1. Bonds bought as an investment in 1909 were sold in 1916 for
the amount originally paid, which was more, however, than their
market value on March 1, 1913.
Held that there was no
taxable income. P.
255 U. S. 537.
Goodrich v. Edwards, ante, 255 U. S. 527.
2. Bonds bought in 1902-1903 were sold in 1916 at an increase
over the investment price and at a still larger increase over their
market value on March 1, 1913.
Held that the gain over the
investment was the income taxable. P.
255 U. S. 538.
Goodrich v. Edwards, ante, 255 U. S. 527.
3. Interest should not be added to the original investment in
computing the amount of gain -- income -- upon a sale. P.
255 U. S.
538.
4. A stock dividend
held not income of the stockholder.
P.
255 U. S. 538.
Eisner v. Macomber, 252 U. S. 189.
268 F. 207 reversed in part and affirmed in part.
The case is stated in the opinion.
Page 255 U. S. 537
MR. JUSTICE CLARKE delivered the opinion of the Court.
In this case, the defendant in error sued the plaintiff in
error, a collector of internal revenue, to recover income taxes for
the year 1916, assessed in 1918, and which were paid under protest
to avoid penalties. The defendant answered, the case was tried upon
an agreed statement of facts, and judgment was rendered in favor of
the taxpayer, the defendant in error. The case is properly here by
writ of error.
Towne v. Eisner, 245 U.
S. 418.
The defendant in error was not a trader or dealer in stocks or
bonds, but occasionally purchased and sold one or the other for the
purpose of changing his investments.
Three transactions are involved.
The first relates to bonds of the International Navigation
Company, purchased in 1909, for $191,000 and sold in 1916 for the
same amount. The market value of these bonds on March 1, 1913, was
$151,845, and the tax in dispute was assessed on the difference
between this amount and the amount for which they were sold in
1916,
viz., $39,155.
The trial court held that this apparent gain was capital assets,
and not taxable income under the Sixteenth Amendment to the
Constitution of the United States, and rendered judgment in favor
of the defendant in error for the amount of the tax which he had
paid.
The ground upon which this part of the judgment was justified
below is held to be erroneous in No. 608,
Merchants' Loan &
Trust Co. v. Smietanka, ante, 255 U. S. 509,
but, since the owner of the stock did not realize any gain on his
original investment by the sale in 1916, the judgment was right in
this respect, and under authority of the opinion and judgment in
No. 663,
Goodrich v. Edwards,
Page 255 U. S. 538
ante, 255 U. S. 527,
this part of the judgment is affirmed.
The second transaction involved the purchase in 1902 and 1903 of
bonds of the International Mercantile Marine Company for $231,300,
which were sold in 1916 for $276,150. This purchase was made
through an underwriting agreement such that the purchaser did not
receive any interest upon the amount paid prior to the allotment to
him of the bonds in 1906, and he claimed that interest upon the
investment for the time which so elapsed should be added as a part
of the cost to him of the bonds. But this claim was properly
rejected by the trial court under authority of
Hays v. Gauley
Mountain Coal Co., 247 U. S. 189.
It is stipulated that the market value of these bonds on March
1, 1913, was $164,480, and the collector assessed the tax upon the
difference between the selling price and this amount, but, since
the gain to the taxpayer was only the difference between his
investment of $231,300 and the amount realized by the sale,
$276,150, under authority of No. 663,
Goodrich v. Edwards,
ante, he was taxable only on $44,850.
The district court, however, held that any gain realized by the
sale was a mere conversion of capital assets, and was not income
which could lawfully be taxed. In this respect, the court fell into
error. The tax was properly assessed, but only upon the difference
between the purchase and the selling price of the bonds as
stated.
The third transaction related to stock in the Standard Oil
Company of California, received through the same stock dividend
involved in
Eisner v. Macomber, 252 U.
S. 189. The district court, upon authority of that case,
properly held that the assessment made and collected upon this
dividend should be refunded to the defendant in error.
It results that, as to the profit realized upon the second
transaction, as indicated in this opinion, the judgment of the
district court is reversed, but as to the other transactions,
Page 255 U. S. 529
it is affirmed for the reasons and upon the grounds herein
stated.
Judgment reversed in part, affirmed in part, and case
remanded.
MR. JUSTICE HOLMES and MR. JUSTICE BRANDEIS, because of prior
decisions of the Court, concur only in the judgment.