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manufacturing is to be given a special unfavorable (for the
taxpayer) effect only for purposes of section 936(h)(5)(B), and
that for all other section 936 purposes contract manufacturing is
not to be given an effect unfavorable to the taxpayer. It
follows that the canon of construction that respondent urges upon
us does not lead to the result for which respondent contends, but
rather (when the context is considered) it supports the result
for which petitioners contend.
iii. Plain Meaning; Legislative History
Respondent contends that the plain meaning of “such domestic
corporation” in the statute, and the plain meaning of “it” and
“its gross income” in the report of the Senate Finance Committee,
lead to the conclusion that “only the possessions corporation’s
conduct can be considered for purposes of satisfying the active
business requirement.”
The same statutory language has been in the predecessors of
section 936 since the initial enactment--section 262 of the
Revenue Act of 1921, Pub. L. 67-98, 42 Stat. 227, 271. The same
statutory language was in the WHTC provisions--sec. 109, I.R.C.
1939. Essentially the same argument was presented to, and
rejected by, the Court of Appeals for the Ninth Circuit in Frank
v. International Canadian Corp., 308 F.2d at 526-527. In our
recent opinion in MedChem (P.R.), Inc. v. Commissioner, 116 T.C.
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