17 T.C. 433">*433 This proceeding arises from respondent's determination that petitioner, as transferee of Roseland Manufacturing Company, is liable for tax deficiencies for the taxable period January 1, 1944, to October 31, 1944, in the following amounts:

The deficiency notice states, among other things, as follows:

The records of this office indicate that Roseland Manufacturing Company was dissolved on October 31, 1944 and that assets were taken over by your corporation, now Texsun Supply Corporation, which owned the stock of the Roseland Manufacturing Company.

The above listed amounts represent your liability under section 311 of the Internal Revenue Code as transferee of the Roseland Manufacturing Company. 17 T.C. 433">*434 Under the authority provided by section 45 of the Code respondent determined an increase of $ 172,147.05 in the net sales of Roseland Manufacturing Company to its sole stockholder, the petitioner. In making this determination, the Commissioner states in his deficiency notice:

It is also held after careful consideration1951 U.S. Tax Ct. LEXIS 81">*85 of the evidence of record that the net income from sales of Roseland Manufacturing Company * * *, for the period January 1, 1944 to October 31, 1944 should be increased by the net amount of $ 172,147.95, ^* resulting from increased sale prices of its products in the amount of $ 246,795.95, less increased expenses incurred therewith in the amount of $ 74,648.90. * * *

Roseland Manufacturing Company recorded on its books and reported on its returns the sales at cost while respondent's adjustment reflects the sales at prevailing O. P. A. prices.

Petitioner does not contest the correctness of respondent's determination as to the other adjustments increasing the income of Roseland Manufacturing Company by an additional $ 6,531.90 for the fiscal period, January 1, 1944, to October 31, 1944.

The petition raises the following assignments of error to the determination as made by the Commissioner:

(a) The Commissioner erred in that he is presently attempting to impose liability upon this1951 U.S. Tax Ct. LEXIS 81">*86 Petitioner as transferee for the alleged deficiency of taxes due by Roseland Manufacturing Company.

(b) The Commissioner erred in that the notice of deficiency from which this Petitioner now appeals was not issued timely.

(c) The Commissioner erred in that no tax liability against Roseland Manufacturing Company existed, nor has there been assessed or imposed against said company, any tax liability for the period commencing January 1, 1944 and ending October 31, 1944.

(d) The Commissioner erred in his determination that the sales of Roseland Manufacturing Company, during said period, were greater than the amount of such sales as reflected by the original return filed covering said period and the regularly kept books of Roseland Manufacturing Company.

FINDINGS OF FACT.

The facts which have been stipulated are so found and incorporated herein by reference.

Petitioner Texsun Supply Corporation, formerly Citrus Supply Corporation, is a nonprofit Texas cooperative organized on July 20, 1938, pursuant to chapter 8, title 93 of Vernon's Texas Revised Civil Statutes, with its principal place of business in Weslaco, Texas. It will sometimes hereafter be referred to as Texsun, Citrus, or Citrus1951 U.S. Tax Ct. LEXIS 81">*87 Supply Corporation.

Petitioner is a federated cooperative and its stockholders and member associations are cooperative citrus processing, packing, and marketing associations situated in the Rio Grande Valley of Texas. The 17 T.C. 433">*435 board of directors of petitioner was composed of ten directors, more or less, with one director elected by each of its member associations.

Petitioner's books and records were kept and tax returns were filed on a fiscal year basis ending April 30. An income tax return for the fiscal year May 1, 1944, to April 30, 1945, was filed by Texsun which included its separate operations from May 1, 1944, to October 31, 1944, and the operation of the merged organizations from October 31, 1944, to April 30, 1945.

Petitioner purchased virtually all the supplies for its member associations, including its major item of boxes for citrus fruit. Because in 1942 and 1943 the situation with respect to boxes and containers for packing fruits and vegetables was very grave and petitioner was buying crates and boxes at any price it could locate them, a committee was appointed by petitioner to investigate the advisability of purchasing a box manufacturing plant. As a result1951 U.S. Tax Ct. LEXIS 81">*88 of the committee's investigation, on November 13, 1943, petitioner purchased all of the outstanding stock of Roseland Manufacturing Company from its stockholders, the contract price being computed as follows: $ 200,000 for the physical plant with adjustments for accruals, inventories, receivables, and payables of the corporation.

Roseland Manufacturing Company, hereinafter referred to as Roseland, was incorporated in 1937 under the laws of Louisiana. Roseland, a corporation organized for profit, was engaged in the manufacture of veneer and wooden boxes with its manufacturing plant located in Roseland, Louisiana. On November 13, 1943, or shortly thereafter, the members of the board of directors of Roseland were replaced by members named by petitioner. The new board of directors was identical to the board of directors of petitioner. Thereafter the manager of petitioner was also the manager of Roseland.

Roseland's income tax, declared value excess-profits tax and excess profits tax returns were filed with the collector of internal revenue for the district of Louisiana. Roseland's tax returns were filed on an accrual basis and on a calendar year basis for the years 1942 and 1943. 1951 U.S. Tax Ct. LEXIS 81">*89 The final tax return of Roseland was for the period January 1, 1944, to October 31, 1944, and was filed on January 15, 1945, the due date for the return. Roseland's gross income and deductions as shown on that return were as follows:

17 T.C. 433">*436 During the period January 1, 1944, through October 31, 1944, the entire output of Bruce boxes manufactured by Roseland was delivered and billed to petitioner at their estimated cost of production. Petitioner, in turn, delivered all Bruce boxes1951 U.S. Tax Ct. LEXIS 81">*90 received by it from Roseland to its members and billed them at "gross price" which was the current O. P. A. ceiling price. All of the Bruce boxes so delivered were ultimately utilized by member associations of petitioner in the processing, packing, and marketing of citrus products raised by members of the associations. Petitioner had a final accounting and settlement of each member's account for "net prices" and "prorata assessment of operating costs" made on April 30, 1944, and April 30, 1945, and the remainder was a "'net' patronage rebate to members of container pool." Thus the books and records of petitioner for the period commencing January 1, 1944, and ending October 31, 1944, reflected no gross income from the handling of the production of Roseland.

A comparative statement of net rebates paid by Texsun Supply Corporation to its membership on products purchased or handled on their behalf for the fiscal years ending April 30, 1944, and April 30, 1945, respectively, is as follows:

1951 U.S. Tax Ct. LEXIS 81">*91 An analysis of records of the Citrus Supply Corporation relating to the container pool of said organization for the fiscal years 1944 17 T.C. 433">*437 and 1945, which includes Bruce boxes handled by Texsun Supply Corporation, formerly Citrus Supply Corporation, on behalf of its membership is as follows:

The container pool account was kept1951 U.S. Tax Ct. LEXIS 81">*92 during the period involved here in accordance with petitioner's by-laws which provided:

ARTICLE XII

This Corporation shall make no profits from its operations in selling supplies to its members. It shall purchase supplies for members and furnish such supplies to members at actual cost of such supplies to this Corporation, plus a proportionate part of the overhead and other operating expenses of this Corporation to be determined in the following manner:

When such supplies are delivered to a member, this Corporation shall charge such member, and such member shall pay this Corporation, the prevailing retail price for such supplies or the actual cost to Corporation of such supplies, whichever is the greater, and this shall be known as the "gross price". The actual cost shall be the price paid for such supplies by this corporation, plus delivery and other expenses incidental to purchasing and delivering such supplies, or in case of supplies handled by this corporation under pool arrangements, the actual cost shall be the average price paid for supplies in such pools, plus delivery and other expenses incidental to purchasing and delivering such supplies. 1951 U.S. Tax Ct. LEXIS 81">*93 The actual cost to the Corporation for such supplies shall be known as the "net price."

Corporation may pool the cost of supplies furnished various members; the duration of such pools and the kind and character of such supplies to be so pooled shall be determined in the sole discretion of Corporation's Board of Directors. At the end of each year or at the end of each such pool, the net price of such supplies to Corporation shall be determined.

17 T.C. 433">*438 At the end of each fiscal year (which is April 30th of each year), Corporation shall determine for all supplies purchased by each member from, through, or with this Corporation, the amount the aggregate gross prices exceed the aggregate net prices, and this amount shall be the "gross rebate" due to each member. There shall be deducted from the gross rebate due each member such proportion of the total overhead and other operating expenses of this Corporation as the gross rebate due each member bears to the total gross rebates due all members, and this amount shall be the net rebate due each member, and this Corporation shall pay to each member its net rebate as soon thereafter as practical.

If during any fiscal year net prices of all1951 U.S. Tax Ct. LEXIS 81">*94 supplies furnished any member exceed the gross prices of such supplies, such member shall pay this Corporation the difference immediately.

The books and records of the respective corporations clearly reflect the inter-dealings of the corporations, including billings to petitioner at cost for the Bruce boxes, payments by petitioner on that account, and certain advances made by petitioner to Roseland.

Respondent determined that sales prices of boxes manufactured by Roseland and sold to petitioner, the sole stockholder of Roseland, should reflect the prevailing O. P. A. prices. Accordingly, respondent increased Roseland's net income for its final fiscal period in the amount of $ 172,147.05, as follows:

On October1951 U.S. Tax Ct. LEXIS 81">*95 23, 1944, petitioner was granted a permit to do business in the State of Louisiana. On October 20, 1944, an agreement of merger and consolidation was entered into between petitioner and Roseland merging the two organizations pursuant to the terms of sections 47 through 51 of Act 250 of 1928, as amended, of the General Laws of the State of Louisiana. The merger of Roseland Manufacturing Company and Texsun Supply Corporation was effected at 12:00 o'clock midnight, October 31, 1944, with the business continuing under the name, form of business, and powers of Texsun Supply Corporation. The agreement of merger and consolidation between Texsun and Roseland provided as follows:

17 T.C. 433">*439 6. This Agreement, when it becomes effective, shall constitute a transfer, assignment and conveyance of all properties, including lands, buildings, machinery, timber, contracts, actions, choses in action, easements, franchises, licenses, permits, claims, or other assets or rights of every kind, character and description of Roseland Manufacturing Company, Inc. and of Citrus Supply Corporation, as now existing from said Roseland Manufacturing Company, Inc. and from Citrus Supply Corporation to the Citrus1951 U.S. Tax Ct. LEXIS 81">*96 Supply Corporation. No additional deed, contract or transfer from Roseland Manufacturing Company, Inc., to Citrus Supply Corporation shall be necessary to constitute a transfer, assignment and conveyance of such properties from Roseland Manufacturing Company, Inc. to Citrus Supply Corporation, but if any such transfer, assignment or conveyance should, for any reason, become necessary, then Roseland Manufacturing Company, Inc. agrees that it will immediately, upon demand from Citrus Supply Corporation, execute and deliver such transfer, assignment or conveyance to Citrus Supply Corporation.

7. Citrus Supply Corporation agrees to assume the payment of and pay when due each and every obligation and debt Roseland Manufacturing Company, Inc., including any and all income, franchise, capital stock, social security, severance, ad valorem, or other tax and any mortgage, license fee, or rental heretofore or hereafter accruing against Roseland Manufacturing Company, Inc., provided that nothing herein shall constitute a release, cancellation, surrender or discharge of that certain indemnity agreement heretofore executed by H. J. Wilson, et al., dated the 13th day of November, 1943, in favor1951 U.S. Tax Ct. LEXIS 81">*97 of Citrus Supply Corporation.

8. Immediately upon this agreement becoming effective the stockholders of Roseland Manufacturing Company, Inc. shall surrender for cancellation all the shares of stock of Roseland Manufacturing Company, Inc. outstanding.

9. From and after the effective date of this agreement, Citrus Supply Corporation, acting by and through its officers or any agent it may designate, shall have authority to do such acts and exercise such powers in its own name or as successor in interest of Roseland Manufacturing Company, Inc. as may be necessary to accomplish this merger and consolidation, or to protect, receive, defend, retain or recover anything accruing to the benefit of Citrus Supply Corporation from Roseland Manufacturing Company, Inc., under this agreement.

10. Citrus Supply Corporation shall have the privilege of pursuing any business or transaction heretofore conducted by Roseland Manufacturing Company, Inc.

Subsequent to the merger of petitioner and Roseland the accounting for interdealings between the respective operating units was continued in the same manner as that in operation during the period January 1, 1944, to October 31, 1944.

As the tax returns of1951 U.S. Tax Ct. LEXIS 81">*98 Roseland for the period of January 1, 1944, through October 31, 1944, were timely filed on January 15, 1945, the 3-year statutory period of limitations for assessment against the taxpayer, Roseland, section 275 (a) of the Code, expired January 15, 1948. Thereafter, on December 17, 1948, petitioner executed Treasury Department Form 977 which was signed on behalf of the Commissioner on December 20, 1948. This form is entitled: "CONSENT FIXING PERIOD OF LIMITATION UPON ASSESSMENT OF 17 T.C. 433">*440 LIABILITY AT LAW OR IN EQUITY FOR INCOME AND PROFITS TAX AGAINST A TRANSFEREE." This consent reads as follows:

In pursuance of the provisions of existing Internal Revenue Laws TEXSUN SUPPLY CORPORATION, Transferee (formerly Citrus Supply Corporation) and the Commissioner of Internal Revenue hereby consent and agree as follows:

That the amount of the liability, at law or in equity, of Texsun Supply Corporation, as transferee, in respect of any income, excess-profits, or war-profits taxes (including interest, additional amounts, and additions to the tax provided by law) imposed against or due from Roseland Manufacturing Co., (Transferor, Roseland, La.) for the taxable year ended October1951 U.S. Tax Ct. LEXIS 81">*99 31, 1944, under existing acts, or under prior revenue acts, may be assessed at any time on or before June 30, 1950, except that, if a notice of such liability is sent to said transferee by registered mail on or before said date, then the time for making any assessment as aforesaid shall be extended beyond the said date by the number of days during which the Commissioner is prohibited from making an assessment and for sixty days thereafter.

On October 3, 1949, the Commissioner mailed to petitioner a notice of deficiency advising petitioner of the amount of its liability as transferee for income, declared value excess-profits taxes and excess profits taxes of Roseland for the taxable period January 1, 1944, to October 31, 1944. The deficiency in income and excess profits taxes determined by the respondent to be due by Roseland have not been paid. Roseland never paid any Federal income or excess profits taxes for the period January 1 to October 31, 1944.

OPINION.

The first issue to decide is whether petitioner is liable as a transferee of Roseland and whether the statute of limitations has barred the assessment and collection of the deficiencies which the Commissioner has determined1951 U.S. Tax Ct. LEXIS 81">*100 against Roseland.

With reference to the statute of limitations the principal contention of petitioner is that it is not a transferee of Roseland, but that by reason of its merger with Roseland on October 31, 1944, under the laws of the State of Louisiana it became the primary taxpayer and was not secondarily liable as a transferee. In support of this contention petitioner cities Oswego Falls Corporation, 26 B. T. A. 60, affd. 71 F.2d 673, and A. D. Saenger, 38 B. T. A. 1295, and also other cases along the same lines. Petitioner concedes that if it is liable as a transferee under section 311, I. R. C., then the statute of limitations had not run at the time the deficiency notice was mailed October 3, 1949. This was because of the waiver which was executed by petitioner and the Commissioner December 20, 1948. The pertinent 17 T.C. 433">*441 sections of the Code relating to transferee liability are printed in the margin. ¹

1951 U.S. Tax Ct. LEXIS 81">*101 In West Texas Refining & Development Co. v. Commissioner, 68 F.2d 77, the general principles governing the transferee liability of successor corporations were outlined as follows:

The general rule is that where one corporation sells or otherwise transfers all of its assets to another corporation, the latter is not liable for the debts and liabilities of the transferor. * * *

To this general rule there are four well recognized exceptions, under which the purchasing corporation becomes liable for the debts and liabilities of the selling corporation. (1) Where the purchaser expressly or impliedly agrees to assume such debts; (2) where the transaction amounts to a consolidation or merger of the corporations; (3) where the purchasing corporation is merely a continuation of the selling corporation; and (4) where the transaction is entered into fraudulently in order to escape liability for such debts. * * *

Certainly (1) mentioned in the above recital by the court is present in the instant case; also (2) is present. In the agreement of merger the material parts of which are copied in our findings of fact Citrus Supply Corporation, now Texsun, expressly1951 U.S. Tax Ct. LEXIS 81">*102 agreed to the following:

17 T.C. 433">*442 Citrus Supply Corporation agrees to assume the payment of and pay when due each and every obligation and debt Roseland Manufacturing Company, Inc., including any and all income, franchise, capital stock, social security, severance, ad valorem, or other tax and any mortgage, license fee, or rental heretofore or hereafter accruing against Roseland Manufacturing Company, Inc. provided that nothing herein shall constitute a release, cancellation, surrender or discharge of that certain indemnity agreement heretofore executed by H. J. Wilson, et al., dated the 13th day of November, 1943, in favor of Citrus Supply Corporation.

Here we have a direct contract liability which Texsun made with Roseland that it would assume and agree to pay all income tax heretofore or hereafter owing by Roseland. Where, upon the sale of property or the assets of a corporation, the purchaser agrees to pay all of the debts of the transferor, it is liable as transferee for the tax. Resthaven Memorial Cemetery, Inc., 30 B. T. A. 583; Georgia, Florida & Alabama R. R. Co., 31 B. T. A. 1. In a case in which the purchaser1951 U.S. Tax Ct. LEXIS 81">*103 assumed all obligations and liabilities "whether accrued or to accrue in the future," it has been held that the purchaser is liable as transferee, although the deficiency had not been asserted at the date the contract was executed. Helvering v. Wheeling Mold Foundry Co., 71 F.2d 749.

It seems to us to be clear that under the foregoing authorities petitioner became liable at law by contract as a transferee of Roseland under the terms of its agreement which we have set out above. Certainly petitioner is liable at law as a transferee for any income and excess profits tax due by Roseland unless, as petitioner contends, Oswego Falls Corp., supra, and A. D. Saenger, supra, are controlling to the contrary. We do not think those cases are controlling to the contrary. There was not present in those cases the definite contractual obligation to pay the taxes of the consolidating corporations which were there involved and there was not present a consent waiver executed by the new corporation entitled "Consent Fixing Period of Limitations Upon Assessment of Liability at Law or in Equity for Income1951 U.S. Tax Ct. LEXIS 81">*104 and Profits Tax Against a Transferee." These things, as we have already pointed out are present in the instant case and that, we think, makes the instant case distinguishable from Oswego Falls Corp. and A. D. Saenger, both supra.

We, therefore, hold that petitioner is liable as transferee of Roseland and that at the time of the mailing of the deficiency notice October 3, 1949, its liability as transferee was not barred by the statute of limitations. Petitioner's assignments of error (a) and (b) are not sustained.

The second contention of petitioner is that section 45 of the Code is inapplicable here because there is lacking the statutory requirement of ownership or control. That portion of section 45 upon which petitioner relies is italicized:

17 T.C. 433">*443 SEC. 45. ALLOCATION OF INCOME AND DEDUCTIONS.

In any case of two or more organizations, trades, or businesses (whether or not incorporated, whether or not organized in the United States, and whether or not affiliated) owned or controlled directly or indirectly by the same interests, the Commissioner is authorized to distribute, apportion, or allocate gross income, deductions, credits, or allowances between or among1951 U.S. Tax Ct. LEXIS 81">*105 such organizations, trades, or businesses, if he determines that such distribution, apportionment or allocation is necessary in order to prevent evasion of taxes or clearly to reflect the income of any of such organizations, trades, or businesses.

"Controlled", as the term is used in section 45, I. R. C., is defined in Regulations 111, sec. 29.45-1, but no attempt is made there to define "owned."

Petitioner relies upon Lake Erie & Pittsburg Railway Co., 5 T.C. 558. There we held that the taxpayer was not controlled by the same interests, as the shares of stock of the taxpayer were owned in equal amounts by two other railroad corporations. Lake Erie & Pittsburg Railway Company, supra, is to be distinguished from the fact situation presented in the proceeding now before us, for here all the shares of stock of Roseland were owned by petitioner, the boards of directors of both petitioner and Roseland were composed of the same members, and both corporations were managed by the same person. From these facts we conclude that petitioner owned Roseland and controlled it as well. Cf. Grenada Industries, Inc., 17 T.C. 231.1951 U.S. Tax Ct. LEXIS 81">*106

Since we have decided that the relationship between the corporations was such as would satisfy the provisions of section 45, I. R. C., we now consider the third issue: Did the Commissioner err in his determination that gross income of $ 246,975.95 less increased expenses of $ 74,648.90 resulting in a net amount of $ 172,147.05 should be allocated to Roseland? Petitioner contends that such allocation was improper because the gross income of $ 246,795.95 was not the gross income of petitioner.

For his authority to make this adjustment to Roseland's sales respondent relies on section 45 of the Code, which authorizes the Commissioner under certain circumstances to "distribute, apportion, or allocate gross income, deductions, credits, or allowances between or among organizations." The adjustment here in issue arises by virtue of increasing from cost price to prevailing O. P. A. prices the charge for Bruce boxes made by Roseland and sold to petitioner. In making such an adjustment respondent purported to distribute, apportion or allocate gross income to Roseland under the provisions of section 45. Gross income so allocated to Roseland must come from another organization, trade, or business, 1951 U.S. Tax Ct. LEXIS 81">*107 which in the instant proceeding must be the petitioner. But as we understand petitioner's corporate structure and the way it carried on its business, petitioner, as a matter of fact, derived no gross income from the operation of its container pool during the taxable period. Corporation gross income is ordinarily computed 17 T.C. 433">*444 on Form 1120 as follows: Gross sales, minus cost of goods sold, equals gross profits from sales, plus other corporation income, equals total gross income.

From its container pool petitioner made no sales to nonmembers, and so, from the operation of the container pool petitioner received no gross income, or profits, from nonmembers that might be distributed to its members as dividends. Petitioner was so organized and operated that no dividends were distributed or credited to its members as a return on their capital investment. Petitioner was required to sell supplies to its members at cost, to be computed for each of petitioner's pools at the end of each fiscal year; see Article XII of petitioner's by-laws, as set forth in our findings of fact. The stipulated facts show that petitioner complied with the foregoing provisions of its by-laws in dealing 1951 U.S. Tax Ct. LEXIS 81">*108 with its member cooperatives. This by-law provided among other things:

At the end of each fiscal year (which is April 30th of each year), Corporation shall determine for all supplies purchased by each member from, through, or with this Corporation, the amount the aggregate gross prices exceed the aggregate net prices, and this amount shall be the "gross rebate" due to each member. There shall be deducted from the gross rebate due each member such proportion of the total overhead and other operating expenses of this Corporation as the gross rebate due each member bears to the total gross rebates due all members, and this amount shall be the net rebate due each member, and this Corporation shall pay to each member its net rebate as soon thereafter as practical.

The amount of the year-end credit given, or the container pool rebate, was computed on a proportional basis, depending upon the percentage participation of each member association in the total sales of petitioner's container pool during the year. Rebates of the nature made by the cooperative, Texsun, are an adjustment to its gross soles and as such, the sum of the rebate credits made to members for participation in the container1951 U.S. Tax Ct. LEXIS 81">*109 pool is to be excluded from petitioner's gross income. The Commissioner has recognized that rebates of the type credited by petitioner herein to its member associations are amounts not includible in the gross income of petitioner. 1938-2 C. B. 127 et seq. The ruling explains that:

Under long established Bureau practice, amounts payable to patrons of cooperative corporations as so-called patronage dividends have been consistently excluded from the gross income of such corporations. The practice is based on the theory that such amounts in reality represent a reduction in cost to the patron of goods purchased by him through the corporation or an additional consideration due the patron for goods sold by him through the corporation. As such amounts are not includible in gross income of the corporation, they are obviously not deductible by it, though, where they have been erroneously included in gross income in the first instance, the correcting adjustment is sometimes loosely termed a deduction. * * *

As the rebates credited by petitioner to members of its container pool are to be excluded from petitioner's gross income, they were not a part 17 T.C. 433">*445 1951 U.S. Tax Ct. LEXIS 81">*110 of petitioner's gross income. Petitioner, therefore, had no gross income subject to distribution, apportionment or allocation to Roseland by the Commissioner acting under the provisions of section 45 of the Code. While the fact situation presented herein is novel, we have on several occasions held that the Commissioner is not authorized under that section to allocate gross income, where none in fact existed. In Smith-Bridgman & Co., 16 T.C. 287, we said:

In support of his action the respondent argues that Continental, in securing these non-interest-bearing loans from petitioner, was enabled to relieve itself from paying interest on its outstanding debentures; and, furthermore, he argues, petitioner could have loaned the funds which Continental borrowed without interest to third parties at 4 per cent interest. Therefore, in order to prevent evasion of taxes and to clearly reflect the income of such related businesses, he has "allocated" to petitioner part of the income of its parent, in the exercise of the discretion conferred by section 45 of the code. The decisions involving section 45 make it clear that its principal purpose is to prevent the1951 U.S. Tax Ct. LEXIS 81">*111 manipulation of or improper shifting of gross income and deductions between two or more organizations, trades, or businesses. Its application is predicated on the existance of income. The courts have consistently refused to interpret section 45 as authorizing the creation of income out of a transaction where no income was realized by any of the commonly controlled businesses. Tennessee- Arkansas Gravel Co. v. Commissioner, 112 Fed. (2d) 508; * * *

What respondent seeks to do here, acting under section 45, is to allocate amounts of alleged gross income which were actually rebated to petitioner's member cooperatives and which rebates petitioner was under a legal obligation to make under its by-laws. These amounts were never the gross income of petitioner and we do not think that the provisions of section 45 can be construed so broadly as to permit the Commissioner to do what he seeks to do here. If section 45 is to be applied in that broad a manner it would in our opinion, require legislation by Congress.

Respondent's allocation is not sustained.

Decision will be entered for the petitioner.