The relators, in March, 1920, filed a return for the New York income tax for 1919, which showed a net income of $22,021.72, and paid the tax thereon, amounting to $340.43. This return set forth, among other things, as a deduction, a payment of $50,892.21 made in 1919. This was disallowed by the Comptroller, who made a recomputation, fixing the net income for 1919 at $72,913.93, resulting in a tax of $1,587.41, which, after deducting the previous payment, left a tax of $1,246.98, with interest. Application for a revision was made, and denied, and this proceeding was duly instituted.
The relators are the committee of an incompetent. In the course of administration a litigation arose which involved the funds of the incompetent, resulting in leaving charges for counsel fees and other charges to be adjusted. On the 28th day of December, 1918, before the adoption of the State Income Tax Law, the Supreme Court made an order directing the payment of these expenses in the sum of $50,892.21. This order was delivered to the relators, as committee, on the 2d day of January, 1919, and on the 7th day of January, 1919, the payment was made. The transaction has in it no element of fraud. At that time there was no knowledge on the part of any one that the Legislature would adopt an Income Tax Law, and the order made on the twenty-eighth day of December, not being served until the second day of January of the following year, had no operative force as against the estate of the committée until that time.
The relators, as committee, in the discharge of their duty, *202made an annual inventory and account of the estate in their hands in January, 1919, having closed their books in the regular course of business on the thirty-first day of December prior. This inventory and account was duly approved in the manner provided by law, and there appears to be no question that the accounts of the committee were regularly kept upon a cash basis. The payment of January 7, 1919, made prior to the taking effect of the Income Tax Law on' the 14th day of May, 1919, was charged against the income of the incompetent’s estate, and appears in the annual inventory and account for the year 1919. Ño question arises as to the good faith of the transaction, so far as appears from, the record; no reason existed in January, 1919, or at the time of closing the books for the previous year, why the committee should have paid the previously accrued expenses until the order of the court had been served in the orderly administration of the law; but the respondent has refused to allow the deduction from the income of 1919 upon the theory that the charge having been created prior to that time it could not be allowed in a subsequent year.
We look into the statute in vain for any justification for this ruling.- The rule is that “‘a tax cannot be imposed without clear and express words for that purpose ’ ” (United States v. Isham, 17 Wall. 496, 504; Gould v. Gould, 245 U. S. 151, 153; Crocker v. Malley, 249 id. 223, 233) and here the act provides for a tax “ with respect to his entire net income as herein defined ” (Tax Law, § 351, as added by Laws of 1919, chap. 627), and the “ net income” is declared to mean “ the gross income of a taxpayer less the deductions allowed by this article.” (Tax Law, § 357, as added by Laws of 1919, chap. 627.) Among the deductions provided are “ 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. (Tax Law, § 360, subd. 1, as added by Laws of 1919, chap. 627), and it can hardly be doubted that the reasonable expenses of carrying on the business of the incompetent were paid during the taxable year of 1919. There is no provision excluding the payment of obligations for “ ordinary and necessary expenses ” of previous years *203from the deductions. If they are incurred in the taxable year they may be paid in that year, but if they are incurred in one year and paid in another, where this is consistent with the system of bookkeeping regularly used by the taxpayer, we find nothing in the statute which stands in the way of their being allowed as deductions. The net income is merely the gross income, less the deductions provided by the statute, and there is, of course, no authority in law for taxing that which the statute says shall be deducted in arriving at the net income. The deductions are in the nature of an exception from the provisions of the statute; it has made no provision for taxing the “ ordinary and necessary expenses paid or incurred during the taxable year,” though it has by its definitions provided against the deduction of both payments and accruals in the same year. (Tax Law, § 350, subd. 6, as added by Laws of 1919, chap. 627.) This depends upon the system of keeping accounts. For instance, if an “ ordinary and necessary expense ” is accrued in any given year, and' the system of accounting is based on accruals, it is to be included in the deductions for the year in which it accrued, and cannot properly become a part of the deductions of the succeeding year. But when the system of accounting is upon a cash basis the deduction is to be made in the year when the cash is paid, without reference to the time of accrual, and in the present case the system of accounting, as established before the Income Tax Law went into effect, was upon the cash basis and there is no provision of law for collecting a tax upon the incompetent’s income in the year prior to the taking effect of the statute, for this is the practical effect of denying a deduction for a previously accrued expenditure in the year in which the payment was actually made. The rule was laid down in the case of United States v. Isham (17 Wall. 496, 506), in construing the Internal Revenue Act of June 30, 1864 (13 U. S. Stat. at Large, 293, 298, chap. 173, § 158, Schedule B), that if the system or device by which an internal revenue statute was avoided was legal in form it was subject to no legal censure. By way of illustration the court referred to the Stamp Act of 1862 (12 U. S. Stat. at Large, 475, 480, chap. 119, § 94, Schedule B), which imposed a duty of two cents upon a bank check when drawn for an amount not less than *204twenty dollars. “ A careful individual,” say the court, “ having the amount of twenty dollars to pay, pays the same by handing to his creditor two checks of ten dollars each. He thus draws checks in payment of his debt to the amount of twenty dollars, and yet pays no stamp duty. This practice and this system he pursues habitually and persistently. While his operations deprive the government of the duties it might reasonably expect to receive, it is not perceived that the practice is open to the charge of fraud. He resorts to devices to avoid the payment of duties, but they are not illegal. He has the legal right to split up his evidences of payment, and thus to avoid the tax.” So, in the case now before us, if the relators had deferred the payment for the purpose of avoiding the tax in a given year, so long as their action was legal in form and conformed to their established system of accounting as allowed by the statute, there would be no fraud, and the Comptroller would not be authorized to deny the deduction authorized by the statute in the year in which the payment was actually made. But the relators in the present instance could not have known that they were escaping taxation'by deferring the payment of necessary expenses to the 7th day of January, 1919, for up to that time there was no law providing for such taxes. They simply proceeded in the orderly administration of the property of the" incompetent. They had no authority to make the payment until the order of the court, dated December 28, 1918, and not served upon them until the second day of January. If they had paid immediately upon presentation of the order they would still have been within the year 1919, and no considerations of equity or duty could have called upon them to have, anticipated the service of the order.
The recomputation of the respondent should be set aside and the payment of $340.43 should be accepted as full discharge of the obligations of the relators to the State for the year 1919, with costs.