*1324 1. In considering exemption of voluntary beneficiary association under section 101(16), Revenue Act of 1934, income used as basis for percentage of employee collections held to include employer contribution.
2. In percentage clause of section 101(16), Revenue Act of 1934, the term income held not to mean net income.
3. Employer contributions to employee voluntary beneficiary association held not constructively received from employees.
*452 The Commissioner denied petitioner's claim to exemption, and determined the following deficiencies in income tax:
| 1927 | $1,121.13 |
| 1928 | 5,740.49 |
| 1929 | 4,335.08 |
| 1930 | 2,253.42 |
| 1931 | $973.17 |
| 1932 | 1,191.44 |
| 1934 | 675.15 |
| 1935 | 1,084.42 |
FINDINGS OF FACT.
Petitioner is an unincorporated voluntary beneficiary association of employees of the Shell Oil Co. and subsidiary and affiliated companies. Its principal office is at San Francisco, California. It was organized by the employees on August 1, 1927, for the purpose *453 of paying sick and accident benefits to members, *1325 and no part of its net earnings has ever otherwise inured to the benefit of a private shareholder or individual. Any employee on the operating payroll of the companies may be a member as long as he pays dues and observes petitioner's constitution and bylaws. Membership is not compulsory.
Petitioner's revenues are derived principally from members' dues, voluntary contributions of the employer companies, and interest from investments. Its benefits to members consist of reimbursement for medical, surgical, and hospital expenses and, until March 1935, of cash payments in case of disability; benefits are computed on a prescribed scale. Members are divided into districts and divisions according to their several places of employment, and within each district the details of petitioner's administration are conducted by a district committee, one member of which is appointed by Shell Oil Co., and the others are elected by the members of the district. The district committees select a director to represent their division on a board of directors consisting of directors so chosen and one appointed by Shell Oil Co. The board of directors elects its chairman and vice chairman; the director*1326 appointed by the company is secretary-treasurer. Petitioner's general administration is in the hands of the board of directors.
Petitioner's books are kept on an accrual basis. During the taxable years petitioner's receipts and expenses were as follows:
| 1927 | 1928 | 1929 | 1930 | |
| Contributions by employees | $25,018.00 | $71,678.00 | $81,804.00 | $56,037.00 |
| Contributions by employers | 17,468.65 | 54,612.77 | 51,025.66 | 28,670.70 |
| Other income | 2,408.98 | 6,366.73 | 8,058.94 | 9,289.57 |
| Expenses | 34,590.94 | 84,820.07 | 101,578.76 | 72,218.79 |
| 1931 | 1932 | 1934 | 1935 | |
| Contributions by employees | $38,427.81 | $33,866.36 | $47,176.00 | $64,264.05 |
| Contributions by employers | 14,674.71 | 13,388.92 | 22,821.44 | 31,710.60 |
| Other income | 8,942.44 | 5,732.88 | 2,221.35 | 1,802.64 |
| Tax-exempt interest | 152.65 | 4,038.17 | 7,793.09 | 7,789.90 |
| Expenses | 50,908.21 | 13,388.92 | 67,308.63 | 89,890.60 |
Petitioner had no contract with the Shell Oil Co. and its subsidiary and affiliated companies which required them to make contributions to the benefit fund; and the companies' boards of directors never took any action authorizing the contributions made. In practice, *1327 the employees appealed to the companies for contributions, and the company made monthly contributions upon approval of an executive officer, who was the head of the personnel department of the Shell Oil Co. and petitioner's secretary-treasurer. The amount of the contribution ranged from 28 cents a member in 1928 to 15 cents in *454 1938, and was determined by reference to the cost of group life insurance, which the employer companies also provided for their employees.
On the employer companies' income tax returns, a part of the contributions was deducted each year as a business expense and a part was not.
Petitioner's bylaws imposed dues of $1 a month and provided that the employer "shall deduct such amount from the wage checks of all members of the Fund each month." Title VII of the bylaws was originally as follows:
It is contemplated that the Shell Company of California and its subsidiary companies will pay the full amount of the Group Insurance Plan premium, and a sum equal to the amount by which the total amount of dues paid by members of the Fund each month shall exceed the cost of the Group Insurance on the members for that period. Such contributions shall not*1328 be in any sense obligatory or make the Shell Company of California and its subsidiary companies a member of the Fund, but are made in the desire of the Shell Company of California and its subsidiary companies to encourage and aid the purposes of the Fund. Said contributions shall be at the absolute discretion of the Shell Company of California and its subsidiary companies and shall continue only so long as they may approve of the administration and conduct of the affairs of the Fund.
As of July 1, 1935, the first sentence was amended as follows:
It is contemplated that the Shell Oil Company and its subsidiary and affiliated companies will pay the full amount of the free insurance premium of the Group Insurance Plan, and will pay in addition each month to the Shell Employees' Benefit Fund, a sum the amount of which, when added to the total of the members' free group insurance premiums, shall be equal to one dollar ($1.00) for every eighty-five cents ($0.85) of dues paid by the members of the Fund.
Title IX of the bylaws provided that the companies pay monthly to petitioner's secretary-treasurer the dues collected from members and the company contributions, "always provided*1329 however that such contribution shall be in no sense obligatory on the part of the said Shell Company of California."
Other provisions of the constitution or bylaws fixed petitioner's central office at the headquarters of the Shell Oil Co. of California; required Shell Oil's approval of changes in constitution and bylaws affecting collections or disbursements; and required its approval for the appointment of a director from any new division created. The Shell Oil Co. also had the right to examine petitioner's minutes and financial records.
OPINION.
STERNHAGEN: The petitioner claims exemption from tax in years other than 1927 under section 103(16), Revenue Acts of 1928 and *455 1932, and section 101(16), Revenue Act of 1934. 1 It argues that 85 percent or more of its income consists of amounts collected from members. Although the ratio of members' payments to total receipts is in each year substantially less than 85 percent, the theory of the argument is taht the employer's contributions are gifts and not income; that the statutory ratio is expressed in terms of "income"; that over 85 percent of its "income" consists of amounts collected from members; and, further, *1330 that the word "income" in the percentage clause means net income. For 1927, which is governed by the Revenue Act of 1926, containing no 85 percent clause, petitioner claims not an exemption, but an excess of expenses over income if the employer contributions be excluded. This contention also applies to subsequent years, but is necessarily bound up with the argument for exemption.
Claiming an exemption, the petitioner must establish a clear statutory provision granting it. Doubts and ambiguities are not to be resolved in favor of the exemption. If the exemption is available to petitioner only upon the ground that the employer's contributions are gifts and not income, petitioner must prove that ground affirmatively*1331 as well as that the statute was intended to exclude such contributions from the income upon which the percentage ratio is computed.
1. The petitioner fails on both propositions. The contributions made by the employer were not gifts, and they are none the less income because of the provision of the bylaws that the employer was under no obligation to make them, ; ; ; ; affd., . The corporation did not intend them to be gifts, as is shown by its failure to call them gifts or to express otherwise such intention, and by its treatment of them on its tax returns as ordinary and necessary business expenses. The intent of the giver is an important factor in proving a gift, ; ;; and a gift by a corporation without special and clear authorization expressly to make a gift as such is an idea*1332 which can not be readily accepted, . A receipt, however difficult of characterization or classification, is not, for want of a better label and for the sake of a tax advantage, to be called a gift, ; affd., , *456 any more than a charitable contribution, .
A rational interpretation of the statute requires calling the employer's contribution income. The exemption was intended only when the employees themselves contributed to their benefit association the large proportion of its benefit funds. The stress was on the part collected from employees and not upon the word "income." It may indeed be doubted whether the word itself is important enough in expressing the statutory intent to justify the disregard of true gifts from an individual if they are big enough to reduce the employee ratio to less than 85 percent, for the statute was plainly intended to reach employees' self-supporting benefit associations and not those supported by beneficent employers or philanthropists.
*1333 2. In order to establish its exemption, petitioner next contends that the word "income" in the percentage clause must be read to mean net income; and that since, after deducting its expenses and thus arriving at the net income, the amount collected from employees is more than 85 percent, the statutory exemption has been met. This meaning of the word "income" is incorrect. The intendment of the exemption, as just explained, does not permit it. In the first place, it would be impossible to apply the 85 percent to a base which results mathematically from the subtraction of deductions like general expenses from a total of receipts derived from various sources. Leaving aside the question whether employers' contributions are properly called income, there is still in this case an amount of income from sources other than the amounts collected from members. Net income would be determined by subtracting the proper deductions from the composite aggregate of these income items, irrespective of whether the deductions could be related to any identified part of the recipts. After arriving at net income by this mathematical process, there is no formula to determine the percentage of net*1334 income derived from any particular source. Since the employer contributions are to be included in the base, it is impossible to determine the percentage of net income attributable to collections from members. The sensible meaning of the word "income" in this clause, one which can be practically applied, is that of gross income or receitps. This holding, however, is not for the purpose of giving a definitive or exclusive meaning to the word "income", but only to hold negatively that the word may not be used narrowly as meaning net income as petitioner contends. The clause must be interpreted to accomplish the manifest purpose of the statute, and it is only necessary now to say that this can not be done by reading the word "income" as if it meant net income.
3, The petitioner next contends that if the employer's contributions are not held to be gifts they must be held to have been constructively collected from the members after having been constructively paid to *457 them by the employer. This contention is utterly lacking in substance or support and must be rejected. There is nothing in the bylaws to support the theory and there is nothing in the evidence to indicate*1335 such an intention of either the employer or the employees. The bylaws quoted in the findings show clearly that the employer was making its contribution directly to the association on its own account and not in behalf of the employees.
4. Some question is made whether the "income" of the percentage clause properly includes the petitioner's tax-exempt income. Taxexempt income appears only for the latest four years, but how it was treated in the determination of the deficiency is not clear. However, the question of its proper treatment in this case is moot in view of the decision that since the employer's contribution must be included in the percentage base there is in any event less than the required percentage of employee collections to give petitioner the exemption claimed. The kuestion is therefore left undecided.
Decision will be entered for the respondent.
Footnotes
1. (16) Voluntary employees' beneficiary associations providing for the payment of life, sick, accident, or other benefits to the members of such association or their dependents, if (A) no part of their net earnings inures (other than through such payments) to the benefit of any private shareholder or individual, and (B) 85 per centum or more of the income consists of amounts collected from members for the sole purpose of making such payments and meeting expenses. ↩