In June 1952, the taxpayer obtained an option to acquire shares of a corporation ("Poitras"), which was a major supplier to it of lumber and was in financial difficulty, with a view to ultimately exercising the option and making Poitras its subsidiary, thereby securing Poitras as a continued supply source. However, in late August 1952, it was approached by a potential purchaser of Poitras; and in September 1952 entered into an agreement pursuant to which the supply contract was cancelled, advances to Poitras on account of future purchases were repaid, and it exercised the option - with the Poitras shares acquired on exercise then being immediately sold at a gain for largely cash consideration pursuant to that agreement.
Judson J affirmed the finding of the trial judge that (p. 1212):
[T]he appellant, having only an option on shares, did not carry out its plan to make Poitras a subsidiary. It exercised the option and sold the shares for cash and the other stated consideration, and this gave both the purchase and sale of the shares a trading character rather than acquisition and realization of a capital asset.