BAILEY V. NEW YORK CENT. & H. R. R. CO.

65

dividend has once been declared, and ascertained to come within the description of the law as a subject of taxation, all the rest follows, and the amount declared is necessarily established as the amount to be taxed.

The soundness of this mode of interpretation, and its application to ordinary cases, may well be admitted; but it cannot be applied to every case without a careful regard to its necessary limitations.

It should be borne in mind, in the first place, that the tax provided for in this section of the act is an annual income tax, and its subject is the interest paid and profits earned by the company for each year, and year by year; and that both by the express letter of the law, and its necessary implications, the tax is not laid on any of these funds which came into being before the time prescribed in the act. And in the ordinary execution of the law it was contemplated that the funds to be taxed, and the tax imposed upon them, would be concurrent as to each fiscal year; the scheme of the statute being to levy the tax upon the income for the year ending on the thirty-first of December next preceding the assessment; and, while it would be altogether admissible to go back, for the purpose of assessing a tax upon a proper fund which had accrued during a previous year and escaped taxation, nevertheles the tax imposed would be for the omitted year. But no tax, in contemplation of the law, accrues upon the fund, except for the year in which the fund itself accrued. It is also to be remembered that the subject-matter of the tax is the net earnings of the company for the year for which they are taxed, which have been actually realized by it, or which the law assumes to have been. We repeat here what was said by Mr. Justice MILLER, speaking for the court, in Railroad Co. v. Collector, etc., 100 U. S. 598:

"The corporations mentioned in this section are those engaged in furnishing road-ways and water-ways for the transportation of persons and property, and the manifest purpose of the law was to levy the tax on the net earnings of such companies. How were these earnings, profits, incomes, or gains' to be most certainly ascertained? In every well-conducted corporation of this character these profits were disposed of in one of four methods, namely, distributed to its stockholders as dividends, used in construction of its roads or canals, paid out for interest on its funded debt, or carried to a reserve or other fund remaining in its hands. Looking to these modes of distribution as the surest evidence of the earnings which congress intended to tax, and as less liable to evasion than any other, the tax is imposed upon all of them. The books and records of the company are thus made evidence of the profits they have made, and the corporation itself is made responsible for the payment of the tax."

It is true, indeed, that by the terms of the law the amount paid as interest on bonds is charged with a tax as part of the earnings,

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although there may have been no net earnings out of which to pay it; but the law proceeds upon a presumption which disregards what is merely exceptional. And we have no hesitation in saying that, in reference to a dividend declared as of earnings for the current year and paid as such to stockholders, whether in money or in scrip, no proof would be admissible, for the purpose of avoiding the tax, that no earnings had in fact been made. The law conclusively assumes, in such a case, that a dividend declared and paid is a dividend earned. It follows, also, from this view of the purpose of the law, that a fund taxed in one year as the profits of a railroad company, used for construction or carried to the account of any fund, has been taxed once for all, and cannot, as part of the earnings of the company, be assessed a second time. The tax for the year is upon the whole amount of the net earnings, distributed and enumerated under the heads pointed out in the statute, and when the tax has been imposed and collected upon them, or any specific part of them, there is no authority to levy any further additional tax. The profits that this year have been taxed as undivided, and invested in any corporate asset, if in the succeeding year it is embraced in a dividend declared and payable to stockholders, have already borne all the burden imposed by the law, and cannot again be subjected to an assessment for a new tax. There has been a difference of opinion upon the point, whether the tax imposed by this section is upon the corporation on account of its net profits, or upon the income of the stockholder or bondholder, although in the present case it is immaterial which of these alternatives is adopted. We are not aware, however, that it has ever been suggested, until now, that it might be both in succession; one year a tax upon the income of the corporation, and the next upon the same fund as the income of the individual. We do not think this an admissible construction.

It is necessary, in the application of these principles to the circumstances of the present case, to regard the special character of the certificates in question. It will be seen that they do not purport to be a declaration of a dividend as of the earnings of the company during the year in which the tax was assessed, or, indeed, for any particular year or series of years. The recital is that the company "has hitherto, expended of its earnings, for the purpose of constructing and equipping its road, and in the purchase of real estate and other properties, with a view to the increase of its traffic, moneys equal in amount to 80 per cent. of the capital stock of the company. It was quite legitimate for the assessor to treat this as evidence of an amount

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BAILEY V. NEW YORK CENT. & H. R. R. CO.

69 of earnings which had never been taxed, and make the assessment accordingly. It was equally legitimate for the secretary of the treasury, upon proof that the accumulation had been going on from the organization of the company, in 1853, to apportion the amount i equal proportions for each year, and to deduct nine-fifteenths thereof for the years which had elapsed before the taking effect of the act taxing incomes. And it is entirely consistent with the declaration itself to show in point of fact what was the amount of earnings accrued during the period while the income-tax act was in force which had not been assessed for taxation as profits carried to construction or other account. The declaration in the certificates could not be conclusive of anything not inconsistent with it, for an estoppel only prohibits contrary allegations. The proof admitted on the trial below did not contradict the certificates, but only served to rebut a presumption, which, as matter of law, was not conclusive. Its tendency and effect were to exact from the company the full tax upon every dollar of its earnings, which had not previously paid its proper assessment, and which, in any form, was subject to taxation, and to relieve it only to the extent to which otherwise it would have been subjected to the payment of a second tax upon the same fund. This result, and the process by which it was reached, seem to us strictly to conform both to the letter and spirit of the law governing the subject.

This conclusion disposes of the substance of the case, as it sustains the rulings of the circuit court upon the main question. There were other exceptions to the charge, and to the refusal of the court to give instructions asked for by the plaintiff in error; but they are either covered by what has already been said, or seem to us not necessary to be specially mentioned. A point was raised as to certain items claimed to be included in the sum for which these certificates were issued, which, in the view we have taken, becomes immaterial; for, as we have decided that the jury could only consider the earnings realized in fact during the operation of the law from 1862 to 1869, it was immaterial what items existing prior to that period were also included in the aggregate sum for which the certificates were issued. Some exception also was taken to some comment on the part of the circuit judge as to the state of the evidence, but, in our opinion, the question which the jury had to decide was left to them fairly.

We find no error in the record, and the judgment is accordingly affirmed.

TAXATION INTERNAL REVENUE-INTEREST ON FOREIGN-HELD BONDS.

The tax on interest paid by corporations under section 122 of the Internal-revenue law as amended by section 9 of the act of July 13, 1866, (14 St. 138,) is payable on interest coupons paid by the company to non-resident alien owners and holders of coupons and bonds.

Railroad Co. v. Collector, 100 U. S. 595, followed.

Mr. Justice FIELD, dissenting.

In Error to the Circuit Court of the United States for the Southern District of New York.

This was an action to recover taxes alleged to be due to the plaintiff on certain interest coupons paid by the defendant in the years 1866, 1867, 1868, and 1869, on bonds previously issued by it; and also certain penalties alleged to be due the plaintiff for failure of the defendant to make returns of the amount of the taxes. The action was founded on section 122 of the act of June 30, 1864, (13 St. 284, 285,) as amended by section 9 of the act of July 13, 1866, (14 St. 138, 139.) That section as amended provides as follows:

"That any railroad, canal, turnpike, canal navigation, or slack-water company, indebted for any money for which bonds or other evidence of indebtedness have been issued, payable in one or more years after date, upon which interest is stipulated to be paid, or coupons representing the interest, or any such company that may have declared any dividend in scrip or money due or payable to its stockholders, including non-residents, whether citizens or aliens, as part of the earnings, profits, income, or gains of such company, and all profits of such company carried to the account of any fund, or used for construction, shall be subject to and pay a tax of 5 per centum on the amount of all such interest or coupons, dividends or profits, whenever and wherever the

same shall be payable, and to whatsoever party or person the same may be payable, including non-residents, whether citizens or aliens; and said companies are hereby authorized to deduct and withhold from all payments on account of any interest or coupons and dividends due and payable as aforesaid, the tax of 5 per centum; and the payment of the amount of said tax, so deducted from the interest or coupons or dividends, and certified by the president or treasurer of said company, shall discharge said company from that amount of the dividend, or interest, or coupon on the bonds or other evidences of their indebtedness, so held by any person or party whatever, except where said companies may have contracted otherwise. And a list or return shall be made and rendered to the assessor or assistant assessor on or before the tenth day of the month following that in which said interest, coupons, or dividends become due and payable, and as often as every six months; and said list or return shall contain a true and faithful account of the amount of tax, and there shall be annexed thereto a declaration of the president or treasurer of the company, under oath or affirmation, in form and manner as may be prescribed by the commissioner of internal revenue, that the same contains a true and faithful account of said tax. And for any default in making or rendering such list or return, with the declaration annexed, or of the payment of the tax as aforesaid, the company making such default shall forfeit as a penalty the sum of $1,000; and in case of any default in making or rendering said list or return, or of the payment of the tax, or any part thereof, as aforesaid, the assessment and collection of the tax and penalty shall be made according to the provisions of law in other cases of neglect or refusal: provided, that whenever any of the companies mentioned in this section shall be unable to pay the interest on their indebtedness, and shall in fact fail to pay such interest, that in such cases the tax levied by this section shall not be paid to the United States until said companies resume the payment of interest on their indebtedness."

The case was tried in the district court for the southern district of New York upon an agreed statement of facts, of which the following are all that are deemed material to explain the question raised and decided. By this statement it was admitted that prior to September 1, 1866, the defendant had issued sterling coupon bonds to the amount of £800,000, dated September 1, 1865, the principal of which was payable two years after date, drawing interest at 6 per cent. per annum, payable semi-annually on the first days of March and September of each year; and the principal and interest of which were payable in London, England, at the office of Junius S. Morgan & Co., bankers, of London; that after March 1, 1868, and prior to September 1, 1868, the defendant had issued and sold bonds of the same class amounting to £200,000, the principal and interest of which were payable at the same place as the bonds previously issued; that all the bonds with coupons for interest attached were sold directly to