OPINION.
Hill, Judge-.
The instant case presents two questions for our decision. First, did petitioner’s son and daughter-in-law, Samson and Minna Gitter, qualify as- bis dependents in 1943 under the provisions of section 25 (b) (2) (A) of the Internal Revenue Code as amended? Second, were petitioner’s son and daughter-in-law, Samson and Minna Gitter, his sister, Hinda Schulz, and his sister and brother-in-law, Cillg, and Leone Schreier, his dependents in 1944 as defined in the provisions of section 25 (b) (3) of the code as amended? In determining these matters we are aware that the statutory exemptions claimed are matters of legislative grace, and to gain relief petitioner must.bring himself sqúarely within their terms.
Turning to the first question, what were the factual prerequisites for the status of a dependent under section 25 (b) (2) (A) of the code1 in 1943? To qualify under this-section the person claimed as a dependent must have received his chief support from the taxpayer and must have been either under the age of 18 or incapable of self-support because mentally or physically defective. Since the evidence is clear that neither Samson nor Minna Gitter earned any income in 1943, but lived on $2,800 in cash sent them by petitioner, there is no doubt he was their chief financial support in this year. Because both of the alleged dependents were over’ 18, the precise matter for our determination is whether either was incapable of self-support because mentally or physically defective.
We found as a fact that both Samson and Minna Gitter were fully competent to support themselves in 1943. The evidence' presented by petitioner regarding Samson Gitter in 1943 does not support a conclusion that he was mentally or physically unsound. We are not satisfied from the evidence that British war-time regulations prevented Samson from obtaining employment because he was an Austrian refugee, but, assuming this was true, still section 25 (b) (2) (A) does not make involuntary unemployment in itself a ground for the status of a dependent. It is obvious that Samson was mentally and physically capable of earning a living and would have done so if he had been unable to rely on his father’s generosity. The only reason Minna Gitter did not work in 1943 was the necessity of caring for her child, which is. not recognized by the statute as grounds for dependency status.
We therefore conclude that neither Samson nor Minna Gitter qualified as dependents under section 25 (b) (2) (A) in 1943, and petitioner was not entitled to claim credit taxwise for their support.
Turning to the second question, whether petitioner’s son and daughter-in-law, Samson and Minna Gitter, his sister, Hinda Schulz, and his sister and brother-in-law, Cilla and Leone Schreier, qualified as his dependents as the term is defined in section 25 (b) (3) of the code2 in 1944, we find there were three factual prerequisites to in-clusibn therein. First, persons alleged to be dependents must have fallen within one of the classes of family relationship to the taxpayer set forth in the statute. Each one claimed by petitioner as a dependent in 1944 fulfilled this requirement. Next, petitioner must have furnished over half their support. We found as a fact that Samson and Minna Gitter lived entirely on approximately $2,400 in cash given them by petitioner in 1944. Similarly, we found that Cilia and Leone Schreier were virtually penniless in 1944 and subsisted on the food, clothing, and cash of a total value of approximately $1,600 sent them by petitioner. As to Hinda Schulz, while petitioner sent her about $650 in 1944, the evidence fails to show that he furnished over half her support. Since it is not shown that this essential requirement for qualifying Hinda Schulz as a dependent was fulfilled, we hold that petitioner was not entitled to claim an exemption for her support in 1944.
Finally, a person was excluded from the status of a dependent by section 25 (b) (3) in 1944 if he was a “citizen or subject of a foreign country”, residing outside the United States or a country contiguous thereto. Concededly, in that year Samson Gitter and his wife lived in England, while Cilia Schreier and her husband resided in Italy. We are convinced that all four were citizens or subjects of a foreign country in 1944 within the meaning of the statutory language. Tracing the history of their citizenship, the Samson Gitters were citizens of Austria when they left Vienna for Italy in 1934. During their stay in the latter country they made no attempt to acquire Italian citizenship. In March 1938 Germany annexed Austria and incorporated her territory into the German Reich. We do not think such annexation imposed German citizenship upon them or made them subject to Hitler’s decrees, for, under generally accepted principles of international law, when a territory is transferred to a new sovereign by conquest or cession, the inhabitants of the territory become nationals of the new state only by their own consent, express or implied. If they voluntarily depart before the annexation and never elect to accept the sovereignty of the new government, their allegiance is not transferred, but they retain their citizenship under 'the old sovereign. United States ex rel Schwarzkopf v. Uhl, 137 Fed. (2d) 898, 902. The evidence does not indicate that at any time after March 1938 the Samson Gitters elected expressly or impliedly to become citizens of Germany, but rather reveals their intent to retain their Austrian nationality. They never returned to their homeland after the annexation, they stated they were Austrian citizens on their application for a visa to England in 1939, they actually traveled to England on Austrian passports later in 1939, and they made no attempt to acquire British citizenship during the period 1939 through 1944, when they lived in England. In November 1943 the United States signed a “Declaration on Austria” expressly stating therein that it considered the annexation of Austria by Germany to be null and void and that it was not bound by any changes effected in Austria since March 15,1938. We are persuaded that by the “Declaration on Austria” the United States recognized both the independent sovereignty of Austria and the Austrian citizenship of those individuals who were nationals of that country before March 15, 1938, who elected to retain their old citizenship after their country was annexed by Germany, and who acquired no new nationality thereafter. By this standard the Gitters were Austrian citizens in 1944. This view does not conflict with United States ex rel Schwarzkopf v. Uhl, supra, cited by petitioner, for the facts upon which that case was based occurred prior to 1943 and the “Declaration on Austria.”
Turning to the citizenship of Cilia and Leone Schreier, we find that prior to World War I they lived in Trieste as Austrians. After the first World War Trieste was incorporated into Italy. The Schreiers continued to reside in Trieste and they thereby became, by their own consent, Italian citizens. It is not at all clear that the Italian decree of November 17,1938, stripped them of their citizenship. This statute expressly revoked “certificates of citizenship” issued to “foreign Jews” after January 1, 1919. Petitioner has not shown that the inhabitants of Trieste were considered foreigners at the time their city was transferred to Italy or that “certificates of citizenship” were issued to them when they acquired Italian citizenship. Furthermore, assuming this decree did decitizenize them, there is no proof that it was still in effect in 1944.
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OPINION.
Hill, Judge-.
The instant case presents two questions for our decision. First, did petitioner’s son and daughter-in-law, Samson and Minna Gitter, qualify as- bis dependents in 1943 under the provisions of section 25 (b) (2) (A) of the Internal Revenue Code as amended? Second, were petitioner’s son and daughter-in-law, Samson and Minna Gitter, his sister, Hinda Schulz, and his sister and brother-in-law, Cillg, and Leone Schreier, his dependents in 1944 as defined in the provisions of section 25 (b) (3) of the code as amended? In determining these matters we are aware that the statutory exemptions claimed are matters of legislative grace, and to gain relief petitioner must.bring himself sqúarely within their terms.
Turning to the first question, what were the factual prerequisites for the status of a dependent under section 25 (b) (2) (A) of the code1 in 1943? To qualify under this-section the person claimed as a dependent must have received his chief support from the taxpayer and must have been either under the age of 18 or incapable of self-support because mentally or physically defective. Since the evidence is clear that neither Samson nor Minna Gitter earned any income in 1943, but lived on $2,800 in cash sent them by petitioner, there is no doubt he was their chief financial support in this year. Because both of the alleged dependents were over’ 18, the precise matter for our determination is whether either was incapable of self-support because mentally or physically defective.
We found as a fact that both Samson and Minna Gitter were fully competent to support themselves in 1943. The evidence' presented by petitioner regarding Samson Gitter in 1943 does not support a conclusion that he was mentally or physically unsound. We are not satisfied from the evidence that British war-time regulations prevented Samson from obtaining employment because he was an Austrian refugee, but, assuming this was true, still section 25 (b) (2) (A) does not make involuntary unemployment in itself a ground for the status of a dependent. It is obvious that Samson was mentally and physically capable of earning a living and would have done so if he had been unable to rely on his father’s generosity. The only reason Minna Gitter did not work in 1943 was the necessity of caring for her child, which is. not recognized by the statute as grounds for dependency status.
We therefore conclude that neither Samson nor Minna Gitter qualified as dependents under section 25 (b) (2) (A) in 1943, and petitioner was not entitled to claim credit taxwise for their support.
Turning to the second question, whether petitioner’s son and daughter-in-law, Samson and Minna Gitter, his sister, Hinda Schulz, and his sister and brother-in-law, Cilla and Leone Schreier, qualified as his dependents as the term is defined in section 25 (b) (3) of the code2 in 1944, we find there were three factual prerequisites to in-clusibn therein. First, persons alleged to be dependents must have fallen within one of the classes of family relationship to the taxpayer set forth in the statute. Each one claimed by petitioner as a dependent in 1944 fulfilled this requirement. Next, petitioner must have furnished over half their support. We found as a fact that Samson and Minna Gitter lived entirely on approximately $2,400 in cash given them by petitioner in 1944. Similarly, we found that Cilia and Leone Schreier were virtually penniless in 1944 and subsisted on the food, clothing, and cash of a total value of approximately $1,600 sent them by petitioner. As to Hinda Schulz, while petitioner sent her about $650 in 1944, the evidence fails to show that he furnished over half her support. Since it is not shown that this essential requirement for qualifying Hinda Schulz as a dependent was fulfilled, we hold that petitioner was not entitled to claim an exemption for her support in 1944.
Finally, a person was excluded from the status of a dependent by section 25 (b) (3) in 1944 if he was a “citizen or subject of a foreign country”, residing outside the United States or a country contiguous thereto. Concededly, in that year Samson Gitter and his wife lived in England, while Cilia Schreier and her husband resided in Italy. We are convinced that all four were citizens or subjects of a foreign country in 1944 within the meaning of the statutory language. Tracing the history of their citizenship, the Samson Gitters were citizens of Austria when they left Vienna for Italy in 1934. During their stay in the latter country they made no attempt to acquire Italian citizenship. In March 1938 Germany annexed Austria and incorporated her territory into the German Reich. We do not think such annexation imposed German citizenship upon them or made them subject to Hitler’s decrees, for, under generally accepted principles of international law, when a territory is transferred to a new sovereign by conquest or cession, the inhabitants of the territory become nationals of the new state only by their own consent, express or implied. If they voluntarily depart before the annexation and never elect to accept the sovereignty of the new government, their allegiance is not transferred, but they retain their citizenship under 'the old sovereign. United States ex rel Schwarzkopf v. Uhl, 137 Fed. (2d) 898, 902. The evidence does not indicate that at any time after March 1938 the Samson Gitters elected expressly or impliedly to become citizens of Germany, but rather reveals their intent to retain their Austrian nationality. They never returned to their homeland after the annexation, they stated they were Austrian citizens on their application for a visa to England in 1939, they actually traveled to England on Austrian passports later in 1939, and they made no attempt to acquire British citizenship during the period 1939 through 1944, when they lived in England. In November 1943 the United States signed a “Declaration on Austria” expressly stating therein that it considered the annexation of Austria by Germany to be null and void and that it was not bound by any changes effected in Austria since March 15,1938. We are persuaded that by the “Declaration on Austria” the United States recognized both the independent sovereignty of Austria and the Austrian citizenship of those individuals who were nationals of that country before March 15, 1938, who elected to retain their old citizenship after their country was annexed by Germany, and who acquired no new nationality thereafter. By this standard the Gitters were Austrian citizens in 1944. This view does not conflict with United States ex rel Schwarzkopf v. Uhl, supra, cited by petitioner, for the facts upon which that case was based occurred prior to 1943 and the “Declaration on Austria.”
Turning to the citizenship of Cilia and Leone Schreier, we find that prior to World War I they lived in Trieste as Austrians. After the first World War Trieste was incorporated into Italy. The Schreiers continued to reside in Trieste and they thereby became, by their own consent, Italian citizens. It is not at all clear that the Italian decree of November 17,1938, stripped them of their citizenship. This statute expressly revoked “certificates of citizenship” issued to “foreign Jews” after January 1, 1919. Petitioner has not shown that the inhabitants of Trieste were considered foreigners at the time their city was transferred to Italy or that “certificates of citizenship” were issued to them when they acquired Italian citizenship. Furthermore, assuming this decree did decitizenize them, there is no proof that it was still in effect in 1944. We may not assume so in view of the change in the Italian Government and the repeal of many of Mussolini’s laws which followed the liberation of Borne by the Allies in 1944. Due to these failures in petitioner’s proof, it is not shown that the Leone Schreiers were not Italian citizens in 1944.
Even assuming the Gitters were not Austrian citizens and that the Schreiers were not Italian citizens in 1944, still we think they were subjects of England and Italy, respectively, in 1944 within the express language of section 25 (b) (3). What is the meaning of “subject” as used in this statute? The Supreme Court, in Nagle v. Loi Roa, 275 U. S. 475, pointed out that the term “subject” might have a broad or narrow meaning as used in a statute, depending on the legislative purpose, stating on page 477:
* * * The sole question presented is whether the word “subject” as used in § 6 [of the Chinese Exclusion Act] is to be taken as including only those persons who by birth or naturalization owe permanent allegiance to the government issuing the certificate, or as embracing also those who, being domiciled within the territorial limits of that government, owe it for that reason obedience and temporary allegiance.
The word may be used in either sense. * * *
Therefore, to determine the meaning of “subject” in section 25 (b) (3), to decide whether the word is used in a narrow or broad sense, we turn to the legislative intent of Congress in enacting this statute.
Congressional purpose regarding the phrase “citizen or subject of a foreign country” is clearly revealed in H. Report No. 1365,78th Cong., 2d sess., on the Individual Income Tax bill of 1944 (1944 C. B. 821, 841), wherein it said in part:
* * * the new system of exemptions grants a surtax exemption for every person closely related to the taxpayer in any of several specified degrees of relationship for' whom the taxpayer- provides over half the support. In addition, it is provided that the term “dependent” does not Include any nonresident alien individual unless such individual is a resident of a country contiguous to the United States. [Italics supplied.]
Surrounding circumstances support this manifestation of Congressional intent to include any nonresident alien within the scope of “citizen or subject of a foreign country.” Prior to the amendment of section 25 (b) of the code in 1944, the primary limitation on the status of a dependent was the requirement that the person be under 18 years of age or mentally or physically incapable of self-support. In that year Congress changed the test of a dependent to require a close family relationship between the taxpayer and the person supported and excluded alien citizens or subjects not residing in the United States or a country contiguous thereto. What caused this change in the criterion of a dependent ? Since the commencement of World War II there had béen a great increase in the number of taxpayers claiming dependency credits for Europeans whom they were helping to support. A spectacular example of this trend was the case of Astley v. Bogan, U. S. Dist. Ct., So. Dist. Calif., Central Div., June 18, 1943, memorandum opinion and order No. 1662-B, wherein the taxpayer successfully claimed dependency credits for 51 French children. In such situations a severe burden was placed upon the Commissioner to disprove the truth of the taxpayer’s assertion that he had spent specified sums on sped? fied foreigners, whose alleged dependency, and even existence, could not be checked. Therefore it was hardly a mere coincidence that in 1944 Congress determined to revise section 25 (b) in the manner set forth above. In amending the statute Congress certainly realized that in checking the alleged dependency of a nonresident foreigner the Commissioner was faced with the same practical difficulty whether the latter was a citizen of a foreign country or a refugee residing therein. Nowhere in the legislative history of the 1944 amendment of section 25 (b) is there any express indication of Congressional purpose to favor claims for support of foreigners who lost their citizenship over claims for support of foreigners who retained their citizenship status. Nor did public policy justify any distinction between them in defining the status of a dependent, since both groups were suffering equally from the vicissitudes of war. We conclude that Congress meant to exclude all nonresident aliens, citizens or noncitizens, from the status of dependents unless they resided in North America, when it used the phrase “citizen or subject of a foreign country” residing outside the United States or a country contiguous thereto.
Since the term “citizen” generally is restricted in its application to an individual who enjoys full civil and economic rights of a political community and in return owes permanent allegiance to the community, Congress must have ^intended “subject” to be construed in its broad sense as including an individual domiciled in a foreign country and thereby subject to its sovereignty. Only in this manner would its purpose (as stated in the above cited congressional report) to exclude any nonresident alien living outside a country contiguous to the United States be accomplished by the language it used. Such a construction of the term “subject” is not without precedent. See The Pizarro, 2 Wheat. 227, 245, and Carlisle v. United States, 16 Wall. 147, 154. We are convinced this was the meaning of “subject” as used in section 25 (b) (3).
It is clear that in 1944 both the Samson Gitters and the Schreiers were subjects of a foreign country in the broad sense of the word “subject.” The Samson Gitters had been domiciled in England for five years in 1944, enjoying the protection of its* sovereignty. It is well settled that, even as alien residents, they owed temporary allegiance to Great Britain, even though they did not enjoy all the civil rights of a British citizen. The Pizarro and Carlisle cases, supra. While they remained in that country, they were subject to all English laws and regulations, and were equally amenable with citizens for any infraction thereof. Assuming that the Italian decree of 1938 stripped the Schreiers of their citizenship and assuming that this statute was still in effect in 1944, nevertheless they remained in Italy during the 1 atter year. As a consequence, they conti nued to owe obedience to the laws of the Italian Government and were subject to its sovereignty.
We conclude that in 1944 the Samson Gitters and the Leone Schreiers were citizens or subjects of a foreign country residing outside the United States or a country contiguous to the United States within the express language of séction 25 (b) (3) and, therefore, we uphold respondent’s determination that petitioner was not entitled to claim exemptions for their support in that year.
Reviewed by the Court.
Decision will be entered for resfondent.
Turner, /., concurs only in the result.