*1880 1. A citizen of the United States, resident of the Philippine Islands, is required to satisfy both of the conditions set forth in subdivisions (a)(1) and (a)(3) of section 262 of the Revenue Acts of 1921, 1924, and 1926 requiring that 80 per centum or more of his gross income must be derived from sources within the Philippine Islands, and also that 50 per centum or more thereof must be derived "from the active conduct of a trade or business within a possession of the United States either on his own account or as an employee or agent of another," in order to be entitled to the benefits of said section.
2. John Moir et al.,3 B.T.A. 21">3 B.T.A. 21, and David A. Cunningham,9 B.T.A. 1050">9 B.T.A. 1050, followed.
*379 These proceedings, consolidated for consideration, are for the redetermination of deficiencies in income tax of $1,265.65, $11,648.35, $24,306.86 and $21,486.18 for the years 1922, 1923, 1924 and 1925, respectively.
*1881 The petitioner alleges generally that the respondent erred in finding deficiencies against him in any amounts whatsoever, and, specifically, that he erred:
1. In failing to find that 80 per centum or more of his gross income (computed without benefit of section 262 of the Revenue Acts of 1921, 1924 and 1926) for the three-year period immediately preceding the close of each of the several years in controversy was derived from sources within a possession of the United States, within the purview of subsection (a)(1) of said acts, and
2. In failing to find that 50 per centum or more of said gross income (as so computed) was derived from the active conduct of a trade or business within a possession of the United States either on his own account or as agent or employee of another, within the purview of subsection (a)(3) of the aforesaid section of said acts, and
In the event it is found that the respondent did not so err, then, in the alternative he erred:
3. In computing the 25 per cent credit for income taxes paid for 1923 (allowed by section 1200 of the Revenue Act of 1924) after deducting the credit for income taxes paid to the Philippine Islands, in the amount of $3,037.76, *1882 instead of computing said credit before deducting the credit for taxes paid to said possession of the United States.
FINDINGS OF FACT.
The petitioner, an individual, is a citizen of the United States, and has resided at Manila, Philippine Islands, since November, 1898. He was a member of the bar of the Philippines and engaged in the active practice of the law there from 1903 to August, 1915.
The Benguet Consolidated Mining Company, hereinafter referred to as the company, engaged in the mining and milling of gold in the subprovince of Benguet, Philippine Islands, was organized on June 30, 1903, as a "sociedad anonima" under the provisions of article 151 to 159, inclusive, of section 4 of the Code of Commerce of Spain, promulgated in Spain on January 1, 1886, and extended to the Philippine Islands on August 6, 1888, by royal decree. On March 2, 1929, it was still in force in the Islands. The English translation of said provisions is as follows:
Art. 151. In the articles of association of the anonymous company (sociedad anonima) there must appear:
*380 The given name, surname and domicile of the parties;
The name of the company;
The designation of the person*1883 or persons who are to conduct the management, and the manner of filling vacancies;
The authorized capital with a statement of the valuation placed on property contributed other than cash, or the bases upon which such valuation is to be made;
The number of shares into which the capital is divided, and by which it is represented;
The time or times when the capital not contributed when the company was organized is to be paid in, or else a designation of the person or persons who are authorized to determine the time and manner in which calls are to be made;
The term of duration of the company;
The business in which the capital is to be used;
The time and manner of calling and holding regular general meeting of shareholders, and the cases in which special meetings may be held and the manner of calling and holding them;
The submission to the vote of a majority of the shareholders, at meetings properly called and held, of matters proper for their deliberation;
The manner of computing and constituting the majority in both general and special meetings, to make the action taken binding;
All lawful agreements and special conditions which the members may see fit to establish*1884 may, moreover, be stated in the articles.
Art. 152. The name of an anonymous company (sociedad anonima) shall be appropriate to the object or objects of the business in which it is to engage.
No name may be adopted which is identical with that of another pre-existing company.
Art. 153. The liability of the members of an anonymous company (sociedad anonima) for its losses and obligations shall be limited to the funds which they have contributed or agreed to contribute to the assets.
Art. 154. The assets of anonymous companies (sociedades anonimas) composed of the contributed capital and accumulated profits, shall be liable for obligations incurred in the management and conduct thereof, by a person lawfully authorized and in the manner prescribed by the articles, by-laws or regulations.
Art. 155. The managers of an anonymous company (sociedad anonima) shall be designated by the members in the manner prescribed by the articles, by-laws, or regulations.
Art. 156. The managers of anonymous companies (sociedades anonimas) are its agents, and as long as they observe the rules of the agency, shall not be subject to personal or solidary liability, *1885 for company transactions; and, if by breach of the laws and articles of the company or by violation of lawfully adopted resolutions of its general meetings, damage shall result, and the persons liable are two or more, each one of them shall be held responsible pro rata.
Art. 157. Anonymous companies (sociedades anonimas) shall be obliged to publish each month in the Gazette a detailed statement of their operations, setting forth the quotations upon which they estimate the value of their holdings in securities, and all kinds of assets subject to quotation on exchange.
Art. 158. Members or shareholders of anonymous companies (sociedades anonimas) may not examine the management of the business or make any investigation whatever concerning it except at the times and in the manner authorized by the by-laws and regulations.
*381 Art. 159. Anonymous companies (sociedades anonimas) in existence prior to the publication of the Code, and which are governed by their by-laws and regulations, may, at their option, continue to be governed by them or submit to the provisions of the Code.
The by-laws of the company, adopted at the annual meeting of the stockholders*1886 held at Manila, P.I., on February 15, 1916, refer to it throughout as the "Corporation." Article I provides:
The management of the Corporation shall be delegated to five directors, who shall serve for one year and until their successors are elected and qualified.
Article II provides for the election of directors, how vacancies should be filled, and for a special meeting of the stockholders in case the membership of the board should fall below the number necessary for a quorum. Articles III and V provide how and when regular and special meetings of the board should be held. Articles IV and VII provide what shall constitute a quorum of directors and stockholders, respectively. Article VI provides for the voting of stock by proxy. Article VIII designates the officers of the Corporation and their terms of office. Article IX provides how the stock certificates should be signed. Article X reads, "The stock of the Corporation shall at all times be non-assessable." Articles XI, XII, XIII, XIV, and XV prescribe the duties of the various officers. Article XVI provides that:
The Corporation shall have a seal which shall be circular in form, the words "Benguet Consolidated*1887 Mining Company" appearing at the sides and top of same, a star appearing at the bottom, and the words "Manila, P.I.," in the center.
The last article, XVII, makes provision for the adoption of additional by-laws. Amendments, not material here, were adopted on February 12, 1918, February 11, 1919, February 27, 1923, and September 2, 1924.
The petitioner, as attorney for a group of interested parties, organized the company in 1903, became a member of its board of directors upon said organization, and at that time owned a small interest therein, which was augmented by later acquisitions.
Prior to discontinuance of business by the company, in 1911, one Clark had owned the controlling interest therein. He failed in business in 1910 or 1911 and his holdings therein were acquired by the Bank of Philippine Islands, his largest creditor. In or about 1913 the president of that bank urged the petitioner to interest himself in the property and endeavor to put it upon an operating basis. The first attempt of the petitioner to raise funds failed. Finally, the bank requested the petitioner to make another attempt to finance and promote the operation of the property, which resulted in*1888 the submission of the proposition by one Beam to the bank, in which the petitioner *382 participated silently, whereby the said Beam would raise a certain sum of money with the understanding that the bank would extend an overdraft to the company for a certain sum, which was accepted. The funds were raised, a mine superintendent was employed, the necessary machinery was purchased and in September, 1915, the mill resumed operations. At or about that time the petitioner retired from the law practice and has since devoted all of his time and attention to the affairs of the mine with the exception of one temporary venture.
During the interim, when operations of the mine were suspended, the petitioner was president and director of the company and Beam acted as secretary thereof and they, personally, paid the taxes and other necessary expenses to maintain the life of the enterprise.
Beam first entered the petitioner's employ as a stenographer in 1903 while he, the petitioner, was engaged in the practice of the law, and was later promoted to chief clerk and cashier. After the mine was rehabilitated he resigned from the law firm to devote his time to the mine. He served as*1889 secretary to the mining company until 1918, when he was made president thereof.
The petitioner served as vice president and a director of the mine during all of the years 1920 to 1923, except when he was absent from Manila as found hereinafter. He has been the largest shareholder, and Beam the second largest, since 1917, during which time he has owned and has held proxies of other stockholders to the extent of more than two-thirds of the entire outstanding capital stock.
Beam was absent from the Philippines in 1920, and the petitioner from some time in 1921 until the latter part of 1922, when Beam again absented himself until some time in 1924. During the absence of Beam the petitioner conducted the business of the mine alone.
The petitioner and said Beam actively conducted the operation of the company from the time of its rehabilitation through all of these taxable years. Each held the power of attorney of the other. All matters relating to the management and operation were freely discussed between them and neither undertook to decide questions of policy without first having conferred with the other. In fact, they managed the properties for themselves and the other stockholders*1890 with much the same freedom as if owned by them personally.
The company had a purchasing office in the Hobart Building at San Francisco, in charge of C. M. Eye, who made no purchases, however, without authority from the petitioner or Beam.
During the year 1922 the company had outstanding 1,000,000 shares of common stock, increased in October, 1923, by a stock dividend to 2,000,000 shares. The number of shares owned by petitioner and his family during 1922 and 1923 was as follows:
| 1922 | 1923 | ||
| September | December | ||
| Shares | Shares | Shares | |
| Petitioner | 73,295 | 100,257 | 204,514 |
| Mrs. John W. Haussermann | 77,100 | 78,000 | 156,000 |
| Francis Haussermann | 4,000 | 4,000 | 8,000 |
| John W. Haussermann, jr | 3,000 | 3,000 | 6,000 |
*383 The Company had from 150 to 200 stockholders.
The petitioner filed individual income-tax returns for the years 1920 to 1925, both inclusive, in which he reported his total income from all sources, composed of the following:
| Items | 1920 | 1921 | 1922 | 1923 | 1924 | 1925 |
| Dividends on stock of Union Gas & Elec. Co | None. | None. | None. | None. | $27.50 | None. |
| Salary and director's fees as V.P. and director of B.C.M. Co | $2,791.94 | $447.80 | $1,000.00 | $12,600.00 | 1 2,600.00 | $600.00 |
| Bonus from B.C.M. Co | None. | None. | None. | 221.94 | None. | None. |
| Div. from B.C.M. Co | 12,225.21 | 3,591.21 | 18,158.69 | 68,052.62 | 100,000.00 | 120,100.00 |
| Div. from H. E. Heacock Co | None. | 50.00 | 50.00 | None. | None. | 50.00 |
| Int. on shares in El Hogar Filipino | 829.97 | 900.00 | 1,108.80 | 1,608.80 | 1,608.80 | 1,000.00 |
| Int. on bank deposits | 80.97 | 116.86 | 61.69 | 1,317.27 | None. | None. |
| Profit on sale of int. in A. S. Watsonal & Co | 5,000.00 | None. | None. | None. | None. | None. |
| Profit on sale of mining stock | 5,125.00 | None. | None. | None. | None | None. |
| Director's fees from bank in U.S | 6.00 | 6.00 | 12.00 | None. | 12.00 | 18.00 |
| Rents and royalties | None. | 120.00 | None. | None. | None. | None. |
| Div. on stock of domestic corporations | None. | 60.00 | 60.00 | 40.00 | 60.00 | 1,470.05 |
| Taxable interest on Liberty bonds | None. | 24.50 | None. | None. | None. | 89.25 |
| Int. from A. W. Beam | None. | None. | 90.91 | None. | None. | None |
| Income from sources outside of the U.S. and its possessions | None. | None. | 53.17 | 74.68 | 109.25 | None. |
| Div. Phil-American Drug Co | None. | None. | None. | 2,702.00 | 1,351.00 | 830.25 |
| Total income | 26,059.09 | 5,316.37 | 20,595.26 | 86,617.31 | 105,768.55 | 124,157.55 |
More than 80 per centum of the petitioner's total income as shown above (computed without the benefit of section 262 of the Revenue Acts of 1921, 1924 and 1926) was derived from sources within a possession of the United States.
H. E. Heacock Company, referred to in the foregoing tabulation is a corporation, El Hogar Filipino is a building and loan association organized under the laws of the Philippine Islands and doing business at that place, and the Philippine-American Drug Company is a corporation organized under the corporation laws of the Philippine Islands and conducts its business at Manila, P.I.
The petitioner attached to his income-tax return for the year 1923 the following statement:
I HEREBY CERTIFY that more than Eighty (80) per cent. of my gross income during the year 1923, and for more than three (3) years immediately preceding the close of the taxable year of 1923, was derived from sources within the Philippine Islands, a possession of the United States. (See Sec. 262 of the Income Tax Act of 1921.)
(Signed) JOHN W. HAUSSERMANN.
*384 A similar statement was attached to his return*1892 for the year 1922.
On July 26, 1926, the petitioner signed in Washington, D.C., and filed a statement with the Bureau of Internal Revenue, from which the following is quoted:
In 1924 the American Chamber of Commerce of the Philippine Islands sent a Mission to the States to carry on a campaign of education. I came as a member of that Mission. Our office is in New York. That is why I am here in the States now. The Board of Directors of the Chamber at Manila cabled me to return but in the meantime this tax question came up so I have deemed it advisable to remain here until this question is settled.
During the calendar year 1923 the petitioner paid income taxes to a possession of the United States, to wit, the Philippine Islands, in the amount of $3,037.76.
In determining the deficiency for the year 1923 the respondent computed the 25 per cent credit allowance provided for by Title XII of the Revenue Act of 1924 after he had deducted the credit allowance for taxes paid to the Philippine Islands under section 222(a)(1) of the Revenue Act of 1921.
The respondent determined that the petitioner was not entitled during the years here in question to the benefits of section*1893 262 of the Revenue Acts of 1921, 1924, and 1926.
OPINION.
MORRIS: The issues numbered one and two, hereinbefore stated, place in controversy the interpretation of subdivisions one and three of section 262 of the Revenue Acts of 1921, 1924 and 1926, the language of which section in said acts is the same, except that the word "That," inscribed at the beginning of subdivision (a) of the 1921 Act, was deleted in the later acts.
We have found as a fact that more than 80 per centum of the petitioner's income for the years 1920 to 1925, both inclusive, was derived from sources within a possession of the United States, a fact which the respondent has not contested but, in fact, admits. The respondent contends that subdivisions (1) and (3) of section 262 should be read together, that is, in the conjunctive form, and that the petitioner must show, not only that 80 per centum of his income was derived from the Philippines, but also that 50 per centum or more thereof "was derived from the active conduct of a trade or business within a possession of the United States either on his own account or as an employee or agent of another."
The petitioner contends, on the other hand, that said*1894 subdivisions (1) and (3) should be read separately, that is, in the disjunctive form, or, as he expresses it, in the "alternative," and that he is required to establish only one of the two propositions therein contained *385 in order to invoke and enjoy the benefits of section 262, notwithstanding, as he contends, he has complied with the requirements of both subdivisions.
Section 262 of the Revenue Act of 1921 reads as follows:
SEC. 262. (a) That in the case of citizens of the United States or domestic corporations, satisfying the following conditions, gross income means only gross income from sources within the United States -
(1) If 80 per centum or more of the gross income of such citizen or domestic corporation (computed without the benefit of this section) for the three-year period immediately preceding the close of the taxable year (or for such part of such period immediately preceding the close of such taxable year as may be applicable) was derived from sources within a possession of the United States; and
(2) If, in the case of such corporation, 50 per centum or more of its gross income (computed without the benefit of this section) for such period or such*1895 part thereof was derived from the active conduct of a trade or business within a possession of the United States; or
(3) If, in the case of such citizen, 50 per centum or more of his gross income (computed without the benefit of this section) for such period of such part thereof was derived from the active conduct or a trade or business within a possession of the United States either on his own account or as an employee or agent of another.
(b) Notwithstanding the provisions of sibdivision (a) there shall be included in gross income all amounts received by such citizens or corporations within the United States, whether derived from sources within or without the United States.
(c) As used in this section the term "possession of the United States" does not include the Virgin Islands of the United States.
Since the controversy really resolves itself into a question of the statutory interpretation of the section aforesaid, a historical review of the prevailing evils sought to be remedied by the enactment thereof and its legislative history may prove helpful. In thus approaching the matter we do so mindfully "of the varying weight given by the courts to the different phases*1896 of legislative history in construing Federal statutes," (), but, as we said in that case, "it seems to be well settled that while such legislative history can not be used to add to or take from the body of the statute, it may help in interpreting its meaning." See also .
Commenting upon the question of statutory interpretation the Supreme Court of the United States, in , said:
While the statements made and the opinions advanced by the promoters of the act in the legislative body are inadmissible as bearing upon its construction, yet reference to the proceedings of such body may properly be made to inform the court of the exigencies of the fishing interests and the reasons for fixing the duty at this amount. ; ; ; *1897 ; .
As the petitioner contends, the manner is which citizens of the United States, resident of the Philippine Islands, were taxed under the earlier revenue acts was a matter of great concern. Widespread agitation sprang up from all quarters for some form of relief in order that citizens of the United States residing in the Philippine Islands might be treated as favorably as other residents of the Islands, and so that they might not be hampered in their competition with citizens of other countries, resident of the Philippines, by excessive taxation. In pursuance of such agitation the Philippine legislature adopted Concurrent Resolution numbered (13) on February 9, 1920 (Phil. Pub. Laws, vol. 15, p. 284), reading as follows:
Be it resolved by the Senate, the House of Representatives of the Philippines concurring, That the Resident Commissioners be, and they hereby are, instructed to ask Congress for the amendment of the United States Internal Revenue Act of nineteen hundred and nineteen, in the sense that American citizens who are *1898 bona fide residents of the Philippine Islands shall not be subject to any income tax greater than that required of other residents of said islands.
The House bill, proposed as the 1921 Act, containing provision for the taxation of a "foreign trader" or a "foreign trade corporation," provided that in the case of such "foreign trader" or "foreign trade corporation" gross income for the purpose of income tax meant only gross income from sources within the United States. The terms "foreign trader" and "foreign trade corporation" were defined to mean:
The term "foreign trader" means a citizen or resident of the United States or domestic partnership, (1) 80 per centum or more of whose gross income for the three year period ending with the close of the taxable year (or for such part of such period immediately preceding the close of the taxable year as may be applicable) was derived from sources without the United States as determined under section 217, and (2) 50 per centum or more of whose gross income for such period or such part thereof was derived from the active conduct of a business without the United States either on his own account or as the employee or agent of another.
*1899 The term "foreign trade corporation" means a domestic corporation, (1) 80 per centum or more of the gross income of which for the three-year period ending with the close of the taxable year (or for such part of such period as the corporation has been in existence) was derived from sources without the United States as determined under section 217, and (2) 50 per centum or more of the gross income of which for such period or such part thereof was derived from the active conduct of a business without the United States.
Senate amendments numbered 8 and 9 struck out the foregoing definitions, and amendments numbered 157 and 385 struck out the provision limiting gross income of "foreign traders" and "foreign trade corporations" to gross income from sources within the United *387 States. See Senate Report No. 275, Part 2, accompanying H.R. 8245.
Section 262 was inserted in the Revenue Act of 1821 by Senate amendment number 561, and became law substantially as introduced by the passage of that act.
When the Revenue Act of 1921 went before the Senate for debate Senator McCumber, speaking of the provisions in the House bill with respect to "foreign traders" and "foreign trade*1900 corporations," said:
The committee in adopting the House provision did so with the understanding and expectation that it would assist in carrying on American trade in the foreign possessions and for the purpose of giving American corporations or American traders an equal opportunity to compete in those foreign countries with other foreign corporations, and with the idea that wherever we have an American corporation operating in another country it brings trade not only to this country but also brings trade in respect to our own products to the foreign country. * * *
A British corporation doing business in China or in the Philippine Islands pays no taxes on the profits earned in such foreign country, unless such profits are returned to the home company in Great Britain. * * * That is the understanding of the committee. It is the understanding of those who have discussed the subject and filed briefs with the committee. [Cong. Rec., vol. 61, p. 6540.]
Senator McCumber read into the Congressional Record (vol. 61, p. 6541) excerpts from a brief filed by the National Foreign Trade Council contending that American traders in foreign countries could not compete with foreign rivals*1901 if handicapped by burdensome taxation not borne by their competitors. The Senator read into the Congressional Record (vol. 61, p. 6542) examples of gross inequalities perpetrated by the then existing revenue laws, which are as follows:
There is a french concern in Manila handling American automobiles, tractors, etc. In 1919 it is reported to have earned a net profit of $600,000. Upon this it would pay to the Philippine Government an income tax of $77,735. It paid no taxes upon such income to the French Government. There is also in Manila an American house engaged in handling automobiles, tractors, etc., in competition with the French concern. Upon a like volume of business the American house would be compelled under existing law to pay a United States income tax of $375,190. * * *
Senator Smoot, in the course of the debate upon the law, stated (Cong. Rec., vol. 61, p. 6998):
An American citizen doing business in the Philippine Islands is compelled to pay not only the taxes imposed by the Philippine government, but all of the taxes imposed by the Government of the United States. * * * An Englishman can go into the Philippine Islands and do business, and when he pays his*1902 taxes in the Philippine Islands he is not taxed at home. * * * The *388 citizens of England compete with Americans in the Philippine Islands. * * * We are trying to put the American business man upon the same footing as the English business man; that is all. * * *
Although it appears clearly from a study of the history surrounding the enactment of section 262 that Congress intended said section to alleviate tax burdens imposed upon citizens of the United States, resident of the Philippine Islands, it is equally clear from the views expressed by various opponents of the proposed legislation that it intended to guard against those who might take advantage of a loosely phrased statute to evade the payment of tax. For instance, it carefully avoided exempting any part of a citizen's income even if derived from sources without the United States, if actually received by such citizen within the United States. Subdivision (b) of section 262, supra. See .
The petitioner contends that since the words "United States" are followed by a semicolon, the word "and" following said semicolon pertains grammatically to subdivision*1903 (2), relating to corporations, and since the words "United States" in the last line of subdivision (2) are followed by a semicolon, the word "or" following said semicolon belongs grammatically to subdivision (3). With proper deletions to conform to the petitioner's views, the statute would read as follows:
SEC. 262. (a) That in the case of citizens of the United States, * * *, satisfying the following conditions, gross income means only gross income from sources within the United States -
(1) If 80 per centum or more of the gross income of such citizens * * * was derived from sources within a possession of the United States;
(2) or
(3) If, in the case of such citizen, 50 per centum or more of his gross income * * * was derived from the active conduct of a trade or business within a possession of the United States either on his own account or as an employee or agent of another.
We are unable to agree with the petitioner's grammatical construction of the statute. Grammatically, there are several distinct thoughts expressed, but there is but one complete sentence involved, which includes from the beginning of subdivision (a) down to the end of subdivision (3) thereunder, *1904 which ends with a period. Therefore, all of the language included within that sentence, although set out in separate subsections, and divided by semicolons, must be read together in order to grasp the true meaning thereof.
There would appear to be no more justification for deleting the word "and," as the petitioner would have us do, from the construction of the sentence than for omitting the word "or," for both were intended to serve very definite purposes.
*389 The semicolons following subdivisions (1) and (2) mark a pause in the entire sentence, slightly greater than had an ordinary comma been used. It seems to us that had the Congress intended separate and disjoined sentences, conveying completed subject matter, it would have used periods instead of the semicolon, thus obviating any possible misunderstanding.
Since, grammatically, subdivisions (a), (1), (2) and (3), must be read together, all being a part of the same complete sentence, we are of the opinion that (2) and (3) must be read conjunctively with (1) as though they were subparagraphs thereunder, but, while (2) and (3) pertain to the same general subject matter, they relate to different things, i.e., "citizens" *1905 and "corporations," and were intended to be separated by the disjunctive word "or."
Following our view of the grammatical construction and taking some slight liberties in the matter of arrangement in order to emphasize and make clear the point of view which we entertain, but not disturbing the punctuation, the section would read:
SEC. 262. (a) That in the case of citizens of the United States * * * satisfying the following conditions, gross income means only gross income from sources within the United States -
(1) If 80 per centum or more of the gross income of such citizen or domestic corporation * * * was derived from sources within a possession of the United States;
and
(2) If in the case of such corporation, 50 per centum or more of its gross income * * * was derived from the active conduct of a trade or business within a possession of the United States; or
(3) If in the case of such citizen, 50 per centum or more of his gross income * * * was derived from the active conduct of a trade or business within a possession of the United States either on his own account or as an employee or agent of another.
It would seem that to read subdivisions (1) and (3) in the*1906 disjunctive would invite just the sort of evasion of tax that the Congress had in mind when the bill was debated. Citizens of the United States, without ever having entered the Philippine Islands, could transfer their bank accounts and so arrange their investments that 80 per centum of their income might accrue from sources within the Philippine Islands and evade the payment of taxes which would ordinarily be imposed upon such citizens. The Congress foresaw this possibility and provided, in effect, that a citizen must, in addition, have earned at least 50 per centum of his gross income from the active conduct of a trade or business within the Philippine Islands "either on his own account or as an employee or agent of another." In other words, the statute was designed, as we have attempted to make clear, for the purpose of relieving those citizens of the United States who were residents of the Philippine Islands*390 and who were actively engaged in business there in competition with other residents, citizens of other countries.
Clearly, subdivisions (1) and (2), the latter of which pertains only to corporations, must be read in the conjunctive form. That is, a corporation*1907 invoking the benefits of that section must show that at least 80 per centum of its gross income was derived from sources within a possession of the United States, and, furthermore, that 50 per centum or more thereof "was derived from the active conduct of a trade or business within a possession of the United States;". This the petitioner admits. Why should Congress have made a distinction between corporations and citizens in rendering aid? A careful study of the history leading up to the enactment of section 262 fails to disclose that any particular class of taxpayers, namely, corporations, was suffering any more or less than any other class, namely, citizens. Nor does it appear from our study of the legislative history of said section that Congress intended that one should be treated any differently from the other. Therefore, if, as the petitioner admits, subdivisions (1) and (2), pertaining to corporations, should be read in the conjunctive, why should subdivisions (1) and (3) be read differently? It is our opinion that the section should be administered the same with respect to both.
It is interesting to note, and perhaps strengthening to the view which we hold, *1908 that the definition of "foreign trader," referred to hereinabove, which was included in the original House bill to serve the same purpose as section 262, contains language, in substance, the same as subdivisions (1) and (3) of section 262, and that said definition containing parts numbered (1) and (2) are read in the conjunctive with the use of the word "and."
We can not help but believe that it was the clear intention of the Congress to require that everyone enjoying the benefits of section 262 should belong to that class of persons sought to be relieved by the enactment thereof, i.e., citizens of the United States who were residents of the Philippine Islands and devoting their time and energy to business endeavors in competition with certain other classes of residents of said Islands.
Our view of the interpretation of section 262 coincides with the respondent's as set forth in article 1135 of Regulations 62.
Having decided that the petitioner must satisfy subdivisions (1) and (3) of section 262, we must determine whether 50 per centum or more of his gross income was derived from the active conduct of a trade or business within the Philippine Islands "either on his own account*1909 or as an employee or agent of another."
There is no doubt but that 50 per centum or more of the petitioner's income was derived from within the Philippine Islands, but *391 the bulk of his income was earned, not from the active conduct of a trade or business on his "own account," nor as "an employee or agent of another," but as a stockholder of the Benguet Consolidated Mining Company.
We are of the opinion, for the above and foregoing reasons, that the petitioner is not entitled to the benefits of section 262 of the Revenue Acts of 1921, 1924 and 1926, and that the respondent was correct in so holding.
The third numbered issue herein, alleged in the alternative, that the respondent erred in computing the 25 per cent credit for taxes paid for 1923 after deducting the credit for taxes paid to the Philippine Islands instead of computing said credit before deducting the credit for said taxes paid to the Philippine Islands, has been decided adversely to the petitioner in , and *1910 .
Decision will be entered for the respondent.
Footnotes
1. $2,000 of which represents salary for January and February. ↩