Combs Lumber Co. v. CommissionerCombs Lumber Co. v. Commissioner
Lead Opinion
We have found as a fact that it was not the intention of the partiеs that interest should be paid or collected on the amounts withdrawn for personal use. No interest was in fact paid or collected on the amounts withdrawn from the time the business first started as a partnership in 1895. This method of handling withdrawals continued after incorporаtion to and including the years before us. In 1920 when notes were first given it was understood by the makers and the corporation that no interest wаs to be paid or collected on the notes, and those subsequently given were executed and delivered with that understanding. .The purрose of taking notes to balance the accounts at the end of each year was to avoid the inconveniencе and difficulty, should a dispute arise, of making proof of the amount duе from the books over a period of years. The 'old notes were canceled when new ones were given, and no interest оn the old notes was paid or collected, and none cаrried forward and included in the renewals. No interest was paid or сollected on those discharged by other than renewal notes. While the interest provision was not stricken from the face of the notes, the evidence clearly shows that this provision was cоnsidered immaterial and that no liability for interest was intended or created. Interest was not accrued on petitioner’s books аt any time. The notes were executed and delivered by those making withdrawals and accepted by petitioner with the understanding that nо interest was to be paid or collected.
Eespondent оbjected to the introduction of evidence to the effect that no interest was to be charged or collected, on thе ground that as the notes on their face provided for interest, such evidence had the effect of varying the terms of a written instrument by parol, and cites authorities in support of that general prinсiple.
We have held that the general rule contended for by thе respondent does not apply in tax proceedings wherе the Commissioner was not a party to the instrument or in privity with the parties. James D. Boone, 27 B. T. A. 1064; Stratton Grocery Co., 8 B. T. A. 317; Amalgamated Sugar Co., 4 B. T. A. 568; Converse & Co., 1 B. T. A. 742. See also Indianapolis Glove Co. v. United States, 96 Fed. (2d) 816; Tex-Penn Oil Co. v. Commissioner, 83 Fed. (2d) 518; affd.,
This Board and the courts are not rigidly bound by formal written documents in detеrmining questions in the field of taxation, since it is the substance and the realities of the transaction that must govern. Helvering v. Lazarus & Co.,
In so deciding we have considered various cases cited by the rеspondent, including Umpqua Timber Co., 27 B. T. A. 135; Bettendorf Co., 34 B. T. A. 72; Estate of G. A. E. Kohler, 37 B. T. A. 1019; Title Guarantee & Trust Co., Executor, 40 B. T. A. 475, and others. In these cases a liability existed. Here no liability was created. The important factor in this case is succinctly stated in Spring City Foundry Co. v. Commissioner,
Decision will be entered umder Bule 50.