position it consistently maintained, that it was a partnership rather than an association or corporation.

Permitting petitioner to file its capital stock tax returns subsequent to the trial and after opinion clearly would not serve to circumvent any right the respondent might have had to contest the contents of the returns had they been filed prior to or during the trial, for it is clear that the respondent at all times would have been bound by the petitioner's declaration, as illustrated by the following excerpts from the opinion of the Supreme Court in Haggar Co. v. Helvering, 308 U. S. 389:

It will be observed that by § 215 (a) and (f) the declared value of capital stock which is made the basis of computation of both taxes is not required to conform either to the actual or to the nominal capital of the taxpaying corporation * The taxpayer is thus left free to declare any value of capital stock for its first taxable year which it may elect * the Commissioner concedes that the amount of the declared value of capital fixed for the first year is a matter of indifference to the Government since the statute leaves the taxpayer free to declare any amount which its fancy may choose and that for any reduction in capital stock tax effected by the declaration of a low value of the capital stock there is an accompanying increase in excess profits taxes. He concedes that if petitioner had filed but a single return on the date of filing the amended return, stating the value of the capital stock as $250,000 instead of $120,000, the Government would have been concluded by the taxpayer's declaration.

Here the purpose of the statute is unmistakable. It is to allow the taxpayer to fix for itself the amount of the taxable base for purposes of computation of the capital stock tax, but with the proviso that the amount thus fixed for the first taxable year shall be accepted, with only such changes as the statute prescribes for the purpose of computing the capital stock and excess profits taxes in later years.

It has already been held that the filing of a capital stock tax return after the issuance of a notice of deficiency and before trial of the cause will be given effect as a declaration of value for the capital stock, Del Mar Addition v. Commissioner, 113 Fed. (2d) 410; Jordan Creek Placers, 43 B. T. A. 131, 137; and in Wabash Oil & Gas Association, 6 T. C. 542, 548, we held that the filing of such capital stock tax return would be effective in preserving petitioner's rights where during trial the Court was advised of petitioner's intention to make such filing, and information that such filing had been made was later made a part of the record. Only in cases where the collector, pursuant to section 3612 of the Internal Revenue Code, has seen fit to file a return on behalf of a taxpayer, as is his right, have we held that a late return is not effective. Second Carey Trust, 2 T. C. 629.

Petitioner's delay was due entirely to an innocent mistake. If petitioner was to be regarded as a partnership, no capital stock tax return was proper and it was not until this Court promulgated its opinion

that petitioner knew that it was taxable as a corporation. It acted with reasonable promptness after that time in filing its capital stock tax return. The respondent is in no way prejudiced by the delay, and we think the purpose of the statute would be thwarted should we conclude that the late filing of the return was ineffective. Both recomputations as now submitted were filed subsequent to the filing of the capital stock tax return and after the hearing presenting evidence of the late filing. The Commissioner's present recomputation gives effect to the postwar refund credit, the allowance of which was urged by petitioner at the hearing on January 18, 1950, but it does not give effect to the declaration of value contained in the capital stock tax return or the capital stock tax paid by the petitioner in connection with such return.

In our opinion, the tax and deficiencies for the several years should be recomputed in accordance with the views herein expressed.

CLINTON CARPET COMPANY, PETITIONER, V. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Docket No. 7006. Promulgated April 14, 1950.

EXCESS PROFITS TAX-RELIEF UNDER SECTION 722-722 (b) (5).— The petitioner has not established its right to relief under section 722 (b) (5) by showing that deductions for the amortization of the cost of an exclusive sales contract, with the termination date of December 31, 1940, reduced the income of the base years but was no longer being deducted in the tax years and, as a consequence, the actual base period net income was not normal for the purpose of comparison with the income of the tax years.

Peter L. Wentz, Esq., and Milton E. Carter, Esq., for the petitioner. Gerald W. Brooks, Esq., for the respondent.

The petitioner claims relief from excess profits tax for 1941 and 1942 under section 722 (b) (5) on the ground that an amortization deduction must be eliminated in each of the base years in order to make its average base period net income an adequate standard of normal earnings. The Commissioner rejected the petitioner's applications.

FINDINGS OF FACT.

Tanners Products Co. (herein called Tanners) and its subsidiaries had developed a material called Ozite for use, inter alia, as a cushion under carpets. The name "Ozite" was registered as a trade-mark in the United States Patent Office, and at all times material hereto belonged to Tanners and its successor, American Hair & Felt Co. (herein called American).

Tanners had not been successful in marketing its new product and, in 1923, went to Albert Pick, of Albert Pick & Co., to obtain his assistance in promoting the sales of that product. A sales contract was entered into with Clinton Carpet Co. (herein called Clinton), all of the stock of which was owned by Albert Pick & Co.

Tanners and its subsidiaries entered into a new agency agreement with Clinton on September 2, 1927. The agreement provided that Clinton was constituted exclusive agent for the sale of certain named products manufactured by Tanners and its subsidiaries, except for sales to the automotive trade. Tanners reserved the right to terminate the contract, and, by giving written notice to the agent served on or before February 15, it could terminate the contract nine years after the close of the calendar year in which the notice was served.

Tanners changed its name on October 1, 1928, to American Hair & Felt Co. and acquired all of the assets and liabilities of its subsidiaries.

Louis H. Regensburg was president of Clinton and built up its sales organization. He was largely responsible for the successful marketing of the products through advertising and sales. His organization was handling at least one-half of the sales of American in 1931. Large amounts were spent for advertising.

American became dissatisfied with the agency contract because it did not want to lose so much of the profit from the sales of its products. It served notice on Clinton on February 11, 1931, of termination of the contract of September 2, 1927. The effective date of the termination under that notice would be December 31, 1940. American began negotiations to terminate at an earlier date the selling of its products by an agent in which it had no interest through stock ownership.

American organized the petitioner on March 2, 1931, under the name of Ozite Products Co., and has owned all of its outstanding stock at all times material hereto. The owners of the stock of Clinton sold that stock to Regensburg on March 5, 1931, for $1,075,000, and on the same date Regensburg sold all of the business and assets of Clinton, with immaterial exceptions, subject to its liabilities, to the petitioner for $1,077,045.82. The petitioner changed its name to Clinton Carpet Co. on March 11, 1931.

The purposes of American in organizing the petitioner and having it take over the assets of the selling agent were to retain the benefits inherent in having a corporation by the name of Clinton Carpet Co. continue to sell the products; to retain the organization intact under the presidency of Regensburg, who, with practically his entire organization, simply continued operations on behalf of the petitioner instead of on behalf of the former agent; and to have a corporation purchase the unexpired portion of the sales contract, which corporation could

obtain deductions through amortization for the amount paid for that particular asset. The articles of incorporation of the petitioner provided that it was to have perpetual existence and the intention was to have it function as the selling organization for the Ozite products manufactured by American.

Regensburg was a strong character and endeavored to operate the petitioner as he thought best. American and the petitioner, through negotiations between the officers of American and Regensburg, made some changes after March 5, 1931, in the terms under which the petitioner was to act as selling agent from those set out in the agreement of September 2, 1927.

The petitioner was merged with American on December 31, 1946. The petitioner and American filed a consolidated return for 1931. A deduction of $64,853 was taken on that return for depreciation of the "Agency Contract," with the explanation that it had been obtained from Regensburg for $765,265.38 and was being written off over 118 months, the remaining life of the contract at the date of notice of termination. Thereafter, annual deductions of $77,823.60 were used in computing the net income of the petitioner in consolidated returns with American for 1932 and 1933 and in separate returns of the petitioner for the years 1934 to 1940, inclusive. The returns were audited by the Commissioner and the deductions mentioned were not disallowed in whole or in part.

The petitioner keeps its books and it filed its returns on an accrualcalendar year basis. Its returns were filed with the collector of internal revenue for the first district of Illinois.

The Commissioner determined that the petitioner's excess profits net income for 1941 was $240,432.08. He allowed an excess profits credit based on income of $99,938.51 and an excess profits credit carryover for 1940 of $81,302.25. He determined that the petitioner's excess profits net income for 1942 was $139,826.62 and he allowed an excess profits credit of $120,099.12 based on income, computed under section. 713 (e).

The petitioner filed applications for relief for 1941 and 1942 under section 722 (b) (5) and those claims were denied by the Commissioner. The Commissioner, in determining the petitioner's base period excess profits net income, allowed as deductions for amortization of the cost of the agency contract $77,823.60 for each of the base period years.

The petitioner, in his claim for relief under section 722 (b) (5) for 1941 and 1942, claimed that his excess profits credit based on income should be computed by eliminating as a deduction for each of the base years the $77,823.60 deducted for amortization of the agency contract. The following table shows the gross sales and net income of the petitioner for the years 1936 through 1942:

893857-51-38

Tanners had not been successful in marketing its new product and, in 1923, went to Albert Pick, of Albert Pick & Co., to obtain his assistance in promoting the sales of that product. A sales contract was entered into with Clinton Carpet Co. (herein called Clinton), all of the stock of which was owned by Albert Pick & Co.

Tanners and its subsidiaries entered into a new agency agreement with Clinton on September 2, 1927. The agreement provided that Clinton was constituted exclusive agent for the sale of certain named products manufactured by Tanners and its subsidiaries, except for sales to the automotive trade. Tanners reserved the right to terminate the contract, and, by giving written notice to the agent served on or before February 15, it could terminate the contract nine years after the close of the calendar year in which the notice was served.

Tanners changed its name on October 1, 1928, to American Hair & Felt Co. and acquired all of the assets and liabilities of its subsidiaries.

Louis H. Regensburg was president of Clinton and built up its sales organization. He was largely responsible for the successful marketing of the products through advertising and sales. His organization was handling at least one-half of the sales of American in 1931. Large amounts were spent for advertising.

American became dissatisfied with the agency contract because it did not want to lose so much of the profit from the sales of its products. It served notice on Clinton on February 11, 1931, of termination of the contract of September 2, 1927. The effective date of the termination under that notice would be December 31, 1940. American began negotiations to terminate at an earlier date the selling of its products by an agent in which it had no interest through stock ownership.

American organized the petitioner on March 2, 1931, under the name of Ozite Products Co., and has owned all of its outstanding stock at all times material hereto. The owners of the stock of Clinton sold that stock to Regensburg on March 5, 1931, for $1,075,000, and on the same date Regensburg sold all of the business and assets of Clinton, with immaterial exceptions, subject to its liabilities, to the petitioner for $1,077,045.82. The petitioner changed its name to Clinton Carpet Co. on March 11, 1931.

The purposes of American in organizing the petitioner and having it take over the assets of the selling agent were to retain the benefits inherent in having a corporation by the name of Clinton Carpet Co. continue to sell the products; to retain the organization intact under the presidency of Regensburg, who, with practically his entire organization, simply continued operations on behalf of the petitioner instead of on behalf of the former agent; and to have a corporation purchase the unexpired portion of the sales contract, which corporation could

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