Source: https://openjurist.org/285/us/1
Timestamp: 2019-04-19 15:03:46+00:00

Document:
Argued Jan. 20, 21, 1932.
Mr. Arnold R. Baar, of Chicago, Ill., for respondent.
This proceeding was brought for the redetermination of a deficiency in income tax for the year 1923. The respondent, Chicago Portrait Company, is an Illinois corporation with its principal place of business at Chicago. It owned 51 per cent. of the capital stock of the International Art Company of Sydney, Australia, a foreign corporation. Respondent received dividends from the International Art Company and sought credit for a proportionate part of the income taxes paid by that corporation to the Commonwealth of Australia, to the State of New South Wales, and to the Dominion of New Zealand. Section 238(e) of the Revenue Act of 1921 (42 Stat. 227, 258, 259) permitted credit in the case of such taxes paid 'to any foreign country.' Credit was allowed on account of the income taxes paid to the Commonwealth of Australia and to the Dominion of New Zealand but was refused as to those paid to the State of New South Wales. The Board of Tax Appeals held that the respondent was entitled to the credit with respect to the last mentioned taxes also, and the Circuit Court of Appeals affirmed that decision. 16 B. T. A. 1129; 50 F.(2d) 683. This Court granted a writ of certiorari, 284 U. S. 607, 52 S. Ct. 36, 76 L. Ed. —.
In the case of tariff acts, this Court said in Stairs v. Peaslee, 18 How. 521, 526, 15 L. Ed. 474, that the word 'country' has always been construed 'to embrace all the possessions of a foreign State however widely separated, which are subject to the same supreme executive and legislative control.' See, also, United States v. The Recorder, Fed. Cas. No. 16,129, 1 Blatchf. 218, 225-227; Campbell v. Barney, Fed. Cas. No. 2,354, 5 Blatchf. 221. Accordingly, in construing the Act of March 3, 1851 (9 Stat. 629, 630), providing that imported merchandise should be appraised at its market value at 'the principal markets of the country' from which it had been imported, the Court held that a commodity shipped from Halifax, Nova Scotia, should be appraised according to the value in the principal markets under the British rule, and these were found, in fact, to be London and Liverpool. After the ratification of the Treaty of Peace between the United States and Spain (30 Stat. 1754), Porto Rico and the Philippines ceased to be 'foreign country' under the tariff laws. De Lima V. Bidwell, 182 U. S. 1, 21 S. Ct. 743, 45 L. Ed. 1041; In re Fourteen Diamond Rings, 183 U. S. 176, 179, 22 S. Ct. 59, 46 L. Ed. 138. It followed that the term 'other countries' in the Commercial Convention with Cuba of 1903 (33 Stat. 2136, 2140) did not include the Philippine Islands. Faber v. United States, 221 U. S. 649, 658, 31 S. Ct. 659, 55 L. Ed. 897. Under the provisions of the Platt Amendment (31 Stat. 897), and the Constitution of Cuba, the Isle of Pines was de facto under the jurisdiction of Cuba and hence remained 'foreign country' within the meaning of the Tariff Act of 1897 (30 Stat. 151). Pearcy v. Stranahan, 205 U. S. 257, 265, 27 S. Ct. 545, 51 L. Ed. 793.
In construing legislation providing for the deportation of aliens 'to the country whence they came,' the place of emigration affords the dominant consideration. Thus, under the Immigration Act of 1917 (39 Stat. 874, 890 (8 USCA § 156)) the court held that an alien emigrating from Grodno, then a part of Russia, was properly deported to Poland, because at that time Grodno was a part of Poland. 'The term 'country," said the court, was used in the statute 'to designate, in general terms, the state which, at the time of deportation, includes the place from which the alien came.' Mesevich v. Tod, 264 U. S. 134, 136, 137, 44 S. Ct. 282, 283, 68 L. Ed. 591. The evident purpose of the statute determined the significance to be attached to the expression.
The present controversy has arisen under the Treasury Regulations adopted with respect to the Revenue Acts of 1918 and 1921 as to credits.20 The familiar principle is invoked that great weight is attached to the construction consistently given to a statute by the executive department charged with its administration. United States v. Jackson, 280 U. S. 183, 193, 50 S. Ct. 143, 74 L. Ed. 361. But the qualification of that principle is as well established as the principle itself. The court is not bound by an administrative construction, and if that construction is not uniform and consistent, it will be taken into account only to the extent that it is supported by valid reasons. United States v. Missouri Pacific R. R. Co., 278 U. S. 269, 280, 49 S. Ct. 133, 73 L. Ed. 322. See, also, United States v. Dickson, 15 Pet. 141, 161, 10 L. Ed. 689; United States v. Healey, 160 U. S. 136, 145, 16 S. Ct. 247, 40 L. Ed. 369; Chicago, Milwaukee & St. Paul Ry. Co. v. McCaull-Dinsmore Co., 253 U. S. 97, 99, 40 S. Ct. 504, 64 L. Ed. 801. Moreover, ambiguous regulations are of little value in resolving statutory ambiguities. In the 'Preliminary Edition' of Treasury Regulations No. 45 under the act of 1918, Article 382 relating to credits stated: "Foreign country' means any governmental authority, not that of the United States or any part or possession thereof, having power to impose such taxes, and it therefore includes a self-governing colony, such as the Dominion of Canada.' But this provision was shortly superseded in the amended Regulations No. 45, promulgated April 17, 1919, by a new Article 382 containing the following: "Foreign country' includes within its meaning any foreign sovereign state or self-governing colony (for example, the Dominion of Canada), but does not include a foreign municipality (for example, Montreal) unless itself a sovereign State (for example, Hamburg). 'Any possession of the United States' includes, among others, Porto Rico, the Philippines and the Virgin Islands.' The Department thus sought to introduce a qualification as to the significance of 'foreign country' not found in the words of the statute, or in those of the preceding income tax acts, or in departmental regulations under them, and one that was inconsistent with the apparent purpose of the enactment. It was a qualification which not only did not conform to the view that the expression 'foreign country' was limited to a foreign state having the status of an international person under international law, but, on the other hand, afforded no definite criterion. Its phrase 'self-governing colony' had no certain application, as there are colonies with varying degrees of self-government, and if, in view of the aim of the statute, it was important to draw a distinction with respect to self-government, it would appear that the particular phase of autonomy that was relevant to the purpose of the statute was the competency to impose income taxes upon the domestic corporation, or its foreign subsidiary, with respect to which the relief was granted. It is true that certain foreign political divisions which formerly had not had an international status were achieving it, but even that progress, at the time of the adoption of the regulation in 1919,21 was still uncertain both as to the quality and extent of the international recognition which would be accorded, and, however important in other relations that progress might be, it was not the concern of this statute and its operation cannot be deemed to depend upon it. The departmental regulation became the more ambiguous as it proceeded with its illustrations relating to municipalities.
By section 216(e) of the Revenue Act of 1918 (40 Stat. 1069), a nonresident alien individual was allowed credits for personal exemptions and for dependents if the 'country' of which he was a citizen or subject allowed a similar credit to citizens of the United States not residing in 'such country.' Article 307 of Regulations No. 45 gave a list of 'countries' which satisfied the credit requirements of this provision. This list was amended in later editions of these regulations, applicable to the Revenue Act of 1918, and embraced a great variety of 'countries,' including, for example, British Honduras, Ceylon, Cyprus, Fiji Islands, Gibraltar, Gold Coast, Malay States, Mauritius, St. Kitt-Nevis, etc.22 As already noted, the expression 'foreign country' was used in section 222(a)(3) of the Revenue Act of 1918 in relation to credits allowed to an alien resident of the United States for taxes upon income derived from sources in such 'country,' if the latter allowed a similar credit to citizens of the United States.23 Article 385 of Regulations No. 45, set forth the list of 'countries' which did or did not satisfy this reciprocal credit requirement. This Article further illustrates the ambiguity of the regulations.24 It is urged that the Revenue Act of 1921 must be deemed to have been adopted with the meaning attributed to the term 'foreign country' by the regulations under the act of 1918. But regulations of such an ambiguous character supplying no definite criterion cannot be deemed to determine satisfactorily the interpretation of the statute. The Revenue Act of 1918 had continued the expression 'foreign country' precisely as it had been used in the preceding income tax acts without any such restricting gloss, and the act of 1921 continued the expression as used in the act of 1918. In these circumstances, we are of the opinion that the expression 'foreign country' in the act of 1921 should be deemed to have the same significance in that act that it had in the prior acts and was not limited by the regulations adopted under the act of 1918. The regulations under the act of 1921 were of the same equivocal sort as those to which we have referred under the act of 1918, and can be deemed to have no greater effect.25 The decisions of the Treasury Department26 applying these regulations have no more force than the reasons given to sustain them and these, in our opinion, furnish no adequate ground for denying effect to the credit provisions of the statute in accordance with their manifest purpose.
Oppenheim, International Law (4th Ed.) vol. 1, §§ 63, 64, pp. 133-135; Hyde, International Law, vol. 1, §§ 6-8, pp. 15-18; Moore's International Law Digest, vol. 1, pp. 14-18.
See Dicey, Conflict of Laws (4th Ed.) pp. 59, 60.
Wayman v. Southard, 10 Wheat. 1, 29, 6 L. Ed. 253; Marriott v. Brune, 9 How. 619, 635, 636, 13 L. Ed. 282; American Tobacco Co. v. Werckmeister, 207 U. S. 284, 293, 28 S. Ct. 72, 52 L. Ed. 208, 12 Ann. Cas. 595; United States v. Louisville & Nashville R. R. Co., 236 U. S. 318, 333, 35 S. Ct. 363, 59 L. Ed. 598; Inter-Island Steam Navigation Co. v. Ward, 242 U. S. 1, 4, 37 S. Ct. 1, 61 L. Ed. 113; Porto Rico Railway, Light & Power Co. v. Mor, 253 U. S. 345, 348, 40 S. Ct. 516, 64 L. Ed. 944.
In the Report of the Committee on Ways and Means of the House of Representatives in relation to the Revenue Bill of 1921 (H. R. Rep. No. 350, 67th Cong., 1st Sess., p. 8), the following statement was made with respect to American concerns doing business in foreign countries: 'Under existing law an American citizen or domestic corporation is taxed upon his or its entire income even though all of it is derived from business transacted without the United States. This results in double taxation, places American business concerns at a serious disadvantage in the competitive struggle for foreign trade, and encourages American corporations doing business in foreign countries to surrender their American charters and incorporate under the laws of foreign countries.' While this statement was made to introduce a remedial proposal, which was not adopted, it discloses the purpose entertained. See, also, Report of Committee of Finance of the Senate (Sen. Rep. No. 275, 67th Cong., 1st Sess., p. 9).
These provisions for deductions in the Revenue Act of 1918 were; 'Sec. 214. (a) * * * (3) Taxes paid or accrued within the taxable year imposed (a) by the authority of the United States, except income, war-profits and excess-profits taxes; or (b) by the authority of any of its possessions, except the amount of income, war-profits and excess-profits taxes allowed as a credit under section 222; or (c) by the authority of any State or Territory, or any county, school district, municipality, or other taxing subdivision of any State or Territory, not including those assessed against local benefits of a kind tending to increase the value of the property assessed; or (d) in the case of a citizen or resident of the United States, by the authority of any foreign country, except the amount of income, warprofits and excess-profits taxes allowed as a credit under section 222. * * *' 40 Stat. 1067.
Treasury Regulations No. 45, under the Revenue Act of 1918, thus described these deductions: 'Art. 131. Taxes.-Federal taxes (except income, war profits and excess profits taxes), State and local taxes (except taxes assessed against local benefits of a kind tending to increase the value of the property assessed), and taxes imposed by possessions of the United States or by foreign countries (except the amount of income, war profits and excess profits taxes allowed as a credit against the tax), are deductible from gross income. * * *' See, supra, note 9.
See sections 222(a) and 238(a) of the Revenue Act of 1918; supra, note 10.
Supra, notes 1 and 5.
See reports of committees in relation to the Revenue Bill of 1921, supra, note 7.
So far as deductions of taxes from gross income, in computing net income, are concerned, the regulation under the act of 1918 was continued under that of 1921. Treasury Regulations No. 62, Art. 131; see, supra, note 12.
See Oppenheim, International Law (4th Ed.) vol. 1, §§ 63, 94a, 94b.
Article 385 of Regulations No. 45 is as follows (Treas. Decis. vol. 3, p. 473): 'Art. 385. Countries which do or do not satisfy the similar credit requirement.-(a) The following is an incomplete list of the countries which satisfy the similar credit requirement of section 222(a)(3) of the Revenue Act of 1918, either by allowing to citizens of the United States residing in such countries a credit for the amount of income, war profits, or excess profits taxes paid to the United States upon incomes derived from sources therein, or in imposing such taxes, by exempting from taxation the incomes received from sources within the United States by citizens of the United States residing in such countries: Bulgaria, Canada, Italy, Newfoundland, Salvador. (b) The following is an incomplete list of the countries which do not satisfy the similar credit requirement of section 222(a)(3) of the Revenue Act of 1918, either by allowing no credit to citizens of the United States residing in such countries, for the amount of income, war profits, or excess profits taxes paid to the United States upon incomes derived from sources therein, or because such countries do not impose any income, war profits, or excess profits taxes: Argentina, Bahama, Belgium, Bermuda, Bolivia, Bosnia, Brazil, Chile, China, Costa Rica, Ecuador, Egypt, Finland, France, Great Britain and Ireland, Guatemala, Herzegovina, India, Jamaica, Japan, Montenegro, Morocco, New Zealand, Nicaragua, Panama, Paraguay, Persia, Peru, Portugal, Roumania, Santo Domingo, Serbia, Siam, Sweden, Switzerland, Venezuela.
Regulations No. 62, Articles 382, 385.
Solicitor's Memorandum No. 1187, October 18, 1919; Office Decision No. 1050, C. B. 5, p. 194, Solicitor's Memorandum No. 1614, C. B. III-1, p. 227.

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