273 Mass. 187 | Mass. | 1930
These are complaints for abatements of income taxes. G. L. c. 62, § 47, as amended by St. 1926, c. 287, § 3. An income tax was assessed by the defendant on the distribution to the complainants as stockholders in the Pullman Company, an Illinois corporation, of one half share of the stock of Pullman Incorporated, a Delaware corporation, as dividend upon each share of stock of the Pullman Company owned by them. The validity of this tax is challenged. The relevant facts are these: The-complainants, prior to the events here pertinent, were owners of shares of stock in the Pullman Company. The original business of that corporation was operating sleeping and parlor cars and manufacturing freight and passenger "cars and other railroad equipment. In 1924, the Pullman Car & Manufacturing Corporation was organized for the purpose of taking over the manufacturing department of the Pullman Company. The capital stock of that corporation was divided into 500,000 shares with a total par value of $50,000,000. The plant and assets in the manufacturing department of the Pullman Company were transferred to that corporation and the Pullman Company received and continued to own all the capital stock of that corporation. In 1927, the Pullman Company was the owner of this stock and was also conducting the business of operating sleeping and parlor cars. Its capital stock was divided into 1,350,000 shares with a par value of $135,000,000. The value of its net assets at all times here material was greatly in excess of the par value of its capital stock. The value of the net assets of the Pullman Car & Manufacturing Corporation was also, at all times here
The defendant assessed a tax at the rate of six per cent on the aggregate value, as determined by him, of the one half shares of stock of Pullman Incorporated declared as dividend, and on August 15, 1927, distributed to the reorganization committee on its order by the Pullman Company on the shares of stock of the Pullman Company deposited by the complainants with the reorganization committee. This tax was levied on the theory that that one half share was a dividend received as income and taxable as such. There is no dispute as to the valuation made by the defendant. The contention of the complainants is that the stock thus received was not income, was not received by them as income, and was not subject to any tax as income.
The relevant statutes are these: G. L. c. 62, § 1 (b) (as finally amended by St. 1925, c. 343, § 7) and (g). “ 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
A main contention of the complainants is that the tax here assailed was levied on something which is not a dividend but only an apparent gain resulting from an exchange of shares in the reorganization of one or more corporations where the new shares received represent the same interest in the same assets as the old shares represented, and hence, according to the express mandate of said § 5 (c), not now liable to taxation. Manifestly the tax was levied as upon a dividend. It was levied because of an assumption that the one half share of capital stock was in fact a dividend taxable at the rate of six per cent under said § 1 (b). It was not levied as upon an excess of gains over losses from purchases or sales of intangibles taxable at three per cent under said § 5 (c). These two classifications of subjects of taxation are separate and distinct, one from the other; they have been constantly maintained under the income tax law, and they are warranted by art. 44 of the Amendments to the Constitution. The two sources of income thus specified do not belong to the same class. Incomes
There was no exchange of shares when the dividend was declared on which the tax here in question was levied. No shares were transferred by the complainants or by the reorganization committee in return for those shares of Pullman Incorporated turned over by the Pullman Company in way of dividend. The vote of the directors of the Pullman Company respecting the shares of stock here taxed was that “ a dividend payable in the six hundred seventy-five thousand (675,000) shares of the capital stock of Pullman Incorporated be and the same is hereby declared distributable on the fifteenth day of August, 1927.” Thus the Pullman Company described and named the transaction a “ dividend.” Commonly, the assertion of a corporation as to the nature of its corporate action, made in good faith and not obviously wrong or designed as a cover for some ulterior design, is accepted as true. Although the substance and intent of the action taken, as shown by the votes, are to be ascertained, courts do not usually undertake to review the character of the internal management of corporations as defined and declared by their votes. Coolidge v. Grant, 251 Mass. 352, 354. Gray v. Hemenway, 268 Mass. 515, 519-522 and cases there reviewed.
The reorganization committee treated this as in truth a dividend. By letter of July 12, 1927, that committee requested the directors of the Pullman Company to issue and deliver to them all shares of Pullman Incorporated applicable to the stock of the Pullman Company deposited with them, to be distributed on August 15, 1927, “ pursuant to the dividend declaration this day made by your Board.” An agreed fact is that on August 15, 1927, the reorganization committee received from the Pullman Company the “ dividend on the deposited stock of one half share of Pullman Incorporated for each share of the Pullman Company deposited, declared on July 12, 1927, and payable August 15, 1927.” The complainants and the reorganization committee recognized dividends to be declared as matters detached and independent of others.
It is provided by G. L. c. 62, § 5 (e) that “ Interest and dividends taxable under section one shall not be taxed under this section.” The implication of this clause is that no provision of said § 5 applies to taxation under said § 1, It is plain that the stockholders in the Pullman Company who did not participate in the plan of reorganization received a dividend in stock of Pullman Incorporated taxable in accordance with the terms of said § 1. It would savor strongly of inequality to tax one set of stockholders on such dividends and to hold others exempt from the same taxation. Nothing need be said concerning Van Heusen v. Commissioner of Corporations & Taxation, 257 Mass. 488, upon which the complainants rely, except that it has no authoritative effect on the case at bar.
In our opinion the result follows from all these factors in combination that the one half share of capital stock of Pullman Incorporated declared and distributed by way of dividend on each share of capital stock of the Pullman Company was not a mere inseparable part of a single reorganization of one or more corporations where new shares received represent the same interest in the same assets as the old shares surrendered. It was a separable and independent matter. It was in essence and in truth a dividend. It conforms to the definition and purpose of a dividend described in United States v. Phellis, 257 U. S. 156, at 171, in these words: “ It is the appropriate function of a dividend to convert a part of a surplus thus accumulated from property of the company into property of
. Further contentious of the complainants are that the dividend was not received by them as stockholders of the Pullman Company but by the reorganization committee; that by the deposit of their shares of stock with the reorganization committee their individual rights as stockholders of the Pullman Company were extinguished or at least suspended or incapable of enforcement; and that they received, in return for the deposited stock, a simple contractual obligation on the part of the reorganization committee to account to them for what might be due to them finally as fruitage of the consummation of the reorganization plan. Whether these contentions are sound depends upon the correct construction of the agreement between the complainants and the reorganization committee interpreted in the light of the end to be accomplished and all the other circumstances. Eustace v. Dickey, 240 Mass. 55, 72, 73. Moss v. Old Colony Trust Co. 246 Mass. 139, 155. By paragraph First of the agreement, the depositors constitute and appoint three named persons as a committee. By paragraph Sixth, it is provided that the deposit of the stock authorizes the committee to direct the Pullman Company to pay to the committee all dividends declared or paid by that company on the deposited stock while on deposit with the com
The conduct of the reorganization committee shows that they interpreted their relation to the depositors as that of agents. The reorganization committee sent a communication to the directors of the Pullman Company requesting “ on behalf of the ” depositing stockholders that notice of a special meeting of the stockholders of the corporation be sent to the committee rather than directly to the stockholders. The reorganization committee also notified the same directors that, having previously filed authorization from all depositing stockholders to execute dividend orders covering dividends on all deposited stock, they expected to consummate the reorganization on August 15, 1927, and that “ accordingly our orders upon you will be as
It is not necessary to review the numerous cases discussing the legal principles which in other circumstances may govern the nature of the powers and duties of reorganization committees and their relation to the depositing stockholders and others participating in the reorganization. The relation is doubtless fiduciary, in any event. The words of the deposit agreement in the case at bar are too clear as to the facts here disclosed and the point to be decided to render profitable any examination of authorities interpreting agreements of a different tenor in their bearing upon diverse facts.
There was no assignment of the dividends here taxed to the reorganization committee in any such sense as deprived the complainants of their property therein. The commingling of the shares of stock by the reorganization committee did not wipe out the definite rights of the complainants in their shares. The principle of Chase v. Boston, 180 Mass. 458, has no relevancy to the issues here raised. The relation of the reorganization committee and the complainants bore no resemblance to that of broker and customer. The beneficial interest in shares
The dividend here taxed was not a distribution of capital within the meaning of G. L. c. 62, § 1 (b) as amended, and (g). The facts set out in this record show that, after the payment of this dividend, the capital of the Pullman Company and that of the Pullman Car & Manufacturing Corporation were unimpaired. The dividend plainly was paid out of the accumulated surplus and profits of the Pullman Company. This point is amply covered by recent decisions. Lapham v. Tax Commissioner, 244 Mass. 40. Tilton v. Tax Commissioner, 238 Mass. 596. Boston Safe Deposit & Trust Co. v. Commissioner of Corporations & Taxation, 262 Mass. 1. Follett v. Commissioner of Corporations & Taxation, 267 Mass. 115.
The shares of stock were received by the reorganization committee as agents for the complainants on August 15, 1927. They were received as dividends upon stock of the Pullman Company, which was not the corporation issuing the stock. They were therefore a dividend other than a stock dividend paid in new stock of the company issuing the same. It was taxable under G. L. c. 62, § 1 (b) as amended.
The finding of the trial judge was a general one in each case in favor of the respondent upon the agreed facts and such inferences as might be drawn therefrom. Such general finding imports a finding of all the incidental facts essential to the conclusion reached of which the primary facts are reasonably susceptible. Such findings are not reviewable. Only the questions of law reported or saved can be examined. Vinal v. Nahant, 232 Mass. 412, 419. Moss v. Old Colony Trust Co. 246 Mass. 139, 143.
It is apparent from this discussion that there was no error of law in sustaining the validity of the tax. It is not necessary to review in detail the requests granted or denied, nor to examine further the arguments presented. Every question argued has been considered. In each case the entry may be
Order for judgment for respondent for expenses and costs affirmed.