Commissioner v. San Carlos Milling Co.

The taxpayer is a domestic corporation organized under the laws of the territory of Hawaii, with its principal office at Honolulu, T. H. Its principal place of business is in the municipality of San Carlos, province of Negros Occidental, Philippine Islands, where it operates a sugar mill for the manufacture of raw sugar from sugar cane, under a contract or contracts with certain planters who supply the sugar cane. These contracts will be discussed fully hereinafter. By the terms of the contracts, the taxpayer received as compensation for its milling services in the manufacture of the sugar 40’ per cent, of the raw sugar manufactured from the cane supplied by the planters. The Commissioner of Internal Revenue determined that the sugar so received by the taxpayer under these contracts was income, because the contracts with the planters constituted a sale of the sugar to the taxpayer and therefore the taxpayer was not entitled to the benefits of section 262 (a) of the Revenue Act of 1921 ( 42 Stat. 271 ) in computing its tax for the year 3923. This determination was reversed by the Board of Tax Appeals (24 B. T. A. 1132), which held that the taxpayer was entitled to the benefits of…