
    Appeal of PURDY & HENDERSON CO.
    Docket No. 5198.
    Submitted November 18, 1925.
    Decided April 23, 1926.
    ■ The income and profits tax paid by the taxpayer corporation to the government of Porto Rico during the year 1919 upon its income for the year 1918, under a law passed in 1919, is a credit against the income, war-profits, and excess-profits tax paid by the taxpayer corporation for the calendar year 1919 under section 238 (a) of the Revenue Act of 1918.
    
      E. St. Olair Thompson, Esq., for the taxpayer.
    
      George G. Witter, Esq., for the Commissioner.
    Before Smith, LittletoN, and Teussell.
    This appeal is from the determination of a deficiency in income and profits tax for the year 1919 of $1,404.94. The taxpayer corporation 'kept its books upon an accrual basis, and the question in issue is whether an amount paid as income tax to the Government of Porto Rico during the year 1919, in respect of its income for the year 1918, is a proper credit against the tax paid under the provisions of Title III of the Revenue Act of 1918 upon income for the year 1919.
    FINDINGS OF FACT.
    The taxpayer is a New. Jersey corporation with its principal office in New York City. During the year 1918 it derived income from the carrying on of business in the Island of Porto Rico and1 became liable for income tax to the Government of Porto Rico in respect of such income. .It transacted no business in the Island after December 31, 1918.
    In 1918 the legislature of Porto Rico passed a law, which became known as Act No. 8 upon its approval on December 12, 1918, the preamble of which reads as follows:
    To continue in force the provisions of an act entitled “An Act to provide additional revenues for the people of Porto Eico, through the levying of certain additional income taxes, and for other purposes,” approved December 4, 1917, for the purposes of reconstructing.the insular buildings, and .aiding the municipalities, school boards and private persons in the reconstruction of buildings that have been damaged by reason of the recent earthquakes; to create a board; to authorize the Governor of Porto Eico to borrow certain amounts, and for other purposes:
    The tax levied by this act was imposed upon “ benefits or profits derived from any source in Porto Rico, received during the fiscal year, July 1, 1918, to June 30, 1919. * *
    In 1919 the legislature of Porto Rico passed a law—
    To provide revenues for the people of Porto Eico through the levying of certain income taxes; to repeal the Act of Congress of the United States of September 8, 1916, amended October 3, 1917; to repeal section 1 of Act No. 8 of the legislature of Porto Eico, approved December 12, 1918; to appropriate the sum of six hundred thousand eight hundred (600,800) dollars for the carrying out of the provisions of sections 2, 4, and 5 of the aforesaid • Act No. 8, and for other purposes.
    This is known as Act No. 80, and was approved June 26, 1919. The act provided in part as follows :
    TIME FOR FILING RETURNS
    Section 39. — -That returns referred to in the preceding sections shall be made to the Treasurer of Porto Eico before the first day of March of each year, or within the sixty days subsequent to the termination of the legal business year; Provided, That returns made for the calendar year 1918 may be used by the Treasurer for the liquidation and collection of the tax hereby levied, but the Treasurer may require .new returns whenever advisable and necessary for the purposes of said liquidation: Provided, further, That returns to be rendered of income accruing during the calendar year 1918 shall be in the hands of the Treasurer before August 1, 1919.
    
      
    
    
      FINAL PROVISIONS
    *******
    Section. 77. — That pursuant to the provisions of Section 5 of the Federal Act of October 3, 1917, granting power to the Legislature of Porto Rico to amend, alter, modify or repeal the income-tax laws in force in Porto Rico through proper legislation, there is hereby repealed in Porto Rico the Federal Act of September 8, 1916, as amended October 3, 1917, except that the same shall continue in force with regard to the levying and collection of all taxes accrued thereunder and for the levying and collection of all fines heretofore imposed or which it may be necessary to impose in connection with said taxes: Provided,, That for the calendar year 1918 no income tax shall be collected which is different from that established by this Act.
    * * # * * * *
    Section 79. — That Section 1 of Act No. 8, approved December 12, 1918, entitled “An Act to continue in force the provisions of an act entitled ‘An Act to provide additional revenues for the People of Porto Rico, through the levying of certain additional income taxes and for other purposes,’ approved December 4, 1917, for the purpose of reconstructing the Insular buildings and aiding the municipalities, school boards and private persons in the reconstruction of buildings that have been damaged by reason of the recent earthquakes; to create a board; to authorize the Governor of Porto Rico to borrow certain amounts, and for other purposes,” be, and the same is hereby repealed.
    The taxpayer corporation filed an income and profits-tax return with the Government of Porto Rico under the provisions of Act No. 8, after it had ceased to carry on business in the Island but prior to the date when the return was required to be filed, showing a tax due the Insular Government of $1,528.66. Check in payment of the tax bears date April 23, 1919. The payment was made at the time the return was filed. Under date of July 30, 1919, the Treasurer of Porto Rico addressed a letter to the taxpayer corporation which reads as follows:
    This Department begs to acknowledge receipt of your income tax return for calendar year 1918 and check No. 61, in favor of the Treasurer of Porto Rico, for the amount of $1,528.66, intended to cover payment of the income tax as ascertained by you on the net income shown by your return.
    You are also advised that this check is deposited in this Department pending examination of the above referred return and assessment of the tax in accordance with the provisions of the new income tax Act No. 80.
    A certificate over the signature of the Treasurer of Porto Rico admitted in evidence reads as follows:
    TO WHOM IT MAT CONCERN :
    This is to certify that Messrs. Purdy & Henderson, Inc., a corporation organized under the laws of the State of New Jersey and doing business in the Island of Porto Rico, have filed with the Bureau of Income Tax of this Department, their return of annual net income for the year 1918.
    That the income tax assessed on the net income shown by said return for calendar year 1918, amounting to $6,436.28, pursuant to the provisions of the Income Tax Law No. 80, entitled “ An Act to provide revenues for the people of Porto Rico through the levying of certain income taxes, etc., and for other purposes ” approved on June 26th, 1919, has been duly paid by said corporation under date of December 24th, 1919.
    Given under my hand and seal this 27th day of December, year ninteen hundred nineteen, in the City of San Juan, Porto Rico, at the request of the tax-payers Messrs. Purdy & Henderson, Inc.
    A further certificate over the signature of the Treasurer of Porto Rico reads as follows:
    TO WHOM IT MAT CONCERN-
    I, THE UNDERSIGNED, TREASURER OF PORTO RlCO,
    Do hereby certify: — That there was no tax assessed or collected under the act entitled “An Act to Continue In Force The Provisions Of An Act Entitled ‘An Act To Provide Additional Revenues For the People Of Porto Rico Through The Levying Of Certain Additional Income Taxes, And For Other Purposes ’, approved December 4th, 1917, for the purpose of reconstructing the insular buildings and aiding the municipalities, school boards and private persons in the reconstruction of buildings that have been damaged by reason of the recent earthquakes; to create a board; to authorize the Governor of Porto Rico to borrow certain amounts, and for other purposes,” approved December 12th, 1918, and otherwise known as Act No. 8 of 1918.
    That said Act No. 8 of 1918 was repealed and superseded by Act No. 80 of 1919, effective January 1st, 1918.
    In testimony whereof, I have hereunto set my hand and caused to be affixed the Official Seal of this Department, in San Juan, Porto Rico, on the third day of November of the year of our Lord nineteen hundred and twenty-five.
    In its income-tax return for the calendar year 1919, made under the provisions of Title III of the Revenue Act of 1918, the taxpayer claimed, as a credit against the total tax due, the $6,436.29 paid to the Government of Porto Rico during the year 1919 upon its income-tax return.to that government upon income received during the year 1918. The Commissioner has disallowed the credit of $1,528.66 of this amount, on the ground that such tax accrued during the year 1918 and was not therefore a credit against the tax payable under the Revenue Act of 1918 in respect of income of the year 1919.
    The taxpayer’s income-tax returns to the United States have been and are made on a calendar year basis and its books of account are kept upon the accrual basis.
   OPINION.

Smith :

The question presented by this appeal is whether $1,528.66 of the tax paid by the taxpayer to the Treasurer of Porto Rico during the year 1919 is a credit under the provisions of section 238 (a) of the Revenue Act of 1918 against the income and profits tax paid to the Government of the United States during the year 1919. The Commissioner takes the position that, inasmuch as the taxpayer kept its books of account upon the accrual basis, the tax in the amount of $1,528.66 payable to the Government of Porto Rico accrued in 1918 under the provisions of Act No. 8 of the Island, which was approved on December 12, 1918. This holding is predicated upon the definition of “ paid ” contained in section 200 of the Revenue Act of 1918, wherein it is stated that:

The term “paid,” for the purposes of the deductions and credits under this title, means “ paid or accrued ” or “ paid or incurred,” and the terms “ paid or incurred ” and “ paid or accrued ” shall be construed according to the method of accounting upon the basis of which the net income is computed under section 212.

It is significant that the Treasurer of Porto Rico did not accept the $1,528.66 paid to him as being the payment of a tax under Act-No. 8- This act ivas repealed before any revenues were collected under it and was superseded by Act No. 80, which-was approved June 26, 1919. The $1,528.66 which was sent to the Treasurer of Porto Rico by the taxpayer was accepted in part payment of the tax imposed by Act No. 80. This tax could not have accrued during the year 1918 for the reason that the taxing statute under which it was imposed was not in existence in 1918. The tax was paid, in the year 1919 and it accrued during the same year. The taxpayer is entitled to have the payment credited against the income and profits tax paid to the Government of the United States during the same year.

Order of redetermination will be entered on 15 days’ notice, under Rule 50.  