*1875 Petitioner held not affiliated with the Joyce-Koebel Company, Inc., during the taxable years 1923 and 1924.
*422 These proceedings, which have been consolidated for hearing and decision, were instituted for a redetermination of deficiencies in income taxes for the calendar years 1923 and 1924 in the respective amounts of $2,044.38 and $2,221.30. The petitioner alleges that the Commissioner erred in refusing to permit the petitioner to file consolidated income-tax returns for the years 1923 and 1924, including in its returns the income of the related business of the Joyce-Koebel Company, Inc. The sole issue presented is whether the petitioner was affiliated during the taxable years with the Joyce-Koebel Company, Inc.
FINDINGS OF FACT.
The Joyce-Koebel Company, Inc., was organized about 1916 to engage in the sale of diamonds for industrial purposes. The Joyce-Koebel Diamond Company, Inc., the petitioner herein, was organized in 1922 to engage in an identical business. From the date of organization of the Joyce-Koebel Diamond Company, Inc. *1876 , in 1922 the offices of both companies were located at 39 West Thirty-Second Street, New York City.
The issued capital stock of the petitioner (for convenience sometimes referred to as the new company) consisted of 580 shares of 6 *423 per cent cumulative preferred stock and 100 shares of common stock without par value, and the issued capital stock of the Joyce-Koebel Company, Inc. (for convenience sometimes referred to as the old company) consisted of 1,195 shares of preferred stock of $100 par value and 300 shares of common stock without par value. In neither company were the preferred stockholders to vote or to participate in the management of the corporation, as a result of charter provisions to that end.
The holdings of common stock of the two companies at January 1, 1923, were as follows:
| Joyce-Koebel Company | Joyce-Koebel Diamond Company | |||
| Stockholders | Shares | Per cent of total | Shares | Per cent of total |
| Frank E. Koebel | 160 | 53.3 | 40 | 40 |
| George A. Joyce | 70 | 23.3 | 60 | 60 |
| John Fouldes | 20 | 6.7 | ||
| Fanny M. Fouldes | 25 | 8.3 | ||
| Kathleen M. Fouldes | 25 | 8.4 | ||
| Total | 300 | 100.0 | 100 | 100 |
After January 1, 1923, Certificate No. 1, for*1877 the 60 shares of common stock of the petitioner owned by George A. Joyce, was canceled, and on January 23, 1923, three new certificates were made out as follows:
Certificate No. 3 to Winifred M. Joyce for 40 shares.
Certificate No. 4 to Chas. J. Koebel, 10 shares.
Certificate No. 5 to Frank E. Koebel, 10 shares.
Following this transfer the holdings of record of the common stock of the two companies were as follows:
| Joyce Koebel Company | Joyce Koebel Diamond Company | |||
| Stockholders | Shares | Per cent of total | Shares | Per cent of total |
| Frank E. Koebel | 160 | 53.3 | 50 | 50 |
| George A. Joyce | 70 | 23.3 | 0 | 0 |
| John Fouldes | 20 | 6.7 | 0 | 0 |
| Fanny M. Fouldes | 25 | 8.3 | 0 | 0 |
| Kathleen M. Fouldes | 25 | 8.4 | 0 | 0 |
| Winifred M. Joyce | 0 | .0 | 40 | 40 |
| Charles J. Koebel | 0 | .0 | 10 | 10 |
| Total | 300 | 100 | 100 | 100 |
The transfer of the 60 shares of common stock of the petitioner to Winifred M. Joyce, Charles J. Koebel and Frank E. Koebel was made upon instructions of George A. Joyce. The certificate representing *424 40 shares transferred to Winifred M. Joyce was held in the possession of Frank E. Koebel in New York until the latter part of 1924, when it was*1878 sent to George A. Joyce in England. In 1926 Frank E. Koebel purchased from George A. Joyce these 40 shares of stock standing in the name of Winifred M. Joyce. During the time Winifred M. Joyce was the record owner of the 40 shares of common stock she had no communication with Frank E. Koebel or with the company with respect to voting the stock or in any connection with the business of the company. During this period Joyce continued his business relations with the company.
George A. Joyce and John Fouldes were engaged in the industrial diamond business in England as partners. The old company was organized for the purpose of giving Frank E. Koebel an interest in the business carried on in this country by Messrs. Joyce and Fouldes. The old company and later the petitioner purchased their diamonds for resale in this country chiefly from George A. Joyce, Ltd., of London, which was the name and style of the English partnership.
George A. Joyce is the father of Winifred M. Joyce, and John Fouldes is the father of Fanny M. Fouldes and Kathleen M. Fouldes. All of these parties resided in England and never visited this country after the organization of the old company. No communication*1879 was had with the Misses Fouldes with respect to their stock interest in the old company and no proxies were received from them for voting at stockholders' meetings.
Charles J. Koebel, who received his 10 shares of common stock of the petitioner for services, was employed by the petitioner in 1923, and is still so employed. He is the brother of Frank E. Koebel.
Frank E. Koebel was president and general manager of both companies during the taxable years and alone exercised management over the affairs of both companies. He was a director in both companies and presided at all corporate meetings.
From March 29, 1920, Frank E. Koebel held a power of attorney from John Fouldes authorizing Koebel to act as his proxy in all matters relating to shareholdings in the Joyce-Koebel Company, Inc.
From June 11, 1920, Frank E. Koebel held a similar power of attorney from George A. Joyce and a further power of attorney was executed by George A. Joyce on June 24, 1920, authorizing Koebel generally to transact any and all of his business and affairs of any and every character in the United States of America.
Miss Emily M. Buchta, who kept the books for both companies, was a director in*1880 both companies. George A. Joyce was also a director but never attended a meeting. Charles J. Koebel was a director of the petitioner in 1924. No stockholder or director except Frank E. Koebel, Charles J. Koebel and Miss Buchta ever appeared *425 at a corporate meeting and there was never a division on any vote at any stockholders' or directors' meeting. Miss Buchta, as a director, carried out Frank E. Koebel's orders.
The petitioner filed a consolidated income-tax return for 1923, including the net income of the Joyce-Koebel Company, Inc. This return showed a consolidated net income of $67.05 and no tax. The respondent denied affiliation and segregated the net income of the taxpayer from that of the Joyce-Koebel Company, Inc., excluding the net loss of the Joyce-Koebel Company, Inc., of $16,288.02, and computed net income of the petitioner for 1923 of $16,355.07 and a tax thereon of $2,044.38.
The petitioner also filed a consolidated income-tax return for 1924, including the net income of the Joyce-Koebel Company, Inc. This return showed a consolidated net income of $1,037.05 and no tax.
The respondent denied affiliation and segregated the net income of the taxpayer*1881 from that of the Joyce-Koebel Company, Inc., excluding the net loss of the Joyce-Koebel Company, Inc., of $18,733.32, and computed net income of the petitioner for 1924 of $19,770.37 and a tax thereon of $2,221.30.
OPINION.
MATTHEWS: Section 240(c) of the Revenue Act of 1921 provides:
For the purpose of this section two or more domestic corporations shall be deemed to be affiliated (1) if one corporation owns directly or controls through closely affiliated interests or by a nominee or nominees substantially all the stock of the other or others, or (2) if substantially all the stock of two or more corporations is owned or controlled by the same interests.
Section 240(c)(2) of the Revenue Act of 1924 reads:
For the purpose of this section two or more domestic corporations shall be deemed to be affiliated * * * (2) if at least 95 per centum of the voting stock of two or more corporations is owned by the same interests.
The ownership or control of the stock of one corporation by another corporation is not involved herein. The issues for determination are whether, under the particular facts of this case, substantially all of the stock of the two companies was owned or controlled*1882 by the same interests in 1923 and whether at least 95 per cent of the voting stock of the two companies was owned by the same interests in 1924.
The petitioner contends that it was affiliated with and entitled to file consolidated returns with the Joyce-Koebel Company, Inc., for each of the taxable years 1923 and 1924, relying upon the claim that the "same interests" owned or controlled all of the stock of both companies.
The interests in both companies which petitioner contends are the same are designated by it as the "Koebel" interest and the "Joyce *426 and Fouldes" interest. The following table shows petitioner's grouping of the owners of the common stock of each company from January 23, 1923, through 1924 according to such interests:
| Old company | New company | |||
| Interests | Shares | Per cent of total | Shares | Per cent of total |
| Koebel | ||||
| F. E. Koebel | 160 | 50 | ||
| C. J. Koebel | 53.3 | 10 | 60.0 | |
| Joyce and Fouldes | ||||
| G. A. Joyce | 70 | |||
| W. M. Joyce | 40 | |||
| J. Fouldes | 20 | 46.7 | 40.0 | |
| F. M. Fouldes | 25 | |||
| K. M. Fouldes | 25 | |||
| Total | 300 | 100.0 | 100 | 100.0 |
From January 1 to January 23, 1923, petitioner treats the percentages of the interests*1883 in the new company as:
| Koebel interest | 40 per cent |
| Joyce and Fouldes interest | 60 per cent |
In the brief filed in behalf of the petitioner it is stated that joyce and Fouldes were partners in business in England and that the partners constituted one interest. This is the only reason given for treating the Joyce holdings and the Fouldes holdings as one interest. It is further claimed by petitioner that the two companies constituted a single enterprise, though operated through more than one corporation.
The respondent has denied affiliation for both 1923 and 1924 on the ground that the facts of the instant case do not bring it within the provisions of the statute permitting affiliation. It is pointed out by the respondent that after January 23, 1923, the only stockholder in the petitioner who owned stock in the Joyce-Koebel Company, Inc., was Frank E. Koebel, who owned 50 per cent of the stock of the petitioner and 53.3 per cent of the stock of the Joyce-Koebel Company, Inc. His brother, Charles J. Koebel, owned none of the stock of the old company, and the 10 shares of stock in the new company which stood in his name after January 23, 1923, were transferred*1884 to him on account of his services.
If it be conceded that the two Koebels constitute one interest so that they owned 53.3 per cent of the stock of the old company and 60 per cent of the stock of the petitioner, there would remain for determination the question whether the shares of stock owned by the Fouldes family and the stock of George A. Joyce, together with *427 that standing in the name of his daughter Winifred, were owned by one interest.
Reference to the findings of fact will show that Fouldes owned 20 shares, or 6 2/3 per cent, and each of his two daughters owned 25 shares, or 8 1/3 per cent, of the stock of the old company, and that none of the Fouldes family had any interest in the petitioner. During the taxable years Joyce owned 70 shares, or 23 1/3 per cent of the old company. After January 23, 1923, Joyce was not the record owner of any of the stock of the petitioner, but his daughter, Winifred M. Joyce, owned 40 shares, or 40 per cent, of the petitioner.
The petitioner contends that the 40 shares of stock transferred to Winifred M. Joyce were in reality held by her for her father, George A. Joyce, and that the stock held by Fanny M. Fouldes and Kathleen*1885 M. Fouldes was actually held by them for their father, John Fouldes. There is no direct testimony or positive evidence in support of this position. No communication was ever had with the Misses Fouldes or with Winifred M. Joyce with respect to their stock and no proxies were executed by them.
If we agree with petitioner's contention that the daughters were merely nominal holders of the stock, we will have the Fouldes family owning 70 shares, or 23 1/3 per cent of the stock of the old company and none of the stock of the petitioner, and the Joyce family owning 70 shares, or 23 1/3 per cent of the stock of the old company and 40 shares, or 40 per cent of the stock of the petitioner. If, as petitioner contends, the holdings of the Joyce family and those of the Fouldes family might be treated as one interest, so that all the stock of both companies would be owned by the Koebel interest and this other interest (Joyce and Fouldes), the requirements of the statute would be met and affiliation would be allowable on the basis of the ownership of the stock by the "same interests."
We are not impressed with the view that because Joyce and Fouldes were partners in business in England they*1886 constitute the same interest. None of the Fouldes family owned stock in petitioner. Therefore the Fouldes had no interest in petitioner.
There is no question that Frank E. Koebel was in full control of the management of the affairs of both companies, but we believe this is not the control contemplated by the statute. A full discussion of the question of "control" of corporate stocks and what constitutes the "same interests," within the meaning of the taxing statute, is contained in , where we reviewed many of the court decisions on the subject and referred to our own prior decisions. The Court of Claims denied affiliation for 1917 in the case of the , the plaintiff being the same taxpayer as the petitioner *428 in the case last cited above, and the Supreme Court of the United States denied certiorari, .
Both Joyce and Fouldes executed a power of attorney authorizing Koebel to act as his proxy in all matters relating to shareholdings in the Joyce-Koebel Company, Inc. In *1887 , we held that authorization to vote by proxy does not effect a separation of the voting power from the ownership of the stock; neither does it constitute a relinquishment by the stockholder of any of the rights of ownership or control See also .
We are of the opinion that the 70 shares of stock of the old company owned by Fouldes and his two daughters, which holdings amount to 23 1/3 per cent of the total shares, constitute an interest which can not be disregarded and that inasmuch as these stockholders had no interest in the petitioner it can not be said that substantially all the stock of the two companies was owned or controlled by the same interests in 1923. It follows that in 1924 there was no ownership by the same interests of at least 95 per cent of the voting stock of the two corporations.
We believe that the petitioner has failed to establish affiliation with the Joyce-Koebel Company, Inc., within the purview of the statute, and the action of the respondent in computing the petitioner's tax liability upon the basis of separate returns is sustained.
*1888 Reviewed by the Board.
Judgment will be entered for the respondent.
TRAMMELL dissents.