Littleton, Judge,
delivered the opinion of the court:
It would serve no useful purpose to recount here the many facts connected with the long history of litigation which has attended this tax case in the Internal Revenue Bureau, the Tax Court, and the other courts prior to the filing of this petition. It is likewise unnecessary to discuss the corporate history of plaintiff and the several related and affiliated corporations. Substantially, the entire issue in the case is a relatively simple one: namely, the actual cash value of certain stock of other corporations paid in for stock of the Elk Basin Company, the predecessor of plaintiff, and unless that issue is determined favorably to plaintiff there can be no recovery.
While separate plaintiffs are involved in the two suits, i. e., Continental Oil Coihpany, a Delaware corporation, No. 45730, and Robinson Verrill, as Successor-Trustee of Continental Oil Company, a Maine corporation, No. 46029, the same cause of action is set up in each petition and the second suit was filed in order to preserve and protect the rights of the Maine corporation in the event it should be decided that the corporate plaintiff in No. 45730 is precluded by Section 3477 of the Revised Statutes from recovery under the first petition. No such defense, however, is applicable and has not been raised by the defendant. The second petition in No. 46029 will therefore be dismissed.
The Continental Oil Company, plaintiff in No. 45730, is the successor after various corporate changes to the Elk Basin Consolidated Petroleum Company, and for convenience will generally be referred to as the plaintiff without regard to the various changes in corporate name and corporate status.
For some time prior to January 1, 1920, plaintiff had been engaged in the production, refining, and marketing of petroleum and petroleum products, and shortly prior to that date it embarked upon a plan of expanding its holdings and activities. Plaintiff acquired all the outstanding capital stock of two other corporations on January 1, 1920, in exchange for 600,000 shares of its own capital stock. Plaintiff by the issuance of 600,000 shares of its own stock March 15, 1920, acquired all the outstanding capital stock of another company which had three wholly owned subsidiary corporations whose stock was also acquired.
Plaintiff filed a consolidated income and excess profits tax return for the calendar year 1920 on May 14, 1921, and included therein its own income and invested capital, the income and invested capital of the two corporations which were acquired on January 1, 1920, and the income and invested capital of the four corporations which were acquired on March 15,1920, all the corporations in the group being considered as a part of a consolidated group for the entire calendar year 1920. The return showed a consolidated invested capital of $8,721,214.84, a consolidated net taxable income of $1,167,974.45, and a total tax due thereon of $200,707.45. The tax shown due, together with interest of $201.77, was paid in five installments during 1921.
The Commissioner audited that return and determined that the corporation with three subsidiaries, acquired on March 15, 1920, should be considered as a separate affiliated group for the period January 1 to March 15, 1920, and accordingly determined a separate assessment against that group for that period. The taxable income of that group for such period was computed in the amount of $196,469.18 and its invested capital in the amount of $665,132.55, such latter amount representing an invested capital at January 1, 1920, of $3,192,636.27, apportioned for the fractional period of 1920 for which a separate return was required. After extended litigation, a deficiency against that group was finally determined which was paid with interest in the total amount of $88,142.44 (finding 9).
In the meantime plaintiff filed a claim for refund on March 9,1925, for the entire tax of $200,707.45 which it had paid on the consolidated return filed for 1920 on the ground that the income for the consolidated group had been overstated and the invested capital understated. The principal basis of the ground stated in that claim was alleged to have arisen by reason of the exclusion from the plaintiff consolidated group of the corporations acquired by plaintiff March 15, 1920, heretofore referred to, and that with such exclusion there had been an understatement of invested capital. After an examination of that claim, the Commissioner computed a consolidated net income in the amount of $1,084,800.52, and consolidated invested capital of $7,926,731.74. In this computation the Commissioner allowed additions to consolidated invested capital of $3,333,333.33 and $2,393,442.62 on account of the acquisitions of stock of other corporations on January 1 and March 15,1920, respectively, heretofore referred to.
On the basis of that computation the Commissioner determined an overpayment of $12,779.97 and duly issued a certificate of overassessment therefor together with a check in that amount plus accrued interest thereon of $4,475.09 (findings 10,11, and 12). Plaintiff refused to accept this check and returned it to the Commissioner, together with the certificate of overassessment. The check and the certificate were subsequently canceled and the money repaid into the Treasury of the United States. In making that determination the Commissioner declined to give effect to the claimed market value of plaintiff's stock which was issued for the stock of the groups of corporations on January 1 and March 15,1920, but did determine additions to plaintiff's consolidated invested capital by reason of those acquisitions on the basis of the value of the assets behind such stock which he determined represented the actual cash value of such stock. On application of plaintiff the claim for refund was later reconsidered by the Commissioner after plaintiff had rejected the determined overpayment and check, but on such reconsideration the claim was rejected in full December 13,1941.
The position which plaintiff takes in this suit is that in determining its consolidated invested capital for 1920, the stock of the group of corporations acquired on January 1, 1920, and the stock of the group acquired on March 15,1920, represented tangible property paid in for stock of plaintiff on those dates and by according to such stock its proper value invested capital will be substantially increased over that determined by the Commissioner and the refund sought through this suit will result. Section 326 (a) (2) of the revenue act of 1918 contains the following provision with respect to the inclusion in invested capital of tangible property paid in for stock:
Actual cash value of tangible property, other than cash, bona fide paid in for stock or shares, at the time of such payment, but in no case to exceed the par value of the original stock or shares specifically issued therefor, unless the actual cash value of such tangible property at the time paid in is shown to the satisfaction of the Commissioner to have been clearly and substantially in excess of such par value, in which case such excess shall be treated as paid-in surplus; .
The governing statute, section 325 (a) of the Eevenue Act of 1918, includes in the definition of "tangible property" stocks, bonds, and other evidences of indebtedness and this court has held that where a corporation issues its stock for the stock of another corporation, the stock so acquired is to be considered as tangible property paid in for stock. United Cigar Stores v. United States, 62 C. Cls. 134, certiorari denied 275 U. S. 576.
On January 1, 1920, plaintiff issued 600,000 shares of its stock for the stock of two corporations and on March 15, 1920, it also issued 600,000 shares of its stock for the stock of certain other corporations and the controversy relates to determination of the actual cash value of that tangible property (stock) paid in for plaintiff's stock on those dates. In the certificate of overassessment and check for the overpayment above referred to which were rejected by plaintiff and later canceled by the Commissioner, the .Commissioner declined to take into account and give effect, for invested capital purposes, to a fair market value claimed by plaintiff for the capital stock of these corporations but he did determine invested capital on account of the acquisition of these stocks on what he determined to be the actual cash value on the basis of the value of the assets behind such stock. On that basis the Commissioner allowed, as above stated, an addition to invested capital on account of the first acquisition of $3,333,333.33, and on account of the second acquisition of $2,393,442.62, whereas plaintiff contended then and now contends that the actual cash value of the stock paid in in the first acquisition was $4,499,995, and in the second acquisition $6,075,000. The second acquisition was in the consolidated group for only a part of the year, that is, from March 15,1920, and when appropriate adjustment is made therefor the addition to invested capital on account of that acquisition, as claimed by plaintiff, amounts to $4,846,721.31. The total additions to invested capital on account of the two acquisitions as determined by the Commissioner amounted to $5,726,-775.95, whereas the total claimed by plaintiff amounts to $9,346,716.31.
Little, if any, evidence was presented as to the cash value of the stocks paid in, that is, such as what their past history of earnings was, what assets were back of this stock, or what the prevailing market prices were for these stocks. Plaintiff presents and relies almost exclusively on the curb market prices for its own stock which prevailed on or about the basic dates in question, which it contends, as it had contended before the Commissioner, show an actual cash value of its own stock on January 1, 1920, of approximately $7.50 per share, and on March 15,1920, of $10% per share. It says that therefore the actual cash values of the stock paid in for its stock are to be measured by these market prices for its own stock. If we assume without deciding that the cash value of plaintiff's stock is a proper basis of valuing the stock paid in, we are nevertheless unable to agree that, in the circumstances which prevailed in this case, the curb market prices alone are sufficient to substantiate and justify the allowance of a cash value based on those prevailing prices. It is of course true that in many cases prevailing market prices are an acceptable basis for determining value. However, we are here concerned with oil stocks which not only are ordinarily of a highly speculative nature but also the corporations were at that time being brought together in a new operation. We do not therefore have either a past history of sales of stock or a past history of operations as guides in considering these stocks. That they were highly speculative is shown by the fact that within a short time after the basic dates in question many of the bright pictures painted by the brokers who were selling the new stock of plaintiff had been found unwarranted. The market which prevailed was strongly supported by certain New York curb brokers who were dealing in this stock and in addition there was a restrictive agreement in effect which prevented a large block of the stock from being offered for sale during the period we are asked to value the stock.
No more persuasive argument against acceptance of these curb market prices as a basis of valuation need be offered than that presented by the plaintiff when the Commissioner sought to use these and similar prices to fix a fair value for this stock for capital stock tax purposes on July 1,1920. The plaintiff had used a par value of $5 per share, whereas the Commissioner sought to increase that value by the use of the prevailing curb market prices. Plaintiff submitted arguments in opposition to such an increase similar to the considerations we have set out above as showing the unreliability of .such market quotations in the peculiar circumstances of this case. The Commissioner receded from his position after the receipt of those arguments and allowed the valuation of $5 a share to stand as shown in the original capital stock tax return. That valuation was, of course, for a somewhat later date, July 1, 1920, and for a different purpose, but the arguments advanced by plaintiff covered the period with which we are here concerned and also some of the market prices with which we are dealing. We do not say that as a result of what occurred at that time plaintiff is estopped to take a different position in this proceeding which concerns an entirely different determination, but we are convinced that the arguments there advanced against relying on these curb market stock quotations as a guide for valuing the stock are sound.
Whether the term "actual cash value," as used in the governing statute, is something different from the term "fair market value," it is not necessary to decide. We think, however, that it emphasizes the fact that in determining invested capital all speculative or inflationary values are to be eliminated and an actual sound value of the property paid in must be established. Cf. La Belle Iron Works v. United States, 55 C. Cls. 462, affirmed 256 U. S. 377. Merely because some of this stock was being bought and sold on the Curb Exchange in a broker-supported market is not sufficient evidence to convince us that the actual cash value of tangible property paid in for that stock can be fully and satisfactorily measured by such prices.
We are, however, convinced from the record that plaintiff is entitled to some increase in its invested capital for 1920 on account of these stock acquisitions over that allowed by the Commissioner when he rejected the claim for refund in full on December 13, 1941. Prior to that time and after the invested capital and income of the second group had been excluded from the consolidated return, the Commissioner reaudited the return in connection with the claim for refund and determined and allowed additions to invested capital on account of .the two acquisitions in the respective amounts of $3,333,333.33 and $2,393,442.62. While the certificate of over-assessment and the refund check for a total of $17,255.06, based on that determination were rejected by plaintiff and later canceled by the Commissioner, we are convinced that the amounts and values determined and allowed at that time represented reasonable additions to invested capital, on :acr-count of the actual value of property paid in at the times in question. The fact that they are based on the valuation of the assets back of the stock, rather than an attempt to value the stock itself, does not mitigate against their use as evidence in determining value; that was the best evidence available. In that determination the Commissioner computed an' adjusted invested capital of $7,926,731.74 which we likewise are satisfied was fair and reasonable, and have so found as a fact. The parties have stipulated that the consolidated net income of plaintiff for the calendar year 1920 is the sum of $1,087,025.43. On the basis of that net income and. the invested capital as above-mentioned, the correct tax liability for 1920 is $188,550.46. The difference between that, amount and the tax which has been paid, $200,707.45, is $12,156.99, which constitutes an overpayment. }
It accordingly follows that plaintiff, Continental Oil Company, is entitled to recover an overpayment in the amount of $12,156.99, plus interest at 6% per annum from December 16, 1921, the date of payment, to a date not later than 30 days preceding the issuance of the refund check which plaintiff rejected, which interest was a part of the interest of $4,475.09 heretofore tendered by the Commissioner in that refund check. Since the amount of this overpayment . and the amount of interest due thereon were tendered to plaintiff, it is not entitled to any additional interest under section 177 (b) of the Judicial Code as amended by sec. 614 (a) (2) of the Revenue Act of 1928.
Judgment is entered in favor of plaintiff, Continental Oil Company, for $12,156.99 with interest computed as above stated.
The petition as to Robinson Verrill, etc., No. 46029, is dismissed. It is so ordered.
WhitaKER, Judge; and Whaley, Chief Justice, concur.
Madden, Judge; and Jones, Judge, took no part in. the-decision of this case. '