Commissioner of Internal Revenue v. Shamberg's Estate ( 1944 )

AUGUSTUS N. HAND, Circuit Judge.

This proceeding involves deficiencies in income taxes assessed against Alexander J. Shamberg by the Commissioner of Internal Revenue .for the' years 1937 and 1938. Shamberg died during the pendency of a proceeding in the Tax Court to review the assessment and his administrator wás substituted as a party. The Tax Court determined that there were no deficiencies and the Commissioner filed this petition to review its decision which a majority of this court holds should be affirmed.

The question presented is whether the interest received by Shamberg in the years 1937 and 1938 on bonds of the Port of New York Authority (hereinafter called the “Authority”) known as Interstate Bridge and Tunnel Bonds — Series E, and General and Refunding Bonds — First Series, is subject to income taxes.

According to the view we take, the income from the above bonds, issued in 1931 and 1935 respectively, was exempt from taxation under the provisions of Section 22 (b) (4) (A) of the Revenue Act of 1936 and the corresponding section, identical in form, of the Revenue Act of 1938, 26 U.S.C.A.Int.Rev.Acts, pages 825 and 1008. These statutory provisions and the Treasury Regulations interpreting them are as follows:

“Sec. 22. Gross Income

“(a) General Definition. ‘Gross income’ includes gains, profits, and income derived from salaries, wages, or compensation for personal service, of whatever kind and in whatever form paid, or from professions, vocations, trades, businesses, commerce, or sales, or dealings in property, whether real or personal, growing out of the ownership or use of or interest in such property; also from interest, rent, dividends, securities, or the transaction of any business carried on for gain or profit, or gains or profits and income derived from any source whatever.

“(b) Exclusions from Gross Income. The following items shall not be included in gross income and shall be exempt from taxation under this title:

* * * * * *

“(4) Tax-free interest. Interest upon (A) the obligations of a State, Territory, or any political subdivision thereof, or the District of Columbia.”

Treasury Regulations 94, promulgated under the Revenue Act of 1936:

“Art. 22(b) (4)-l. Interest upon State obligations. — Interest upon the obligations of a State, Territory, or any political subdivision thereof, or the District of Columbia is exempt from the income tax. Obligations issued by or on behalf of the State or Territory or a duly organized political subdivision acting by constituted authorities empowered to issue such obligations, are the obligations of a State or Territory or a political subdivision thereof. Special tax bills issued for special benefits to property, if such tax bills are legally collectible only from owners of the property benefited, are not the obligations of a State, Territory, or political subdivision. The term ‘political subdivision,’ within the meaning of the exemption, denotes any division of the State or territory which is a municipal corporation, or to which has been delegated the right to exercise part of the sovereign power of the State or Territory. As thus defined, a political subdivision of a State or Territory may, for the purpose of exemption, include special assessment districts so created, such as road, water, sewer, gas, light, reclamation, drainage, irrigation, levee, school, harbor, port improvement, and similar districts and divisions of a State or Territory.”

The provisions of the foregoing Article of Regulations 94 were amended in Treasury Regulations 101, promulgated under the Revenue Act of 1938 so that the words “or may not” follow the word “may” in the last sentence.

The applicability of the statutory exemption from income taxes which we have referred to depends upon the nature and activities of the Authority which are set forth in a stipulation by the parties.

The Authority is a body politic and .corporate created by a compact made between the States of New York, Laws N.Y.1921, c. 154, and New Jersey on April 30, 1921, N.J.S.A. 32:1-1 et seq., and approved by Congress on August 23, 1921, 42 Stat. 174. It is fully owned by the two states and its projects are all operated in the interest of the public without profit to private persons. The compact was induced by the necessity for joint state action in the development of the Port of New York which lies partly within the jurisdiction of each state. It created a district to be known as the “Port of New York District” comprised of areas in both states and the waters between them, in which were included about 200 separate municipalities and a population of over 10,000,000.

Article VI of the compact vested the Authority with “ * * * power and authority to purchase, construct, lease and/or operate any terminal or transportation facility within said district; and to make charges for the use thereof; and for any of such purposes to own, hold, lease and/or operate real or personal property, to borrow money and secure the same by bonds or by mortgages upon any property held or to be held by it * * * ” except that property held by. either state or by any of their municipalities should not be taken without the consent of the state or municipality affected. The Authority .was to make plans for the development of the district. It was empowered to make recommendations to the states, to intervene in proceedings affecting the commerce of the port and to petition such bodies as the Interstate Commerce Commission as to matters within its jurisdiction.

Article XVIII authorized the Authority, subject to the exercise of the power of Congress, to make rules and regulations relating to navigation and commerce, which rules, however, were to be effective only when concurred in by the legislatures of both states. The states agreed by Article XIX to provide penalties and means of enforcement of the orders and regulations of the Authority. The Authority has made regulations with respect to its bridges and tunnels which have been concurred in by the legislatures of the states, penalties for their violation having been provided by state law and the inferior criminal courts of the states having been given jurisdiction to enforce these penalties.

The powers of the Authority are vested in a board of twelve Commissioners — six from each state, who take an oath of office and may be removed only upon charges and after a hearing. Their actions are binding only after approval by a majority of the Commissioners from each state and the Governor of each state has a veto power over the acts of the Commissioners from his state.

The plan adopted by the two states, N.J.S.A. 32:1-25 et seq., Laws N.Y.1922, c. 43 and consented to by Congress in 1922, Joint Resolution July 1, 1922, 42 Stat. 822, sets forth the principles upon which the development of the Port should proceed, and provides that (Section 8) :

“The Port of New York Authority is hereby authorized and directed to proceed with the development.of the port of New York in accordance with said comprehensive plan as rapidly as may be economically practicable and is hereby vested with all necessary and appropriate powers not inconsistent with the constitution of the United States or of either state, to effectuate the same, except the power to levy taxes or assessments. * * * The port authority shall be regarded as the municipal corporate instrumentality of the two states for the purpose of developing the port and effectuating the pledge of the states in the said compact, but it shall have no power to pledge the credit of either-state or to impose any obligation upon either state, or upon any municipality, except as and when such power is expressly granted by statute, or the consent by any such municipality is given.” N.J.S.A. 32:1-33; Laws 1922, c. 43, § 8.

Up to the present time the Authority has not applied for any grant of power to pledge the credit of either of the states and has never applied to any municipality for the power to impose any obligation upon it. The Authority is not subject to the debt limiting provisions of the constitution of the two states; it was created in order to establish an agency with operating power independent of state and municipal debt limitations.

The Authority has constructed various vehicular crossings. They have been the Arthur Kill Bridges, the George Washington Bridge, the Bayonne Bridge, the Holland Tunnel and the Lincoln Tunnel.

Arthw Kill Bridges.

The two states authorized the Authority to build, operate and maintain these two bridges with the necessary approaches across the Arthur Kill, the first between Perth Amboy, New Jersey, and Tottenville, New York, and the second between Elizabeth, New Jersey, and Howland Hook, New York. Each state appropriated $100,000 for preliminary work, but provided that these sums should be returned to the states after the bridges had been fully paid for and the debts incurred therefor amortized out of revenue. The cost of these bridges exceeded $17,000,000, which was financed by the sale of bonds of the Authority to the extent of $14,000,000 and $4,000,000 advanced in equal portions by the two states under an agreement that the state advances should be repaid when the cost of construction of the bridges was paid for and all other debts were amortized. The War Department approved the construction of these bridges in 1925 and they were opened to traffic on June 29, 1928. N.J.S.A. 32:1-36 et seq.; Laws N.Y.1924, cc. 186, 230.

George Washington Bridge.

In 1925 the Authority was authorized by the two states to construct, operate, maintain and own a bridge across the Hudson between Manhattan and Fort Lee, each state appropriating $150,000 for preliminary studies and providing for the repayment as in the case of the Arthur Kill biidges. Construction of this bridge was approved by the War Department in 1926 and it was opened to traffic on October 25, 1931. The Authority also constructed the system of approaches to both termini of the bridge. The termini are maintained by the City of New York and the State of New Jersey respectively and are open to local traffic as well as to bridge traffic without charge. The cost of the bridge was financed by the sale of bonds of the Authority in the amount of $50,000,000, a grant by the Public Works Administration of the Federal Works Agency in amount of $1,490,455, and advances by the two states of $9,800,000, provisions being made, as in the case of the Arthur Kill Bridges, for the repayment of the' advances by the states. N.J.S.A. 32:1-71 et seq.; Laws N.Y.1925, c. 211.

Bayonne Bridge.

The states also authorized the Authority to construct, maintain, operate and own a bridge across the Kill van Kull between Bayonne, New Jersey and Staten Island, each state appropriating $50,000 for preliminary studies with provision for repayment of these advances. Construction was approved by the War Department in 1927 and the bridge was completed in 1931 at a cost of over $13,000,000, which was financed by the sale of bonds of the Authority to the extent of $12,000,000 and by advances by the two states in the amount of $4,100,000 with provision for repayment of the advances as in the case of the other bridges.

Congress granted its consent to the construction of the four bridges above mentioned. N.J.S.A. 32:1-94 et seq.; Laws N. Y.1926, c. 279.

Holland Tunnel.

The Holland Tunnel was constructed by the two states and operated by them until 1930 through Commissions. In that year by concurrent legislation the two states provided that the Holland Tunnel should be conducted and continued as part of the operations of the Authority which are thereby vested with its control, operation and maintenance, the states, however, retaining title. The revenues were to be held by the Authority as agent of the states. The statutes provided that all obligations made or assumed by the Authority in connection with the tunnel should be assumed in its own name and should create no liability of the two states, or either of them. The Authority was authorized to raise funds through the sale of its own bonds, pursuant to which authorization Interstate Bridge and Tunnel Bonds — Series E (one of the two bonds issued involved in this case) were issued in amount of $50,-000,000. The proceeds from the sale of these bonds were to repay the states for outlays in connection with the tunnel. The bonds were secured by the tolls from the tunnel. P.L.N.J.1930, c. 247; N.J.S.A. 32:2-27; Laws N.Y.1930, c. 421.

Lincoln Tunnel.

By legislation adopted in 1930 the two states authorized the Authority to report as to an additional tunnel under the Hudson and each state appropriated $200,000 for this purpose. Repayment of these appro* priations was not required. The southerly tube of this tunnel was open to traffic in December 1937, and the northerly tube was intended to be completed and opened to traffic in 1943. A system of approaches to the tunnel in New York were built at a cost of $9,174,000, and in New Jersey at a cost of $20,034,000. The cost of the Lincoln Tunnel through December 31, 1941, exceeded $72,750,000. The initial cost of constructing the first unit of the tunnel was financed by a loan to the Authority of $12,-300,000 made by the United States through the Federal Emergency Administration of Public Works. The loan agreement of September 1, 1933 contained the provision inserted at the request of the United States that the officers of the Administration of Public Works should be furnished with opinions both of bond counsel, satisfactory to the government, and of Port Authority’s general counsel, to the effect that the notes to be issued to the government were exempt under the Constitution of the United States from all taxation (except inheritance, estate and gift taxes) then or hereafter imposed by the United States or the States of New York and New Jersey. Such opinions were furnished. In 1935 the Authority sold its General and Refunding Bonds First Series (which is the second of the two bond issues involved herein) in amount of $16,500,000 from the proceeds of which it repaid the loan from the United States. The balance of the cost of the Lincoln Tunnel has been financed by the sale of various issues of General and Refunding Bonds, from accumulated Authority earnings held in its general reserve fund and from a grant of the United States of $5,391,573.50.

Tolls are charged for the use by vehicles of the bridges and tunnels described above. P.L.N.J.1930, c. 248, N.J.S.A. 32:2-27; Laws N.Y.1930, c. 420.

Other activities.

Inland Terminal Building.

The Authority constructed an Inland Terminal Building between 15th and 16th Streets and 8th and 9th Avenues in the Borough of Manhattan, at a cost of $16,-000,000 which is used as an office for the Authority and a terminal station for various trunk line railroads and also (because it would not otherwise be self-supporting) to rent out for manufacturing and commercial uses.

Since 1931, the Authority has operated a bus service over one of the Arthur Kill bridges.

The two states have adopted legislation regulating the use by the Authority of its revenues which have been expended as so directed solely for the operating and administration expenses of the Authority and for interest upon and retirement of outstanding debts.

In the compact pursuant to which the Authority was created the states agreed to make annual appropriations (not in excess of $100,000 for each state) for expenses of the Authority until Revenues from its operations were sufficient to meet its expenses. These annual appropriations were discontinued in 1934 because the revenues from the bridges, the Holland Tunnel and Inland Terminal had become sufficient.

The states have vested in the Authority the power to make and enforce such rules and regulations as it may deem convenient or necessary for the operation and maintenance of the various bridges and tunnels within its jurisdiction. Penalties were provided for their violation, and the inferior criminal courts of the states were given jurisdiction to enforce such penalties.

The State of New York has enacted legislation giving the Authority jurisdiction over all New York residents, corporations and property owners for the purpose of its investigations or hearings in connection with its planning for port improvement, and also for the purpose of all such other action or powers as it may be empowered to exercise. Such legislation further provided that it should have the power to subpoena such persons or corporations, failure to reply being punished in contempt proceedings upon its application to the Supreme Court of New York.

The State of New York has further enacted that the Authority have power to issue orders after hearings requiring obedience of persons subjected to the jurisdiction of the Authority by the statute. The statute further provided that the Authority should have power to enforce its orders by commencing mandamus, injunction, or other appropriate proceedings in the Supreme Court of the state against violators.

In the operation of its bridges and tunnels the Authority maintains a uniformed police force, the members of which are designated by statute as regular police and peace officers of both states. The property of the Authority and the bonds and other securities issued by it are exempt from state taxation in both states. It has the power of condemnation, its employees may join the New York State Retirement System and the Authority has been held to be immune from suit. No tax or assessment is levied within the Port District by or on behalf of the Authority.

The decedent Shamberg, if alive, would have testified at the hearing that he acquired his bonds upon legal advice that the income was immune from federal income tax under the Constitution and that it was further exempt from such taxes under existing statutes and regulations.

The final summary appearing in the stipulation shows that the Authority’s facilities have been financed through issues of its own bonds and notes to the extent of $205,-551,582.82, and that appropriations by the states amounted to $2,856,663.11, federal grants to $6,450,893.65, and advances by the states to $18,650,000. The Authority’s revenues have been derived principally from the operation of its facilities and properties, and of these the main sources are the vehicular crossings.

The Commissioner first argues that the interest on the bonds of the Authority is taxable under the ruling in Helvering v. Gerhardt, 304 U.S. 405, 58 S.Ct. 969, 977, 82 L.Ed. 1427. It is really enough to answer this argument to say that Justice Stone, who wrote the opinion of the majority of the Supreme Court, said in the very last paragraph: “Expressing no opinion whether a federal tax may be imposed upon the Port Authority itself with respect to its receipt of income or its other activities, we decide only that the present tax neither precludes nor threatens unreasonably to obstruct any function essential to the continued existence of the state government.” The majority of the Tax Court was, therefore, clearly right in concluding that when Justice Stone said, 304 U.S. at page 423, 58 S.Ct. at page 977, 82 L.Ed. 1427: “ * * * we think it plain that employees of the Port Authority are not employees of the state or a political subdivision of it within the meaning of the regulation as originally promulgated * * he was referring to the regulation which exempted from income tax the compensation of “state officers and employees” for “services rendered in connection with the exercise of an essential governmental function of the State,” and in effect saying no more than that the Authority was not exercising “an essential governmental function.” We cannot see that the decision in Helvering v. Gerhardt has any bearing upon the issues before us.

It is next argued by the Commissioner that in enacting Sec. 22 (b) (4) (A) exempting “interest upon * * * the obligations of * * * a State * * * or any political subdivision thereof * * Congress was only excluding from income tax such interest as could not under constitutional doctrines prevailing in 1913, when the exemption act was originally passed, be lawfully taxed. In support of this the Commissioner quotes the statement of Honorable Cordell Hull, who sponsored the measure in the House, in which he said the exemption was inserted “not desiring to raise any Constitutional question or to arouse the antagonism of any of the states.” This quotation is relied upon as indicating that Congress intended to limit the scope of the exemption to income thought at the time to be beyond the taxing power. It is argued in this connection that no such institutions as the Port Authority were then in contemplation of Congress, since the Port Authority (established in 1921) was the first of such bodies to exist. Doubtless it is true that Congress had no such specific form of state organization in mind, but that adds nothing to the solution of the problem. The only question is whether Congress would have intended the exemption to apply if these new forms of state activity had existed ; in other words, what, in view of the general setting, is the reasonable interpretation of the words used. That there was no intention strictly to limit the exemption to what was thought to be beyond the taxing power is shown by the statement of Mr. Hull that it was the purpose of the enactment not only to avoid raising “any constitutional questions” but also to avoid arousing “the antagonism of any of the states.” We think this statement involved a much broader purpose than to crystallize the constitutional doctrine of that particular time in the statute. Indeed, the existence of any such purpose is negatived by the fact that the limitations of constitutional power Were by no means certain or thought to be certain at the time the act was passed. It seems to us entirely unreal to limit what we believe was the broad purpose to exempt the bonds of states and their agencies when engaged in customary governmental activity, particularly when one of the main purposes of the exemption provision was to facilitate the passage of the Sixteenth Amendment.

The views we have expressed seem quite in accord with the opinion given by Attorney General McReynolds to the Secretary of the Treasury on January 30, 1914, following the adoption of the 1913 exemption, 30 Op.Atty.Gen. (1914) p. 252, in which the question was raised as to whether certain special districts are “political subdivisions” of the state within the meaning of the proviso. The Attorney General said:

“The term ‘political subdivision’ is broad and comprehensive and denotes any division of the State made by the proper authorities thereof, acting within their constitutional powers, for the purpose of carrying out a portion of those functions of the State which by long usage and the inherent necessities of government have always been regarded as public. The words ‘political’ and ‘public’ are synonymous in this connection. (Dillon Municipal Corporations, 5th ed., sec. 34.) It is not necessary that such legally constituted ‘division’ should exercise all the functions of the State of this character. It is sufficient if it be authorized to exercise a portion of them. * * *

“The purposes to which you refer, namely, the improvement of streets and public highways, the provision of sewerage, gas, and lights, the reclamation, drainage, and irrigation of considerable districts of land, are clearly public and have always been so treated.”

It is contended that the foregoing opinion is not pertinent to the case at bar because it was directed to the taxability of interest on bonds of assessment districts which possessed the power of taxation, which was said to be “perhaps the most important power possessed by the State.” But the real criterion adopted by the Attorney General seems to have been whether the activities of the subdivision were for a public purpose. In this connection he remarked: “A tax can only be laid for a public purpose * * *, and therefore, where the power to levy a tax is given a district by the State, presumptively that district is created for a public use and is exercising a public function”; and he closed by saying: “I desire carefully to refrain from expressing any opinion whether assessment districts might not be created for a purely private purpose so as to bring them within the principles laid down in the South Carolina Dispensary case [State of South Carolina v. United States] 199 U.S. 437 [26 S.Ct. 110, 50 L.Ed. 261, 4 Ann.Cas. 737], rather than within those which governed United States v. Railroad Company, 17 Wall. 322 [21 L.Ed. 597].” Later, in 1937, Secretary Morgenthau asked for an opinion of the Attorney General as to whether an irrigation district in the State of California was a “political subdivision” of the state within the meaning of an exemption provision contained in the Revenue Act of 1932, as amended by the Revenue Act of 1935, 26 U.S.C.A.Int.Rev.Code § 3442, relieving persons who sold articles “for the exclusive use of the United States, any State, * * * or any political subdivision of the foregoing * * from excise taxes. He also requested a reconsideration of the opinion of Attorney General McReynolds of January 30, 1914. Attorney General Cummings advised the Secretary in favor of the exemption (38 Op.Atty.Gen. 563) saying that the question apparently turned “upon whether the irrigation district is a ‘political subdivision’ of the state within the meaning of Section 620(3), Title IV, of the Revenue Act of 1932, as amended.” He adverted to the fact that the Treasury Department had followed the opinion of Attorney General McReynolds in the administration of the income tax law since 1914, and said:

“The term ‘political subdivision’ may be used in statutes in more than one sense. It may designate a true governmental subdivision such as a county, township, etc., or, as held in the Attorney General’s opinion under consideration, it may have a broader meaning, denoting any subdivision of the state created for a public purpose although authorized to exercise a portion of the sovereign power of the state only to a limited degree.” He concluded as follows: “To attribute at this time to the term ‘political subdivision’, as used in the Revenue Act of 1913 and in Section 620(3), a meaning different from that stated in the former opinion of the Attorney General would disturb the above-mentioned practice in the administration of the income tax law followed for over twenty-two years. The reasonable view is that the Congress, which must be presumed to have had knowledge of this administrative practice under the former act, intended that the term as used in Section 620(3) should receive a similar construction.

“I do not feel, therefore, that the Attorney General’s former opinion should be disturbed upon the authority of the state decisions to which you refer, and I suggest that any change in policy should be made only in accordance with legislative direction or judicial decision.”

The Commissioner also relies on State of South Carolina v. United States, 199 U.S. 437, 26 S.Ct. 110, 50 L.Ed. 261, 4 Ann.Cas. 737, as indicating that the exemption should not be applied to state activities which are not wholly essential to its sovereignty. The argument is based on the claim that the exemption provision must be interpreted in the light of that decision, which it is said governed the extent of the constitutional power to tax at the time when the exemption statute was enacted. We have already said that, in our opinion, the exemption provision was not limited to cases where federal taxation was constitutionally possible in 1913, but covered a broader field where taxation of obligations was doubtful and subject to contention by the states. But even assuming the government’s interpretation of the exemption provision as merely enacting the constitutional doctrine as of 1913, we do not think that the South Carolina case would permit taxation of such a state agency as the j?ort Authority. That decision related only to the power of the government to impose the usual license taxes upon dispensaries established by the state for the wholesale and retail sale of liquor. It held that such a state agency was subject to the tax, and that the constitutional limitation did not extend to instrumentalities used by the state in carrying on an ordinary private business. This was plainly a commercial business which resulted in one year of a profit of about $500, 000 which was divided between the state and local municipalities. Such a holding seems to us far from indicating that it was ever applicable to agencies having customary governmental activities, such as development of roads, bridges and waterways entered upon with no profit motive.

With respect to the analogy drawn by Brewer, J., in the opinion in the above case, to the liability of municipal corporations in tort when they are engaged in private as distinguished from public business, it was merely one of the arguments in support of the result which has since been abandoned as a criterion by the Supreme Court in Brush v. Commissioner, 300 U.S. 352, 362, 373, 57 S.Ct. 495, 81 L.Ed. 691, 108 A.L.R. 1428. Indeed, in Murray v. Wilson Distilling Co., 213 U.S. 151, 173, 29 S.Ct. 458, 53 L.Ed. 742, decided in 1909, the South Carolina decision was explained upon the ground that a state had no power by legislation in regard to the sale and consumption of liquor to destroy a preexisting right of taxation of the federal government. Any claim that the South Carolina decision governs the present case proves too much, for, if it be read as permitting taxation of almost every governmental activity, it would certainly fly in the face of the practice of the Treasury Department for the last forty years and the opinions of the two Attorney Generals acted upon by the treasury, since it has never been held, nor is it here contended, that income from such state agencies as irrigation and levee districts is not exempt, although neither of these activities, nor even the existence of the districts, is essential to the state. Here the activities, even though some of them might have been exercised by private corporations under appropriate legislation, are exercised for a public purpose by an agency set up by the states and given many public powers, though not of taxation or control through the suffrages of citizens. It minimizes its public and political character to treat such an agency as a private corporation merely because of the lack of taxing power which is only one of the attributes of sovereignty. •

But the regulation we have quoted makes our position still clearer. It defines political subdivision as one “to which has been delegated the right to exercise part of the sovereign power of the State”, and while it says it may for the purpose of exemption include “special assessment districts * * * such as road, water, sewer, gas, light, reclamation, drainage, irrigation, levee, school, harbor, port improvement, and similar districts and divisions of the State”, it does not preclude political subdivisions which do not possess the power of' taxation but generally exempts interest on: “Obligations .issued by or on behalf of the State or Territory or a duly organized political subdivision acting by constituted authorities empowered to issue such obligations.”

We think that this regulation covered bonds of such a public body as the Authority, and was within the scope of the statute. When it gave immunity to bonds issued “on behalf of” the state as well as those issued by the state itself, those words certainly meant something in addition to the words “issued by”, and what can the added words refer to except bonds issued by a state agency to carry out a public purpose where the latter is not named as obligor on the bonds. We need not claim that this public purpose may be a commercial enterprise for mere profit, as distinguished from a public activity of the traditional sort in which the Authority is engaged. It has many times been held that bonds issued by municipalities are within the exemption of Sec. 22 (b) (4) (A) even though payment is to be made only out of special funds and the credit of the municipalities was not pledged. Bryant v. Commissioner, 9 Cir., 111 F.2d 9; Commissioner v. Carey-Reed Co., 6 Cir., 101 F.2d 602, 121 A.L.R. 1272; Commissioner v. Pontarelli, 7 Cir., 97 F.2d 793. Cf. Brush v. Commissioner, 300 U.S. 352, 371-373, 57 S.Ct. 495, 81 L.Ed. 691, 108 A.L.R. 1428.

Repeated reenactment by Congress of the exemption clause in various revisions of the revenue laws gives further support to the regulation as defining the scope of the statute.

In addition to this, we are dealing with a class of public securities which have in the case of the bonds of the Port Authority and bonds of numerous other state agencies of like character for years been held exempt under rulings of the Bureau of Internal Revenue. Such rulings were made as to the bonds of the State Highway Commission of Kentucky, the Thousand Island Bridge Authority, the Buffalo and Fort Erie Public Bridge Authority, the Triborough Bridge Authority, the General State Authority of Pennsylvania, and many others, as well as the Port Authority itself. This should bar the Commissioner’s claim. Helvering v. Griffiths, 318 U.S. 371, 402, 63 S.Ct. 636, 87 L.Ed. 843.

The argument that the exemption does not apply to the Authority because two states, rather than one, created the agency is far from persuasive, and we reject it on the grounds stated by the Tax Court in the majority opinion.

For the foregoing reasons we hold the income derived from the taxpayer’s bonds tax-free because it was interest upon obligations of a political subdivision of a state within the meaning of Section 22 (b) (4) of the Revenue Acts of 1936 and 1938 and upon obligations issued “on behalf of” a state within the meaning of Article 22 (b) (4)-l of the Treasury Regulations.

Order affirmed.