Anglo-American Direct Tea Trading Co., Ltd. v. COMMISSIONER OF INTERNAL REVENUE
| Decision Date | 04 October 1938 |
| Docket Number | Docket No. 84529. |
| Citation | 38 BTA 711 |
| Parties | ANGLO-AMERICAN DIRECT TEA TRADING CO., LTD., PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. |
| Court | U.S. Board of Tax Appeals |
Matthew M. Campbell, Esq., for the petitioner.
George R. Sheriff, Esq., for the respondent.
The respondent determined deficiencies in petitioner's income tax for the fiscal years ending November 30, 1932 and 1933, in the respective amounts of $13,604.17 and $8,714.20. Returns not having been timely filed, he added 25 per centum of the tax under the provisions of section 291 of the Revenue Act of 1932.
It is alleged in the petition that the respondent erred in disallowing the deduction from gross income of dividends received from a domestic corporation in the amounts of $100,000 and $63,376.03 during the respective years and that he erred in adding the 25 per centum. These are the sole errors alleged.
FINDINGS OF FACT.
The petitioner is a corporation organized under the laws of Great Britain, with offices in Glasgow, Scotland. It is engaged in the business of growing tea. During the taxable years it had no offices or agents in the United States and transacted no business therein.
The petitioner owns the entire outstanding stock of the Anglo-American Direct Tea Trading Co., a domestic corporation, hereinafter referred to as the American Co.
During the month of March 1935 an internal revenue agent made an examination of the books and records of the American Co. in connection with its Federal income tax returns for the fiscal years ended November 30, 1932 and 1933. In the course of his examination of the books and records he noted the payment of dividends by the American Co. to its holding company, the petitioner, and inquired of an employee in charge of the records of the American Co. whether or not the petitioner had filed returns. On or about April 15, 1935, he prepared delinquent Federal income tax returns in behalf of the petitioner for the fiscal years ended November 30, 1932 and 1933, and submitted them to the agent in charge. He did not advise any one connected with the petitioner of the preparation of such delinquent returns. At the time he made his examination, about the middle of March 1935, he had a conversation with Henry P. Thomson, the vice president of the American Co., relative to the filing of returns by the petitioner. Thereupon, Thomson, after consulting with the attorney of the American Co., telephoned the office of a Canadian company, a subsidiary of the petitioner, asking if they knew whether or not any returns had been filed by the petitioner. Shortly thereafter, under date of April 16, 1935, he received a cable from the petitioner, later confirmed by letter under the same date, authorizing him to make and file in its behalf Federal income tax returns for three years up to November 1934. On April 18, 1935, Thomson, as agent for petitioner and in its behalf, filed with the collector at Baltimore, Maryland, Federal income tax returns for the fiscal years ended November 30, 1932 and 1933. Therein income was reported and deductions claimed as follows:
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| Fiscal year ended—
| ___________________________________
| Nov. 30, 1932 | Nov. 30, 1933
------------------------------------------------------------------------------|--------------------|----------------
Gross income: | |
Dividends on stock of domestic corporations subject to taxation under | |
Title I of 1928 and 1932 Acts _______________________________________ | $100,000.00 | $63,376.03
| ___________ | __________________
Total income ______________________________________________________ | 100,000.00 | 63,376.03
Deductions: | |
Dividends _____________________________________________________________ | 100,000.00 | 63,376.03
| ___________ | __________________
Net income _________________________________________________________ | None | None
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Schedule H in each return shows that the income was received from the American Co., i. e., Anglo-American Direct Tea Trading Co., New York. The petitioner had no income from sources within the United States other than the dividends from the American Co.
Upon audit of petitioner's returns the respondent disallowed the dividend deductions. The deficiencies in income tax resulted from the computation of a tax based upon the reported gross income.
It is not disputed that the petitioner received gross income from sources within the United States during the fiscal years before us, and that such income consisted of dividends received from the American Co. in the amounts shown in the findings. There is also no question that section 23 (p) (1) of the Revenue Act of 19281 and the corresponding sections of the act of 19322 permit the deduction of dividends from gross income of either a domestic or foreign corporation. The sufficiency in content of the returns is not challenged.
The respondent points out that the deductions permitted under section 23 (p) (1), supra, are limited by the provisions of section 233 of the Revenue Acts of 1928 and 1932,3 under which a foreign corporation is entitled to receive the benefit of the deductions allowed under section 23 (p) (1), supra, "only by filing or causing to be filed with the collector a true and accurate return of its total income received from all sources in the United States, in the manner prescribed in this title." In this connection he contends that section 233, supra, and in particular the phrase "in the manner prescribed in this title", means that deductions are allowable only when returns are filed within the time specified in section 235 of the Revenue Acts of 1928 and 1932.4 Under the latter section petitioner was required to file its returns on or before May 30, 1933 and 1934, respectively, whereas it filed both returns on April 18, 1935. The respondent argues that consequently the petitioner is not entitled to the deduction of the dividends and that the tax must be computed upon its gross income. The question presented, therefore, is the construction of section 233, supra, and in particular, the phrase "in the manner prescribed in this title."
Respondent cites, as a case in point, Gladstone Co., Ltd., 35 B. T. A. 764. He admits, however, that the returns in the instant proceeding do not have the defect which was present in that case and that the question being presently considered, though raised, was not decided. There the return was defective in that it did not contain the information required by the statute and the regulations. It was held that the petitioner, "not having given such information, did not bring itself within the requirements of the statute" and the deduction of the dividends received by it from a domestic corporation was denied. In the instant proceeding, however, apparently all the information which the Commissioner deemed necessary was given; so the rationale of the Gladstone case has no application.
It is true, as respondent points out, that "manner" is a comprehensive term, and includes, but is more comprehensive than, "method, mode, or way." But whether it is broad enough to include the element of time is a more difficult question. In some instances it has been construed by courts as including time (Harris v. Doherty, 119 Mass. 142; State v. McClure, 91 Wis. 313; 64 N. W. 992; Smith v. Haskell Mfg. Co., 28 R. I. 91; 65 Atl. 610; Atchison T. & S. F. Ry. Co. v. Love, 23 Okla. 192; 99 Pac. 1081; Porter v. Brook, 21 Okla. 885; 97 Pac. 645; People ex rel Williams Engineering & Contracting Co. v. Metz, 193 N. Y. 148; 85 N. E. 1070; Wykoff v. Wheeler & Co., 40 Okla. 559; 139 Pac. 319; Benjamin Land & Timber Syndicate v. Bradsher, 99 Ark. 348; 138 S. W. 477); while in others it has been construed as not including it. Bankers' Life Ins. Co. v. Robbins, 59 Nebr. 170; 80 N. W. 484; Moore v. City of Los Angeles, 58 Cal. App. 555; 209 Pac. 64; Chomel v. United States, 192 Fed. 117; United States v. Morris, 1 Curt. 23; 26 Fed. Cases 1323 (No. 15,815); Melsheimer v. McKnight, 92 Miss. 386; 46 So. 827.
In most of the cases the courts have held that whether "manner" includes, or does not include, "time", depends upon the intent gathered from the context. As stated in Moore v. City of Los Angeles, supra:
* * * Whether the word "manner" shall be construed as including, not only the way or mode of doing a thing, but also the time of doing it, depends upon the intention of the lawmakers, to be gathered from the context; that is, the "manner" of doing a thing and the "time" of doing it are distinct things, and ordinarily the word "manner" will not be construed as including the element of "time", unless it shall appear from the context that the lawmakers intended that it should. * * * A careful reading of sections 233 and 235 discloses no indication of a legislative intent to extend the meaning of "manner" so as to include "time." Neither section provides that the deductions may not be allowed unless the return is filed within the time prescribed. True, section 235 provides that the return "shall be made on or before the fifteenth day of the sixth month following the close of the...
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