(j) "Normal earnings" shall mean the amount the employee would have earned (excluding premium pay for overtime) had he worked, based on his rate of pay and his normal working schedule on the governing date. In the event the employee is eligible on the governing date to participate in a productive bonus or commission plan, the amount of any bonus or commission received under such plan within the twelve months immediately preceding the governing date shall be included in determining normal earnings. If the employee had not been eligible to participate in such bonus or commission1956 U.S. Tax Ct. LEXIS 232">*236 plan for all of such twelve months, then the average monthly amount of bonus or commission received within the consecutive full months immediately preceding the governing date during which he was eligible shall be multiplied by twelve and included in determining normal earnings.

(k) "Annuities" shall mean the disabled person's annuities under any annuity program of the Company or any affiliate or under any written agreement entered into by such person and the Company or any affiliate.

* * * *

Part III. Scope:

This Plan shall apply to employees in the domestic service of the Company and of any participating affiliate which shall have been designated by resolution of the Board of Directors as an affiliate eligible to participate; provided that, following such designation, the Plan shall have been ratified and adopted by such affiliate in a manner satisfactory to the Company. This Plan shall also apply to any group or class of employees engaged in foreign service of the Company or an affiliate if such group or class shall have been designated by resolution of the Board of Directors.

The Company may cancel any designation and an affiliate may cancel its ratification and adoption of1956 U.S. Tax Ct. LEXIS 232">*237 the Plan. Such cancellation shall not, however, affect any right arising hereunder as the result of any period of total disability which commenced prior to the date of such cancellation.

25 T.C. 1289">*1291 Part IV. Administration:

The Company and each participating affiliate shall administer the benefits provided under Parts V and VI for its own employees.

The Board of Directors will appoint an administrative committee. This committee shall administer the permanent disability benefits provided under Part VII for all employees of the Company and participating affiliates. This committee shall also administer all classes of benefits under the Plan for all employees the cost of whose benefits is to be assumed by the Company under Part VII, Section 2.

In the interest of uniform and impartial administration and notwithstanding any other provisions of this Part IV, there shall be submitted to the committee for final determination, binding on all parties concerned, all questions arising in the interpretation, administration and application of the Plan.

* * * *

Part VI. Sickness Benefits:

Section 1. Amount:

For total disability resulting from sickness (including accidental injury not subject1956 U.S. Tax Ct. LEXIS 232">*238 to the provisions of Part V), benefits shall be payable to any employee having one or more years' service, of which not less than a total of twenty-six weeks shall have been actually worked since the date of last employment, subject to the conditions outlined in this Plan. The schedule of benefits for such disability beyond the waiting period in effect at the place of employment is as follows:

* * * *

Part VIII. General Provisions:

* * * *

Section 3. Payment of disability benefits:

(a) Payment of disability benefits under this Plan shall be contingent upon the execution and delivery of such releases and the taking of such other steps as may be prescribed by the employer.

(b) Payment of disability benefits to an employee shall be made in installments corresponding to his normal pay period, as they become due, unless some other interval or method is required by law or specifically1956 U.S. Tax Ct. LEXIS 232">*239 authorized by the employer.

* * * *

(h) Benefits under this Plan may be paid out of current earnings of the employer, out of book reserves established by such employer or reserves segregated for this purpose in a trust established by the Company or the employer; provided, however, that all or part of such liability may be insured under a contract of insurance with one or more insurance institutions made available to the employer by the Company.

(i) Any amount due the Company or an affiliate at termination of service may, in the discretion of the committee, be deducted from any permanent disability benefit granted under Part VII. The amount so withheld shall be paid to the creditor.

Benefits payable under this Plan shall be non-assignable and not subject to garnishment, attachment, execution or levy of any kind, and any attempted transfer or pledge of the same will not be recognized and may, in the discretion of the committee, work a forfeiture thereof. 1956 U.S. Tax Ct. LEXIS 232">*241 Such benefits shall not under any circumstances be or become an asset of the estate of any disabled employee or ex-employee. * * *

* * * *

Part IX. Right of Change:

The Company reserves the right at any time in its discretion to amend or terminate this Plan in whole or in part as to all employees or any class or group of employees. Any participating affiliate shall also have the right to amend or terminate this Plan in whole or in part as to all or any class or group of employees of such affiliate. However, unless equivalent benefits are otherwise provided, no amendment or termination shall affect any rights to benefits under this Plan accrued by reason of any period of total or partial disability under Part V or any period of total disability under Part VI which commenced prior to the effective date of such amendment or termination, nor shall the terms and conditions of any permanent disability benefit grant under Part VII be subject to modification except to the extent that permanent disability benefits become available to the disabled person as a result of legislation enacted after the date of the grant.

Although the plan contains no provision for a medical examination as1956 U.S. Tax Ct. LEXIS 232">*242 a condition to inclusion of an employee thereunder, it was generally required as of the date of petitioner's employment as a full-time employee that all such employees must submit to such an examination.

During 1950 petitioner suffered an illness, nonoccupational in character, on two occasions. On those occasions he was unable to work. He was paid by his employer the total amount of $ 1,215.99 as sickness benefits under the plan, and it is the Commissioner's inclusion of this amount in his income for 1950 which gives rise to the deficiency 25 T.C. 1289">*1293 here in issue. This amount was included by the employer in his withholding statement showing total wages of $ 6,208.82 and Federal income tax withheld of $ 885.37.

The payments to petitioner of sickness benefits were in the same amounts as would have been paid to him if he had continued at work and had not been sick.

No special reserve fund was set up to pay sick benefits by the employer and they are paid out of current earnings the same as any business expenses such as wages.

The employees pay no premiums in connection with the Disability Benefit Plan.

The employer is not authorized or licensed to issue policies of insurance or to1956 U.S. Tax Ct. LEXIS 232">*243 engage in the business of health insurance in the State of Pennsylvania.

OPINION.

Respondent takes the position that the plan under which sickness benefits were paid under the circumstances here presented does not fall within the phrase "health insurance" as it is used in the Internal Revenue Code of 1939, section 22 (b) (5); ¹ that the phrase as there employed has a limited reference to ordinary commercial types of insurance policies either sold to individuals by authorized insurance companies or purchased therefrom by employers for the benefit of their employees. He relies upon our decision in Glen E. Blackburn, 15 T.C. 336, and George E. Murphy, 20 T.C. 746, and upon a 1950 decision of the Court of Appeals for the District of Columbia Circuit, Waller v. United States, 180 F.2d 194, and Moholy v. United States, 132 F. Supp. 32">132 F. Supp. 32 (N. D., Cal., 1955).

1956 U.S. Tax Ct. LEXIS 232">*244 So far as can be ascertained this Court has never decided the precise question involved in this proceeding. We recognize there are decisions of other courts which would sustain a result contrary to that sought by respondent. Epmeier v. United States, 199 F.2d 508 (C. A. 7, 1952); Haynes v. United States, 139 F. Supp. 671">139 F. Supp. 671 (N. D., Ga., 1955); Herbkersman v. United States, 133 F. Supp. 495">133 F. Supp. 495 (D. Ohio, 1955). Nevertheless, we start with the proposition that statutes granting deductions from taxable income or exemptions from taxation are to 25 T.C. 1289">*1294 be strictly construed. This has so often been held that it is not necessary extensively to cite the authorities. We simply refer to Peoples Finance & Thrift Co., 12 T.C. 1052, construing the very section of the Internal Revenue Code with which we are here concerned. There we said, at page 1055, "A well founded doubt as to the meaning of an exemption statute is fatal to a claim of exemption from taxation."

With this proposition in mind we agree with respondent that petitioner has not brought himself 1956 U.S. Tax Ct. LEXIS 232">*245 within the terms of section 22 (b) (5). He has not demonstrated that the amounts paid him by his employer were "received through * * * health insurance * * * as compensation for sickness * * *."

The crux of the question is whether the Disability Benefit Plan pursuant to which the payments were made constitutes or is to be taken as "health insurance" within the meaning of the statute. The meaning of these words is not free from doubt, but we take it they were used "in their ordinary service." 132 F. Supp. 32">Moholy v. United States, supra. We have examined the plan and its operation with care but cannot find that the employer here intended to or did as a matter of law become an insurer of petitioner's health. True, the employer, as part of its contract of employment with the petitioner undertook to pay him certain "sickness benefits," the amount being directly related to his length of service, his "normal earnings," etc., but not dependent in any way upon the degree or extent of his illness. But we do not think this puts the employer in the position of having issued "health insurance" to petitioner, as that term is ordinarily understood, or of having insured petitioner's1956 U.S. Tax Ct. LEXIS 232">*246 health. What the employer did, as we view the facts, is nothing more nor less than undertake to pay "sick leave pay" to petitioner or, to put it another way, to keep petitioner on the payroll during certain periods of illness when he was unable to work. There is a difference, to our way of thinking, between "health insurance" and the sick benefits payable under the Disability Benefit Plan, which, while hard to define, nevertheless exists. Sick pay is essentially tied into the employer-employee relationship. Such pay is earned by the employee as he works. He pays for it in no other way. No premiums are collected from him and no insurance fund exists. Fundamentally the amounts paid to petitioner fall within the broad definition of "gross income" contained in section 22 (a) which includes "income derived from salaries, wages or compensation for personal service." They are compensatory in nature, paid to him because he was an employee and not because his employer insured him against sickness.

In a recent decision, Branham, et al. v. United States, 136 F. Supp. 342">136 F. Supp. 342 (W. D., Ky., 1955), the court was concerned with a claim similar to that made here. 1956 U.S. Tax Ct. LEXIS 232">*247 The taxpayer was an employee of Standard Oil 25 T.C. 1289">*1295 Company of Kentucky. The plan there in effect was in many ways like the Disability Benefit Plan in effect here. It differed in that the plan there stated that it was a purely voluntary provision made by the company for its eligible employees and that it constituted no contract and conferred no right of action. There, as here, the employee paid nothing and the potential loss anticipated by the employee's sickness was borne by the company and was in no wise diffused through the group of employees. In deciding against the taxpayer the court said

There is no risk distribution and as quoted with approval in the case of Commissioner of Internal Revenue v. Treganowan, 2 cir., 183 F.2d 288, 291, "'The process of risk distribution, therefore, is the very essence of insurance.'"

We conclude that petitioner has not brought his sick benefits within the statutory exemption. In the succinct words of Judge Murphy in 132 F. Supp. 32">Moholy v. United States, supra, dealing with a problem similar to the one here,

"Sick leave with full pay" is an ordinary, well understood phrase. "Health1956 U.S. Tax Ct. LEXIS 232">*248 insurance" is likewise an ordinary, well understood phrase. Taking their ordinary meaning they are not the same. Sick leave pay is just not "amounts received through health insurance."

Decision will be entered for the respondent.