Every evening, Wilmington daily commercial., 1921-11-23

,
Southern Pacific Co. v. Lowe, 247 ".
s. $3.50: Gulf OIL Corporation ".
Lewellyn, 2iS u. s. II -
The act under which the tax now ir |
question was imposed. (Act OF October |
), 1913. Chap. 16, 3s stat. ia, 166-16T) |
declares that income shall include. |
among other things, gains derived |
IRON interest, rent, dividends, securl- |
ties. or the transaction of any lawful |
business carried on for gain or profit. |
on gains or profits and income derived
IRON any source whatever" Disre-
garding the slight looseness OF CON
s.ruction, we interpret gains, profits
AID income derived from diyi-
derds, etc. as meaning not that every-
thing in the form of a dividend Must
be treated as income. but that income
derived in the way of dividends shall
J." t1xed. Hence the inquiry must he
whether the shares of stock i'm the
new company received by claimant is
dividend by reason of his ownership
OF stock in the old company consti-
tuted (to apply the tests laid down
in Eisner V. Macomber. 252 Il. s. lsa.
20O, gain derived from capital not
gain ACQUIRING to capital nor n
growth or increment of value In the
investment, but gain. profit, some
thing of eXchangeable value proceed
ing from the property, severed from
the capital however invested, and
| coming In. that IL, received or drawn
by the claimant for his separate use
benefit and disposal.
Claimants capital investment was
represented by his New Jersey shares.
Whatever increment of value had ac-
crued to them prior to September 30
| 1915. by reason of the surplus profits
| that heretofore had been accumulated
| by the company. was still part of
claimants capital. from which as yet
he had derived no actual and there
fore no taxable income so far as the
surplus remained undisturbed. As
| yet he had no right TO withdraw Il or
any part of IL, could not have such
| right until action by the company o.
it's proper representatives, and his in
terest still was but the general prop
erty interest OF a stockholder I'm the
entire assets, business and affairs of
the company-a capital interest, as
we declared i'm Eisner " Macomber
supra (p. 2oS).
| Upon the face of things however
the transfer of the old company's as.
sets to the new company i'm cxchang,
FOR the securities issued by the latter
and the distribution of those sccuri
tics by the old company among IL.
stockholders. changed the former stu
alton materially. The common stool
of the new company, after its trans
fer to the old company and prior &
its distribution, constituted assets {
the old company which il now hel'
TO represent its surplus of accumu
, lated profts--still however n commoi
fund In which the individual stock
holders of the old company had n,
separate interest. But when this com
mon stock was distributed among tn
common stockholders OF the old com
pany as n di.idend then at onCe--un
less the two companies must he re
, Iardcd as substantially idpntical-th
individual stockholders of the old com
pany. including claimant, received rs,
sets OF eNchangeable and actual valu
severed from their capital interest 4
me old company, proceeding from
as the result of a Lewiston of form
corporate profits. and drawn by th,r
s@verally for their individual and sepa
rate use and benefit. Such gai
V resulting from their ownership {
? stock in the old company and proceed
d ing from lit constituted individual in
k ccme in the proper sense.
n That comparison ut the mark,
o value of claimants shares i'm the Ne
@ Jersey corporation immediately h,
g fore. with the aggr, cate market vahl
( of those shares> plus the dividen
h shares Immediately after the divider
s showed no change in the agg~egar
"A fact relied upon by the Court ,
: Claims as demonstrating that claim
~ ant neither gained nor lost pecuniari
- in the transactions seems TO us
circumstance of no particular impor
G ance in the present inquiry. Assun
ing the market values were n preci,
reflex of intrinsic values, they wou
show merely that claimant acquir,
no increase i'm aggregate ,weal'
" through the mere effect of the REQ
!" caniZation and consequent dividen
D. not that the dividend did not const
& tute income There would remain Il
J. presumption that. the value of Il
a. New Jersey shares Immediately pri
, to the transaction reflected the orig
= nal capital investment plGs the a
l. cretions which had resulted throul
r the company's business activities an
N constituted it's surplus; surplus
I'd which until dividend made the ind
, vidual stockholder had no proper
< interest except as it. increased q
p valuation of his capital. II is q
p appropriate function of a dividend
A. convert a part of surplus thus a
IN Cumulated from property of the COZ
of pany into property of the individI
M stockholders; the stockholders sha
a. being thereby released to and dra'
aa by him as profits or income deriy
:, from the company. That the distril
:. ti3n reduces the intrinsic capital val
80 u the shares by an equal amount
=. normal and necessary effect of
- dividend ributions-whether lal
II" or small and whether paid in NOR
VI or in other divisible assets-but ST
a reduction constitutes the dividend nc
10 the less income derived by the sto'
re- holder if II represents gains previo
ne IS acquired by the corporation. Her
eh comparison of aggregate values
To- mediately before with those imine
AR ately after the dividend is not pro
ell test for determining whether indiv
re- u;il income, taxable gaainst the sto
30 holder, has been received by me-
In Cf the dividend.
500 The possibility of occasional
'ck stances of apparent hardship in
)u- incidence Of the tax may be concet
Il Where. as i'm this case, the divid
,n- constitutes a distribution of pro
accumulated during an exten
hat period and bears large proport
$50 10 the par value of the stock, If
-. | invaS,o,- hannaped IN blfv stock Sh,