*1951 Where a corporation and its stockholders owned from 87.7 per cent to 92.7 per cent of the stock of another corporation for the years 1924 to 1927, inclusive, the corporations were not affiliated.
*1348 These proceedings, which were duly consolidated, involve deficiencies in income tax for the years and in the amounts as follows:
| 1924 | $7,739.22 |
| 1925 | 4,641.21 |
| 1926 | 6.333.75 |
| 1927 | 2,417.71 |
The sole question presented for adjudication is whether the petitioner and another corporation were affiliated during the taxable years.
FINDINGS OF FACT.
The petitioner is a corporation organized under the laws of Connecticut, with its principal office at Deep River, Conn. The chief business of the petitioner for the years 1924 to 1927, inclusive, was the manufacture and sale of piano keyboards and component parts thereof, piano actions, and small miscellaneous ivory products.
The Pratt, Read Player Action Company, hereinafter referred to as the Action Company, was organized*1952 by the petitioner under the laws of Connecticut, as a separate corporation, but has always been operated as a department of the petitioner's business. The Action Company occupies one of the petitioner's buildings that was built for the operation of the Action Company's business, which is the manufacture and sale of pneumatic player actions, a mechanism which operates inside of a piano in connection with the regular piano action.
The capital stock of the petitioner consisted of 60,000 shares of the par value of $100 each. The capital stock of the Action Company consisted of 2,000 shares of the par value of $25 each. During the years under consideration, the stock of the two corporations was held as follows:
| 1924 | 1925 | |||
| Stockholder | Petitioner | Action Co. | Petitioner | Action Co. |
| Shares | Shares | Shares | Shares | |
| Petitioner | 1,064 | 1,064 | ||
| Geo. L. Cheney | 6,000 | 270 | 6,000 | 270 |
| Henry L. de Forest | 1,453 | 100 | 1,453 | 100 |
| Geo. A. Wormwood | 132 | 89 | 132 | 89 |
| Jerome Russell | 375 | 100 | 375 | 100 |
| L. Horatio Bigelow, Jr | 15 | |||
| Geo. L. Black | 725 | 6 | 725 | 6 |
| Harriet Crawford Cheney | 360 | 10 | 360 | 10 |
| Samuel H. Gillespie | 360 | 13 | 360 | 13 |
| Richard W. Stevens | 100 | 10 | 100 | 10 |
| Delmont L. Tufts | 10 | 10 | 10 | 10 |
| Ernst D. Moore | 100 | 100 | ||
| Douglas C. Despard | 247 | 20 | 247 | 20 |
| John T. Gillespie | 358 | 10 | 358 | 10 |
| Columbia Trust Co., | ||||
| as trustee for | ||||
| Wm. B. Arnold | 1,500 | 1,500 | ||
| Clara C. Stevens | 500 | 40 | 500 | 40 |
| Annie B. Shattuck | 2,625 | 12 | 2,625 | 12 |
| Geo. B. Shattuck | 2 | 2 | ||
| Jane B. Shattuck | 2 | 2 | ||
| Otis E. Shattuck | 2 | 2 | ||
| Louis R. Ziegra | 50 | 50 | ||
| Charles Leiser | 30 | 30 | ||
| Nelson S. Spencer | 60 | 60 | ||
| 14,745 | 2,000 | 14,760 | 2,000 | |
| Miscellaneous | ||||
| (140 odd individuals) | 45,255 | 45,240 | ||
| 60,000 | 2,000 | 60,000 | 2,000 |
| 1926 | 1927 | |||
| Stockholder | Petitioner | Action Co. | Petitioner | Action Co. |
| Petitioner | 1,064 | 1,064 | ||
| Geo. L. Cheney | 6,000 | 270 | 6,000 | 265 |
| Henry L. de Forest | 1,453 | 100 | 1,729 | 100 |
| Geo. A. Wormwood | 152 | 89 | 152 | 89 |
| Jerome Russell | 400 | 100 | 420 | 100 |
| L. Horatio Bigelow, Jr | 50 | 60 | 5 | |
| Geo. L. Black | 725 | 6 | 755 | 6 |
| Harriet Crawford Cheney | 400 | 10 | 400 | 10 |
| Samuel H. Gillespie | 360 | 13 | 561 | 13 |
| Richard W. Stevens | 100 | 10 | 200 | 10 |
| Delmont L. Tufts | 10 | 10 | 10 | 10 |
| Ernst D. Moore | 10 | 100 | 10 | 100 |
| Douglas C. Despard | 247 | 20 | 247 | 20 |
| John T. Gillespie | 358 | 10 | 462 | 10 |
| Columbia Trust Co., as | ||||
| trustee for | ||||
| Wm. B. Arnold | 1,500 | 1,500 | ||
| Clara C. Stevens | 500 | 40 | 500 | 40 |
| Annie B. Shattuck | 2,625 | 12 | 2,625 | 12 |
| Geo. B. Shattuck | 2 | 2 | ||
| Jane B. Shattuck | 2 | 2 | ||
| Otis E. Shattuck | 2 | 2 | ||
| Louis R. Ziegra | 50 | 50 | ||
| Charles Leiser | 30 | 30 | ||
| Nelson S. Spencer | 60 | 60 | ||
| 14,890 | 2,000 | 15,631 | 2,000 | |
| Miscellaneous | ||||
| (140 odd individuals) | 45,110 | 44,369 | ||
| 60,000 | 2,000 | 60,000 | 2,000 |
*1349 During the years 1924 and 1925, 246 shares, or 12.3 per cent, or the Action Company's stock was held by individuals who*1954 did not own any stock in the petitioner corporation. During the years 1926 and 1927, 146 shares, or 7.3 per cent, of the Action Company's stock was held by individuals who owned no stock in the petitioner corporation. The petitioner and its stockholders held from 87.7 per cent to 92.7 per cent of the Action Company's stock during the taxable years under consideration.
Ernst D. Moore had been an ivory buyer in Africa, employed to work for the interests of petitioner to promote the Action Company, of which he afterwards ebcame secretary and general manager, under the management of the petitioner. He worked at all times under the control of George L. Cheney, president of both companies.
Louis R. Ziegra during the years here at issue was superintendent of the Action Company. Prior to his connection with the Action Company he had been a clerk in the petitioner's employ. He also worked under the direction of George L. Cheney.
Charles Leiser was formerly a salesman for the predecessor to the Action Company. He acted as salesman for both the petitioner and the Action Company.
Nelson S. Spencer for many years has been the attorney for the petitioner and since the organization*1955 of the Action Company acted in that capacity for both companies.
*1350 The petitioner and the Action Company filed consolidated returns for each of the years 1924 to 1927, inclusive. The Commissioner, holding that the two companies were not affiliated, has computed the tax upon the basis of separate returns and asserted the deficiencies involved herein.
OPINION.
SMITH: In so far as material hereto, section 240(c) of the Revenue Acts of 1924 and 1926 are as follows:
For the purpose of this section two or more domestic corporations shall be deemed to be affiliated (1) if one corporation owns at least 95 per centum of the voting stock of the other or others, or (2) if at least 95 per centum of the voting stock of two or more corporations is owned by the same interests. * * *
We have found that during the years 1924 and 1925, 246 shares, or 12.3 per cent of the stock of the Action Company, the subsidiary, were held by individuals who owned no stock in the petitioner. In 1926 and 1927 several of these same individuals owned 146 shares, or 7.3 per cent, of the subsidiary corporation's stock. They were not beneficially interested in the results of the operation of*1956 the petitioner's business.
The Circuit Court of Appeals for the Second Circuit has held, in , that "the control of the stock owned by the same interest refers to beneficial interest." That was a case coming under the provisions of section 240 of the Revenue Acts of 1918 and 1921, where the element of control of stock might enter into the determination of affiliations, but the definition of "the same interest" is no different under those acts from the definition under the 1924 and 1926 Acts. The prior acts make the test the ownership or control of substantially all of the stock by the same interest and the latter acts make the test the ownership of at least 95 per cent of the stock by the same interest.
Since the holders of more than 5 per cent of the stock of the Action Company were not beneficially interested in the results of operation of the petitioner, it must be held that the two corporations were not affiliated within the meaning of the taxing acts for the years 1924 to 1927, inclusive. The following decisions of the Board are controlling upon this issue: *1957 ; ; ; .
Judgment will be entered for the respondent.