The opinion of the court was delivered by: LEVET
OPINION, FINDINGS OF FACT and CONCLUSIONS OF LAW.
This action is a claim for a refund of federal income taxes for the fiscal year ending July 31, 1962, wherein the plaintiff, Chock Full O'Nuts Corporation, seeks to recover $18,717.70 as an alleged overpayment, together with interest of $2,023.96 paid thereon.
There is no disagreement as to the facts which have been set forth in a stipulation agreed to by the parties.
The case was submitted to the court without the taking of any testimony.
After examining the stipulation, the exhibits, the pleadings and the proposed findings of fact and conclusions of law, this court makes the following Findings of Fact and Conclusions of Law:
1. Plaintiff, Chock Full O'Nuts Corporation, is a New York corporation with its principal place of business in New York City, New York. It is engaged in the importing and sale of coffee and other food products and in the restaurant business. (Stipulation, Para. 1)
2. On or about August 1, 1961, plaintiff issued to its stockholders of record as of July 21, 1961, its $100 par value convertible subordinate debentures, bearing interest at the rate of 4 1/2%, due August 1, 1981, in the total principal amount of $6,938,900. These debentures were issued to the stockholders at the ratio of $100 par value of debenture to 50 shares of stock. (Stipulation, Para. 2)
3. The subscription price was $100 per debenture. All debentures were sold either to the stockholders or to the underwriters. Plaintiff received from this sale $6,938,900, representing $100 per debenture for 69,389 debentures. (Stipulation, Para. 3)
4. The holder of each $100 debenture has the right at his option at any time up to and including August 1, 1981 to convert the debenture into fully paid and non-assessable shares of common stock of the company at the stated conversion price of $28.50 per share. (Stipulation, Para. 4)
5. As of August 1, 1961, the date of sale of these debentures by plaintiff, debentures of a similar character issued by a similar company without the conversion feature would have sold at $89.625 for each $100 par value. Thus, in the case of plaintiff's debentures here in dispute, $10.375, the difference between the actual subscription price and par value of $100 per debenture, and $89.625, represents to the buyer the purchase price of the conversion feature of each debenture. (Stipulation, Para. 5)
6. In its books, plaintiff did not differentiate between the portion of the $6,938,900 received from the sale of the debentures related to the $89.625 and the $10.375 per debenture. For each $100 debenture sold, plaintiff set up on its books a $100 long-term debt and a $100 cash receipt. Thus, for the entire transaction plaintiff's books reflect a $6,938,900 long-term debt and a $6,938,900 cash receipt. (Stipulation, Para. 6)
7. The portion of the total sales price of $6,938,900 which is attributable to the conversion feature is $719,911. This figure is computed as the result of the multiplication of $10.375 times 69,389, the total number of debentures sold. The sum of $719,911 prorated over the 20-year life of the debentures is $35,995.58 per year. This figure is ...