Appeal from the District Court of the United States for the Western District of New York.
Before MANTON, SWAN, and CHASE, Circuit Judges.
The appellant paid to the defendant taxes for the month of September, 1932, which were assessed by the government on the sale price of toilet preparations manufactured by Bourjois, Inc., and sold during that month. The taxes were collected in accordance with the defendant's interpretation of the provisions of sections 603 and 619 of the Revenue Act of 1932 (26 U.S.C.A. § 1420 et seq. note) which are quoted:
"Sec. 603. Tax on Toilet Preparations, etc.
"There is hereby imposed upon the following articles, sold by the manufacturer, producer, or importer, a tax equivalent to 10 per centum of the price for which so sold: Perfumes, essences, extracts, toilet waters, cosmetics, petroleum jellies, hair oils, pomades, hair dressings, hair restoratives, hair dyes, tooth and mouth washes (except that the rate shall be 5 per centum), dentifrices (except that the rate shall be 5 per centum), * * * aromatic cachous, toilet soaps (except that the rate shall be 5 per centum), toilet powders, and any similar substance, article, or preparation, by whatsoever name known or distinguished; any of the above which are used or applied or intended to be used or applied for toilet purposes."
"(a) In determining, for the purposes of this title, the price for which an article is sold, there shall be included any charge for coverings and containers of whatever nature, and any charge incident to placing the article in condition packed ready for shipment, but there shall be excluded the amount of tax imposed by this title, whether or not stated as a separate charge. A transportation, delivery, insurance, installation, or other charge (not required by the foregoing sentence to be included) shall be excluded from the price only if the amount thereof is established to the satisfaction of the Commissioner, in accordance with the regulations.
"(2) sold on consignment; or
"(3) sold (otherwise than through an arm's-length transaction) at less than the fair market price;
the tax under this title shall (if based on the price for which the article is sold) be computed on the price for which such articles are sold, in the ordinary course of trade, by manufacturers or producers thereof, as determined by the Commissioner."
The appellant is a corporation which manufactures cosmetics and toilet preparations of various kinds which, from the time it was organized and began doing business in 1929, it sold to the trade at prices it established, until it began to sell its products to two wholly owned subsidiaries which were organized in August, 1929. These two corporations were known as Bourjois Sales Corporation and Barbara Gould Sales Corporation. During the month in question they had separate books of account and separate bank accounts, and, though the same man was vice president and general manager of all three corporations and they all occupied the same building, they kept their transactions separate and distinct. The appellant rendered bills to the sales corporations and was paid by them in all respects, except perhaps as to the amounts, the same as it would have been had the sales been made to outsiders. Before this the appellant had paid the selling costs itself, but in this month all such costs were paid by the selling corporations which took over, for the most part, if not wholly, the appellant's sales force and sold the Bourjois products to the trade at the same prices at which the appellant had previously sold them. The appellant sold its products to the sales corporations at cost plus 1 1/2 per cent. plus 10 per cent., and insists that such prices are those upon which the tax is laid. The defendant ...