262 Mass. 1 | Mass. | 1928
This is a complaint under G. L. c. 62, § 47, against the defendant for abatement of an income tax. The case comes before us upon the pleadings and an agreed statement of facts by report without decision by a judge of the Superior Court. The complainant as trustee under the will of one Wilbur was in 1924 owner of 600 shares of stock in the Pawtucket Hair Cloth Company, hereafter called the Pawtucket Company, and hable to taxation on whatever income it received from such shares.' Wilbur died in 1914, having acquired the stock during his fife. The Pawtucket Company was incorporated under the laws of the State of Rhode Island iri-1861, with an authorized capital of $100,000 divided into shares of the par value of $50 each. It became the owner of a factory and machinery, and engaged in the profitable manufacture of hair cloth for a number of years, its capital stock being increased from time to time. Demand for its product having dwindled, its charter was amended in 1889 so as to enable it to hold stock in other manufacturing
The provisions of the governing statute, G. L. c. 62, § 1, subsection (b) in the amended form appearing in St. 1923, c. 487, § 3, and subsection (g), so far as material to the facts in the present case, are in these words: “Income of the classes described in subsections (a), (b), (c) and (e) received by any inhabitant of the Commonwealth during the preceding calendar year, shall be taxed at the rate of six per cent per annum. ...(b) Dividends, other than stock dividends paid in new stock of the company issuing the same, on shares in all corporations . . . organized under the laws of any State or nation other than this Commonwealth, [with exceptions having no bearing on the case at bar] .... (g) No distribution of capital, whether in liquidation or otherwise, shall be taxable as income under this section; but accumulated profits shall not be regarded as capital under this provision.” As matter of interpretation the words of the statute manifest a purpose to impose the tax upon all income of the classes described, received by inhabitants of the Commonwealth, and to include within its sweep whatever such income is within the legislative jurisdiction. Subsection (b) standing by itself, as mere matter of verbal construction, might be thought to comprehend all kinds of dividends declared by the specified corporations, whether in liquidation or otherwise, excepting only stock dividends in the capital stock of the corporations issuing the same. Subsection (g), however, defines what shall be regarded as capital and thus not rightly taxable as income, and what shall be treated as income and thus properly subject to the tax. This definition states the distinction between capital and income in respect to this kind of taxation. While it does not elucidate “capital” by any further statement, it does explain the meaning of “income” by saying expressly that accumulated profits shall not be treated as capital, and by stating impliedly that accumulated profits shall be treated as income taxable accordingly. This definition doubtless was designed, so far as possible, to avoid perplexing questions touching distinctions under general
There can be no doubt of the power of the Legislature thus to define that accumulated profits, when declared in way of dividend in liquidation, shall be income when received by the stockholder. Tax Commissioner v. Putnam, 227 Mass. 522, 534, 535.
The retirement of the Pawtucket Company from the business of manufacturing, the sale of its factory property, and the investment of all its capital and profits in the stock of the two other corporations, continued for many years, do not constitute a permanent dedication of all this property to capital uses, so that its distribution in final liquidation is wholly of capital and in no part of accumulated profits. Doubtless for some purposes there may be by a corporation such investment of its income in permanent improvements as to constitute capital even without increase in the number of shares of capital stock issued. That principle has been recognized with respect to the rights of life tenant and remainderman, although instances of the application of that principle have been extremely rare. D’Ooge v. Leeds, 176 Mass. 558, 562. It is not necessary to determine how far, if at all, this principle may be applicable under the income tax law, subsection (g), as we have interpreted it, because in the case at bar the facts do not warrant the conclusion that there has been a permanent dedication of profits of the Pawtucket Company to capital uses. The investments of that company for many years last past were exclusively in
In the light of G. L. c. 62, § 1, subsection (g), as interpreted, plainly it is an immaterial circumstance whether the stockholder made an investment of his own capital in the hope of receiving a dividend of accumulated profits. The Legislature, acting within its power, has stamped such dividend of accumulated profits as income and taxable as such. Tax Commissioner v. Putnam, supra. Lynch v. Hornby, 247 U. S. 339.
From an examination of the original papers in Moore v. Tax Commissioner, 237 Mass. 574, it appears in the agreed statement of facts that “for a long time prior to January 1, 1916 [the date from which the income tax became operative], said corporation [in which the complainant in that case owned stock] had assets amounting to a much larger amount than the capital stock, and an amount equal to or larger than the amount distributed by said corporation in the year 1918,” and that the complainant was the owner of the stock on January 1, 1916, and for many years prior thereto, and that on January 1,1916, said stock was worth as an investment or in the market more than the amount received by her in liquidation in 1918, and that she “inherited this stock from her father’s estate twenty-three years ago, and that at that time the assets of the corporation were equal to or exceeded the amount of its distribution in liquidation.” Further facts appear in the opinion, page 575: “The capital stock of this corporation was $238,000, divided into shares of a par value of $100 per share. On January 1, 1916, the corporation had corporate assets equal to or larger than $416,000. Its excess assets over its capital stock on' January 1, 1916, were used and had been used for many years as actual working capital in carrying on the business of the corporation in the same manner as other assets were used, and such was
The result is that both on principle and on authority the complainant must fail on its main contention.
It was conceded rightly at the argument in open court by the Attorney General that the computation of the income by the respondent ought to have been on the basis of a par value of $50 per share instead of $30 per share. Abatement must be granted, to be calculated on that basis. The details are to be fixed in the Superior Court.
Ordered accordingly.