It is provided by section 357 of the Tax Law (as added by Laws of 1919, chap. 627) that “ net income ” means the gross income “ less the deductions allowed by this article.” Any deduction claimed, therefore, must find its justification in the statute. The only statute cited as an authority for the proposed deduction is subdivision 1 of section 360 (as added by *198Laws of 1919, chap. 627). But that subdivision clearly relates only to expenses “ in carrying on any trade or business.” The expense here claimed as a deduction was not so incurred. These relators were not engaged “ in carrying on any trade or business ” in any just or proper sense. Only by a strained and distorted use of words and an unnatural application of the statute can it be made to apply to the expenditure, in question. The income of the incompetent person which the relators as her committee collected was what is sometimes spoken of as unearned income or such as is derived from permanent and fixed investments. If such is not the fact the burden was on the relators to show-the actual facts. The expenditure claimed as a deduction was incurred in resisting a litigation by the State of Virginia to recover unpaid taxes and has no relation to any “ trade or business.” If this incompetent person were competent and personally in receipt of her income without the intervention of the relators as her committee no one would speak or think of her in so doing as carrying on a “ trade or business.” On the contrary, she would be regarded as a person “ retired from business.” Furthermore, the words “ trade or business ” in subdivision 1 of section 360 have the same meaning as the corresponding words in subdivision 1 of section 359 (as added by Laws of 1919, chap. 627) defining “ gross income ” wherein “ interest, rent, dividends, securities ” are plainly regarded as on a different basis from “ trades ” or “ businesses.” It may be that as a general proposition (certainly not, however, in this case) an expenditure like the one in question would equitably be a proper deduction, but that is an argument which should be addressed to the Legislature and not to the courts. I find no warrant in the statute for the proposed deduction and, therefore, think that the determination should be confirmed.
Van Kirk, J., concurs; Woodward, J., dissents, with an opinion in which Kiley, J., concurs.
John M. Kellogg, P. J.:Article 16 of the Tax Law (as added by Laws of 1919, chap. 627)-, known as the State Income Tax Law, went into effect May 14,1919, and imposes a tax on the net income of that year. *199(See § 351.) The relators feel aggrieved because in arriving at the net income for that year the sum of $50,892.21, which they paid January 7, 1919, but which by an order of the Supreme Court of this State, December 28, 1918, was required to be paid as attorney fees and expenses for a litigation which had been carried on in the State of Virginia during the years 1916,1917 and 1918, was not allowed as a deduction from the gross income. Clearly there was not enough income received for the year 1919 prior to the payment to meet the amount. It is evident that it was paid by an accumulation of income from prior years or from the principal. When the amount was fixed by order of the court it became a debt against the estate and was drawing interest and in no way represented an expense or disbursement of the estate chargeable to income for the year 1919. This deduction would be unjust to the State and it is evident that such a result canno.t come from an interpretation of the statute unless the language used permits of no other construction.
The provisions of the statute which it is claimed compels such a result when fairly read together exclude such a conclusion. Section 350, subdivision 4, provides: “ The words ‘ taxable year ’ mean the calendar year, or the fiscal year ending during such calendar year, upon the basis of which the net income is computed under this article.” Section 360 provides the deductions to be made from the gross income to arrive at the net income and includes in subdivision 1 “ all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business, including a reasonable allowance for salaries or other compensation for personal services actually rendered,” etc. The words “ paid or incurred ” have a meaning fixed by subdivision 6 of section 350 which requires that they “ shall be construed according to the method of accounting upon the basis of which the net income is computed, under this article.” Section 358 of the Tax Law gives the basis upon which the net income is computed. We quote from subdivision 1: “ The net income shall be computed upon the basis of the taxpayer’s annual accounting period (fiscal year or calendar year as the case may be) in accordance with the method of accounting regularly employed in keeping the books of such taxpayer; but if no such method of account*200ing has been so employed, or if the method employed does not clearly reflect the income, the computation shall be made upon such basis and in such manner as in the opinion of the Comptroller does clearly reflect the income.” ’ - ' ■ ■ '
By this provision it was undoubtedly intended that a technical construction of a definition or a particular clause in the statute should not destroy or subvert the real intent of the law and bring about an injustice. Clearly a method of bookkeeping which closed the account at the end of the year and omits the mention of a liability of over $50,000, fixed by order of the court during the year, is not to be commended, and if that liability represented expenditures which should be deducted from the income of 1918 or of previous years, the account does not truly reflect the true condition of the income. The amount fixed by the order was not an expense arising from the conduct of the business for the year 1919 and the payment of the amount was the payment of a debt which should have been paid, but was not paid the previous year.
It is evident that if the Income Tax Law applied alike to the year in which the expense was incurred and the year in which it was paid, it would be of little importance to the taxpayer or the State in which year the expense was deducted, but where there was no tax for the year in which the expense was incurred and it is sought to deduct it from the following year’s income, the first year in which the Income Tax Law applied, a different situation presents itself. In the former case in a going business it is immaterial in which year the deduction is made; it is a mere matter of bookkeeping; but in this case the relators seek to avoid the payment of an income tax for the year 1919 when there was a large net income by deducting from it moneys required by an order of the court to be paid in the year 1918, which represented deductions which should be allocated to the income of the years 1916, 1917 and 1918.
In arriving at the net income, therefore, the Comptroller was not bound by the method of bookkeeping or the manner of accounting of the taxpayer, but if in his judgment it does not clearly reflect the income, he is required to compute the income in such a manner that it will reflect the income. It *201is clear under these provisions that the Comptroller was justified in determining that there was no arbitrary rule which required him to deduct this indebtedness fixed by the order of the court in the previous years on account of services for the three preceding years from the income of the year 1919. Such an act would not reflect the true income of the year but would distort it. The amount fixed by the order was not a •disbursement on account of the income or of the transaction of the business of the estate in the year 1919, and the Comptroller was justified in refusing the credit. The determination should be confirmed, with fifty dollars costs and disbursements.