Commissioner of Corporations and Taxation v. Rathbone
| Decision Date | 28 May 1947 |
| Citation | 73 N.E.2d 472,321 Mass. 312 |
| Parties | COMMISSIONER OF CORPORATIONS AND TAXATION v. ADA RATHBONE. |
| Court | United States State Supreme Judicial Court of Massachusetts Supreme Court |
May 7, 1947.
Present: FIELD, C.
J., LUMMUS, DOLAN RONAN, & SPALDING, JJ.
Taxation, Income tax. Interest. Bond, Interest.
An amount received by the holder of bonds of a railroad corporation on account of interest coupons which had been overdue and attached to the bonds when they were bought by him was taxable as "interest from bonds" within G. L. (Ter. Ed.) c 62, Section 1 (a), notwithstanding that he had bought both the bonds and the overdue coupons for a flat price and that the amount so received on the coupons was less than the purchase price.
APPEAL from a decision by the Appellate Tax Board.
W. G. Perrin Assistant Attorney General, (R.
J. Cotter, Jr., Assistant Attorney General, with him,) for the Commissioner of Corporations and Taxation.
A. F. Richard, for the taxpayer.
This is an appeal by the commissioner of corporations and taxation from a decision of the Appellate Tax Board granting an abatement of that portion of the income tax that had been assessed upon the receipt by the taxpayer in 1942 of certain payments made by railroad companies on account of interest coupons which were overdue and were attached to their bonds when they were purchased by the taxpayer in 1941 and 1942. These bonds were purchased at a flat price or a lump sum which included both the principal of the bonds and the defaulted coupons, and not at a certain price for the bonds plus an additional amount for the accrued interest. See Hemenway v. Hemenway, 134 Mass. 446 , 447, 448. The amounts which she received being substantially less than the purchase price, the taxpayer contends that these payments were not income but partial returns of a capital investment. The commissioner, on the other hand, contends that these payments were interest on bonds and were taxable income.
These coupons represented the compensation that the companies agreed to pay for the use of the money lent to them as evidenced by the bonds, and the amounts paid upon surrender of the coupons were interest upon the principal. Compensation which one agrees to pay to another for money lent to him is usually regarded as interest in ordinary business transactions, Corcoran v. Henshaw, 8 Gray, 267, 278, Granger v. Pierce, 112 Mass. 244 , Cochran v. Boston, 211 Mass. 171 , 173, Foley v. Flaherty, 278 Mass. 134 , 137; and in common speech the receipt of interest denotes the receipt of income. Sargent v. Sargent, 103 Mass. 297 . Heard v. Eldredge, 109 Mass. 258. Dexter v. Phillips, 121 Mass. 178 . Adams v. Adams, 139 Mass. 449 . Old Colony Trust Co. v. Comstock, 290 Mass. 377 . Union Trust Co. v. Dexter, 311 Mass. 737, 742.
The pertinent statute, G. L. (Ter. Ed.) c. 62, Section 1 (a), recognizes this common relationship between interest and income, and provides, in so far as now material, for a tax upon the receipt of "Interest from bonds, notes, money at interest and all debts due the person to be taxed." The receipt of interest from any of these enumerated sources by an inhabitant of the Commonwealth is the taxable event. The amounts in question were paid by the railroad companies on account of the defaulted interest coupons on their bonds and were so received by the taxpayer. The transactions come within the express terms of Section 1 (a). Goldman v. Tax Commissioner, 230 Mass. 554 , 556. Holcombe v. Commissioner of Corporations & Taxation, 245 Mass. 353 . Hayes v. Commissioner of Corporations & Taxation, 261 Mass. 134 , 136. Wolbach v. Commissioner of Corporations & Taxation, 268 Mass. 365 . Sayles v. Commissioner of Corporations & Taxation, 286 Mass. 102 , 104, 105. Nichols v. Commissioner of Corporations & Taxation, 314 Mass. 285 , 291. Commissioner of Corporations & Taxation v. Williston, 315 Mass. 648 , 649.
The facts that the bonds with the overdue coupons were purchased at a flat price and that the payments of interest did not exceed the cost of the bonds, if material under the Federal income tax statute Clyde C. Pierce Corp. v. Commissioner of Internal Revenue, 120 F.2d 206; Hewitt v. Commissioner of Internal Revenue, 30 B. T. A. 962, as the taxpayer urges, are not important under G. L. (Ter. Ed.) c. 62, Section 1 (a), which is based entirely upon the receipt of the interest from the bonds and not upon the fact that the purchase price cannot be apportioned between principal and interest, or upon the fact that the bonds have not been sold and no gain has as yet been realized by the taxpayer. This last consideration would, of course, be decisive if an attempt were made to impose a tax under G. L. (Ter. Ed.) c. 62, Section 5 (c), as appearing in St. 1935, c. 481, Section 1. We are dealing with a tax on interest and not on the profits from a sale. Under the revenue act of 1928, Section 202 (a), Act of May 29, 1928, c. 852, Section 202 (a), 45 U.S. Sts. at Large, 791, 842, requiring insurance companies to include interest in their gross income,...
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