Niles Bement Pond Co v. United States 12, 1930

• Decision Date: 14 April 1930
• Docket Number: No. 314,314
• Citation: 281 U.S. 357,74 L.Ed. 901,50 S.Ct. 251
• Parties: NILES BEMENT POND CO. v. UNITED STATES. Argued March 7-12, 1930
• Court: U.S. Supreme Court

281 U.S. 357

50 S.Ct. 251

74 L.Ed. 901

NILES BEMENT POND CO.

v UNITED STATES.

No. 314.

Argued March 7-12, 1930.

Decided April 14, 1930.

Messrs. Karl D. Loos and E. Barrett Prettyman, both of Washington, D. C., for petitioner.

Mr. Claude R. Branch, of Providence R. I., for the United States.

Mr. Justice STONE delivered the opinion of the Court.

This case is here on certiorari, granted October 21, 1929, to review a judgment of the Court of Claims denying recovery of a part of petitioner's income and excess profits taxes for the year 1918, alleged to have been illegally exacted. 67 Ct. Cl. 693. Petitioner is a New Jersey corporation having an office and principal place of business in New York. It maintains a London branch, through which it paid the British government in 1918 income tax for the fiscal year April 6, 1917, to April 5, 1918, upon income received from sources in Great Britain in 1916 and earlier years, and based on a tax return made prior to 1918. Similarly, it paid in 1918 a tax for the year ending December 31, 1916, upon income and excess profits from sources within Great Britain. In making its tax return for the year 1918 petitioner deducted these payments from gross income. The Commissioner of Internal Revenue refused to allow the credit, and collected a correspondingly increased tax, which is the subject of the present suit.

The applicable provision of section 238 of the Revenue Law of 1918, c. 18, 40 Stat. 1057, authorizes the deduction from the gross income of corporations, income and excess profits taxes 'paid' to foreign countries during the taxa- ble year. But section 200 defines the term 'paid' in section 238 as 'paid or accrued' or 'paid or incurred,' and provides that 'paid or accrued' shall be construed according to the method of accounting upon the basis of which the net income is computed under section 212. Section 212(b) requires that net taxable income shall be computed 'in accordance with the method of accounting regularly employed in keeping the books of such taxpayer; but if no such method of accounting has been so employed, or if the method employed does not clearly reflect the income, the computation shall be made upon such basis and in such manner as in the opinion of the Commissioner does clearly reflect the income.'

Section 13(d) of the Revenue Act of 1916, c. 463, 39 Stat. 756, in force until the Act of 1918 became effective, provided that a corporate taxpayer 'keeping accounts upon any basis other than that of actual receipts and disbursements, unless such other basis does not clearly reflect its income, may, subject to regulations made by the Commissioner of Internal Revenue, with the approval of the Secretary of the Treasury, make its return upon the basis upon which its accounts are kept, in which case the tax shall be computed upon its income as so returned.' Treasury Decision 2433 of January 8, 1917, interpreting this section, states: 'This ruling contemplates that income and authorized deductions should be computed and accounted for on the same basis,' and Income Tax Ruling, January-June, 1921, Cum. Bulletin No. 4, p. 147, provides: 'Section 13(d) of the Revenue Act of 1916 is a qualifying section and when accounts of a corporation are kept on a basis other than that of receipts and disbursements, it qualifies the manner of making deductions authorized in § 12(a) of the Act, and the word 'paid' in the latter section is to be read 'paid or accrued,' depending on how the accounts of the corporation are kept.'

The Court of Claims found that the books of the petitioner were kept on the accrual basis; that, while there were some exceptions of small items of deferred charges and credits and the expenses of the London office which were entered on its books only when paid or received, 'the principal and dominant purpose and plan of its accounts were to show income upon an accrual basis as the general and controlling character of the account.' It also found that the petitioner's return for 1918 was on the accrual basis, as were its tax returns for 1916, 1917, and 1919.

These findings are conclusive here. Luckenbach S. S. Co. v. United States, 272 U. S. 533, 538, 47 S. Ct. 186, 72 L. Ed. 394. Under them petitioner's liability for the tax collected must turn on the propriety of deducting the foreign tax payments from income for the year 1918, when paid, in order to arrive at the true income of the taxpayer. Under the 1916 act, where the taxpayer's books are kept and his returns made on the accrual basis, taxes charged on the books as they accrue must be deducted when accrued, if true income is thus reflected....