Eastern Massachusetts, St. Ry. Co. v. Boston Elevated Ry. Co.
| Decision Date | 28 January 1942 |
| Parties | EASTERN MASSACHUSETTS, ST. RY. CO. v. BOSTON ELEVATED RY. CO. |
| Court | United States State Supreme Judicial Court of Massachusetts Supreme Court |
OPINION TEXT STARTS HERE
Report from Superior Court, Suffolk County; Greenhalge, Judge.
Action of contract by the Eastern Massachusetts Street Railway Company against the Boston Elevated Railway Company, to recover the sum of $5,124.68 included in the amount of federal income tax paid by the plaintiff for the year 1926. The case was heard upon a case stated and judgment was ordered for the defendant, and, at the request of the parties, the case was reported to the Supreme Judicial Court.
Judgment for defendant.
Before FIELD, C. J., and QUA, DOLAN, and RONAN, JJ.
P. Nichols, J. A. Boyer, and P. G. Carleton, all of Boston, for plaintiff.
C. W. Mulcahy, W. B. Downey, and J. F. Desmond, all of Boston, for defendant.
By a written lease dated February 16, 1903, the Old Colony Street Railway Company leased a certain portion of its lines of railway and other property appurtenant thereto in the city of Boston to the Boston Elevated Railway Company. The demised property is described in the lease as all the lessor's ‘railway and branches thereof’ situated in a certain part of Boston, with a detailed description thereof, and including therein all the lessor's ‘licenses, rights, franchises, easements, privileges and appurtenances belonging or appertaining thereto, or conveniently used in connection therewith’-with certain exceptions not here material-‘Together with the right to demand and receive all rents, tolls, revenue, income and profits from the demised premises, subject to the provisions hereinafter contained and except as hereinafter otherwise provided; together with the benefit of all rights secured to the Lessee under the following provisions in this instrument contained.’ The rent reserved under the lease, to be paid by the lessee to the lessor, was to be ‘based upon the adjusted replacement value of the property demised as of the date of this agreement and upon the adjusted betterment value of the property from time to time,’ and was ‘a sumequal to six and one-eighth (6 1/8) per centum per annum upon the adjusted replacement value of the property demised, and a sum equal to four (4) per centum per annum upon the adjusted value of betterments from time to time.’ On or about May 31, 1919, the Eastern Massachusetts Street Railway Company succeeded to all the right, title and interest of the Old Colony Street Railway Company and its successor, Bay State Street Railway Company, under said lease.
The Eastern Massachusetts Street Railway Company (herein referred to as the lessor) brought this action of contract against the Boston Elevated Railway Company (herein referred to as the lessee) to recover the sum of $5,124.68 included in the amount of Federal income tax paid by the lessor for the year 1926. The case was heard upon a case stated, and judgment was ordered for the defendant. At the request of the parties the case was reported to this court.
The primary question for decision is whether the lessee is liable to the lessor for the Federal income tax paid by the lessor with respect to the rental received by the lessor under the lease for the year 1926. A secondary question, if the lessee is so liable, relates to the amount for which such lessee is liable. The case stated contains the following statement: ‘THE PARTIES HAVE AGREED TO SUBMIT TO THE couRt the facts bearing upon said issue in respect to a typical year 1926, and have also agreed, if the court finds the defendant obligated to pay any portion of the plaintiff's income tax for that year, to adjust between themselves on the basis of the court's decision the payments in respect to Federal income taxes to be made by the defendant to the plaintiff for the years since and including 1921.’
The question of liability turns on the provisions of article 1 of the lease, interpreted in the light of the other provisions of the lease, as applied to the facts agreed. Said article 1, so far as material, is as follows: ‘The Lessee shall at its own expense during the said term operate the demised railway and, except as herein otherwise provided, make all renewals, extensions improvements, and betterments; and shall meet all expenses and liabilities arising from the care, control, maintenance, repair, renewal and operation of the said premises; including all expenditures and liabilities in tort, contract and otherwise arising therefrom or in any way connected with the use and operation of the demised premises, including insurance, and shall pay or furnish to the Lessor the money necessary to pay all taxes of every description Federal, State and Municipal, levied upon the demised property, the income therefrom, the business thereof, and the rights and franchises thereto pertaining, and upon a portion of the capital stock of the Lessor (whether levied or assessed as a tax upon corporate franchise or otherwise, and ascertained by, or in relation to, or directly or indirectly based upon, a valuation of the shares of said capital stock) equal in value at par to the replacement value of the property demised after deducting from said replacement value the assessed value of any real estate and machinery or other property included in the demised property and subject to local taxation in said Boston; and also any such taxes by law required to be deducted from any amounts payable as dividends or otherwise to the owners of such portion of the Lessor's capital stock.’
The lessor reported in its Federal income tax return for the year 1926, upon which its Federal income tax for that year was assessed, a total gross income of $9,797,816.94, and deductions from income of $9,068,775.80, leaving a net income of $729,041.14, the tax upon which at the statutory rate of thirteen and one half per cent amounted to $98,420.55. Included in this total gross income tax was $37,960.56, ‘Rental paid under lease by Boston Elevated Railway Company for use of West Roxbury property’-the lease here in question. The lessor seeks in this action to recover $5,124.68, being thirteen and one half per cent of the rental received under this lease.
Article 1 of the lease clearly contemplated that the lessee should pay Federal taxes as well as State and municipal taxes. And it is clear that it is immaterial with respect to the lessee's liability whether the taxes included in the lessee's covenant contained in article 1 were assessed to the lessor or to the lessee, since the lessee covenanted that it would ‘pay or furnish to the Lessor the money necessary to pay’ the taxes therein described. Compare Kimball v. Cotting, 229 Mass. 541, 542, 118 N.E. 866, L.R.A.1918C, 1189. The taxes therein described are of six different kinds: (a) Those ‘levied upon the demised property,’ (b) ‘the income therefrom,’ (c) ‘the business thereof,’ (d) ‘the rights and franchises thereto pertaining’ and (c) ‘a portion of the capital stock of the Lessor * * * equal in value at par to the replacement value of the property demised’ with certain deductions, and (f) ‘any such taxes by law required to be deducted from any amounts payable as dividends or otherwise to the owners of such portion of the Lessor's capital stock.’ This classification of the taxes for which the lessee is liable obviously limits the generality of the lessee's covenant to pay ‘all taxes of every description.’ If the lessor is to recover the amount of the tax for the recovery of which this action is brought, such tax must be included in at least one of the six classes of taxes specifically described in article 1.
The rent of the demised property is not referred to in terms in article 1 of the lease whereby taxes were assumed by the lessee. In this respect the lessee's covenant relating to taxes differs from the covenants considered in Suter v. Jordan Marsh Co., 225 Mass. 34, 113 N.E. 580;Kimball v. Cotting, 229 Mass. 541, 542, 118 N.E. 866, L.R.A.1918C, 1189;Kimball v. Cotting, 234 Mass. 172, 125 N.E. 551; and Kimball v. Maddison, 286 Mass. 277, 279, 190 N.E. 506. But the question of the liability of the lessee to the lessor under this article of the lease must be determined in accordance with the principle stated in Boston & Providence Railroad Corp. v. Old Colony Railroad Co., 269 Mass. 190, 195, 169 N.E. 157, 158, that, if ‘it fairly appears from the lease as a whole that the parties intended to impose upon the lessee ultimate obligation to pay an income tax assessed upon the lessor in respect to the rental, that intention will be given effect, although there is in express words no provision to that effect in the lease.’
The lessor relies particularly upon the lessee's covenant to ‘pay or furnish to the Lessor the money necessary to pay’ taxes upon ‘the income therefrom,’ obviously meaning the income from the demised property. Undoubtedly, from the standpoint of the lessor, the rent received by it from the lessee may properly be described as the lessor's ‘income from the demised property.’ See Stony Brook Railroad Corp. v. Boston & Maine Railroad, 260 Mass. 379, 384, 157 N.E. 607, 53 A.L.R. 700;DeBlois v. Commissioner of Corporations and Taxation, 276 Mass. 437, 439, 177 N.E. 566;New York v. Graves, 300 U.S. 308, 312-316, 57 S.Ct. 466, 81 L.Ed. 668. But, on the other hand, from the standpoint of the lessee, its operating revenue and other revenue, with proper deductions therefrom, may properly be described as its ‘income from the demised property.’ The question for decision on this aspect of the case, therefore, is whether ‘the income therefrom,’ that is, from the demised property, taxes upon which are assumed by the lessee, as the words are used in article 1, means or includes the lessor's income therefrom in the form of rent paid by the lessee, or is limited to the lessee's income from the demised property.
The phrase ‘the income therefrom’ in article 1 of the lease, meaning ‘the income from the...
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