SCALIA, J., concurring in judgment

to connote injuries to physical (or mental) health. It is almost as odd to believe that the first part of the phrase "personal injuries or sickness" encompasses defamation, as it would be to believe that the first part of the phrase "five feet, two inches" refers to pedal extremities.

The commonsense interpretation I suggest is supported as well by several other factors. First, the term "personal injuries or sickness" is used three other times in § 104(a), and in each instance its sense is necessarily limited to injuries to physical or mental health. See § 104(a)(1) (gross income does not include "amounts received under workmen's compensation acts as compensation for personal injuries or sickness" (emphasis added)); § 104(a)(3) (gross income does not include "amounts received through accident or health insurance for personal injuries or sickness" (emphasis added)); § 104(a)(4) (gross income does not include "amounts received as a pension, annuity, or similar allowance for personal injuries or sickness resulting from active service in the armed forces. . . or as a disability annuity payable under . . . the Foreign Service Act" (emphasis added)). When, sandwiched in among these provisions, one sees an exclusion for "the amount of any damages received . . . on account of personal injuries or sickness," one has little doubt what is intended, and it is not recovery for defamation (or other invasions of "personal" interests that do not, of necessity, harm the victim's physical or mental health). Second, the provision at issue here is a tax exemption, a category of text for which we have adopted a rule of narrow construction. See, e. g., United States v. Centennial Savings Bank FSB, 499 U. S. 573, 583-584 (1991).3

3 Congress amended §104(a), in 1989, to provide prospectively that § 104(a)(2) shall not shelter from taxation "punitive damages in connection with a case not involving physical injury or physical sickness." Pub. L. 101-239, § 7641(a), 103 Stat. 2379, 26 U. S. C. § 104(a) (1988 ed., Supp. I); see id., § 7641(b). As thus amended it is clear (whereas previously it was not) that "personal injuries or sickness" includes not only physical, but

SCALIA, J., concurring in judgment

The question, then, is whether the settlement payments at issue in this case were "received... on account of personal injuries"-viz., "on account of" injuries to the recipients' physical or mental health-so as to qualify for exclusion under § 104(a)(2). I think not. Though it is quite possible for a victim of race- or sex-based employment discrimination to suffer psychological harm, her entitlement to backpay under Title VII does not depend on such a showing. Whether or not she has experienced the sort of disturbances to her mental health that the phrase "personal injuries" describes, a Title VII claimant is entitled to be "restor[ed]... to the wage and employment positio[n] [she] would have occupied absent the unlawful discrimination." Ante, at 239; see Albemarle Paper Co. v. Moody, 422 U. S. 405, 420-421 (1975) (“[G]iven a finding of unlawful discrimination, backpay should be denied only for reasons which, if applied generally, would not frustrate the central statutory purposes of eradicating discrimination throughout the economy . . ."). The only harm that Title VII dignifies with the status of redressable legal injury is the antecedent economic deprivation that produced the Title VII violation in the first place. See id., at 418 ("Title VII deals with legal injuries of an economic character . . ."). I thus conclude that respondents did not receive their settlement payments (in respect of backpay) "on account of personal injuries" within the meaning of § 104(a)(2), and would reverse the judgment of the Court of Appeals.

It is true that the Secretary's current regulation, at least as it has been applied by the IRS, see n. 1, supra, contradicts the interpretation of the statute I have set forth above. But while agencies are bound by those regulations that are issued within the scope of their lawful discretion (at least until the regulations are modified or rescinded through appro

also psychological harm or disease; nevertheless, the amendment does not require the phrase unnaturally to be extended to injuries that affect neither mind nor body.

SOUTER, J., concurring in judgment

priate means, see, e. g., Motor Vehicle Mfrs. Assn. of United States, Inc. v. State Farm Mut. Automobile Ins. Co., 463 U. S. 29, 41-42 (1983)), they cannot be bound by regulations that are contrary to law. Otherwise, the Secretary of the Treasury would effectively be empowered to repeal taxes that the Congress enacts. Cf. Office of Personnel Management v. Richmond, 496 U. S. 414, 427-428 (1990). The existence of an ever-so-rare "taxpayer-friendly" Treasury regulation (however inconsistent with the statutory text) may be relevant to whether penalties for blameworthy failure to pay can be assessed, see Cheek v. United States, 498 U. S. 192 (1991), but it cannot control the determination whether the tax was due and owing according to Congress' command.

Finally (and relatedly), I must acknowledge that the basis for reversing the Court of Appeals on which I rely has not been argued by the United States, here or below. The rule that points not argued will not be considered is more than just a prudential rule of convenience; its observance, at least in the vast majority of cases, distinguishes our adversary system of justice from the inquisitorial one. See United States v. Pryce, 291 U. S. App. D. C. 84, 96, 938 F. 2d 1343, 1355 (1991) (Silberman, J., dissenting in part). Even so, there must be enough play in the joints that the Supreme Court need not render judgment on the basis of a rule of law whose nonexistence is apparent on the face of things, simply because the parties agree upon it-particularly when the judgment will reinforce error already prevalent in the system. See, e. g., Arcadia v. Ohio Power Co., 498 U. S. 73 (1990). I think that is the case here.

For the foregoing reasons, I concur in the judgment.

JUSTICE SOUTER, concurring in the judgment.

Respondents may not exclude their recovery from taxable income unless their action was one "based upon tort or tort type rights." 26 CFR §1.104-1(c) (1991). On the reasonable assumption that the regulation reflects the broad dichot

SOUTER, J., concurring in judgment

omy between contract and tort posited by the dissent, post, at 249-252, there are good reasons to put a Title VII claim on the tort side of the line. There are definite parallels between, say, a defamation action, which vindicates the plaintiff's interest in good name, and a Title VII suit, which arguably vindicates an interest in dignity as a human being entitled to be judged on individual merit. Our cases have, indeed, recognized parallels (though for different purposes) between tort claims and claims under antidiscrimination statutes other than Title VII. See Goodman v. Lukens Steel Co., 482 U. S. 656, 661 (1987) (similarity between claim under 42 U. S. C. §1981 and personal-injury claim for purposes of determining applicable statute of limitations); Wilson v. Garcia, 471 U. S. 261, 277-278 (1985) (same for 42 U. S. C. § 1983).

The reasons do not go solely to that one side, however. While I do not join the majority in holding that the tort-like character of a claim should turn solely on whether the plaintiff can recover for "intangible elements of injury," ante, at 235, I agree that Title VII's limitation of recovery to lost wages ("back pay") counts against holding respondents' statutory action to be "tort type." Tort actions, it cannot be gainsaid, commonly (though not invariably*) permit recovery for intangible injury. Ante, at 234-237. Backpay, on the other hand, is quintessentially a contractual measure of damages.

A further similarity between Title VII and contract law, at least in the context of an existing employment relationship, is the great resemblance of rights guaranteed by Title VII to those commonly arising under the terms and condi

*In those States that have barred recovery in tort for "intangible elements of injury," see, e. g., N. J. Stat. Ann. §59:9-2(d) (West 1982) (action against public entity or employee); Wash. Rev. Code §4.20.046(1) (1989) (action by estate of deceased), the modified action is still fairly described as one "based upon tort rights," and certainly is an "action based upon tort-type rights."

O'CONNOR, J., dissenting

tions of an employment contract: Title VII's ban on discrimination is easily envisioned as a contractual term implied by law. See Hishon v. King & Spalding, 467 U. S. 69, 74-75, n. 6 (1984) (“Even if the employment contract did not afford a basis for an implied condition that the [decision to promote] would be fairly made on the merits, Title VII itself would impose such a requirement"); Patterson v. McLean Credit Union, 491 U. S. 164, 177 (1989) ("[T]he performance of established contract obligations and the conditions of continuing employment [are] matters. . . governed by state contract law and Title VII"). Indeed, it has been suggested that "the rights guaranteed by Title VII are implied terms of every employment contract. . . ." Shanor & Marcosson, Battleground for a Divided Court: Employment Discrimination in the Supreme Court, 1988-89, 6 Lab. Law. 145, 174, n. 118 (1990) (emphasis added).

In sum, good reasons tug each way. It is needless to decide which tug harder, however, for the outcome in this case follows from the default rule of statutory interpretation that exclusions from income must be narrowly construed. See United States v. Centennial Savings Bank FSB, 499 U. S. 573, 583-584 (1991); Commissioner v. Jacobson, 336 U. S. 28, 49 (1949). That is, an accession to wealth is not to be held excluded from income unless some provision of the Internal Revenue Code clearly so entails. There being here no clear application of 26 U. S. C. § 104(a)(2) as interpreted by the Treasury regulation, I concur in the judgment.

JUSTICE O'CONNOR, with whom JUSTICE THOMAS joins, dissenting.

The Court holds that respondents, unlike most plaintiffs who secure compensation after suffering personal injury, must pay tax on their recoveries for alleged discrimination because suits under Title VII of the Civil Rights Act of 1964, 78 Stat. 253, as amended, 42 Stat. §2000e et seq., do not involve "tort type rights." This is so, the Court says, because