or any other State or country, and paying a license fee or privilege tax upon premium receipts for the privilege of transacting business in this State.

Section 337. NET INCOME DEFINED.-In the case of a corporation subject to the tax imposed by section 335 of this act, the term "net income" means the gross income as defined in section 338 of this act, less the deductions allowed by section 339 of this act, and the net income shall be computed on the same basis. as provided in section 322 of this act.

Section 338. GROSS INCOME DEFINED.-(a) In the case of a corporation subject to the tax imposed by section 335 of this act, the term "gross income" means the gross income as defined in section 323 of this act, except that (1) In the case of life insurance companies there shall not be included in gross income such portion of any actual premium received from any individual policy holder as is paid back or credited to or treated as an abatement of premium of such policy holder within the taxable year. (2) Mutual marine insurance companies shall include in gross income the gross premiums collected and received by them, less amounts paid for re-insurance. (b) In the case of a foreign corporation, gross income includes only the gross income from sources within this State, including the interest on bonds, notes, or other interest bearing obligations of residents, corporate or otherwise, dividends from resident corporations, and including all amounts received (although paid under a contract for the sale of goods or otherwise) representing profits on the manufacture and disposition of goods within this State. Nothing in this paragraph (b) shall be construed as including the income derived from loans on real estate secured by mortgages on which the recording privilege tax has been paid.

Section 339. DEDUCTIONS ALLOWED.-In computing the net income of domestic corporations doing business in this State subject to the tax imposed by section 335 of this act, there shall be allowed as deductions: (1) All ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business, including a reasonable allowance for salaries and other compensation for personal services actually rendered, and including rentals or other payments required to be made as a condition to the continued use or possession of property to which the corporation has not taken or is not taking title, or in which it has no equity. (2) All interest paid or accrued within the taxable year on its indebtedness, except an indebtedness incurred or continued to purchase or carry obligations or securities (other than obligations of the United States issued after September 24, 1917), the interest upon which is wholly exempt from taxation under this act as income to the taxpayer, or in the case of a foreign corporation, the proportion of such

Section 336. CONDITIONAL AND OTHER EXEMPTIONS. The following organizations shall be exempt from taxation under this act: (1) Labor, agricultural or horticultural organizations. (2) Mutual savings banks and fire and casualty insurance companies not having a capital stock represented by shares. (3) Fraternal beneficiary societies, orders or associations, (a) operating under the lodge system or for the exclusive benefit of the members of a fraternity itself operating under the lodge system, and (b) providing for the payment of life, sick, accident, or other benefits to the members of such society, order or association, or their dependents. (4 Domestic building and loan associations and co-operative banks without capital stock, organized and operated for mutual purposes and without profit. (5) Corporations organized and operated exclusively for religious, charitable, scientific, or educational purposes, or for the prevention of cruelty to children or animals, no part of the net earnings of which inures to the benefit of any private stockholder or individual. (6) Business leagues, chambers of commerce, or boards of trade, not organized for profit and no part of the net earnings of which inure to the benefit of any private stockholder or individual. (7) Civic leagues or organizations not organized for profit but operated exclusively for the promotion of social welfare. (8) Clubs organized and operated exclusively for pleasure, recreation and other non-profitable purposes, no part of the net earnings of which inures to the benefit of any private stockholder or member. (9) Farmers' and other mutual hail, cyclone or fire insurance companies, mutual ditch or irrigation companies, mutual or co-operative telephone companies, or like organizations of a purely local character, the income of which consists solely of assessments, dues, and fees collected from members for the sole purpose of meeting expenses. (10) Farmers', fruit growers', or like associations, organized and operated as sales agents for the purpose of marketing the products of members and turning back the proceeds of sales, less the necessary selling expenses, on the basis of the quantity of produce furnished by them. (11) Corporations organized for the exclusive purpose of holding title to property, collecting income therefrom and turning over the entire amount thereof, less expenses, to an organization which itself is exempt from the tax imposed by this act. (12) Federal Land Banks and national farm loan associations as provided in section 26 of the act of Congress approved July 17, 1916, entitled, "An act to provide capital for agricultural development, to create standard forms of investment based upon farm mortgages, to equalize rates of interest upon farm loans, to furnish a market for United States bonds, to create government depositories and financial agents for the United States, and for other purposes." (13) Insurance companies organized under the laws of this State,

or any other State or country, and paying a license fee or privilege tax upon premium receipts for the privilege of transacting business in this State.

Section 337. NET INCOME DEFINED.-In the case of a corporation subject to the tax imposed by section 335 of this act, the term "net income" means the gross income as defined in section 338 of this act, less the deductions allowed by section 339 of this act, and the net income shall be computed on the same basis as provided in section 322 of this act.

Section 338. GROSS INCOME DEFINED.-(a) In the case of a corporation subject to the tax imposed by section 335 of this act, the term "gross income" means the gross income as defined in section 323 of this act, except that (1) In the case of life insurance companies there shall not be included in gross income such portion of any actual premium received from any individual policy holder as is paid back or credited to or treated as an abatement of premium of such policy holder within the taxable year. (2) Mutual marine insurance companies shall include in gross income the gross premiums collected and received by them, less amounts paid for re-insurance. (b) In the case of a foreign corporation, gross income includes only the gross income from sources within this State, including the interest on bonds, notes, or other interest bearing obligations of residents, corporate or otherwise, dividends from resident corporations, and including all amounts received (although paid under a contract for the sale of goods or otherwise) representing profits on the manufacture and disposition of goods within this State. Nothing in this paragraph (b) shall be construed as including the income derived from loans on real estate secured by mortgages on which the recording privilege tax has been paid.

Section 339. DEDUCTIONS ALLOWED.-In computing the net income of domestic corporations doing business in this State subject to the tax imposed by section 335 of this act, there shall be allowed as deductions: (1) All ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business, including a reasonable allowance for salaries and other compensation for personal services actually rendered, and including rentals or other payments required to be made as a condition to the continued use or possession of property to which the corporation has not taken or is not taking title, or in which it has no equity. (2) All interest paid or accrued within the taxable year on its indebtedness, except an indebtedness incurred or continued to purchase or carry obligations or securities (other than obligations of the United States issued after September 24, 1917), the interest upon which is wholly exempt from taxation under this act as income to the taxpayer, or in the case of a foreign corporation, the proportion of such

interest which the amount of its gross income from sources within the State of Alabama bears to the amount of its gross income from all sources within and without the State of Alabama. (3) Taxes paid or accrued within the taxable year (a) imposed by the authority of the United States, or (b) by the authority of any of its possessions; or (c) by the authority of any State or territory, or any county, school district, municipality, or other taxing sub-division of any State or territory, not including those assessed for local benefits of a kind tending to increase the value of the property assessed; or (d) in the case of a domestic corporation, by the authority of any foreign corporation or (e) in the case of a foreign corporation, by the authority of any foreign country, and taxes assessed for local benefits of a kind tending to increase the value of the property assessed, upon the property or business. (4) Losses sustained during the taxable year and not compensated for by insurance or otherwise. (5) Debts ascertained to be worthless and charged off within the taxable year. (6) Amounts received as dividends from a corporation which is taxable under this act upon its net income. (7) A reasonable allowance for the exhaustion, wear and tear of property used in the trade or business, including a reasonable allowance for obsolescence. (8) In the case of mines, oil and gas wells, other natural deposits, and timber, a reasonable allowance for depletion and for depreciation of improvements, according to the peculiar conditions in each case, based upon the cost, including cost of development not otherwise deducted; provided that in the case of such properties acquired prior to January 1, 1919, the fair market value of the property (or the taxpayer's interest therein) on that date shall be taken in lieu of cost up to that date; provided, further, that in the case of mines, oil and gas wells discovered by the taxpayer on or after January 1, 1919, and not acquired as the result of purchase of a proven tract or lease, where the fair market value of the property is materially disproportionate to the cost, the depletion allowance shall be based upon the fair market value of the property at the date of the discovery, or within thirty days thereafter; such reasonable allowance in all above cases to be made under rules and regulations to be prescribed by the State income tax supervisor. In the case of leases the deductions allowed by this paragraph shall be equitably apportioned between the lessor and the lessee. 9. In the case of insurance companies, in additional to the above; (a) the net addition required by law to be made within the taxable year to reserve funds (including in the case of assessment insurance companies the actual deposit of sums with state or territorial officers pursuant to law, as additions to guarantee or reserve funds); and (b) the sums other than dividends paid within the taxable year on policy and annuity contracts. 10. In

the case of corporations issuing policies covering life, health and accident insurance combined in one policy issued on the weekly premium payment plan continuing for life and not subject to cancellation, in addition to the above, such portion of the net addition (not required by law) made within the taxable year to reserve funds as the State income tax supervisor finds to be required for the protection of the holders of such policies only. 11. In the case of marine insurance companies, there shall be allowed, in addition to the deductions allowed in paragraphs 1 to 9, inclusive, amounts repaid to policy holders on account of premiums previously paid by them, and interest paid on such amounts between the ascertainment and the payment thereof. 12. In the case of mutual insurance companies (other than mutual life or mutual marine insurance companies) requiring their members to make premium deposits to provide for losses and expenses, there shall be allowed, in addition to the deductions allowed in paragraphs 1 to 9, inclusive (unless otherwise allowed under such paragraphs) the amount of premium deposits returned to their policy holders and the amount of premium deposits retained for the payment of losses, expenses and reinsurance reserves. 13. In the case of foreign corporations doing business in this State the deductions allowed by this section shall only be allowed if and to the extent that they are connected with income arising from sources within the State of Alabama, and the proper apportionment and allocation of deductions with respect to the sources of income within and without the State of Alabama shall be determined under rules and regulations prescribed by the State income tax supervisor.

Section 340. ITEMS NOT DEDUCTIBLE.-That in computing net income no deduction shall in any case be allowed in respect of any of the items specified in section 325.

Section 341. CREDITS ALLOWED.-That for the purpose only of the tax imposed by section 335, there shall be allowed the following credits: (a) The amount received as interest upon obligations of the United States and bonds issued by the War Finance Corporation, which is included in gross income under section 338. (b) The amount of excess profits tax imposed by this act, and the amount of excess profits tax imposed by the act of Congress now in effect. (c) In the case of a domestic corporation, two thousand dollars. (d) In the case of a foreign corporation doing business in this State that proportion of two thousand dollars which the gross income of such corporation in this State bears to the entire gross income of such corporation.

Section 342. CORPORATION RETURNS.-That every corporation, joint stock company or association subject to income tax under this act, shall within thirty days after making its report of its entire net income to the treasury department of the United