699 Opinion of the Court tract them from, nor credit them upon, his income tax. He thus saves on his income tax a small or larger percentage of such other taxes, depending upon the rate of his income tax. But plaintiff would deduct, in toto, not merely from its income, but from its income tax, foreign taxes paid upon foreign income would never became American income. If plaintiff's contention is correct, a corporation can obtain a substantial tax advantage in its American income tax by carrying on its foreign business through a subsidiary rather than through a branch of its own. In the illustration used above, if the A Company's foreign branch made the profit of $100,000, that entire amount would be returnable as American income subject to tax, and the foreign tax of $20,000 would be credited against American income tax. But if it did the business through a subsidiary, its returnable American income would be only $80,000, yet it would be entitled to the same credit of $20,000 according to plaintiff's contention. An intention so to change the 1918 statute which had formerly not permitted this kind of discriminatian, should not be imputed to Congress by a strained interpretation of statutory language. Plaintiff urges, against the language of the statute and what seems to us the reason of the statute, its legislative history and administrative interpretation as supporting plaintiff's contentions. The relevant legislative history is as follows: In the 1921 revision of the Revenue Act of 1918, section 240 (c), 40 Stat. 1057, 1082, had been omitted from the House bill because that bill had exempted dividends from taxation, hence there was no occasion for giving credit for taxes paid on foreign income from which dividends were paid. In the Senate bill however, dividends from foreign corporations were taxed; but by inadvertence, as first drafted, it made no provision for credits for taxes paid by a foreign subsidiary corporation. Concerning the correction of this omission, the Treasury representative before the Senate Committee said: I rewrote the old provision, safeguarding it from some abuses which it was open to and closing up some of the gaps that were in the old provision. (Senate Hearings Opinion of the Court 94 C. Cls. before the Committee on Finance, 67th Cong., 1st Sess., on H. R. 8245, Internal Revenue, Part 2, Oct. 8, 1921, pp. 338-339). On the floor of the Senate, Senator Smoot offered on behalf of Senator Kellogg the amendment which is now section 131 (f) here in question. He said, inter alia, in explanation: A provision of this kind, giving the credit to a domestic corporation which owns a majority of the voting stock of a foreign corporation, is contained in section 240 (c) of the revenue act of 1918. The amendment here under discussion merely reincorporates this credit in the proposed revenue act of 1921, with safeguards designed to protect the American tax as above described. In short, the amendment in question is merely an improved version of an existing provision of law. (61st Cong. Record, part 7, p. 7184.) In the course of his explanation, he gave an example which is in accord with plaintiff's contention as to the meaning of the statute. This example was contradictory of the apparent meaning of the language of the amendment and of his closing statement, quoted above, that the amendment merely reincorporated the 1918 credit "with safeguards designed to protect the American tax as above described." To follow the example would in fact seriously impair the American tax. Such a legislative history, containing a direct statement of purpose pointing in one direction and an example pointing in the other, is of no real assistance in interpreting the statute. One or the other must have been a mistake. If a conclusion must be drawn from Senator Smoot's explanation, it would seem to be that the direct statement of purpose is less likely to have been inadvertent than the figures given in the example. The administrative interpretation of the statute has been as follows: From 1921 to 1931 the department interpreted it in accordance with plaintiff's contention. In 1924 and 1926 the revenue act was reenacted without change material to our problem. In 1931 the department changed its interpretation, and since that time it has been in accordance with the defendant's contention. The section has been reenacted in $699 Opinion of the Court 1932, 1934, 1936 and 1938 without change material to our problem. Congress has by reenactment acquiesced as frequently in the present departmental interpretation as in the earlier one, so that this history too is of no real assistance in the solution of our problem. The case of International Milling Co. v. United States, 89 C. Cls. 128, involved the same question under section 131 (f) of the Revenue Act of 1928. As we have said, up to 1931, the time that the tax there involved was imposed, administrative interpretation and Congressional reenactment both tended to support the construction here contended for by plaintiff. This court's decision in that case approved that construction. Administrative interpretation and Congressional reenactment since 1931 have all pointed in the other direction, which history tends to neutralize or destroy one of the reasons upon which the International Milling decision was based. But whether that be a sufficient distinction or not, we have, upon a careful reconsideration of the question, concluded that the interpretation given to the 1928 statute in the International Milling decision is not the correct interpretation of the 1936 and 1938 acts here involved. We are aware that the United States Circuit Court of Appeals for the Second Circuit in the case of F. W. Woolworth & Co. v. United States, 91 F. (2d) 973, and the United States District Court for the Western District of Pennsylvania in the case of Aluminum Co. of America v. United States, 36 F. Supp. 23, reached the conclusion which plaintiff here urges. Nevertheless, our conclusion is that the tax to which the proportion is to be applied is the foreign tax paid only upon so much of the foreign income as constitutes accumulated profits, according to the definition of the statute. It follows that plaintiff is not entitled to recover and its petition is, accordingly, dismissed. It is so ordered. JONES, Judge; WHITAKER, Judge; and LITTLETON, Judge, concur. Opinion of the Court WHALEY, Chief Justice, dissenting: 94 C. Cls. I am of the opinion that the decision in the case of International Milling Co. v. United States, 89 C. Cls. 128, is correct. I can see no justification for overruling that decision because the Department has refused to follow it. Congress has not changed the law in subsequent enactments which tends to show acquiescence in that decision. The mere fact that the Department refused to accept the decision is not persuasive in changing the ruling of the Court. The decision has been uniformly applied by other Courts as shown in the majority opinion. HOWARD C. MYERS ET AL. v. THE UNITED STATES [Nos. 43671, 43672, 43673, 43674, 43675] Extra pay for overtime; customs employees. Decided January 6, 1941; plaintiffs entitled to recover. Entry of judgment suspended. Defendant's motion for new trial overruled March 12, 1941. See 92 C. Cls. 447. On October 17, 1941, on the court's own motion, it was ordered "that the special findings of fact, the conclusion of law, and opinion filed herein January 6, 1941, be and the same are vacated and withdrawn; and the case is now remanded to the December calendar for oral argument ab initio," CASES DECIDED IN THE COURT OF CLAIMS June 2, 1941, to November 30, 1941 INCLUSIVE, UNDER THE ACT OF JUNE 25, 1938, TO RECOVER INCREASED COSTS IN CONNECTION WITH GOVERNMENT CONTRACTS RESULTING FROM THE ENACTMENT OF THE NATIONAL INDUSTRIAL RECOVERY ACT* CONSUMERS PAPER COMPANY, A CORPORATION, v. THE UNITED STATES [No. 44089. Decided October 6, 1941] On the Proofs Increased labor costs under National Industrial Recovery Act.-It is held that the record and testimony do not justify a finding of recoverable increased costs in connection with plaintiff's Contract No. 1 and that in connection with Contract No. 2, plaintiff is entitled to recover for increased labor costs after April 6, 1934. The Reporter's statement of the case: Mr. Ward H. Oehmann for the plaintiff. Messrs. Fred B. Rhodes, Cooper B. Rhodes, and Robert F. Klepinger were on the briefs. Mr. J. H. Reddy, with whom was Mr. Assistant Attorney General Francis M. Shea, for the defendant. The court made special findings of fact as follows: 1. The plaintiff during the times herein mentioned was a corporation organized and existing under the laws of the State of Michigan with its place of business in Detroit, Michigan. *See vol. 92, pp. xxili-xxix. 713 |