233 F. 976 | 3rd Cir. | 1916
These actions were brought to recover corporation taxes for the year 1909, illegally collected from the plaintiff corporations. They were tried together by the District Court on an agreed state of facts without the intervention of a jury. Secs. 649 and 700 Rev. Stat. (Comp. St. 1913, §§ 1587, 1668). The single question was whether certain acts of the corporations constitute “doing business” within the meaning of the Corporation Tax Law. Act Aug. 5, 1909, c. 6, 36 Stat 112, § 38 (U. S. Comp. Stat. 1913, § 6300). The court found for the plaintiffs and entered judgments for the amounts stipulated. 224 Fed. 800. The defendant tax collector sued out these writs, raising the same question for review.
The actions arose out o£ the relation of the plaintiff corporations to the complex street railway system of Philadelphia, and out of the conduct of those corporations in performing their obligations in that reiaiion, a full recital of which is quite unnecessary to the present consideration. It will be sufficient only to outline the part of the system formed by these corporations, and to state with particularity only so much thereof as will disclose the legal aspects of the relation and develop the acts of the corporations which are specified to amount to “doing business” within the meaning of the law.
All the companies presently to be named were incorporated by special or under general acts of the Commonwealth of Pennsylvania.
The Continental Passenger Railway Company was incorporated in 1873 with full power to construct and operate a street railway in the City of Philadelphia.
On July 1, 1879, the Seventeenth and Nineteenth Streets Railway Company, having previously been incorporated with like power, leased to the Continental Company its entire property for a term of 99 years, in consideration of an annual rental and the payment of interest and principal of its bonded indebtedness.
On January 1, 1880, the Continental Company leased the railway property which it owned and the property which it acquired from the Seventeenth and Nineteenth Streets Company, to the Union Passenger Railway Company for a term of 99 years, in consideration of
At about this period there occurred a radical change in street railway motive power, and the.cable made its advent. To operate street railways by this power, the Philadelphia Traction Company was incorporated in 1883. It was not authorized by its charter to hold property by lease. It was given authority, however, to' operate street railways of other corporations by the power it provided,, under agreements of operation, by which railway corporations turned over to it. their railway properties and surrendered their operation as completely as by lease.
Having grown large by many leases similar to that of the Continental Company, the Union Passenger Company, on June 30, 1884, entered into an operating agreement with the Philadelphia Traction Company, by which it surrendered the possession and operation of its properties and the properties acquired from the Continental Company, for a term of 999 years, in consideration of annual rentals and the payment of interest on its own obligations and on the obligations of the Continental Company and the Seventeenth and Nineteenth Streets Company.
On November 28, 1888, while the operating agreement was still in force, the Philadelphia Traction Company surrendered its charter in accordance with the provisions of the Act of Assembly of Pennsylvania of March 22, 1887 (P. L. 8), receiving in return letters patent under that act.' The Philadelphia Traction Company continued for a time to operate under the agreement between it and the Union Passenger Company the several properties thereby obtained.
At about this period electricity appeared as a motive power for street railways, and the Union Traction Company was incorporated as a traction motor company, with authority not only to electrically operate but to lease the properties of railway corporations.
On October 1, 1895, the Philadelphia Traction Company leased all its properties, including those acquired by the recited transactions, to the Union Traction Company for a period of 999 years, on .the usual consideration of fixed rentals and the assumption of the direct and indirect obligations of the underlying corporations.
The Union Traction Company operated these properties until July 1, 1902, when it leased them, together with many others, to the Philadelphia Rapid Transit Company, for a period of 999 years, under the usual covenants as to annual rentals and the assumption of obligations of the underlying corporations in the line of succession.
It is not disputed that as these leases and operating agreements were from time to time entered into, one corporation surrendered and the succeeding corporation assumed the entire operation and control of the properties demised or transferred, and it is conceded, that during the year 1909 when the taxes in question were collected, the properties were wholly operated by the Philadelphia Rapid Transit Company, and the plaintiff underlying corporations had no relation of management or control to them whatsoever.
During the year 1909, while the Philadelphia Rapid Transit Company was so operating the properties and was producing from them
While it is conceded that none of the plaintiff corporations was physically operating the railway embraced in any contract or lease, it is maintained that certain of them received money either directly or indirectly from the operating corporation and disbursed it to their several underlying corporations in discharge of their assumed obligations, and in so doing they were carrying on business within the meaning of ,the act.
In disbursing money received from the operating corporation, an underlying corporation did nothing -more than pay its debts. These debts were incurred prior to the tax year and did not grow out of acts of the corporations in connection with the operation of properties, either owned or leased. The payment of a debt disassociated with the operation of property is not doing business within the meaning of the law,' McCoach v. Minehill R. R. Co., supra; and the fact that a debt is assumed rather than created by the one paying it, does not change the character of the act of payment. A corporation, which has ceased to do business by ceasing to pursue the occupation for which it was organized, may continue to exist and to receive rentals for the use of its property and to pay its debts without being taxed for that privilege. In its property it may have absolute or a qualified ownership, or against it there may be incumbrances created either by it or by a predecessor, with a corresponding liability on its part to discharge the same. The disbursement of money in discharge of a corporation’s obligations to others is in the sense of doing business no different from the receipt of money in discharge of an obligation to it, and the payment of a debt assumed is not distinguishable in the sense of doing business from the payment of a debt created, or a debt imposed, as by a tax. McCoach v. Minehill R. R. Co., supra. We are of opinion that the application of money received from the operating corporation to the debts assumed first by one corporation and then by another in the train of leases, does not amount to doing business within the meaning of the Corporation Tax Law.
The judgments below are affirmed.
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