recognition, to specify when the gains or losses would be recognized and upon what basis they should be measured. We may not destroy the effectiveness of this statutory plan by denying recognition to the corporation and thus preventing consideration of its transactions.1

The recognition of the Averill corporation being determined, it follows, as the respondent concedes, that the petitioner's computation of gain was correct. There was a statutory reorganization under the Revenue Act of 1928, section 112(i), and hence no gain to the petitioner as distributee from the United corporation of the Averill shares, section 112(g). See Miller on Reorganizations, ch. 13. The effect was to apportion the basis formerly applicable to petitioner's United shares between the United shares and the Averill shares, section 113 (a) (9); art. 600, Regulations 74; Miller on Reorganizations, ch. 20. The liquidation of the Averill corporation, whereby petitioner received the Monitor shares, resulted in gain of $76,007.88, the difference between the undisputed basis of $57,325.45 attributed to the Averill shares, and $133,333.33, the undisputed value of the Monitor shares so received, section 115 (c). The immediate sale by petitioner of the Monitor shares for no more than their value as used in the foregoing computation resulted in the realization by her of no further gain. See Edgar J. Hesslein, 21 B. T. A. 61; affd., 53 Fed. (2d) 1081; I. T. 2259, V-1 C. B. 18; I. T. 2530, IX-1 C. B. 194.

Since only 3,300 of her United shares were held by petitioner more than two years, her gain was subject to the capital gains provision, section 101, only to a like extent. This the petitioner concedes.

Judgment will be entered under Rule 50.

BRITISH-AMERICAN TOBACCO COMPANY, LTD., PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Docket No. 41224. Promulgated December 6, 1932.

H. H. Shelton, Esq., and H. M. Robertson, Esq., for the petitioner. C. C. Holmes, Esq., and John D. Foley, Esq., for the respondent.

OPINION.

STERNHAGEN: The respondent determined deficiencies of $12,600.20 for 1925 and $182,832 for 1926 in the income tax of the petitioner, a foreign corporation. The facts are stipulated and are, in essence, that in the years in question the petitioner received from the United States stipulated amounts of interest upon refunds of overpayments

1 Section 112(k), Revenue Act of 1932, is an indication that when a corporation is not to be considered as a corporation' the statute expressly says so.

of income and profits taxes paid for 1917, 1918, and 1919, which respondent has determined were within petitioner's taxable income. This determination the petitioner challenges and cites Stockholms Enskilda Bank, 25 B. T. A. 1328. That decision decides precisely the same issue; and in accordance therewith, the respondent's determination is reversed.

Reviewed by the Board.

Judgment will be entered under Rule 50.

TRAMMELL Concurs in the result.

Love, concurring: I concur in the prevailing opinion in this case, but as it is based entirely on the opinion and decision in the Stockholms Enskilda Bank case, and as I believe that case, while correct in result, was based on unsound grounds, I here desire to set forth my views.

I agree with the dissenting opinion of Smith, Member, on the proposition that the Government of the United States is a resident within the territorial limits of the United States.

As pointed out by the Supreme Court in Van Brocklin v. State of Tennessee, 117 U. S. 151, the Government of the United States is a "great corporation," ordained and established by the American people in their sovereign capacity as an agency of government, to exercise, and empowered to exercise, on behalf of the sovereign, certain governmental functions, and that "corporation's" domicile, or residence, is within, and coextensive with, the territorial limits of the United States. See United States v. Borcherling, 185 U. S. 223.

I do not agree with the result of the Smith dissenting opinion or with the ground upon which the Stockholms Enskilda Bank case was decided, for the reason that, even assuming for the sake of argument that the words "obligations of residents, corporate or otherwise" used in section 217 (a) (1), supra, could be construed as meaning "obligations of the United States," it has been held, in American Viscose Corp. v. Commissioner, 56 Fed. (2d) 1033, that a refund by the United States of illegal taxes was not an "obligation. of the United States" and that, therefore, the interest received by the Viscose Corporation on such refund was not exempt from taxation under section 213 (b) (4) of the Revenue Act of 1926, which provided that "the term 'gross income' does not include the following items, which shall be exempt from taxation interest

upon * (C) the obligations of the United States That issue was the controlling issue in the case, and the Supreme Court denied certiorari on October 10, 1932.

In the instant case, section 233 (b) provides that "In the case of a foreign corporation, gross income means only gross income from

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in the man

sources within the United States, determined ner provided in section 217." Section 217 (a) provides that "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" and subdivision (c) provides that, "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) * * *." In other words, unless the interest in the instant case be brought within the provisions of section 217 (a) (1), supra, it is not subject to tax under the specific provisions of the statute. The interest in question was not interest on a bond or a note, and, as decided in the American Viscose Corp. case, it was not interest upon an "obligation of the United States." The term "obligation can not mean one thing under section 213 and an entirely different thing under section 217 of the same act. BLACK agrees with this concurring opinion.

SMITH, dissenting: Section 233 of the Revenue Act of 1926 provides in part as follows:

(b) In the case of a foreign corporation, gross income means only gross income from sources within the United States, determined (except in the case of insurance companies subject to the tax imposed by sections 243 or 246) in the manner provided in section 217.

Section 217 provides, in part, as follows:

the following

(a) In the case of a nonresident alien individual 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 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 prevailing opinion of the Board holds, in accordance with Stockholms Enskilda Bank, 25 B. T. A. 1328, that the interest paid on refunds of Federal income taxes is not income from sources within the United States within the purview of section 217 (a) (1), above quoted. In that case we denied the petitioner's contention that the interest thus received was not on "interest-bearing obligations" within the purview of section 217 (a) (1), but gave judgment for the petitioner upon the ground that the United States was not

"resident" of the United States within the contemplation of the applicable provision of the statute. With this conclusion I can not agree.

The manifest intention of the statute was to include in the income of foreign taxpayers interest upon all obligations where the interest was paid by corporations or other payors which might be classed as "residents." The statute then provides in subdivision (c) of section 217 that all other interest received by nonresidents shall be regarded as from sources without the United States. It seems to me utterly incompatible with a reasonable construction of the statute that interest paid by the United States Government is to be regarded as from a source without the United States, and that is necessarily the conclusion of the Board in the Stockholms Enskilda Bank case. I can see no reason for construing the statute as exempting from income tax the interest paid on refunds of Federal income taxes received by foreign corporations transacting business and having an office in the United States, as was the petitioner, and subjecting to tax a domestic corporation in similar circumstances, as was done in American Viscose Corp., 19 B. T. A. 937; affirmed by the Circuit Court of Appeals for the Third Circuit in American Viscose Corp. v. Commissioner, 56 Fed. (2d) 1033.

If the United States is not a "resident" of the United States within the contemplation of the statute, of what country is it a "resident?" In Van Brocklin v. State of Tennessee, 117 U. S. 151, the Supreme Court, quoting Chief Justice Marshall, said:

The United States is a government, and consequently a body politic and corporate, capable of attaining the objects for which it was created, by the means which are necessary for their attainment. This great corporation was ordained and established by the American people and endowed by them with great powers for important purposes.

In United States v. Borcherling, 185 U. S. 223, 233, it was stated: In Vaughn v. Northrup, 15 Pet. 1, Mr. Justice Story, delivering the opinion of the court, said: "The debts due from the government of the United States have no locality at the seat of government. The United States in their sovereign capacity have no particular place of domicile, but possess, in contemplation of law, an ubiquity throughout the United States; and the debts due by them are not to be treated like the debts of a private debtor, which constitute local assets in his own domicile," and accordingly it was held, in that case, that "the administrator of a creditor of the government duly appointed in the State where the creditor was domiciled at the time of his death, has full authority to receive payment and give a full discharge of the debt due his intestate in any place where the government may choose to pay it, whether it be at the seat of government or at any other place where the public funds are deposited; and that moneys so received constituted assets

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See also Mackey v. Coxe, 18 How. 100, 105; Wyman v. Halstead, 109 U. S. 654. I am of opinion that interest received by a foreign

corporation upon refunds of Federal income taxes paid by the United States Government constitutes income from a source within the United States within the meaning of the statute.

SEAWELL agrees with the above dissent.

MATTHEWS, dissenting: I am unable to concur in the majority opinion in this case, because I think the decision in Stockholms Enskilda Bank, 25 B. T. A. 1328, upon which it rests, is wrong.

The decision in the Stockholms Bank case rests on the view that, although section 217 (a) (1) is not limited to interest on obligations similar to bonds and notes, interest paid by the United States on a refund of tax does not come within such provision because the United States is not a resident of the United States, and, therefore, that such interest comes within subsection (c) 1, and is to be treated as income from a source without the United States. To hold that interest paid by the United States Government is to be treated as from a source without the United States is to construe the statute as exempting such interest from tax when paid to a nonresident alien or foreign corporation.

It is a well settled rule that exemptions from taxation must be express and must be strictly construed. The rule as to the proper construction of doubtful statutes, which was invoked in the Stockholms Bank case, is not the rule to be applied in determining exemptions from taxation.

In Bank of Commerce v. Tennessee, 161 U. S. 134, the Supreme Court said:

These cases show the principle upon which is founded the rule that a claim for exemption from taxation must be clearly made out. Taxes being the sole means by which sovereignties can maintain their existence, any claim on the part of any one to be exempt from the full payment of his share of taxes on any portion of his property must on that account be clearly defined and founded upon plain language. There must be no doubt or ambiguity in the language used upon which the claim to the exemption is founded. It has been said that a well founded doubt is fatal to the claim; no implication will be indulged in for the purpose of construing the language used as giving the claim for exemption, where such claim is not founded upon the plain and clearly expressed intention of the taxing power.

The rule was reaffirmed in Theological Seminary v. Illinois, 188 U. S. 662, 672, in these words:

The rule is that, in claims for exemption from taxation under legislative authority, the exemption must be plainly and unmistakably granted; it cannot exist by implication only; a doubt is fatal to the claim.

The rule was discussed fully in this Board's decision in Kansas City Southern Ry. Co., 16 B. T. A. 665.

The question involved can not be decided by looking only at subsections (a) 1, and (c) 1, of section 217, as was done in the Stock