Opinion
No. K-476.
February 9, 1931.
Suit by the American-Hawaiian Steamship Company against the United States.
Judgment for plaintiff.
This case having been heard by the Court of Claims, the court, pursuant to the stipulation of the parties, makes the following special findings of fact:
1. The plaintiff, at all times involved in this case, was and is a domestic corporation, and on March 1, 1920, acquired for cash substantially all the stock of the Coastwise Transportation Company, another corporation. On and after the last-named date, plaintiff and the Coastwise Transportation Company were affiliated corporations within the meaning of section 240 of the Revenue Act of 1918. Neither the plaintiff nor the Coastwise Transportation Company was affiliated with any other corporation during the year 1920.
2. On March 15, 1921, the plaintiff filed a consolidated income and profits tax return for the calendar year 1920, showing the income and invested capital of the plaintiff for that year, and likewise for the said affiliated corporation for the period March 1 to December 31, 1920.
3. Prior to the year 1920, the plaintiff kept its accounts and records and filed its federal tax returns on the basis of an established annual accounting period ending December 31st of each year, and for the year 1920 the plaintiff kept its accounts and records on the basis of an annual accounting period ending December 31, 1920. Coastwise Transportation Company, prior to March 1, 1920, had an established fiscal year ending on the last day of February of each year, and it filed a separate income and profits tax return for the fiscal year ending February 29, 1920. Coastwise Transportation Company closed its books of account on December 31, 1920, to bring its accounting period into conformity with that of the plaintiff.
4. During all of the year 1920, the plaintiff was the owner of vessels documented under the laws of the United States and operated in foreign trade. The net earnings of such vessels which accrued in foreign trade and were included in the income reported by the plaintiff for the calendar year 1920, amounted to $11,200,184.35.
The Coastwise Transportation Company was at no time herein mentioned the owner of any vessels documented under the laws of the United States and operated in foreign trade, and had no earnings from such vessels accrued in foreign trade.
5. The plaintiff set aside in trust, on account of the year 1920, as required and permitted by section 23 of the Merchant Marine Act 1920 (46 USCA § 878), and the Rules and Regulations of the United States Shipping Board promulgated thereunder, the sum of $4,171,460.91. Said trust fund was approved by the United States Shipping Board. The plaintiff, within the time provided by law as duly extended by the United States Shipping Board, with the consent of the Secretary of the Treasury, built in its shipyards in the United States, three new vessels, the motor ships Californian and Missourian and the steamship Malolo. The type and kind of these vessels were approved by the United States Shipping Board, and these vessels were approved generally by said board for purposes incident to claims under section 23 of the Merchant Marine Act 1920. The cost of these three vessels was not less than $13,540,428.99, and the United States Shipping Board determined this amount to be the cost of construction of said vessels. The total cost of said vessels was paid out of ordinary funds or capital of the plaintiff, and the United States Shipping Board permitted the plaintiff to withdraw from the said trust fund set up for 1920 pursuant to section 23 of the Merchant Marine Act 1920, and the accumulated interest thereon, the sum of $4,513,476.31, representing one-third of such total cost of construction.
6. During the calendar year 1920, the plaintiff had a total net income of $12,589,840.37. During the period March 1, 1920, to December 31, 1920, Coastwise Transportation Company had a net loss of $176,611.69. The consolidated net income of the plaintiff for the calendar year 1920 and of Coastwise Transportation Company for the period March 1, 1920, to December 31, 1920, was $12,413,228.68.
7. The Commissioner of Internal Revenue, in determining the amount the plaintiff was required to set aside in a trust fund for investment under section 23 of the Merchant Marine Act of 1920 on account of the year 1920, in order to be entitled to the deduction therein provided for, divided the calendar year 1920 into two taxable periods, one beginning January 1 and ending February 29, 1920, and one beginning March 1 and ending December 31, 1920. The Commissioner of Internal Revenue determined the amount equivalent to excess profits taxes for the period March 1, 1920, to December 31, 1920, that would have been payable by the plaintiff on account of the net earnings accrued in foreign trade of vessels documented under the laws of the United States and operated in foreign trade, but for the deduction allowed under section 23 of the Merchant Marine Act 1920, and required to be set aside under that act, to be $3,128,941.08. Said amount was determined upon the basis of an invested capital of $21,354,165.08, and an income of $10,314,921.95. The amount of $10,314,921.95 represents the consolidated net income of the plaintiff and Coastwise Transportation Company for the period March 1, 1920 to December 31, 1920. The amount of $21,354,165.08 represents the amount determined by the Commissioner of Internal Revenue to be the consolidated invested capital of the plaintiff and Coastwise Transportation Company for the period March 1 to December 31, 1920. The Secretary of the Treasury of the United States determined and certified to the United States Shipping Board that the amount of $3,128,941.08 was the amount which the plaintiff was required to set aside in a trust fund for investment under section 23 of the Merchant Marine Act 1920. The amount which the plaintiff was required to set aside under said section 23 of the Merchant Marine Act 1920, whether computed on the basis of the consolidated income and invested capital for the entire year 1920 or for the period March 1, 1920 to December 31, 1920, was in no event in excess of $3,825,000.
8. The Commissioner of Internal Revenue, in finally determining the income and profits taxes of the plaintiff for the calendar year 1920, divided the year 1920 into two taxable periods, one beginning January 1 and ending February 29, 1920, and one beginning March 1 and ending December 31, 1920. The Commissioner of Internal Revenue allowed as a deduction under the provisions of the first paragraph of section 23 of the Merchant Marine Act 1920, from the consolidated net income of the plaintiff and Coastwise Transportation Company for the period March 1, 1920, to December 31, 1920, which was subject to excess-profits taxes, the amount of $9,333,486.96, an amount equivalent to ten-twelfths of the net earnings for the calendar year 1920 accrued in foreign trade from vessels owned by the plaintiff, documented under the laws of the United States and operated in foreign trade. The Commissioner of Internal Revenue refused to allow any deduction under the provisions of said section 23 of the Merchant Marine Act 1920, from the income of the plaintiff for the period January 1, 1920, to February 29, 1920, which was subject to excess-profits tax, of any part of an amount equivalent to two-twelfths or any other portion of the net earnings for the calendar year 1920 accrued in foreign trade from vessels owned by the plaintiff, documented under the laws of the United States, and operated in foreign trade.
9. The plaintiff has duly satisfied all the requirements of section 23 of the Merchant Marine Act 1920, and the rules and regulations of the United States Shipping Board promulgated thereunder to entitle it to deduct from income for the calendar year 1920, subject to excess-profits tax, the full amount of $11,200,184.35, the amount equivalent to the net earnings accrued in foreign trade of vessels owned by it, documented under the laws of the United States, and operated in foreign trade, provided the court finds that under the facts existing in this case the law provided for such a deduction from income for the entire calendar year 1920.
10. If the court finds that the Commissioner of Internal Revenue erred in computing the income and profits tax of the plaintiff for 1920, in dividing the year 1920 into two taxable periods, as set forth in finding 6, or in not allowing a deduction under section 23 of the Merchant Marine Act 1920, for the period January 1 to February 29, 1920, then the plaintiff is not subject to any excess-profits tax for the calendar year 1920, and the correct income tax of the plaintiff for the calendar year 1920 is $1,216,235.59.
11. The income and profits tax return filed by the plaintiff on March 15, 1921, for the calendar year 1920 showed a total tax of $1,191,605.83, all of which was assessed against and paid by the plaintiff, such payment being made to the collector of internal revenue for the Second New York District at New York, as follows: $299,105.83 on March 15, 1921; $297,500 on June 15, 1921; $297,500 on September 15, 1921; and $297,500 on December 15, 1921.
12. In June, 1922, the Commissioner of Internal Revenue made an additional assessment of income and excess-profits taxes for the calendar year 1920 against the plaintiff in the amount of $40,004.08. The plaintiff paid said additional assessment to said collector of internal revenue on June 16, 1922.
13. Under date of October 1, 1927, the plaintiff was officially notified by the Commissioner of Internal Revenue, pursuant to section 283 of the Revenue Act of 1926 (26 USCA § 1064), that an examination of its income and profits tax return for the calendar year 1920 disclosed an additional tax of $565,047.89. The plaintiff took no appeal to the United States Board of Tax Appeals from said determination. On December 17, 1927, the Commissioner of Internal Revenue made an additional assessment against the plaintiff of income and profits tax for the year 1920 in the said amount of $565,047.89. On January 12, 1928, the plaintiff was notified by the said collector of internal revenue that such assessment had been made and payment was demanded on or before January 23, 1928, of said $565,047.89, plus interest thereon computed for the period February 26, 1926, to December 17, 1927, amounting to $61,280.60, less a credit of $239,514.68 on account of an overpayment by the plaintiff of income and profits taxes for the calendar year 1919, the net amount claimed to be due being $386,813.81. Said credit of $239,514.68 represented an overpayment of income and profits taxes for the calendar year 1919 made by the plaintiff which had been allowed by the Commissioner of Internal Revenue but which was credited against such additional assessment for 1920 on December 20, 1927, instead of being refunded to the plaintiff. On January 23, 1928, the plaintiff paid to said collector of internal revenue the sum of $386,813.81 in payment of the net amount of tax and interest shown to be due by said collector's notice and demand.
14. Under date of April 26, 1928, the plaintiff demanded an adjustment of said interest payment of $61,280.60, in a letter to the Commissioner of Internal Revenue dated April 26, 1928. On November 23, 1928, the plaintiff received a notice of refund signed by the Deputy Commissioner of Internal Revenue advising it that the interest of $61,280.60 paid by it on said additional assessment for 1920 should be reduced to $35,615.30. On November 23, 1928, the excess interest amounting to $25,665.30 was refunded to the plaintiff together with interest thereon in the amount of $1,201.35.
15. On December 6, 1928, the plaintiff filed with the collector of internal revenue for the Second New York District at New York, N Y, a claim for refund of $579,422.21 income and profits taxes paid by it for the calendar year 1920 and of $35,615.30 interest paid thereon, together with interest on such amounts. The grounds of this claim were in substance that the commissioner erred in denying for the first two months of 1920 the exemption from excess-profits tax allowed by section 23 of the Merchant Marine Act 1920, that this fundamental error required a number of adjustments in the computation of invested capital and tax for 1920, and that when the proper adjustments and recomputations were made it would appear that the plaintiff was entitled to a refund as stated above. Under date of August 1, 1929, the plaintiff was notified by the Commissioner of Internal Revenue that such claim for refund was rejected in full. Except as herein set forth, no part of the amounts paid by the plaintiff as income and profits taxes for 1920 and interest thereon has been allowed by the Commissioner of Internal Revenue as an overpayment, or has been refunded to the plaintiff or credited against any taxes or other amounts claimed to be due from the plaintiff to the United States.
16. It is stipulated that if the court finds that the plaintiff has overpaid its taxes for the year 1920 on account of the facts set forth in findings 1 to 15, the amount of such overpayment, including interest paid thereon, is $600,663.19, and any refund thereof carries interest on $232,761.31 of said amount from March 15, 1921; interest on $6,753.37 of said amount from December 2, 1926, and interest on $361,148.51 of said amount from January 23, 1928, all of said interest to be at 6 per cent. per annum and to run from the said dates to a date preceding the date of the refund check by not more than thirty days.
17. During the calendar year 1922, the plaintiff duly filed its corporation income and profits tax return for the calendar year 1921. Such return was a consolidated return showing the income and invested capital of the plaintiff and of said Coastwise Transportation Company for the calendar year 1921. The plaintiff and Coastwise Transportation Company were merged during the calendar year 1921 under the name of American-Hawaiian Steamship Company, pursuant to an agreement of merger and consolidation dated May 16, 1921, and until such merger, were affiliated corporations within the meaning of section 240 of the Revenue Act of 1921 ( 42 Stat. 260).
18. Under date of October 1, 1927, pursuant to section 283 of the Revenue Act of 1926 (26 USCA § 1064), the plaintiff was notified by the Commissioner of Internal Revenue that an examination of its corporation income and profits tax return for the calendar year 1921 disclosed an additional income and profits tax due for the said year of $150,848.14. The plaintiff took no appeal from this determination to the United States Board of Tax Appeals. On or about December 17, 1927, an additional assessment of said amount of $150,848.14 was made against the plaintiff as additional income and profits tax for the calendar year 1921, together with interest thereon to December 17, 1927, of $48,698.12. Under date of January 12, 1928, the plaintiff received notice of such assessment from the collector of internal revenue for the Second District of New York and demand for payment thereof within ten days. On January 23, 1928, the plaintiff paid to said collector the sum of $199,546.26 in payment of said additional assessment and interest thereon.
19. The Commissioner of Internal Revenue in making said additional assessment for the year 1921 reduced the invested capital of the plaintiff for said year on account of income and profits taxes for the year 1920 including in the amount of such taxes the additional assessment of $565,047.89 for the year 1920 referred to in finding 13 hereof. The plaintiff on December 6, 1928, duly filed a claim for refund of income and profits tax for the year 1921, which claim for refund was based upon the ground, among others, that the commissioner had erroneously reduced the invested capital of the plaintiff for 1921 because of including said additional assessment for the year 1920, in the amount of taxes for 1920. Said claim for refund was rejected by the Commissioner of Internal Revenue on August 1, 1929. Thereafter and subsequent to the commencement of this action the Commissioner of Internal Revenue determined that the plaintiff had overpaid its income and profits taxes for the year 1921 in the sum of $12,997.92 and interest thereon of $4,196.12, or a total amount of $17,194.04, and said total amount, together with interest thereon, has been refunded to the plaintiff. The Commissioner of Internal Revenue in making said refund did not make or allow any refund on account of the said reduction of invested capital for 1921 by reason of including said additional assessment for 1920 in the amount of taxes held for 1920, and no refund of income or profits taxes for 1921 has been made or allowed on account of said reduction in invested capital. It is stipulated and agreed that, if the court finds the plaintiff overpaid its income taxes for 1920 on account of the facts set forth in findings 1 to 15, then the plaintiff, by reason of the said reduction of invested capital for 1921, overpaid its income and profits taxes for the year 1921 over and above any refunds or credits heretofore allowed for the year 1921 by the total amount of $4,505.63, including interest, and any refund thereof carries interest at the rate of 6 per cent. per annum from January 23, 1928, to a date preceding the date of any refund check issued on account thereof by not more than thirty days.
20. On March 15, 1920, plaintiff filed with the collector of internal revenue for the Second District of New York its income and profits-tax return for the calendar year 1919. Said return disclosed a tax liability of $2,961,386.69, which was paid upon the following dates:
March 15, 1920 ............ $ 741,386.69 June 15, 1920 ............. 740,000.00 September 15, 1920 ........ 740,000.00 December 15, 1920 ......... 740,000.00 _____________ Total .................. $2,961,386.69
On December 2, 1926, plaintiff paid an additional tax for said calendar year 1919 of $6,468.07, plus interest of $285.30, or a total of $6,753.37. On January 21, 1927, and within the time provided by law, as duly extended by waivers, the plaintiff filed a claim for refund of a portion of the income and profits tax paid by it for the year 1919, together with interest thereon. On December 20, 1927, the Commissioner of Internal Revenue determined that plaintiff had overpaid its taxes for the year 1919 in the amount of $239,514.68. Said overpayment was the result of certain adjustments made by the Commissioner of Internal Revenue to the invested capital of the plaintiff. The income and profits taxes of the plaintiff for the calendar year 1919 were not computed under the provisions of section 327 or 328 of the Revenue Act of 1918 ( 40 Stat. 1093). Said overpayment of $239,514.68 was not refunded to the plaintiff but was credited on December 20, 1927, against the additional assessment of $565,047.89 income and profits taxes for the calendar year 1920, as set forth in finding 13 hereof. No interest on said overpayment for the calendar year 1919 has been allowed or paid to the plaintiff, except the amount of $3,491.42 representing interest at 6 per cent. per annum on $232,761.31 from December 15, 1920, to March 15, 1921.
21. The additional assessment of income and profits taxes for the year 1920 of $565,047.89 was made on December 17, 1927. Payment of said additional assessment was first demanded by the collector of internal revenue for the Second District of New York by a notice dated January 12, 1928, demanding payment on or before January 23, 1928.
22. The plaintiff did not elect to pay its income and profits tax for the year 1920 in full at the time of filing its return on March 15, 1921, but paid the tax shown on the return in quarterly installments as provided by law.
23. By the letter of April 26, 1928, the plaintiff demanded an adjustment of the interest on the said overpayment for 1919. Under date of June 2, 1928, the Commissioner of Internal Revenue refused any adjustment of the said interest on the said overpayment.
24. It is stipulated that if the court finds that the plaintiff has not overpaid its taxes for the year 1920 on account of the facts set forth in findings 1 to 15 hereof, but finds that the plaintiff is entitled to recover interest on the overpayment of $239,514.68 for the calendar year 1919 from the dates of payment thereof to December 17, 1927, January 12, 1928, or January 23, 1928, the amount of such interest to be recovered should be reduced by the amount of $26,866.65 heretofore refunded to the plaintiff as set forth in finding 14 hereof. If the court finds that the plaintiff has overpaid its taxes for the year 1920 on account of the facts set forth in findings 1 to 15 hereof, and is entitled to the refund of such overpayment with interest thereon as set forth in finding 16 hereof, then the plaintiff is not entitled to recover any further interest on account of the overpayment for 1919.
Arthur A. Ballantine, of New York City (George E. Cleary, of New York City, Clark T. Brown, of Washington, D.C., and Root, Clark, Buckner Ballantine, of New York City, on the brief), for plaintiff.
Ralph C. Williamson, of Washington, D.C., and Charles B. Rugg, Asst. Atty. Gen. (Ottamar Hamele and Isadore Graff, both of Washington, D.C., on the brief), for the United States.
Before BOOTH, Chief Justice, and GREEN, LITTLETON, WILLIAMS, and WHALEY, Judges.
Plaintiff brings this suit principally to recover what is claimed to be an overpayment on federal income and excess-profits taxes for the year 1920. Alternatively, in case it fails to recover for an overpayment on the taxes of 1920, it seeks to recover upon a claim for additional interest upon a refund allowed upon taxes for the year 1919, and also the year 1921 is involved if a refund for 1920 is allowed because of an increase in invested capital and a consequent refund of taxes for that year which will follow if the court decides that the plaintiff is entitled to the refund claimed for 1920.
A refund of $600,663.19 is claimed for the year 1920. Whether this refund should be granted depends upon the construction to be given the words "taxable year" as used in the Merchant Marine Act of 1920 (title 46, USCA c. 24, § 861 et seq., 41 Stat. 988). That portion of this act the construction of which is in dispute reads as follows:
"Deductions allowed owners of documented vessels of United States for income and excess-profits tax purposes. The owner of a vessel documented under the laws of the United States and operated in foreign trade shall, for each of the ten taxable years while so operated, beginning with the first taxable year ending after June 5, 1920, be allowed as a deduction for the purpose of ascertaining his net income subject to the war-profits and excess-profits taxes imposed by Title III of the Revenue Act of 1918 an amount equivalent to the net earnings of such vessel during such taxable year. * * *" Section 23 (46 USCA § 878).
The act also contained certain provisions which the owner of such vessel was required to comply with in order to be entitled to the deduction.
Plaintiff was the owner of such vessels, and its net earnings therefrom in foreign trade amounted to $11,200,184.35 for the calendar year 1920. It has complied with the provisions of the act and fully satisfied all the requirements to entitle it to the deduction of the full amount of its net earnings for that year.
On March 1, 1920, the plaintiff acquired for cash substantially all the stock of the Coastwise Transportation Company, a New Jersey corporation, and the two companies became affiliated corporations, within the meaning of section 240 of the Revenue Act of 1918. During the year 1920, neither was affiliated with any other corporation.
It was the practice of the plaintiff to keep its books and records on the basis of an established annual accounting period which ended with December 31st, and it had filed its returns in accordance therewith. Its return for the year 1920 was filed on March 15, 1921. This return was a consolidated return showing the income and invested capital of plaintiff for the full calendar year 1920, and the income and invested capital of the Coastwise Transportation Company for the period from March 1, 1920 to December 31, 1920, during which time the two corporations were affiliated.
The Coastwise Transportation Company kept its books and records on the basis of an annual accounting period ending with the last day of February. The end of the fiscal year 1920 therefore coincided with the date of the acquisition of its stock by the plaintiff, and it filed a return for the fiscal year ending February 29, 1920, and on December 31, 1920, closed its books of accounts and brought its accounting period into conformity with that of plaintiff.
In finally determining the plaintiff's tax liability for the year 1920, the Commissioner of Internal Revenue divided the calendar year into two taxable periods: One beginning January 1 and ending February 29, 1920, during which time the plaintiff and the Coastwise Transportation Company were not affiliated; and one beginning March 1 and ending December 31, 1920, during which time the two companies were affiliated. The computation of the tax liability for the period January 1 to February 29, inclusive, was based on the net income and invested capital for that period of the plaintiff alone, and the computation of the tax liability for the period March 1 to December 31, inclusive, was based on the consolidated net income and invested capital of the affiliated companies for this period. Consequently, for the period of January 1 to February 29, 1920, the commissioner disallowed the deduction provided by section 23 of the Merchant Marine Act of 1920, the amount disallowed being two-twelfths of the net earnings of the plaintiff's vessels operated in foreign trade, or $1,866,697.39. This disallowance resulted in the additional taxes, the refund of which is sought herein.
In refusing to make any deduction for the period from January 1 to February 29, 1920, the commissioner based his action upon the theory that this period was a separate taxable year, as it ended prior to the enactment of the Merchant Marine Act of June 5, 1920. If it was in fact a "taxable year" within the meaning of the statute, it was a year for which no deduction was allowable under the terms of the act. On the other hand, the plaintiff contends that the only return it was required to file for the year 1920 was the return which it made as stated above, being one return for the calendar year including the income and invested capital of both of the affiliated companies. As the issue between the parties is wholly with reference to the meaning of the words "taxable year" as used in the act, we next proceed to a consideration of that question.
At the outset it must be said that the words "taxable year," when used in the ordinarily accepted meaning, refer to the annual accounting period of a taxpayer. On the other hand, it must be conceded that the term "taxable year" has often been used to mean a period less than twelve months. The words "taxable year" therefore, as used in the Merchant Marine Act, are ambiguous, and it becomes necessary to determine the intent of Congress in the enactment of the statute from the surrounding circumstances.
The purpose of the act was to encourage the building of American ships to be operated in the foreign trade, and we think this aid was intended to be given during a period of ten years. We are led to this conclusion because if it were given for only a short period such as two or three years the benefit derived from it would be little in most cases and a newly organized company might get no benefit at all. Besides this, it is obvious that Congress intended that all companies complying with the provisions of the act should share in its benefits in proportion to the amount invested in new construction, otherwise the act would be a partial failure or would be repealed. But if the construction insisted upon by the defendant was sustained and a new taxable year was created every time a new company was affiliated with the organization or dropped out and became nonaffiliated, it is plain that there might be a dozen "taxable years" in the first two calendar years, and an organization which took in a number of small corporations having only a ship or two each would use up all of its benefits under the law in a brief period, while if a large corporation possessing a numerous fleet was affiliated the benefits of the law would be received although the benefit to the commerce of the United States would be no greater. It will be observed also that under the construction contended for by defendant if the affiliation in question had occurred after June 5, 1920, it would be conceded that plaintiff would be entitled to the benefits conferred by the act. In short, the construction contended for by defendant would not only cause the act to work inequitably and unfairly, but in such a manner as to lead it to fail to accomplish the purpose intended and, as we view it, the act would become unreasonable in its operations.
If the language used in the act was capable of only one interpretation, these matters would not prevent our applying it as it read but the words being ambiguous we may properly consider what would be a reasonable construction of the act in view of its manifest purpose.
The views expressed above are supported by other considerations. It will be observed that the Merchant Marine Act, after stating that the deduction should be allowed under certain conditions, stated that it should be "an amount equivalent to the net earnings of such vessel during such taxable year, determined in accordance with rules and regulations to be made by the board." It is possible that this did not authorize the board to determine what constituted a "taxable year," but it is quite clear what the board understood it to mean and it promulgated the following regulation with reference to this matter:
"The taxable year: These provisions take effect with the first taxable year ending after June 5th, 1920, the date of the enactment of the act. The term `taxable year' means either the calendar year or the fiscal year of the owner who bases his return of income on the fiscal year. An owner whose tax return is based on its fiscal year, and whose fiscal year ended on June 30th, 1920, may apply the provisions of this section to net earnings accruing any time during the taxable year preceding that date."
Moreover, the regulation made by the board was in accordance with the prior decisions of this court where there had been an affiliation of taxpaying corporations.
The theory upon which the commissioner based his decision, as before stated, was that when there was an affiliation of another corporation with the corporation which was seeking to obtain the benefits of the Merchant Marine Act, a new taxable year was created. This court has already passed upon that point and decided the question adversely to the contention made on behalf of the defendant. In Swift Co. v. United States, 38 F.2d 365, 372, 69 Ct. Cl. 171, 188, this court approved a regulation reading in part as follows:
"* * * where two or more corporations are affiliated at the beginning of the taxable year, and through change in stock ownership (or control) additional corporations become affiliated, the parent or principal corporation should file a consolidated return and include the income of such corporations from the date of change of stock ownership. In either case, the subsidiary or subordinate corporation whose status is changed during the taxable year should make a separate return for that part of the taxable year during which it was outside of the affiliated group."
In Sweets Company of America v. Commissioner, 40 F.2d 436, 438, the Circuit Court of Appeals for the Second Circuit cited with approval the Swift Co. Case, supra, and said:
"A change in the group does not create a new taxpayer nor change the `taxable year' of those members whose affiliation continues."
It may be said that in the Swift Co. Case and in the Sweets Co. Case, there was an affiliated group both prior to and after the change in affiliation but the theory upon which the decisions were based, namely, that a new taxable entity is not created by affiliation, and that the corporations retain their status as separate taxpayers except for tax computation purposes, applies directly to this case in which plaintiff is the parent or central corporation, the same as the plaintiff was in the Swift Co. Case, and is the one as to which the taxable period is to be determined. In the Swift Co. Case, it was found that the books and records of the company were kept on a calendar-year basis for the purpose of ascertaining the amount of income and profits subject to tax. The same situation obtains in the case at bar, and we think that the same reasoning applies in both cases. Following the principle laid down in the regulation above quoted and the holding in the Swift Co. Case, we think that the return of the plaintiff should be a consolidated return including the full calendar year of 1920, and that the subsidiary corporation should make a separate return for that part of the taxable year during which it was not affiliated with plaintiff.
Counsel for defendant have cited a number of cases in some of which a contrary rule has been adopted and in others some expressions are used which are not in harmony with the views herein expressed. We took these cases under consideration at the time the Swift Co. Case was submitted and we were unable to concur in the doctrines therein expressed. Having reached the conclusion that plaintiff properly filed a consolidated return which included the full calendar year of 1920, we think it evident that Congress did not intend that in the administration of the various revenue acts such refinements should be placed upon the term "taxable year" as would defeat the evident purpose of the Merchant Marine Act of 1920 in many cases, and hold that the term "taxable year" as used in the act last referred to means a year for which the taxpayer properly filed a return. It follows that the term "taxable year," as used in the Merchant Marine Act, was correctly defined in the regulation of the Shipping Board set out above, and that the plaintiff is entitled to judgment for the refund claimed for 1920 with interest. The amount of this claim and the dates from which the payments made by plaintiff will draw interest are stipulated by the parties.
The parties agree that the decision that the plaintiff is entitled to the refund claimed for 1920 and interest will automatically dispose of the plaintiff's claim for additional interest on the overpayment for 1919, and that matter therefore needs no attention.
As to the refund claimed for 1921, the parties have stipulated that if the court holds that the plaintiff is entitled to the refund claimed for 1920, then, as a result thereof, it is also entitled to a refund for 1921 in the amount of $4,505.63 with interest thereon. Judgment will be entered accordingly.