Court Opinion

ID: 9532489
Source: CourtListenerOpinion
Date Created: 2023-08-07 04:21:49.506406+00
Date Added: 2024-06-11T13:28:46.308310
License: Public Domain

JACKSON, Justice
(dissenting).
As I understand the majority opinion it holds that the “Trust Fund” here involved is a separate entity from Selected Investments Corporation and that the income from the Trust Fund is the income of the Trust Fund and therefore taxable against the Trust Fund.
The Contract or “Indenture” between the Corporation (Selected Investments Corporation), the Trustee, and the Certificate holders provides the original Trustee, appointed by the Corporation, will serve until such time as he may resign, or be removed by order of the Corporation, or by an instrument signed by more than 50% of the holders of the total face value of all certificates outstanding. In the event of removal or resignation of the Trustee his successor will be appointed by the Board of Directors of the Corporation. The duties of the Trustee are to keep the cash and securities constituting the investment or Trust Fund, and to authenticate certificates. He is a custodian, performing only such functions as directed by the Corporation or provided in the Indenture. He receives and pays out money and makes investments as directed by the Corporation. He liquidates the investments when directed by the Corporation. He exercises no independent judgment in matters of policy. His duties are ministerial in nature to be performed as and when directed by the Corporation. His compensation is provided for in the Indenture and is based upon a small percentage per annum of the Investment Trust Funds.
'As to the income earned by the investment of the Trust Fund in 1948, I am of the opinion it is immaterial whether the Trust Fund is a separate entity from the Corporation. Although the earned income resulting from the investment of the Trust Fund is collected by the Trustee and placed in the Trust Fund it is not the income of the Trust Fund.
Before an investor buys or invests in a “Trust Certificate Bond” he signs a purchase agreement. The purchase agreement provides that he is bound by the terms of the Indenture. The Indenture provides the Corporation will manage his investment. It further provides that corporation may charge on the last day of each half year of the fiscal year, as compensation for its services, a sum not greater than 2% of the aggregate actual value as of the last day of each half year of all shares represented by outstanding certificates on said last day of such half year. The Indenture further provides, however, that such compensation (2% as above) for management services shall not be levied against the Trust Fund until the certificate holders shall have received dividends at the rate of 6% per annum accumulative on their respective shares of the fund. In the event of liquidation of the Trust Fund the Indenture provides that those holding Trust Fund Certificates, at the time of liquidation, shall share ratably in any surplus earnings that may have accrued in the Trust Fund. Thus it is apparent that the *272holders of Trust Fund Certificates have a contract right to receive each year the earned income of the Trust Fund up to 6%, or any earned fraction thereof. The Corporation has a contract right to charge 2% twice each year for its services, after the Certificate holders have first received their 6%.
As I view the Indenture it is immaterial whether the return to the investor is called “interest” or “dividends,” or that the return to the investor may he less than 6% per year. There is a fixed contractual obligation on the part of the Corporation and the Trustee to pay out to the investor or Certificate holder the first 6%, or fraction thereof, that is earned by the investment of the Fund. Thus the Certificate holder is the only person who has made any profit on the investment of the Fund if only 6%, or less, is earned during the year by the investment of the Fund. Since the Certificate holder is the only person receiving any profit, and the Corporation and Trustee are under a contractual obligation to pay it, I am of the opinion that the Certificate holder is under duty to pay income tax on the earnings of his investment, whether it be called “interest” or a “dividend.”
In 1948, after paying the Certificate holders 6% on their investments, the Corporation declined to claim all of its percentage or authorized compensation for its management services, but left $53,714.92 in the Trust Fund to create a surplus. Undoubtedly, under the Indenture, this was income earned by the Corporation for its management services upon which it should pay income tax. In leaving this $53,714.-92, as a surplus, in the Trust Fund the Corporation made a gift to their Certificate holders to be paid out in 1949, or subsequent years, in the form of “interest” or “dividends.”
For the foregoing reasons, I must respectfully dissent.