(C) An individual owning (otherwise than by the application of subparagraph (B)) any stock in a corporation shall be con- sidered as owning the stock owned, directly or indirectly, by or for his partner; (D) The family of an individual shall include only his broth- ers and sisters (whether by the whole or half blood), spouse, ancestors, and lineal descendants; and (E) Constructive Ownership as Actual Ownership. -Stock constructively owned by a person by reason of the application of subparagraph (A) shall, for the purpose of applying sub- paragraph (A), (B), or (C), be treated as actually owned by such person, but stock constructively owned by an individual by reason of the application of subparagraph (B) or (C) shall not be treated as owned by him for the purpose of again applying either of such subparagraphs in order to make another the con- structive owner of such stock. (c) UNPAID EXPENSES AND INTEREST.-In computing net income no deduction shall be allowed under section 23 (a), relating to expenses incurred, or under section 23 (b), relating to interest accrued- (1) If such expenses or interest are not paid within the taxable year or within two and one half months after the close thereof; and (2) If, by reason of the method of accounting of the person to whom the payment is to be made, the amount thereof is not, unless paid, includible in the gross income of such person for the taxable year in which or with which the taxable year of the taxpayer ends; and (3) If, at the close of the taxable year of the taxpayer or at any time within two and one half months thereafter, both the taxpayer and the person to whom the payment is to be made are persons between whom losses would be disallowed under section 24 (b). (d) HOLDERS OF LIFE OR TERMINABLE INTEREST. -Amounts paid under the laws of any State, Territory, District of Columbia, pos- session of the United States, or foreign country as income to the holder of a life or terminable interest acquired by gift, bequest, or inheritance shall not be reduced or diminished by any deduction for shrinkage (by whatever name called) in the value of such interest due to the lapse of time, nor by any deduction allowed by this chap- ter (except the deductions provided for in subsections (1) and (m) of section 23) for the purpose of computing the net income of an estate or trust but not allowed under the laws of such State, Terri- tory, District of Columbia, possession of the United States, or foreign country for the purpose of computing the income to which such holder is entitled. (e) TAX WITHHELD ON TAX-FREE COVENANT BONDS.- For nondeductibility of tax withheld on tax-free covenant bonds, see section 143 (a) (3). SEC. 25 . CREDITS OF INDIVIDUAL AGAINST NET INCOME. (a) CREDrrS FOR NORMAL TAX ONLY.- There shall be allowed for the purpose of the normal tax, but not for the surtax, the following credits against the net income: (1) INTEREST ON UNITED STATES OBLIGATIONS. -The amount re- ceived as interest upon obligations of the United States which is included in gross income under section 22. (2) INTEREST ON OBLIGATIONS OF INSTRUMENTALITIES OF THE UNITED STATES. -The amount received as interest on obligations of a cor- poration organized under Act of Congress, if (A) such corpora- tion is an instrumentality of the United States; and (B) such in- terest is included in gross income under section 22; and (C) under the Act authorizing the issue thereof, as amended and supplemented, such interest is exempt from normal tax. 17 INCOME TAX
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