Urquhart v. Marion Hotel Co.

• Decision Date: 02 April 1917
• Docket Number: (No. 285.)
• Citation: 194 S.W. 1
• Parties: URQUHART v. MARION HOTEL CO.
• Court: Arkansas Supreme Court

Page 1

194 S.W. 1

URQUHART v. MARION HOTEL CO.

(No. 285.)

Supreme Court of Arkansas.

April 2, 1917.

Appeal from Circuit Court, Pulaski County; G. W. Hendricks, Judge.

Action by Mrs. H. T. Urquhart against the Marion Hotel Company. Judgment for defendant, and plaintiff appeals. Affirmed.

Geo. A. McConnell, of Little Rock, for appellant. Morris M. & Louis M. Cohn, of Little Rock, for appellee.

SMITH, J.

Appellant is the owner of certain bonds issued by the Marion Hotel Company on June 1, 1906, which contain the following clause:

"The Marion Hotel Company, for value received, hereby promises to pay to the bearer hereof, at the office of the Bank of Commerce, Little Rock, Ark., without deduction from either such principal or interest, for any tax or taxes, which the Marion Hotel Company may be required to pay or retain therefrom, under any present or future law, the Marion Hotel Company agreeing to pay such tax or taxes."

The interest on these bonds was made payable at the Bank of Commerce, in the city of Little Rock, where appellant applied for the payment of matured coupons owned by her. Pursuant to the requirement of the Federal Income Tax Law, she filed her certificate, in which she declared that:

"I do not now claim exemption from having the normal tax of 1 per cent. withheld from said income, by the debtor at the source"

— but, notwithstanding this certificate, she demanded payment of the full amount of interest due, without deduction of the 1 per cent., the demand therefor being based upon the theory that the corporation, and not herself, was liable for the tax. It is argued that the very terms of the bond itself required the company to pay any tax, or taxes, which it (the company) might be required to retain. We are of the opinion, however, that the provision of the Income Tax Law, requiring the withholding of the tax at its source, is a mere provision, intended only to facilitate the more convenient and certain collection of the tax upon income; that the tax in question is not levied upon the bonds, nor primarily upon the interest accumulating thereon. The thing taxed is the income of the holder of the bond, and it may, or may not, be true that the income from a particular bond will be subject to the tax. The condition governing the taxability of the accumulated interest represented by any particular coupon depends, not upon the recitals in the bond contract, but upon the amount of income of the particular holder. And the provision of the law, for the collection of this tax at its source, rather than from the income taxpayer after the receipt of his dividend, will not change the contractual rights of the parties.

We are cited to no case where the exact question here involved has been decided; but the view we have expressed comports with the construction of such contracts expressed in Black on Income...