1. Interest received by a foreign corporation from the United
States with a refund of income taxes is interest on an
"interest-bearing obligation" of a "resident," within the meaning
of § 217(a) of the Revenue Act of 1926. P.
293 U. S. 86
2. An obligation to refund taxes erroneously or illegally
collected, upon which, by express statutory direction, interest
must be paid, is an interest-bearing obligation. P.
293 U. S.
86.
3. The presumption that identical words used in different parts
of the same Act are intended to have the same meaning yields where
words susceptible of different shades of meaning are found in such
dissimilar connections as to show that they were employed in
different senses. P.
293 U. S.
87.
4. Section 213(b)(4) of the Revenue Act of 1926, providing that
the term gross income shall not include interest upon "obligations
of the United States," was designed to aid the borrowing power of
the Government by making its interest-bearing bonds attractive to
investors, and the scope of the term must there be narrowed
accordingly; but § 217(a) is for the different purpose of producing
revenue, and must be construed from that standpoint. P.
293 U. S.
91.
5. The United States is a "resident" within the meaning of the
phrase "residents, corporate or otherwise," in § 217(a) of the
Revenue Act of 1926. P.
293 U. S.
91.
6. The rule that taxing acts are to be construed strictly in
favor of the taxpayer cannot be allowed to defeat the obvious
legislative intent when ascertained from the context and purpose of
the statute and other appropriate tests. P.
293 U.S. 93.
62 App.D.C. 360, 68 F.2d 407, reversed.
Certiorari, 292 U.S. 618, to review the affirmance by the Court
of Appeals of an order of the Board of Tax Appeals avoiding a
deficiency assessment of income taxes.
Page 293 U. S. 85
MR. JUSTICE SUTHERLAND delivered the opinion of the Court.
Respondent, a foreign corporation having no office or place of
business within the United States, received, during the year 1927,
a refund of income taxes theretofore paid, including interest
thereon in the sum of $8,683.91. In 1931, the Commissioner of
Internal Revenue assessed against respondent in respect of this
interest a deficiency of $1,172.32 upon its tax liability for the
year 1927. The Board of Tax Appeals, upon petition for a
redetermination, held that there was no deficiency, and that the
Commissioner was in error in so deciding. 25 B.T.A. 1328. Upon
petition for review brought by the Commissioner, the court below
sustained the action of the Board. 62 App.D.C. 360, 68 F.2d
407.
The case involves a consideration of certain provisions of the
Revenue Act of 1926, c. 27, 44 Stat. 9. Section 233(b) of that act
provides that, in the case of a foreign corporation, "gross income"
means only gross income from sources within the United States,
determined in the manner provided in § 217, the pertinent
provisions of which follow:
"Sec. 217. (a) In the case of a nonresident alien individual, .
. . the following items of gross income shall be treated as income
from sources within the United States:"
"(1) Interest on bonds, notes, or other interest-bearing
obligations of residents, corporate or otherwise, not including (A)
interest on deposits with persons carrying on
Page 293 U. S. 86
the banking business paid to persons not engaged in business
within the United States and not having an office or place of
business therein."
"
* * * *"
"(c) The following items of gross income shall be treated as
income from sources without the United States:"
"(1) Interest other than that derived from sources within the
United States as provided in paragraph (1) of subdivision (a). . .
."
The question for determination is whether the interest paid upon
the amount of the tax refund falls within the classification
"interest on bonds, notes, or other interest-bearing obligations of
residents, corporate or otherwise." The contention of respondent
before the Board of Tax Appeals and in the court below was, as it
is here, that such interest payment was not within the reach of the
provisions of § 217(a), because (1) it was not interest upon an
interest-bearing obligation, and (2) the United States is not a
"resident" within the meaning of the phrase "residents, corporate
or otherwise."
First. If the words "interest-bearing obligations"
stood alone, there would be no room for doubt as to their inclusive
effect. Section 1111, 44 Stat. 115, Title 26, U.S.C.App. § 149,
authorizes the commissioner to refund and pay back all taxes
illegally or erroneously collected. The decision of the
Commissioner that a tax has been illegally or erroneously collected
necessarily creates an obligation to make repayment. Section
1116(a) of the Revenue Act of 1926, c. 27, 44 Stat. 9, 119, Title
26, U.S.C.App. § 153, provides that interest at the rate of 6
percentum per annum from the date of the payment of the tax to the
date of the allowance of the refund shall be allowed and paid.
Obviously, an obligation upon which by express statutory direction
interest must be paid is an interest-bearing obligation.
The point is made, however, that the word "obligations," as it
occurs in another part of the act, has been
Page 293 U. S. 87
given a narrower construction, and that this is persuasive of
the restricted meaning contended for here. That much may be
conceded, since "there is a natural presumption that identical
words used in different parts of the same act are intended to have
the same meaning."
Atlantic Cleaners & Dyers v. United
States, 286 U. S. 427,
286 U. S. 433.
But, since most words admit of different shades of meaning,
susceptible of being expanded or abridged to conform to the sense
in which they are used, the presumption readily yields to the
controlling force of the circumstance that the words, though in the
same act, are found in such dissimilar connections as to warrant
the conclusion that they were employed in the different parts of
the act with different intent.
Idem. The comparison sought
to be made is between the words in § 213(b)(4) of the act and the
same words in § 217(a). The former provides that the term "gross
income," among other things, does not include interest upon
"obligations of the United States." It is clear from a
consideration of the entire section and of the subject matter that
the purpose of Congress in thus excluding from gross income
interest upon such obligations was to aid the borrowing power of
the federal government by making its interest-bearing bonds more
attractive to investors.
American Viscose Corp. v. Comm'r of
Int. Rev., 56 F.2d 1033.
Compare United States Trust Co.
of New York v. Anderson, 65 F.2d 575, 577, 578. The scope of
the word "obligations" as there employed must be narrowed
accordingly, and not extended to include interest upon indebtedness
not incurred under the borrowing power, as the court in the
Viscose case properly held. But the use of the words
"interest on . . . interest-bearing obligations" in § 217(a) is for
a different purpose -- namely, to produce revenue, not to encourage
loans in aid of the borrowing power. The intent of Congress,
therefore, in the one case, is fulfilled by giving the phrase a
construction within the narrow
Page 293 U. S. 88
purposes of § 213(b)(4), and, in the other case, by a
construction, if the phrase fairly admits of it, which will effect
the obviously different statutory aim of § 217(a).
Atlantic Cleaners & Dyers v. United States, supra,
was a suit brought to enjoin appellants from continuing an alleged
conspiracy in restraint of trade and commerce in cleaning, dyeing,
and otherwise renovating clothes contrary to § 3 of the Sherman
Anti-Trust Act. The defense was that appellants were engaged solely
in the performance of labor and service in cleaning dyeing, and
renovating wearing apparel, etc., and that this did not constitute
"trade" within the meaning of the act. The argument was that, since
the words "trade or commerce" in § 1 of the act, which dealt with
interstate commerce, must be construed not to include a business
such as that carried on by appellant, the identical words used in §
3 dealing with restraint of trade or commerce within the District
of Columbia should be given the same interpretation. Considering
the subject matter of the act and the scope of the legislative
power exercised in the one case as compared with that exercised in
the other, we held otherwise. In arriving at the conclusion that
the word "trade," as used in § 3, was to be given a broader
interpretation than the same word as used in § 1, we considered the
history leading up to and accompanying the passage of the Sherman
Act, the mischief to be remedied, and other circumstances, and held
that Congress intended to exercise all the power it possessed; and,
since the scope of its power in dealing with the District was more
extensive than when dealing with interstate commerce, we gave to
the word "trade" its full meaning under § 3, unaffected by the
narrower meaning which it might have under § 1. The considerations
invoked in that case are equally applicable here.
But it is said that the phrase in question must be restricted in
accordance with the rule of
ejusdem generis. The point is
not without merit. The phrase reads "interest
Page 293 U. S. 89
on bonds, notes, or other interest-bearing obligations." If the
rule invoked be held controlling, it would follow that the general
words "other interest-bearing obligations" must be assimilated to
the particular words "notes and bonds," and restricted to
obligations of the same kind. But, while the rule is a well
established and useful one, it is, like other canons of statutory
construction, only an aid to the ascertainment of the true meaning
of the statute. It is neither final nor exclusive. To ascertain the
meaning of the words of a statute, they may be submitted to the
test of all appropriate canons of statutory construction, of which
the rule of
ejusdem generis is only one. If, upon a
consideration of the context and the objects sought to be attained
and of the act as a whole, it adequately appears that the general
words were not used in the restricted sense suggested by the rule,
we must give effect to the conclusion afforded by the wider view in
order that the will of the Legislature shall not fail.
The general object of this act is to put money into the federal
treasury, and there is manifest in the reach of its many provisions
an intention on the part of Congress to bring about a generous
attainment of that object by imposing a tax upon pretty much every
sort of income subject to the federal power. Plainly, the payment
in question constitutes income derived from a source within the
United States, and the natural aim of Congress would be to reach
it. In
Irwin v. Gavit, 268 U. S. 161,
268 U. S. 166,
this Court, rejecting the contention that certain payments there
involved did not constitute income, said:
"If these payments properly may be called income by the common
understanding of that word and the statute has failed to hit them,
it has missed so much of the general purpose that it expresses at
the start. Congress intended to use its power to the full extent.
Eisner v. Macomber, 252 U. S. 189,
252 U. S.
203."
Although Congress intended, as the court held in the
Viscose case,
supra, to include interest
Page 293 U. S. 90
on a tax refund made to a domestic corporation, we are asked to
deny such intention in respect of a competing foreign corporation.
But we see nothing in the relationship of a foreign corporation to
the United States, or in any other circumstance called to our
attention, which fairly shows that such a discrimination was within
the contemplation of Congress. On the contrary, the natural
conclusion is that, if any discrimination had been intended, it
would have been made in favor of, and not against, the domestic
corporation, which contributes in a much more substantial degree to
the support of the people and government of the United States.
The foregoing views are put beyond all fair doubt, if otherwise
any would remain, by the consideration of a qualification contained
in the section itself. After declaring that interest on bonds,
notes, or other interest-bearing obligations shall be treated as
income from sources within the United States, the section
immediately proceeds to exclude from that language "interest on
deposits with persons carrying on the banking business paid to
persons not engaged in business within the United States. . . ." It
is apparent from this exception that Congress understood that,
unless the exception were made, the interest on such deposits would
fall within the term "interest-bearing obligations," and, to
prevent that result, it was necessary to specifically create the
exception. The conclusion fairly results that the clause was
intended to include all interest-bearing obligations not
specifically excepted. The opinion delivered by Lord Tenterden in
The King v. The Trustees for paving Shrewsbury, 3
Barnewall & Adolphus, 216, is directly in point. There, a
statute imposed certain charges and expenses, in connection with
the operations of a gas light company, upon tenants or occupants of
houses, shops, malt-houses, granaries, etc., and
hereditaments within Shrewsbury,
Page 293 U. S. 91
"meadow and pasture ground excepted." The contention was that
the word "hereditaments" must be confined to hereditaments
ejusdem generis with those enumerated. The court, holding
otherwise, said (p. 220):
"Now, it is certain that meadows and pastures would have fallen
within the meaning of the word 'hereditament,' if they had not been
excepted; it was argued therefore that this special exemption of
meadows and pastures shewed that the other word had been previously
used in its larger sense. On the other hand, it was contended that
these words had been introduced merely
ex majori cautela.
Upon the best consideration we have been able to give this case, we
are of opinion that we ought not to consider the exception of
meadow and pasture ground as made only for greater caution, but are
bound to look upon it as introduced by way of special exception,
and so to construe the clause, and, consequently, everything not so
specifically excepted must be understood to fall within the general
liability."
Interest on deposits is no more akin to notes and bonds than is
interest on tax refunds, and the fact that the former was expressly
excepted from the operation of the substantive provision quite
clearly justifies the conclusion that the lawmakers attached to the
general clause a larger meaning than it would have if limited to
things
ejusdem generis with those specifically enumerated.
Certainly, if it was necessary to save interest on deposits from
the embrace of the general clause by an exception, it was equally
necessary to save interest on tax refunds by a like exception.
Second. Is the United States a "resident" within the
meaning of the words "residents, corporate or otherwise?" We think
it is. It many times has been held that the United States or a
state is a "person" within the meaning of statutory provisions
applying only to persons.
Page 293 U. S. 92
See Ohio v. Helvering, 292 U.
S. 360,
292 U. S. 370,
and cases cited. In
Martin v. State, 24 Tex. 61, 68, this
was held in respect of a criminal statute, notwithstanding the
general rule that such statutes are to be construed strictly. The
statute there penalized the false making or fraudulent alteration
of a public record when done "with intent that any person be
defrauded." The state Supreme Court held that the state was to be
taken as a "person" within the meaning of the statute, and one who
made the entry with intent to defraud the state violated the
statute. The Texas decision was expressly followed by this Court in
Stanley v. Schwalby, 147 U. S. 508,
147 U. S. 517,
where it was held that the word "person" used in the statute there
under consideration would include the United States "as a body
politic and corporate." Blackstone, writing on the rights of
persons (1 Bl. 123) says:
"Persons also are divided by the law into either natural
persons, or artificial. Natural persons are such as the God of
nature formed us; artificial are such as are created and devised by
human laws for the purposes of society and government, which are
called corporations or bodies politic."
While it cannot be said that the United States, in its corporate
capacity as an artificial person, has a bodily presence in any
place, it is not unreasonable to hold that, in the eye of the law,
it has a residence, and especially so when a contrary holding would
defeat the evident purpose of a statute. This may be in the nature
of a legal fiction; but legal fictions have an appropriate place in
the administration of the law when they are required by the demands
of convenience and justice. Thus, intangible personal property has
been held to have a situs at the domicile of the owner, although
intangibles ordinarily have no actual situs and the paper evidence
of their existence may be elsewhere.
First
National Bank v. Maine, 284
Page 293 U. S. 93
U.S. 312,
284 U. S.
328-329. If, to carry out the purposes of a statute, it
be admissible to construe the word "person" as including the United
States, it is hard to see why, in like circumstances, it is
inadmissible to construe the word "resident" as likewise including
the United States.
And, finally, if the United States be not a "resident" in
respect of interest upon "other interest-bearing obligations," it
is, of course, not a "resident" in respect of interest upon its
bonds held by nonresident aliens and corporations. The interest
upon many of these bonds is subject to a super-income tax, and to
certain other taxes. If it had been intended to make an exemption
in respect of such taxes in favor of nonresidents, it is reasonable
to suppose that Congress would have said so in explicit terms,
* instead of
leaving the fate of taxes upon the large sums thus involved to
depend upon the way in which a court might happen to construe the
word "resident" -- a most unsatisfactory substitute, as the
conflicting decisions in this and the next succeeding case bear
witness. We cannot assent to the view that Congress has written
into the law an exception of such importance in a manner so
indirect and casual.
In the foregoing discussion, we have not been unmindful of the
rule, frequently stated by this Court, that taxing acts "are not to
be extended by implication beyond the clear import of the language
used," and that doubts are to be resolved against the government
and in favor of the taxpayer. The rule is a salutary one, but it
does not apply here. The intention of the lawmaker controls in the
construction of taxing acts, as it does in the construction of
other statutes, and that intention is to be ascertained not by
taking the word or clause in question from its setting and viewing
it apart, but by considering it in connection
Page 293 U. S. 94
with the context, the general purposes of the statute in which
it is found, the occasion and circumstances of its use, and other
appropriate tests for the ascertainment of the legislative will.
Compare Rein v. Lane, L.R. 2 Q.B. cases 144, 151. The
intention being thus disclosed, it is enough that the word or
clause is reasonably susceptible of a meaning consonant therewith,
whatever might be its meaning in another and different connection.
We are not at liberty to reject the meaning so established and
adopt another lying outside the intention of the legislature simply
because the latter would release the taxpayer or bear less heavily
against him. To do so would be not to resolve a doubt in his favor,
but to say that the statute does not mean what it means.
"The rule of strict construction is not violated by permitting
the words of a statute to have their full meaning, or the more
extended of two meanings. The words are not to be bent one way or
the other, but to be taken in the sense which will best manifest
the legislative intent.
United States v. Hartwell, 6
Wall. 385,
73 U. S. 396;
United
States v. Corbett, 215 U. S. 233,
215 U. S.
242."
Sacramento Nav. Co. v. Salz, 273 U.
S. 326,
273 U. S. 329.
The rule of strict construction applies to penal laws, but such
laws are not to be construed so strictly as to defeat the obvious
intention of the Legislature, or so applied as to narrow the words
of the statute to the exclusion of cases which those words, in the
sense that the Legislature has obviously used them, would
comprehend.
United States v.
Wiltberger, 5 Wheat. 76,
18 U. S. 95. That
view, expressed by Chief Justice Marshall, has since been
frequently followed by this Court.
See, for example,
27 U. S. v. United
States, 2 Pet. 358,
27 U. S. 367;
United States v.
Morris, 14 Pet. 464,
39 U. S. 475;
United States v. Hartwell, supra, 73 U. S.
395-396;
Donnelley v. United States,
276 U. S. 505,
276 U. S.
512.
Judgment reversed.
* As, for example, it did in the Act of March 3, 1919, § 4, c.
100, 40 Stat. 1309, 1311.