Blalock v. Georgia Railway & Elec. Co.

• Decision Date: 07 November 1917
• Docket Number: 3005.
• Parties: BLALOCK, Collector of Internal Revenue, v. GEORGIA RY. & ELECTRIC CO.
• Court: U.S. Court of Appeals — Fifth Circuit

246 F. 387

BLALOCK, Collector of Internal Revenue, v. GEORGIA RY. & ELECTRIC CO.

No. 3005.

United States Court of Appeals, Fifth Circuit.

November 7, 1917

Hooper Alexander, U.S. Atty., of Atlanta, Ga., for plaintiff in error.

Walter T. Colquitt and Ben J. Conyers, both of Atlanta, Ga., for defendant in error.

Before WALKER and BATTS, Circuit Judges, and GRUBB, District Judge.

WALKER Circuit Judge.

The defendant in error, a corporation organized for profit, by carrying on or doing business in Georgia in the year 1912 subjected itself to liability to pay the tax provided for by the Corporation Tax Act of 1909, 'equivalent to one per centum upon the entire net income over and above five thousand dollars received by it from all sources during such year. ' Blalock v. Georgia Railway & Electric Co., 228 F. 296, 142 C.C.A. 588, Ann. Cas. 1917A, 679 Comp. Stat. 1913, Sec. 6300 et seq.

The pending writ of error presents for review rulings of the trial court to the effect that amounts paid during that year by the corporation's lessee directly to the corporation's stockholders as rent stipulated for in a lease by the corporation of its property which went into effect on March 18, 1912, was not income of the lessor corporation within the meaning of the statute mentioned, and was to be excluded from consideration in ascertaining the amount of the tax for which the corporation was liable. These rulings were based upon provisions of the lease now to be mentioned.

The lease, after providing for the payment by the lessee of sundry amounts, including taxes, the expenses of insuring and maintaining the leased property, outlays for additional property, interest on the lessor's debts, and debts and obligations other than the principal of specified bonds issued by the lessor, which but for the lease would have been payable by the lessor, contained provisions whereby the lessee covenanted with the lessor, 'for the benefit of the shareholders for the time being of the lessor, that it will pay to the said shareholders, respectively, as and for rent hereunder, without any deduction for tax or taxes which the lessor or the lessee may be required to pay or to retain therefrom,' etc., specified 'quarterly sums or dividends' of a named per cent. of the lessor's capital stock, 'the said sums or dividends to be paid on ' dates stated 'in each year during the term of this lease to the persons registered as holders of the said shares on the tenth day next preceding each day for such payment. ' The lease contained a stipulation by which the lessee bound itself to indorse upon the certificates of the capital stock of the lessor an agreement, under the seal of the lessee, signed by its duly authorized officer substantially in a form which was set out, which form, after reciting the making of the lease and its above-mentioned provisions for the payment of quarterly sums or dividends states that the lessee 'agrees with the said registered holder of the within mentioned shares to pay the said dividends accordingly and to enter into a like agreement with every holder of the said shares to whom a new certificate shall be issued, and to indorse such agreement upon every such certificate. ' The lease was authorized by the stockholders of the lessor and lessee companies, and was duly executed pursuant to authority so conferred, and on March 18, 1912, all of the property and assets of all kinds of the lessor corporation called for by the lease were delivered to the lessee in accordance with the terms of the lease, and during the remainder of that year the lessee complied with the stipulations above mentioned:

A result of the lease was to make each...