recently stated, "Orderly development of the government of Puerto Rico as an integral part of our governmental system is well served by a careful and consistent adherence to the legislative and judicial policy of deferring to the local procedure and tribunals of the Island." Bonet v. Yabucoa Sugar Co., supra, p. 510. We now repeat once more that admonition. And we add that mere lip service to that rule is not enough. To reverse a judgment of a Puerto Rican tribunal on such a local matter as the interpretation of an act of the local legislature, it would not be sufficient if we or the Circuit Court of Appeals merely disagreed with that interpretation. Nor would it be enough that the Puerto Rican tribunal chose what might seem, on appeal, to be the less reasonable of two possible interpretations. And such judgment of reversal would not be sustained here even though we felt that of several possible interpretations that of the Circuit Court of Appeals was the most reasonable one. For to justify reversal in such cases, the error must be clear or manifest; the interpretation must be inescapably wrong; the decision must be patently erroneous. Measured by such a test the judgment of the Supreme Court of Puerto Rico should not have been reversed. In concluding that under §.9 an uninsured employer could have an award of the Commission reviewed, including the issue of whether or not he was insured, the Supreme Court of Puerto Rico did not take a patently absurd position. ferent system from that which prevails here. When we contemplate such a system from the outside it seems like a wall of stone, every part even with all the others, except so far as our own local education may lead us to see subordinations to which we are accustomed. But to one brought up within it, varying emphasis, tacit assumptions, unwritten practices, a thousand influences gained only from life, may give to the different parts wholly new values that logic and grammar never could have got from the books." Opinion of the Court. 308 U.S. The most that can be said is that the contrary position is a tenable one. In holding that the amendments substituted collection by the petitioner for collection by the Attorney General even in case of pending claims, that tribunal did not commit manifest error. The conclusion that the latter procedure survived the amendments is merely another possible view. And the decision of that tribunal that the petitioner had the power to distrain18 cannot be said to be inescapably wrong in view of the legislative design to leave no hiatus in the statutory scheme as a result of cumulative amendments. The contrary conclusion, though it might seem wholly reasonable, would not warrant a reversal. Intimations that respondent was not accorded due process of law and that the question of whether or not it was insured was a jurisdictional fact open to collateral attack are untenable. According to the Supreme Court of Puerto Rico, respondent had not only an opportunity to be heard before the Commission but also a right of appeal. The fact that the period for review by appeal was very limited and that on respondent's interpretation of the law its right to appeal was uncertain are immaterial. Here, as on other aspects of this case, we cannot say that the conclusion of the Supreme Court of Puerto Rico that under this statute the remedy of respondent at law was adequate is obviously erroneous. The judgment of the Circuit Court of Appeals is reversed and the judgment of the Supreme Court of Puerto Rico is affirmed. Reversed. MR. JUSTICE STONE did not participate in the consideration or disposition of this case. 1 The Supreme Court of Puerto Rico also held that § 243 of the Code of Civil Procedure, barring execution of a judgment for the payment of money after five years from the date of its entry, does not apply to orders of the Commission covering compensation awards, a construction which does not seem to be manifest error. Opinion of the Court. HIGGINS, COLLECTOR OF INTERNAL REVENUE, v. SMITH. CERTIORARI TO THE CIRCUIT COURT OF APPEALS FOR THE No. 146. Argued December 5, 1939. Decided January 8, 1940. 2. The contention that this conclusion is inconsistent with prior interpretations of the income tax laws and unfair to the taxpayerexamined and rejected. P. 478. 3. From the fact that § 24 (a) (6) of the Revenue Act of 1934 provides explicitly that losses determined by sales to corporations controlled by the taxpayer are not deductible, it does not follow that the law formerly was otherwise. P. 479. 4. Claims of error prejudicial to the taxpayer, arising out of the District Court's rulings on evidence in this case, held without merit. P. 480. 102 F. 2d 456, reversed. CERTIORARI, post, p. 536, to review the reversal, on crossappeals, of a judgment in a suit brought by a taxpayer for refund of a sum paid as income taxes. Assistant Attorney General Clark, with whom Solicitor General Jackson and Messrs. Sewall Key, Arnold Raum, and Joseph M. Jones were on the brief, for petitioner. Mr. David Sher for respondent. MR. JUSTICE REED delivered the opinion of the Court. Certiorari was allowed1 from the judgment of the Circuit Court of Appeals for the Second Circuit 2 on account of an asserted conflict between the decision below and that 1 1 Post, p. 536. 2 102 F. 2d 456. 1 of the Circuit Court of Appeals for the Seventh Circuit in Commissioner v. Griffiths.3 The issue considered here is whether a taxpayer under the circumstances of this case is entitled to deduct a loss arising from the sale of securities to a corporation wholly owned by the taxpayer. The statute involved is § 23 (e) of the Revenue Act of 1932.* The Innisfail Corporation was wholly owned by the taxpayer, Mr. Smith. It was organized in 1926 under the laws of New Jersey. The officers and directors of the corporation were subordinates of the taxpayer. Its transactions were carried on under his direction and were restricted largely to operations in buying securities from or selling them to the taxpayer. While its accounts were kept completely separate from those of the taxpayer, there is no doubt that Innisfail was his corporate self. As dealings by a corporation offered opportunities for income and estate tax savings, Innisfail was created to gain these advantages for its stockholder. One of its first acts was to take over an option belonging to the taxpayer for the acquisition by exchange of a block of Chrysler common stock. Through mutual transactions in buying and selling securities, and receiving dividends, the balance of accounts between Innisfail and the taxpayer resulted, on December 29, 1932, in an indebtedness from him to Innis 103 F. 2d 110, affirmed sub nom. Griffiths v. Commissioner, ante, p. 355. *47 Stat. 169, 179-80. "Sec. 23. Deductions from Gross Income. "In computing net income there shal. be allowed as deductions: "(e) Losses by Individuals.-Subject to the limitations provided in subsection (r) of this section, in the case of an individual, losses sustained during the taxable year and not compensated for by insurance or otherwise "(1) if incurred in trade or business; or "(2) if incurred in any transaction entered into for profit, though not connected with the trade or business; 473 Opinion of the Court. fail of nearly $70,000. On that date, as a partial payment on this indebtedness, a number of shares of stock were sold to the corporation by the taxpayer at market. The securities sold had cost the taxpayer more than the price charged to the corporation, and in carrying out the transaction the taxpayer had in mind the tax consequences to himself. In computing his net taxable income for 1932, the taxpayer deducted as a loss the difference between the cost of these securities and their sale price to his wholly owned corporation. The Commissioner of Internal Revenue ruled against the claim, whereupon respondent paid the tax and brought this suit for refund in the United States District Court for the Southern District of New York. The case was tried before a jury and the verdict was adverse to the taxpayer's claim that the purported sales of these securities to Innisfail marked the realization of loss on their purchase. On appeal the judgment was reversed and the case remanded to the Distric: Court for a new trial. It was the opinion of the Court of Appeals that the facts as detailed above, as a matter of law, established the transfer of the securities to Innisfail as an event determining loss. Under § 23 (e) deductions are permitted for losses "sustained during the taxable year." The loss is sustained when realized by a completed transaction determining its amount." In this case the jury was instructed to find whether these sales by the taxpayer to Innisfail were actual transfers of property "out of Mr. Smith and into something that existed separate and apart from him" or whether they were to be regarded as simply "a transfer by Mr. Smith's left hand, being his individual hand, into his right hand, being his corporate hand, so that in truth and fact there was no transfer at all." The jury agreed the latter situation existed. There was sufficient evidence *Burnet v. Huff, 288 U. S. 156, 161. |