280 Mass. 321 | Mass. | 1932
The question of law raised in these two cases is whether under the governing statutes as to taxation of income in calculating gains realized during the year 1929 from sales of shares of stock in a corporation acquired after January 1, 1916, through the exercise by a stockholder of rights issued to him to subscribe for new stock, the cost of such stock includes the value of the rights as well as the subscription price, or whether such cost is the subscription price alone. Each of the appellants was the owner of shares of stock in a corporation. That corporation in 1928 issued to each of its stockholders rights to subscribe for new shares of its stock at par. Those rights had a substantial market value when issued and were worth at least as much when used by the appellants. Each appellant utilized the rights issued to her by surrendering the rights and subscribing for new shares of stock at par. During 1929 some of the shares thus acquired by subscription were sold. Hence arises question as to the taxation as income of the excess of gains over losses received by each appellant from purchases and sales of intangible personal property.
It is plain that the last sentence of said § 7 is not applicable to the facts of the cases at bar. The excess of gains over losses here subject to taxation arose from sales of shares of stock. Those shares were acquired by subscription by the appellants from the corporation issuing the same. That subscription was accomplished by the payment in cash or its equivalent of the par value of the stock to the corporation accompanied by the surrender to the corporation of certain rights. This in substance and effect was a purchase of the shares of stock from the corporation. Osgood v. Tax Commissioner, 235 Mass. 88, 92. Therefore the shares of stock sold by each appellant were acquired by purchase. They were not acquired “otherwise than by purchase.” They were “property acquired by purchase” after January 1, 1916. The crucial point for decision is how the “cost” of those shares of stock shall be determined as the word “cost” is used in the first sentence quoted from said § 7. It is conceded that the par value paid in cash by the appellants to the corporation is at least a part of that
As was pointed out in Allen v. Commissioner of Corporations & Taxation, 272 Mass. 502, at pages 504, 505, changes were made in provisions of the income tax law controlling the taxation of income derived from rights to subscribe at the time of the decision in Tax Commissioner v. Putnam, 227 Mass. 522, at pages 532, 533, 534, by St. 1928, c. 217, §§ 1, 2. Those changes compelled a conclusion in the Allen case in favor of the taxpayer notwithstanding what was said and decided in the Putnam case.
The result seems to us to follow necessarily that in calculating the excess of gains over losses of the appellants the cost of the new shares includes the value of the rights as well as the subscription price. The appellants are correct in their contentions. It may be that this result is undesirable. We can only interpret the words of the statute. We cannot legislate. It would seem that by St. 1931, c. 435, the force and effect of said §§ 5 (c) and 7, as amended, have been changed in their application to situations like those here presented. We cannot by construction of the statute controlling the facts in the case at bar anticipate the operation of said c. 435.
According to stipulation of the parties, each appellant is entitled to abatement in the sum of $46.27 with interest.
So ordered.