56 T.C. 588">*588 Respondent determined a deficiency of $ 19,765.72 in the income taxes of petitioner and two of its wholly owned subsidiaries for the taxable year 1965. ² The only issue before us is whether, in the year in question, a third wholly owned subsidiary properly joined in a consolidated return filed by the affiliated group.

56 T.C. 588">*589 FINDINGS OF FACT

All of the 1971 U.S. Tax Ct. LEXIS 111">*116 facts have been stipulated and are found accordingly.

Burke Concrete Accessories, Inc. (hereinafter Burke or petitioner), is a California corporation, whose principal place of business at the time of the filing of the petition herein was in Burlingame, Calif.

Form Ties, Inc., and H & B Concrete Specialties Co. (hereinafter Form Ties and H & B Concrete) were California corporations, which were wholly owned subsidiaries of Burke during 1965. Each of these two subsidiaries had its principal place of business in California during the year in question.

Burke Caribe (hereinafter Caribe) was also a California corporation and a wholly owned subsidiary of Burke during 1965. Caribe had its principal place of business in the City of San Juan, Commonwealth of Puerto Rico, during 1965.

For the taxable year ending December 31, 1965, Burke, Form Ties, H & B Concrete, and Caribe joined in a properly executed consolidated return which was timely filed with the district director of internal revenue, San Francisco, Calif.

During 1965, Caribe did its entire business in the Commonwealth of Puerto Rico, a possession of the United States. During this period, Caribe derived at least 95 percent of its gross1971 U.S. Tax Ct. LEXIS 111">*117 income from sources within the Commonwealth of Puerto Rico and at least 90 percent of its gross income was derived from the active conduct of a trade or business within the Commonwealth of Puerto Rico.

For its taxable year ending December 31, 1965, Caribe had a net operating loss of $ 37,243 and had a qualified investment credit totaling $ 1,890.52. These items were reflected in the consolidated return as filed.

OPINION

The factual background of this case is clear-cut. Petitioner had three wholly owned domestic subsidiaries -- Form Ties, H & B Concrete, and Caribe. The four corporations filed a consolidated return for the taxable year 1965 in which a net operating loss and qualified investment credit of Caribe were claimed. There is no dispute as to the amounts of such loss and credit or their availability on the consolidated return, if Caribe was eligible to join in that return.

The issue as to Caribe's eligibility turns upon whether Caribe was an "includible corporation" as defined in section 1504(b). ³1971 U.S. Tax Ct. LEXIS 111">*119 Resolution 56 T.C. 588">*590 of this issue turns upon the proper interpretation of subparagraph (4) of that section which excludes from that definition "Corporations entitled to the1971 U.S. Tax Ct. LEXIS 111">*118 benefits of section 931, by reason of receiving a large percentage of their income from sources within possessions of the United States." Section 931, ⁴ among other things, provides that, in the 56 T.C. 588">*591 case of citizens and domestic corporations, deriving a high percentage of their income from the active conduct of a trade or business within a possession of the United States, gross income means only gross income from sources within the United States and, in effect, disallows deductions allocable to income from such possessions by citizens or corporations "entitled to the benefits of this section." Neither party disputes the proposition that Caribe derived the requisite percentages of gross income set forth in section 931(a) from the active conduct of a trade or business within Puerto Rico, which, as far as domestic corporations are concerned, is considered a "possession of the United States." See sec. 931(c); sec. 1.931-1(a)(1), Income Tax Regs.

1971 U.S. Tax Ct. LEXIS 111">*120 Petitioner argues that because Caribe had a loss it could derive no "benefits" from section 931. From this, petitioner concludes that Caribe was not "entitled to the benefits of section 931" and therefore was an "includible corporation" which properly joined in the filing of the consolidated return involved herein. Respondent argues that, since Caribe derived the requisite percentages of income from the active conduct of a trade or business within a possession of the United States, it met the requirements of section 931 and consequently cannot be a member of the consolidated return group. Respondent makes no effort to analyze the considerations involved in resolving this issue, but simply puts forward Rev. Rul. 65-293, 1965-2 C.B. 323, as the fountain of wisdom justifying his position. That ruling announced that, even where a domestic corporation met the requirements of a Western Hemisphere trade corporation, as Caribe did herein, ⁵ the fact that it also met the requirements of section 931 caused it to be excluded from the definition of "includible corporation." For reasons based upon the statutory language itself, the legislative1971 U.S. Tax Ct. LEXIS 111">*121 history, the construction accorded to almost identical language in section 931, and an analysis of other relevant considerations, we agree with petitioner.

At the outset, we note that the synonyms for the noun "benefit" are "profit, advantage, gain, good, avail." See Roget's International Thesaurus sec. 648.1 (9th ed. 1954). Thus, the normal everyday connotation of the phrase "entitled to the benefits" reflects a plus factor. Such being the case, we cannot lightly discard petitioner's assertion that, because there were no "benefits," section 931 entitled it to nothing and section 1504(b)(4) should not be applied. See Crane v. Commissioner, 331 U.S. 1">331 U.S. 1, 331 U.S. 1">6 (1947); Old Colony R. Co. v. Commissioner, 284 U.S. 552">284 U.S. 552, 284 U.S. 552">561 (1932).

There is no reason to believe that section 1504(b)(4) has operative significance wholly apart from section 931. 1971 U.S. Tax Ct. LEXIS 111">*122 To be sure, the clause "entitled 56 T.C. 588">*592 to the benefits of section 931," contained in section 1504(b)(4), is followed by the words "by reason of receiving a large percentage of their income from sources within possessions of the United States." From this, it might be argued that simply receiving the requisite amounts of income makes section 1504(b)(4) operative. But this clause at most does no more than add a repetitional reference to section 931(a). There is no indication that it was intended to have any substantive significance. See Revenue Act of 1928, sec. 251(a), 45 Stat. 791; H. Rept. No. 2, 70th Cong., 1st Sess. pp. 20-21 (1927); S. Rept. No. 960, 70th Cong., 1st Sess., pp. 13-15 (1928); H. Rept. No. 1882, 70th Cong., 1st Sess., pp. 16-17 (1928); 69th Cong. Rec. 7874-7875 (1928).

Respondent asserts that all of the other categories of exceptions to the definition of "includible corporation" contained in section 1504(b) are mandatory and that this supports his interpretation that subparagraph (4) mandates the ineligibility of Caribe to join in the consolidated return involved herein. But the fact of the matter is that all of these other categories involve corporations1971 U.S. Tax Ct. LEXIS 111">*123 which are governed by substantially different systems of taxation -- exempt organizations, insurance companies, foreign corporations, China Trade Act corporations, regulated investment companies, and real estate investment trusts. ⁶ Caribe, even if it utilized section 931, would not be subject to a different system of taxation; certain items would be subject to elimination from the calculation of the tax base to which the usual rates of taxation of domestic corporations are to be applied. We also note that, if section 931 is optional, a point which respondent has conceded at least for the purposes of this case, then section 1504(b)(4) is unlike all the other section 1504(b) exclusions, because none of the other exclusions refers to a tax treatment which is optional with the taxpayer. Consequently, in the other cases, there is no way to avoid the essentially different system of taxation imposed by the Code on exempt organizations, insurance companies, foreign corporations, China Trade Act corporations, regulated investment companies, and real estate investment trusts.

1971 U.S. Tax Ct. LEXIS 111">*124 Thus, it appears that the literal wording of section 1504(b)(4) indicates that the existence of a "benefit" under section 931 is a prerequisite to the operative significance of the former section. An examination of section 931 points in the same direction.

First, it is clear from the legislative history of section 931 that it was designed as a relief provision for corporations deriving most of their 56 T.C. 588">*593 income from U.S. possessions. ⁷ To argue, as respondent impliedly does, that the "benefit" is the exclusion from gross income, without regard to the economic effect of such an exclusion, is to give the statute a strange interpretation, inconsistent with its objective. The facts of this case clearly illustrate a situation in which such an exclusion is not beneficial but detrimental.

1971 U.S. Tax Ct. LEXIS 111">*125 Second, respondent's own prior interpretations of the predecessors of section 931, namely, statutory provisions appearing as far back as sections 214(b), 217(g), 234(b), and 262 of the Revenue Act of 1921 (42 Stat. 242, 245, 257, and 271), are incompatible with an attempt to define the "benefits" of section 931 as the exclusion without regard to the economic effect of that exclusion. I.T. 3363, 1940-1 C.B. 92; ⁸I.T. 3791, 1946-1 C.B. 148; Rev. Rul. 8, 1953-1 C.B. 300. While these rulings dealt with whether an individual would "benefit" from utilizing the provisions allowing an exclusion of gross income received from a possession of the United States, the "entitled to the benefits" language also appeared with respect to corporations from the inception of the exclusionary provision. See Revenue Act of 1921, supra, secs. 214(b), 217(g), 234(b), and 262. And an early opinion of this Court clearly indicates that, in applying such language, no distinction should be drawn between individual and corporate taxpayers. See John W. Haussermann, 23 B.T.A. 378">23 B.T.A. 378, 23 B.T.A. 378">390 (1931),1971 U.S. Tax Ct. LEXIS 111">*126 affd. 63 F.2d 124 (C.A.D.C. 1933). See also Rev. Rul. 65-293, supra.

Finally, in amending section 931(d), dealing with deductions, in 1966, Congress indicated that it did not consider that the benefit to be derived from section 931 was synonymous with the exclusion therein provided as far as corporate taxpayers were concerned. See H. Rept. No. 1450, 89th Cong., 2d Sess., p. 41 (1966), 1966-2 C.B. 965, 995; S. Rept. No. 1707, 89th Cong., 2d Sess., p. 48 (1966), 1966-2 C.B. 1059, 1093.

Nothing in the legislative history of section 1504(b)(4) indicates that Congress intended it to have independent operative effect apart from whether any benefits were in fact conferred by 1971 U.S. Tax Ct. LEXIS 111">*127 section 931. For an exhaustive analysis of such legislative history, as well as that of section 931, see Note, "Consolidating the Loss Operations of Domestic Corporations Operating in United States Possessions," 56 Va. L. Rev. 504">56 Va. L. Rev. 504-529 (1970).

The original predecessors of sections 1504(b)(4) and 931 first appeared 56 T.C. 588">*594 as sections 240(d) and 262, respectively, of the Revenue Act of 1921 (42 Stat. 260, 271). Under that Act the privilege of filing consolidated returns was, as it is today, confined by section 240 to domestic corporations and subsection (d) provided that "For the purposes of this section a corporation entitled to the benefits of section 262 shall be treated as a foreign corporation." Section 262 (the predecessor of the present section 931) excluded from gross income, under certain conditions, amounts derived by citizens and domestic corporations from sources within a possession of the United States; provisions limiting the deductions of citizens or domestic corporations "entitled to the benefits of section 262," comparable to those now contained in section 931, were contained in sections 214(b) and 234(b), respectively. See 42 Stat. 242, 1971 U.S. Tax Ct. LEXIS 111">*128 257. These provisions, other than for minor changes in section and subsection designations, remained in effect until 1928.

In the Revenue Act of 1928, the exclusion from an "includible corporation" for consolidated return purposes, contained in section 240(d) in the 1921 Act, was incorporated in section 141(g) in the following form (see 45 Stat. 831):

(g) Corporations deriving income from possessions of United States. -- For the purposes of this section a corporation entitled to the benefits of section 251, by reason of receiving a large percentage of its income from possessions of the United States, shall be treated as a foreign corporation.

At the same time, what had been section 262 of the 1921 Act became section 251, incorporating the provisions relating to deductions which had previously been found in other sections (see sec. 251(d), 45 Stat. 850) and added a cross-reference to section 141 in the form of subparagraph (h), reading as follows (see 45 Stat. 851):

(h) Affiliation. -- A corporation entitled to the benefits of this section shall not be deemed to be affiliated with any corporation within the meaning of section 141 * * *

There is no indication in the committee reports1971 U.S. Tax Ct. LEXIS 111">*129 that any substantive significance should be accorded to such restructuring, with the result that either section 141(g) or section 251(d) would appear to be mere surplusage. ⁹

The foregoing provisions, dealing with consolidated returns, found their way into sections 141(g) and 251(i) of the Internal Revenue Code of 1939. The next development in the legislative history, insofar as this case is concerned, centers around the Second Revenue Act of 1940. That Act provided for an excess profits tax and, in the process of so doing, accorded to corporations generally the privilege of filing a 56 T.C. 588">*595 consolidated excess profits tax return. ¹⁰ Section 730(e) as added by section 201 of that Act took the form of adopting the provisions contained in section 141(g) of the Internal Revenue Code of 1939, modified as1971 U.S. Tax Ct. LEXIS 111">*130 follows:

(e) Definition of "Includible Corporation". -- As used in this section, the term "includible corporation" means any corporation except --

(1) Corporations exempt from the tax imposed by this subchapter.

(2) Foreign corporations.

(3) Corporations organized under the China Trade Act, 1922.

(4) Corporations entitled to the benefits of section 251, by reason of receiving a large percentage of their income from possessions of the United States.

(5) Personal service corporations.

(6) Insurance companies subject to taxation under section 201, 204, or 207.