267 F. 739 | E.D. Pa. | 1920
This case, in its general features, is the usual one of' a trial without the intervention of a jury and waiver of the right of a jury trial, brought for the purpose of having determined the legality of the tax payment exacted of the plaintiff. The only issue in the cause is the lawfulness of the tax.
We must therefore confine our attention to this act of Congress to discover what Congress meant to be expressed by the use of the word. Congress was dealing with the general subject of income, earnings, or, more emphatically, profits. There is a clear line of difference between the source of the return which comes from any of the business activities of life. One such source is the return which flows from the labors of man, either physical or mental, or a combination of both, and that which flows to him because, not of what he is or what he himself does, but because of something of which he is previously possessed. It is an intelligible expression to say of a man that his capacity for labor, or what is called his brains, is his capital; but it is clear that Congress has used this word in no such sense. On the other hand, the situation is an easily conceivable one in which a man has laid out money or other «form of property, from which he receives a return without any personal participation on his part in the activities which in the end yield that return. There can be no doubt that such a situation would clearly present the thought of capital in the sense in which Congress has used the term. It is just as easy to grasp the thought of a man making use of both of these two means of receiving something in return. He may mingle or mix the two things together, by both investing capital in an enterprise and loaning to its activities what he himself can supply, aside from his money or other possessions.
The tax assessed is essentially an excise tax; also in a very substantial sense it is the consideration for the exercise of the privilege of the carrying on of a trade or business. It is not a tax assessed upon or because the party was engaged in one or more transactions of a trading or business character, which are short of justifying the finding that the transactions reached the dignity of carrying on a trade or business; but it is a tax which is assessed because the party is carrying on a trade or business, and is measured by the volume of the business or of the profits resulting therefrom, and, in addition to this, no tax can be assessed under the act of Congress in question, if the transactions or the trade or business were had or carried on without the employment of capital. In the economic sense credit is capital, and in the economic sense it may not be even possible for a person to have transactions of the character of those in which the plaintiffs were engaged without the employment of capital in some form in this broader sense of the term. The fact is, however, and is so found, that in the words of section 209 what they did and the conditions under which they did it present “the case of a trade or business having no invested capital or no more than a nominal capital.” The source of the funds constituting the capital is of no importance. Such funds may be available by the profits which have accrued being left to accumulate. If left for the purpose of being used as capital, and being so 'used, such funds are capital. It is not an uncommon thing for the capital employed in a business to he thus acquired or increased. It was one of the purposes of Congress to reach cases of this kind.
As we understand this case as presented, it is determined by the findings just made. Judgment is accordingly entered in favor of the plaintiffs and against the defendant, with costs. In order that there may be a definite date of the entry of the judgment for appellate purposes, judgment is not now entered; but fhe plaintiff has leave to enter judgment for the amount of the tax paid, with interest from date of payment, and costs, we retaining jurisdiction of the cause for the purpose of entering formal judgment, in case of failure of counsel to agree upon the amount of 'the judgment to be entered in accordance herewith.
The points submitted are answered as in the paper filed herewith.