Court Opinion

ID: 4609510
Source: CourtListenerOpinion
Date Created: 2020-11-20 19:44:53.74469+00
Date Added: 2024-06-11T07:53:54.141498
License: Public Domain

Lehn & Fink Products Corporation, Petitioner, v. Commissioner of Internal Revenue, RespondentLehn & Fink Products Corp. v. CommissionerDocket Nos. 3742, 5420United States Tax Court7 T.C. 287; 1946 U.S. Tax Ct. LEXIS 136; June 28, 1946, Promulgated *136 Decision will be entered under Rule 50.  1. X corporation owned all of the stock of Y corporation and Z corporation.  Its cost as to the Z stock was $ 5,000,000.  In January 1936 Z was liquidated and X surrendered all its stock in exchange for its assets.  At that time, under the provisions of the Revenue Act of 1934, X's basis as to these assets was $ 5,000,000.  In April 1936 X and Y were merged into A corporation (the petitioner).  In June 1936 the Revenue Act of 1936, retroactive to January 1, 1936, was passed, under which X's basis as to Z's assets acquired by it on Z's liquidation was Z's cost, or $ 144,000.  In 1938 Congress, by a retroactive amendment of the 1936 provision, provided that, under the circumstances of such a liquidation, the basis of the assets in the hands of the recipient corporation should be the basis provided by the Revenue Act of 1934 "if such corporation * * * elects * * * to have such basis apply." A filed such election, but respondent refused to give it effect, on the ground that A was not the recipient corporation and was not entitled to make such election. Held, A, the petitioner herein, formed by the merger of X and Y, is entitled to make *137  such election.2. An account receivable owing to Z by Y, a solvent corporation of the highest credit rating, is not to be considered as "money" distributed on the final liquidation of Z.3. The fair market value of Z's assets as of the time of liquidation is determined from the evidence.  Montgomery B. Angell, Esq., and Marvin Lyons, Esq., for the petitioner.Robert S. Garnett, Esq., for the respondent.  Kern, Judge.  KERN *287  In Docket No. 3742 the Commissioner determined*138  a deficiency in petitioner's income tax for the calendar year 1938 in the amount of $ 69,829.81, and petitioner claims an overpayment of $ 18,000.  In Docket No. 5420 the Commissioner determined deficiencies in income and declared value excess profits taxes for the taxable year ended June 30, 1941, in the respective amounts of $ 66,973.36 and $ 8,568.11, and *288  petitioner claims an overpayment of $ 34,761.72 for that year.  These deficiencies resulted from the failure on the part of the Commissioner to allow deductions claimed for depreciation.On October 2, 1944, this Court severed the issues involved in these cases, and on October 4, 1944, there was presented to the Court for determination the question of whether the petitioner, a corporation resulting from a merger under the laws of Delaware, is entitled to file the election provided for in section 808 of the Revenue Act of 1938.  On February 27, 1945, the cases were ordered set for hearing on all the issues not already tried, pursuant to which hearings were held on June 11, 13, 14, 15, 19, and 20, 1945.The principal questions presented for determination are, first, whether petitioner is entitled to the election provided*139  by section 808 of the Revenue Act of 1938, and, second, if so, what the fair market value of all the assets of the A. S. Hinds Co. was as of January 29, 1936, required for the application of the terms of section 808 in order to determine the allowance for depreciation to which petitioner is entitled.FINDINGS OF FACT.Petitioner is a Delaware corporation which resulted from a merger, on April 15, 1936, of three existing corporations.  It filed its income and declared value excess profits tax returns for the tax years involved here with the collector for the fifth district of New Jersey at Newark.Certain facts are stipulated, and we find them to be as stipulated.  From them and from oral and documentary evidence before us is taken the following statement of facts.The Lehn and Fink enterprises had their beginnings in a business conducted from 1874 to 1910 as a partnership.  In 1910 Lehn & Fink, a corporation, was organized to conduct the business theretofore carried on by the partnership, and in 1916, Lehn & Fink, Inc., was incorporated to succeed to the business of Lehn & Fink.  The directors of this and all of the subsidiaries hereinafter mentioned were, generally speaking, members*140  of the Plant family, which controlled the business, and representatives of their banking institutions.  The business carried on was originally the buying and selling, at wholesale, of drugs and related articles.  At about the time of the organization of Lehn & Fink as a corporation in 1910, it began the manufacture of certain tinctures and pharmaceuticals.  Later, it expanded its activities further into the proprietary field by engaging in the manufacture and sale, in the United States, of Lysol disinfectant and Pebeco tooth paste, nationally advertised and trade-marked products.  Its manufacturing plant was located at Bloomfield, New Jersey, with its executive and sales offices in New York City.*289  As the business expanded, various subsidiaries were organized by Lehn & Fink, Inc., the first of which, Lysol, Inc., was incorporated in 1920 in Delaware to acquire control of the Lysol business throughout the world.It was contemplated that Lehn & Fink, Inc., would continue the manufacture and sale of Lysol in the United States under a contract by the terms of which Lysol, Inc., employed Lehn & Fink, Inc., as its sole manufacturing and selling agent in the United States for a period*141  of 20 years, and agreed to pay to Lehn & Fink, Inc., 15 per cent of the net sales for selling and the cost of production plus 30 per cent of the cost of operation of the Bloomfield plant for manufacturing. This was the first such contract entered into between Lehn & Fink, Inc., and a subsidiary, under a plan of operation later extended to Pebeco tooth paste and Hinds Honey & Almond Cream.In 1924 Lehn & Fink, Inc., organized Pebeco, Inc., a wholly owned subsidiary, under the laws of New York, and transferred to it the title to the machinery and other assets used in the manufacture of Pebeco, and located at the Bloomfield, New Jersey, plant of Lehn & Fink.  Shortly after its organization, Pebeco, Inc., entered into a contract with Lehn & Fink, Inc., which was similar to the Lysol contract, providing for the manufacture of Pebeco tooth paste at the Bloomfield plant by Lehn & Fink, Inc., which was to have supervision, direction, and control over the manufacturing and marketing of the product.By 1925 the business of Lehn & Fink, Inc., had three aspects: (1) A wholesale business in pharmaceuticals and other items commonly carried by druggists; (2) the manufacture and sale of pharmaceuticals; *142  and (3) the manufacture and sale of Lysol disinfectant and Pebeco tooth paste under the contracts referred to above.  Early in 1925 an independent survey of the business was made, and, as a result thereof, it was decided to make substantial changes in the business.  The management decided to abandon the wholesale drug business and the manufacture of pharmaceuticals, and to devote the entire facilities of the business to the manufacture and sale of Lysol, Pebeco, and such other nationally advertised and trade-marked products as it might thereafter acquire, the first of which was to be Hinds Honey & Almond Cream.  The decision was motivated by a recognition on the part of the management that a single factory and laboratory staff, operating under a single executive and sales organization, could manufacture and market in the same trade channels three or more noncompetitive products more economically, and therefore more profitably, than the several products could be manufactured in separate plants and marketed by separate sales organizations.*290  Pursuant to the plan, a reorganization of the Lehn & Fink enterprises was effected in August of 1925.  A new corporation, Lehn & Fink Products*143  Co. (hereinafter sometimes referred to as the Products Co.), was incorporated in Delaware as a holding company.  It immediately acquired all the stock of Lehn & Fink, Inc., and on August 10, 1925, it purchased all the stock of A. S. Hinds Co. at a net cost of $ 5,387,228.68.The A. S. Hinds Co. was a Maine corporation, organized in 1922 to succeed to the sole proprietorship of A. S. Hinds, who had made and sold Hinds Honey & Almond Cream since 1870.  The product, a skin lotion and remedy for chapped hands, had been widely sold and advertised through the years, and by 1925 had a wide domestic and a less extensive foreign market.The A. S. Hinds Co. had a large plant and offices at Portland, Maine, for which the Lehn & Fink organization had no use, since the machinery and equipment for the manufacture of the Hinds product were to be moved to Bloomfield, New Jersey.  To facilitate the disposition of the unwanted assets of Hinds, there was organized a New York corporation, known as Products Realization Corporation, which acquired the entire Hinds plant and machinery. A. S. Hinds Co. then reacquired from Products Realization Corporation the machinery and equipment which would be required*144  for the future manufacture of the Hinds lotion at Bloomfield.  The remaining Hinds assets, including the real estate, were sold by Products Realization Corporation.The machinery and equipment so reacquired by A. S. Hinds Co. was physically transferred to and installed in the Bloomfield plant, where the facilities for manufacturing Lysol and Pebeco were already installed.  The Hinds product, like the others, was to be manufactured and sold by Lehn & Fink, Inc., as exclusive manufacturing and sales agents, under formal contracts which were duly executed and which are hereinafter more fully described.Thereafter, in 1926 and 1928, Lehn & Fink, Inc., purchased the cosmetics and toilet articles businesses of Dorothy Gray, a corporation, and Lesquendieu, Inc.  It manufactured these products at Bloomfield, but these two corporations conducted their own selling and other activities.The ownership of the names, trade-marks, formulas, and secret processes covering each of the products manufactured by Lehn & Fink, Inc., was held by each of the respective subsidiary corporations for protection and for facility of disposition in the event it was ever desired to sell any of the several businesses. *145  On January 1, 1927, Lehn & Fink, Inc., and A. S. Hinds Co. entered into the contract comparable to the Lysol and Pebeco contracts referred *291  to above, by the terms of which Lehn & Fink, Inc., was appointed the exclusive manufacturing and selling agent of the A. S. Hinds Co. in the United States for a period of twenty years.  The contract provided that A. S. Hinds Co. remained the owner of the trade-marks throughout the life of the contract and had the right to examine the manufacturing operations of Lehn & Fink, Inc., to assure itself that the products were being made in accordance with the secret processes and formulas; and Lehn & Fink, Inc., agreed to maintain the secrecy of the formulas and processes, to put up the products, and to sell them in a manner which would make it clear that A. S. Hinds Co. was the owner of the trade-marks and trade names.For manufacturing and packaging the products, A. S. Hinds Co. agreed to pay Lehn & Fink, Inc., the actual manufacturing and packaging costs, including all direct manufacturing charges, raw materials, direct labor, and a proportionate share of factory overhead.For its services as sole selling agents in the United States, Lehn*146  & Fink, Inc., was to receive a commission of 15 per cent upon the net sale prices to the trade of all goods sold, and was to be reimbursed for all freight charges incurred by it and all expenses incurred for advertising Hinds products, including a fair proportion of the expenses of its own advertising department, and also including expenses incurred in sampling, special deals, cost of free goods, and other bonuses, etc., which it might deem advisable from time to time to allow in its discretion for the promotion of the business.  Lehn & Fink, Inc., agreed to use its advertising facilities and contracts for the benefit of the Hinds business during the life of the contract.  Accountings were to be made from time to time in accordance with the accounting practices of Lehn & Fink, Inc.  The contract was made binding on and was to inure to the benefit of the parties and their respective successors and assigns.This contract was amended on June 29, 1934, effective as of January 1, 1934, to provide for the payment by A. S. Hinds Co. to Lehn & Fink, Inc., in addition to the actual cost of manufacturing and packaging, a commission of 25 per cent of such cost, "as compensation to Lehn & Fink, *147  Inc. for the use of its plants, and for its services in manufacturing such products and in packaging and preparing the same for distribution." In all other respects the original agreement was ratified and affirmed.On January 29, 1936, A. S. Hinds Co. was liquidated, and Lehn & Fink Products Co. surrendered all the Hinds Co. capital stock in exchange for the assets of A. S. Hinds Co., which consisted of the following classes of property: Cash in the amount of $ 2,409.07; an account receivable due from Lehn & Fink, Inc., in the face amount of $ 17,551.41; machinery and equipment in the United States of a stipulated *292  fair market value of $ 62,194.90; machinery and equipment in foreign countries of a stipulated fair market value of $ 20,000; stock of its German subsidiary stipulated to have had no fair market value; stock of the Canadian subsidiary; stock of the British subsidiary; and A. S. Hinds Co. trade-marks, trade names, secret processes and formulas, and good will.The business of manufacturing a skin lotion such as Hinds Honey & Almond Cream has become a highly competitive business in recent years.  Continuous and extensive advertising and promotional activities are *148  essential to its success.  National advertising must be supplemented by local advertising. The product must be "sold" three times, to the wholesaler, the retailer, and the consumer.  Lehn & Fink, Inc., as exclusive sales agent for A. S. Hinds Co., controlled the advertising policies and programs, and coordinated the advertising and promotional activities on the three levels.  It had the power, under the contracts referred to above, to decide the character and extent of all advertising activities.  It selected the advertising agency and media, fixed the amount to be spent, determined the type and extent of such sales promotion activities as sampling, special deals, free goods, bonuses, etc., and it contracted and paid for all advertising and charged such expenses to A. S. Hinds Co.  The same practices were followed under the contracts with Lysol, Inc., and Pebeco, Inc.It is common practice in the proprietary products industry for a proprietor to sell through an exclusive distributor.  The usual charge for such service is 15 per cent.  The selling commission of 15 per cent paid by A. S. Hinds Co. to Lehn & Fink, Inc., was a reasonable charge for the service rendered.The 15 per cent*149  selling commission was paid by A. S. Hinds Co. to to Lehn & Fink, Inc., from January 1, 1927, the date of the original contract, to January 29, 1936, when A. S. Hinds Co. was dissolved.  From January 30 to April 15, 1936, Lehn & Fink Products Co. paid the same commission for the same service.The contract between Lehn & Fink, Inc., and A. S. Hinds Co. provided for the payment of actual costs of manufacture. Prior to January 1, 1934, however, it had been the practice of Lehn & Fink, Inc., to charge, instead, what was known as "standard cost" for manufacturing Hinds products in the United States.  These "standard cost" figures represented the computed minimum unit costs, estimated in advance, at which the factory could be expected to produce the Hinds products during the year in question.  This method of computing costs was in accordance with the system of cost accounting maintained by Lehn & Fink, Inc., during all the years 1926 to April 15, 1936, and "standard costs" were lower in amount than actual costs during each of the years 1931 to 1935, inclusive. The basis for computing *293  the cost of Hinds products manufactured and sold in foreign countries was actual cost.Beginning*150  January 1, 1934, under the amendments to the contracts, A. S. Hinds Co. paid to Lehn & Fink, Inc., a commission of 25 per cent of standard costs of manufacture. After the dissolution of A. S. Hinds Co. on January 29, 1936, and until April 15, 1936, Lehn & Fink Products Co. paid this commission to Lehn & Fink, Inc.The amendment to the contract to which we have referred was a direct result of the abolition of consolidated Federal income tax returns by the Revenue Act of 1934.  The domestic corporations in the Lehn & Fink group had filed consolidated returns for the years prior to 1934, and all intercompany charges were eliminated in such returns.  After January 1, 1934, separate returns were required for each corporation, and it then became important to the several interests of the corporations to put their intercorporate transactions on such a basis as would properly reflect the separate income and expenses resulting from their operations.  The amendment providing for the payment of a commission of 25 per cent was adopted.  The Pebeco contract was similarly altered.  The amendments were adopted in formal proceedings by the directors of the corporations affected, in proper session. *151  The minutes show the action to have been taken pursuant to advice of legal counsel and recite the provision for the payment of the 25 per cent commission as compensation for the use of Lehn & Fink, Inc.'s, plants and for the manufacture of the products.  Commissions of this type, in amounts ranging from 20 per cent to 50 per cent, are usual in this field.  Under the Lysol contract, in the negotiation of which minority stockholders not otherwise interested in any Lehn & Fink enterprise were represented, manufacturing commissions ranging from 31.51 per cent to 40.9 per cent of standard costs were paid Lehn & Fink, Inc.The payment of the manufacturing commission resulted in a profit to Lehn & Fink, Inc., of about 20 per cent out of the 25 per cent received, the 5 per cent representing certain expenses of handling, clerical work, and overhead not included in the cost of manufacturing.The manufacturing commission provided for by the amended contract was reasonable in amount.At the time Lehn & Fink Products Co. bought A. S. Hinds Co., in 1925, Hinds Honey & Almond Cream was the outstanding lotion on the market.  In 1929 its net sales reached their highest point.  Thereafter, the sales*152  and profits decreased steadily.  This resulted partly from the appearance of aggressive competition in the hand lotion field, chiefly from Jergen's Lotion, Campana's Italian Balm, and Frostilla.  These products were extensively advertised by costly and popular nation-wide radio programs, and this medium was employed *294  to an increasing extent through 1935.  In 1933 Campana Corporation increased its advertising to $ 1,000,000 per year, compared with a total of $ 300,000 for the four years 1926-1930.  The hand lotion market is extremely responsive to advertising, and Hinds Honey & Almond Cream felt the impact of its competition.  It increased its proportional advertising outlay from 21.32 per cent of its net sales in 1930 to 38.75 per cent in 1935.  It changed advertising agencies in 1931 and again in 1932.  It changed its formula to meet consumer complaints in 1933 and 1934, and again in 1935.  It introduced a new package and different sizes of bottles.  It engaged in various promotion activities and, finally, in 1935, it employed a new dispenser package, designed to meet the specific competition of Jergen's and Campana.In 1930, when the sales of Hinds Honey & Almond Cream *153  were at a high point, several new cosmetic products, including cold cream, cleansing cream, and texture lotion were introduced, bearing the Hinds name.  The results of this activity are indicated by the following tabulation: *295 Hinds New ProductsProfit and Loss Statement193019311932Net sales to trade$ 41,864.59 $ 102,976.83 $ 62,240.88 Less 15% selling charge by Lehn &Fink, Inc 4,024.13 15,247.70 8,214.38 Net sales to Lehn & Fink, Inc37,840.46 87,729.13 54,026.50 Cost of sales at standard costs21,934.83 57,021.08 38,861.81 Add 25% manufacturing charge5,483.71 14,255.27 9,715.45 Cost of sales27,418.54 71,276.35 48,577.26 Gross profit on sales10,421.92 16,452.78 5,449.24 Expenses:Advertising66,598.80 107,843.86 81,568.22 Shipping476.39 4,783.12 4,283.11 Loss on returned merchandise67,075.19 112,626.98 85,851.33 Net (operating) profit or (loss)(56,653.27)(96,174.20)(80,402.09)Ratios  Net sales to trade100.00%100.00%100.00%Selling charge by Lehn & Fink, Inc9.61 14.81 13.20 Cost of sales including mfg. charge65.49 69.21 78.05 Advertising159.08 104.72 131.05 Shipping1.14 4.64 6.88 Other expensesOperating profit or (loss)(135.32)(93.38)(129.18)100.00 100.00 100.00 *154 Hinds New ProductsProfit and Loss Statement193319341935Net sales to trade$ 35,019.40 $ 28,530.12 $ 14,615.57 Less 15% selling charge by Lehn &Fink, Inc 5,294.63 3,281.04 2,148.89 Net sales to Lehn & Fink, Inc29,724.77 25,249.08 12,466.68 Cost of sales at standard costs19,174.14 21,140.58 11,671.10 Add 25% manufacturing charge4,793.53 5,285.14 2,917.78 Cost of sales23,967.67 26,425.72 14,588.88 Gross profit on sales5,757.10 (1,176.64)(2,122.20)Expenses:Advertising20,333.33 15,997.99 2,160.30 Shipping1,997.51 1,902.99 773.67 Loss on returned merchandise6,043.06 4,780.14 3,223.12 28,373.90 22,681.12 6,157.09 Net (operating) profit or (loss)(22,616.80)(23,857.76)(8,279.29)Ratios  Net sales to trade100.00%100.00%100.00%Selling charge by Lehn & Fink, Inc15.12 11.50 14.70 Cost of sales including mfg. charge68.44 92.62 99.82 Advertising58.06 56.07 14.78 Shipping5.70 6.68 5.30 Other expenses17.26 16.75 22.05 Operating profit or (loss)(64.58)(83.62)(56.65)100.00 100.00 100.00 *155 *296  The manufacture and sale of the new products was discontinued early in 1936.Profit and loss statement for the domestic business alone during the years 1928 to 1935, inclusive, is as follows: *297 Hinds Honey and Almond CreamProfit and Loss Statement192819291930Net sales to trade$ 2,464,360.06 $ 2,594,755.00 $ 2,516,774.99 Less, 15% selling charge by L& F Inc 373,571.70 394,362.84 379,452.30 Net sales to Lehn & Fink Inc2,090,788.36 2,200,392.16 2,137,322.69 Cost of sales at standard costs656,803.44 596,203.39 565,873.10 Add 25% manufacturing charge164,200.86 149,050.85 141,468.27 Cost of sales821,004.30 745,254.24 707,341.37 Gross profit1,269,784.06 1,455,137.92 1,429,981.32 Expenses:Advertising522,465.36 581,408.08 406,964.64 Shipping136,792.11 139,259.28 135,051.43 Executive officers'salaries 26,000.04 30,000.00 30,000.00 Legal and auditing351.13 3,000.00 3,000.00 Scientific investigationand research Taxes500.00 500.00 500.00 Package changeMiscellaneous15.00 822.80 686,108.64 754,182.36 576,338.87 Operating profit or (loss)583,675.42 700,955.56 853,642.45 Other income or (deductions):Profit in foreign exchangeMiscellaneous(50,000.00)Profit before provision forincome taxes 583,675.42 700,955.56 803,642.45 Provision for income taxes70,042.05 65,593.56 78,919.11 Net profit or (loss)513,633.37 635,362.00 724,723.34 Ratios Net sales to trade100.00%100.00%100.00%Selling charge by L & F Inc15.16 15.20 15.08 Cost of sales includingmanufacturing charge 33.31 28.72 28.11 Advertising21.20 22.41 18.16 Shipping5.55 5.37 5.36 Other expenses1.09 1.29 1.36 Operating profit23.69 27.01 31.93 100.00 100.00 100.00 *156 Hinds Honey and Almond CreamProfit and Loss Statement193119321933Net sales to trade$ 2,140,722.28 $ 1,771,845.30 $ 1,288,864.86 Less, 15% selling charge by L& F Inc 320,306.76 263,303.88 194,287.79 Net sales to Lehn & Fink Inc1,820,415.52 1,508,541.42 1,094,577.07 Cost of sales at standard costs414,389.18 311,466.26 211,473.80 Add 25% manufacturing charge103,597.30 77,866.56 52,868.45 Cost of sales517,986.48 389,332.82 264,342.25 Gross profit1,302,429.04 1,119,208.60 830,234.82 Expenses:Advertising348,089.62 391,693.78 425,217.25 Shipping112,946.13 89,437.03 57,637.61 Executive officers'salaries 30,000.00 30,000.00 30,000.00 Legal and auditing3,000.00 155.10 50.00 Scientific investigationand research 4,508.68 73.05 326.48 Taxes500.00 600.00 275.00 Package change32,277.63 Miscellaneous2,910.30 499,044.43 511,958.96 548,694.27 Operating profit or (loss)803,384.61 607,249.64 281,540.55 Other income or (deductions):Profit in foreign exchange5,702.68 Miscellaneous1,698.55 Profit before provision forincome taxes 803,384.61 607,249.64 288,941.78 Provision for income taxes82,628.47 69,171.86 36,742.65 Net profit or (loss)720,756.14 538,077.78 252,199.13 Ratios Net sales to trade100.00%100.00%100.00%Selling charge by L & F Inc14.96 14.86 15.07 Cost of sales includingmanufacturing charge 24.20 21.97 20.51 Advertising16.26 22.11 32.99 Shipping5.28 5.04 4.47 Other expenses1.77 1.74 5.11 Operating profit37.53 34.28 21.85 100.00 100.00 100.00 *157 Hinds Honey and Almond CreamProfit and Loss Statement19341935Net sales to trade$ 1,165,206.05 $ 1,156,817.16 Less, 15% selling charge by L& F Inc 175,270.07 174,096.72 Net sales to Lehn & Fink Inc989,935.98 982,720.44 Cost of sales at standard costs237,907.39 364,789.45 Add 25% manufacturing charge59,476.85 91,197.35 Cost of sales297,384.24 455,986.80 Gross profit692,551.74 526,733.64 Expenses:Advertising477,922.46 536,569.98 Shipping51,471.97 47,742.37 Executive officers'salaries 30,000.00 25,333.36 Legal and auditing50.00 110.00 Scientific investigationand research 1,160.95 4,573.57 Taxes2,838.39 2,981.00 Package change7,338.20 Miscellaneous1,801.63 (883.03)572,583.60 616,427.25 Operating profit or (loss)119,968.14 (89,693.61)Other income or (deductions):Profit in foreign exchangeMiscellaneous2,474.95 4,685.93 Profit before provision forincome taxes 122,443.09 (85,007.68)Provision for income taxes13,557.60 Net profit or (loss)108,885.49 (85,007.68)Ratios Net sales to trade100.00%100.00%Selling charge by L & F Inc15.04 15.05 Cost of sales includingmanufacturing charge 25.53 39.42 Advertising41.02 46.38 Shipping4.42 4.13 Other expenses3.70 2.78 Operating profit10.29 (7.76)100.00 100.00 *158 *298  A. S. Hinds Co. had some foreign business at the time of its acquisition by Lehn & Fink Products Co., chiefly in South America and Mexico.  After it came into the Lehn & Fink group, it was introduced in England and Canada in 1926, and in Germany in 1927.  The Canadian, English, and German business was handled through three wholly owned subsidiaries which owned respectively the Canadian, English, and German trade-marks. These will be considered separately hereafter.  The business in Mexico, certain South American countries, Australia, and Spain was handled through local agencies.  The balance of the foreign business was handled by export from the United States.The export business carried on in countries other than Germany, England, and Canada (and Uruguay, for which no formal contract was executed) was handled by Lehn & Fink, Inc., for A. S. Hinds Co. under contracts in all essential respects similar to that under which the Hinds business in the United States was handled.  The heavy import duties levied on finished goods were a severe handicap to the development of the export business, and A. S. Hinds Co. had begun to manufacture its product locally in Mexico in 1924, before*159  the acquisition of the business by Lehn & Fink, Inc.  Subsequent to its acquisition, local manufacture was begun locally in Chile, Argentina, and Uruguay in 1927, in Cuba in 1928, in Brazil in 1929, and in Australia and Spain in 1931.  The machinery used in such manufacture was shipped from the United States, and a local distributor was appointed by Lehn & Fink, Inc., in each foreign country.  Due to the necessity of preserving the secrecy of the formulas and processes, the actual manufacturing in each country was done under the supervision of an employee of Lehn & Fink, Inc., who traveled from country to country for that purpose.  A supply sufficient to serve the trade in that country for about a year would be manufactured, and the machinery would then be dismantled and stored until required again.In addition to these activities, Lehn & Fink, Inc., continued to export to countries in which it did not establish local manufacturing facilities.The profit and loss statement for the foreign business of A. S. Hinds Co. from 1928 to 1935, inclusive, is as follows: *299 Hinds Honey & Almond Cream Foreign BusinessProfit and Loss Statement192819291930Net sales to trade$ 449,163.08 $ 591,273.84 $ 634,508.45 Less, 15% selling charge by L & FInc 67,374.46 88,691.07 95,176.26 Net sales by Hinds Co381,788.62 502,582.77 539,332.19 Cost of sales at standardcosts 211,203.48 307,572.53 309,059.75 Add 25% manufacturingcharge 52,800.87 76,893.13 77,264.94 Cost of sales264,004.35 384,465.66 386,324.69 Gross profit117,784.27 118,117.11 153,007.50 Expenses:Advertising   65,311.55 186,455.81 207,024.52 Shipping   1,396.74 1,558.37 1,137.82 Selling expense   26,152.28 33,472.84 33,932.72 Trade-mark   4,096.39 1,280.55 242.33 Taxes   Loss in foreign exchange   96,956.96 222,767.57 242,337.39 Operating profit or (loss)20,827.31 (104,650.46)(89,329.89)Provision for U. S. incometaxes 2,498.28 Net profit or (loss)18,329.03 (104,650.46)(89,329.89)Ratios      Net sales to trade100.00%100.00%100.00%Selling charge by L & F Inc15.00 15.00 15.00 Cost of sales, including mfg.charge 58.78 65.02 60.89 Advertising14.54 31.53 32.63 Shipping.31 .26 .18 Other expenses6.73 5.88 5.38 Operating profit or (loss)4.64 (17.69)(14.08)100.00 100.00 100.00 *160 Hinds Honey & Almond Cream Foreign BusinessProfit and Loss Statement193119321933Net sales to trade$ 428,038.80 $ 327,031.86 $ 301,349.35 Less, 15% selling charge by L & FInc 64,205.82 49,054.78 45,202.40 Net sales by Hinds Co363,832.98 277,977.08 256,146.95 Cost of sales at standardcosts 213,175.84 192,055.58 151,498.27 Add 25% manufacturingcharge 53,293.96 48,013.90 37,874.57 Cost of sales266,469.80 240,069.48 189,372.84 Gross profit97,363.18 37,907.60 66,774.11 Expenses:Advertising   86,034.30 53,730.24 52,690.15 Shipping   998.05 806.09 570.52 Selling expense   28,370.68 32,982.45 26,421.95 Trade-mark   600.00 189.05 18.89 Taxes   Loss in foreign exchange   116,003.03 87,707.83 79,701.51 Operating profit or (loss)(18,639.85)(49,800.23)(12,927.40)Provision for U. S. incometaxes Net profit or (loss)(18,639.85)(49,800.23)(12,927.40)Ratios      Net sales to trade100.00%100.00%100.00%Selling charge by L & F Inc15.00 15.00 15.00 Cost of sales, including mfg.charge 62.26 73.41 62.84 Advertising20.10 16.43 17.48 Shipping.23 .25 .19 Other expenses6.77 10.14 8.78 Operating profit or (loss)(4.36)(15.23)(4.29)100.00 100.00 100.00 *161 Hinds Honey & Almond Cream Foreign Business19341935Net sales to trade$ 311,473.61 $ 374,533.60 Less, 15% selling charge by L & FInc 46,721.04 56,180.04 Net sales by Hinds Co264,752.57 318,353.56 Cost of sales at standardcosts 138,867.13 178,967.82 Add 25% manufacturingcharge 34,716.78 44,741.96 Cost of sales173,583.91 223,709.78 Gross profit91,168.66 94,643.78 Expenses:Advertising   61,958.37 60,420.06 Shipping   957.07 661.84 Selling expense   23,853.23 35,970.86 Trade-mark   2,156.17 2,044.44 Taxes   Loss in foreign exchange   2,228.45 91,153.29 99,097.20 Operating profit or (loss)15.37 (4,453.42)Provision for U. S. incometaxes Net profit or (loss)15.37 (4,453.42)Ratios      Net sales to trade100.00%100.00%Selling charge by L & F Inc15.00 15.00 Cost of sales, including mfg.charge 55.73 59.73 Advertising19.89 16.13 Shipping.31 .18 Other expenses9.07 10.15 Operating profit or (loss)(1.19)100.00 100.00 *300  The balance sheets of the A. S. Hinds Co. for the years 1926 to 1935, both inclusive, according to the books, are as follows: *162 A. S. Hinds Co.192619271928Assets:CashSundry debtorsInventories$ 93,510.77 $ 157,462.62 $ 163,879.23 Intercompany accounts419,622.54 167,753.61 357,328.05 Machinery and equipment41,054.64 58,350.35 58,993.14 Reserve for depreciation(4,791.59)(9,497.39)(15,668.01)Investments in subcompanies:A. S. Hinds A. G.A. S. Hinds LondonA. S. Hinds (Canada) LtdAdvances to foreign operatingcompanies Deferred charges23,069.92 26,765.93 32,001.92 572,466.28 400,835.12 596,534.33 Liabilities:Sundry creditors474.57 Accrued expenses36,196.33 9,916.51 Reserve for Federal incometax 93,840.61 Reserve for contingenciesReserve for foreign exchangeCapital stock24,800.00 24,800.00 24,800.00 Surplus:Surplus beginning of    year     489,979.70 547,666.28 339,838.79 Earnings current year    934,536.58 592,172.51 727,663.85 Dividends paid    (876,850.00)(800,000.00)(600,000.00)Adjustments    Surplus end of year    547,666.28 339,838.79 467,502.64 572,466.28 400,835.12 596,534.33 A. S. Hinds Co.192919301931Assets:CashSundry debtorsInventories$ 162,360.79 $ 185,120.10 $ 157,895.32 Intercompany accounts329,188.36 478,246.47 795,956.10 Machinery and equipment61,234.41 61,234.41 61,234.41 Reserve for depreciation(21,915.63)(27,990.76)(34,065.89)Investments in subcompanies:A. S. Hinds A. G.5,930.00 5,930.00 2,793.59 A. S. Hinds London(1,731.16)A. S. Hinds (Canada) Ltd9,487.21 Advances to foreign operatingcompanies Deferred charges34,154.30 26,328.58 940.19 570,952.23 728,868.80 992,509.77 Liabilities:Sundry creditors142.54 2,964.60 Accrued expenses15,187.22 19,252.24 7,877.53 Reserve for Federal incometax 83,067.38 103,689.94 105,142.50 Reserve for contingencies41,213.29 96,113.47 102,660.30 Reserve for foreign exchangeCapital stock24,800.00 24,800.00 24,800.00 Surplus:Surplus beginning of    year     467,502.64 406,684.34 484,870.61 Earnings current year    739,181.70 778,186.27 769,962.00 Dividends paid    (800,000.00)(700,000.00)(500,000.00)Adjustments    (4,867.77)Surplus end of year    406,684.34 484,870.61 749,064.84 570,952.23 728,868.80 992,509.77 *163 A. S. Hinds Co.193219331934Assets:Cash$ 3,959.49 $ 6,979.66 Sundry debtorsInventories$ 143,665.89 140,369.92 Intercompany accounts318,101.80 319,486.09 544,469.99 Machinery and equipment61,234.41 75,475.51 82,753.34 Reserve for depreciation(40,141.02)(38,706.05)(43,759.03)Investments in subcompanies:A. S. Hinds A. G.5,379.06 8,987.52 10,381.98 A. S. Hinds London(2,025.32)(3,688.61)(4,086.90)A. S. Hinds (Canada) Ltd26,266.10 37,304.65 5,788.12 Advances to foreign operatingcompanies 36,000.00 38,423.35 Deferred charges18,255.23 25,484.80 512,480.92 547,443.75 666,435.31 Liabilities:Sundry creditors4,641.37 1,539.16 88.16 Accrued expenses9,997.98 9,018.49 12,902.82 Reserve for Federal incometax 72,873.32 36,522.11 13,557.60 Reserve for contingencies2,263.30 2,263.30 2,263.30 Reserve for foreign exchange6,205.10 7,771.21 Capital stock24,800.00 24,800.00 24,800.00 Surplus:Surplus beginning of    year     749,064.84 397,904.95 517,095.59 Earnings current year    558,840.11 319,190.64 87,956.63 Dividends paid    (1,000,000.00)(200,000.00)Adjustments    90,000.00 Surplus end of year    397,904.95 517,095.59 605,052.22 512,480.92 597,443.75 666,435.31 *164 A. S. Hinds Co.1935Assets:Cash$ 910.47 Sundry debtors1,099.08 InventoriesIntercompany accounts64,467.24 Machinery and equipment84,703.18 Reserve for depreciation(51,518.15)Investments in subcompanies:A. S. Hinds A. G.10,263.75 A. S. Hinds London(4,713.19)A. S. Hinds (Canada) Ltd10,644.88 Advances to foreign operatingcompanies Deferred charges115,857.26 Liabilities:Sundry creditors911.00 Accrued expenses16,066.34 Reserve for Federal incometax Reserve for contingencies3,480.08 Reserve for foreign exchange7,577.73 Capital stock24,800.00 Surplus:Surplus beginning of    year     605,052.22 Earnings current year    (93,434.67)Dividends paid    (450,000.00)Adjustments    1,404.56 Surplus end of year    63,022.11 115,857.26 *301  The profit and loss statements during the same period, set out below, are from the books, except for the following changes made in order to reflect comparable data: The year 1926 has been conformed to the other years with respect to the 15 per cent selling commission, which, in fact, was not paid that year; cost of sales has been made*165  comparative for all years by adding the 25 per cent manufacturing commission for the years 1926 to 1933, although such charge was not in fact made during those years; and adjustments to Federal tax provision resulting from these changes have been made.  *302 A. S. Hinds Co.Profit and Loss Statement192619271928Net sales to trade$ 2,364,380.63 $ 2,428,520.29 $ 2,913,523.14 Less, 15% selling charge byLehn & Fink Inc 354,657.09 369,312.40 440,946.16 Net sales to Lehn & Fink Inc2,009,723.54 2,059,207.89 2,472,576.98 Cost of sales at standardcosts 688,654.90 677,566.82 868,006.92 Add 25% manufacturingcharge 172,163.73 169,391.71 217,001.73 Cost of sales860,818.63 846,958.53 1,085,008.65 Gross profit1,148,904.91 1,212,249.36 1,387,568.33 Expenses:Advertising   428,828.24 530,728.07 587,776.91 Shipping   120,541.85 128,167.97 138,188.85 Foreign selling exp   22,150.46 23,058.28 26,152.28 Exec. officers salaries   13,999.92 20,000.04 26,000.04 Legal and auditing   884.55 2,345.77 351.13 Scientific investigation   and research     2,417.83 16.87 Trade mark expense   1,321.30 1,940.47 4,096.39 Taxes   1,052.50 500.00 500.00 Loss on returns -- new   products     Package change   Miscellaneous   6,093.29 8.79 597,289.96 706,766.26 783,065.60 Operating profit or loss551,614.95 505,483.10 604,502.73 Other income or deductions:Profit in foreign   exchange     Miscellaneous   8.44 Profit before income taxes551,623.39 505,483.10 604,502.73 Provision for Federal incometaxes at rates in effect for each year 74,469.16 68,240.22 72,540.33 Net profit477,154.23 437,242.88 531,962.40 Ratios      Net sales to trade100.00%100.00%100.00%Selling charge by Lehn &Fink, Inc 15.00 15.21 15.13 Cost of sales, including mfg.charge 36.41 34.88 37.24 Advertising18.13 21.85 20.17 Shipping5.10 5.28 4.75 Other expenses2.03 1.97 1.96 Operating profit23.33 20.81 20.75 Total     100.00 100.00 100.00 *166 A. S. Hinds Co.Profit and Loss Statement192919301931Net sales to trade$ 3,186,028.84 $ 3,193,148.03 $ 2,671,737.91 Less, 15% selling charge byLehn & Fink Inc 483,053.91 478,652.69 399,760.28 Net sales to Lehn & Fink Inc2,702,974.93 2,714,495.34 2,271,977.63 Cost of sales at standardcosts 903,775.92 896,867.68 684,586.10 Add 25% manufacturingcharge 225,943.98 224,216.92 171,146.53 Cost of sales1,129,719.90 1,121,084.60 855,732.63 Gross profit1,573,255.03 1,593,410.74 1,416,245.00 Expenses:Advertising   767,863.89 680,587.96 541,967.78 Shipping   140,817.65 136,665.64 118,727.30 Foreign selling exp   33,472.84 33,932.72 28,370.68 Exec. officers salaries   30,000.00 30,000.00 30,000.00 Legal and auditing   3,000.00 3,000.00 3,000.00 Scientific investigation   and research     4,508.68 Trade mark expense   1,280.55 242.33 600.00 Taxes   500.00 500.00 500.00 Loss on returns -- new   products     Package change   Miscellaneous   15.00 822.80 976,949.93 885,751.45 727,674.44 Operating profit or loss596,305.10 707,659.29 688,570.56 Other income or deductions:Profit in foreign   exchange     Miscellaneous   (50,000.00)Profit before income taxes596,305.10 657,659.29 688,570.56 Provision for Federal incometaxes at rates in effect for each year 65,593.56 78,919.11 82,628.47 Net profit530,711.54 578,740.18 605,942.09 Ratios      Net sales to trade100.00%100.00%100.00%Selling charge by Lehn &Fink, Inc 15.16 14.99 14.96 Cost of sales, including mfg.charge 35.46 35.11 32.03 Advertising24.10 21.32 20.29 Shipping4.41 4.28 4.44 Other expenses2.15 2.14 2.51 Operating profit18.72 22.16 25.77 Total     100.00 100.00 100.00 *167 A. S. Hinds Co.Profit and Loss Statement193219331934Net sales to trade$ 2,161,118.04 $ 1,625,233.61 $ 1,505,209.78 Less, 15% selling charge byLehn & Fink Inc 320,573.04 244,784.82 225,272.15 Net sales to Lehn & Fink Inc1,840,545.00 1,380,448.79 1,279,937.63 Cost of sales at standardcosts 542,383.65 382,146.21 397,915.10 Add 25% manufacturingcharge 135,595.91 95,536.55 99,478.77 Cost of sales677,979.56 477,682.76 497,393.87 Gross profit1,162,565.44 902,766.03 782,543.76 Expenses:Advertising   526,992.24 498,240.73 555,878.82 Shipping   94,526.23 60,205.64 54,332.03 Foreign selling exp   32,982.45 26,421.95 23,853.23 Exec. officers salaries   30,000.00 30,000.00 30,000.00 Legal and auditing   155.10 50.00 50.00 Scientific investigation   and research     73.05 326.48 1,160.95 Trade mark expense   189.05 18.89 2,156.17 Taxes   600.00 275.00 2,838.39 Loss on returns -- new   products     6,043.06 4,780.14 Package change   32,277.63 7,338.20 Miscellaneous   2,910.30 1,801.63 685,518.12 656,769.68 684,189.56 Operating profit or loss477,047.32 245,996.35 98,354.20 Other income or deductions:Profit in foreign   exchange     5,702.68 Miscellaneous   1,698.55 246.50 Profit before income taxes477,047.32 253,397.58 98,600.70 Provision for Federal incometaxes at rates in effect for each year 69,171.86 36,742.65 13,557.60 Net profit407,875.46 216,654.93 85,043.10 Ratios      Net sales to trade100.00%100.00%100.00%Selling charge by Lehn &Fink, Inc 14.83 15.06 14.97 Cost of sales, including mfg.charge 31.37 29.39 33.04 Advertising24.39 30.66 36.93 Shipping4.37 3.71 3.61 Other expenses2.97 6.04 4.92 Operating profit22.07 15.14 6.53 Total     100.00 100.00 100.00 *168 A. S. Hinds Co.Profit and Loss Statement1935Net sales to trade$ 1,545,966.33 Less, 15% selling charge byLehn & Fink Inc 232,425.65 Net sales to Lehn & Fink Inc1,313,540.68 Cost of sales at standardcosts 555,428.37 Add 25% manufacturingcharge 138,857.09 Cost of sales694,285.46 Gross profit619,255.22 Expenses:Advertising   599,150.34 Shipping   49,177.88 Foreign selling exp   35,970.86 Exec. officers salaries   25,333.36 Legal and auditing   110.00 Scientific investigation   and research     4,573.57 Trade mark expense   2,044.44 Taxes   2,981.00 Loss on returns -- new   products     3,223.12 Package change   Miscellaneous   (883.03)721,681.54 Operating profit or loss(102,426.32)Other income or deductions:Profit in foreign   exchange     Miscellaneous   4,685.93 Profit before income taxes(97,740.39)Provision for Federal incometaxes at rates in effect for each year Net profit(97,740.39)Ratios      Net sales to trade100.00%Selling charge by Lehn &Fink, Inc 15.03 Cost of sales, including mfg.charge 44.91 Advertising38.76 Shipping3.18 Other expenses4.75 Operating profit(6.63)Total     100.00 *169 *304  It was the policy of the subsidiary corporations of the Lehn & Fink group to declare their earnings as dividends to the parent company, Lehn & Fink Products Co., whose stock was listed on the New York Stock Exchange.  The Products Co. had an established dividend policy, which, of course, depended upon the receipt of the dividends from its subsidiaries. In accordance with this policy, A. S. Hinds Co. paid dividends to the Products Co. in the following amounts:1926$ 876,8501927800,0001928600,0001929800,0001930700,0001931$ 500,00019321,000,0001933200,00019341935450,000No dividends were declared in 1934, because in that year intercompany dividends were taxed for the first time and the company refrained from declaring a dividend because it felt the tax was unwarranted and wished to avoid the liability.  In 1935 substantial dividends were paid in spite of an operating loss, because the parent company was left in a straitened financial condition by the omission of the 1934 dividends. After the 1935 dividend was declared, the earned surplus of A. S. Hinds Co. was reduced to $ 63,022.11.The fair market value of the trade-marks, trade names, *170  secret processes and formulas, and good will of A. S. Hinds Co. on January 29, 1936, was $ 500,000.The fair market value of the machinery and equipment owned by A. S. Hinds Co. and located at Bloomfield, New Jersey, as of January 29, 1936, has been stipulated to be $ 62,194.90, and we so find.None of that machinery and equipment so located and used was retired or replaced or otherwise disposed of during the years 1936 to 1941, inclusive, except that on November 7, 1938, one capping machine for seven-eighths ounce size bottles, included in the valuation figure set forth above at a value of $ 793, was retired from use and disposed of and replaced by a new machine.On January 29, 1936, the weighted composite remaining life of the property referred to above was 11 years, and the depreciation allowance in respect of said property for each of the years involved in this proceeding shall be computed on said composite life applied to the basis hereinafter determined.On January 29, 1936, the fair market value of the A. S. Hinds Co.'s machinery and equipment located in foreign countries, for continued use in the production of Hinds products, and the weighted composite remaining life thereof, *171  were as follows: *305 WeightedLocationValuecompositeremaininglifeYearsHavana, Cuba$ 2,35420    Rio de Janeiro, Brazil1,18119    Santiago, Chile35917 1/2Mexico City, Mexico2,94817 1/2Buenos Aires, Argentina8,51419    Montevideo, Uruguay2,43420    Sydney, Australia2,21021    Madrid, Spain20,000None of such machinery or equipment was retired or replaced or otherwise disposed of during the years 1936 to 1941, inclusive. The depreciation allowance with respect thereto shall be based on the respective weighted composite remaining life of the property at each location applied to the basis hereinafter determined.A. S. Hinds Ltd., London.  -- This subsidiary, organized in 1926, owned the British trade-mark and trade name of Hinds Honey & Almond Cream.  It did not itself manufacture and sell the lotion, but had an exclusive manufacturing and selling agency contract dated November 30, 1926, with Lysol, Ltd., a wholly owned subsidiary of Lysol, Inc.  This contract was for a five-year term, cancelable by either party on six months written notice.  It provided that Lysol, Ltd., would bear the expenses of *172  selling and distribution, including advertising, and would receive a commission of 40 per cent of net sales for its selling services and a commission of 25 per cent of the actual cost of manufacturing and packing for those services, in addition to being reimbursed for the actual costs of production.  These commissions were reasonable under the then existing conditions.In 1931, upon the expiration of the original contract, under a new contract running until January 1, 1936, but cancelable at the end of any calendar year by either party on six months prior written notice, A. S. Hinds, Ltd., agreed to pay Lysol, Ltd., actual costs of production and, in addition, 50 per cent of the net profit as therein defined.  Lysol, Ltd., acquired the exclusive manufacturing and selling rights and was liable for all losses up to 7,500 pounds in any year, A. S. Hinds, Ltd., to bear losses in excess thereof.  On January 1, 1936, this contract was extended indefinitely, and it remained in effect until 1940, when it was canceled.  It was in force on January 29, 1936.The only assets which A. S. Hinds Ltd., London, had were the trademarks, trade names, formulas and processes.  Its balance sheets and profit*173  and loss accounts as of December 31, 1928 to 1935, inclusive, as shown by its books, are as follows: *306 A. S. Hinds Ltd., London192819291930Balance SheetsAssets:Inventory# 1,307-12-6   # 325-9-2    # 390-0-0    Good will and trade-mark1,000-0-0    1,000-0-0    1,000-0-0    2,307-12-6   1,325-9-2    1,390-0-0    Liabilities:Due to Lysol, Ltd1,316-13-10  1,989-6-11   703-0-10   Sundry creditors98-18-0   21-0-0    21-0-0    Capital1,000-0-0    1,000-0-0    1,000-0-0    Deficit:From prior years    8-3-7    (107-19-4)  (1,684-17-9)  From current year    (116-2-11)  (1,576-18-5)  1,350-16-11  [(107-19-4)] [(1,684-17-9)] [(334-0-10)] 2,307-12-6   1,325-9-2    1,390-0-0    Profit and (Loss) AccountsSales12,384-9-3    11,974-19-6   20,480-12-3   Cost of sales includingmanufacturing comm 5,341-3-9    7,368-10-0   10,219-4-6    Gross profit7,043-5-6    4,606-9-6    10,261-7-9    Expenses:Selling commission4,953-13-9   4,772-8-4    8,192-8-7    Samples1,689-11-4   1,077-2-6    412-16-1   Rent130-0-0    130-0-0    130-0-0    Audit and secretarial fees99-0-0    103-4-0    99-0-0    Trade-mark27-18-0   31-0-0    Other general expenses259-5-4    69-13-1   76-6-2    7,159-8-5    6,183-7-11   8,910-10-10  Net profit or (loss)(116-2-11)  (1,576-18-5)  1,350-16-11  *174 A. S. Hinds Ltd., London193119321933Balance SheetsAssets:InventoryGood will and trade-mark# 1,000-0-0    # 1,000-0-0    # 1,000-0-0    1,000-0-0    1,000-0-0    1,000-0-0    Liabilities:Due to Lysol, Ltd490-0-10   589-0-10   694-10-10  Sundry creditors21-0-0    21-0-0    21-0-0    Capital1,000-0-0    1,000-0-0    1,000-0-0    Deficit:From prior years    (334-0-10)  (511-0-10)  (610-0-10)  From current year    (177-0-0)   (99-0-0)   (105-10-0)  [(511-0-10)] [(610-0-10)] [(715-10-10)]1,000-0-0    1,000-0-0    1,000-0-0    Profit and (Loss) AccountsSalesCost of sales includingmanufacturing comm Gross profitExpenses:Selling commissionSamplesRentAudit and secretarial fees99-0-0    99-0-0    99-0-0    Trade-mark6-10-0   Other general expenses78-0-0    177-0-0    99-0-0    105-10-0   Net profit or (loss)(177-0-0)   (99-0-0)   (105-10-0)  A. S. Hinds Ltd., London19341935Balance SheetsAssets:InventoryGood will and trade-mark# 1,000-0-0    # 1,000-0-0    1,000-0-0    1,000-0-0    Liabilities:Due to Lysol, Ltd805-17-10  934-10-10  Sundry creditors21-0-0    21-0-0    Capital1,000-0-0    1,000-0-0    Deficit:From prior years    (715-10-10) (826-17-10) From current year    (111-7-0)   (128-13-0)  [(826-17-10)][(955-10-10)]1,000-0-0    1,000-0-0    Profit and (Loss) AccountsSalesCost of sales includingmanufacturing comm Gross profitExpenses:Selling commissionSamplesRentAudit and secretarial fees99-0-0    99-0-0    Trade-mark12-7-0    29-13-0   Other general expenses111-7-0    128-13-0   Net profit or (loss)(111-7-0)   (128-13-0)  *175 *307  The comparative profit and loss statements of A. S. Hinds Ltd., London, and Lysol, Ltd., as its agent for the years 1928-1935, as shown by its books, are as follows:YearsA. S. Hinds Ltd.Lysol, Ltd., asCombinedagent1928-# 116-2-11 -# 13,515-6-10 -# 13,631-9-9  1929-1,576-18-5 -19,785-0-8  -21,361-19-1 19301,350-16-11-19,153-14-9 -17,802-17-101931-177-0-0  -7,068-3-9  -7,245-3-9  1932-99-0-0  -2,382-2-7  -2,481-2-7  1933-105-10-0 -933-16-1 -1,039-6-1  1934-111-7-0  -3,364-10-8 -3,475-17-8 1935-128-13-0 164-6-2 35-13-2 (Figures with minus are losses.)The sales of Hinds products by the British company or for its account, the cost of sales and amount expended for advertising, other expenses, and net profit or loss of Lysol, Ltd., as agent for Hinds, Ltd., stated to the nearest pound sterling, for the years 1931 to and including 1935, as reflected by the books, are as follows:19311932193319341935Net sales# 16,399 # 14,245 # 16,854 # 16,484 # 17,941Cost of sales4,373 3,955 5,087 5,412 7,027Advertising14,103 8,632 8,186 9,044 5,922Other expense4,991 4,039 4,514 5,393 4,827Net profit or (loss)(7,068)(2,382)(934)(3,365)164*176  During the years 1928, 1929, and 1930 the sales of Hinds products in England, and the amounts expended for advertising were as follows:YearSalesAdvertisingexpenditures1928# 12,384# 16,410192911,97522,583193020,48124,610Lysol, Ltd., also manufactured and sold Lysol disinfectant, its chief product, Osyl tooth powder, and other noncompetitive items.The stock of A. S. Hinds Ltd., London, had a fair market value on January 29, 1936, of $ 4,930.A. S. Hinds (Canada) Ltd.  -- This corporation was organized in 1926, and it owned the Canadian trade-mark and trade name of Hinds Honey & Almond Cream.  The product was manufactured and sold in Canada by Lehn & Fink (Canada) Ltd., a wholly owned subsidiary of Lehn & Fink, Inc.  A written contract covered the manufacturing arrangements, but there was no written contract relating to the selling activities.  The manufacturing contract was cancelable by either party at any time on thirty days notice.  It provided for the manufacture of *308  Hinds Honey & Almond Cream by Lehn & Fink (Canada) Ltd. for the actual cost of manufacture plus 10 per cent of such cost.Notwithstanding the lack of a written*177  contract, Lehn & Fink (Canada) Ltd. actually marketed the Hinds product in Canada.  From 1926 to 1930 A. S. Hinds (Canada) Ltd. sold its entire output to Lehn & Fink (Canada) Ltd. at a specified price per dozen bottles.  From 1931 to 1934 it paid to Lehn & Fink (Canada) Ltd. a selling commission of 20 per cent of the sales to the trade.  In 1935 the selling commission was increased to 25 per cent because Lehn & Fink (Canada) Ltd. was suffering a loss on the 20 per cent commission.  Lehn & Fink (Canada) Ltd. realized no profit under the 25 per cent commission, which no more than covered the selling expenses.  The sales organization in Canada encountered more difficult problems than existed in the United States because of the greater territory in relation to the population.  Jergen's and Campana were active competitors of Hinds Honey & Almond Cream in Canada, and Hinds was sold to dealers in Canada at a lower mark-up than its competitors were allowing.  When the formula changes were made in the United States, corresponding changes were made in the Canadian formula. The Canadian market responded to radio and magazine advertising programs in the United States, from which the Canadian*178  Hinds organization benefited to the extent of between 1 per cent and 2 per cent of the total advertising expenditures of A. S. Hinds Co. in the United States.The comparative balance sheet of A. S. Hinds (Canada) Ltd. for the years 1927 to 1935, as taken from its books, is as follows: *309 A. S. Hinds (Canada) Ltd.192719281929Assets:Due from Lehn & Fink (Canada)1 Ltd.  ($ 8,579.70)($ 9,431.89)($ 6,559.75)Good will, trade-marks, etc10,000.00 10,000.00 10,000.00 1,420.30 568.11 3,440.25 Liabilities:Miscellaneous taxes80.89 91.83 70.48 Income tax71.48 Capital stock10,000.00 10,000.00 10,000.00 Surplus:Beginning of year    (8,622.39)(8,660.59)(9,523.72)Earnings current year    (38.20)(863.13)2,822.01 Adjustments    Dividends paid    Surplus end of year    (8,660.59)(9,523.72)(6,701.71)1,420.30 568.11 3,440.25 A. S. Hinds (Canada) Ltd.193019311932Assets:Due from Lehn & Fink (Canada)1 Ltd.  ($ 1,565.10)$ 13,211.28 $ 32,114.60 Good will, trade-marks, etc10,000.00 10,000.00 10,000.00 8,434.90 23,211.28 42,114.60 Liabilities:Miscellaneous taxes43.06 2.61 18.91 Income tax247.48 1,812.62 2,247.85 Capital stock10,000.00 10,000.00 10,000.00 Surplus:Beginning of year    (6,701.71)(1,855.64)11,396.05 Earnings current year    4,846.07 18,313.57 18,732.75 Adjustments    (61.88)(280.96)Dividends paid    5,000.00 Surplus end of year    (1,855.64)11,396.05 29,847.84 8,434.90 23,211.28 42,114.60 *179 A. S. Hinds (Canada) Ltd.193319341935Assets:Due from Lehn & Fink (Canada)1 Ltd.  $ 38,472.88 $ 6,266.92 $ 11,492.78 Good will, trade-marks, etc10,000.00 10,000.00 10,000.00 48,472.88 16,266.92 21,492.78 Liabilities:Miscellaneous taxes15.43 17.55 Income tax1,152.80 504.62 786.88 Capital stock10,000.00 10,000.00 10,000.00 Surplus:Beginning of year    29,847.84 37,304.65 5,744.75 Earnings current year    7,857.76 3,440.10 5,001.52 Adjustments    (400.95)(40.37)Dividends paid    (35,000.00)Surplus end of year    37,304.65 5,744.75 10,705.90 48,472.88 16,266.92 21,492.78 *310  The comparative profit and loss statement for the period from 1927 to 1935, as taken from the books, is as follows:A. S. Hinds (Canada) Ltd.192719281929Sales by A. S. Hinds Co. to Lehn &Fink (Canada) Ltd  $ 45,394.48 $ 52,143.68 $ 57,377.75Cost of sales26,542.02 28,133.94 28,261.63Gross profit18,852.46 24,009.74 29,116.12Selling and general expenses:Selling expenses -- advertising18,549.66 24,427.10 26,053.65General expenses:Legal and auditing   300.00 444.00 166.98Corporation tax   Miscellaneous expenses   41.00 11.77 2.00Exchange   Obsolete materials written off   Total expense18,890.66 24,872.87 26,222.63Net profit or (loss) before incometax  (38.20)(863.13)2,893.49Provision for income tax71.48Net profit or (loss)(38.20)(863.13)2,822.01*180 A. S. Hinds (Canada) Ltd.193019311932Sales by A. S. Hinds Co. to Lehn &Fink (Canada) Ltd  $ 53,941.39$ 62,159.96$ 60,113.95Cost of sales26,518.4522,256.8820,740.40Gross profit27,422.9439,903.0839,373.55Selling and general expenses:Selling expenses -- advertising22,098.4619,583.1317,399.76General expenses:Legal and auditing   219.93182.50280.15Corporation tax   8.14221.26Miscellaneous expenses   11.003.1210.50Exchange   481.28Obsolete materials written off   Total expense22,329.3919,776.8918,392.95Net profit or (loss) before incometax  5,093.5520,126.1920,980.60Provision for income tax247.481,812.622,247.85Net profit or (loss)4,846.0718,313.5718,732.75193319341935Sales by A. S. Hinds Co. to Lehn &Fink (Canada) Ltd  $ 49,505.37$ 47,653.30$ 42,829.59Cost of sales17,803.3318,829.6218,889.09Gross profit31,702.0428,823.6823,940.50Selling and general expenses:Selling expenses -- advertising22,213.8624,358.1717,529.77General expenses:Legal and auditing   176.00388.18155.50Corporation tax   291.50118.8665.79Miscellaneous expenses   10.1213.7510.89Exchange   Obsolete materials written off   390.15Total expense22,691.4824,878.9618,152.10Net profit or (loss) before incometax  9,010.563,944.725,788.40Provision for income tax1,152.80504.62786.88Net profit or (loss)7,857.763,440.105,001.52*181 *311  Dividends of $ 5,000 in 1931 and $ 35,000 in 1935 were paid by A. S. Hinds (Canada) Ltd.After the dissolution of A. S. Hinds Co. in the United States, A. S. Hinds (Canada) Ltd. continued to operate as a wholly owned subsidiary of Lehn & Fink Products Co., and after the merger, of Lehn & Fink Products Corporation, petitioner herein.The sales, cost of sales, advertising expense, and net profit or loss of A. S. Hinds (Canada) Ltd. for the years 1936, 1937, and 1938 were as follows:AdvertisingNet profitYearSalesCost of salesexpenseor (loss)1936$ 42,249.51$ 20,160.85$ 22,478.54($ 1,311.54)193748,030.4620,607.5623,089.773,181.12 193843,770.6319,944.1523,417.17(669.42)The fair market value of the stock of A. S. Hinds (Canada) Ltd. on January 29, 1936, was $ 40,000.A. S. Hinds, A. G. (Germany).  -- It has been stipulated, and we find, that the fair market value of the investment of A. S. Hinds Co. in its German wholly owned subsidiary on January 29, 1936, was zero.The fair market value as of January 29, 1936, of the account receivable owed by Lehn & Fink, Inc., to A. S Hinds Co. was $ 17,551.41.  As of that date*182  Lehn & Fink, Inc., was solvent and had the highest possible credit rating.Early in January of 1936 the officers of the A. S. Hinds Co. and Lehn & Fink, Inc., discussed the proposition of dissolving A. S. Hinds Co.  At meetings of the board of directors on January 24, 1936, a plan of liquidation was adopted, which provided that A. S. Hinds Co. should be dissolved under the laws of Maine, that its business be closed, its debts paid or otherwise provided for, and its assets distributed to Lehn & Fink Products Co. upon surrender and cancellation of the outstanding stock. The plan so adopted was submitted to a special meeting of stockholders of A. S. Hinds Co. on January 27, 1936, which approved the plan.  The dissolution of Hinds was formally accomplished on January 29, 1936.  Stock which had cost Lehn & Fink Products Co. $ 5,387,228.68 was surrendered in exchange for the assets of Hinds, which had a book value of $ 144,811.91, or, after payment of debts, $ 68,962.52.At that time, under the provisions of the Revenue Act of 1934, as amended by section 110 of the Revenue Act of 1935, effective as of January 1, 1936, the tax basis of the Hinds assets in the hands of the Products Co. was*183  the cost to the Products Co. of the stock surrendered for those assets, which was $ 5,387,228.68.*312  For some time prior to the liquidation of the Hinds Co. the management of the Lehn & Fink group had under general consideration the simplification of the organization, a plan which would have involved the liquidation of Hinds and Pebeco, Inc.  At the meeting of the Board of Directors of Lehn & Fink Products Co. at which the liquidation of A. S. Hinds Co. was authorized, the officers of the corporation were instructed to make a further study of the possibilities of consolidating Lehn & Fink Products Co., Lehn & Fink, Inc., and Lysol, Inc.  Further study was made and at the end of February 1936 a new plan for such a merger was formulated and on March 6 it was submitted to the board of directors.  The consummation of the proposed merger required the approval of about 5,000 scattered stockholders of Lehn & Fink Products Co.  A special stockholders' meeting was called for and held on April 8, 1936, at which the plan of merger was adopted.  Pursuant thereto, Lehn & Fink Products Co., which owned all the stock of Lehn & Fink, Inc., and Lehn & Fink, Inc., which owned most of the stock*184  of Lysol, Inc., were merged into Lysol, Inc., which then changed its name to Lehn & Fink Products Corporation.  This surviving corporation is the petitioner in these proceedings.On June 26, 1936, about two months after the merger was accomplished, the Revenue Act of 1936 was passed and made retroactive to January 1, 1936.  Under section 113 (a) (15) thereof, the basis provisions applicable to property distributed in complete liquidation by a subsidiary to its parent were changed, and the new basis so prescribed was the cost of the assets to the subsidiary instead of the cost of the stock surrendered by the parent.That this retroactive change of basis resulted in hardship to those corporations which had liquidated subsidiaries prior to the passage of the 1936 Act, in reliance on the provisions of the 1934 Act, as amended, was recognized by Congress in 1938, when it passed section 808 of the Revenue Act of 1938, which retroactively amended section 113 (a) (15) of the Revenue Act of 1936.  Under section 808 it was provided that where a corporation, in a year beginning after December 31, 1935, had been completely liquidated within the meaning of section 112 (b) (6) of the 1934 Act, *185  as amended, so that no gain or loss was recognized on the liquidation, and where all the distributions in liquidation were made after December 31, 1935, and before June 23, 1936, the basis of the property in the hands of the recipient corporation should be the basis provided by the Revenue Act of 1934, as amended, "if such corporation (within 180 days after the date of the enactment of the Revenue Act of 1938) elects, under regulations prescribed by the Commissioner, to have such basis apply."*313  The Hinds liquidation had met all the requirements of section 808, and within the time prescribed, Lehn & Fink Products Corporation, the surviving corporation of the merger, and the petitioner herein, filed the necessary election with the Commissioner, electing to have the cost of the stock to the Products Co., i. e., $ 5,387,228.68, as the basis of the property acquired by the liquidation.The Commissioner refused to give effect to the election, on the ground that petitioner was not the corporation entitled to make the election.OPINION.The first question presented by these proceedings is whether petitioner is entitled to the election provided by section 808 of the Revenue Act of *186  1938, the pertinent provisions of which are as follows:SEC. 808. BASIS OF PROPERTY ACQUIRED IN CONNECTION WITH LIQUIDATION.* * * If upon the complete liquidation of a corporation within the meaning of section 112 (b) (6) of the Revenue Act of 1934, as amended, in case the first of the series of distributions in liquidation was made after August 29, 1935, and the last of the series of distributions was made before June 23, 1936, if with respect to all the property (other than money) received by a corporation prior to June 23, 1936, and in a taxable year beginning after December 31, 1935, no gain or loss would have been recognized on the receipt of such property under such section 112 (b) (6), the basis of such property in the hands of such corporation shall be the basis prescribed by the Revenue Act of 1934, as amended, if such corporation (within 180 days after the date of the enactment of the Revenue Act of 1938) elects, under regulations prescribed by the Commissioner, to have such basis apply.Article 113 (a) (15)-1 (b) and (c) of Regulations 94, as amended by T. D. 4815, C. B. 1938-1, pp. 79 and 80, reads as follows:(b) Exception to general rule*187  .  -- In the case of property received in liquidation after December 31, 1935, and before June 23, 1936, in a taxable year of the recipient corporation beginning after December 31, 1935, the basis of such property in the hands of the recipient corporation shall be the basis prescribed by section 113 (a) (6) of the Revenue Act of 1934, as amended by the Revenue Act of 1935, if -- (1) Such property was received in a liquidation which was completed before June 23, 1936;(2) Such liquidation constituted a complete liquidation within the meaning of section 112 (b) (6) of the Revenue Act of 1934, as added by the Revenue Act of 1935;(3) No gain or loss would have been recognized under section 112 (b) (6) of the Revenue Act of 1934, as amended, upon the receipt of such property; and(4) The recipient corporation (within 180 days after the enactment of the Revenue Act of 1938) elects under these regulations to have such basis apply to such property.*314 If such an election is made, the basis of such property received in liquidation shall be the cost or other basis (adjusted as provided in section 113) of the stock of the liquidating corporation surrendered in exchange for the *188  property, decreased in the amount of money received and increased in the amount of gain or decreased in the amount of loss to the recipient corporation that was recognized upon the liquidation under the Revenue Act of 1936.  If such property consists of more than one class of property the basis shall be allocated among the several properties (other than money) received, in the proportion that the fair market value of each such property as of the date of distribution bears to the fair market value of all such properties on that date.(c) Written election as to basis.  -- In order to elect under section 113 (a) (15) of the Revenue Act of 1936, as amended by section 808 of the Revenue Act of 1938, to have the basis provisions of the Revenue Act of 1934, as amended, apply to property received in complete liquidation of a corporation, it is necessary that affirmative action be taken, in the manner prescribed herein, by the corporation entitled to make the election. To be effective, the election must be made with respect to all of the property received in liquidation from the liquidating corporation after December 31, 1935, and before June 23, 1936, in a taxable year of the recipient*189  corporation beginning after December 31, 1935.  Failure so to act will not be considered as an election. An election once made under these regulations is irrevocable.  A corporation entitled to make the election permitted under section 113 (a) (15) of the Revenue Act of 1936, as amended, shall, within 180 days after May 28, 1938, the date of the enactment of the Revenue Act of 1938, file with the Commissioner of Internal Revenue, Washington, D. C., for the attention of the Income Tax Unit, Records Division, its written election, in duplicate, under oath, on Form 965, signifying such election. Such form shall be executed and filed in accordance with these regulations and the instructions on the form.  If prior to filing of the election the recipient corporation has filed its income and excess-profits tax return for any taxable year beginning after December 31, 1935, the election shall be accompanied by an amended return for each such year or by a statement explaining in detail the adjustments to be made in the return for each such year as a result of the election.The facts disclose that at the time of the dissolution of the Hinds Co. the then effective Revenue Act of 1934, as amended, *190  provided that the basis of the Hinds assets in the hands of the Products Co. was the cost to the Products Co. of the stock surrendered for those assets, which was $ 5,387,228.68.  This continued to be true through April 15, 1936, when the Products Co. and Lehn & Fink, Inc., were merged into Lysol, Inc., now Lehn & Fink Products Corporation.  Thereafter, on June 26, 1936, the Revenue Act of 1936 was passed and made retroactive to January 1, 1936, and the new act changed the basis provisions, prescribing that the basis in such a situation as this should be the cost of the assets to the liquidated subsidiary. The cost of the assets involved here to the Hinds Co. was $ 144,811.91, or, after payment of liabilities, $ 68,962.52.Congress later realized that the new provisions, retroactively applied, worked a substantial hardship on corporations which had liquidated *315  subsidiaries prior to the passage of the 1936 Act, relying on the basis provisions then in effect under the 1934 Act.  To provide relief in those cases, section 808 of the Revenue Act of 1938, set out above, was passed.The Hinds liquidation met all the requirements of section 808, and Lehn & Fink Products Corporation*191  the survivor of the merger and petitioner here, filed a written election within the prescribed time, electing to use as its basis for the property acquired in the liquidation the cost to the Products Co. of the stock surrendered for the assets so acquired.The Commissioner refused to give effect to the election, on the ground that petitioner was not "the recipient corporation" entitled to make the election, under the statute.This precise question, arising under section 808 of the 1938 Act, does not seem to have received judicial attention, so far as the cases which have come to our attention disclose.The Delaware laws relating to corporate mergers provide that "all and singular, the rights, privileges, powers and franchises of each of said corporations, and all property, real, personal and mixed, and all debts due to any of said constituent corporations in whatever account, as well for stock subscriptions as all other things in action or belonging to each of such corporations, shall be vested in the corporation resulting from or surviving such consolidation or merger, and all property, rights, privileges, powers and franchises, and all and every other interest shall be thereafter*192  as effectually the property of the resulting or surviving corporation as they were of the several and respective constituent corporations * * *." Sec. 60, Revised Code of Delaware, ch. 65, par. 2092.Petitioner relies on those cases which have held that a surviving corporation may prosecute on appeal from a determination of deficiency issued in the name of a constituent corporation.  Bowman Hotel Corporation v. Commissioner, 24 B. T. A. 1193; Alaska Salmon Co. v. Commissioner, 39 B. T. A. 455; Trahern Pump Co. v. Commissioner, 27 B. T. A. 363; and on Phillips v. Howe Films Co. 33 Fed. (2d) 891. In this latter case a constituent corporation, later merged into the petitioner there, filed an income tax return and paid the tax.  After the merger, the survivor executed in its own name a waiver extending the period of limitations within which additional taxes might be asserted against the constituent company and, within that extended time, filed a claim for a refund of taxes overpaid by the constituent corporation.  The statute authorized the filing*193  of such a waiver "by the taxpayer." The court held the waiver filed by the survivor valid.Petitioner also cites the decisions holding that a surviving corporation *316  may continue to deduct unamortized bond discount on bonds issued by a constituent corporation at a discount.  Western Maryland Railway Co. v. Commissioner, 33 Fed. (2d) 695; Helvering v. Metropolitan Edison Co., 306 U.S. 522">306 U.S. 522; American Gas & Electric Co. v. Commissioner, 85 Fed. (2d) 527; Illinois Power & Light Corporation, 33 B. T. A. 1189. See also Seaboard Airline Railway, 256 U.S. 655">256 U.S. 655.Respondent contends that to allow petitioner to benefit from section 808 would be to defeat the broad principle of computing gains and losses for tax purposes on the basis of an annual accounting for the year's transactions; that petitioner is seeking a tax exemption, which is not to be lightly inferred, citing Heiner v. Colonial Trust Co., 275 U.S. 232">275 U.S. 232.Respondent urges that the deduction sought by petitioner is one which Congress*194  clearly intended to be personal to the recipient corporation, citing Jones v. Noble Drilling Co., 135 Fed. (2d) 721, which involved a merger under Delaware laws.  The constituent corporation had a dividends paid credit which was not used by it in its final return.  The surviving corporation attempted to deduct as a dividends paid credit the unused credit of its constituent. The deduction was disallowed.Respondent cites also Marion-Reserve Power Co., 1 T. C. 513, where we held a new corporation resulting from the consolidation of four constituent corporations was not entitled to deduct unused dividends paid carry-over credits for dividends paid by one of its predecessors, and New Colonial Ice Co. v. Helvering, 292 U.S. 435">292 U.S. 435, where a successor corporation was held not entitled to deduct carry-over net losses of the predecessors, and Pennsylvania Co. for Insurances on Lives and Granting Annuities v. Commissioner, 75 Fed. (2d) 719, where a survivor corporation was denied the right to deduct a loss sustained by a constituent corporation prior to the merger. *195 The two lines of cases relied on by the parties are clearly distinguishable from each other.  The cases cited by petitioner allow a surviving corporation to claim or perfect on behalf of a constituent some legal right or benefit to which that constituent would have been entitled if it had continued its separate existence.  Those cited by respondent deny a survivor the right to claim for itself a deduction on account of dividends paid or losses sustained by a constituent prior to the merger.The petitioner's citations seem more relevant to the situation before us.  The petitioner does not seek a deduction from its own income for dividends paid or losses sustained prior to the merger by a constituent, but seeks to claim the benefit of a remedial statute for the constituent corporation to all of whose legal rights, powers, and privileges it is the legal successor.*317 Section 808, which is the one before us for construction, is remedial in purpose and should therefore be liberally construed to effect its intended result.The argument made by respondent for a strict construction of the statute, because petitioner claims a deduction, is unsound.  The deduction for depreciation to*196  which petitioner is entitled is not claimed under section 808, but is provided for by a wholly different section of the statute.  Sec. 23 (l).  This deduction for depreciation of property owned by it for the period during which it was so owned, it is entitled to in any event, without respect to its attempted election under section 808, which can affect only the amount of that deduction, and in a derivative manner.If, as we have seen, a survivor may file a claim for refund of taxes paid by a constituent, and may file a waiver of the statute of limitations involving the assessment of taxes against a constituent, and may file and prosecute an appeal from a deficiency notice addressed to the constituent, and take other such steps to enforce and protect rights of constituent corporations, although the statute authorizing all these actions provides that they are to be taken by "the taxpayer," there seems to be no reason why a survivor may not also file the election to secure for its constituent the more favorable basis, provided by section 808, to be filed by "the recipient corporation."If the right of election provided by section 808 is not available to petitioner as the survivor of *197  the merger, the remedial purpose of the statute will be defeated in this case, which is of the precise type which Congress intended to relieve.  The failure will be due solely to the later merger, which also took place before and could not therefore have anticipated the passage of the 1936 Act, the retroactive application of which created the hardship.  Section 808 of the 1938 Act was designed to afford to corporations which had liquidated subsidiaries in reliance on the then effective law an opportunity to avoid the retroactive impact of a later law, the provisions of which could not have been foreseen.  In the instant case, not only had the liquidation been irrevocably completed before the passage of the Act which resulted in the hardship, but the merger was equally final and accomplished.  The 1938 Act was designed to relieve the hardship resulting from the liquidation under these circumstances, and we think that purpose should be effectuated.  The statute can reasonably and should fairly be interpreted to extend the relief to petitioner as the legal successor, by merger, of the corporation which received the property in liquidation of its subsidiary. We therefore conclude that*198  petitioner was entitled to file the election provided for in section 808 of the Revenue Act of 1938.*318  We are now confronted with the valuation questions involved here.  Section 808 of the Revenue Act of 1938 provides that in such a liquidation as occurred here the basis of the property distributed in the hands of the corporation receiving it shall be the basis prescribed by the Revenue Act of 1934, upon the filing of an election to have such basis apply.  This election, as we have seen, was effectively filed in this instance.The 1934 Act, at section 113 (a) (6), prescribed that the basis of property received in a tax-free exchange "shall be the same as in the case of the property exchanged, decreased in the amount of any money received by the taxpayer * * *."Article 113 (a) (15-1 (b) of Regulations 94, as amended by T. D. 4815, C. B. 1938-1, pp. 79 and 80, contains the following provision: "If such property consists of more than one class of property, the basis shall be allocated among the several properties (other than money) received, in the proportion that the fair market value of each such property as of the date of distribution bears *199  to the fair market value of all such properties on that date."By these provisions, the basis in the hands of the Products Co. of the property received in liquidation of A. S. Hinds Co. was the basis of the stock surrendered in exchange therefor, decreased by the amount of money received by the Products Co.  The basis of the stock so surrendered was its cost to the Products Co., which was $ 5,387,228.68.  This amount, decreased by the amount of money distributed, is to be allocated among the several properties (other than money) distributed, according to the statute and regulation, in the proportion which the fair market value of each such property bears to the fair market value of all such property, as of the date of the liquidation. It is for the purpose of applying this allocation formula that it becomes necessary to determine the fair market value of the several properties on the date of distribution.The parties have stipulated, and we have found, that the fair market value of the machinery and equipment at the Bloomfield, New Jersey, plant was $ 62,194.90 on the valuation date; that of the foreign machinery and equipment, $ 20,000; and that the stock of A. S. Hinds, A. G. (Germany) *200  was valueless on that date.There remains for consideration the proper treatment of an account receivable in the amount of $ 17,551.41; the fair market value, as of January 29, 1936, of the trade names, trade-marks, secret processes, secret formulae and good will of A. S. Hinds Co.; the fair market value of the stock of A. S. Hinds Canada (Ltd.) and of A. S. Hinds Ltd., London.*319  Concerning the account receivable of $ 17,551.41, owed by Lehn & Fink., Inc., to A. S. Hinds Co., it is petitioner's contention that, since Lehn & Fink, Inc., was a solvent corporation, with the highest obtainable commercial credit rating, and since the account was payable on demand and could have been received at any moment A. S. Hinds Co. desired, it was the same as money in the bank and should be considered as "money" distributed on final liquidation for the present purpose.  Petitioner points out that in order to have secured an AAA 1 rating in the credit field, Lehn & Fink, Inc., must have had a net worth of one million dollars or more, a clear record for discounting or anticipating all bills, and its officers must have had a clear personal record.  These facts are undisputed, and, we have no*201  doubt, are indisputable.  The question is whether, as a matter of law, such an account receivable may be treated as "money" in this regard.  Petitioner cites no authority for its position.  We think it clear that, in both legal theory and business practice, accounts receivable are generally treated as property or assets other than money.  As such property, they are properly subject to valuation, and all facts relating to their ready collectibility are pertinent and material to the question of that value.  But we do not believe the degree of collectibility affects the nature of the item as distinguished from the value of the item.  In other words, the ease with which an account receivable may be realized in money does not, we think, convert it into money.  The same reasoning might be applied to any property which is readily salable or otherwise convertible into money.  In the absence of authority to the contrary, we hold the account receivable to be property other than money.  It is possible that its fair market value may have been somewhat less than face value, in order to allow for a reasonable discount, but petitioner offered no evidence on that point, and, in fact, makes no such*202  contention.  On the contrary, its counsel conceded in his opening statement that it was worth its full face value.  Under the circumstances, therefore, we hold it was worth face value of $ 17,551.41.With regard to the other valuation questions presented in this proceeding, we have carefully examined all of the voluminous data presented by the record herein and have considered all of the testimony, both factual and opinion.  We have also studied the briefs filed by counsel and have sought to give the proper weight to all of the factors involved in a determination of value.Having considered all of the pertinent facts, a large portion of which is set out in our findings, and having studied with care the opinion testimony and arguments of counsel, we have arrived at our ultimate conclusions as to the fair market value as of January 29, 1936, *320  of the trade-marks, trade names, secret processes and formulas, and good will of A. S. Hinds Co.; the fair market value as of January 29, 1936, of the stock of A. S. Hinds Ltd., London; and the fair market value as of January 29, 1936, of the stock of A. S. Hinds (Canada) Ltd.  These conclusions are stated in our findings.Decision will*203  be entered under Rule 50.  Footnotes1. The items set forth above as minus figures, labeled "Due from Lehn & Fink (Canada) Ltd.," for the years 1927, 1928, 1929, and 1930, were actually due to Lehn & Fink (Canada) Ltd. in those years, and are not, therefore, assets.↩