*3972 During the years 1918 to 1921, inclusive, the petitioner made remittances to the Railway Share Trust Co., Ltd., of London, England, trustee under a mortgage upon property which the petitioner owned subject to the mortgage, for the payment of interest on certain bonds issued by an English corporation. Held, that the petitioner is liable to income tax equal to 6 per cent upon the amounts remitted in 1918 and equal to 10 per cent upon the amounts remitted in 1919, 1920, and 1921.
*1104 These are proceedings for the redetermination of deficiencies in income tax for the years 1918 to 1921, inclusive, as follows:
| 1918 | $1,959.02 |
| 1919 | 1,028.04 |
| 1920 | 827.03 |
| 1921 | 18.79 |
Docket No. 8286 has reference to the deficiencies determined for the years 1919 and 1921, inclusive, and Docket No. 8287 to the deficiency determined for the year 1918. The proceedings were consolidated *1105 for hearing and decision. The only allegation of error in each petition is that the Commissioner determined deficiencies on the foreign payments made by the*3973 petitioner to the Railway Share Trust Co., Ltd., of London, England, at the rate of 6 per cent upon the amount of the remittances for the year 1918 and at the rate of 10 per cent upon the remittances made during the years 1919, 1920, and 1921, instead of at the rate of 2 per cent.
FINDINGS OF FACT.
The petitioner is a limited partnership under the laws of the Commonwealth of Pennsylvania.
In 1888 John F. Betz was the owner of a large brewery in Philadelphia, which he had operated for many years. He arranged to sell the brewery to John F. Betz & Son Brewery, Ltd., a corporation organized under the laws of England (hereinafter referred to as the English company), which was to enter into possession and operate the brewery. In order to raise the money to pay Betz the purchase price, the purchaser caused Betz to execute and deliver a mortgage upon the brewery premises for $1,250,000 to the Railway Share Trust Co., Ltd., of London, England, trustee, as security for the principal and interest of an issue of debenture bonds in the English equivalent of its principal sum (250,000 Pound) to be issued by the English company. The mortgage was executed December 31, 1888.
Pending*3974 the negotiations and consummation of the plan of purchase it was ascertained by the English company that it could not procure a brewer's license under the then recently enacted liquor law of 1887 in Pennsylvania and the arrangement, which had in contemplation the actual possession and operation of the brewery by the English company, had to be modified accordingly.
The mortgage was executed and delivered to the English trustee as planned and the debenture bonds secured thereby were sold and distributed in England, but instead of the English company operating the brewery as contemplated, a limited partnership association, the petitioner, was created under the Pennsylvania law of 1874, which association acquired title to (subject to the foregoing mortgage) and entered into the actual operation of the brewery premises for and in behalf of and in the place of the English company. The articles of association of the petitioner are dated January 14, 1889. They show that the names of the subscribes and the amount of capital subscribed for by each were as follows:
| John F. Betz | $749,000 |
| John F. Betz, jr | 500 |
| William Hay | 500 |
*1106 In payment of his subscription*3975 of $749,000, John F. Betz paid in to the partnership association the brewery premises, subject to the mortgage which had been given thereon in the amount of approximately $1,250,000 to the Railway Share Trust Co., Ltd., of London, England. The articles of association of January 14, 1889, provide in part as follows:
All of which real estate is subject to a mortgage of $1,250,000, which makes the appraisement and valuation $749,000 above said incumbrance, all of which real estate John F. Betz contributes and the aforesaid valuation and appraisement of the real property so contributed as part of the capital of the said Association is hereby approved by all the members of the Association aforesaid in accordance with the statute in such case made and provided.
The deed of the property to the petitioner from John F. Betz, dated January 12, 1889, provides in part:
* * * To have and to hold the said messuages or tenements and lots or pieces of ground above described, hereditaments and premises hereby granted, mentioned, or so intended to be with the appurtenances, to said party of the second part, their successors and assigns for their only proper use and behoof, their successors and*3976 assigns forever; the said premises being however under and subject to a mortgage to secure the payment of $1,250,000, made and executed on the thirty first day of December A.D. 1888, by the party of the first part to The Railway Share Trust Company, Limited, and the said party of the first part for himself, his heirs, executors and administrators, does covenant and agree with the party of the second part, its successors and assigns, the said above-described pieces or lots of ground with the appurtenances unto the said party of the second part, its successors and assigns, against them the party of the first part, his heirs, executors and all and every other person or persons whomsoever lawfully claiming or to claim the same or any part thereof, by, from or under him, them or either of them, shall and will warrant and forever defend by these presents.
John F. Betz, Jr., and William Hay paid their subscriptions of $500 each in cash.
Since the dates of the mortgage and articles of association, as stated, the petitioner has remitted from time to time to the Railway Share Trust Co., Ltd., of London, sums of money sufficient to pay the accruing interest in full upon the outstanding*3977 debenture bonds of the English company. The Railway Share Trust Co., Ltd., advised the petitioner of the amount of money necessary to pay the interest upon the outstanding bonds before each interest-paying date and the petitioner remitted the amounts requested. These amounts were as follows:
| 1918 | $32,650.31 |
| 1919 | 10,280.43 |
| 1920 | 8,270.33 |
| 1921 | 187.94 |
The petitioner did not withhold from such remittances any amount for income tax to which it might be liable under the provisions of *1107 the Revenue Act of 1916, as amended by the Revenue Act of 1917, the Revenue Act of 1918, and the Revenue Act of 1921. The respondent has computed deficiencies upon the basis that the petitioner should have withheld the income tax on such remittances at the rate of 6 per cent for the year 1918, and at the rate of 10 per cent for the years 1919, 1920, and 1921, and has computed deficiencies accordingly.
OPINION.
SMITH: The petition alleges that the respondent has erred in computing deficiencies in tax for the years 1918 to 1921, inclusive, at the rate of 6 per cent of remittances made to the Railway Share Trust Co., Ltd., of London, England, for the year 1918, and*3978 at the rate of 10 per cent of the remittances for the years 1919, 1920, and 1921, instead of at the rate of 2 per cent of such remittances. At the hearing of these proceedings, and in the brief, counsel for the petitioner has argued that the petitioner is not liable to income tax in respect of the remittances made to the Railway Share Trust Co., Ltd., of London, for any of the years, and that if the petitioner is liable to any income tax for any of the years 1918 to 1921, inclusive, that tax should not be in excess of 2 per cent of the amount of the remittances made during the taxable year.
Section 10(a) of the Revenue Act of 1916, as amended by section 1206 of the Revenue Act of 1917, provides:
That there shall be levied, assessed, collected, and paid annually upon the total net income received in the preceding calendar year from all sources by every corporation, joint-stock company or association, or insurance company, organized in the United States, no matter how created or organized, but not including partnerships, a tax of two per centum upon such income; and a like tax shall be levied, assessed, collected, and paid annually upon the total net income received in the*3979 preceding calendar year from all sources within the United States by every corporation, joint-stock company or association, or insurance company, organized, authorized, or existing under the laws of any foreign country, including interest on bonds, notes, or other interest-bearing obligations of residents, corporate or otherwise, and including the income derived from dividends on capital stock or from net earnings of resident corporations, joint-stock companies or associations, or insurance companies, whose net income is taxable under this title. (Italics ours.)
Section 13(e) of the Revenue Act of 1916, as amended by section 1208 of the Revenue Act of 1917, provides:
All the provisions of this title relating to the tax authorized and required to be deducted and withheld and paid to the officer of the United States Government authorized to receive the same from the income of nonresident alien individuals from sources within the United States shall be made applicable to the tax imposed by subdivision (a) of section ten upon incomes derived from interest upon bonds and mortgages or deeds of trust or similar obligations of domestic or other resident corporations, joint-stock*3980 companies or associations, and *1108 insurance companies by nonresident alien firms, copartnerships, companies, corporations, joint-stock companies or associations, and insurance companies, not engaged in business or trade within the United States and not having any office or place of business therein.
Section 4 of the Revenue Act of 1917 provides:
That in addition to the tax imposed by subdivision (a) of section ten of such Act of September eighth, nineteen hundred and sixteen, as amended by this Act, there shall be levied, assessed, collected, and paid a like tax of four per centum upon the income received in the calendar year nineteen hundred and seventeen and every calendar year thereafter, by every corporation, joint-stock company or association, or insurance company, subject to the tax imposed by that subdivision of that section, * * *
The tax imposed by this section shall be computed, levied, assessed, collected, and paid upon the same incomes and in the same manner as the tax imposed by subdivision (a) of section ten of such Act of September eighth, nineteen hundred and sixteen, as amended by this Act, except that for the purpose of the tax imposed by this section*3981 the income embraced in a return of a corporation, joint-stock company or association, or insurance company, shall be credited with the amount received as dividends upon the stock or from the net earnings of any other corporation, joint-stock company or association, or insurance company, which is taxable upon its net income as provided in this title.
Treasury Decision 2547 provides in part as follows:
Withholding of tax on income of foreign corporations on and after October 4, 1917. - Paying agents of interest on bonds of domestic corporations owned by foreign corporations not engaged in business in the United States and having no office or place of business therein are required to deduct and withhold the tax of 6 per cent on and after October 4, 1917.
Article 202 of Regulations 33, Revised, provides in part as follows:
Under section 13(e) of the act of September 8, 1916, as amended by the act of October 3, 1917, interest on bonds of domestic corporations, joint-stock companies or associations, and insurance companies, payable to nonresident alien corporations, is subject to deduction of tax at the source at the rate of 6 per cent (2 per cent under the act of Sept. 8, 1916, and*3982 4 per cent under the act of Oct. 3, 1917). Foreign corporations will file ownership certificate Form 1000 in presenting coupons for payment. If a foreign corporation has an office, agent, or place of business in the United States, certificate Form 1001 shall be filed establishing such fact and relieving the corporation from deduction of the tax at the source.
The basis for the above quoted portion of Treasury Decision 2547 is apparently section 10(a) and section 13(e) of the Revenue Act of 1916, as amended by the Revenue Act of 1917. The 2 per cent tax imposed upon income of foreign corporations "from all sources within the United States" by the Revenue Act of 1916 is subject to the withholding provisions of that Act. The 4 per cent tax imposed by section 4 of the Revenue Act of 1917 is to be assessed and collected "in the same manner as the tax imposed by subdivision (a)" of section 10 of the Revenue Act of 1916, as amended by the Revenue Act of 1917.
*1109 The petitioner contends that it was paying the interest upon bonds and that if it was liable to any income tax in respect of the interest paid it should be at the rate of only 2 per cent of the remittances made*3983 for the year 1918. This unquestionably would be the rate if the petitioner were paying interest upon its own bonds to any owners other than foreign corporations. See section 3 of the Revenue Act of 1917, and article 45 of Regulations 33, Revised. The latter article reads as follows:
Withholding will at all times be limited to 2 per cent, except in case of interest on corporate bonds owned by foreign corporations having no office or place of business in the United States, in which case deduction will be at the rate of 6 per cent.
At this point it should be noted that the Revenue Act of 1918 was not enacted until February 24, 1919, and that the withholding provisions of that law were not in effect during the calendar year 1918.
The record does not disclose what, if any, arrangement was made between the English corporation, or the trustee, with the petitioner relative to the payment of interest upon the bonds. We simply know that the remittances were made. For anything that the record discloses, the petitioner may have remitted to the trustee a portion of its earnings upon the order of the English corporation. In such event we are of the opinion that the petitioner would*3984 have been liable to income tax at the rate of 6 per cent of the amount of the remittances made in 1918 under the provisions of law and the regulations quoted above. In the absence of evidence that the respondent committed error in determining the deficiency for 1918 at the rate of 6 per cent of the amount of the remittances, the determination of the deficiency made by the respondent is sustained.
Section 221(a) of the Revenue Act of 1918 provides:
That all individuals, corporations and partnerships, in whatever capacity acting, including lessees or mortgagors of real or personal property, fiduciaries, employers, and all officers and employees of the United States, having the control, receipt, custody, disposal, or payment, of interest, rent, salaries, wages, premiums, annuities, compensations, remunerations, emoluments, or other fixed or determinable annual or periodical gains, profits, and income, of any nonresident alien individual (other than income received as dividends from a corporation which is taxable under this title upon its net income) shall (except in the cases provided for in subdivision (b) and except as otherwise provided in regulations prescribed by the Commissioner*3985 under section 217) deduct and withhold from such annual or periodical gains, profits, and income a tax equal to 8 per centum thereof: Provided, That the Commissioner may authorize such tax to be deducted and withheld from the interest upon any securities the owners of which are not known to the withholding agent.
Section 237 of the same Act provides:
That in the case of foreign corporations subject to taxation under this title not engaged in trade or business within the United States and not having *1110 any office or place of business therein, there shall be deducted and withheld at the source in the same manner and upon the same items of income as is provided in section 221 a tax equal to 10 per centum thereof, and such tax shall be returned and paid in the same manner and subject to the same conditions as provided in that section: Provided, That in the case of interest described in subdivision (b) of that section the deduction and withholding shall be at the rate of 2 per centum.
Section 221(a) of the Revenue Act of 1921 provides:
That all individuals, corporations, and partnerships, in whatever capacity acting, including lessees or mortgagors of real or*3986 personal property, fiduciaries, employers, and all officers and employees of the United States having the control, receipt, custody, disposal, or payment of interest (except interest on deposits with persons carrying on the banking business paid to persons not engaged in business in the United States and not having an office or place of business therein), rent, salaries, wages, premiums, annuities, compensations, remunerations, emoluments, or other fixed or determinable annual or periodical gains, profits, and income, of any nonresident alien individual or partnership composed in whole or in part of nonresident aliens (other than income received as dividends of the class allowed as a credit by subdivision (a) of section 216) shall (except in the cases provided for in subdivision (b) and except as otherwise provided in regulations prescribed by the Commissioner under section 217) deduct and withhold from such annual or periodical gains, profits, and income a tax equal to 8 per centum thereof: Provided, That the Commissioner may authorize such tax to be deducted and withheld from the interest upon any securities the owners of which are not known to the withholding agent.
Section*3987 237 of the same Act provides:
That in the case of foreign corporations subject to taxation under this title not engaged in trade or business within the United States and not having any office or place of business therein, there shall be deducted and withheld at the source in the same manner and upon the same items of income as is provided in section 221 a tax equal to 12 1/2 per centum thereof (but during the calendar year 1921 only 10 per centum), and such tax shall be returned and paid in the same manner and subject to the same conditions as provided in that section: Provided, That in the case of interest described in subdivision (b) of that section the deduction and withholding shall be at the rate of 2 per centum.
The record is no more definite with respect to the relationship of the English corporation to the petitioner during the years 1919, 1920, and 1921 than it is with respect to the relationship which existed between them for the year 1918. If, during these years, the petitioner was remitting to the trustee a portion of its earnings and such remittances were made for the benefit of the English corporation, we are of the opinion that the petitioner is liable to income*3988 tax in respect of the remittance at the rate of 10 per centum thereof. The evidence of record does not disprove that this was the situation. Upon the record as made the determination of the Commissioner must be sustained. The petitioner has not met the burden of proof *1111 to show error on the part of the respondent in the computation of the deficiencies.
The fact that the petitioner failed to withhold the tax which it was required to withhold does not relieve it from tax liability. See section 9(b) of the Revenue Act of 1916 and section 221(c) of the Revenue Acts of 1918 and 1921.
Reviewed by the Board.
Judgment will be entered for the respondent.
PHILLIPS concurs in the result.