Before BIGGS, Chief Judge, and O'CONNELL and KALODNER, Circuit Judges.
The single issue presented by this appeal is whether the income of a corporation derived exclusively from the rental of its property to a partnership consisting of husband and wife who own all of the corporation's capital stock, is "personal holding company income" within the meaning of Section 502(f), Internal Revenue Code, 26 U.S.C.A. § 502(f).
The facts as found by the District Court may be summarized as follows:
The taxpayer is a corporation organized under the laws of New Jersey. It was the owner of a factory building which was rented to Wendell G. Randolph and Altje H. Randolph, his wife, who were general partners. Wendell G. Randolph was the owner of 94 percent of the common stock of the taxpayer, and Mrs. Randolph owned the remaining 6 percent.
The gross income of the taxpayer for the calendar years 1943 and 1944 was derived solely from rent paid to it by the partners for the use and occupancy of the factory building owned by the taxpayer.
The taxpayer filed its corporate income tax returns for the calendar years 1943 and 1944 paying income and declared value excess profits taxes as therein reported. These returns, however, disclosed no personal holding company surtax liability.
Thereafter, the taxpayer filed a delinquent return for the calendar year 1943 (return of Personal Holding Company) in which it reported "personal holding company income" and a surtax liability thereon in the amount of $3,017.06. The taxpayer f9led a similar return for the calendar year 1944 in which it reported "personal holding company income" and a surtax liability thereon in the amount of $3,017.35. Thereafter, the taxpayer filed an amended return for each of those years in which it disclaimed liability as a personal holding company.
Pursuant to the provisions of the Code, the Commissioner of Internal Revenue, having determined a deficiency for each of the years, assessed the surtax set out below.*fn1 The taxpayer paid the surtax and interest as assessed for each of the years, but failed to pay the delinquency penalties. Additional interest for each of the years, in the amount of $195.50 and $187.96, respectively, was thereafter assessed and paid.
The taxpayer on June 21, 1946, filed a claim for the refund of $3,258.42, the full amount of the surtax and interest thereon paid for the calendar year 1943, and a claim for the refund of $3,132.78, the full amount of the surtax and the interest thereon paid for the calendar year 1944.
The claims for refund were predicated upon the following grounds: first, the income of the taxpayer was not "personal holding company income" within the meaning of Section 502(f) of the Code; second, the taxpayer was not a "personal holding company" within the meaning of Section 501(a) (1) and (2) of the Code; and third, the delinquent returns were inadvertently filed.
Upon the motion of the taxpayer for summary judgment, the District Court, having considered the pleadings, the affidavits and evidence submitted in support of the motions and the documentary evidence in opposition thereto and the briefs filed by both parties, held the taxpayer to be a personal holding company within the meaning of Section 501(a) (1) and (2) of the Code and its income to be personal holding company income within the meaning of Section 502(f) of the Code, and accordingly, dismissed the taxpayer's suit.
The taxpayer thereupon brought this appeal relying solely on the ground that the taxpayer's income was not personal holding company income within the meaning of Section 502(f)*fn2 of the Internal Revenue Code because it was not received from "an individual entitled to the use of the property."
The crux of the taxpayer's position is that (1) a partnership is a separate and distinct business unit or entity; (2) where a partnership is a tenant it is the partnership which is "entitled to the use of the property;" (3) partners as such have no individual property right in partnership property; and (4) use of the partnership property by an individual partner is not individual use but partnership use. The taxpayer urges also that "individual" means a single person as ...