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I.R.C. § 26 provides credits for corporations as follows: In the case of a corporation the following credits shall be allowed to the extent provided in the various sections imposing tax -- (i) In the case of a western hemisphere trade corporation (as defined in § 109) -- (2) In the case of a taxable year beginning after March 31, 1951, and before April 1, 1954, an amount equal to 27 per centum of its normal-tax net income computed without regard to the credit provided in this subsection.
Plaintiff export company sought a refund of federal income taxes for the years 1952 and 1953 based on its claim that it operated as a Western Hemisphere trade corporation as defined in I.R.C. § 109, and qualified for the special tax credit allowed such corporations under I.R.C. § 26.
Was the plaintiff entitled to recover its back taxes for the years 1952 and 1953?
The court entered judgment in favor of the export company. The court found that the proper test that applied to a series of commercial transactions was the title-passage test as determinative of place of sale and source of income. The court also believed that the federal government erred in failing to distinguish two separate legal consequences flowing from the same act of expression by the parties, the consequences being the passage of title and the avoidance of a tax. The court found that title to the goods did pass outside the United States, and thus, the export company was entitled to be exempt from the tax. Accordingly, the export company was entitled to recover its back taxes for the years 1952 and 1953, together with interest as provided by law.