319 F.2d 161 (Fed. Cir. 1963), 55-59, Prudential Ins. Co. of America v. United States

Docket Nº:55-59.
Citation:319 F.2d 161
Case Date:June 07, 1963
Court:Court of Federal Claims

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319 F.2d 161 (Fed. Cir. 1963)




No. 55-59.

United States Court of Claims.

June 7, 1963

Francis A. Goodhue, Jr., New York City, for plaintiff. Arthur E. Schmauder, Frank G. Koch, Newark, N.J.; John H. Perkins, Jr., Peter J. Sturtevant, Dewey, Ballantine, Bushby, Palmer & Wood; and Arnold I. Burns, New York City, were on the briefs.

Earl L. Huntington, Washington, D.C., with whom was Asst. Atty. Gen., Louis F. Oberdorfer, for defendant. Edward S. Smith, Lyle M. Turner, and Mitchell Samuelson, Washington, D.C., were on the brief.

Paul F. Myers, John E. Skilling, Washington, D.C.; Joseph H. Collins, George E. Walton, Bernard G. Hildebrand, Gerard J. Talbot, New York City, Robert H. Myers, and Williams, Myers & Quiggle, Washington, D.C., filed a brief for the Metropolitan Life Insurance Company, amicus curiae.

Before JONES, Chief Judge, and WHITAKER, LARAMORE, DURFEE and DAVIS, Judges.

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DURFEE, Judge. [*]

This is an action to recover an alleged overpayment by plaintiff of Federal income tax for the calendar year 1949. Plaintiff is a mutual life insurance company organized under the laws of the State of New Jersey. In 1949, it was engaged in the insurance business in the United States and Canada.

During the year 1949, plaintiff paid a tax imposed by the Provinces of Ontario and Quebec of two percent on the insurance premiums collected that year from policyholders residing in the respective provinces. Plaintiff also paid the same tax imposed by the Dominion of Canada on premiums collected in 1949 from policyholders residing in Canada outside of the Provinces of Ontario and Quebec. By payment of these premiums taxes, plaintiff was excused from payment of Canadian income taxes by express provisions of law within each of the three Canadian jurisdictions. The combined total alien premium tax payment amounted to $558, 513.57. Plaintiff's first claim is that by virtue of Internal Revenue Code provisions, $304, 855.84 of this total Canadian tax payment was allowable as a credit against its United States income tax for 1949, but was wrongfully assessed and collected by the Collector of Internal Revenue. Plaintiff seeks recovery of this amount plus interest as a 'foreign tax credit' under sections 131(a) and (h) and 205 of the 1939 Code.

Section 131(a) as amended, provided in 1949 that the income tax of a domestic corporation '* * * shall be credited with * * * the amount of * * * any * * * income taxes paid or accrued during the taxable year to any foreign country * * *.' For the purposes of this section (131), the term 'income * * * taxes shall include a tax paid in lieu of a tax upon income * * * otherwise generally imposed by any foreign country.'

The provision for a foreign tax credit for a tax paid 'in lieu of a tax upon income' in subsection (h) of section 131 of the Code was added to this section by section 158(f) of the Revenue Act of 1942, 56 Stat. 798, 858. The reason for this enactment was clearly stated by the Senate Finance Committee, (S.Rep. No. 1631, 77th Cong. p. 131):

'Your committee believes further amendments should be made in section 131. Under that section as it now stands, a credit is allowed against United States tax for income * * * taxes paid or accrued to any foreign country * * *. In the interpretation of the term 'income tax, ' the Commissioner, the Board, and the courts have consistently adhered to a concept of income tax rather closely related to our own, and if such foreign tax was not imposed upon a basis corresponding approximately to net income it was not recognized as a basis for such credit. Thus if a foreign country in imposing income taxation authorized, for reasons growing out of the administrative difficulties of determining net income or taxable basis within that country, a United States domestic corporation doing business in such country to pay a tax in lieu of such income tax but measured, for example, by gross income, gross sales or a number of units produced within the country, such tax has not heretofore been recognized as a basis for a credit. Your committee has deemed it desirable to extend the scope of this section. Accordingly, subsection (f) of section 160 provides that the term 'income * * * taxes' shall * * * include a tax paid by a domestic taxpayer in lieu of the tax upon income * * * which would otherwise be imposed upon such taxpayer by any foreign country or by any possession of the

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United States. * * *' (Emphasis supplied.)

This statement is a clear expression of intent to widen the judicial interpretation that had previously been given to the term 'income taxes' in subsection (a) of section 131 as being limited to foreign taxes based on net income, (i.e. on gain or profit), in order to include a tax measured by gross income or gross sales as a basis for tax credit.

This legislative purpose in adding 'taxes paid in lieu of' income taxes for foreign income tax credit was recognized by the United States Court of Appeals for the Ninth Circuit in the case of Northwestern Mut. Fire Ass'n v. Commissioner of Internal Revenue, 181 F.2d 133 (9th Cir., 1950). That case involved the question whether the premiums taxes paid by a United States mutual fire insurance company to the Dominion of Canada for 1942 and 1943 could be credited against its Federal income taxes for...

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