*184 Decision will be entered under Rule 50.
Under the facts, held, that amounts received by petitioner, the manufacturer of a concentrated extract known as "7-Up," from bottlers who contributed to a national advertising fund were burdened with obligation to expend them for national advertising and constituted a trust fund which petitioner administered as agent; that no gain or profit was realized by petitioner as the result of the receipt of these amounts; and that respondent erred in determining that the excess of amounts received by petitioner over expenditures made from the national advertising fund constituted taxable income to petitioner during taxable years.
*966 The respondent determined deficiencies in declared value excess profits tax and excess profits tax of petitioner for the taxable years 1943 and 1944 as follows:
| Declared value | Excess profits | |
| Year | excess profits | tax |
| tax | ||
| 1943 | $ 34,929.06 | $ 388,155.52 |
| 1944 | 28,485.51 | 424,460.46 |
The issues are:
(1) Did the Commissioner err in determining that certain amounts paid to petitioner by 7-Up bottlers to finance a national advertising program were income to petitioner?
(2) Did the Commissioner err in determining that petitioner was not entitled to excess profits tax relief under the provisions of section 736 (b) of the Internal Revenue Code?
(3) Is petitioner entitled to special relief on its excess profits*186 taxes as having received net abnormal income in 1943 and 1944 attributable to future years under section 721 of the Internal Revenue Code?
FINDINGS OF FACT.
Petitioner is and at all times herein mentioned was a corporation organized and existing under and by virtue of the laws of the State of Missouri, with its principal office at 1316 Delmar Boulevard, St. Louis, Missouri. During the taxable years here involved and until July 1, 1948, its offices were located in the Shell Building, St. Louis, Missouri.
Petitioner keeps its books and files its tax returns on an accrual basis. Its taxable year is the calendar year and its income and excess profits tax returns for the years 1943 and 1944, the taxable years here involved, were filed with the collector of internal revenue for the first district of Missouri.
The Howdy Co., which was organized in 1920, originated, and, beginning in 1930, marketed an extract known as "7-Up." In 1936 the name of the company was changed from the "Howdy Company" to "The Seven-Up Company," petitioner herein. The petitioner owns the registered trade-mark "7-Up" and the formula for making 7-Up extract.
Petitioner manufactures and sells 7-Up extract to various*187 franchised bottling companies, sometimes hereinafter called bottlers. The extract is highly concentrated and at the end of the year 1941 its contents *967 were changed from single to double strength. The extract contains no sugar or syrup. For 1941 and prior years one gallon of the single strength extract was sufficient flavoring to produce 350 cases of bottled 7-Up, 24 bottles to the case, or 8,400 bottles. For 1942 and subsequent years, one gallon of the double strength extract was sufficient flavoring to produce 700 cases of bottled 7-Up, 24 bottles to the case, or 16,800 bottles. The petitioner sold its single strength extract to its bottlers at $ 19 per gallon and in 1942 increased the selling price for double strength extract to $ 38 per gallon. The price of the extract was frozen at $ 38 per gallon in 1942 by the General Maximum Price Regulation promulgated by the Price Administrator under the authority of the Emergency Price Control Act of 1942. (Fed. Reg. Apr. 30, 1942.) Petitioner from time to time has advertised its extract in bottlers' trade journals to keep its trade name and the name 7-Up before the bottling industry and it has paid for the cost of such advertising.
*188 The bottlers buy their own sugar, make their own syrup and manufacture and sell the bottled beverage known as "7-Up." Petitioner does not bottle 7-Up or sell the bottled beverage.
Petitioner gives each bottler an exclusive territory and each bottler controls the sales of the bottled beverage within the bottler's territory. The bottlers each carry on their own sales promotion and local advertising within their respective territory with the aid, suggestions, and counsel of petitioner's specialists. Petitioner stocks point-of-purchase advertising material and on the bottlers' orders sells such material to the bottlers at petitioner's costs. (Point-of-purchase advertising is advertising at the place where the beverage is purchased by the consumer and consists of such items as cardboard bottle riders, easels, stringed and other hangers, calendars, and utility cards.) Petitioner also sells to the bottlers at cost metal signs for outdoor locations, decalcomanias and other display items. Petitioner furnishes movie trailers free of charge and bottlers pay for curtain time and space. If a bottler advertises on outdoor billboards the bottler rents the billboards and petitioner, at its cost, *189 furnishes the posters. If the bottler wants to do so, the bottler may also advertise at the bottler's own expense in newspapers and on local radio stations.
The margin of profit of 7-Up bottlers from the sale of the bottled beverage is at least 8 cents per case more than the margin of profit derived by bottlers of other franchise drinks.
Petitioner's method of pricing and merchandising its product differs from that followed by other parent companies in the soft-drink industry, such as Coca-Cola and Dr. Pepper, in that the other parent companies retain a larger margin of profit in the product which they sell to their franchised bottlers. The other parent companies retain *968 and use the larger margin of profit for promoting consumer patronage and advertising the bottled beverage as they see fit.
Prior to 1943, 7-Up bottlers on various occasions brought up the subject of advertising the bottled beverage through national advertising media. They wanted to get more tie-in advertising from one territory to another and at various meetings of bottlers they discussed among themselves the inauguration of a national advertising program. They recognized that such advertising could not*190 be carried on by one or two bottlers, and they wanted a group of 7-Up bottlers to get together. These discussions were initiated by the 7-Up bottlers and not by petitioner. Among other things discussed by the bottlers was the establishment of a trust fund or "kitty" due to the fact that the costs of their raw materials were such, in comparison with other nationally advertised drinks, that they anticipated that they would have to pay the cost of any national advertising program for 7-Up.
Early in 1943 the J. Walter Thompson Co., an advertising agency, familiar with the 7-Up bottlers' problem and with 7-Up advertising and merchandising methods, drafted a program for the national advertising of the carbonated beverage 7-Up and presented it to the petitioner in order to get the opinion of its officers as to the advisability of presenting it to the bottlers. At the suggestion of the advertising agency, 21 7-Up bottlers, representing more than 50 per cent of the sales volume of bottled 7-Up, were invited to a two-day meeting in St. Louis on May 24 and 25, 1943, so that the advertising agency could present its reasons for 7-Up bottlers undertaking the national advertising program. Only*191 large bottlers were invited to the meeting, on the theory that if they did not agree to the program its presentation to the other bottlers would serve no useful purpose, and if they saw the wisdom of the undertaking the other bottlers would be inclined to agree to the program.
At the meeting a representative of the advertising agency was introduced by the president of petitioner. The agency representatives explained to the bottlers the reasons for the national advertising program and its recommendations as to how it should be established. The subject matter of his presentation was subsequently reproduced in a brochure entitled "More Power for 7-Up."
The presentation of the J. Walter Thompson Co. assumed that the cost of the program was to be paid by the 7-Up bottlers and dealt with the problem of how the cost should be shared among them. It pointed out that some 7-Up bottlers had suggested a gallonage assessment and others a territorial per capita levy, and stated that all proposals had been studied and that a plan had been worked out which was fair and equitable to all, large and small, both in sharing the cost and sharing the benefits. The plan outlined called for 7-Up bottlers*192 sharing the cost on the basis of 2 1/2 cents per case of bottled beverage *969 sold. There was a general discussion at the meeting of this problem of sharing the cost of the program and there were differences of opinion expressed by the 7-Up bottlers. A few contended that the contribution should be made on the basis of 1 cent per person within the bottler's territory. This plan was rejected, for several reasons. Besides the impossibility of getting accurate population figures, the bottlers felt that a per capita basis for contribution would penalize those bottlers who had undeveloped territories or unfavorable climate or who were not "blessed with" Army camps and war industries. The bottlers finally settled upon the 2 1/2 cents per case method of contribution as being most equitable for all, because it was exactly tied to bottlers' sales -- "pay as you go."
The 7-Up bottlers had no central organization of their own and the J. Walter Thompson Co. recommended that 7-Up bottlers make their payments to petitioner rather than directly to it, because it had no facilities for handling the bottler's contributions. The 2 1/2 cents per case contribution figured to $ 17.50 per gallon*193 of extract, and the J. Walter Thompson Co. proposed that each 7-Up bottler's contribution be calculated on this basis and be billed by petitioner at the time the bottler purchased extract.
At the May meeting the bottlers were informed that petitioner would not pay any part of the cost of the national advertising program because its extract was priced in such a way that the entire advertising and promotional margin for the bottled beverage was passed on to the bottlers and petitioner did not have the margin to permit a so-called cooperative arrangement.
One of the questions the bottlers asked was "What assurance do we have that all funds collected will be spent for national advertising?" and petitioner's reply was that "Expenditures for national advertising are a matter of public record, in advertising and business journals. Our books on advertising receipts and expenditures will be open to any bottler at any time."
At the conclusion of the May meeting all but about 5 of the 21 bottlers approved the plan, and following the meeting, the plan was presented to all 7-Up bottlers. The petitioner, on June 10, 1943, forwarded to each franchised bottler of 7-Up in the United States a brochure*194 outlining the reasons and the plan for embarking on a campaign of national advertising of 7-Up, together with a pamphlet setting forth informative questions and answers advanced at the May, 1943, meeting. Each bottler of 7-Up that was in accord with the program of national advertising executed the following agreement and delivered it to petitioner:
We are in accord with the plan to insure the continued strength and afterwar growth of our Seven-Up business through the influence and power of national advertising.
*970 The plan calls for a contribution of 2 1/2 cents a case, which we are to pay on the basis of $ 17.50 per gallon of Seven-Up Extract.
Commencing May 15, 1943 and ending May 15, 1944, we agree to pay $ 17.50 per gallon of Extract, over and above the prevailing price of the Extract itself, for purposes of advertising as outlined, and hereby authorize you to bill us accordingly for each order of Extract you ship to us.
In the event not enough bottlers participate to go through with the original plan, you will inform us of the number accepting, the advertising that could be purchased with this fund, and if the probable amount is in excess of $ 100,000, it will be spent*195 on national advertising. If it is less than $ 100,000, any collections made up to that time will be credited to the respective bottlers.
Almost immediately a sufficient number of bottlers executed the agreement covering the one-year period May 15, 1943, to May 15, 1944, assuring the success of the national advertising program, and before July 31, 1943, the amount of $ 100,000 required to launch the campaign was paid by the bottlers to petitioner.
The contributions were to commence as of May 15, 1943, a date prior to the letter of agreement, so that all 7-Up bottlers would begin payments on equal terms. The agreement was to run only to May 15, 1944. The trial year was to enable 7-Up bottlers to determine whether they would want to go on with the program or drop it. If they wanted to continue, it was contemplated that they could renew the agreement.
The bottlers had the choice of signing the letter agreeing to participate in the plan or of refusing to sign it. As of December 31, 1943, there were 400 7-Up bottlers purchasing extract from petitioner, and of that number 369 bottlers had signed the letter of agreement. (Bottlers who had signed the letter of agreement are sometimes*196 herein referred to as "participating bottlers.") As of said date, 31 bottlers had not signed the letter of agreement and 32 had not made any payments as provided for in the agreement (one bottler who signed it failed to make any payments). The 32 nonpaying bottlers purchased 3,163 gallons of extract between May 15 and December 31, 1943. The 368 paying bottlers purchased approximately 36,475 gallons of extract between May 15 and December 31, 1943.
On March 8, 1944, petitioner wrote to the bottlers of 7-Up concerning "National Advertising Renewals," in which it asked for the "early renewals of the national advertising agreements for another one-year period on the same basis $ 17.50 per gallon of extract" in order that commitments for magazine space through 1944 and into 1945 might be made to assure the continuity of the important national advertising program. Immediately thereafter the participating bottlers executed the following agreement and delivered it to petitioner:
We are in accord with the plan to insure the continued strength and afterwar growth of our Seven-Up business through the influence and power of national advertising.
*971 The plan calls for a contribution of*197 2 1/2 cents a case which we are to pay on the basis of $ 17.50 per gallon of Seven-Up Extract.
Commencing May 15, 1944 and ending May 15, 1945, we agree to pay $ 17.50 per gallon of Extract, over and above the prevailing price of the Extract itself, for purposes of advertising in national media, and hereby authorize you to bill us accordingly for each order of Extract you ship to us.
As of December 31, 1944, there were 382 7-Up bottlers purchasing extract from petitioner, and of that number 365 had signed the letter of agreement. As of that date, 17 bottlers had not signed the letter of agreement and made no payments in 1944 as provided for in the agreement. As of said date, one bottler who had signed the letter of agreement had made no payments thereunder. The 18 nonpaying bottlers purchased 1,935 gallons of extract during 1944. The 364 paying bottlers purchased 62,683 gallons of extract during the year 1944.
Petitioner never canceled or attempted to cancel the franchise of any nonparticipating 7-Up bottler either because he did not agree to participate in the national advertising program or because he did not make payments to the national advertising fund. It tried to bring*198 nonparticipating bottlers into the program so that the cost would be shared equitably among all the bottlers.
From the time of the commencement of the national advertising campaign the petitioner was constantly urging the nonparticipating 7-Up bottlers to execute the agreements which authorized the petitioner to charge the bottler and obligated the bottler to pay to the petitioner the additional sum of $ 17.50 per gallon of extract for purposes of paying the costs of national advertising.
By the terms of the agreement payments by participating bottlers were to be measured by the gallons of extract shipped after May 15, 1943, and were to be at the rate of $ 17.50 per gallon. The first invoices, which only billed the bottlers for charges for "national advertising appropriation as agreed" on the basis of the number of gallons of extract purchased for the period May 15 to June 30, were mailed by petitioner on or about July 1, 1943, and were sent only to bottlers who had signed the agreement. Thereafter for the balance of the year 1943 and the year 1944 the participating bottlers were billed on the same invoice for the contract price of the extract purchased and the corresponding charge*199 for "national advertising appropriation" under the terms of the agreements. In the case of nonparticipating bottlers, petitioner's invoices showed only the amount due for extract purchases and did not show any amount to be due for national advertising.
Some of the bottlers who did not sign the letter of agreement at the outset, at a later date signed the current letter of agreement, at which time statements were sent to them calling for payments for national *972 advertising on the basis of $ 17.50 per gallon of extract purchased by them since May 15, 1943. Some of these bottlers paid an amount equal to what their payments would have been if they had signed the letter of agreement at the outset; but others refused to make such payments and made payments only from the date on which they first signed a letter of agreement.
The following excerpt from a letter dated May 2, 1944, addressed by petitioner to a 7-Up bottler who had agreed to participate in the national advertising program, but had refused to make back payments, is typical of the letters sent to such bottlers:
First of all, we realize that you don't owe us any money on this advertising since we are merely trustees, *200 handling the bottlers' money. We also realize that we did not buy a certain amount of advertising and then pro rate it amongst bottlers. Instead, a high percentage of the bottlers contributed to a fund and such amount determined the advertising purchases. In other words, the balance involved is an obligation on your part to the other bottlers to do your share in national advertising.
Before the national advertising program commenced, the J. Walter Thompson Co. wrote a letter to the petitioner setting forth what it would do and the remuneration it expected to receive for its work, and the petitioner signed the letter and returned it to the Thompson Co. Before selecting and placing advertising with the various magazine companies, the Thompson Co. discussed the matter with officers of petitioner as custodians of the fund. When an order was placed by the Thompson Co. the magazine would bill it for the total cost of the space, less 15 per cent, which was its commission, and it would bill the petitioner for the total cost of the space. In billing the petitioner the company realized that it was billing against a fund contributed to by the bottlers.
As soon as the $ 100,000 minimum was*201 on hand, the J. Walter Thompson Co. began to develop a national advertising campaign. It proposed to begin the campaign with magazine advertising because magazine circulation follows generally the pattern of population and would give 7-Up bottlers everywhere in the country an equitable share of the benefits. Because the preparation of copy and artwork for magazine advertising would take about three months, it recommended publication of the first advertisements in the fall of 1943, and in the latter part of July it began placing orders for magazine advertising to appear in late September.
In January, 1943, there was a 10 per cent reduction in paper available to magazines, and magazines thereafter rationed space on the basis of the advertiser's previous advertising experience. Since 7-Up had never been advertised in national magazines, priority was given by the publications to the older advertisers. It was therefore not possible to spend advantageously all of the funds contributed in 1943. The J. Walter Thompson Co. so informed petitioner and recommended *973 that the funds not be spent until desirable space became available.
During 1944 it was even more difficult for the *202 J. Walter Thompson Co. to secure space in desirable national advertising media because there was a further 15 per cent reduction in the magazine paper allowance during that year. A number of advertising commitments were canceled, due to the war conditions. In 1944 the J. Walter Thompson Co. placed orders for magazine advertising totaling $ 899,777, but the magazines canceled advertising which would have cost $ 342,075, leaving a net expenditure of $ 557,702 for magazine advertising in 1944.
Although during 1943 and 1944 the advertising was confined to magazines, the J. Walter Thompson Co. considered radio network advertising as supplemental to magazine advertising. After a background of magazine advertising was laid and sufficient funds were available, the company recommended a national network radio program. In deciding upon the network over which the program should be broadcast, the company's main consideration was the distribution of the listening audience. It regarded the 7-Up bottlers as its client and, in order to give every bottler who was contributing to the national advertising fund its full share of the expenditure, it was obliged to select the network which would give*203 full coverage throughout the country. The Mutual Network was chosen because it came closest to giving this type of coverage. It had over 200 stations, whereas the National Broadcasting System and the Columbia Broadcasting System each had only about 140 stations. If the 7-Up bottlers had not been its client, the J. Walter Thompson Co.'s preference would have been for either NBC or CBS, because those two networks provided more intense coverage of the most lucrative markets where the largest potential sales could be expected.
During 1943 and 1944 the J. Walter Thompson Co. reported directly to the 7-Up bottlers concerning the national advertising program. It prepared quarterly in brochure form a complete report to 7-Up bottlers, previewing the advertising material to appear in future publications, showing a schedule of insertion dates, explaining the approach taken, and giving the 7-Up bottlers a full story of its strategy and a statement of its objectives. It also reported to the 7-Up bottlers at every national convention.
Ever since the national advertising program got under way, with actual 7-Up advertisements appearing in magazines of national circulation for the first time *204 in September, 1943, there has been a gradual and continuous increase in the sales of the bottled 7-Up beverage and a corresponding increase in the petitioner's sales of extract.
The amounts paid and owing by participating bottlers for purposes of national advertising under the terms of the letters of agreement, together *974 with other charges, were handled by petitioner on its books for the taxable years 1943 and 1944 as follows:
(a) There were recorded in the sales journal or book of original entry sales of extract to all 7-Up bottlers, charges for purposes of national advertising to the bottlers who had executed the aforesaid agreements, and charges for miscellaneous sales. There were no amounts charged by petitioner for purposes of national advertising to the 7-Up bottlers who had not executed the agreements.
(b) Postings were made from the book of original entry to the general ledger under four separate accounts, entitled "National Advertising Appropriation," "Sales-Concentrates (Extract)," "Sales-Advertising," and "Miscellaneous Sales." The "National Advertising Appropriation" account was credited with the amounts charged by petitioner to the participating bottlers for *205 purposes of national advertising under the terms of the said agreements and debited with the amounts of expenditures made or incurred by petitioner for national advertising. In the general ledger in a control account (entitled "Customers-Account Receivable") there was entered as a debit the total of the credits standing in each of the aforesaid four separate accounts "National Advertising Appropriation," "Sales-Concentrates (Extract)," "Sales-Advertising," and "Miscellaneous Sales."
(c) Postings were also made from the book of original entry to the account of each participating bottler in a subsidiary accounts receivable ledger showing amounts owing for purchases of extract and amounts due for national advertising under the letters of agreement.
Petitioner's monthly trial balance sheets for 1943 and 1944 set up as a liability the unexpended portion of the national advertising fund on hand at the end of each month.
During the taxable years 1943 and 1944 the amounts received by petitioner from the participating bottlers under the terms of the bottlers' agreements at the rate of $ 17.50 per gallon of extract were commingled and deposited by petitioner, together with receipts from its*206 business, in one or more of the regular business checking accounts maintained by petitioner in various banks in St. Louis. Petitioner did not establish a separate bank account for national advertising funds because such funds were segregated and earmarked on its books. No refunds were ever to be made to any bottler of any payments made to the advertising fund. If a bottler's franchise was sold or canceled, all amounts contributed by him were to remain in the fund to be spent for national advertising, and in the event the bottlers decided to terminate the program and there were funds on hand at such time, all funds on hand were to be spent for national advertising until exhausted.
The cash on deposit in petitioner's bank accounts and the credit balance *975 in the national advertising appropriation account as of December 31, 1943 and 1944, were as follows:
| Dec. 31, 1943 | Dec. 31, 1944 | |
| Cash on deposit | $ 772,873.97 | $ 734,248.05 |
| Balance in national advertising appropriation | ||
| account | 446,212.97 | 988,098.22 |
Petitioner had cash on deposit and owned Government securities, the total amount of which at all times during the years 1943 and 1944 exceeded the credit balance*207 in the national advertising appropriation account.
For the taxable years 1943 and 1944 petitioner on its Federal income and excess profits tax returns neither reported in taxable income the amounts charged to or received from 7-Up bottlers under the terms of their agreements which petitioner had credited to the national advertising appropriation account nor deducted expenditures made for national advertising which petitioner had charged against the account. The unexpended credit balances in the "National Advertising Appropriation" account as of December 31, 1943 and 1944, were included in accounts payable on the balance sheet schedules contained in petitioner's tax returns. Respondent determined in his notice of deficiency dated July 22, 1948, that the aggregate amounts of $ 649,940.50 for 1943 and $ 1,168,964.66 for 1944, which were charged to and received from participating bottlers and credited on petitioner's books to an account designated "National Advertising Appropriation," constituted taxable income to petitioner for each such respective year; and that the expenditures of $ 183,727.53 for 1943 and $ 647,079.41 for 1944, which were made and incurred by petitioner for national*208 advertising and charged against the account were allowable as deductions for each such respective year. Consequently, the respondent included in petitioner's taxable income the excess of such receipts over said expenditures in the amounts of $ 466,212.97 ($ 649,940.50 minus $ 183,727.53) for 1943 and $ 521,885.25 ($ 1,168,964.66 minus $ 647,079.41) for 1944.
The following schedule shows the number of gallons of extract sold by petitioner to its franchised bottlers during the period 1930 to 1948, inclusive.
| Year | Gallons sold |
| 1930 | 74 |
| 1931 | 503 |
| 1932 | 1,219 |
| 1933 | 2,179 |
| 1934 | 4,227 |
| 1935 | 9,036 |
| 1936 | 25,925 |
| 1937 | 56,756 |
| 1938 | 65,384 |
| 1939 | 74,128 |
| 1940 | 76,414 |
| 1941 | * 94,219 |
| 1942 | 53,801 |
| 1943 | 58,590 |
| 1944 | 64,618 |
| 1945 | 71,686 |
| 1946 | 76,238 |
| 1947 | 82,716 |
| 1948 | 88,798 |
*976 The following schedule shows the total number of 7-Up franchised bottlers, the number of participating bottlers, and the total extract gallonage purchased by participating and nonparticipating bottlers for the years 1945 to 1948, inclusive:
| Total | ||||
| Number of | gallonage | Gallonage | ||
| Number of | nonpaying | purchased | purchased | |
| Year | 7-Up bottlers | bottlers | by nonpaying | by paying |
| bottlers | bottlers | |||
| 1945 | 388 | 14 | 1,543 | 70,143 |
| 1946 | 430 | 15 | 956 | 75,282 |
| 1947 | 455 | 23 | 1,724 | 80,992 |
| 1948 | 455 | 25 | 1,224 | 87,574 |
*209 During the period beginning with the start of the national advertising program in 1943 to the time of trial in the instant case the petitioner had neither reported the amounts charged to or received from 7-Up bottlers under the terms of the agreements which petitioner credited to the national advertising appropriation account, nor deducted expenditures made for national advertising which petitioner had charged against that account. During each of the taxable years 1943 and 1944 the charges against the participating bottlers represented by credits in the national advertising appropriation account greatly exceeded the expenditures for national advertising represented by debits in the account, but by the latter part of the year 1947 there was a debit balance in the national advertising appropriation account.
OPINION.
The respondent contends that the excess of the amounts received by petitioner from 7-Up bottlers during the taxable years over expenses incurred and paid by it for national advertising constitutes taxable income to petitioner. His argument in support of this contention is, briefly, (1) the payments of $ 17.50 per gallon of extract for purposes of advertising in national*210 media were not made to petitioner as an agent or fiduciary; (2) they were received and accrued by petitioner in each taxable year under a claim of right and without restriction as to use; (3) they were commingled with business receipts and placed in petitioner's regular corporate bank accounts, where they were subject to withdrawal and use for general business purposes; and (4) even if there was a restriction upon the use of any of the funds received, viz., that they should be used in the taxable year or in the following years for national advertising, such restriction was not sufficient to prevent the inclusion of such funds, whether expended or not, in the gross income of petitioner in the taxable year when received. He cites Clay Sewer Pipe Association, Inc., 1 T. C. 529; affd., 139 Fed. (2d) 130; E. B. Elliott Co., 45 B. T. A. 82; Your Health *977 ., 4 T.C. 385">4 T. C. 385; Automobile Underwriters, Inc., 19 B. T. A. 1160; National Airlines, Inc., 9 T.C. 159">9 T. C. 159.
The respondent places principal reliance*211 upon Clay Sewer Pipe Association, Inc., supra. There the taxpayer, an association organized to promote the use of vitrified sewer pipe, entered into contracts with member manufacturers to render services in consideration of the payment to it of 24 cents per ton of clay sewer pipe sold by them. Moneys received could be used in its general business. In its income tax return filed on the accrual basis it reported income of $ 107,648.18 and no tax due on account of deductions it had taken. One of the deductions taken was a "Reserve for future expenses" totaling $ 32,347.23, with a notation "Income deferred for expenditures for performance of contract services. * * * This amount represents the excess of income received and accrued over expenses paid and incurred representing prepayments and advance billings for services to be performed." This deduction was disallowed. In approving the disallowance, this Court pointed out that the taxpayer implicitly conceded that it did not act as agent for its principal and that it agreed to and did perform its services in behalf of others for consideration. The reasons for the disallowance were that all of the receipts*212 of the taxpayer during the taxable year, including the so-called "reserve" account, were subject to its withdrawal for general corporate purposes; that there was not any restriction on the use of the receipts which would constitute them, or the unexpended portion thereof, a trust fund; and that prepayment for services to be rendered in the future did not prevent taxation as income in the year received.
Clay Sewer Pipe Association, Inc., supra, is distinguishable from the instant proceeding. The payments made by the participating bottlers were not for services rendered or to be rendered by petitioner. Neither were they part of the purchase price of the extract. They did not, therefore, constitute earnings received by petitioner under a claim of right and without restriction as to disposition, which petitioner would have had to include in its gross income under the rule laid down in North American Oil Consolidated v. Burnet, 286 U.S. 417">286 U.S. 417. While petitioner had the right to receive the bottlers' contributions under its agreements with them, all the facts and circumstances surrounding the transaction clearly indicate*213 that it was the intention of all of the parties concerned that these contributions were to be used to acquire national advertising for the 7-Up bottled beverage and for that purpose only, and that petitioner was to be a conduit for passing on the funds contributed to the advertising agency which was to arrange for and supply the national advertising. Cf. Central Life Assurance Society, Mutual v. Commissioner, 51 Fed. (2d) 939. Although the *978 funds were not all expended in the year received, for reasons set forth in our findings, petitioner did expend them for national advertising, did not use them for general corporate purposes, treated the amounts on hand in the fund on its books as a liability to the bottlers, and considered itself, as evidenced by its letter of May 2, 1944, to one of the participating bottlers, merely as a trustee, handling the bottlers' money.
The facts in the instant proceeding are quite similar to those involved in Charlton v. Chevrolet Motor Co. (1934), 115 W. Va. 25">115 W. Va. 25; 174 S. E. 570. In that case a local Chevrolet dealer had entered into a contract with *214 the Chevrolet Motor Co., which provided in effect that for each new car purchased the dealer would contribute $ 6 and the company $ 2.50 to a Chevrolet dealers' cooperative advertising fund. The fund was to be spent by the company in the placement of such local advertising as in the judgment of the company would be of benefit to its dealers. The contract was terminated and the dealer brought suit in equity for an accounting of the fund. The company challenged the jurisdiction of the court of equity, but the court ruled that the dealer was entitled to relief in equity because the company held the advertising funds in trust for the dealers.
The cited case supports the petitioner's contention that the amounts contributed by the bottlers constituted a trust fund for advertising purposes which it administered as agent for the bottlers, even though the petitioner made no contribution to the advertising fund, whereas in the cited case the Chevrolet Motor Co. did contribute. The commingling of the unexpended portions of the bottlers' contributions in several bank accounts with receipts from petitioner's business did not destroy their identity as trust funds. 54 Am. Jur. 199. Petitioner*215 had on hand at all times cash and securities in excess of the amount of the unexpended funds and its books showed precisely the amounts contributed and unexpended. As custodian of the funds and agent for the bottlers, petitioner was obligated to expend them for national advertising, and any diversion for corporate or other purposes might be enjoined by the bottlers by a suit in equity. See Portland Cremation Assn. v. Commissioner, 31 Fed. (2d) 843; Charlton v. Chevrolet Motor Co., supra.
In Commissioner v. Wilcox, 327 U.S. 404">327 U.S. 404, the Supreme Court said:
* * * The very essence of taxable income, as that concept is used in Section 22 (a), is the accrual of some gain, profit or benefit to the taxpayer. This requirement of gain, of course, must be read in its statutory context. Not every benefit received by a taxpayer from his labor or investment necessarily renders him taxable. Nor is mere dominion over money or property decisive in all cases. In fact, no single, conclusive criterion has yet been found to determine in all situations what is a sufficient gain to support the imposition*216 of an income tax. *979 No more can be said in general than that all relevant facts and circumstances must be considered. * * *
The respondent has determined that the amounts received by petitioner from the bottlers in each of the taxable years should be included in gross income and the amounts expended for advertising should be taken as deductions. The effect of such a determination is to charge petitioner with a gain or profit to the extent of the excess of receipts over expenditures. But petitioner did not receive the bottlers' contributions as its own property. They were burdened with the obligation to use them for national advertising. No gain or proft was realized on their receipt because of this offsetting obligation. All of the relevant facts and circumstances convince us that the respondent erred in including the payments made by the bottlers in petitioner's gross income for the taxable years, and we so hold.
The conclusion reached renders it unnecessary to discuss or decide whether petitioner was entitled to relief under the provisions of either section 736 (b) or section 721 of the Internal Revenue Code.
Decision will be entered under*217 Rule 50.
Footnotes
*. Strength of extract doubled.↩