331 Mass. 387 | Mass. | 1954
This is an appeal by the commissioner of corporations and taxation from .a decision of the Appellate Tax Board granting an abatement of an income tax assessed to Aaron Smith for 1950 with respect to “income” received during 1949, which the commissioner had previously refused to abate. In this court the State tax commission has been substituted for the commissioner as appellant. St. 1953, c. 654, § 27. State Tax Commission v. Felt, ante, 63. We are of opinion that the decision of the board was correct.
After hearing the board made the following findings of facts and decision: “The appellant, on December 30, 1949, was the owner of 50 shares of the common stock ($100 par value) of New England Enterprises, Inc., a Rhode Island corporation. He had acquired this stock upon the formation of the corporation at a cost of $6,000. OnvDecem
It was said in Commissioner of Corporations & Taxation v. Hornblower, 278 Mass. 557, 560, that “The nature of this transaction must be ascertained from the substance of the things done, and not alone, or chiefly, from the legal formalities in which that substance is cloaked.” Here we have an integrated plan whereby the stockholders exercising exclusive control over specific assets, in order to carry on a certain business, for reasons of their own have exchanged in effect stock in one shell through which control was exercised for stock in another shell which has in no material way disturbed the physical nature of the assets, the degree of control or the purpose for which such control is exercised. They in effect merely exchanged one piece of paper for another. In such a transaction manifesting no actual increment of wealth or assets, the formalities controlling in other circumstances are not determinative. See Tax Commissioner v. Putnam, 227 Mass. 522, 530; Brown v. Commissioner of Corporations & Taxation, 242 Mass. 242, 244; Van Heusen v. Commissioner of Corporations & Taxation, 257 Mass. 488; Sears v. Commissioner of Corporations & Taxation, 322 Mass. 446, 449-451.
The commission relies upon principles of law established in the cases of Commissioner of Corporations & Taxation v. Hornblower, 278 Mass. 557, and in Wellman v. Commissioner of Corporations & Taxation, 289 Mass. 131. We are of opinion, however, that these cases do not support the position of the commission. In each of .these cases there was
We are of opinion, notwithstanding the formalities, that the entire transaction with which we are here concerned was in effect and substance one whereby Smith acquired stock in the new corporation in exchange for the same amount of stock he held in the old corporation rather than the receipt of a dividend in the liquidation of the old corporation. An “exchange” is a “purchase and sale” as those terms are used in our income taxing statutes, Osgood v. Tax Commissioner, 235 Mass. 88, so it would seem that any gains resulting therefrom are taxable exclusively under c. 62, § 5 (c), as amended. In any event it is enough to say that such gains, if any, are not taxable as dividends under c. 62, § 1 (b) and (g). See Commissioner of Corporations & Taxation v. Fopiano, 324 Mass. 304.
For the purposes of this case we think it only necessary to decide that the commissioner was wrong in assessing a tax upon the transaction under § 1 (b) and (g). This same result would probably be reached under § 112 of the Internal Revenue Code (U. S. C. [1946 ed.] Title 26), and is more likely in accord with the views of businessmen generally.
We need not therefore consider the reasons advanced by the board in granting the abatement for they are immaterial in view of what we have herein said.
Abatement granted in the amount of $81.91 with costs.
There appears to be a discrepancy in these figures but it is not material in our consideration of this case.
By St. 1953, c. 246, § 3, an additional temporary tax of 3% is levied for the years 1953 and 1954 upon gains under § 5 so that for these years there is no difference in the amount of the tax under § 1 (b) and § 6.