
    Appeal of HIGHLAND LAND CO., LTD.
    Docket No. 2320.
    Submitted April 21, 1925.
    Decided June 19, 1925.
    
      The taxpayer and Bowman Bros. Co. were affiliated during the calendar year 1917, and, under tbe provisions of section 1331 of the Revenue Act of 1921, they are required to file a consolidated return for the calendar year 1917.
    
      S. Leo Buslander, Esq., for the taxpayer.
    
      P. S. Crewe, Esq., for the Commissioner.
    Before James, Smith, and Teussell.
   This appeal is from a determination by the Commissioner of a deficiency in profits tax for the calendar year 1917, in the amount of $755.07, based upon his refusal to regard the Highland Land Co., Ltd., and Bowman Bros. Co. as having been affiliated during the calendar year 1917.

FINDINGS OE FACT.

1. The taxpayer is a limited partnership under the laws of the State of Pennsylvania, with its principal office at McKeesport, Pa. It was organized in 1889 for the purpose of holding and selling real estate. In 1889 it acquired for lot subdivision certain land upon which was a coal mine, which had been operated by previous owners.

2. Bowman Bros. Co. is a Pennsylvania corporation organized in 1906, for the purpose of mining and selling coal.

3. Under date of January 15, 1917, the taxpayer entered into an agreement with Bowman Bros. Co., which provided as follows:

Whereas, the Highland Land Co., Ltd., party.of the first part isi opening a Coal Mine on its property in North Versailles Township and the amount of merchantable coal remaining in said land is undetermined on account of the shallowness of the hill and previous workings, and the said Highland Land Co., Ltd., is not equipped financially or otherwise to operate and market the coal and is desirous to have the same operated and the product marketed; and
Whereas, Bowman Bros. Co. desire to secure the coal and have offered to equip, finance and superintend the operation of the mine at cost provided said Highland Land Co., Ltd., agrees to sell it its entire output at a price or sum of eleven cents (11$) per bushel mine run coal.
Now this agreement witnesseth, that for and in consideration of the sum of One Dollar ($1.00) to each party in hand paid by the other and, the mutual considerations moving,
The Highland Land Co., Ltd., party of the first part hereby agrees to sell all of its output of coal from its mine in North Versailles Township to Bowman Bros. Co., party of the second part at the price or sum of eleven cents (11$) per bushel, mine run coal; and
Bowman Bros. Co. party of the second part hereby agrees to furnish the necessary equipment, labor and tools and superintend and finance the operation of its, the said Highland Land Cos., mine at cost, and purchase its product for the sum or price of eleven cents (11$) per bushel, mine run coal. Accounting to be made when mine is exhausted.

4. The principal income of the taxpayer for the calendar year 1917 was derived from the coal mined and sold under the above-mentioned contract, and these coal operations resulted in a loss to Bowman Bros. Co.

The taxpayer kept no record on its books of the coal operations, but records were kept by Bowman Bros. Co. No separation of operating expenses and overhead costs was made.

The business of the taxpayer was conducted by the officers of Bowman Bros. Co. and all salaries were charged to Bowman Bros. Co. Nothing was charged to the taxpayer. The taxpayer used the same office, works, and employees as Bowman Bros. Co., but no part of the expenses paid for rent, clerk hire, etc., was paid by the taxpayer.

5. The ownership of the taxpayer and Bowman Bros. Co. in 1917 was as follows:

■The minority stock of the taxpayer was owned equally-by two sisters and a brother of the two majority owners, who are brothers.

h. No minutes were kept of any meetings of the stockholders or 'directors of Bowman Bros. Co. from 1910 to 1922, and the taxpayer ¿held no meetings which were recorded in its minute book during the -year 1917. The minority stockholders of both companies paid no .-attention to the companies. The management of both companies was entirely in the hands of S. M. Bowman and T. H. Bowman, ¡brothers.

7. The agreement of the taxpayer to pay the operating expenses for the mining of coal during the year 1917 at the price of 11 cents per bushel, mine run coal, was made without regard to the actual cost -of mining coal or whether there would be any profit to either company from the contract. The facts proved to be that the contract price was so high that Bowman Bros. Co. operated at a loss. By reason of this fact the agreement was modified at December 31r 1918, so as to provide “ a reduction of $1 per ton on all coal sold to Peters Creek Coal Co. and on all coal shipped by rail during the year 1918 and that the price to Bowman Bros. Co. to be paid on all coal after December 31, 1918, shall be 25 cents per ton over and above the operating cost.”

DECISION.

The deficiency determined by the Commissioner is disallowed. Appeal of Schloss Brothers Co., 1 B. T. A. 581; Appeal of Hagerstown Shoe & Legging Co., 1 B. T. A. 666.  