*1123 During 1935 the Coca-Cola Co. acquired and retired 200,000 shares of its class A preferred stock, including 1,000 shares held by petitioner since 1929. Held, that the amount received by petitioner for his stock represented "amounts distributed in partial liquidation" as that term is used in section 115(c) and defined in section 115(i) of the Revenue Act of 1934; and that 100 per centum of petitioner's gain should be taken into his account in computing net income as provided in section 115(c), rather than 40 per centum thereof as provided in section 117(a) of the same act. Cohen Trust v. Commissioner, 121 Fed.(2d) 689, followed.
*405 This proceeding involves a determination by the respondent of a deficiency in income tax against petitioner for the calendar year 1935 in the amount of $23,334.57.
In his income tax return petitioner reported profit from the sale of stock in the Coca-Cola Co. as follows:
| Class A stock - 1,000 shares | Common - 100 shares | |
| Sale price | $53,650.00 | $27,737.95 |
| Cost | 21,892.14 | 10,670.72 |
| Total profit or loss | 31,757.86 | 17,067.23 |
| Taken into account: | ||
| Percentage | 40% | 40% |
| Amount | 12,703.14 | 6,826.89 |
*1124 The respondent, in his deficiency notice, increased this reported profit of $19,530.03 by $41,275.15 by adjustments as follows:
| Class A stock - 1,000 shares | Common - 100 shares | |
| Sale price (no adjustment) | $53,650.00 | $27,737.95 |
| Cost | None | 9,850.00 |
| Total profit or loss | 53,650.00 | 17,887.95 |
| Taken into account: | ||
| Percentage | 100% | 40% |
| Amount | 53,650.00 | 7,155.18 |
Petitioner does not contest the adjustments made by the respondent in connection with the common shares. Relative to the class A stock, the parties are now in agreement that under section 214 of the Revenue Act of 1939 petitioner's adjusted basis of the 1,000 shares is $21,892.14, which is the amount petitioner reported on his return. *406 In a statement attached to the deficiency notice, the respondent said in part:
Since the 1,000 share lot of Class "A" stock was sold to the issuing company through the Equitable Company of Atlanta, Georgia, as part of a plan by which these shares were ultimately retired by the company, the transaction is held to represent a partial liquidation and 100% of the profit has been taken into account in accordance with section 115(c) of the Revenue Act of*1125 1934 * * *.
Petitioner by appropriate assignments of error assails the correctness of this determination by the respondent and contends that the disposition of such shares in 1935 was a "sale" thereof as that term is used in section 112(a) of the Revenue Act of 1934; that there was no distribution in partial liquidation by the Coca-Cola Co. as the term "amounts distributed in partial liquidation" is used in section 115(c) of the Revenue Act of 1934; and that, because he held the 1,000 shares for more than five years, but not for more than ten years, only 40 percent of the gain recognized should be taken into account under section 117(a) of the Revenue Act of 1934.
FINDINGS OF FACT.
The facts were stipulated. We adopt the stipulation as our findings of fact and summarize them herein as follows:
Petitioner is an individual residing at Daytona Beach, Florida. His income tax return for the year 1935 was filed with the collector of internal revenue for the district of Florida.
In the taxable year he was a stockholder in "The Coca-Cola Company" (herein sometimes referred to as the Coca-Cola Co.), a Delaware corporation whose principal place of business was Atlanta, Georgia. *1126 The business of Coca-Cola first started in a small way about 1888 in the city of Atlanta, Georgia. It was incorporated shortly thereafter under the name of "Coca-Cola Company", a Georgia corporation, with an authorized capital stock of 500 shares with a par value of $100 each. The Coca-Cola Co. was formed on September 5, 1919, under the laws of the State of Delaware, with an authorized capital stock of 500,000 shares of no par value common and 100,000 shares of $100 par value 7 percent preferred. The common shares were sold for cash. On September 11, 1919, the Coca-Cola Co. acquired all the properties of "Coca-Cola Company" for a purchase price consisting of $15,000,000 cash and $10,000,000 of 7 percent preferred stock.
During 1925 and 1926, $4,000,000 and $6,000,000, respectively, of the 7 percent preferred stock was retired, leaving only the common stock outstanding. On March 3, 1927, the Coca-Cola Co. amended its charter and issued a 100 percent stock dividend in common stock, so that there were then outstanding 1,000,000 shares of common stock *407 of no par value, and none other. On December 8, 1928, the Coca-Cola Co. amended its charter to authorize the issuance*1127 of 1,000,000 shares of $3 cumulative class A stock and directed that this stock be distributed to the stockholders of record as of January 15, 1929.
As of January 15, 1929, the Coca-Cola Co., pursuant to the foregoing, issued a stock dividend consisting of one share of the $3 cumulative class A stock for each share of the common then outstanding, so that the capital structure then stood, authorized and issued, 1,000,000 shares of common stock of no par value and 1,000,000 shares of class A stock redeemable at $52.50 per share, plus accrued dividends, through call by lot or purchase as a whole or in part on any dividend-paying date on 30 days' notice, as provided for in the certificate of incorporation as amended. Both common and preferred at all times material were listed on the New York Stock Exchange.
On January 15, 1929, the petitioner owned certain shares of the common stock of the Coca-Cola Co. which he had purchased in 1926, and, being such owner, petitioner received as a stock dividend one share of the $3 cumulative class A stock for each share of common which he owned, including the 1,000 shares here in question.
As of January 1, 1934, the Coca-Cola Co. had outstanding*1128 1,000,000 shares of class A stock. On November 9, 1934, it received as a distribution in kind from its wholly owned subsidiary, the Rohawa Co., 200,000 shares of class A stock, which were forthwith retired, and a certificate to that effect was filed with the Secretary of State of Delaware on November 26, 1934, leaving 800,000 shares outstanding on December 31, 1934.
In the minutes of the Coca-Cola Co. dated August 31, 1935, the desire to reduce the outstanding class A stock by 200,000 shares to 600,000 shares was expressed as follows:
RESOLVED, That, pursuant to the recommendation of the Executive Committee with respect to the call of Class "A" stock, the officers of the Company are directed to prepare with advice of counsel, and to present to the Board, a plan of procedure and appropriate resolutions in harmony with the charter and by-laws of the Company whereby outstanding shares of Class "A" stock may be called in number sufficient to reduce the remaining outstanding shares of such stock to 600,000.
During the calendar year 1935, the Coca-Cola Co. acquired and retired 200,000 shares of its class A stock as follows:
| Shares | |
| 1. On June 27, 1935, as result of letter dated May 22, 1935 | 425 |
| 2. As a dividend in kind from its wholly owned subsidiary, the Coca-cola Co. of Canada, Ltd., on September 20, 1935 | 3,300 |
| 3. As a dividend in kind from its wholly owned subsidiary, the Rohawa Co. on November 4, 1935 | 124,520 |
| 4. Stock referred to in contract with the Equitable Co. dated November 2, 1935, as hereinafter set forth, on November 27, 1935 | 71,755 |
| Total | 200,000 |
*1129 *408 The 1,000 shares here in question are a part of the 71,755 shares referred to in the paragraph immediately preceding.
On November 4, 1935, the board of directors of the Coca-Cola Co. adopted certain resolutions which are recorded in the minutes as follows:
On motion duly made and seconded, the following resolution was unanimously adopted:
WHEREAS, The Coca-Cola Company now owns 128,245 shares of its Class "A" stock, which it holds as Treasury Stock; and
WHEREAS, It is deemed desirable and in the best interests of the corporation to retire said 128,245 shares of Class "A" stock;
NOW, THEREFORE, BE IT RESOLVED, That the corporation hereby retires 128,245 shares of its Class "A" stock now owned by it and held as Treasury stock; and
BE IT FURTHER RESOLVED, That the officers of the corporation be and they are hereby authorized to take any and all steps required to be taken by law, as a result of the retirement hereby effected.
On motion duly made and seconded, the following resolution was unanimously adopted:
RESOLVED, That all previous resolutions of this Board and of the Executive Committee, authorizing the purchase or call of this Company's Class "A" stock*1130 be and are hereby rescinded.
On motion duly made and seconded, the following resolution was unanimously adopted:
WHEREAS, It is deemed desirable and in the best interests of the corporation that it purchase out of its surplus not in excess of 71,755 shares of the Class "A" stock of the corporation, now offered for sale to this corporation by The Equitable Company, and that immediately following the purchase of said shares, this corporation retire such shares.
BE IT RESOLVED, That the executive officers of The Coca-Cola Company be and they hereby are empowered and directed to purchase out of the surplus of the corporation from The Equitable Company not in excess of 71,755 shares of Class "A" stock of The Coca-Cola Company at $52.50 per share; plus amount equal to accrued dividends to date of payment, and,
BE IT FURTHER RESOLVED, That payment for the shares so purchased be made in cash, and
BE IT FURTHER RESOLVED, That immediately following the purchase of said shares by The Coca-Cola Company, such shares forthwith shall be retired by the corporation pursuant to this resolution without further action by the Board of Directors, it being the intention of the Board that this*1131 resolution shall not only authorize the purchase of said shares from The Equitable Company, but also effect the retirement of such shares as shall be purchased pursuant hereto; and
BE IT FURTHER RESOLVED, That the officers of the corporation be and they hereby are authorized to take any and all steps required to be taken by law as a result of the retirement hereby effected.
During October 1935 certain class A stockholders of the Coca-Cola Co. entered into separate but similar agreements with the *409 Equitable Co. whereby certain shares of class A stock were to be acquired by the Coca-Cola Co. On October 7, 1935, the petitioner entered into one of these agreements with the Equitable Co. whereby his said 1,000 shares of class A stock were to be acquired by the Coca-Cola Co. The material provisions of the October 7, 1935, agreement are as follows:
The undersigned (Owner) and The Equitable Company (Agent) agree:
1. The Owner hereby deposits, or will promptly deposit, with the Agent, or with some Bank or Trust Company approved by the advisers, 1000 shares of Class "A" Stock of The Coca-Cola Company, to be held subject to the terms hereof.
* * *
3. The Owner authorizes*1132 the Agent to sell to The Coca-Cola Company, for the Owner's account, on or before December 12, 1935, 1000 shares of Coca-Cola Class "A" stock at Fifty-two and 50/100 (52.50) Dollars a share, plus accrued dividends. * * *
4. This agreement shall terminate on December 12, 1935, or at such earlier time as the Agent may have sold to The Coca-Cola Company, for the Owner, the number of shares which the Agent is authorized to sell for the Owner's account to The Coca-Cola Company.
5. Within ten (10) days from the termination of this agreement, the Agent will settle with the Owner for the sale made, and will deliver unsold shares and all moneys owing the Owner, less the amount which the Advisers shall determine and approve for the Agent's fees and all other expenses incurred in carrying out the terms of this agreement.
6. For the purposes of this agreement, one (1) share of Coca-Cola International Corporation Class "A" stock and the exchange fee will be considered as the equivalent to two (2) shares of Coca-Cola Company Class "A" stock.
* * *
8. All action taken and purchases made by the Agent under this agreement shall be subject to the approval of the Advisers, who shall*1133 be * * *.
* * *
This 7th day of Oct., 1935.
THE EQUITABLE COMPANY,
[Signed] By EQUITABLE COMPANY,
[Signed] By J. A. BROWN
During the same period, namely, October 1935, certain class A stockholders of the Coca-Cola International Corporation entered into separate but similar agreements with the Equitable Co. for the disposition of certain class A Coca-Cola International Corporation stock. All of the Coca-Cola International Corporation class A stock covered by these agreements was delivered to the Coca-Cola International Corporation for twice that number of shares of class A stock of the Coca-Cola Co. and the total of the class A Coca-Cola Co. stock thus acquired under all of these agreements amounted to 71,755 shares, which were delivered to the Coca-Cola Co.
*410 Thereafter, on November 2, 1935, the Equitable Co. entered into a contract with the Coca-Cola Co. whereby 71,755 shares of class A stock, including the petitioner's said 1,000 shares here in question, were transferred to the Coca-Cola Co. Thereafter, there were delivered to the Coca-Cola Co. 71,755 shares of class A stock, whereupon the Coca-Cola Co. paid the sum of $3,767,137.50 ($52.50 per share) *1134 plus accrued dividends of $92,381.50 ($1.30 per share), or a total of $3,860,419, of which the petitioner received $53,650.
During October and November 1935, 9,400 shares of class A stock of the Coca-Cola Co. were sold on the New York Stock Exchange at prices ranging from a low of $55 to a high of $57.50 per share.
On November 5, 1935, the Coca-Cola Co. filed a certificate with the Secretary of State of Delaware, stating that the 128,245 shares of class A stock had been retired. On December 9, 1935, a similar certificate was filed with respect to the 71,755 shares, which provided in part as follows:
FIRST: That the corporation, by resolution unanimously adopted by its Board of Directors at a meeting duly convened and held on November 4, 1935, has retired seventy-one thousand seven hundred fifty-five (71,755) shares of its issued and outstanding Class "A" stock.
SECOND: That as a result of said retirement, the capital of the corporation represented by its Class "A" stock has been reduced by Three Hundred Fifty-Eight Thousand Seven Hundred Seventy-Five ($358,775) Dollars, which is the amount of capital represented by the seventy-one thousand seven hundred fifty-five (71,755) *1135 shares of Class "A" stock so retired.
THIRD: That the Certificate of Incorporation of The Coca-Cola Company, as amended, does not prohibit the reissue of the seventy-one thousand seven hundred fifty-five (71,755) shares of Class "A" stock retired as aforesaid, and accordingly, the said seventy-one thousand seven hundred fifty-five (71,755) shares of Class "A" stock shall have the status of authorized and unissued shares.
In recording the retirement of the 200,000 shares on its books in November and December of 1935, the Coca-Cola Co. charged its class A capital stock account with $1,000,000, which was at the rate of $5 per share and charged its earned surplus account with $9,300,253.92, which was at the rate of approximately $46.50 per share.
None of said shares of stock so retired have since been reissued or held as treasury stock.
Less than 2 percent of the holders of class A stock of the Coca-Cola Co. and less than 11 percent of the holders of class A stock of the Coca-Cola International Corporation participated in the transactions whereby 71,755 shares of class A stock of the Coca-Cola Co. were retired.
There were no important changes in stock ownership, other than*1136 those listed herein, around or near the event here in controversy. *411 The remaining 600,000 shares of said class A stock were left unchanged and are still outstanding as of this date.
On October 28, 1935, the Coca-Cola Co. amended its charter and increased its outstanding common stock by issuing three additional shares for each share then outstanding, leaving the old shares outstanding, so that the capital structure of the Coca-Cola Co. then stood, common no par value, authorized, issued and outstanding, 4,000,000 shares; class A authorized, 1,000,000 shares, issued and outstanding, 600,000 shares.
With respect to the calling or purchasing of its class A stock, the certificate of incorporation of the Coca-Cola Co. as amended, provided in part as follows:
Said Class "A" stock, all or any part thereof, from time to time, shall, at the option of the Board of Directors be subject to call on any dividend paying date after date of issue at the price of Fifty-two Dollars and Fifty ($52.50) Cents per share, and dividends accumulated and unpaid thereon. The method of call, which shall include the way of determining what stock is to be called, shall be fixed by the Board of*1137 Directors in the resolution of issue * * * The holder or holders of the share or shares called shall receive thirty (30) days' written notice of the call * * *. Prior to the expiration of thirty (30) days, after it has been determined what stock is to be called, the company shall deposit in the Trust Company of Georgia, at Atlanta, Georgia, or some Trust Company in the Borough of Manhattan, or some other Trust Company or Bank that might be designated from time to time by the Board of Directors, an amount sufficient to pay the call price on the stock called, plus all unpaid and accruing dividends up to and including the date of the call, which date for the purpose of determining the amount to be deposited is hereby fixed as at the expiration of the thirty (30) days. * * * The Company shall have the right to purchase in open market and/or at private sale any of such Class "A" shares of stock, to retire the stock so purchased, or hold the same without retirement, to sell, resell, or transfer the same, for such considerations and under such terms and conditions as the Board of Directors, in its sole discretion, shall or may deem advisable, and the company shall have the right, through*1138 its Board of Directors, to exchange the Class "A" stock so acquired and not retired, for stock in this corporation or stock in other corporations.
The following is an extract from the minutes of the meeting of the board of directors of the Coca-Cola Co. with respect to the resolution of issue of the class A stock:
BE IT RESOLVED FURTHER AND FINALLY, that the method of call be as follows: The number of each outstanding certificate, as shown by the records of the corporation, at the time of the call, shall be placed in a container and a person designated by the Board of Directors shall draw one number at a time until the number of shares equal to the number to be called shall be drawn. If a greater number of shares shall be so drawn than have been designated for call, then to equalize same, said excess number of shares shall be deducted from the last numbered certificate drawn; a new Certificate to be issued for the number of shares in excess to the holder of said certificate.
*412 Attached to each of the ten certificates of 100 shares, representing the 1,000 shares of class A stock here in question, is a statement that "for value received hereby sell, assign and transfer*1139 unto The Coca-Cola Company For Retirement" the said shares, which were signed by Luther B. Coley.
Some of the class A stockholders of the Coca-Cola Co. who entered into contracts with the Equitable Co., as referred to above, purchased additional shares of class A stock on the open market at $56 to $57 per share which they transferred to the Coca-Cola Co. in accordance with their agreements with the Equitable Co. and retained the shares of class A stock theretofore acquired and held by them.
The reason given by the executive committee of the Trust Company of Georgia for executing one of the several agreements with the Equitable Co. on behalf of certain trust estates was as follows:
This recommendation is made because your Committee believes it is best for the above-named Estates to sell the Class "A" stock to The Coca-Cola Company at the call price rather than have all or a part of said stock called for retirement by The Coca-Cola Company. We further understand that if a sale is made, a call will be avoided.
From the facts which have been stipulated we find that the amount of $53,650 received by petitioner for the 1,000 shares of class A stock was an amount distributed in*1140 partial liquidation of a corporation as the term "amounts distributed in partial liquidation" is used in section 115(c) and defined in section 115(i) of the Revenue Act of 1934. It was in full payment in exchange for the stock.
OPINION.
BLACK: The question is whether the transaction whereby the Coca-Cola Co. during 1935 acquired from petitioner and retired 1,000 shares of its class A stock which petitioner had held since 1929 was, as respondent contends, a distribution in partial liquidation so that 100 percent of the recognizable gain should be taken into account in computing net income, or whether the transaction should, as petitioner contends, be regarded simply as a sale by petitioner of a capital asset so that only 40 percent of the recognizable gain should be taken into account.
Petitioner relies principally upon sections 112(a) and 117(a) of the Revenue Act of 1934, 1 section 27 of the General Corporation *413 Law of the State of Delaware, 2 and the cases of , and *1141 . The respondent relies principally upon subsections (c) and (i) of section 115 of the Revenue Act of 1934 3 and the cases of ; Benjamin R. Britt (par. 5 of syllabus), ; affirmed upon other issues at ; ; and .
*1142 Petitioner argues that the transaction here involved constituted a "sale" within the purview of section 112(a); that there was no "distribution" of assets within the meaning of section 115(i); that in those cases decided by the Board and the courts in which the stock was not retired pro rata there was a tacit consent on the part of those holders whose stock was not retired; that under section 27 of the General Corporation Law of the State of Delaware there was no intent to make a call, but but that there was an intent to sell and an intent to purchase; that there was no partial liquidation of the business of the Coca-Cola Co.; and that there was no reduction in the authorized capital stock of the company.
Petitioner has requested the Board to find the facts as stipulated and also to make three additional findings as follows:
1. The taxpayer disposed of his stock upon a sale thereof as that term is used in Section 112(a) of the Revenue Act of 1934.
2. There was no distribution of assets by The Coca-Cola Company as that term is used in Section 115(i) of the Revenue Act of 1934. Hence, there was no distribution in partial liquidation. Instead, the money paid out by The Coca-Cola*1143 Company was in discharge of its contractual obligation to purchase stock.
3. The stock having been held by the taxpayer for more than 5 years but not for more than 10 years, only 40 per centum of the gain is to be taxed.
*414 We found the facts as stipulated, but were unable to make the special findings requested by petitioner for reasons which we shall presently state.
We think it may be conceded that the transaction in question took the form of a sale by petitioner of the 1,000 shares to the Coca-Cola Co. We do not think, however, that this fact alone controls the manner in which the gain is to be taxed under the taxing statute. We think consideration must be given to all the facts surrounding the transaction such as (1) the desire of the corporation as expressed in its minutes of August 31, 1935, to reduce its outstanding class A shares from 800,000 to 600,000 shares; (2) the fact that during the year 1935 the corporation did acquire and retire 200,000 shares of its class A stock; (3) that the 1,000 shares here in question were a part of the shares so acquired and retired; (4) that the so-called sale price was the redemption price stated in the certificate of*1144 incorporation of $52.50 per share plus accrued dividends of $1.30 per share instead of the market price of from $55 to $57.50 per share; and (5) that the retirement of the stock was charged to the earned surplus and class A capital stock accounts on the books of the corporation. We think that when consideration is given to these facts surrounding the transaction the conclusion must be that the transaction falls within the term "amounts distributed in partial liquidation" as that term is used in section 115(c) and defined in section 115(i) of the Revenue Act of 1934. In that case a Delaware corporation in 1936 sent to all holders of its preferred stock a letter informing them that "The company will buy for retirement on December 26, 1936" 10,000 shares or more of such stock and invited them to offer their stock to the company at prices not to exceed $105 per share, which was the redemption price of the preferred stock as stated in the bylaws of the company. At that time the company had outstanding 11,116 preferred shares out of a total authorized issue of 30,000 shares. In response to this letter the Cohen trust offered to*1145 sell its 447 shares at $105 per share. The offer was accepted and the trust delivered its stock to the company and received the sale price in full. Out of the 11,116 shares, 8,705 shares (including the 447) were thus acquired by the company and retired on or before December 31, 1936. In that case, as contended here, the Cohen trust contended that its disposition of the 447 shares must be regarded as a sale rather than a distribution in partial liquidation. The court answered this contention in part as follows:
As to the petitioner's first contention, it may be conceded that its disposition of its stock partook of the nature of a sale in that the petitioner ceded its ownership for a consideration. * * * But, even though the transaction presents some of the elements of a sale, the gain derived therefrom does not fall within *415 the reach of Section 117(a). Section 115(c) expressly provides that "Despite the provisions of Section 117(a), 100 per centum of the gain * * * shall be taken into account in computing net income" in the case of gain resulting from the partial liquidation of a corporation. * * * Under well known rules of construction the general provision in Section*1146 117(a) would give way to Section 115(c) where the latter is applicable. * * * Consequently, the answer to the question whether the distribution by the corporation was in complete cancellation or redemption of a part of its stock must be wholly unaffected by whether or not the transaction could in any view be deemed to have been a sale.
Counsel for petitioner suggests in his brief that of the several decisions of the Board on this question none have pointedly observed that the statutory definition of the term defined in section 115(i) (see footnote No. 3, supra ) includes the use of the word "distribution"; that a distribution contemplates a division by a corporation of assets pro rata among all of the shareholders of the corporation, or among all of the shareholders of a particular class; and that, since in the instant proceeding only a small percentage of the class A stockholders participated in the transactions whereby only a part of the class A stock was retired, the payments to such participating stockholders could not be regarded as distributions to them. And in his reply brief counsel for petitioner says that if there was a distribution in partial liquidation, *1147 the Commissioner wins. The court in , regarded similar payments by the corporation there involved as representing distributions in partial liquidation. We think there was a "distribution" in partial liquidation in the instant case just as the court held there was one in the Cohen Trust case. The Coca-Cola Co. desired to retire 200,000 shares of its class A stock. It could have issued a call for that many shares. Instead it received as a dividend in kind from its wholly owned subsidiary a part of the needed shares and a sufficient number of stockholders agreed to sell to the corporation a part of their shares to make up the balance, for the redemption price stated in the certificate of incorporation rather than the market price. Some of the stockholders did this because they thought it better to sell at the call price than to have all or a part of their stock called for retirement. The corporation thus retired the 200,000 shuares and charged $1,000,000 to its class A capital stock account and $9,300,253.92 to its earned surplus account. We think this was an apportionment of over $10,000,000 among several or many and*1148 comes within the term "amount distributed in partial liquidation" as used in section 115(c) and defined in section 115(i) of the Revenue Act of 1934. In order for a distribution to come within that term we do not think it a prerequisite that every stockholder of the corporation or every stockholder of a particular class share pro rata in the addets distributed. Cf. ;; ; .
The remaining arguments advanced by petitioner likewise fail to convince us that the transaction in question was not a distribution in partial liquidation within the meaning of the statute. There is no evidence whether there was or was not a tacit consent on the part of those stockholders whose stock was not retired. There is certainly no evidence that any of the stockholders objected. Regarding section 27 of the General Corporation Law of the State of Delaware (see footnote No. 2, supra ), petitioner concedes that if the Coca-Cola*1149 Co. had proceeded under section 27(1) a distribution in partial liquidation would have occurred, but urges that since it proceeded under section 27(2) a purchase and not a distribution in partial liquidation took place. The corporation involved in , was a Delaware corporation. It proceeded under section 27(2) and the transaction was held to be a distribution in partial liquidation. See also ; . In order for a distribution to be a distribution in partial liquidation it is not necessary that the corporation be planning a cessation or winding up of a part of its business activities. ; ; Benjamin R. Britt, supra, pp. 796, 797.
Finally, petitioner argues that, since there was no reduction in the "authorized" capital stock of the Coca-Cola Co., there could be no distribution in partial liquidation. This argument was fully considered and held unavailing in *1150 The cases of , and , relied upon by petitioner, are distinguishable from the instant proceeding upon the ground that in those cases the stock acquired by the respective corporations there involved was held in the treasury, whereas in the instant proceeding it was completely retired and redeemed. ;
The deficiency should be redetermined by taking into account in computing net income 100 per centum of petitioner's gain in the transaction.
Decision will be entered under Rule 50.
Footnotes
1. SEC. 112. RECOGNITION OF GAIN OR LOSS.
(a) GENERAL RULE. - Upon the sale or exchange of property the entire amount of the gain or loss, determined under section 111, shall be recognized, * * *
SEC. 117. CAPITAL GAINS AND LOSSES.
(a) GENERAL RULE. - In the case of a taxpayer, other than a corporation, only the following percentages of the gain or loss recognized upon the sale or exchange of a capital asset shall be taken into account in computing net income:
* * *
40 per centum if the capital asset has been held for more than 5 years but not for more than 10 years; ↩
2. SEC. 27. - R.C. Sec. 27 - Retirement of Preferred Stock:↩ - Whenever any corporation organized under this Chapter shall have issued any preferred or special shares it may, subject to the provisions of its Certificate of Incorporation, (1) redeem all or any part of such shares, if subject to redemption, at such time or times, at such price or prices, and otherwise as shall be stated or expressed in the Certificate of Incorporation or (2) at any time or from time to time purchase all or any part of such shares, but in the case of shares subject to redemption, at not exceeding the price or prices at which the same may be redeemed, or (3) at any time or from time to time, by resolution of the board of directors, retire any such shares redeemed or purchased out of surplus.
3. SEC. 115. DISTRIBUTIONS BY CORPORATIONS.
* * *
(c) DISTRIBUTIONS IN LIQUIDATION. - Amounts distributed in complete liquidation of a corporation shall be treated as in full payment in exchange for the stock, and amounts distributed in partial liquidation of a corporation shall be treated as in part or full payment in exchange for the stock. The gain or loss to the distributee resulting from such exchange shall be determined under section 111, but shall be recognized only to the extent provided in section 112. Despite the provisions of section 117(a), 100 per centum of the gain so recognized shall be taken into account in computing net income. * * *
* * *
(i) DEFINITION OF PARTIAL LIQUIDATION. - As used in this section the term "amounts distributed in partial liquidation" means a distribution by a corporation in complete cancellation or redemption of a part of its stock, or one of a series of distributions in complete cancellation or redemption of all or a portion of its stock. ↩