2 T.C. 819">*819 The respondent determined deficiencies in income tax for the years 1936, 1937, and 1938 in the amounts of $ 2,169.47, $ 3,973.88, and $ 3,101.36, 2 T.C. 819">*820 respectively. The deficiencies arise from the inclusion of certain commissions in the petitioner's taxable income, and the issue presented is whether the commissions are income of the petitioner or income of Albany Service Station, Inc., a corporation owned by the petitioner and members of his family.

FINDINGS OF FACT.

The petitioner is a resident of Atlantic City, New Jersey. He filed his returns for the taxable years with the collector for the first district of New Jersey.

The petitioner is the treasurer and general1943 U.S. Tax Ct. LEXIS 50">*51 manager of Albany Service Station, Inc., a corporation of the State of New Jersey, hereinafter referred to as the Albany Co., which was engaged during the taxable years in selling gasoline and other petroleum products at wholesale and retail in Atlantic City. A minority of the Albany Co.'s outstanding capital stock of $ 5,000 was owned by the petitioner and the remainder was owned by the petitioner's wife, Emma Paxson, who was president of the Albany Co., and by the petitioner's four children, his sister, and his brother-in-law. The Albany Co. carried on its business and did its banking in its own name, and it kept regular books of account and a minute book of proceedings of its directors and stockholders. Its physical assets consisted of service station equipment, including oil and gas pumps, motors, and hoists, and two secondhand trucks. The petitioner, as general manager, had exclusive charge of the company's business and received a salary of $ 8,500 per annum for his services.

On March 12, 1934, the Richfield Oil Corporation (a branch of the Sinclair Co.), hereinafter referred to as the Richfield Co., appointed the Albany Co. as its agent for the sale of gasoline in Atlantic1943 U.S. Tax Ct. LEXIS 50">*52 City and vicinity. The contract was to terminate on March 11, 1937, and was to be automatically renewed from year to year thereafter for a period of five years unless and until one of the parties gave at least 30 days written notice of its intention to terminate on the then expiring year, but the Richfield Co. reserved the right to terminate it at any time. The Richfield Co. was to deliver gasoline to the Albany Co. on consignment, for sale by the latter at prices fixed by the Richfield Co., and the Albany Co. was to receive a stated commission on each gallon sold. The gasoline was to be delivered to the Albany Co. at the Richfield bulk storage plant at Absecon, New Jersey, and the trucks and labor necessary for the operation of the agency were to be furnished by the Albany Co. The contract provided that the Albany Co. should give its exclusive time and attention to the sale of Richfield products and that it should not, without the written consent of the Richfield Co., sell, deal in, market, or distribute, directly 2 T.C. 819">*821 or indirectly, petroleum products, other than those sold, marketed, or distributed by the Richfield Co.

Just prior to August 1, 1935, the petitioner learned1943 U.S. Tax Ct. LEXIS 50">*53 that condemnation proceedings were to be instituted by the Pennsylvania Railroad Co. against the property on which the Richfield bulk plant was situated, and, anticipating that this might result in a temporary suspension of operations by the Richfield Co. in that location, and in order to assure the Albany Co. of a continuous supply of gasoline, he entered into negotiations with the American Oil Co., hereinafter referred to as Amoco, for the appointment of the Albany Co. as an agent for the sale of Amoco's gasoline and other petroleum products. Amoco had knowledge of the Albany Co.'s contract obligation to deal exclusively in Richfield products, and because of such obligation and of Amoco's desire to avoid any litigation or controversy with the Richfield Co., it declined to enter into any agency agreement with the Albany Co. However, the negotiations resulted in the execution on August 1, 1935, of a contract between Amoco and the petitioner individually, designated as a "commission peddler agency contract."

Under the contract of August 1, 1935, the petitioner was employed as the "Agent" of Amoco for the purpose of selling and hauling from Amoco's bulk plant at Atlantic City gasoline1943 U.S. Tax Ct. LEXIS 50">*54 and other Amoco petroleum products, and petitioner was to furnish an employee fidelity bond. The contract was to continue from August 3, 1935, until terminated on written notice by either party. The petitioner was to haul all gasoline and other products from the bulk plant premises of Amoco for the purpose of resale to customers procured by him within such territory as Amoco might from time to time designate, and he was to give his exclusive time and attention to his employment as the agent of Amoco and to operate and make all sales in strict compliance with its rules and regulations. The petitioner was to make all sales at prices and upon terms designated by Amoco and he was to settle daily for all cash sales and to remit daily for all other sums received for the account of Amoco. The petitioner was not to extend any credit, or make any sale at a discount, credit or otherwise, without the written authority of Amoco, and all unauthorized sales, or credit, or for an amount greater than authorized, were to be for his own account. The petitioner was to furnish, maintain, and operate, at his own expense, the trucks necessary for servicing customers, and to carry liability insurance1943 U.S. Tax Ct. LEXIS 50">*55 thereon. All trucks were to carry the name of the American Oil Co. and the agent's name, and the words "Commission Peddler Agent" were to be shown on the cab of the truck. All persons employed by petitioner in connection with the performance of his duties under the contract were to be his employees and Amoco was not to be responsible for any claims or demands for wages, or otherwise, 2 T.C. 819">*822 growing out of or pertaining to their employment. Amoco was to pay the petitioner daily on the sale and actual delivery by him of products from the bulk plant of Amoco to buyers made on that day a commission of 2 cents a gallon on the various grades of Amoco's gasoline, and commissions of varying amounts on lubricating oils, greases, and specialties. The contract further provided:

This contract may not be assigned by Agent, except with the written consent of American first had and obtained. * * * This agreement embodies all arrangements between the parties hereto relative to the subject matter hereof and shall not be modified, changed, added to or altered in any respect except in writing signed by Agent and by the General Sales Manager of American.

Prior to 1936 the Albany Co. was purchasing1943 U.S. Tax Ct. LEXIS 50">*56 large quantities of Amoco's gasoline on credit, through petitioner as Amoco's agent, and, although Amoco believed that the petitioner was personally liable for such purchases under the provisions of his agency contract of August 1, 1935, prohibiting sales of its products by petitioner on credit, without Amoco's consent, it demanded that he execute a separate instrument guaranteeing the account of the Albany Co. The petitioner on October 28, 1936, executed an instrument wherein, in consideration of the sales theretofore made and to be made from time to time by Amoco to the Albany Co. on credit, the petitioner guaranteed payment of the account of the latter to the extent of $ 7,500.

The contract of August 1, 1935, was in effect until September 14, 1938. While that contract was in effect all sales of Amoco's gasoline and other products were made by petitioner and were hauled in the trucks of the Albany Co., and the latter paid all the expenses of such hauling, including maintenance of the trucks, wages of employees, and liability insurance. Amoco at the end of each month issued its check for commissions due on sales made under the contract of August 1, 1935. The checks were payable1943 U.S. Tax Ct. LEXIS 50">*57 to the order of the petitioner, but he did not cash any of them personally or clear any of them through the bank. The bookeeper of the Albany Co., after verification of the amount of commissions due, endorsed the monthly check to the Albany Co., applied it as payment on the account of the latter for gasoline purchased from Amoco, and returned the check to the local office of Amoco.

In September 1938, Amoco discontinued the practice of drawing checks for the commissions and accepting them as payment on the account of the Albany Co. On September 14, 1938, Amoco entered into a contract with the Albany Co., in which Amoco agreed to sell and deliver to the Albany Co., on stated terms, the latter's resale requirements of Amoco's gasoline and other products.

In a letter from Amoco to the petitioner dated December 1, 1942, Amoco said:

2 T.C. 819">*823 * * * We had a contract with you individually effective August 1, 1935 which called for commissions of 2 cents per gallon on all deliveries of gasoline to customers of the American Oil Company which included the Albany Service Stations, Inc. and as we were unable to locate the individual Agreement of Guaranty, which you thought was in our possession, 1943 U.S. Tax Ct. LEXIS 50">*58 we sent you a new one for signature with the effective date October 28, 1936. * * *

Until September 14, 1938, we issued monthly checks to your order and you in turn, endorsed these checks and used them as part payment of Albany Service Stations, Inc. account. Subsequent to September 14, 1938, we eliminated the monthly checks as it was our desire to eliminate the Commission Contract which we had with you individually. Your Commission Contract was cancelled by agreement on February 14, 1939.

While we were unable to locate an individual Agreement of Guaranty dated prior to October 28, 1936, the Commission Agreement which we had with you individually actually made you personally responsible to us for the account of Albany Service Stations, Inc. because of Sections 4 and 5 of your Commission Agreement.

The petitioner was never authorized by the Albany Co. by written instructions or formal corporate resolutions to enter into the agreement of August 1, 1935, on its behalf and during the time it was in effect petitioner did not assign that agreement to the Albany Co. in writing, nor did he obtain written consent of Amoco to make such an assignment.

In its returns for the years 1936, 1937, 1943 U.S. Tax Ct. LEXIS 50">*59 and 1938 the Albany Co. reported net income for those years in the amounts of $ 2,851.28, $ 12,550.91, and $ 6,001.37, respectively. The gross income reported in such returns included, among other items, "discounts on purchases" in the amounts of $ 16,319.64 for 1936, $ 25,642.12 for 1937, and $ 23,057.48 for 1938.

The respondent, in determining the deficiency, stated that "Commissions of $ 16,319.64, $ 25,642.12 and $ 23,057.48, received from the American Oil Co. for the years 1936, 1937, and 1938, respectively, are held to be taxable to" the petitioner, and he accordingly increased the petitioner's income by those amounts.

OPINION.

The petitioner does not question the respondent's determination as to the amounts paid as commissions by Amoco. His contention is that the commissions were the income of the Albany Co. and therefore are not taxable to him. The petitioner has not filed a brief, but in his petition alleges that, in making the contract of August 1, 1935, he was acting as the agent of the Albany Co. and that all things done in performance of the contract were done by and in behalf of that company.

If the petitioner entered into the contract as the agent for or on behalf1943 U.S. Tax Ct. LEXIS 50">*60 of the Albany Co., he would not be taxable on the commissions. 2 T.C. 819">*824 Richard T. Gillespie, 2 B.T.A. 1317">2 B.T.A. 1317; Herbert Choynski, 14 B.T.A. 9">14 B.T.A. 9; Andrew E. Rossi, 41 B.T.A. 734">41 B.T.A. 734. However, the facts are inconsistent with any claim of contractual relationship between the Albany Co. and Amoco, either direct or through petitioner as an agent of the Albany Co. In the negotiations preceding the contract of August 1, 1935, the petitioner sought to have the Albany Co. employed as agent for the sale of Amoco gasoline. Amoco knew that the Albany Co. was bound by an existing contract to deal exclusively in Richfield products, and it refused for that reason to make any contract with the Albany Co. It finally agreed to and did enter into a contract with the petitioner individually. The contract designated the petitioner as the agent of Amoco to procure purchasers of its products and it provided for the payment of the commissions on sales to petitioner. It required petitioner to furnish an employee fidelity bond, to give his exclusive time and attention to his employment, and to account for all amounts1943 U.S. Tax Ct. LEXIS 50">*61 collected on cash sales. It imposed a personal liability for any sales made on credit without the authorization of Amoco. These provisions, as well as other provisions, of the contract, together with the circumstances attending its execution, leave no doubt that the obligations thereunder to Amoco were those of petitioner individually and that the obligations thereunder of Amoco were to petitioner. The petitioner personally made all the sales and Amoco paid all the commissions to him until September 14, 1938, when Amoco contracted with the Albany Co. to supply the latter's resale requirements. Amoco at all times regarded the petitioner as the person entitled to the commissions.

That, prior to September 14, 1938, the Albany Co. was not a selling agent for Amoco, but was rather a purchaser of that company's products through petitioner as its agent, is further indicated by the instrument executed by petitioner on October 28, 1936, guaranteeing the account of Albany Co. for sales made it on credit.

We are of the opinion and so hold that in making the contract with Amoco of August 1, 1935, and in doing all things in the performance thereof, the petitioner was acting in his individual1943 U.S. Tax Ct. LEXIS 50">*62 capacity and not as the agent of the Albany Co.

In his testimony the petitioner states that the contract "was turned over to the Albany Service Stations, for their exclusive use. They haul all the gas, carried all the gas, carried insurance, all compensations, everything that went with the conduct of the business. * * * They were to have the commission." He further states that, prior to the signing of the contract, he had an oral understanding with Amoco that the contract was going to be assigned to the Albany Co. The petitioner apparently seeks to establish the conclusion that he assigned the contract to the Albany Co. with the consent of Amoco. 2 T.C. 819">*825 The contract, into which all prior agreements with regard to the subject matter thereof were merged, itself prescribes the manner in which it is to be assigned or modified, namely, with the consent in writing of Amoco. The petitioner informs us that he never made any assignment in writing and that Amoco never consented in writing to any assignment or modification. Thus, if the petitioner did transfer the contract to the Albany Co. by an oral assignment, his act was ineffectual and invalid, in view of the express prohibition1943 U.S. Tax Ct. LEXIS 50">*63 contained in the contract and in view of the further fact that there is no evdence whatever to show that Amoco, subsequent to the execution of the contract, consented orally to the arrangement which the petitioner claims he made with the Albany Co. respecting the contract.

We hold that the commissions here involved constituted income of the petitioner, and we affirm the respondent's determination.

Decision will be entered for the respondent.

Murdock, J., dissenting: I feel that the majority opinion in this case will bring about a miscarriage of justice and, therefore, I respectfully dissent. It ignores the substance and exalts the legal form of what took place.

Concededly, all of the writings recognized the petitioner as the contracting party. But the fact is he did not perform the contract or earn any commissions under it. He bore none of the expenses and had no facilities with which to carry on the work. The contract was performed by Albany, using its own equipment, and bearing all of the expenses. One of those expenses was the payment of a regular salary to the petitioner. Albany reported the benefits from the contract by a reduction in its cost of goods sold.

1943 U.S. Tax Ct. LEXIS 50">*64 The Amoco business was the principal business of Albany during these years, without which its operations would have ceased. The petitioner frankly disclosed all of the documentary evidence against him, but testified, nevertheless, that all parties understood throughout that Albany, rather than he, would perform under the contract. But however that may be, it did do the work and the petitioner did not. The injustice of taxing him with commissions which he did not earn, own, or benefit from, while Albany deducts all expenses, and while the petitioner also reports the salary from Albany for managing this very work, would seem to be obvious.