*111 Decision will be entered for the petitioner.
Petitioner, a Belgian corporation, purchased naval stores in the United States in 1939. Delivery of the goods was never accomplished, due to the placing of embargoes early in 1940 and the occupation of Belgium by the German armies in May of 1940. The seller placed the goods in public storage until March of 1942, when, without petitioner's knowledge or consent, the seller resold the stores to itself, crediting the profit from that sale to the account of petitioner. Held, petitioner was a nonresident corporation not engaged in a trade or business within the United States during the taxable year 1942; held, further, that neither petitioner's ownership of a controlling interest in the company which originally sold and ultimately repurchased the naval stores, nor the business relations between the two companies, gave rise to a principal-agent relationship.
*128 This proceeding involves deficiencies in corporate income tax, declared value excess profits tax, excess profits tax, and delinquency penalties, in the aggregate amount of $ 13,778.60 for the taxable year 1942, as follows:
| Tax | Deficiencies | Penalties |
| Income tax | $ 4,311.28 | $ 1,164.0 |
| Declared value excess profits tax | 2,741.71 | 685.4 |
| Excess profits tax | 3,900.92 | 975.2 |
The principal issue is whether the petitioner, a foreign corporation, was engaged in trade or business within the United States during the calendar year 1942 and therefore taxable under the provisions of section 231 (b) of the Internal Revenue Code.
Two secondary issues are dependent*113 upon a determination that petitioner was engaged in trade or business within the United States during the taxable year in question.
Petitioner cites as error respondent's failure to allow a credit of 10 per cent of the declared value of the capital stock shown by petitioner on its capital stock tax return for 1942 in determining a declared value excess profits tax deficiency amounting to $ 2,741.71.
Petitioner also assigns as error respondent's assessment of penalties under the provisions of section 291 of the Internal Revenue Code for its failure to file income tax, excess profits tax, and declared value excess profits tax returns, as petitioner claims the time for filing such returns had not expired at the time the penalties were assessed.
FINDINGS OF FACT.
The European Naval Stores Co., S. A., hereinafter referred to as petitioner, is a corporation organized under the laws of Belgium, with its principal office and place of business in Antwerp, Belgium. The stock control of petitioner is vested in members of the family of Jean Frederic Speth, citizens of Belgium.
The petitioner handles the importation and sale of naval stores in nonproducing countries of continental Europe, with*114 the exception of France. Jean Frederic Speth is the president of petitioner and has been associated with it since its formation in 1911. Petitioner has no *129 office or salaried agents in any country outside of Belgium and sells its products on a commission basis through brokers.
The family of J. F. Speth organized or acquired, and now controls, a number of companies, all of which are engaged in the buying and selling of naval stores. The company des Produits Resineux of Bordeaux, France, was organized by the Speth interests to handle the production and exporting of naval stores in France. On December 31, 1936, the Peninsular Naval Stores Co. and the Lurton Co. of Pensacola, Florida, both United States corporations, owned and controlled by the Speth interests, were consolidated into the Peninsular-Lurton Co. of Florida, hereinafter referred to as the Peninsular Co. This company was organized to continue the factorage business previously operated by the merged corporations and commenced the export of naval stores in 1939.
The Antwerp Naval Stores Corporation, a Speth controlled company, organized to buy and sell naval stores in the United States, was liquidated in 1938, *115 and its good will and business activities taken over by the Peninsular Co.
J. F. Speth has been a stockholder and director of the Peninsular Co. since 1937; from 1937 to January 1941 he was its vice president; and since 1946 he has been chairman of its board of directors. The majority of the stock of this company is owned by J. F. Speth and his brother Charles; Harry A. Lurton owns approximately 10 per cent; and the remainder is owned by 40 or 50 stockholders, some in the United States, but most in Belgium.
During 1938 and 1939 petitioner purchased various types of naval stores from the Peninsular Co., making between 20 and 30 such purchases in 1939. None of these purchases were negotiated by salesmen of petitioner in the United States, all being negotiated by letter or cable from Antwerp. Petitioner would write or cable the Peninsular Co. asking for a price and, if the deal was consummated, the seller made all arrangements for shipment. Title to the goods purchased passed upon payment and payment was made before the goods were placed aboard ship. Petitioner's purchases were paid for by letters of credit or by charges against previous remittances. Arrangements for shipment and*116 loading of goods were made by the Peninsular Co. and the goods were shipped in its name. Insurance, however, was taken out on the goods for the account of the petitioner.
In 1940 petitioner, having money on deposit with the Peninsular Co., loaned that company $ 79,000, taking a note for that amount in return. This note remained outstanding until 1945.
Out of approximately 2,000 barrels of turpentine and 400 barrels of resin purchased by petitioner from the Peninsular Co. in 1939 and ordered for shipment in 1940, 1,065 barrels of turpentine and 400 *130 barrels of resin were not shipped because of the outbreak of war in Europe.
Several attempts were made to ship the goods, but because of embargoes which were put on about May 1940, sailings were canceled. At one time most of the turpentine was loaded aboard ship, but the Peninsular Co. was forced to unload it. On May 18, 1940, the German Army invaded Belgium and occupied Antwerp, and as a result all communications between the United States and Belgium were cut off. The naval stores intended for petitioner lay in public storage yards at Pensacola and Jacksonville, Florida, until 1942. Because of deterioration of the goods *117 in storage, the Peninsular Co., in March 1942, bought the resin and turpentine which had been previously sold to petitioner. The sale price, both in 1939, at the time of the sale to petitioner, and at the time of repurchase in 1942, was at the current market price as indicated on the Savannah Board of Trade. The proceeds of the sale were credited by the Peninsular Co. to the account of the petitioner. A profit of $ 19,571.07 credited to petitioner's account as a result of this sale is the basis of the alleged deficiency.
Petitioner did not authorize the repurchase of this merchandise by the Peninsular Co. and had no knowledge of its disposition until some time after the German Army evacuated Antwerp on September 4, 1944, and communications with the United States were reestablished. During the period of German occupation, petitioner ceased business activities except for the liquidation of stocks on hand in Antwerp and a few local transactions within Belgium.
At no time prior to January 1, 1943, did petitioner have any officers, factory, plant, showroom, salesmen, or employees in the United States. Petitioner has never obtained a license or permit of any kind to transact business*118 in the United States.
During the period 1940 to 1945, inclusive, the only property of any kind owned by petitioner which was located in the United States consisted of the resin and turpentine which the Peninsular Co. had been unable to ship on account of the war; a credit balance with the Peninsular Co., which included the proceeds of the sale of this resin and turpentine; and a bank account in the National City Bank of New York. This account was opened in January 1940, because of the war and because American firms, including the Peninsular Co., were demanding payment on domestic banks. During the years 1940, 1941, and 1942 three transactions were reflected in that account -- an original deposit of $ 35,000, a subsequent deposit of $ 5,000 in 1940, and a debit of petitioner's account in the amount of $ 1 for expenses incurred in connection with a report to the United States Treasury. No person living in the United States was authorized to draw on that account.
*131 Except for the sale involved in the instant case, petitioner has never sold any merchandise in the United States through the Peninsular Co., its employees, or through any other channels. Petitioner has never used*119 any facilities belonging to the Peninsular Co. With the exception of the president of the Peninsular Co., authorized by petitioner to represent it in this proceeding, no one connected with the Peninsular Co. was authorized to represent petitioner in this country.
Petitioner did not file income tax, declared value excess profits tax, or excess profits tax returns for the taxable year 1942. Because of petitioner's failure to file such returns the respondent has assessed a 25 per cent penalty. After the notice of deficiency was issued by respondent, petitioner, on February 19, 1947, filed a capital stock tax return for the year 1942 with the collector of internal revenue at Baltimore, Maryland. This return showed a declared value of petitioner's capital stock of $ 210,000, but no capital stock tax was paid. Attached to the return was an affidavit by one of petitioner's officers to the effect that petitioner was a nonresident foreign corporation and was not engaged in trade or business in the United States. It stated that petitioner was not subject to the tax, and that the return was being filed solely to protect petitioner from any declared value excess profits tax liability resulting*120 from this proceeding. This was the only tax return ever filed by petitioner in the United States.
During the calendar year 1942 petitioner was a nonresident foreign corporation and was not engaged in a trade or business in the United States.
OPINION.
The principal question before the Court is whether the petitioner, a foreign corporation, was engaged in a trade or business within the United States during the calendar year 1942 and therefore taxable under the provisions of section 231 (b) of the Internal Revenue Code. Section 231 of the code and section 29.231-1 of Treasury Regulations 111, material to the question presented herein, are set out below. 1 The deficiency notice served on petitioner in the present case stated, "It is held that you were a resident foreign corporation engaged in a trade or business within the United States during the taxable year 1942 * * *."
*121 *132 Petitioner's tax liability, as determined by the respondent, rests essentially upon the question of whether the sale of naval stores owned by petitioner and sold by the Peninsular-Lurton Co. to itself in March 1942, constituted engaging in a trade or business. The "office or place of business test," formerly a part of section 231 of the Internal Revenue Code, was eliminated by section 160 (d) of the Revenue Act of 1942. The question as to what activities of a taxpayer constitute the carrying on of a business is one of fact. Higgins v. Commissioner, 312 U.S. 212">312 U.S. 212.
Upon close consideration of the facts in the present case we have reached the conclusion that petitioner was not engaged in a trade or business within the United States during the taxable year involved. It had no offices, showrooms, factories, officers, employees, or salesmen in this country. Ordinarily, all transactions between petitioner and the Peninsular-Lurton Co. were negotiated and consummated by cable and letter from petitioner's Antwerp offices, and it had at no time obtained a license or permit of any kind to transact business within the United States. Petitioner, *122 with the exception of the sale in issue, had never sold merchandise within the United States, and no one in this country was authorized to represent or act for it in its ordinary business operations. During the years 1940 to 1945 its property in the United States consisted of the naval stores sold in 1942, a credit balance with the Peninsular-Lurton Co., and a bank account in the National City Bank of New York. No person within the United States was authorized to draw on that account, and the only withdrawal from 1940 to 1947 was the amount of $ 1 for expenses incurred in connection with a report to the United States Treasury. It is clear that this account was not used in doing business within the United States. The credit balance remained during the war years with the Peninsular-Lurton Co. only because no further trade or communication was possible between the petitioner and that company. No interest was received by petitioner on the accumulated credit, or, as far as the record indicates, on the $ 79,000 loaned by petitioner to Peninsular-Lurton from that credit balance.
Under the facts we have found in the instant case it is equally clear that this isolated sale in 1942, the*123 profit from which was credited to the account of the petitioner, can not be considered as an example of its engaging in a trade or business within the United States within *133 the meaning of section 231 (b). The naval stores involved had been purchased in 1939 for shipment and delivery in 1940, and at one time had actually been loaded aboard ship. Unloading of the goods and eventually their removal to storage yards was necessitated, first, by the embargoes put on the shipment of such goods, and, finally, by the occupation of Belgium and most of Europe by the German Armies in May of 1940. No communication with the United States by petitioner was possible between that date and September of 1944, when the Germans evacuated Antwerp.
The uncontradicted facts conclusively show that the repurchase of the naval stores by the Peninsular-Lurton Co. in March of 1942 was a transaction not contemplated by petitioner when the goods were first purchased, and was a sale that was effected without its authority or knowledge. Petitioner had never in its history sold its goods to firms within the United States and was organized for the specific purpose of selling in the countries of continental*124 Europe. Such a sale, even when viewed without regard for the unusual circumstances which surrounded it, could hardly be held to constitute the petitioner's engaging in a trade or business in the United States.
The meaning of the phrases "engaged in business," "carrying on business," and "doing business" were defined by the Circuit Court of Appeals for the Third Circuit in Lewellyn v. Pittsburgh, B. & L. E. R. Co., 222 Fed. 177. It was stated therein that, "The three expressions, either separately, or connectedly, convey the idea of progression, continuity, or sustained activity. 'Engaged in business' means occupied in business; employed in business. 'Carrying on business' does not mean the performance of a single disconnected business act. It means conducting, prosecuting, and continuing business by performing progressively all the acts normally incident thereto, and likewise the expression 'doing business', when employed as descriptive of an occupation, conveys the idea of business being done, not from time to time, but all the time. * * *" Cf. G. C. M. 17014, XV-2 C. B. 317 (1936), and G. C. M. 18835, 1937-2 C. B. 141.*125
What constitutes doing business or not doing business for tax purposes was considered in Edwards v. Chile Copper Co., 270 U.S. 452">270 U.S. 452. In construing an exempting clause, "when not engaged in business," the Court stated: "The exemption 'when not engaged in business' ordinarily would seem pretty nearly equivalent to when not pursuing the ends for which the corporation was organized in the cases where the end is profit."
It could hardly be contended that this isolated sale was of the type for which the corporation was organized, or that, as far as petitioner was concerned, the purpose was to realize a profit. It was only because of conditions beyond petitioner's control that the goods were present within the United States, and it was with its complete lack of knowledge *134 and consent that they were ultimately sold. This sale was not made in the regular course of the trade in which petitioner was engaged, but was the result of an assumption of authority and was more in the nature of a salvage operation gratuitously undertaken by the Peninsular-Lurton Co.
It is contended by respondent that the Peninsular-Lurton Co. was an agency of the petitioner*126 in the United States. It is conceded herein that Peninsular-Lurton was organized and controlled by the same interests that controlled petitioner and other foreign corporations engaged in the naval stores business. It is true that this company was organized and operated as the American branch of the Speth controlled group of corporations. However, this corporation was organized under the laws of the United States, and its corporate entity can not be disregarded simply upon a showing that the controlling interest was owned by another corporation engaged in a similar business outside of the United States. There is no evidence that Peninsular-Lurton extended its activities beyond the sphere for which it was organized, or made its facilities available to the petitioner or other corporations engaged in the naval stores business beyond those services customarily exchanged between vendor and vendee.
The fact that the Peninsular-Lurton Co. was organized and operated as a factor is, in itself, of no significance. There is no evidence that it was organized or acted as the agent of petitioner or that it accorded the petitioner any preferential treatment in the business dealings between the*127 two firms. It was pointed out that Peninsular-Lurton demanded, as did all other American firms in 1939 and 1940, drafts on American banks in payment, even from the petitioner.
Respondent contends that the removal of goods from aboard ship after the sailing was canceled, the storage of the goods for petitioner, and the eventual sale of the goods were acts beyond those required of a vendor. It may be conceded at the outset that such acts were not required of Peninsular-Lurton. Legally, it may well have performed its duty to petitioner in loading the goods and securing insurance.
There was no formal expression of a contract of agency which imposed a duty on this company to mitigate the damage that was certain to be sustained by the petitioner if the goods could not be shipped and no one in this country removed them to safe storage. It is the opinion of this Court that Peninsular-Lurton did for the petitioner only what any vendor, under the peculiar circumstances of the instant case, would have done for its purchaser, and that such voluntary assumption of control did not alter the basic vendor-vendee relationship.
In Esmond Mills v. Commissioner, 132 Fed. (2d) 753;*128 certiorari denied, 319 U.S. 770">319 U.S. 770, the court in adopting the language of the decision of the Board of Tax Appeals in the same case said: "The relationship of agency rests on a contract, express or implied, between the parties. *135 Its characteristics are well known. It involves, inter alia, the power of the agent to bind his principal as to third persons; the existence of a fiduciary relationship between principal and agent; and the right of the principal to control the conduct of the agent with respect to matters entrusted to him." This isolated and unprecedented assertion of authority did not bring into existence an agency relationship where the past business activities and the intent of the parties were inconsistent with such an arrangement. Petitioner's acquiescence in the acts of the Peninsular-Lurton Co. and taking the benefits thereof were indicative of the acceptance of gratuitous services rendered by the seller to its purchaser rather than the ratification by a principal of the acts of an agent acting outside the scope of its authority. Though it is our belief that the facts herein fail to disclose the existence of an agency relationship*129 in this case, the fact remains that this lone and unique transaction, even had it been accomplished by means of an agency, would not have constituted doing business within the meaning of section 231 (b).
It being our conclusion that petitioner was, during the taxable year in question, a nonresident corporation not engaged in a trade or business within the United States, consideration of the secondary issues raised by the petition and answer is unnecessary.
Decision will be entered for the petitioner.
Footnotes
1. SEC. 231. TAX ON FOREIGN CORPORATIONS.
(a) Nonresident Corporations. --
(1) Imposition of Tax. -- There shall be levied, collected, and paid for each taxable year, in lieu of the tax imposed by sections 13 and 14, upon the amount received by every foreign corporation not engaged in trade or business within the United States from sources within the United States as interest (except interest on deposits with persons carrying on the banking business), dividends, rents, salaries, wages, premiums, annuities, compensations, remunerations, emoluments, or other fixed or determinable annual or periodical gains, profits, and income, a tax of 30 per centum of such amount * * *.
* * * *
(b) Resident Corporations. -- A foreign corporation engaged in trade or business within the United States shall be taxable as provided in section 14 (e) (1) and section 15.
Sec. 29.231-1↩. Taxation of Foreign Corporations. -- For the purposes of this section * * * foreign corporations are divided into two classes: (a) foreign corporations not engaged in trade or business within the United States at any time within the taxable year, referred to in the regulations as nonresident foreign corporations (see section 29.3797- 8); and (b) foreign corporations which at any time within the taxable year are engaged in trade or business within the United States, referred to in the regulations as resident foreign corporations (see section 29.3797-8).