Porto Rico Coal Co. v. COMMISSIONER OF INTERNAL REVENUE, Docket No. 97338.

• Citation: 44 BTA 221
• Decision Date: 18 April 1941
• Docket Number: Docket No. 97338.
• Parties: THE PORTO RICO COAL COMPANY, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
• Court: U.S. Board of Tax Appeals

44 B.T.A. 221 (1941)

THE PORTO RICO COAL COMPANY, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Docket No. 97338.

Board of Tax Appeals.

Promulgated April 18, 1941.

Harry Silverson, Esq., and Malvern B. Fink, Esq., for the petitioner.

Henry C. Clark, Esq., for the respondent.

OPINION.

MURDOCK:

The Commissioner determined a deficiency in income tax of $183.62, a deficiency in surtax of $1,305.65, and a penalty of $326.41 for the calendar year 1935. One issue has been settled by agreement. The principal issue for decision is whether the petitioner was a personal holding company within the meaning of section 351 (b) (1) of the Revenue Act of 1934. The issue of whether or not the petitioner is subject to a 25 percent penalty for failure to file a personal holding company return, Form 1120H, must be decided if the first issue is decided for the respondent. The facts have been stipulated.

The petitioner is a foreign corporation and was engaged during the taxable year in the business of selling coal in Porto Rico. Its gross income from sources without the United States, all of which was derived from the operation of the coal business, was $30,722.69, and it suffered a net loss of $14,192.06 from the operation of that business.

The petitioner maintained an office in the United States in New York and had investments in the United States consisting of stocks and bonds. The total gross income which it received from sources within the United States consisted of interest on bonds in the amount of $5,406.67 and gains from the sale of bonds in the amount of $2,451.53. The deductible expenses incurred in connection with the production of the income from sources within the United States amounted to $500.

The Berwind-White Coal Mining Co., a Pennsylvania corporation, owned all of the capital stock of the petitioner during the taxable year. The stock of the Berwind-White Coal Mining Co. was owned as follows:

                Percent
                Edward J. Berwind, Inc., a Delaware corporation ________  69.796
                Estate of Harry A. Berwind _____________________________  18.903
                Charles E. Dunlap ______________________________________   6.301
                Thomas Fisher __________________________________________   5.000
                

The stock of Edward J. Berwind, Inc., was owned 75 percent by Edward J. Berwind and 25 percent by Charles E. Dunlap. Harry A. Berwind, who died in 1932, was a brother of Edward J. Berwind, and Charles E. Dunlap was their nephew. Thomas Fisher was not related to the other persons mentioned.

The Berwind-White Coal Mining Co. was engaged in the business of mining and selling coal. Its gross sales were in excess of $9,000,000 during 1935. It was not a personal holding company within the meaning of section 351.

The petitioner filed an income tax return for 1935 with the collector of internal revenue for the second district of New York, reporting its income from sources within the United States and stating that it was not a personal holding company. It filed no return on Form 1120H.

The Commissioner, in determining the deficiency, has held that the petitioner was taxable as a personal holding company. He explained that, in the case of a foreign corporation, only income derived from sources within the United States is considered in determining whether or not 80 percent of its gross income was derived from royalties, interest, and gains from the sale of stock or securities, and, since all of the income of the taxpayer from sources within the United States was derived from interest and gain from the sale of bonds, and since more than 50 percent of its stock was owned indirectly by not more than five individuals, it was taxable under section 351.

Section 351 (b) (1) (A) provides that a corporation is a personal holding company if "at least 80 per centum of its gross income for the taxable year is derived from", inter alia, interest and the sale of securities. The petitioner concedes that all of its gross income from sources within the United States was from interest and gains from the sale of securities. It contends, however, that the term "gross income" as used in section 351 (b) (1) (A) means, in the case of foreign corporations, gross income from all sources and not merely from sources within the United States. If the gross income of the petitioner from all sources is considered, then it is perfectly clear that section 351 has no application.

Section 351 (b) (4) provides, "The terms used in this section shall have the same meaning as when used in Title I", and section 231 (a) of Title I provides, "In the case of a foreign corporation, gross income includes only the gross income from sources within the United States." The Commissioner concludes that a foreign corporation is a personal holding company within the meaning of section 351 (b) (1) (A) if at least 80 per centum of its gross income from sources within the United States is the kind of income described in that section, and, since all of the income of the petitioner from sources within the United States was of that sort, it is subject to the surtax. We think, after an examination of the entire statute, that the words of the provisions upon which the Commissioner relies, when given their natural and normal meaning, amply support his conclusion.

The petitioner has found two places where the term "gross income" has been used in Title I to refer to gross income of a foreign corporation from all sources. It argues that gross income, as applied to a foreign corporation in Title I, has not one meaning, but two. The first is gross income from sources within the United States, which is the gross income of a foreign corporation subjected to normal tax. This it refers to as the "quantum" concept. The second meaning is gross income from all sources and is used for the purpose of classifying the foreign corporation according to the nature of its income. This it refers to as the "classification" concept. The petitioner then finds a use for each of these meanings in section 351, i. e., in determining the amount of undistributed adjusted net income which is subject to the surtax, quantum being at issue, it limits the term to gross income from sources within the United States, but in section 351(b) (1), classification being at issue, the term means income from all sources. It cites Helvering v. Stockholms Enskilda Bank, 293 U. S. 84, to show that the same term, when used in different places in a statute, may have different meanings. The Court there said that although there is a natural presumption that identical words used in different parts of the same act must have been intended to have the same meaning, nevertheless, the presumption readily yields if circumstances show that different meanings were intended. The petitioner then argues that Congress in enacting section 351 did not intend to impose the surtax upon the income of bona fide operating companies received from investments of surplus funds but intended to reach only the "incorporated pocketbook" and force it to distribute its earnings to its stockholders or suffer the penalty.

This argument of the petitioner appears to be a strained and labored effort to create a doubt where none would naturally arise. Congress, in section 119(a) (1) (B) and (a) (2) (B), was using the term "gross income" to refer to the income of a foreign corporation from all sources, as an examination of those provisions will at once disclose. But that was a special meaning for the term in order to make clear the thought which Congress was there expressing. The general meaning of the term as used in Title I is found in section 231(a), and it seems reasonable to conclude that Congress meant that general definition to apply for all purposes except for the purpose of the two provisions already mentioned where the context clearly demonstrates a different intent. It follows that the meaning of the term as given in section 231(a) was intended, wherever the term was used in section 351, to apply to foreign corporations. When the words of section 351 and those of 231(a) are read and given their natural interpretation in the light of all other provisions of the statute, including those...