S.38(1) of the 1948 Act, which accorded a foreign tax credit for "tax paid by [the taxpayer] to the government of a country other than Canada on his income from sources therein for the year" applied to income before the deduction of interest expense under s. 11(1)(c) of the 1948 Act (now s. 20(1)(c)). Accordingly, the taxpayer, which was subject to U.S. withholding tax on interest income which it earned on loans made to its U.S. subsidiary was able to deduct a credit under s. 38(1) notwithstanding that the loans which it had made to the U.S. subsidiary had been funded out of borrowings made by it, giving rise to an interest expense which effectively off-set the interest income earned by it from its U.S. subsidiary. Judson J. stated (p. 1231):
"The appellant's borrowings and the interest paid thereon were related to the business as a whole and no part of the borrowings and the interest paid thereon can be segregated and attributed to the investment in the subsidiary ... The deduction against income given by s. 11(1)(c) is attributable to all sources of income and there is no authority to break it up and relate various parts of the deduction to various sources."