Before HASTINGS, Chief Judge, and DUFFY and SCHNACKENBERG, Circuit Judges.
SCHNACKENBERG, Circuit Judge.
Streight Radio and Television, Inc., an Indiana corporation, petitioner, seeks a review of a decision of the Tax Court of the United States, 33 T.C. -,*fn1 that there is a deficiency of $14,245.82 in income tax owing by petitioner for the fiscal year ending October 31, 1950.
The basic facts are not in dispute.
During the taxable year, petitioner was engaged in the business of selling television sets and of servicing the sets sold.
Most of the sets sold by petitioner were designed by their manufacturers so that, every 2 to 6 months, the chassis would have to be removed, and the tuners, glass, and picture tube cleaned. Petitioner rendered this service upon call by its customers. Less than 100 of the several thousand sets sold during the taxable year did not require service of one kind or another.
In addition to its advertised list price, petitioner offered an "Installation and Service Contract" for an additional consideration, which varied in amount from $65 to $100, depending on the make and model of the receiver sold. Petitioner added the charge for the service contract to the list price to arrive at a single total sales price for the set. The customer was also given a sales ticket, which reflected the total sales price, as a receipt. A delivery card was made up for each television set sold during the taxable year.
Respondent's agents examined 25 sales tickets which represented 2 days' sales; 18 of these tickets did not contain any reference to any warranty. However, 5 of these latter 18 tickets were checked by respondent's agent against the corresponding 5 delivery cards; 1 of those delivery cards showed a 90-day service and parts warranty, with a 1-year warranty on the picture tube, another disclosed a "coupon" warranty, 1 showed a 1-year parts warranty, and 2 provided for a 1-year service warranty. Respondent's agent examined the delivery cards for customers with initials A through BE, approximately 200 cards. All but 22 of these delivery cards disclosed a 1-year service warranty. Of those 22 cards, 1 did not record any warranty, 1 recorded a 1-year parts warranty, and 20 disclosed 90-day warranties, either on parts or service, or on both.
A few sets sold for cash were sold without any service contracts. All but 10 per cent of the sets sold by petitioner during the year in question were sold with a 1-year service contract.
Petitioner's main purpose in offering the service contracts was to induce potential customers to purchase their sets from it. Petitioner was not in the business of servicing, and it did not service television sets sold by other concerns, as it knew from the experience of such competitors that such a service business was not profitable.
Louis Goedecke, an accountant, made monthly posting entries from monthly summaries to the general ledger of petitioner, and prepared petitioner's income tax returns. The charges for service contracts having been included in total sales without allocation, Goedecke computed the amount thereof to be deferred, in the manner indicated in the footnote.*fn2
During the taxable year, petitioner's television sales and charges for service contracts, less refunds in the amount of $7,908.42, totaled $1,041,649.50. This amount does not include other unexplained sales of approximately $2,905, and service and repair income not covered by service contracts in the amount of $37,890.26. At the end of the fiscal year, total uncollected contracts receivable had been reduced to $287,049.30.
The Tax Court found that Goedecke used a "Schedule of Deferred Income 10-31-50",*fn3 in preparing petitioner's tax return.
The Tax Court found that, according to the books and records and income tax returns of petitioner, its television, service contract, and other service and repairs sales, and the costs of producing those ...