*1152 Where petitioner became affiliated with another corporation during the fiscal year 1927 and filed a separate return for that part of the year when not affiliated, that period constitutes a "taxable year" for the purpose of applying a net loss sustained in the fiscal year 1926.
*1427 The respondent determined a deficiency of $36,584.54 in income taxes for the fiscal year ended January 31, 1928, and notified petitioner thereof, the entire tax liability of an affiliated group having been allocated to petitioner under an agreement to that effect. The deficiency resulted from the holding of respondent that no portion of the net loss suffered by petitioner's affiliate, Arnold, Constable & Company, Inc., in the fiscal year ended January 31, 1926, could be allowed as a deduction in computing consolidated net income for the year ended January 31, 1928, said affiliate having filed a separate return for that part of the fiscal year 1927 during which it was not affiliated. The question raised is whether the short period for which a separate return was filed constituted*1153 a "taxable year." The facts were stipulated as follows:
FINDINGS OF FACT.
For the fiscal year ending January 31, 1925, Arnold, constable & Company, Inc., sustained a statutory net loss of $308,216.45. It filed a separate return for this year.
For the fiscal year ending January 31, 1926, Arnold, Constable & Company, Inc., sustained a statutory net loss of $342,461.23. It filed a separate return for this year.
*1428 For the period October 7, 1925, to January 31, 1926, the Arnold, Constable Corporation and M. I. Stewart & Company, Inc., were affiliated and filed a consolidated return. The net income and/or loss of the two companies for the said period was:
| Arnold, Constable Corporation (loss) | -$18,070.90 |
| M. I. Stewart & Company, Inc | 57,545.49 |
For the period February 1 to May 7, 1926, the net income of Arnold, Constable & Company, Inc., was $70,730.56. It was not affiliated during this period and filed a separate return for this period. Its tax for this period was computed on the basis of the said income as a separate entity and the net income was absorbed by the statutory net loss sustained during the taxable year ended January 31, 1925.
*1154 During the entire year ended January 31, 1927, the Arnold, Constable Corporation owned all the stock of M. I. Stewart & Company, Inc., and on May 7, 1926, and for the remainder of the fiscal year ended January 31, 1927, it owned 98 and a fraction per cent of the stock of Arnold, Constable & Company, Inc.
For the fiscal period ending January 31, 1927, the three corporations filed a consolidated return which included the income of the Arnold, Constable Corporation for the entire twelve months preceding, the income of M. I. Stewart & Company, Inc., for the entire twelve months preceding, and the income of Arnold, Constable & Company, Inc., for the period May 7, 1926, to January 31, 1927. The net income of the several companies for the respective periods was:
| Arnold, Constable Corporation (net loss) | -$2,706.14 |
| M. I. Stewart & company, Inc | 142,348.75 |
| Arnold, Constable & Company, Inc | 185,677.85 |
The tax liability of said companies for the period ended January 31, 1927, was computed on the basis of said consolidated return and in computing the consolidated net income of the affiliated group, the net income of Arnold, Constable & Company, Inc., for the period May 7, 1926, to*1155 January 31, 1927, was absorbed by the statutory net loss sustained by it during the fiscal year ended January 31, 1926.
During the entire year ended January 31, 1928, the Arnold, Constable Corporation owned all the capital stock of M. I. Stewart & Company, Inc., and 98 and a fraction per cent of the stock of the Arnold, Constable & Company, Inc. For the said year the Arnold, Constable Corporation, M. I. Stewart & Company, Inc., and Arnold, Constable & Company, Inc., were affiliated and filed a consolidated return. The net income and/or net loss of each of the companies for the said period was:
| Arnold, Constable Corporation (net loss) | -$4,491.21 |
| M. I. Stewart & Company, Inc | 136,244.01 |
| Arnold, Constable & Company, Inc | 618,646.68 |
*1429 OPINION.
GOODRICH: We have held heretofore that, for the purpose of applying a net loss sustained by a corporation prior to affiliation to income earned thereafter, the periods of the calendar or fiscal year before and after the affiliation of previously existing corporations occurs, under the provisions of section 200(a) of the Revenue Act of 1924, each constitute a "taxable year." *1156 . The pertinent parts of that section have been unchanged by the Revenue Acts of 1926 and 1928 which are applicable to this case.
Reviewed by the Board.
Judgment will be entered for the respondent.
VAN FOSSAN, dissenting: The reasons which impel me to dissent in this case are fully elaborated in my dissenting opinion in Weissberger Moving & Storage Co., supra. I believe the construction placed by the Board on the term "taxable year" in the Weissberger case, cited as authority for the instant decision, is contrary to the clear intention of Congress and violative of the basic theory of income-tax accounting.
SMITH, TRAMMELL, and SEAWELL agree with this dissent.