*1719 A domestic corporation was formed for the purpose of acting as purchasing and forwarding agent in this country for a foreign principal and was designed to carry on its activities without profit or loss. Held:
(1) Interest received upon funds deposited in banks in its own name, and profits derived by it from trading in cotton futures should be included in its income for the periods when so received.
(2) Expenditures made by it in connection with the purchasing and forwarding of goods on account of its principal represent additional cost of such goods to the principal and are not deductible from income of petitioner.
*1392 These appeals, which were consolidated when submitted, involve the determination of petitioner's income-tax liability for certain fiscal periods for which the respondent has asserted deficiencies as follows:
| Period Dec. 13, 1923, to Sept. 30, 1924 | $2,134.11 |
| Fiscal year ending Sept. 30, 1925 | 8,063.88 |
| Fiscal year ending Sept. 30, 1926 | 1,501.41 |
Petitioner alleges that respondent has erred (1) in including*1720 in its gross income for the year ending September 30, 1925, profits derived from trading in cotton futures; (2) in including in its gross income for each of these fiscal periods amounts received therein as interest upon bank deposits; and (3) in disallowing all the deductions taken by petitioner on its returns covering said periods.
FINDINGS OF FACT.
Petitioner is a domestic corporation, organized under the laws of the State of New York and having its principal office in New York City. It is a purchasing and exporting agent for its principal, "a Russian Organization," in Russia. Except that it received interest on bank deposits and traded to some extent in cotton futures, its only business is to purchase goods (principally cotton) in this country with funds furnished by its principal and to forward the same to its principal.
Petitioner made certain expenditures in connection with, or incident to the purchasing and forwarding of goods for its principal and claimed the same as deductions on its return as follows:
| For the fiscal period ending Sept. 30, 1924 | $137,499.48 |
| For the fiscal year ending Sept. 30, 1925 | 488,084.86 |
| For the fiscal year ending Sept. 30, 1926 | 1,679,154.59 |
*1721 *1393 These expenditures respondent has disallowed as deductions from petitioner's gross income for these respective periods.
During the fiscal year ending September 30, 1925, petitioner did some trading in cotton futures and derived therefrom profits of $47,235.77.
As interest upon money deposited in banks petitioner received the following amounts:
| For the fiscal period ending September 30, 1924 | $18,599.22 |
| For the fiscal year ending September 30, 1925 | 15,396.33 |
| For the fiscal year ending September 30, 1926 | 13,225.52 |
Petitioner was reimbursed by its principal for the direct cost or purchase price of all goods bought for it and for all expenses incurred in connection with the purchase and forwarding thereof. The profits derived from trading in cotton futures and the amounts received as interest upon bank deposits as aforesaid were applied by the principal as credits against its refunds to petitioner.
OPINION.
GOODRICH: The record in this case, which was submitted upon a stipulation of facts and the pleadings, is unsatisfactory in that it does not fully disclose the methods of operation of this corporation, the complete relation between it*1722 and its principal, and the nature of the principal. Petitioner does no selling, but only buying. Apparently it was so designed that, although substantial amounts of property and money would pass through its hands, it should never derive a profit nor sustain a loss from its dealings, but would always come out even. It was intended that, with funds furnished by its principal, it should purchase and forward goods to the principal as ordered, paying all bills, whether for the purchase price of the goods or further expense incident to the purchase and forwarding thereof. It was further intended that the principal should reimburse petitioner for the total amounts expended by it on account of such purchases and expenses in connection therewith; and that such reimbursements should be petitioner's only receipts. Had the corporation been managed according to this plan it probably never would have had a taxable income, since it could show neither profit nor loss; but this plan was not adhered to. Petitioner was permitted to derive a profit from trading in cotton futures and to receive interest upon funds deposited in banks in its name. That such items of income are taxable is too clear*1723 to merit discussion. (See section 233, Revenue Acts of 1921, 1924 and 1926.) The action of respondent is sustained as to issues (1) and (2).
*1394 As to the third issue, we conclude that the expenditures made by petitioner incident to purchasing and forwarding goods to its principal are a part of the cost to the principal of the goods so purchased, and, as such, are not deductible from petitioner's income. Petitioner purchased no goods for its own account. All its purchases were made for and on behalf of its principal, not for itself. Therefore, these expenditures incident to the purchase and exportation of the goods to the principal, were made on behalf of the principal, and not on petitioner's own account. They represent additional cost to the principal of the goods purchased for and forwarded to its by its agent, and are not ordinary and necessary expenses of petitioner, deductible under the provisions of section 234 of the Revenue Acts of 1924 and 1926. Respondent's action with respect to the third issue is sustained.
Judgment will be entered for respondent.