Philadelphia City Passenger Ry. Co. v. Philadelphia Rapid Transit Co.

• Decision Date: 17 February 1919
• Docket Number: 238,236,239,234,237,232,240,235,233
• Citation: 107 A. 329,263 Pa. 561
• Parties: Philadelphia City Passenger Railway Company et al. v. Philadelphia Rapid Transit Company, al, v. Philadelphia Rapid Transit Company, Appellant
• Court: Pennsylvania Supreme Court

107 A. 329

263 Pa. 561

Philadelphia City Passenger Railway Company et al. v. Philadelphia Rapid Transit Company, al, v. Philadelphia Rapid Transit Company, Appellant

Nos. 232, 233, 234, 235, 236, 237, 238, 239, 240

Supreme Court of Pennsylvania

February 17, 1919

Argued January 14, 1919

Appeals, Nos. 232, 233, 234, 235, 236, 237, 238, 239 and 240 Jan. T., 1919, by defendant, from judgment of C.P. No. 3 Philadelphia Co., June T., 1918, Nos. 3162, 3165, 3166, 3155 3156, 3158, 3159, 3161 and 3167, in favor of plaintiffs in actions to recover amount paid for taxes in the cases of Philadelphia City Passenger Railway Company v. Philadelphia Rapid Transit Company; Thirteenth and Fifteenth Streets Passenger Railway Company of Philadelphia v. Same; Ridge Avenue Passenger Railway Company v. Same; Germantown Passenger Railway Company v. Same; The Frankford and Southwark Philadelphia City Passenger Railroad Company v. Same; Union Traction Company of Philadelphia v. Same; Philadelphia Traction Company v. Same; Hestonville, Mantua and Fairmount Passenger Railroad Company v. Same; The Citizens Passenger Railway Company of Philadelphia v. Same. Affirmed.

Assumpsit to recover amount of federal income tax and excess profits tax assessed against plaintiffs and based upon covenants of a lease. Before McMICHAEL, P.J., and FERGUSON and DAVIS, JJ.

Judgment was entered for the plaintiffs for the full amount.

The lower court filed the following opinion in the case of the Ridge Ave. Passenger Ry. v. Phila. Rapid Transit Co.:

FERGUSON, J.:

The covenant which binds the defendant and which is invoked to require it to pay the taxes imposed by the federal government under the Act of Congress of September 8, 1916, as amended by the Act of October 3, 1917, requires the defendant to "pay all taxes, charges and assessments now or hereafter lawfully imposed upon Ridge Avenue [the plaintiff] or for which Ridge Avenue would otherwise in any wise be liable or chargeable on account of its . . . earnings . . . or profits."

At the time the lease which contained this covenant was executed the federal tax laws above referred to were not in existence. The covenant provided, however, for the payment of all taxes thereafter lawfully imposed, and the question to be determined is whether or not such taxes are within the meaning of the covenant.

We think the case is ruled by North Pennsylvania R.R. Co. v. Phila. & Reading Ry. Co., 249 Pa. 326. In that case the covenant provided for the payment of all taxes upon the yearly payments which the lessee was obligated to pay the lessor as rent. It was held that the lessee in that case was obliged to pay the amount assessed as income tax under the Act of Congress of October 3, 1913. In that case the tax was not imposed on the "yearly payments" or "rent" as such, but was laid upon the net income. In the case at bar the income tax is laid upon net income, and the so-called war excess profits tax is laid upon income, received during the calendar year preceding the time when the tax is assessed. So far as the covenant under consideration is concerned we think it amply sufficient to cover both the income tax and the excess profits tax, in view of the fact that any tax assessed upon the earnings or profits of the plaintiff were to be paid by the defendant. The plaintiff having turned over all of its property to the defendant, the only earnings or profits it can receive are from the lease, and whether the tax be imposed upon income, net or gross, it is in fact imposed upon the rental. Earnings and profits under the circumstances must be regarded as was the yearly rent in the North Penn case.

The distinction between a tax laid upon the lessor in a lease of this character, and one laid upon the...