*70 Decision will be entered for the respondent.
Held, on the facts, sales of used motor vehicles by petitioner through its agent were sales of property held by petitioner primarily for sale to customers in the ordinary course of petitioner's trade or business, and gains from such sales are taxable as ordinary income. Sec. 117 (j) (1) (B), I. R. C. 1939.
*89 The respondent has determined a deficiency in income tax and excess profits tax of the petitioner for its fiscal year ending June 30, 1951, in the amount of $ 17,716.55. The sole issue is whether gains realized on the sale of certain motor vehicles are taxable as ordinary income or as capital gains pursuant to section 117 (j) of the Internal Revenue Code of 1939. Gains from such sales occurring during the fiscal year of the petitioner ending June 30, 1952, are before the Court solely for the purpose of determining the amount of unused excess profits credit for that year available as a carryback to the fiscal year 1951.
FINDINGS OF FACT.
Petitioner is a Pennsylvania corporation, with its*71 principal place of business in Pottstown, Pennsylvania. It filed its corporate income tax and excess profits tax returns for its fiscal year ending June 30, 1951, with the collector of internal revenue for the first district of Pennsylvania at Philadelphia, Pennsylvania.
Petitioner's original articles of incorporation provided that the purpose of petitioner, among other things, was to "buy, sell, lease and exchange" new and used motor vehicles. On March 26, 1951, the articles were amended so as to change the name of petitioner from "Philber Equipment Manufacturing Co." to that which it now bears, and to delete from the original articles any reference to the buying, selling, and exchanging of motor vehicles as a corporate purpose.
During its fiscal years ending June 30, 1951, and June 30, 1952, petitioner was engaged in the business of furnishing trucks, tractors, and trailers to the public on a lease basis, principally to fleet operators who would rent from 3 to 55 vehicles. The leases, which were all for a 1-year term during the years involved herein, generally provided for the return of each vehicle to petitioner at the end of the rental period or even earlier after certain usage. *72 No right was given to the lessees to purchase any vehicle. A number of vehicles, however, were in fact retained by the lessees for a few months longer than 1 year, pending their replacement with new vehicles under a new lease.
Petitioner maintained no inventory or stock of equipment. It purchased vehicles only as necessary in order to fulfill requirements under an existing lease. During its fiscal years 1951 and 1952 the average number of units owned by petitioner was 175.
During its fiscal year 1951, petitioner received gross rentals on its equipment in the amount of $ 295,889.39. In its fiscal year 1952 such gross rentals amounted to $ 267,754.53. All of the above rentals, with the exception of approximately $ 4,000, were received from nine customers.
*90 Berman Sales Company (hereinafter called Berman), a partnership, is a large-scale dealer in trucks, tractors, and trailers. The partnership interests therein are held by the same persons who hold the capital stock of petitioner, and in the same proportions as such stockholding.
During the period in question an informal but consistently followed arrangement existed whereby Berman, as petitioner's agent, sold vehicles*73 formerly rented to others by petitioner. Forty such sales were consummated during petitioner's fiscal year 1951, resulting in a net gain to petitioner in the amount of $ 16,323.53. In the fiscal year 1952, 45 vehicles were so sold, and petitioner realized a net gain of $ 33,247.31. Each unit sold had been held by petitioner for a period in excess of 6 months and was subject to an allowance for depreciation. All sales were at retail.
Petitioner itself had no sales force, showroom, or other selling facilities, nor did it possess any franchise, or a license under the Pennsylvania Motor Vehicle Sales Finance Act. Berman, however, was engaged in such activity, and possessed all necessary facilities and privileges. It sold petitioner's equipment in the normal course of its business operations. Vehicles placed in its hands by petitioner were thereafter held by Berman primarily for sale to customers in the ordinary course of trade or business.
Berman, upon selling property belonging to petitioner, would deduct only the selling cost and remit the balance to petitioner. No commission or other benefit was received by Berman, except that whenever a vehicle was received as a trade-in, *74 Berman would include such vehicle at its wholesale value (rather than its trade-in value) in computing the price received and the amount payable thereon to petitioner. It would thereafter attempt to sell such vehicle at the retail price, and if successful would thus realize a profit to the extent of the difference between the wholesale and retail values.
Because of existing conditions petitioner was aware, when it purchased equipment, that it was likely that it would be able to rent any vehicle only for a period that was substantially less than its useful life. Each vehicle in question was acquired with a dual purpose, initially to lease it and thereafter to sell it at retail, utilizing the sales facilities of Berman. A vehicle once reacquired from the lessee was thereafter held for the sole purpose of sale. The property sold by petitioner through Berman during petitioner's fiscal years 1951 and 1952 was property held primarily for sale to customers in the ordinary course of petitioner's trade or business, and the gain from sales thereof is taxable as ordinary income.
*91 OPINION.
During its fiscal years ending June 30, 1951, and June 30, 1952, petitioner sold through an agent*75 a number of motor vehicles which it had acquired new and had leased in various quantities to different lessees for periods of, in each instance, approximately 1 year. Respondent contends that the vehicles were acquired for two purposes, first to lease them for a period substantially less than their useful lives, and thereafter to offer them for sale to the public at retail as used vehicles. Such sales, according to this theory, were of property held primarily for sale to customers in the ordinary course of petitioner's trade or business.
Petitioner, on the other hand, takes the position that the primary purpose of the acquisition and holding of the vehicles was to rent them, and that they constituted at all times property used by petitioner in its trade or business, and never property held primarily for sale to customers. The sales, according to petitioner, merely represented the most economically feasible thing to do at that time, since it was not then possible to rent the vehicles beyond the first relatively short rental period.
Section 117 (j) of the Internal Revenue Code of 1939 reads in part as follows:
SEC. 117. CAPITAL GAINS AND LOSSES.
(j) Gains and Losses From Involuntary*76 Conversion and From the Sale or Exchange of Certain Property Used in the Trade or Business. --
(1) Definition of property used in the trade or business. -- For the purposes of this subsection, the term "property used in the trade or business" means property used in the trade or business, of a character which is subject to the allowance for depreciation * * * held for more than 6 months, * * * which is not * * * (B) property held by the taxpayer primarily for sale to customers in the ordinary course of his trade or business, * * *
It should be noted that the exception contained in (B) of section 117 (j) (1) does not require that such sales themselves constitute a trade or business of the taxpayer. Nor is it necessary that the taxpayer be in a selling type of business. It is sufficient if, whatever type of business the taxpayer happens to be engaged in, the sales in question were of property held primarily for sale to customers in the ordinary course of that trade or business.
"Primarily" as used in the above-cited section, has been held to mean "substantial" or "essential" rather than "principal" or "chief." See Rollingwood Corp. v. Commissioner, 190 F. 2d 263*77 (C. A. 9), affirming a Memorandum Opinion of the Tax Court, where the Court of Appeals said (p. 266):
Although the requirements of the statute are to some extent overlapping, the emphasis in this case is whether the houses were held primarily for sale or *92 primarily for rent. Petitioners contend that the word "primarily" means "principal" or "chief", while the Commissioner contends it means "essential" or "substantial." For reasons hereinafter stated we think the latter view is more consonant with the legislative policy.
Moreover, it has been held that, while the purpose for which property is initially acquired and held is of considerable weight, such purpose may change over a period of time. In such case the determinative factor is the purpose for which the property is being held at the time it is sold rather than the purpose for which it was acquired and held in some former period. Cf. Mauldin v. Commissioner, 195 F. 2d 714 (C. A. 10), affirming 16 T.C. 698">16 T. C. 698; Differential Steel Car Co., 16 T. C. 413; Stern Brothers & Co., 16 T. C. 295; Carl Marks & Co., 1196">12 T. C. 1196.*78
Keeping the above principles in mind we turn to the case at bar. After a careful review of the evidence we have come to the conclusion that the property involved was, during the relevant period, held primarily for sale to customers in the ordinary course of petitioner's trade or business, as contended by respondent.
Property may be acquired and held for more than one essential purpose. We find this to have been the case here. Petitioner when purchasing the vehicles in question knew that it probably would be able to lease them only for a period substantially less than their useful lives. We find that at the time it first acquired the vehicles petitioner did in fact intend to sell them at retail after a relatively short single rental period. We do not deem it necessary that petitioner must intend to sell the vehicles "no matter what." It is sufficient that it intended to sell them unless some other course should prove more advantageous, and that it so arranged its affairs. A comparable situation was considered in the Rollingwood case where the Court of Appeals said (190 F. 2d at p. 266):
Suppose the taxpayer in the instant case intended to rent the*79 houses for as long as he was required to do so under existing regulations and then to sell them. Or suppose his intention was to pursue whichever of these activities proved to be the most profitable, that is, if the rental market were good he would continue to rent but if the sales market were high he would sell. In either of these suppositions we think it is fair to say that one of the essential purposes (in acquiring or holding the houses) is the purpose of sale. Under such circumstances, if the taxpayer does dispose of the houses by sale, is it within the legislative purpose to allow him to treat the proceeds of these sales as a capital gain? We think not. [Italics in original.]
Even, however, were an intention to sell absent at the time the equipment was first acquired, the result in this case would have to be the same. As we have already noted in the Mauldin, Differential Steel, and Carl Marks cases, all supra, the determinative factor is the purpose for which the property is being held at the time of sale. *93 Had the intention to sell the property been absent at the time of original acquisition, we are satisfied from the record that such *80 intention nevertheless was definitely in existence immediately upon reacquisition of the vehicles from the lessees. Such property was thereafter, and up to the time of actual sale, held primarily, indeed solely, for sale to customers in the ordinary course of petitioner's trade or business. Cf. Mauldin v. Commissioner, supra, 195 F. 2d at p. 717.
It is no answer to say, as petitioner attempts to do, that it was merely in the business of renting the vehicles in question. The fact is that it was in the business of renting vehicles and then selling them at retail, using the facilities of an agent to achieve the latter purpose. This is not a case where the owner merely disposed of the vehicles incidentally at the conclusion of the leases. The vehicles were substantial in number, and were sold profitably at retail in the ordinary course of business. Indeed, during the fiscal year 1952, the evidence shows that petitioner's only profit was derived from such sales, the leasing operations having resulted in a loss. The sales were a significant and regularly recurrent aspect of petitioner's over-all business. Cf. John W. Williamson, 18 T. C. 653,*81 affirmed 201 F. 2d 564 (C. A. 4), certiorari denied 345 U.S. 970">345 U.S. 970.
Petitioner sees far more significance than we do in the fact that Berman rather than petitioner carried on the actual selling activity and maintained necessary facilities. We are aware of no rule rendering inapplicable to the field of Federal income taxation the maxim qui facit per alium facit per se. Berman was the agent of petitioner with respect to every act in furtherance of the sale of petitioner's property. Its acts, in contemplation of law, were the acts of petitioner. Petitioner will not be permitted to deny the tax consequences of its agency arrangement because those consequences happen to be to its detriment, after it has reaped the fruits of such arrangement and benefited thereby. Brown v. Commissioner, 143 F. 2d 468 (C. A. 5); Gutowsky v. Jones, 100 F. Supp. 852">100 F. Supp. 852 (W. D., Okla.). In the Brown case, supra, the Court said at page 470:
While the petitioner did not personally conduct the business of selling lots she did conduct it through another. She sold to all comers, *82 subdividing and developing to attract purchasers. Anyone who wished to buy could do so. Her sales were not isolated transactions; neither were they casual rather than continuing. They were substantial and frequent.
Petitioner has cited various decisions in support of its position. However, cases in this field rest largely upon their special facts (cf. Rubino v. Commissioner, 186 F. 2d 304 (C. A. 9), certiorari denied 342 U.S. 814">342 U.S. 814; King v. Commissioner, 189 F. 2d 122, 124 (C. A. 5), certiorari denied 342 U.S. 829">342 U.S. 829; Mauldin v. Commissioner, supra, at p. 716), and we are satisfied that the cases relied upon by petitioner are not controlling here. We hold that the sales in question were of property *94 held primarily for sale to customers in the ordinary course of petitioner's trade or business. Gain realized therefrom is taxable as ordinary income. The determination of a deficiency by the respondent must be sustained. 1
*83 Decision will be entered for the respondent.
Footnotes
1. The result that we reach does not rest upon Rev. Rul. 229, 1954-1 C. B. 124↩, which would allow capital gains treatment to taxpayers who sell motor vehicles that were formerly rented, provided that three conditions are satisfied: (1) The taxpayer must be primarily engaged in the business of renting or leasing motor vehicles; (2) the vehicles must be sold at wholesale prices to wholesalers, jobbers, or dealers; and (3) the taxpayer must maintain no facilities for retail sales. The second condition certainly was not satisfied here, and the third condition was not satisfied, either, in view of our conclusion that petitioner was operating through an agent that did maintain facilities for retail sales. Thus, if this ruling were applied here, that would end the matter. Petitioner argues that the ruling is invalid. However, we need not consider that contention, since our decision does not depend upon the ruling and we therefore find it unnecessary to pass upon its validity.