B. T. A. 910, involving the excess profits tax law of 1918; and in Davis Yarn Co., 8 B. T. A. 299, construing the excess profits tax law of 1921, which the Board, in following the Hymel case, found not materially different from that of 1918. Lowell & Andover R. R. Co., 8 B. T. A. 501, and Kennebunk & Kennebunkport Railroad Co., 8 B. T. A. 503, apply the same idea in income tax cases involving section 236 (c) of the Revenue Act of 1918.

Though the provision that in case of a change in accounting period income may be placed on an annual basis has been retained to the present time in section 47 of the Internal Revenue Code, section 200 (a) of the Revenue Act of 1924 (now section 48 (a) of the Internal Revenue Code) for the first time (and later than the statutes involved in the above cases relied upon by petitioner) added to the former definition of "taxable year," as "calendar year or fiscal year," the following:

* "Taxable year" includes, in the case of a return made for a fractional part of a year under the provisions of this title or under regulations prescribed by the Commissioner with the approval of the Secretary, the period for which such return is made.

As was said in Pennsylvania Chocolate Co. v. Lewellyn, 27 Fed. (2d) 762, "Any doubt or ambiguity regarding the meaning of 'taxable year' has been removed in section 200 of the Revenue Acts of 1924 and 1926." That court concluded that "the words 'taxable year,' when fairly interpreted, mean taxable period, whether for 12 months or less." In Green River Distilling Co., 16 B. T. A. 395, wherein a return was filed for a corporation which, after eight months of its accounting period had elapsed, affiliated with another, we held that such return "is a return for a fractional part of a year" and sustained the Commissioner in allowing consideration of only eight-twelfths of invested capital, and allowing excess profits and war profits credit only to the extent of eight-twelfths of the amount allowable for a full year, though there had been no change in accounting period. In Pennsylvania Electric Steel Casting Co., 20 B. T. A. 602, 605, we said:

* Under prior revenue acts, the term "taxable year" was defined as meaning a 12-month period but, beginning with the Revenue Act of 1924, Congress has seen fit to define a taxable year differently and to provide that the term "taxable year" includes, in the case of a return made for a fractional part of a year, the period for which such return is made.

*

We held that a four-month period comprised a "taxable year" within the meaning of section 206 (e) of the Revenue Act of 1926, as to net loss, although there had been a change of accounting period, resulting in the filing of a return for a four-month period. See also Prudential Tobacco Co., 42 B. T. A. 518, 519. It thus appears that

since the enactment of section 200 (a) of the Revenue Act of 1924 the term "taxable year" has been held to apply to returns covering fractional parts of a year in situations other than those in which there has been a change in accounting period.

In Royal Highlanders, 1 T. C. 184, 191, reversed on other grounds, 138 Fed. (2d) 240, a case involving income tax of 1937 and 1938, we were urged, under the Bankers Trust Co. and Davis Yarn cases, above, to hold that a return was for a full calendar year and not a fraction. A corporation had been exempt a part of a year, but thereafter was taxable. We held that section 47 of the Internal Revenue Code:

was never intended to prevent a corporation filing its first return as a taxable entity from filing a return for the period of the year in which it received taxable income, or to require that a return so filed be held to be a return for the full calendar year when in fact it was not.

Petitioner filed a return for the fractional part of the year 1937 during which it was a taxable entity. Section 48 (a) provides that the term "taxable year" includes in the case of a return made for a fractional part of a year the period for which a return is made. Where no return was required for a portion of the year because petitioner was an exempt corporation, its taxable year, in our judgment, constituted the period covered by the return.

The excess profits tax provisions of the revenue code here involved provide for computation of the excess profits net income by use of either credit based on income (sec. 713) or credit based on invested capital (secs. 714, 715, and 716). Section 716 provides for use of the average invested capital by consideration of the daily invested capital of each day of the taxable year. If the excess profits credit is based on income, section 713 provides for a credit of 95 percent of "average base period net income," and the base period is four years. In short, the credit is 95 percent of the income of a year arrived at by averaging the four previous years (with consideration of the "growth formula"). Thus it is seen that the petitioner, which has been allowed the full credit based upon such average year, desires that it be set against the income of only nine months of the year 1940, because Ozalid ceased operations, dissolved and terminated its corporate existence on September 30; whereas the respondent contends that the object of the excess profits tax law is subserved only if credit and income are computed upon the same period, that is, by placing the income of the fraction of the year on an annual basis, under section 711 (a) (3) of the code.

In our opinion the respondent's view should be sustained. The cases relied upon by the petitioner do not demonstrate that income may be placed on an annual basis only where there is change of accounting period and that unless a return for a fractional part of the year is one that is provided for by section 47 (a) it then becomes a return for the full calendar year. We do not think they apply here, when we consider

the obvious intent and purpose of the excess profits tax law here being considered. A hypothetical year, derived from the average of four years, with benefit of the "growth formula" (under section 713 (f) of the code), is considered as basis for 95 percent credit. To deduct such credit from income of only 9 months would, in our view, give the petitioner an advantage not intended by the lawmakers. If the taxable year is in fact a period of less than 12 months, the crucial language in section 711 (a) (3) may not reasonably be held inapplicable to the period here involved, and the authority cited does not justify a construction so technical and out of line with apparent statutory purpose. The section does not by its terms limit "annualization" of the income to cases of change of accounting period. We note that in the provisions as to declared value excess profits taxes (sec. 601, Revenue Code of 1939, and sec. 602 of the Revenue Act of 1938) there was provision for prorating a taxable year which is a period of less than 12 months; and that it was not until section 303 of the Revenue Act of 1942 2 that there was added "on account of a change in the accounting period of the taxpayer" and the previous proration of the year was changed to a placing on an annual basis, in the same manner as provided by section 711 (a) (3). This fact and the fact that the latter section, though it also was amended by the Revenue Act of 1942 (by sec. 213) was not likewise amended to bring in the idea of annualizing a fractional year only in case of change of accounting period, indicate strongly that Congress did not in the Revenue Act of 1940 or the amendment by section 213 in 1942 (made by its terms retroactive to the taxable year here involved) intend to include in the statute the view here espoused by the petitioner, but even in 1942 intended a different approach from that taken as to declared value excess profits tax, where petitioner's view was then incorporated.

We notice also that in section 9 (a) of the Individual Income Tax Act of 1944 the "standard deduction" is not allowed in the case of a taxable year of less than 12 months "on account of a change in the accounting period." It thus appears that Congress incorporates that idea into law in some situations, in some not, and that it may not reasonably be

SEC. 303. DECLARED VALUE EXCESS-PROFITS TAX FOR TAXABLE YEARS OF LESS THAN TWELVE MONTHS.

(a) Section 601 (relating to the adjusted declared value) is amended by striking out the last sentence thereof.

(b) Subchapter B of Chapter 2 is amended by inserting after section 604 the following new section:

"SEC. 605. INCOME-TAX TAXABLE YEAR OF LESS THAN TWELVE MONTHS.

"(a) GENERAL RULE.-If the income-tax taxable year is a period of less than twelve months on account of a change in the accounting period of the taxpayer, the net income determined under section 602 for such income-tax taxable year (referred to in this section as the 'short taxable year') shall be placed on an annual basis by multiplying the amount thereof by the number of days in the twelve months ending with the close of the short taxable year and dividing by the number of days in the short taxable year.

inferred in the statute now being considered. Journal Publishing Co., 3 T. C. 518.

The petitioner urges that the action of the Commissioner is unconstitutional as a taxation of income not earned. Section 711 (a) (3), after providing for placing the income upon an annual basis, further provides that the tax itself shall be in the proportion which the fraction of the year bears to the full year. We view the statute as a whole as a method of arriving at a credit, and not as taxing nonexistent income. We do not find unconstitutionality.

We hold that the Commissioner did not err in placing the petitioner's "short taxable year" on an annual basis.

Reviewed by the Court.

Decision will be entered for the respondent.

KAMIN CHEVROLET COMPANY, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Docket No. 371. Promulgated July 10, 1944.

The petitioner filed an excess profits tax return for the calendar year 1940. On June 24, 1940, all of the stockholders of the petitioner entered into an agreement consenting to the dissolution and winding up of its affairs and on the same date the board of directors adopted a like resolution. Pursuant to such resolution the petitioner, on June 29, 1940, distributed all of its assets to its stockholders, subject to its liabilities, but did not surrender its charter. After June 30, 1940, the corporation was an empty shell without capital, income, or expenses. The respondent treated the return filed as one made for the period January 1 to June 30, 1940; determined the excess profits net income for the twelve-month period as provided by section 711 (a) (3) of the Internal Revenue Code; reduced the excess profits credit as provided by section 713 (a) (1) (C); and determined the excess profits tax liability accordingly. Held, that the respondent did not err in treating the excess profits tax return filed as one covering only the period January 1 to June 30, 1940, but that he did err in reducing the excess profits credit by the application of section 713 (a) (1) (C).

Harry W. Kamin, Esq., for the petitioner.

Homer F. Benson, Esq., for the respondent.

This is a proceeding for the redetermination of a deficiency in excess profits tax for 1940 in the amount of $633.69. The petitioner alleges as follows:

(a) The Commissioner erred in interpreting the return filed as a return for a fractional part of the year 1940 and placing the same on an annual basis.

(b) The Commissioner erred in deducting for excess profits tax credit an amount of $754.10 representing 6 percent of the net capital reduction.

FINDINGS OF FACT.

The petitioner is a Pennsylvania corporation, incorporated on October 18, 1935, with its principal office in Pittsburgh. It filed required tax returns for the calendar year 1940 with the collector of internal revenue at Pittsburgh.

Its corporate income, declared value excess profits, and defense tax return (Form 1120) showed net income of $7,671.12. In the return it is stated: "ASSETS AND LIABILITIES SOLD TO STOCKHOLDERS JUNE 30, 1940, CORPORATION INACTIVE."

Its corporation excess profits tax return (Form 1121) for the calendar year 1940 showed excess profits net income of $6,459.66. No excess profits tax liability was disclosed thereby.

In the determination of the deficiency the respondent treated the excess profits tax return as one covering the period January 1 to June 30, 1940, and found the correct excess profits net income for that period to be $6,487.41. The petitioner does not question the correctness of the determination of the amount of the excess profits net income for such period. The respondent placed the net income on an annual basis in accordance with the provisions of section 711 (a) (3) of the Internal Revenue Code and found that the excess profits net income for the 12-month period ended June 30, 1940, was in the amount of $13,046.11. The petitioner does not question the correctness of this excess profits net income, provided the return filed should be considered as a return for the period January 1 to June 30, 1940. The respondent also found that on June 30, 1940, the petitioner, as a result of the distribution of its assets, effected a net capital reduction of $12,568.13, which was arrived at by multiplying its total capital of $25,000 by 184, the number of days the petitioner was out of business during the year 1940, by dividing by 366, the number of days in the calendar year. By the application of section 713 (a) (1) (C) of the code the respondent effected a reduction in petitioner's excess profits credit of $754.10, or 6 percent of the petitioner's net capital reduction. On June 24, 1940, all the stockholders of record of the petitioner entered into an agreement consenting to the dissolution and winding up of the affairs of the petitioner. A special meeting of stockholders of petitioner was held on that date and it was duly resolved as follows: (1) That the petitioner be dissolved and the affairs of the company wound up, and (2) that the petitioner sell, transfer, assign, and deliver to the shareholders all the assets of the petitioner, subject to all of its debts. On June 26, 1940, a special meeting of the board of direc