33 T.C. 876">*877 Respondent determined deficiencies in petitioner's income and excess profits taxes as follows:

By its petition herein, petitioner assigned error as to all of the adjustments upon which respondent determined these deficiencies. However, respondent, on brief, concedes all the issues raised by the pleadings except two. These two issues which remain for our decision are:

1. Whether the petitioner is entitled to a basic surtax exemption of $ 25,000 in each of the years under consideration and to a minimum excess profits tax credit of $ 25,000 for the years 1952 and 1953.

2. Whether, for purposes of computation 1960 U.S. Tax Ct. LEXIS 206">*208 of depreciation and long-term capital gain, petitioner is entitled to use as its cost basis the amount paid its parent company upon the transfer of 78 pieces of motor vehicular equipment from the parent to petitioner.

FINDINGS OF FACT.

A stipulation of facts has been filed by the parties and is incorporated herein by this reference.

The petitioner is a corporation organized on April 23, 1951, under the laws of the State of Nevada. Its principal office during the periods involved was in Las Vegas, Nevada.

33 T.C. 876">*878 Petitioner filed its Federal corporation income tax returns for the years 1952, 1953, and 1954 with the director of internal revenue for the district of Nevada. At all times involved petitioner kept its books and reported its income on an accrual basis, utilizing the calendar year.

Fleetlines, Inc., hereinafter referred to as Fleetlines, is a corporation organized on June 25, 1947, under the laws of the State of Nevada and since 1948 was engaged in business as a common carrier of property by motor vehicle in interstate commerce. During and prior to 1952, Fleetlines conducted certain nonpublic utility motor carrier operations in intrastate commerce in California. During all periods 1960 U.S. Tax Ct. LEXIS 206">*209 relevant herein, Fleetlines was subject to regulation by the Interstate Commerce Commission (hereinafter referred to as the ICC).

F. M. Hodge, Henry N. Hodge, and William E. Mullikin (hereinafter referred to as Mullikin) originally organized petitioner for the purpose of acquiring certain real property from Fleetlines. During the periods in issue, the Hodges and Mullikin were collectively or individually the principal shareholders in Fleetlines. Some steps were taken to effectuate that purpose, but upon a change of plans, petitioner was not actively engaged in any business between August 1951 and March 1952. Petitioner had borrowed sums from Fleetlines, but had repaid all but $ 100 as of March 31, 1952.

In July 1950, Fleetlines filed an appropriate application with the Public Utilities Commission of California, hereinafter referred to as the California commission, seeking authority to conduct operations as a highway common carrier as defined by the laws of California, and as such to become a public utility. Hearings on this application were held before the California commission on various dates in 1950 and 1951. The application was submitted for decision by the California commission 1960 U.S. Tax Ct. LEXIS 206">*210 on February 4, 1952, and was pending and undecided on April 1, 1952. In 1952, the period from submission to decision normally ranged from 3 months to a year.

Prior to January 1952, Fleetlines had secured alternate options to acquire either all, or a portion of, the stock of Osbourn Trucking Co., hereinafter referred to as Osbourn, from its then owners. Osbourn was a carrier of freight by truck and, in some respects, a competitor of Fleetlines in the same general territory. In January 1952, further agreements were reached between Fleetlines and the then owners of Osbourn by which Fleetlines would purchase 60 per cent of the stock of Osbourn, subject to the approval of the ICC. The parties to that agreement filed an application to obtain necessary consent of the ICC. If the transaction had gone forward as planned in January 1952, Osbourn would have been operated as a controlled subsidiary of Fleetlines.

33 T.C. 876">*879 In 1952, and in years prior thereto, Fleetlines took out licenses on all motor vehicles owned by it exclusively in the State of Nevada. Certain of the units so licensed were operated in California. From time to time in years prior to 1952, Fleetlines had been cited by California1960 U.S. Tax Ct. LEXIS 206">*211 authorities for alleged violations of California statutes relating to registration of motor vehicles. In each instance prior to January 1, 1952, Fleetlines had been successful at the time of trial of such matters either in securing a dismissal or an acquittal of the claimed statutory violations. In January 1952, Fleetlines was, for the first time, convicted in a court for the operation within California of one of its vehicles licensed in Nevada but not in California. At about the same time Mullikin, the manager of Fleetlines, was advised by a representative of the California Department of Motor Vehicles that Fleetlines was required to license all of its vehicles in California for that year and that unless it did so the Department of Motor Vehicles might find it necessary to seize and impound all vehicles. Although Mullikin did not know whether the Department of Motor Vehicles had the authority to impound vehicles in such situations, the representative informed him that it had previously done so. Mullikin knew from his own experience the disruptive effect of the impounding of vehicles, even for a brief period of time, upon commercial motor transport. In February and March 1952, 1960 U.S. Tax Ct. LEXIS 206">*212 certain actions were brought on formal complaint to determine whether Fleetlines or the Department of Motor Vehicles was correct on the licensing requirements of California. These cases were pending and undecided on April 1, 1952, and for some period thereafter.

On and prior to April 1, 1952, the officers and directors of Fleetlines believed that the application of Fleetlines to operate as a highway common carrier in California would be granted and that additional equipment would be required to conduct such operations. They also believed that permission to acquire controlling interest in Osbourn would be granted and that funds would have to be spent in purchasing both the stock and new equipment for Osbourn's operations. California statutes as then interpreted and applied by the California commission prohibited the encumbrancing of equipment or creation of long-term indebtedness by companies licensed by the California commission, except upon application, hearing, and approval by the California commission. The regulation of borrowing was not applicable to companies which merely leased equipment to those licensed by the California commission. Leasing of equipment by carriers subject 1960 U.S. Tax Ct. LEXIS 206">*213 to regulation by the ICC was regulated and controlled by that agency. Leasing of equipment by such carriers to noncarriers was prohibited by the ICC.

Prior to April 1, 1952, the officers, directors, and shareholders of Fleetlines had numerous discussions concerning the corporation's 33 T.C. 876">*880 present problems and future needs. As a result of these discussions, it was determined that petitioner should be activated as a wholly owned subsidiary of Fleetlines; that Fleetlines should purchase the only shares of stock in petitioner to be issued; that Fleetlines should transfer its motor vehicular equipment to petitioner; and that petitioner should rent the equipment, and any subsequently acquired, to Fleetlines, or any other lessees (carriers and noncarriers alike) who could be attracted.

Mullikin was directed to establish the fair market value of the equipment to be transferred under an agreement of sale to petitioner. He did so by using an appraisal made by an independent appraiser of motor vehicular equipment in June 1951. He consulted Fleetlines' maintenance supervisor as to condition of equipment, and any changes or additions to equipment subsequent to the appraisal. For equipment acquired 1960 U.S. Tax Ct. LEXIS 206">*214 by Fleetlines subsequent to the appraisal, Mullikin exercised his own judgment. The values which Mullikin thus established were the prices used in the agreement of sale.

Petitioner and Fleetlines executed a sales agreement on April 1, 1952. Under the terms of the agreement of sale petitioner acquired 78 units of equipment at a fixed price per unit. The total price to be paid was $ 221,150, payable $ 5,150 on May 1, 1952, and the balance in monthly installments of $ 6,000 each. Interest was payable on delinquent installments at the rate of 7 per cent per annum, payable and compounded semiannually. Title was retained by Fleetlines until the payment of the first installment on the purchase price. Fleetlines also reserved the right to rescind upon default. Fleetlines reserved the right to pay taxes, insurance, and other costs necessary to protect or preserve the property; and a breach of the agreement, a seizure of the property, or the bankruptcy of petitioner operated to accelerate and make due all unpaid obligations at the option of Fleetlines. The agreement did not reserve to Fleetlines a lien upon the property.

At the date of execution of the agreement both Fleetlines and petitioner 1960 U.S. Tax Ct. LEXIS 206">*215 intended that petitioner should, if necessary, pledge the equipment as collateral for loans from whatever source.

Commencing April 1, 1952, the equipment acquired under the agreement of sale was rented by petitioner to Fleetlines. The line haul units were rented on the basis of 25 cents a mile for the power units, with no specific rental for the trailer. At the time similar equipment was being rented by Fleetlines from third parties at from 20 cents to 30 cents a mile and these figures were taken into account in fixing the lease rental. The pickup and delivery units were rented on the basis of a monthly charge. The monthly rental figure for these units was lower than that being paid for rental from outsiders on the basis that the lease of the entire fleet would take a more 33 T.C. 876">*881 favorable rent. For the rental, petitioner provided fuel, upkeep, and maintenance, and paid all other charges except the wages of drivers and certain types of insurance and taxes which Fleetlines, as a common carrier, was required to pay and maintain. A draft of a written lease agreement was prepared but was never entered into because the document as prepared did not reflect the true agreement of the parties 1960 U.S. Tax Ct. LEXIS 206">*216 as to rates and expenses. The rental for pickup and delivery units was subsequently increased in late 1953 or early 1954 because it was found to be insufficient.

On April 28, 1952, petitioner issued 50 shares of its common stock to Fleetlines in return for $ 5,000 cash.

On May 1, 1952, petitioner's cash balance was $ 4,958.90. Petitioner made no payments to Fleetlines on the sales agreement until May 29, 1952. The dates and amounts of payments by petitioner to Fleetlines under the agreement are as follows:

No interest on delayed payments was charged or paid.

In November 1952, petitioner placed orders for the purchase of new motor vehicular equipment at a total cost of $ 35,215.86. Delivery of the new equipment was expected to and did take place in December 1952.

In December 1952, the ICC refused permission to Fleetlines to acquire Osbourn. In the same month the California commission granted permission to Fleetlines to conduct business as an intrastate 1960 U.S. Tax Ct. LEXIS 206">*217 highway common carrier in that State.

From December 1, 1952, to March 31, 1953, Fleetlines made advances to petitioner on open account without interest on the dates and in the amounts as follows:

Between December 1, 1952, and April 1, 1953, petitioner purchased additional equipment, both new and used, at a total cost of $ 88,345.08.

33 T.C. 876">*882 For the years 1952, 1953, and 1954, petitioner's average monthly gross income from operations, average monthly expenses of operations, and average monthly net income from operations before allowance for depreciation and provision for Federal taxation were as follows:

In late March or early April 1953, the management of petitioner and Fleetlines determined that advances from Fleetlines to petitioner had 1960 U.S. Tax Ct. LEXIS 206">*218 reached such magnitude, and prospects that petitioner would have to purchase additional equipment had become sufficiently certain, that petitioner should issue additional stock in cancellation of advances. On April 23, 1953, petitioner issued 1,950 additional shares of stock to Fleetlines; received Fleetlines' check in the amount of $ 195,000 in payment therefor; and issued to Fleetlines its check in the same amount in payment of advances on open account.

Subsequent to April 23, 1953, petitioner never borrowed additional funds from Fleetlines or any other corporation or person. Between April 1, 1953, and August 14, 1953, petitioner purchased additional equipment at a total cost of $ 34,280.47. None of the purchases of additional equipment which petitioner made subsequent to April 23, 1953, were financed through Fleetlines or any other corporation or person. By that time petitioner had established its own credit.

Petitioner sold none of the motor vehicular equipment which it had purchased from Fleetlines under the agreement of April 1, 1952, during the remainder of that year. From 1953 to 1956, petitioner sold 54 units of the equipment so acquired. Petitioner sold 23 of the 54 1960 U.S. Tax Ct. LEXIS 206">*219 units to either Osbourn, in which Fleetlines owned 40 per cent of the stock, or to Ralph A. Hagopian, president and other stockholder in Osbourn. The number of units acquired from Fleetlines which petitioner sold to all purchasers, the purchase price petitioner paid Fleetlines therefor, the sales price petitioner received, and the percentage of the purchase price recovered by sale; the number of units acquired from Fleetlines which petitioner sold to others than Osbourn and Hagopian, the purchase price petitioner paid Fleetlines therefor, the sales price petitioner received, and the percentage of the purchase price recovered by sale, are as follows: 33 T.C. 876">*883

An 1960 U.S. Tax Ct. LEXIS 206">*220 appraisal by a qualified appraiser of motor vehicular equipment made on April 2, 1959, set the fair market value of the equipment acquired by petitioner from Fleetlines as of the first quarter of 1952 at $ 225,450.

The price at which petitioner acquired the 78 units of motor vehicular equipment from Fleetlines under the agreement of April 1, 1952, was not substantially disproportionate to the fair market value thereof.

Fleetlines reported the long-term gain upon the sale of the equipment to petitioner on its income tax return for 1952 at $ 120,119.44 and paid taxes of approximately $ 31,000 thereon.

Some of the officers, directors, and stockholders of Fleetlines knew of the surtax exemption and minimum excess profits tax credit, but were not materially influenced thereby in deciding to transfer the equipment to petitioner.

Securing the surtax exemption and the minimum excess profits tax credit was not a major purpose in the activation of petitioner or the transfer of the 78 units of motor vehicular equipment to it by Fleetlines.

The transfer of the 78 units of motor vehicular equipment by Fleetlines to petitioner was not effected by bona fide sale and purchase, but was made by Fleetlines 1960 U.S. Tax Ct. LEXIS 206">*221 solely in exchange for stock or securities in petitioner.

OPINION.

The first issue here presented is whether for purposes of the disallowance, under sections 15(c) of the 1939 Code, ^{11960 U.S. Tax Ct. LEXIS 206">*222} 33 T.C. 876">*884 and 1551 of the 1954 Code, ² of the surtax exemption allowed by sections 15(b) of the 1939 Code, ³ and 11(c) of the 1954 Code, ⁴ and of the minimum excess profits tax credit allowed by section 431 of the 1939 Code, ^{51960 U.S. Tax Ct. LEXIS 206">*223} the obtaining of such exemption and credit was a major purpose of the activation of petitioner and the transfer of motor vehicular equipment from Fleetlines to petitioner. The respondent has determined that securing the exemption and credit was such a major purpose; the petitioner contends that it was not.

Whether securing the exemption and credit, resultantly avoiding taxation in that manner, was a major purpose of the activation of petitioner is a question of fact, and not a question of law. Sno-Frost, Inc., 31 T.C. 1058">31 T.C. 1058, 31 T.C. 1058">1062. The determination is to be made upon a consideration of all circumstances relevant to the transaction, Regulations 111, section 29.15-2(e). Obtaining the surtax exemption and excess profits tax credit need not be the sole or principal purpose of the activation; that it was a major purpose will suffice to support the disallowance. Contract Battery Mfg. Co. v. Tomlinson, (S.D. Fla. 1958) 2 A.F.T.R.2d (RIA) 5413, 58-2U.S.T.C. par. 9655. Regs. 1960 U.S. Tax Ct. LEXIS 206">*224 111, sec. 29.15-2(e). The burden of proving by the clear preponderance of the evidence that securing the exemption and credit was not a major purpose of the activation is placed upon the petitioner by the statutory enactments here involved.

That the taxpayer proves business needs which motivated the transaction does not alone establish that securing the exemption and credit was not a major purpose. Central Valley Management Corp. v. United States, 165 F. Supp. 243">165 F. Supp. 243. Regs. 111, sec. 29.15-2(e). Proof of business needs, however, which could only be met by the activation and transfer tends to establish that tax avoidance was not a major purpose. 31 T.C. 1058">Sno-Frost, Inc., supra.

The term "major" is not defined in the statute. It is a word of common usage and synonymous with many other words of like connotation and sense. Contract Battery Mfg. Co. v. Tomlinson, supra.A review of cases interpreting the word, while not entirely rewarding, indicates that the major quality of a thing is to be determined 33 T.C. 876">*885 in large part by its effect. Gale Realty Corporation v. Bowles, 139 F.2d 496; D'Amico v. Brock, 264 P.2d 120. We conclude that the major quality of a "purpose" within the framework of the statutory 1960 U.S. Tax Ct. LEXIS 206">*225 sections here involved is to be determined in the light of the effect which consideration of securing the exemption and credit had upon producing the decision to create or activate the new corporation. Such an approach is consistent with legislative intent as determined from the history of the enactment. ⁶

Applying all of these considerations to the record here presented, we have concluded that securing the exemption and excess profits credit was not a major purpose in the activation of petitioner and transfer of certain assets of 1960 U.S. Tax Ct. LEXIS 206">*226 Fleetlines, Inc., to it. We decide this first issue in favor of petitioner.

The second issue remaining for decision is whether, as respondent has determined, the cost basis for purposes of computation of depreciation and long-term capital gain to petitioner of 78 pieces of motor vehicular equipment is the adjusted basis to Fleetlines, or, as petitioner contends, the price paid to Fleetlines by petitioner upon acquisition of the equipment. Respondent's determination of deficiencies in petitioner's taxes for the periods here in question is, in large part, predicated upon his determination that the transfer of equipment is within the provisions of section 112(b)(5) of the 1939 Code, ⁷ and, therefore, that section 113(a)(8)^{81960 U.S. Tax Ct. LEXIS 206">*227} is operative.

Respondent's determination is premised on his conclusion that the net effect of the transactions between Fleetlines and petitioner during 33 T.C. 876">*886 April 1952 and in April 1953 was that Fleetlines transferred 78 pieces of motor vehicular equipment and $ 5,000 in cash to petitioner solely in exchange for 2,000 shares of petitioner's stock, petitioner's only outstanding shares. In so determining, 1960 U.S. Tax Ct. LEXIS 206">*228 respondent has accorded no validity as such to the agreement of April 1, 1952, between petitioner and Fleetlines for the purchase and sale of the motor vehicular equipment, and has treated as a single transaction all of the dealings between Fleetlines and petitioner which began with the transfer of the equipment in April 1952, and ended with the issuance of 1,950 shares of petitioner's stock to Fleetlines in April 1953, under the circumstances detailed in our Findings of Fact.

Petitioner's contention is that by a sales agreement with Fleetlines on April 1, 1952, it purchased the vehicles then owned by Fleetlines for $ 221,150, payable $ 5,150 on May 1, 1952, and the balance in monthly installments of $ 6,000 each and that an April 28, 1952, Fleetlines purchased 50 shares of petitioner's stock for $ 5,000 and that in April 1953, it purchased 1,950 more shares of petitioner's stock by canceling out an indebtedness which had accumulated at that time against petitioner of $ 195,000. Petitioner further contends that each of these transactions was a separate one and should be given its normal separate effect and should not be grouped together as one transaction as respondent has determined 1960 U.S. Tax Ct. LEXIS 206">*229 and still contends.

Whether a transfer of property by a stockholder to a corporation constitutes, for purposes of Federal taxation, a sale or a contribution of capital is a question of fact. Cohen v. Commissioner, 148 F.2d 336 (C.A. 2, 1945). It is dependent upon the intent of the parties as ascertained from all relevant facts and circumstances. Sarkes Tarzian, Inc. v. United States, 240 F.2d 467, 470 (C.A. 7, 1957). No rule of thumb applies, no single criterion determines the result, for each case must be adjudicated upon its own facts. Gooding Amusement Co. v. Commissioner, 236 F.2d 159, 165 (C.A. 6, 1956), affirming 23 T.C. 408">23 T.C. 408, certiorari denied 352 U.S. 1031">352 U.S. 1031.

Petitioner claims that at a time when it had no capital, no enforcible stock subscription, no assets, and a debt of $ 100, it entered into a bona fide purchase and sale of motor vehicular equipment owned by its parent company of a value of $ 221,150, taking immediate possession and beneficial ownership, and title 1 month later upon the payment of 2.33 per cent of the total price. Petitioner has shown numerous reasons for making the transfer, but no valid business reasons independent of tax considerations for the choice 1960 U.S. Tax Ct. LEXIS 206">*230 of a sale as the method of transfer. Twenty-seven days after the sale, petitioner issued stock to its parent company and received $ 5,000, its sole form capital for the succeeding 12 months. Petitioner claims this sum constituted working capital adequate to its then expected needs of paying $ 53,150 on the purchase of the equipment during 33 T.C. 876">*887 1952, maintenance of the equipment at an actual cost of approximately 150,000, and the purchase of additional equipment. Petitioner made the initial payment to its parent 28 days after the time specified in the agreement. Subsequently, monthly payments were made from 5 to 24 days after the first of each month. In September and October 1952, petitioner paid the parent $ 51,000 more than the amounts specified in the agreement. In December 1952, the parent advanced $ 160,000 on an open account with no interest and no specified dates of repayment; and petitioner paid $ 129,000 as the balance remaining under the agreement of sale. The parent subsequently made further advances of $ 35,000; and in April 1953, petitioner issued additional stock in the amount of $ 195,000. It received Fleetlines' check for this amount and it, in turn, issued to Fleetlines 1960 U.S. Tax Ct. LEXIS 206">*231 its check in the same amount in payment of advances appearing against it on open account on Fleetlines' books. Petitioner does not claim that the parent preserved any lien upon the equipment transferred; rather, it introduced evidence that the parent intended that the equipment be used by petitioner as collateral in securing loans from independent lenders.

From the record presented we do not conclude that the transaction constituted a bona fide sale; we conclude, rather, that it represented a contribution of capital with the form but not the substance of a sale, giving rise to no true debtor-creditor relationship. We do not find that the agreement was such as would have been negotiated by two independent and uncontrolled parties. We do find that the transfer, regardless of its form, was intended to be a capital contribution by which the assets transferred were placed at the risk of petitioner's business.

Since we have found that the transaction was not a bona fide sale of the equipment, we must look to see if the assets were transferred in exchange for stock or securities of petitioner. If the transfer is regarded as completed on April 1, 1952, the equipment was exchanged for a promise 1960 U.S. Tax Ct. LEXIS 206">*232 of petitioner to pay its parent $ 221,150. The promise was in direct proportion to the parent's proprietary interest, not actually paid according to its terms, subsequently converted to a promise to pay without provision for interest upon default or specified repayment dates, and ultimately converted into stock in petitioner. We conclude and hold, therefore, that the promise constituted in substance a proprietary interest in petitioner in the nature of stock rather than a bona fide indebtedness. Cf. R. M. Gunn, 25 T.C. 424">25 T.C. 424, affirmed per curiam 244 F.2d 408. Finding that petitioner's promise to pay evidenced a proprietary interest, it makes no difference whether the transfer be viewed as completed in April, May, or December 1952, or in April 1953. We hold, therefore, that the transfer 33 T.C. 876">*888 whereby petitioner received the motor vehicular equipment was within the provisions of section 112 (b)(5) of the 1939 Code.

Petitioner contends, however, that because Fleetlines treated the transfer as taxable, reported and paid tax upon a gain representing the difference between the depreciated and the market value of the equipment, gain was recognized thereby and petitioner is entitled to a basis 1960 U.S. Tax Ct. LEXIS 206">*233 increased in that amount. Such an issue was raised and decided adversely to the taxpayer's contentions in Gooding Amusement Co. v. Commissioner, supra, which case is dispositive of the issue herein. Respondent's determination of petitioner's cost basis for computation of depreciation and long-term gain upon the sale of the equipment is sustained.

Decision will be entered under Rule 50.