
    OTIS ELEVATOR COMPANY, A MAINE CORPORATION v. THE UNITED STATES
    [No. 495-59.
    Decided April 4, 1962]
    
      
      John 0. Reid for plaintiff. Ivins, Phillips <& Barker on tbe briefs.
    
      Eugene Emerson, with, whom was Acting Assistant Attorney General John B. Jones, Jr., for defendant. Lyle M. Turner and Philip R. Miller on the brief.
    
      Norton Kern filed brief Amicus Curiae on behalf of American & Foreign Power Company, Inc. Reid da Priest on the brief.
   Laramore, Judge,

delivered the opinion of the court:

This is a suit to recover income taxes paid by the plaintiff for the year 1950 in the amount of $53,559.06, plus interest, on the theory that the taxpayer qualifies as a Western Hemisphere trade corporation.

The sole issue in this case is whether the taxpayer is entitled to the special credit under section 26 (i) (2) of the Internal Eevenue Code of 1939, 64 Stat. 906, 920, which provides:

Sec. 26. CREDITS OF CORPORATIONS
In the case of a corporation the following credits shall be allowed to the extent provided in the various sections imposing tax—
(i) [as added by § 122(c), Revenue Act of 1950, c. 994, 64 Stat. 906] Western Hemisphere Trade Corpora tions — In the case of a western hemisphere trade corporation (as defined in section 109)—
*****
(2) Calendar year 1950. — In the case of a taxable year beginning on January 1, 1950, and ending on December 31, 1950, an amount equal to 33 per centum of its normal — tax net income computed without regard to the credit provided in this subsection.

Section 109 of the Internal Revenue Code of 1939, 56 Stat. 798, 838, defines Western Hemisphere trade corporations as follows:

For the purposes of this chapter, the term “western hemisphere trade corporation” means a domestic corporation all of whose business is done in any country or countries in North, Central, or South America, or in the West Indies, or in Newfoundland and which satisfies the following conditions:
(a) If 95 per centum or more of the gross income of such domestic corporation for the three-year period immediately preceding the close of the taxable year (or for such part of such period during which the corporation was in existence) was derived from sources other than sources within the United States; and
(b) If 90 per centum or more of its gross income for such period or such part thereof was derived from the active conduct of a trade or business.

Treasury Regulations 111, section 29.109-1, relating to the 1939 Code under which the deficiency was assessed and under which the Commissioner of Internal Revenue denied plaintiff’s claim for refund, provides, inter alia, as follows :

Sec. 29.109-1. Western Hemisphere Trade Corporations. — Under the provisions of section 15 a domestic corporation qualifying as a Western Hemisphere trade corporation is exempt from the surtax imposed upon corporations generally by section 15. To so qualify, the following tests must be met:
(a) Its entire business must be carried on within the geographical limits of North, Central, or South America, or in the West Indies, or in Newfoundland; and
(b) 95 percent or more of its gross income for the 3-year period immediately preceding the close of the taxable year (or for such part of such period during which the corporation was in existence) must be derived from sources without the United States; and
(c) 90 percent or more of its gross income for such period or such part thereof must be derived from the active conduct of a trade or business.
A domestic corporation is not excluded from the exemption merely because, incident to the conduct of its trade or business, it retains title in goods to insure payment for such goods shipped to a country outside the geographical areas enumerated in section 109.
A corporation which claims exemption as a Western Hemisphere trade corporation shall attach to its income tax return a statement showing that its entire business is done in one or more of the designated countries, and for the 3-year period immediately preceding the close of the taxable year (or for such part thereof during which the corporation was in existence) (1) its total gross income from all sources, (2) the amount thereof derived from the active conduct of a trade or business, (3) a description of such trade or business and the facts upon which the corporation relies to establish that such trade or business was actively conducted by it, and (4) the amount of its gross income, if any, from sources within the United States. The gross income from sources without the United States and within the United States shall be determined as provided in section 119 and the regulations prescribed thereunder.

Since there is no question that at least 95 percent of plaintiff’s gross income was derived from sources outside the United States and at least 90 percent of its gross income was derived from the active conduct of a trade or business, the sole question here is whether all of its business was done in the Western Hemisphere countries, which includes the United States.

The facts are these: Plaintiff was organized under the laws of the State of Maine in 1924 as a wholly owned subsidiary of Otis Elevator Company, a New Jersey corporation.

In the year in question (1950), and prior years, plaintiff was engaged in the business of installing and servicing elevators and escalators in various South and Central American countries. It had 10 branch establishments in these countries, which in 1950 had a total of 1,971 employees and a total payroll of $2,188,464. It paid income taxes to the countries in which it had branches of $280,821.77 in 1948, $187,265.30 in 1949, and $157,627.88 in 1950. Several of these branches bad manufacturing facilities and the rest bad installation and service facilities. Except for its New York office, wbicb bandied only administrative and accounting matters, plaintiff bad no office or place of business other than the branch establishments above referred to.

Each branch listed in Table 1 (finding 3) conducted its business as if it were a separate entity, keeping its own books of account reflecting in foreign currency its assets, liabilities, income, and expense. The New York office maintained a separate set of books reflecting in terms of United States currency the investment in each branch and annual branch profits. The New York office utilized the staff of New Jersey in maintaining a separate set of books and records, and the cost of such services, including the use of office space, was charged to the plaintiff by New Jersey.

During the years 1948, 1949, and 1950 the plaintiff’s parent, New Jersey, had facilities for the manufacture of elevator equipment in the United States and had wholly or partially owned foreign subsidiaries with manufacturing facilities in Canada, England, France, and Italy. These foreign subsidiaries were:

Name Country
Otis-Fensom Elevator Company, Ltd. (Name changed Canada to Otis Elevator Company, Etd. in 1949).
Waygood-Otis, Ltd- England
Ateliers Otis-Pifre, S.A__ France
Stigler-Otis, g.A.I_ Italy

When one of plaintiff’s branches received an order for the installation or modernization of elevator equipment from a customer in its territory, it forwarded to New Jersey at its main office in New York an order for the various components needed for the job which were not available locally. New Jersey would then determine whether the components ordered by the plaintiff would be manufactured by New Jersey in its United States factories or whether some or all of the components could be more efficiently manufactured by one or more of its subsidiaries in Canada, England, or France, taking into account the production backlogs and manufacturing schedules of its own factories and those of its foreign subsidiaries. Other considerations taken into account by New Jersey in determining the place of manufacture were price, availability of currency for payment, and, in some cases, customer preference. After determining the place of manufacture, New Jersey would place an order or orders upon the factory or factories chosen for the manufacture, directing it or them to manufacture the special components and ship them to the plaintiff’s branch which had the installation job. After manufacture, the components would be shipped direct to that branch by the factory or factories involved. The factory would then bill plaintiff’s branch direct for the components shipped by it, and payment would be made direct by the branch to the factory. Except for the billing by the factory and the payment by the branch, there was normally no contact, by correspondence or otherwise, between the factory and the branch.

Approximately 30 percent of the components used by plaintiff were manufactured in its own South American plants or purchased from local suppliers. For the rest of its components, it looked to its parent, New Jersey, whose principal office was in New York and which had manufacturing plants in the United States and also had subsidiaries with manufacturing facilities in Canada, France, and England.

During the year 1950, the 70 percent of components used by plaintiff which could not be obtained locally were manufactured and shipped to plaintiff by New Jersey and/or one of its subsidiaries. The dollar value of these non-local purchases amounted to $1,997,851. Of this total, components of a dollar value of $319,671 were manufactured in England and/or France.

Plaintiff filed a timely income tax return for the year 1950 and computed its income tax liability on the basis that it qualified as a Western Hemisphere trade corporation under the provisions of section 109 of the Internal Kevenue Code of 1939, supra, and that it was entitled to the credit provided by section 26 (i) (2) of the 1939 Code, supra. Plaintiff reported a net income of $511,405.07 and an income tax liability of $139,159.39. It claimed a Western Hemisphere trade corporation credit in the amount of $168,763.67, which reduced the net income to a surtax net income of $342,641.40. The income tax liability of $139,159.39 was offset in part by a tax credit for income taxes paid to a foreign country in the amount of $118,614.39. The balance due of $20,545 was paid with the filing of the return.

The Commissioner of Internal Revenue, upon audit of the plaintiff’s tax returns for the years 1950 through 1954, determined that plaintiff did not qualify as a Western Hemisphere trade corporation on the ground that it had made substantial purchases in Europe and proposed deficiencies in income tax for such years by reason of the disallowance of the credit provided by section 26 (i) of the Internal Revenue Code of 1939. On August 5, 1959, plaintiff paid $66,675.95, representing the deficiency in tax for the year 1950 resulting from such disallowance and other adjustments made by Commissioner of Internal Revenue, together with interest thereon of $33,568.14.

On October 2, 1959, plaintiff filed, for the year 1950, a claim for refund of income tax in the amount of $53,559.06, plus interest. The grounds upon which the claim was based were that plaintiff qualified as a Western Hemisphere trade corporation and was entitled to the credit provided by section 26 (i) of the Internal Revenue Code of 1939. On November 6, 1959, the Commissioner of Internal Revenue disallowed the claim for refund. This suit resulted.

If the invocation of a technical construction were disposi-tive of the controversy in this case, we would direct ourselves to the question whether or not plaintiff actually made purchases outside the Western Hemisphere. A determination that the plaintiff did not make any purchases outside this hemisphere would clearly and simply resolve the matter in plaintiff’s favor. Therefore, we shall assume that plaintiff did engage in purchasing component parts, necessary for its operations, from outside the Western Hemisphere.

The issue before us then is did plaintiff’s purchases amount to “doing business” so as to place plaintiff outside the statutory restriction of a corporation “all of whose business is done” in the Western Hemisphere. If plaintiff does not meet the statutory requirement, then it would be excluded from the tax exemption even though, it were otherwise qualified.

Section. 109 provides the general rule for determining whether a corporation qualifies for the exemption granted by section 26 (i) (2). The language of section 109 might be susceptible to an interpretation that any business transaction conducted outside the Western Hemisphere would operate to exclude the transacting corporation from the exemption. Such an interpretation would lead to some absurd results. For instance, any minor transaction, whether a sale or purchase, would exclude the corporation from the benefits of the exemption. Suppose a corporation engaged solely in a business operation in Latin America, bought and sold all its necessaries in Latin America except barbed wire, which it could only acquire in Germany. We do not think Congress intended that this simple purchase should operate to deprive the corporation of the benefits of the statute. Neither do we agree with the argument advanced by the plaintiff that the phrase “all of whose business is done” in section 109 must be construed according to the generally accepted meaning of the phrase “doing business.” In the cases cited by plaintiff in support of this view, the test of whether the party was “doing business” was applied for the purpose of obtaining Jurisdiction over the party in a particular court. This is not the same test applied to determine whether a corporation is entitled to the provisions of a tax exemption statute. Since the language of the statute is ambiguous and vague, the proper interpretation of the statute should come from what we can discern as the intent of Congress at the time the statute was enacted. Fortunately, the legislative history surrounding section 109 is extensive, and it indicates that Congress recognized some economic contact with other nations would occur but that this should not deprive the corporations of the exemption. The Senate Finance Committee report, accompanying the House Beport, in discussing the qualifications of a Western Hemisphere trade corporation, read in part:

* * * In addition, the entire trade or business of such corporations must be carried on in the Americas or adjacent areas. However, merely incidental economic contact with other countries outside such geographical sphere will not place such corporations outside the exempt classification. For example, the A Corporation is engaged in. mining activities in South. America and in shipping its products to foreign countries outside the United States, including Great Britain. The mere fact that the A Corporation ships its goods to England, retaining title to such goods until acceptance of the bill of lading and draft in order to insure collection of the price, will not be considered as carrying on business outside the Western Hemisphere. (Senate Beport No. 1631, 77th Congress, 2nd Session, 1942 — 2 Cum. Bull. 504, 588.

The Treasury regulations, supra, have their genesis in this report for they use substantially the same language and cite precisely the same example. It appears then that a definition of the phrase “merely incidental economic contact with other countries” as used in the report, or “incident to the conduct of its trade or business” as used in the regulations, would be helpful. “Incidental” could mean minor in relation to its entire business, as contended by the defendant. It could also mean an integral part of the conduct of its business or that which will naturally happen as a subordinate or subsidiary feature of its business, as contended by the plaintiff. See 'Webster’s New Collegiate Dictionary (1960 Ed.).

The defendant insists that a correct definition would be reached by referring to 26 U.S.C. (I.B.C. 1954) § 921 (1958 Ed.), which is the counterpart of section 109 in the 1954 Internal Bevenue Code. However, we fail to see how subsequent legislation can be controlling in this matter, especially when the statute states:

$ ‡ ‡ $
For any taxable year beginning prior to January 1, 1954, the determination as to whether any corporation meets the requirements of section 109 of the Internal Bevenue Code of 1939 shall be made as if this section had not been enacted and without inferences drawn from the fact that this section is not expressly made applicable with respect to taxable years beginning prior to January 1, 1954.

Thus we can find no merit in defendant’s entreaty that we disregard the admonition of the statute, and we shall not do so.

The defendant urges that the decision of the Tax Court in Topps of Canada, Ltd. v. Commissioner, 36 T.C. 326, 336, involving a similar situation, should be followed by this court. We would like to quote at length from the Tax Court’s opinion in that case, as follows:

There remains the question of the proper construction of the term “incidental purchases.” The statute itself does not define the term, and the committee reports with respect to the Revenue Bill of 1954 do not provide the answer. They merely state, in effect, that m order to correct an obvious inequity which had arisen in the administration of the Western Hemisphere trade corporation provisions, a change was being made to provide that ‘‘incidental purchases made outside of the Western Hemisphere” will not disqualify a corporation if it is otherwise eligible. Such reports do not give examples of the administrative action which was considered inequitable.
While the term “incidental purchases” might be susceptible of the construction urged by the petitioner (purchases incident to its business), it certainly is not clear that such was the construction intended by Congress. On the other hand, it appears to us that such language is reasonably susceptible of the construction placed upon it in the regulations, namely, purchases which are minor in relation to the entire business or nonrecurring or unusual in character. Such regulations specifically reject the construction of the statute urged by the petitioner.

In respect to the above, it is noted that the Tax Court was confronted with a situation arising under the 1954 Code. As we have pointed out, we are not concerned with an interpretation of the 1954 Code; however, insofar as the Tax Court’s opinion can be related to our case, we are certainly interested in that court’s decision. The Tax Court, confronted with an analogous definitive statement, held in effect that the term “incidental purchases” might mean purchases “incident to” its business, but they felt that the interpretation placed upon it by the regulations; vis, purchases which are minor in relation to the entire business, should prevail absent a clear mandate by Congress. The court, inferentially at least, relied on the definition in the regulations which they found to be reasonable. In the instant case we do not have such regulations to uphold. Since the Treasury regulations promulgated under the 1939 Code use the term “incident to” we might infer that the Tax Court would have reached a contrary decision if they relied on those regulations. In any event, the plaintiff in the instant case should prevail under either definition because its receipt of components from other than Western Hemisphere countries amounted to 6.2 percent of the corporation’s gross receipts, a figure “minor” by any interpretation, and the language of the applicable regulations utilizes the term “incident to.” Therefore, regardless of which definition we apply in the instant case, the plaintiff must recover, since it is our view that the “purchases” were minor and an integral part of its business.

We think this conclusion is compatible with what Congress intended when it enacted section 109 of the 1939 Code. The Senate Finance Committee report specifically stated that “incidental economic contact” was not to be considered doing business. Moreover, the illustration, in both the report and the Treasury regulations, provided that a transaction involving a sale to England was not intended to constitute doing business outside the Western Hemisphere. As defendant correctly points out, “purchasing is as much a part of doing business as selling.” It would follow that if a transaction involving a sale with shipment to England was not intended to constitute doing business outside the Western Hemisphere, then a mere purchase from outside the Western Hemisphere, likewise, is not to be considered doing business outside the Western Hemisphere.

Section 109 was enacted into the 1939 Internal Eevenue Code to encourage American corporations to engage in foreign trade, A. P. Green Export Co. v. United States, 151 Ct. Cl. 628, 284 F. 2d 383. Were we to hold that a corporation, otherwise qualified, would be excluded from the exemption provided for by the statute, by a mere purchase outside the Western Hemisphere, we would effectively thwart a well-defined Congressional objective.

For the above stated reasons we hold that the plaintiff is entitled to recover, with interest as provided by law, and judgment will be entered to that effect. The amount of recovery will be determined pursuant to Kule 38(c).

It is so ordered.

Dukfee, Judge; Whitakek, Judge; and Jones, Ohief Judge, concur.

FINDINGS OF FACT

The court, having considered the evidence, the report of Trial Commissioner W. Ney Evans, and the briefs and argument of counsel, makes findings of fact as follows:

1. Plaintiff was organized under the laws of the State of Maine in 1924 as a wholly owned subsidiary of Otis Elevator Company, a New Jersey corporation organized in 1898 (hereinafter referred to as “New Jersey”) and has continued to be a wholly owned subsidiary of New Jersey since its organization. Plaintiff’s only United States office is located at 260 Eleventh Avenue, New York, N.Y. Its tax returns for the years prior to 1950 were filed with the Collector of Internal Eevenue (now District Director) for the Third District of New York, and its .tax returns for the year 1950 and subsequent years were filed in the Second District of New York. Plaintiff keeps its books and files its tax returns on a calen dar year basis.

2. During all periods relevant to this proceeding, plaintiff’s business consisted of installing elevators and escalators in new and existing buildings and of repairing, modernizing, and servicing elevator and escalator equipment.

3. Plaintiff’s business as described in finding 2 was carried on through branch establishments located in various countries in South and Central America. Set forth in Table 1 (incorporated herein) is a schedule listing the branches existing in 1948, 1949, and 1950, and showing for each branch (1) its location, (2) the number of employees employed, (3) its payroll, and (4) the type of activities carried on. Except

for its New York office, which handled only administrative and accounting matters, plaintiff had no offices or places of business other than the branch establishments listed in Table 1.

4. (a) When one of plaintiff’s branches undertook an installation job, it submitted to the general contractor for the building in which the elevators were to be installed detailed specifications describing the type of equipment to be installed, special attachments, performance standards, etc. The installation contract specified the construction work to be performed by the general contractor in preparation for the installation work to be performed by plaintiff’s employees and the working conditions under which such employees would operate.

(b) On the matter of working conditions, plaintiff’s installation contracts contained the following provision:

It is agreed that our workmen shall be given a safe place in which to work and we reserve the right to discontinue our work in the building whenever in our opinion this provision is being violated.
Unless otherwise agreed, it is understood that the work will be performed during our regular working hours of our regular working days. If overtime work is mutually agreed upon and performed, an additional charge therefor, at our usual rates for such work, shall be added to the contract price.

(c) Bids made by plaintiff on installation jobs contained the following proviso:

This price is based on the ocean freight rates, marine insurance rates, custom duties and other importation charges, local erection labor rates, local material costs, local taxes, local Social Security and Employee Benefit Laws, in effect on the date of this proposal, and this price is subject to adjustment for the amount of increased or decreased cost resulting from any cost changes in these items. The resulting adjustment in price under this provision shall be made with the final payment.

(d) Under its installation contracts, plaintiff agreed to provide free maintenance service for a period of 3 months after completion of the installation job. After the expiration of the 3-month period, a maintenance contract was entered into with the owner of the building under which plaintiff made a monthly charge for servicing the elevator equipment in the building. Under its maintenance contracts, plaintiff agreed to inspect, lubricate, and adjust the elevator equipment at regular intervals and to replace worn parts as needed.

5. Each branch listed in Table 1 (finding 3) conducted its business as if it were a separate entity, keeping its own books of account reflecting in foreign currency its assets, liabilities, income, and expense. The New York office maintained a separate set of books reflecting in terms of United States currency the investment in each branch and annual branch profits. The New York office utilized the staff of New Jersey in maintaining a separate set of books and records, and the cost of such services, including the use of office space, was charged to the plaintiff by New Jersey.

6. During 1948, 1949, and 1950, except for a few minor items of miscellaneous income, all of plaintiff’s gross income was derived from payments received by its branches (as listed in Table 1) for the installation and servicing of elevator and escalator equipment in the countries in which such branches were located. Tables 2, 3, and 4 show, for each of plaintiff’s branches, gross receipts, direct costs, gross income, and net income for the years 1948,1949, and 1950. Table 5 contains a summary of gross and net income from all of the branches for each of the years 1948, 1949, and 1950. These tables (2, 3,4, and 5) are incorporated in this finding.

7. Plaintiff was taxed on the profits derived by its branches by the countries in which such branches operated. On account of income derived from activities in the countries in which its branches were located, the plaintiff paid income taxes to such countries for the years 1948, 1949, and 1950 in the following amounts:

8. Plaintiff had manufacturing facilities in South America in which some elevator components were manufactured, and all branches purchased some standard items locally. However, most of the elevator components used by plaintiff’s branches to fulfill their contracts were manufactured by New Jersey or one of its affiliates.

•9. During the years 1948, 1949, and 1950 the plaintiff’s parent, New Jersey, had facilities for the manufacture of elevator equipment in the United States and had wholly or partially owned foreign subsidiaries with manufacturing facilities in Canada, England, France, and Italy. These foreign subsidiaries were:

Name Country
Otis-Fensom Elevator Company, Ltd. (Name changed Canada to Otis Elevator Company, Ltd. in 1949.)
Waygood-Otis, Ltd- England
Ateliers Otis-Pifre, S.A- Prance
Stigler-Otis, S.A.I_ Italy

10. When one of plaintiff’s branches received an order for the installation or modernization of elevator equipment from a customer in its territory, it forwarded to New Jersey at its main office in New York an order for the various components needed for the job which were not available locally. New Jersey would then determine whether the components ordered by the plaintiff would be manufactured by New Jersey in its United States factories or whether some or all of the components could be more efficiently manufactured by one or more of its subsidiaries in Canada, England, or France, taking into account the production backlogs and manufacturing schedules of its own factories and those of its foreign subsidiaries. Other considerations taken into account by New Jersey in determining the place of manufacture were price, availability of currency for payment, and, in some cases, customer preference. After determining the place of manufacture, New Jersey would place an order or orders upon the factory or factories chosen for the manufacture, directing it or them to manufacture the specified components and ship them to the plaintiff’s branch which had the installation job. After manufacture, the components would be shipped direct to that branch by the factory or factories involved. The factory would then bill plaintiff’s branch direct for the components shipped by it, and payment would be made direct by the branch to the factory. Except for the billing by the factory and the payment by the branch, there was normally no contact, by correspondence or otherwise, between the factory and the branch. For purposes of illustration, if plaintiff’s Venezuelan branch required a particular elevator component, and New Jersey determined that the order should be filled by Waygood-Otis, Ltd. in England, Waygood-Otis would, upon receipt of the order from New Jersey, acknowledge to New Jersey the receipt of such order, and, at the same time, advise New Jersey and the Venezuelan branch when it expected to make shipment. Waygood-Otis would then proceed to manufacture the component and thereafter ship it direct to the Venezuelan branch. Waygood-Otis would then bill the Venezuelan branch direct, and that branch would pay Waygood-Otis directly. New Jersey did not include in its sales for income tax purposes shipments made to plaintiff of components manufactured by its foreign subsidiaries.

11. (a) During the years 1948 through 1952, approximately 30 percent of the components used by plaintiff’s branches, in terms of IT.S. dollar cost, were manufactured by these branches in their own facilities or purchased from local suppliers in the countries in which the branches were located. The remainder of the components used by these branches were manufactured by New Jersey in its United States factories or by New Jersey’s subsidiaries in Canada, England, France, and Italy. Set forth in Table 6 (incorporated herein) is a schedule showing, in terms of U.S. dollar cost, the materials purchased by plaintiff’s branches during the years 1948 through 1952 from other than local sources, which schedule shows the amount of such materials manufactured by New Jersey in the United States and the amounts manufactured by New Jersey’s foreign subsidiaries in Canada, England, France, and Italy.

(b) The cost of materials purchased by the plaintiff during 1950 which were manufactured by New Jersey’s subsidiaries in England, France, and Italy amounted to 6.2 percent of plaintiff’s gross receipts for the year. Comparable percentages for the 2 years prior to 1950 and the 2 years subsequent to 1950 were:

12. The International Division of New Jersey supervised the operations of its foreign subsidiaries and affiliates, including the operations of plaintiff. It also furnished technical and engineering services to plaintiff. For these services, each of plaintiff’s branches paid New Jersey a fixed annual fee plus 1 percent of its annual gross receipts from the installation and servicing of equipment. Set forth below are the provisions of the contract between plaintiff and the New Jersey company describing the nature of the services to be rendered to plaintiff by New Jersey:

Whereas, the New Jersey Company has, for many years, been furnishing to the Maine Company engineering, technical and patent assistance for which the Maine Company has paid the New Jersey Company in a variety of ways; and
Whereas, the Maine Company desires that the New Jersey Company shall continue to render it such services; and
Whereas, the parties believe it would be for the best interests of both of them to formalize the arrangement.
Now, therefore, it is agreed as follows:
First : The Maine Company hereby engages the services of the New Jersey Company and the New Jersey Company agrees to perform the following services on behalf of the Maine Company:
A. To supply all technical data, procedures and instructions required by the Maine Company in connection with its sales, maintenance and construction operations in Argentina, Uruguay, Brazil, Colombia, Cuba, Puerto Rico, Panama and Venezuela (hereinafter collectively called the territory).
B. To supply modern engineering and complete manufacturing data for production purposes in the territory.
C. To furnish, the necessary trained technical staff for the purpose of giving technical training to personnel in the territory. The salaries and expenses of the representatives of such staff shall, while on foreign assignment, be paid by the respective branches to which they are assigned and these charges shall be over and above the remuneration to be paid to the New Jersey Company under the provisions of Article SECOND of this Agreement.
D. To supply all services required in the United States in connection with special engineering, designing and technical services necessary to the Maine Company’s business in the territory.
E. To give to the Maine Company all the benefits of its engineering, research and developmental activities.
F. To perform any other technical services on behalf of and for the benefit of the Maine Company whenever called upon for such services.

13. Plaintiff filed a timely income tax return for the year 1950 and computed its income tax liability on the basis that it qualified as a Western Hemisphere Trade Corporation under the provisions of section 109 of the Internal Kevenue Code of 1939, and that it was entitled to the credit provided by section 26 (i) of the Internal Revenue Code of 1939 by reason of such qualification. Plaintiff reported a net income of $511,405.07 and an income tax liability of $139,159.39. It claimed a Western Hemisphere Trade Corporation credit in the amount of $168,763.67, which reduced the net income to a surtax net income of $342,641.40. The income tax liability of $139,159.39 was offset in part by a tax credit for income taxes paid to a foreign country in the amount of $118,614.39. The balance due of $20,545 was paid with the filing of the return.

Id. The Commissioner of Internal Revenue, upon audit of the plaintiff’s tax returns for the years 1950 through 1954, determined that plaintiff did not qualify as a Western Hemisphere Trade Corporation on the ground that it had made substantial purchases in Europe and proposed deficiencies in income tax for such years by reason of the disallowance of the credit provided by section 26 (i) of the Internal Revenue Code of 1939. On August 5, 1959, plaintiff paid $66,675.95, representing the deficiency in tax for the year 1950 resulting from such disallowance and other adjustments made by Commissioner of Internal Revenue, together with interest thereon of $33,568.14.

15. On October 2, 1959, plaintiff filed, for the year 1950, a claim for refund of income tax in the amount of $53,559.06, plus interest. The grounds upon which the claim was based were that plaintiff qualified as a Western Hemisphere Trade Corporation and was entitled to the credit provided by section 26 (i) of the Internal Revenue Code of 1939.

16. On November 6, 1959, the Commissioner of Internal Revenue disallowed the claim for refund referred to in finding 15.

CONCLUSION 03? LAW

Upon the foregoing findings of fact, which are made a part of the judgment herein, the court concludes as a matter of law that plaintiff is entitled to recover, together with interest as provided by law, and judgment will be entered to that effect.

The amount of recovery will be determined pursuant to Rule 38(c) of the ndes of this court.

In accordance with the opinion of the court and on a memorandum report of the commissioner as to the amount due thereunder, it was ordered on June 22,1962, that judgment for plaintiff be entered for $80,523.34, together with interest as provided by law. 
      
       The parent company -will hereinafter be referred to aa “New Jersey”.
     
      
       All of the findings contained in this report have in effect been stipulated by the parties.
      On April 24, 1961, at a pretrial conference, the attorneys for the parties filed with the commissioner an agreed statement of facts to which were attached 9 exhibits. References to the exhibits appeared throughout the agreed statement. The attorneys were uncertain, at the time of the pretrial conference, that material contained in the exhibits could be restated as an integral part of the agreed statement without there being some disagreement between them as to the inferences to be drawn from the exhibits. It was therefore agreed that requested findings would be filed with the commissioner by each of the parties.
      Accordingly, plaintiff’s requested findings were filed! on April 28, 1961. Thereafter, on May 11» 1961, defendant signified acceptance of plaintiff’s requested findings without modification. The ensuing report of the commissioner therefore consists of findings to which both parties have agreed.
     