#### PROVOST ET AL. v. UNITED STATES

[60 C. Cls. 49; 269 U. S. 443]

Judgment was rendered in favor of the United States in the court below. On appeal the judgment was *affirmed,*the Supreme Court deciding:

1. Transfers involved in the “ lending ” of stock and “ return ” of the stock “ borrowed,” on the New York Stock Exchange, are taxable transfers, within the meaning of provisions of the revenue acts of 1917, and 1918, imposing a stamp tax of two cents per share upon “all sales or agreements to sell, or memoranda of sales or deliveries of, or transfers of legal title to shares or certificates of stock.”

2. Under the rules and practice of the New York Stock Exchange, a broker requiring certificates of stock to deliver in consummation of a short sale, may “ borrow ” them for that purpose from another broker as follows: The “ borrower ” deposits with the “ lender ” their full market price; and, until the loan is returned, this deposit is maintained, by daily payments back and forth between the borrower and the lender, at the level of the market value of the borrowed stock; the lender usually pays interest on the deposit, but whether interest is paid or the borrower pays a premium for the “ loan *”*of the shares, may be matters of agreement between them; the borrower contracts to give the lender while the loan continues, all the benefits (such as dividends), and the lender contracts to bear all the burdens (such as assessments), incident to the ownership of the shares, as though the lender had retained ownership of them; concurrently with the receipt of the deposit, the .lender delivers to the borrower or for his account, the certificates of the stock lent. The stock borrowed thus becomes available to the borrower for delivery upon his short sale. *745Upon demand of either broker, their mutual obligations may be satisfied by a “return” to the lender of the stock borrowed — i. e. of the same kind and amount of shares, which the borrower purchases, borrows, or otherwise procures for the purpose — and by repayment of the deposit to the borrower with interest, as agreed. *Held:*

(1) That, upon the physical delivery of the certificates by the lender, with full recognition of the right and authority of the borrower to appropriate them to his short-sale contract, and their receipt by the purchaser, all the incidents of ownership of the stock borrowed pass to the latter.

(2) The borrower, in that event, is neither a pledgee, trustee, nor bailee for the lender; nor is the transaction within the meaning of a proviso in the above-cited statutes exempting from the tax deposits of stock certificates as security for money loaned.

(3) The “return” of the borrowed stock transfers to the lender all the incidents of ownership in the shares represented by the certificates delivered to him.

(4) Consequently both the “loan” and the “return” transactions are within the terms of the above taxing statutes as “ transfers of legal title to shares of stock.”

(5) And deliveries of indorsed certificates of stock incidental to these transfers are “ deliveries of * * * shares or certificates of stock ” within the statutory provision.

3. The reenactment of a taxing provision, after it has been construed' by the Attorney General and the construction has been adopted by the Treasury Department and called to the attention of Congress, indicates a purpose to continue the law in force as so construed.

4. When Congress, in reenacting a provision, rejects a proposed alteration, a subsequent amendment incorporating it evinces a purpose to effect a change in the law.

Mr. Justice Stone

delivered the opinion of the Supreme Court January 4, 1926.