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31 percent of CBA directly and indirectly held 47 percent through
BA, of which it owned 48 percent. The record does show that, in
1987, about 80 percent of CBA's sales were to affiliates, but
there are no earlier figures with which to compare. The record
also shows that the production capacity of CBA's Baie Comeau
plant increased concurrently with the involvement of RMECC, but
the reasons go unexplained. In short, we are not persuaded that
Metals' stock outlay was made in exchange for a direct and
quantifiable benefit to Metals so as to preclude a finding that
the outlay was a contribution to capital. See Nalco Chemical Co.
& Subsidiaries v. United States, 561 F.Supp. 1274, 1289-1290
(N.D.Ill. 1983); cf. United States v. Chicago, B. & Q. R. Co.,
412 U.S. 401, 413 (1973).
Nor are we persuaded by the fact that Metals had a
conversion obligation under the indenture, for it is the origin
and nature of the obligation that determines deductibility. See
Interstate Transit Lines v. Commissioner, 319 U.S. 590, 594
(1943); Eskimo Pie Corp. v. Commissioner, 4 T.C. 669, 677 (1945),
affd. 153 F.2d 301 (3d Cir. 1946). The fact that this standard
has generally been articulated in the context of the issue
whether an expenditure is a deductible business expense under
section 162(a) or is a capital contribution under section 118(a)
does not impair its applicability in the instant case when the
capital nature of the transaction is considered.
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