*1441 Petitioner, a domestic corporation, maintained a branch in India which purchased and shipped skins to fill orders transmitted to it through the home office in the United States. Some shipments were made directly to the purchasers and others to the home office for the account of the purchasers. The India branch fixed the prices and collected for skins shipped by drawing on letters of credit. Held, the sales were consummated in India and the income was from sources without the United States; hence petitioner is entitled to credit for foreign income taxes on such income. Section 131, Revenue Act of 1928.
*987 The respondent disallowed a credit claimed by petitioner for income taxes asserted by the Government of India against income claimed by petitioner to have been derived in that country and *988 thereby determined a deficiency in income tax for the year 1929 in the amount of $4,801.15. The source of the income taxed by the Indian Government is the only issue.
FINDINGS OF FACT.
Petitioner is a Delaware corporation, with its principal*1442 office at Philadelphia, Pennsylvania. During the year 1929 it was engaged in the business of importing hides and skins from India and for this purpose maintained a branch in India.
Its authorized capital stock consisted of 3,000 shares, of which 1,200 were outstanding in 1929 and were owned as follows:
| Keystone Leather Co | 500 |
| Bristol Patent Leather Co | 500 |
| India Importing Co | 199 |
| L. C. Hunneman | 1 |
| Total | 1,200 |
The Keystone and Bristol companies, above listed, are Pennsylvania corporations, and in the taxable year their officers were the same as the officers of the petitioner.
During the year 1929 the number of skins shipped from the India branch, the firms to which shipped, and their invoice value were as follows:
| Name | Skins | Value |
| Pound s.d. | ||
| Briskey Co., Philadelphia (petitioner) | 2,123,389 | 351,180 5 1 |
| Allied Kid Co., Boston | 916,031 | 160,648 7 8 |
| McNeely & Co., Philadelphia | 242,541 | 44,715 15 7 |
| Legallet & O'Neill, San Francisco | 5,418 | 1,252 6 6 |
| J. H. Rossbach & Bros., New York | 28,195 | 5,222 17 6 |
| New Castle Leather Co., Wilmington | 32,125 | 5,681 5 10 |
| Quaker City Morocco Co., Philadelphia | 50,372 | 8,537 3 11 |
The*1443 companies listed in the preceding paragraph were stockholders of the India Importing Co., a domestic corporation. On January 1, 1929, the India Importing Co. had outstanding 1,000 shares of stock and on December 31, 1929, it had 833 1/3 shares outstanding. Petitioner at both dates owned 166 2/3 of the shares.
More than half of the skins were sold to the Keystone Leather Co. and the Bristol Patent Leather Co. The orders were given orally by these purchasers to the home office, which in turn cabled them to the India branch. The India branch thereupon purchased the skins to fill the orders and shipped them to the home office for forwarding to the purchasers, which was done. The home office had opened letters of credit, the obligations under which were guaranteed by the Keystone Leather Co. and the Bristol Patent *989 Leather Co. equally, and the India office received payment by drawing against these letters of credit.
On its books the home office charged the amount paid its India branch for skins to a "Goat Skin in Hair" account, adding handling charges such as bankers' commissioners, marine insurance, and customs brokerage. When skins were transferred to the Keystone*1444 Leather Co. or Bristol Patent Leather Co. the "Goat Skin in Hair" account was credited and the "Cost of Goat Skin Sales" was charged. At the same time an entry was made crediting "Goat Skin Sales" account and charging either the Keystone Leather Co. or Bristol Patent Leather Co. The excess of the credits to the "Goat Skin Sales" account over the charges to the "Cost of Goat Skin Sales" account represents the amount of the 1 percent commission charged by the home office, and at the end of the year this amount was transferred to its profit and loss account. The home office made no entries on its books showing the cost of the skins to the India branch, nor did it pay any of the expenses or charges of the said branch.
The six other concerns listed above likewise gave oral orders for skins through the home office, which in turn were transmitted by cable to its India branch. The India branch purchased the skins to fill such orders, made shipment direct to the several companies, billed the companies direct for the skins shipped, and received payment by drawing drafts on letters of credit opened by the companies in favor of the India branch.
No entries were made on the records of*1445 the home office of the petitioner with respect to the shipments made by the India branch to other companies. When shipments were received by the companies the India Importing Co. billed the companies with a commission of 1 1/2 percent of the invoice value. The India Importing Co. in turn remitted to the home office a commission of 1 percent, retaining a commission of one half percent for itself.
After the close of the year the India branch forwarded a statement of profit and loss for the year on all transactions to the home office, and the net profit or net loss was entered on the books of the home office.
In some of the orders transmitted by the home office to the India branch the prices that the customers would pay were specified and in such cases the India branch cabled replies as to whether it could or could not fill the orders at the prices offered. In other cases orders were transmitted by the home office without specifying prices and in those cases it was understood that the India branch would fill the orders at the current market price. In the latter cases the India branch determined the price.
The home office kept its books and reported its income on the accrual*1446 basis.
*990 During the year 1929 taxes became due and payable to the Government of India in the sum of $8,591.60, representing income and super-taxes assessed by the Government of India under the provisions of the India income tax act of 1922. Petitioner claimed a credit of $6,126.23 against income due the United States on account of the income and super-taxes assessed by the Government of India. The profit from the operation of the India branch amounted to $55,699.52 for the year 1929.
OPINION.
ARUNDELL: From the operations of petitioner's branch house in India a profit of $55,699.52 was realized in 1929. Upon this profit a tax of $8,591.60 was asserted by the Government of India, and by reason of such tax petitioner claims a credit of $6,126.23 against its United States income tax. There is no dispute as to the figures. The controversy is whether profit from the operation of the branch in India was income from sources without the United States.
The statutory provision here involved is section 131 of the Revenue Act of 1928, which in subsection (a) allows to a domestic corporation a credit against its United States income tax for the amount of "income, war-profits, *1447 and excess-profits taxes paid or accrued * * * to any foreign country", but the amount of such credit is limited under subsection (b) to the same proportion of the United States tax which the net income "from sources without the United States" bears to the taxpayer's entire net income. There is no question as to the character of the tax imposed by the Government of India. This was levied under the same statute as the tax in , in which case we construed the tax to be an income tax within the meaning of the credit provisions of the Revenue Act of 1926.
Whether the profit from the skins shipped by petitioner's branch was from sources without the United States depends upon whether the sales were made in India, as contended by petitioner. Counsel for respondent argues that the sales were made in the United States by petitioner's home office and that the India branch was merely a purchasing agent.
An examination of the operating methods of petitioner's branch leads us to the conclusion that the sales of skins were consummated in India. The transactions were initiated by orders given by purchasers to the home office.
It is stipulated*1448 that the India branch purchased skins to fill the orders cabled by the home office. As the petitioner did not have on hand the skins to fill the orders, the skins being acquired by the branch only after receipt of orders by the home office and transmittal to India, it follows that the acceptance of an order by the *991 home office did not effect a sale. It was, at the most, a contract to deliver goods. Low v. Andrews, 15 Fed. Cas. No. 8559. The earliest moment that there could be a sale under such circumstances was when the goods were acquired in India and appropriated to the contract. Sales, 55 C.J. § 28. It appears from correspondence in evidence that it was the practice of the India office to ship the skins in casks, each cask being marked in a way to be identifiable by the purchaser. Upon shipment the India office notified the home office by cable giving the name of the customer and the value of the shipment. The purpose of this was to enable the purchaser to cover the shipment by insurance and also advise it of the amount being drawn by the India office against the purchaser's letter of credit. *1449 In our opinion the sales were effected in India. It was there that the goods first came into possession of petitioner, through its branch; there that the goods were appropriated to the contract; there that the price to the purchaser was fixed. The final acts consummating the sales were performed in India, and in this respect there is a close analogy to the case of . In that case negotiations for the sale of goods produced in the Philippine Islands were carried on in the United States and goods were shipped to purchasers in the United States. It was stipulated that the goods were "sold" in the United States, but the Supreme Court refused to accept that as decisive of the question presented, in view of the further stipulation that the sales were "subject to confirmation and absolute control as to price and other terms and conditions by the plaintiff's Philippine branch." While the Supreme Court did not explicitly pass on the question of where the sales were made, in view of the ambiguity of the stipulation and the failure to disclose full details of the transactions, it affirmed the lower court, which held the sales*1450 were made in the Philippine Islands. In its opinion the Supreme Court says that if "the confirmation was, in each case, given by the Philippine branch direct to the buyer, or was otherwise the final act consummating the sales within the Philippine Islands" then "the final acts of petitioner making effective the sales, which were the source of profit, took place in the Philippine Islands as an incident to and part of its business conducted there." The opinion continues:
If, in fact, the sales were thus made in the Philippine Islands, we think it unimportant whether the merchandise sold was exported before or after its sale * * *. For, in such a case, the entire transaction resulting in a profit, with the exception of negotiations in the United States preceding the sale, would have taken place in the Philippine Islands.
In the case before us, as heretofore pointed out, at the time of the negotiations in the United States the goods were not in possession of *992 petitioner and a completed sale could not be effected, and the final acts consummating the sales were performed in India.
The present case is unlike that of *1451 , wherein we found that the only part of the business transacted by the taxpayer in India "was to buy its raw material there and ship it into the United States and then convert it into the finished product and sell the manufactured products here." None of the skins shipped by the India branch were for its home office. Such skins as were shipped direct to the home office were for the account of others and the home office received therefrom only a commission. This case is also distinguishable from ; ; and , in all of which there were actual sales in the United States from which the income in question was derived.
It is our opinion, and we so hold, that the sales of skins by petitioner's branch were consummated in India; hence the income taxed by India was from sources without the United States and petitioner is entitled to the credit claimed.
Reviewed by the Board.
Decision will be entered for the petitioner.
SMITH, MURDOCK, and MCMAHON dissent.