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Helvering v. British-American Tobacco Co.

March 5, 1934

HELVERING, COMMISSIONER OF INTERNAL REVENUE,
v.
BRITISH-AMERICAN TOBACCO CO., LIMITED



Appeal from the United States Board of Tax Appeals.

Author: Manton

Before MANTON, AUGUSTUS N. HAND, and CHASE, Circuit Judges.

MANTON, Circuit Judge.

This is a petition to review a judgment entered against the Commissioner by the Board of Tax Appeals. It determined that there was no deficiency with respect to income taxes of the respondent for the years 1925 and 1926. The question presented is whether the respondent was subject to a corporation tax, with respect to interest paid to it by the government in the years 1925 and 1926, upon refunds of income and profit taxes illegally assessed against it in the calendar years 1917, 1918, and 1919. The interest received was $12,600.20 in 1925 and $182,832 in 1926. The overpayments were $1,394,357.64.

The corporation reported these amounts on its tax returns for the years 1925 and 1926 as nontaxable income. Therefore, was the interest paid during 1925 and 1926, by the government, to the respondent, upon the overpayments of taxes, income from sources within the United States, within the meaning of sections 217 and 233 of the Revenue Act of 1926 (chapter 27, 44 Stat. 9 [26 USCA §§ 958, 985]).

Section 1019 of the Revenue Act of 1924 (chapter 234, 43 Stat. 346 [26 USCA § 153 note]) provides for the payment of interest at 6 per cent. on the allowance of a credit or refund of any tax erroneously collected. The Revenue Act of 1926, chapter 27, § 217 (a) 44 Stat. 30 (26 USCA § 958(a), provides: "In the case of a nonresident alien individual * * * the following items of gross income shall be treated as income from sources within the United States: (1) Interest on bonds, notes, or other interest-bearing obligations of residents, corporate or otherwise, not including (A) interest on deposits with persons carrying on the banking business paid to persons not engaged in business within the United States and not having an office or place of business therein, or (B) interest received from a resident alien individual, a resident foreign corporation, or a domestic corporation, when it is shown to the satisfaction of the Commissioner that less than 20 per centum of the gross income of such resident payor or domestic corporation has been derived from sources within the United States. * * *"

Section 217(c), 26 USCA § 958(c), provides: "The following items of gross income shall be treated as income * * * other than that derived from sources within the United States as provided in paragraph (1) of subdivision (a)."

Section 233(b), 44 Stat. 41, 26 USCA § 985(b), provides: "In the case of a foreign corporation, gross income means only gross income from sources within the United States, determined * * * in the manner provided in section 217 [section 958]."

The plan of the Revenue Act indicates that the income of foreign corporations is divided into two groups, (a) that derived from sources within the United States, and (b) that received from sources without the United States. The interest here involved was derived from sources within the United States.

But it is argued, by the respondent, that not all such interest derived from such sources is taxable, but only the interest of the types of obligation defined by the statute. It is said that the statute must be strictly construed, and on the analogy of decisions limiting the application of the word "obligations" in section 213, 26 USCA § 954 [U.S. Trust Co. v. Anderson, 65 F.2d 575 (C.C.A. 2); American Viscose Corp. v. Comm'r, 56 F.2d 1033 (C.C.A. 3)] it is urged that the same words in section 217 (26 USCA § 958) should be held not to include the statutory requirement of interest paid by the United States on refunded taxes. But the meaning given to the word used in one connection is not necessarily the meaning to be attributed to it when employed in other connections. It is a matter of legislative intent, and the legislative history of the two sections is not so nearly identical that Congress may be presumed to have intended the same thing in each. It is a fair inference that section 217 is the broader of the two. In its first form (as section 10 of the Revenue Act of 1916, 39 Stat. 765) it was apparently intended to extend the taxing power to situations not thought by the Attorney General (30 Ops. Attys. Gen. 435) to be included in the law as it then stood. Its present form, as indicated by the report of the Finance Committee of the Senate (Report No. 275, 67th Congress, 1st Sess. p. 16) is no retreat from that position, but rather a qualification and more explicit statement of that extension. We thus have revealed a purpose to enlarge the scope of the statute. It is only in keeping with that purpose to apply the statute to the obligation involved in the instant case.

The term "obligation" includes "any duty imposed by law" (Webster's New International Dictionary), and it is well settled that the popular and accepted import of the words furnishes the general rule for the interpretation of public laws. Woolford Realty Co. v. Rose, 286 U.S. 319, 327, 52 S. Ct. 568, 76 L. Ed. 1128; Old Colony R. Co. v. Comm'r, 284 U.S. 552, 560, 52 S. Ct. 211, 76 L. Ed. 484.

In U.S. Trust Co. v. Anderson, supra, we held that interest on condemnation awards was taxable as an obligation of a subdivision of a state. There is no substantial difference, in the viewpoint of taxation, between the obligation of a city to pay interest on an award and the obligation of the United States to pay interest on an overpayment of taxes, none of which were exempt later from taxation. In American Viscose Co. v. Comm'r, supra, the tax was imposed upon a domestic corporation for interest on refunded taxes.

The question remains as to whether the United States is a resident within the meaning of section 217. The United States is a corporation. Respublica v. Sweers, 1 Dall. 41, 44, 1 L. Ed. 29; United States v. Maurice, 2 Brock. (U.S.) 96, 109 Fed. Cas. No. 15747 (per Marshall, J.). As such corporate entity, it must have a corporate residence; that residence must be within the United States.

We are referred to Helvering v. Stockholms Enskilda Bank, 68 F.2d 407 (Vol. 1, Prentice-Hall, 1933, p. 2300.529), Court of Appeals, District of Columbia, and State v. City of Trenton, 40 N.J. Law, 89, as being contrary to this view. The State v. City of Trenton, supra, turned on the intent of the Legislature, declared by the court to be manifest, that the debtor should not be released from taxation unless the tax could be collected from the creditor. The case at bar presents no such question. Helvering v. Stockholms Enskilda Bank, supra, rests heavily upon the determination of the New Jersey ...


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