are inclined to the view that the said $ 300 increase was added to cover the increased cost of the bus chassis, particularly since the respondent makes no claim that the gross profit per Standard bus prior to the increase in price was any less than the above gross profit of $ 134.80 per bus after the increase.
In light of the above, we think $ 134.80 per Standard bus, arrived at as previously indicated, provides the best starting point for determining the constructive gross profit *95 the petitioner would have realized on the buses it would have sold in 1939. Ford was paying Union Body $ 1,852.80 for Standard bus bodies in that year and we have been shown no reason why, in fairness, Union Body should have been expected to make a better price to petitioner, and we do not understand that petitioner claims it would have. Neither do we have *1012 reason to conclude that petitioner would have required bus dealers to pay more per bus than they were paying Ford. We are of the opinion, however, that Ford may well have made petitioner a better price on the bus chassis than the $ 1,450 price to its bus dealers. Our reason for that view is that, since Ford would not have been distributing and selling the completed buses, it would have been relieved of its cost and financial responsibilities with respect to the building and installation of the bus bodies, and, in addition, it would not have been burdened with the cost attendant upon the distribution and sale of the completed buses. As to such administrative and sales costs, Moekle apparently had made some search and study, his statement being that while Ford did not have a separate breakdown, such cost ranged generally*96 from 1 1/2 to 2 per cent of sales during the base period years. At 1 1/2 per cent, Ford's savings would have been approximately $ 50 per Standard bus. Since for the future petitioner would have been relieving Ford of such expense, it is reasonable to assume, we think, that Ford would have been willing to make a comparable reduction in the price of its bus chassis to petitioner. Accordingly, we have concluded and found that petitioner's gross profit per Standard bus would have been $ 185 per bus in 1939, and, in keeping with petitioner's requested finding and respondent's agreement therewith, that the gross profit on DSR buses would have been approximately 50 per cent of the gross profit on Standard buses, we have concluded and found that the gross profit on DSR buses in 1939 would have been $ 92.50 per bus.
The question as to the constructive administrative and sales costs for petitioner for 1939 is quite difficult and by the very nature of the situation the evidence leaves much to be desired. Both parties have undertaken to construct such costs, item by item, but in many respects the justification offered for the figures advanced is that the one party has stated that the proper*97 amount for a particular item is this, and the other, that it is that.
The petitioner rests its claim that proper constructive administrative and sales costs would have been $ 39,000, upon the testimony of two of its officers. The respondent relies largely on matter developed in the cross-examination of these witnesses and upon argument made therefrom. While the testimony relied on by petitioner does consist of the expressions of opinions by interested witnesses, and at its best, is highly speculative, it is the testimony of witnesses who, with Geisler now dead, should have been in as favorable position for giving informative opinions as could have been obtained, and though interested witnesses, we feel they were earnestly doing their best in the circumstances. It was the opinion of one of these witnesses that the expenses would have ranged from $ 35,000 to $ 40,000 per year. It was the opinion of the other that the amounts would have been approximately *1013 $ 38,850. These estimates allowed varied amounts for salaries according to the positions they thought would have been filled. They then made allowances for advertising, travel, rent, telephone, and supplies, and $ 7,500*98 for "other expenses."
The respondent contends that not only have the individual items mentioned been underestimated, but that proper allowance has not been shown for taxes, interest expense, finance charges, and sales expenses, or for other expenses, such as depreciation, legal and auditing expense, insurance, supplies, and other miscellaneous items. In this manner, the respondent arrives at constructive administrative and sales costs for 1939 of $ 63,000.
We have carefully considered the testimony of the witnesses mentioned. We have examined and studied the arguments made by both the petitioner and the respondent, and it is our conclusion that a fair and just amount to be used as constructive administrative and sales costs for 1939 is $ 42,500. Even though we should accept the views of the witnesses as to salaries, we agree with the respondent that the adequacy of the catchall item "other expenses" is not convincing. It was brought out, for instance, that no allowance was made for freight charges. The explanation was that such charges would apply to the bus chassis and would properly have been accounted for as part of the chassis cost. While that may be true as to entry on *99 the petitioner's books of account, we have noted that Ford quoted its prices to its dealers in the base period years f. o. b. Dearborn, Michigan, which indicates that petitioner, in purchasing the bus chassis from Ford, would have had to bear that burden. Further, we do not feel that $ 7,500 as "other expenses" would have been sufficient to cover all of those items which have been suggested and enumerated by the respondent and which are not otherwise accounted for by petitioner's witnesses. As a general matter, however, we feel that petitioner's estimates are much more nearly correct than those contended for by the respondent, and, on the evidence at hand, have concluded and found as a fact that such expenses for petitioner for the year 1939 would have been $ 42,500.
On the basis of the constructive sale in 1939 of 189 Standard buses, at a gross profit of $ 185 each, and 294 DSR buses, at a gross profit of $ 92.50 each, petitioner's gross profit for that year would have been $ 62,160. Subtracting constructive administrative and other costs of $ 42,500, leaves a constructive net profit for 1939 of $ 19,660. Applying the stipulated average index figure for the base period of 91.2, *100 the result is $ 17,929.92, which, in our findings herein, we have found as the fair and just amount representing normal earnings to be used as the petitioner's constructive average base period net income.
Reviewed by the Special Division.
Decision will be entered under Rule 50.
Footnotes
*. Applied only to branches where no bus dealer has been appointed.↩
1. SEC. 722. GENERAL RELIEF -- CONSTRUCTIVE AVERAGE BASE PERIOD NET INCOME.
(a) General Rule. -- In any case in which the taxpayer establishes that the tax computed under this subchapter (without the benefit of this section) results in an excessive and discriminatory tax and establishes what would be a fair and just amount representing normal earnings to be used as a constructive average base period net income for the purposes of an excess profits tax based upon comparison of normal earnings and earnings during an excess profits tax period, the tax shall be determined by using such constructive average base period net income in lieu of the average base period net income otherwise determined under this subchapter. In determining such constructive average base period net income, no regard shall be had to events or conditions affecting the taxpayer, the industry of which it is a member, or taxpayers generally occurring or existing after December 31, 1939, except that, in cases described in the last sentence of section 722 (b) (4) and in section 722 (c), regard shall be had to the change in the character of the business under section 722 (b) (4) or the nature of the taxpayer and the character of its business under section 722(c) to the extent necessary to establish the normal earning to be used as the constructive average base period net income.
* * * *
(c) Invested Capital Corporations, Etc. -- The tax computed under this subchapter (without the benefit of this section) shall be considered to be excessive and discriminatory in the case of a taxpayer, not entitled to use the excess profits credit based on income pursuant to section 713, if the excess profits credit based on invested capital is an inadequate standard for determining excess profits, because --
(1) the business of the taxpayer is of a class in which intangible assets not includible in invested capital under section 718 make important contributions to income,
* * * *↩
In such case for the purposes of this subchapter, such taxpayer shall be considered to be entitled to use the excess profits credit based on income, using the constructive average base period net income determined under subsection (a). * * *2. While agreeing with petitioner's requested finding that its gross profit per DSR bus would have been only one-half the profit realized per Standard bus, the respondent, for the purpose of demonstrating his claim that petitioner has failed to prove any amount representing normal base period earnings which would result in an excess profits credit equal to that determined and already allowed by him, has used $ 134.80 as the gross profit which would have been realized on DSR buses as well as Standard buses.↩
3. In any event, the evidence of record would not, in our opinion, justify a determination of the constructive number of bus sales claimed by petitioner. Except for 1936, when Ford actually sold only one Standard bus, the construction contended for shows Standard bus sales in a lesser amount than were actually made by Ford. With respect to DSR buses, however, it seeks a constructive determination of DSR buses sold in the base period from actual sales of 1,044 buses to 1,347. We have been unable to find of record any basis for making any construction of the number of DSR buses which petitioner would have sold in the base period, if it had been in existence, over and above the sales of such buses actually made by Ford. It goes without saying that the requirements of Detroit Street Railway for new buses in each, or all, of the base period years had some limitations. The purchases from Ford were substantial, and if there was any factual basis for reconstructing Ford's actual sales of DSR buses, petitioner could have so shown by procuring and offering proof as to whether or not Detroit Street Railway actually purchased any buses other than those purchased from Ford or had any plan or program for purchasing additional buses in those years.↩
4. He had not been in charge of Ford's transit bus division, nor did he have anything to do with the sales of transit buses. Neither did he have supervision of its cost accounting system. In fact, he did not remember just what his position was with Ford during the base period, auditor, assistant secretary, or secretary.↩