(252 U. S. 178) (40 Sup.Ct.) UNITED STATES ex rel. KANSAS CITY SOUTHERN RY. CO. v. INTERSTATE COMMERCE COMMISSION. ing the steps to be taken in the performance of the general duties thus imposed, the same section commanded as follows: "First. In such investigation said Commis (Argued Dec. 10, 1919. Decided March 8, 1920.)sion shall ascertain and report in detail as to No. 413. 1. COMMERCE 85-REFUSAL OF INTERSTATE IN VALUING PROPERTY OF COMMON CARRIERS As Congress had authority to require the Interstate Commerce Commission, in ascertaining the value of the property of common car riers, under Act March 1, 1913, c. 92, § 19a, amending Act Feb. 4, 1887, c. 104 (Comp. St. § 8591) to ascertain the present cost of condemnation and damages, or of purchase in excess of the original cost or present value, it is its duty to do so, even assuming that the Supreme Court decided in a railroad rate case that such matters were beyond the possibility of rational determination. ** * each piece of property owned or used by said carrier for its purposes as a common carrier, the cost of reproduction new, the cost of reproduction less depreciation, and an analysis of the methods by which these several costs are obtained, and the reason for their differences, if any. * * "Second. Such investigation and report shall state in detail and separately from improvements the original cost of all lands, rights of way, and terminals owned or used for the purof the time of dedication to public use, and the poses of a common carrier, and ascertained as present value of the same, and separately the original and present cost of condemnation and damages or of purchase in excess of such original cost or present value. "Fifth * * [seventh paragraph]. When ever the Commission shall have completed the 2. COMMERCE 87-DIFFICULTY OF INTER- tentative valuation of the property of any comSTATE COMMERCE COMMISSION OBEYING STATUTE IN VALUING RAILROAD PROPERTY DOES NOT EXCUSE FAILURE OR REFUSAL. That the ascertainment by the Interstate Commerce Commission of the present cost of condemnation and damages, or of purchase of the property of common carriers, in excess of the original cost or present value, as required by Act March 1, 1913, c. 92, § 19a, amending Act Feb. 4, 1887, c. 104 (Comp. St. § 8591), will necessarily open a wide range of proof, and call for the exercise of close scrutiny and scrupulous analysis in its consideration and application, affords no basis for the refusal of the commission to hear evidence and ascertain such present cost. mon carrier, as herein directed, and before such *183 upon the several classes of property of said carrier, and shall allow thirty days in which to file a protest of the same with the Commission. shall fix a time for hearing the same, and shall "If notice of protest is filed the Commission proceed as promptly as may be to hear and consider any matter relative and material thereto. and the classification thereof shall be published * All final valuations by the commission and shall be prima facie evidence of the value of the property in all proceedings under the Act In Error to the Court of Appeals of the to Regulate Commerce as of the date of the fixing thereof, and in all judicial proceedings for the enforcement of the act approved February 4, 1887, commonly known as 'the Act to Regulate Commerce,' and the various acts amendatory thereof, and in all judicial proceedings brought to enjoin, set aside, annul or suspend, in whole or in part, any order of the Interstate Commerce Commission." Pursuant to these requirements the Commission proceeded to investigate and report the value of the property of the Kansas City Southern Railway Company. Upon completing a tentative valuation, the Commission gave the notice required by the statute to the railway company, which thereupon filed a protest against such valuation on the ground that in making it the Commission had *Mr. Chief Justice WHITE delivered the failed to consider and include the "present opinion of the Court. cost of condemnation and damages or of purchase in excess of such original cost or present value." Upon the subject of the protest, the railway company took a large amount of testimony and much was also taken by the Commission, both parties having incurred The Act of Congress of March 1, 1913 (37 Stat. 701), amending the "Act to Regulate Commerce," imposed the duty upon the Interstate Commerce Commission (section 19a [Comp. St. § 8591]) to "investigate, ascertain, and report the value of all the property own-considerable expense in the matter. ed or used by every common carrier sub- Pending this situation, in order that the ject to the provisions of this act." Specify-excessive expense of taking each individual For other cases see same topic and KEY-NUMBER in all Key-Numbered Digests and Indexes parcel and showing what it would cost to acquire it or a right of way over it by purchase or condemnation might be avoided, an *184 agreement *was entered into between the Director of the Bureau of Valuation of the Commission, C. A. Prouty, and the railway company, that in the event the Commission should decide that evidence upon the cost of acquiring land by purchase or condemnation would be received by it, the Bureau of Valuation would recommend to the Commission the percentage or multiplier of the naked value of the land, to be used for the purpose of reaching the railway cost of acquiring the Supreme Court in the opinion quoted, our duty to abstain from reporting as an ascertained fact that which is incapable of rational ascertainment, is clear. * "We are unable to distinguish between what is suggested by the carrier in this record and nominally required by the act and what was condemned by the court (in the Minnesota Rate Cases [230 U. S. 352, 33 Sup. Ct. 729, 57 L. Ed. 1511, 48 L. R. A. (N. S.) 1151, Ann. Cas. 1916A, 18]) as beyond the possibility of rational determination; nor is there any essential difference in the actual methods there employed and those now urged upon us. Before we can report figures as ascertained, we must have a reasonable foundation for our estimate, and when, as here, if the estimate can be made only upon inadmissible assumptions, and upon impossible hypotheses, such as those pointed out by the "Because of the impossibility of making the self-contradictory assumptions which the theory requires when applied to the carrier's lands, we are unable to report the reproduction cost of of acquisition and damages, or of purchase in such lands or its equivalent, the present cost excess of present value. The present value of lands as found by us appears in the final valuation, appended hereto." Applying the ruling thus made to the protest which was pending in this case, the Commission gave notice to the railway that the agreement made with the Director of the Bureau of Valuation concerning the method of proof would be treated as not further operative; and thereafter when an offer was *186 made by the railway before an exam*iner of This suit was then brought to obtain a mandamus to compel the Commission to hear the proof and act upon it under the statute. The amended petition, after reciting the facts as we have outlined them and making the appropriate formal averments to justify resort to mandamus, alleged: same. At that time there was also pending a protest concerning a tentative valuation made by the Commission as to the property of the Texas Midland Railroad Company, raising the same question as to error committed in failing to carry out the provisions of the statute concerning the present cost of condemnation, etc., in which case the Commission overruled the protest, holding that the provision of the statute in question was not susceptible of being enforced or acted upon for reasons stated by the Commission in part as follows (I. C. C. Val. Rep. 1, p. 54 et seq.): "However, the direction in paragraph 'Second' for the ascertainment of the present cost of condemnation and damages or of purchase in effect calls for a finding as to the cost of reproduction of these lands. Must this be done, and can this be done? It seems elementary that the cost of reproduction can be estimated only by assuming that the thing in question is to be produced again, and that if it is to be produced again, it is to be taken as not existent. It seems sophistry to contend that the lands of the railroad can be produced again at a cost to the railroad without first making the assumption that they are no longer lands of the railroad; and this necessary assumption carries with it the mental obliteration of the railroad itself. "Considerable testimony was produced to the effect that in the acquisition of a railroad right of way it is necessary for the carrier to pay *185 "That the refusal of respondent to investigate and find such present cost of condemnation and damages or of purchase in excess of original cost or present value of relator's lands will result in great wrong and injury to relator; by way of illustration, such refusal will result in a finding by respondent of a value of but $60,000 sums in excess of the value of the land if with respect to parcels of land acquired by remeasured by the present or market value of sim- lator by judicial award in condemnation proilar contiguous lands, and this because of the ceedings during four years immediately precedelements which have been enumerated and em- ing such valuation at an actual cost to relator braced in the protest, such as cost of acquisition, of $180,000, and in the aggregate will result damages to the severed property, cost of build-in a finding with respect to said lands at least ings and other improvements, accrued taxes and $5,000,000 less than the value so directed by various incidental rights. * the act of Congress above mentioned to be found." It was further averred, with considerable elaboration, that the petitioner stood ready to produce proof to meet the requirements of the statute which was neither speculative nor impossible to be acted upon, since it would conform to the character of proof usually received in judicial proceedings involving the exercise of eminent domain. The Commission in its answer, either stat*187 ing or con*ceding the history of the case as we have recited it, and summarily reiterat (40 Sup.Ct.) Cases were decided after the passage of the act in question. ing the grounds for the refusal by the Com- it be borne in mind that the Minnesota Rate mission to receive the proof or report concerning it, challenged the right to the relief sought. A demurrer to the answer as stating no defense was overruled by the trial court, which denied relief without opinion. In the Court of Appeals, two judges sitting, the judgment of the trial court was affirmed by a divided court, also without opinion, and the case is here on writ of error to review that judgment. It is obvious from the statement we have made, as well as from the character of the remedy invoked, mandamus, that we are required to decide, not a controversy growing out of duty performed under the statute, but one solely involving an alleged refusal to discharge duties which the statute exacts. Admonishing, as this does, that the issue before us is confined to a consideration of the face of the statute and the nonaction of the Commission in a matter purely ministerial, it serves also to furnish a ready solution of the question to be decided, since it brings out in bold contrast the direct and express command of the statute to the Commis(252 U. S. 189) sion to act concerning the subject in hand, EISNER, Internal Revenue Collector, v. MAand the Commission's unequivocal refusal to obey such command. COMBER. [1] It is true that the Commission held that its nonaction was caused by the fact that the command of the statute involved a consideration by it of matters "beyond the possibility of rational determination," and called for "inadmissible assumptions," and the indulging in "impossible hypotheses" as to subjects "incapable of rational ascertainment," and that such conclusions were the necessary consequence of the Minnesota Rate Cases, 230 U. S. 352, 33 Sup. Ct. 729, 57 L. Ed. 1511, 48 L. R. A. (N. S.) 1151, Ann. Cas. 1916A, 18. We are of opinion, however, that, considering the face of the statute and the reasoning of the Commission, it results that the conclusion of the Commission was erroneous, an error which was exclusively caused by a mistak *188 [2] Finally, even if it be further conceded that the subject-matter of the valuations in question which the act of Congress expressly directed to be made necessarily opened a wide range of proof and called for the exercise of close scrutiny and of scrupulous analysis in its consideration and application, such assumption, we are of opinion, affords no basis for refusing to enforce the act of Congress, or what is equivalent thereto, of exerting the general power which the act of Congress gave, and at the same time disregarding the essential conditions imposed by Congress upon its exercise. en *conception by the Commission of its relation to the subject, resulting in an unconscious disregard on its part of the power of Congress and an unwitting assumption by the Commission of authority which it did not possess. And the significance which the Commission attributed to the ruling in the Minnesota Rate Cases, even upon the assumption that its view of the ruling in those cases was not a mistaken one, but illustrates in a different form the disregard of the power of Congress which we have just pointed out, since, as Congress indisputably had the authority to impose upon the Commission the duty in question, it is impossible to conceive how the Minnesota Rate ruling could furnish ground for refusing to carry out the commands of Congress, the cogency of which consideration is none the less manifest, though The judgment of the Court of Appeals is therefore reversed, with directions to reverse that of the Supreme Court, and direct the Supreme Court to grant a writ of mandamus in conformity with this opinion. (Argued April 16, 1919. Restored to Docket for Reargument, May 19, 1919. Reargued Oct. 17 and 20, 1919. Decided March 8, 1920.) No. 318. 1. COURTS 92 REASONING FURNISHING BASIS FOR CONCLUSION NOT OBITER. entire basis for the conclusion reached, canReasoning of the court, which furnishes the not be regarded as obiter dictum. 2. CONSTITUTIONAL LAW 18—AMENDMENT TO BE CONSTRUED IN CONNECTION WITH ORIG- The Income Tax Amendment (Const. Amend. 16) must be construed in connection with the taxing clauses of the original Constitution, and the effect attributed to them before the amendment was adopted. 3. INTERNAL REVENUE 7-EFFECT OF INCOME TAX AMENDMENT STATED. Const. Amend. 16, did not extend the tax ing power to new subjects, but merely removed the necessity which otherwise might exist for an apportionment among the states of taxes laid on income. 4. INTERNAL REVENUE 4 INCOME TAX AMENDMENT NOT TO BE EXTENDED BY CONSTRUCTION. Const. Amend. 16, should not be extended by loose construction, so as to repeal or modi- 7-STATUTORY DEFI NITION OF INCOME NOT CONCLUSIVE. The question of what constitutes income, within Const. Amend. 16, cannot be concluded by any definition which Congress may adopt. For other cases see same topic and KEY-NUMBER in all Key-Numbered Digests and Indexes 6. INTERNAL REVENUE 7-"INCOME" DE-14. INTERNAL REVENUE 2-TAX ON INTER- "Income" is the gain derived from capital, from labor, or from both combined; someRevenue Act Sept. 8, 1916, § 2 (Comp. St. thing of exchangeable value, proceeding from § 6336b), providing that stock dividends shall the property, severed from the capital, however be considered income, if construed as imposing invested or employed, and received or drawn the tax on the stockholder's interest in the acby the recipient for his separate use, benefit, and cumulated and undivided profits, rather than disposal. on the dividend, is invalid, as taxing property because of ownership, without apportionment according to population. [Ed. Note. For other definitions, see Words and Phrases, First and Second Series, Income.] 7. CORPORATIONS 65-NATURE OF STOCKHOLDER'S INTEREST. The interest of a stockholder is a capital interest, and his certificates of stock are but evidence of it. 8. CORPORATIONS 65-STOCKHOLDER CANNOT WITHDRAW ANY PART OF CORPORATE PROPERTY. Short of liquidation, or until dividend declared, a stockholder may not withdraw any part of either capital or profits from the enterprise; his interest not pertaining to any part, divisible or indivisible, but to the entire assets, business, and affairs of the company. 9. CORPORATIONS 65-TITLE TO PROPERTY IS IN CORPORATION, NOT IN STOCKHOLDERS. The interest of a stockholder in the property, etc., of the company is not that of an owner, since the corporation has full legal and equitable title to the whole. STOCK DIVI A stock dividend, consisting of new stock issued to the stockholders in proportion to their previous holdings, for profits capitalized, without any distribution of profits, is not "income," within Const. Amend. 16, and Revenue Act, Sept. 8, 1916, § 2 (Comp. St. § 6336b), in so far as it provides for the taxation thereof as income, without apportionment of the tax according to population, violates Const. art. 1, § 2, cl. 3, and section 9, cl. 4. 10. INTERNAL REVENUE 7 DEND NOT "INCOME." 11. INTERNAL REVENUE 7-PROFIT ON SALE OF STOCK RECEIVED AS DIVIDEND IS "IN "" COME. If a stockholder receiving a stock dividend sells the stock so received any profit on the sale is income, and, so far as it may have arisen since the Sixteenth Amendment, is taxable by Congress without apportionment according to population. 12. INTERNAL REVENUE 7. CORPORATION MUST BE TREATED AS ENTITY IN DETERMINING WHAT CONSTITUTES INCOME. In determining whether stock dividends constitute income, taxable under Const. Amend. 16, the corporation must be treated as a separate entity, as it is only by recognizing such separateness that any dividend can be regarded as income of the stockholder. 13. INTERNAL REVENUE 7 ENRICHMENT THROUGH INCREASE IN VALUE OF CAPITAL INVESTMENT NOT INCOME." Mr. Justice Brandeis, Mr. Justice Clarke, Mr. Justice Holmes, and Mr. Justice Day, dissenting. Enrichment through increase in value of capital investment is not income, within Const. Amend. 16. In Error to the District Court of the United States for the Southern District of New York. Action by Myrtle H. Macomber against Mark Eisner, as Collector of Internal Revenue for the Third District of the State of New York. Judgment for plaintiff on demurrer, and defendant brings error. Affirmed. Mr. Assistant Attorney General Frierson, for plaintiff in error. Messrs. Charles E. Hughes and George Welwood Murray, both of New York City, for defendant in error. •199 1 Title I.-Income Tax. Sec. 2. (a) That, subject only to such exemptions and deductions as are hereinafter allowed, the net ... also from in income of a taxable person shall include gains, · For other cases see same topic and KEY-NUMBER in all Key-Numbered Digests and Indexes *Mr. Justice PITNEY delivered the opinion of the Court. This case presents the question whether, by virtue of the Sixteenth Amendment, Congress has the power to tax, as income of the stockholder and without apportionment, a stock dividend made lawfully and in good faith against profits accumulated by the corporation since March 1, 1913. It arises under the Revenue Act of September 8, 1916 (39 Stat. 756 et seq., c. 463 [Comp. St. § 6336a et seq.]), which, in our opinion (notwithstanding a contention of the govern 200 ment that will be *noticed), plainly evinces The facts, in outline, are as follows: (40 Sup.Ct.) $100,000,000, had shares of stock outstand- | 1913, was taxable against the stockholder ing, par value $100 each, amounting in round under the Act of October 3, 1913 (38 Stat. 114, figures to $50,000,000. In addition, it had 166, c. 16), which provided (section B, p. 167) surplus and undivided profits invested in that net income should include "dividends," plant, property, and business and required for the purposes of the corporation, amounting to about $45,000,000, of which about $20,000,000 had been earned prior to March 1, 1913, the balance thereafter. In January, 1916, in order to readjust the capitalization, the board of directors decided to issue additional shares sufficient to constitute a stock dividend of 50 per cent. of the outstanding stock, and to transfer from surplus account to capital stock account an amount equivalent to such issue. Appropriate resolutions were adopted, an amount equivalent to the par value of the proposed new stock was transferred accordingly, and the new stock duly issued against it and divided among the stockholders. Defendant in error, being the owner of 2,200 shares of the old stock, received cer In Towne v. Eisner, the question was whether a stock dividend made in 1914 against surplus earned prior to January 1, *202 and also "gains or profits and income de*rived "It is manifest that the stock dividend in question cannot be reached by the Income Tax Act and could not, even though Congress expressly in fact income." declared it to be taxable as income, unless it is *201 tificates for 1,100 additional *shares, of which It declined, however, to accede to the con18.07 per cent., or 198.77 shares, par value tention that in Gibbons v. Mahon, 136 U. S. $19,877, were treated as representing surplus 549, 10 Sup. Ct. 1057, 34 L. Ed. 525, “stock earned between March 1, 1913, and January dividends" had received a definition suffi1, 1916. She was called upon to pay, and did ciently clear to be controlling, treated the pay under protest, a tax imposed under the language of this court in that case as obiter Revenue Act of 1916, based upon a supposed dictum in respect of the matter then before income of $19,877 because of the new shares; it (242 Fed. 706), and examined the question and an appeal to the Commissioner of Inter- as res nova, with the result stated. When the nal Revenue having been disallowed, she case came here, after overruling a motion to brought action against the Collector to re- dismiss made by the government upon the cover the tax. In her complaint she alleged ground that the only question involved was the above facts, and contended that in im- the construction of the statute and not its posing such a tax the Revenue Act of 1916 constitutionality, we dealt upon the merits violated article 1, § 2, cl. 3, and article 1, 8 with the question of construction only, but 9, cl. 4, of the Constitution of the United disposed of it upon consideration of the esStates, requiring direct taxes to be appor-sential nature of a stock dividend disregardtioned according to population, and that the ing the fact that the one in question was stock dividend was not income within the based upon surplus earnings that accrued meaning of the Sixteenth Amendment. A before the Sixteenth Amendment took effect. general demurrer to the complaint was over- Not only so, but we rejected the reasoning of ruled upon the authority of Towne v. Eisner, the District Court, saying (245 U. S. 426, 38 245 U. S. 418, 38 Sup. Ct. 158, 62 L. Ed. 372, Sup. Ct. 159, 62 L. Ed. 372, L. R. A. 1918D, L. R. A. 1918D, 254; and, defendant having 254): failed to plead further, final judgment went against him. To review it, the present writ of error is prosecuted. The case was argued at the last term, and reargued at the present term, both orally and by additional briefs. *203 We are constrained to hold that the judg-latter question is equally true for the former. ment of the District Court must be affirmed: A stock dividend really takes nothing from First, because the question at issue is control- the property of the corporation, and adds nothled by Towne v. Eisner, supra;, secondly, being to the *interests of the shareholders. Its cause a re-examination of the question with property is not diminished, and their interests the additional light thrown upon it by elab- are not increased. * The proportional inorate arguments. has confirmed the view terest of each shareholder remains the same. that the underlying ground of that decision The only change is in the evidence which repreis sound, that it disposes of the question here sents that interest, the new shares and the original shares together representing the same propresented, and that other fundamental conportional interest that the original shares repsiderations lead to the same result. resented before the issue of the new ones.' Gibbons v. Mahon, 136 U. S. 549, 559, 560 [10 Sup. Ct. 1057, 34 L. Ed. 525]. In short, the corporation is no poorer and the stockholder "Notwithstanding the thoughtful discussion that the case received below we cannot doubt that the dividend was capital as well for the purposes of the Income Tax Law as for distribution between tenant for life and remainderman. What was said by this court upon the |
