The sums released from reserve funds are not exempt from taxation as reserve funds, for when they cease to be reserve funds they are then income. (Maryland Casualty Co. v. U. S., 52 Ct. Cls., 201, 1917, pending in U. S. Supreme Court.)

TAXES IMPOSED BY STATES, ETC.

1. Act Pennsylvania June 13, 1907 (P. L. 640), entitled "An act to provide revenue by levying a tax upon the shares of stock of certain classes of corporations," requires such corporations to report to the auditor general the number of shares into which their stock is divided and the actual value thereof, ascertained in the manner prescribed by the act, and provides that on such report or return the auditor general shall assess the shares for taxation at a specified rate based on the actual value, to be determined by ascertaining the aggregate sum of payments on the stock, the surplus, and undivided profits and dividing such sum by a figure representing the total number of shares. It is thereupon made the duty of the executive officers of the corporations to post the tax settlement in the corporation's place of business; and within a specified time, at its option, either to pay the total amount of the tax out of its general funds or collect the same from its stockholders and pay the amount into the State treasury. The act further declares that if the corporation's officers fail to comply with the act, they shall be adjudged in default, and as a penalty the corporation shall be responsible to the State for the tax assessed against the stockholders. Held that the tax so assessed was a tax against the property of the individual stockholders and not against either the corporation or its property, and hence was not such a tax as to be deducted from the corporation's return to the United States under corporation tax act (act Aug. 5, 1909) providing for a tax on the net income of corporations, and authorizing the deduction of all sums paid by a corporation within the year for taxes imposed under the authority of the United States or any State. (Northern Trust Co. v. McCoach, 215 Fed. 991, 1914; same point similarly decided in Eliot National Bank v. Gill, 218 Fed. 601.)

2. A tax levied by a State on the shares of a national bank, and paid by the bank as required by the State statutes, but which under the statute it has the right to recover back from the stockholder, is not a "tax imposed under the authority of the State" on the corporation or its property, within the meaning of corporation tax law August 5, 1909, such as the bank is thereby authorized to deduct from its gross income to ascertain its taxable net income; nor can it be deducted as an expense of the business. (National Bank of Commerce in St. Louis v. Allen, 211 Fed. 743, 1914, and affirmed by 223 Fed. 472, 1915.)

* * *

3. State, county, and municipal taxes paid by a bank under laws of Florida, 1907, chapter 5596, section 8, constitute a liability of the

stockholders, and are to be deducted from the gross income of the bank, to ascertain the net amount on which the 1 per cent of excise tax under act of August 5, 1909, * * * is to be calculated. (U. S. v. Guaranty Trust & Savings Bank, 253 Fed. 291, 1918.) 4. Where taxes on stock owned by a corporation have been paid in its behalf by the corporations in which it owns said stock, the corporation will not be allowed to deduct such payments made in its behalf from its corporation excise tax return. While it is true that a "statute providing for the imposition of taxes is to be strictly construed, and all reasonable doubt in respect thereto resolved against the Government and in favor of the citizen" (Mutual Benefit Life Ins. Co. v. Herold (D. C.), 198 Fed. 199, and cases therein cited), no doubtful meaning is here involved. The language of the act is clear and explicit. The allowable deductions in the case of a domestic corporation are plainly set forth: * * * If it had been the intention to permit such a deduction as defendant urges, the act would have provided that there be included "all sums paid by it or in its behalf within the year * * * (United States v. Aetna Life

Ins. Co., 260 Fed. 333, 1919.)

Income.

of course

1. Income, within the meaning of section 38 * need not be such an income as would have been taxable as such. (But see C. C. C. & St. L. Ry. Co. v. U. S. 242 Fed. 18.) (Stratton's Independence v. Howbert, 231 U. S. 399, 416, 1913.).

la. Income, within the meaning of the corporation tax law of 1909 includes the proceeds of ores mined by a corporation from its own premises. (Stratton's Independence v. Howbert, 231 U. S. 399,

400, 1913.)

2. So-called "dividends" paid annually to policyholders by a mutual life insurance company doing business on the level-premium plan, which arise from the excess of premiums collected during previous years over actual ascertained requirements, are not taxable as part of the company's "net income" under the act of August 5, 1909, so far as the same were used to reduce subsequent premiums, the same having been once taxed as a part of the income of the year when received. Such rule, however, does not apply to a "dividend" declared in the case of a full-paid participating policy, wherein the policyholder has no further premiums to make, which dividend constitutes a participation in the profits and income of the invested funds of the company. (Mut. Ben. Life Ins. Co. v. Herold, 198 Fed. 199, 1912; affirmed 201 Fed. 918, 1913; pet. for writ of certiorari denied 231 U. S. 755, 1913.)

3. In case of a life insurance company, which, although a stock company, conducts a mutual department, but collects premiums from the participating policyholders on the level-premium plan, and

at the end of the year, when the cost of carrying the policy has been ascertained, credits the policyholder with the excess paid, which he may have applied in reduction of the next premium, to purchase additional insurance, to shorten the premium-paying period of his policy, or to accelerate its maturity in case of an endowment policy, the surplus so applied is not a "dividend," within the meaning of the act, but represents nothing more than the excess of loading of the premium, which is returnable in some form to the policyholder. (Connecticut Gen. Life Ins. Co., v. Eaton, 218 Fed. 188, 1914 affirmed in 223 Fed. 1022, 1915.)

4. In computing the excise tax due from an insurance corporation, it was improper to include in the gross income accrued, but unpaid, interest on investments represented by unmatured interest coupons payable in the future. (Insurance Co. of North America v. McCoach, 218 Fed. 905, 1914.) (This point not appealed.)

5. The word "income," as used in such act, meant that which had "come in" or had been already received, and that the net income so taxable should be determined on a cash, as distinguished from a revenue, basis, and did not include uncollected and deferred premiums and interests, accrued and due, but not actually received. (Mutual Ben. Life Ins. Co. v. Herold, 198 Fed. 199, 1912; and Connecticut Mut. Life Ins. Co. v. Eaton, 218 Fed. 206, 207, 1914; affirmed in 223 Fed. 1022, 1915.)

6. An increase in the book value of the assets of a corporation by a revaluation of property does not constitute any part of the gross amount of its "income received within the year." On the other hand, a book charge because of the sale of an issue of bonds at less than par, or because of bad debts or for money paid out for charities, is not a part of the "expenses actually paid within the year out of income" to be deducted from gross income. (Baldwin Locomotive Works v. McCoach, 215 Fed. 967, 1914; affirmed in 221 Fed. 59, 1915, C. C. A.) and Chicago & Alton R. R. Co. v. U. S. (53 Ct. Cls. 41); also U. S. v. Alpha Portland Cement Co. (257 Fed. 432.)

7. Increase in book value of securities held by a banking and trust company does not constitute income received during the year, but should be treated as increase of capital. (Industrial Tr. Co. v Walsh, 222 Fed. 437, 1915.) U. S. D. C.

8. Where amounts which should have been charged to the depletion of corporate assets were carried in a surplus account, income taxes imposed by corporation excise tax law can not be based on such amounts, for that would allow the basing of taxes on mere bookkeeping. (Forty Fort Coal Co. v. Kirkendall, 233 Fed. 704, 705, 1915.)

8a. A corporation desired to increase its capital without using new money. Bookkeeping entries evidenced a cash transaction of

selling property of old corporation to a new one but no income was received, it being merely a reorganization. (U. S. v. Alpha Portland Cement Co., 257 Fed. 432.)

9. The word "income" in corporation tax act, imposing an excise tax measured by income, means the same as in prior laws imposing a tax on income. (Cleveland, C. C. & St. L. Ry. Co. v. United States, 242 Fed. 18, 1915.) (This case was affirmed in 247 U. S. 195, on the question of profit on sales of property acquired prior to Jan. 1, 1909, and sold afterwards.)

10. See case 2, Income. Same point similarly decided by District Court of Connecticut in Connecticut General Life Insurance Company v. Eaton (218 Fed. 188), and in Connecticut Mutual Life Insurance Company v. Eaton (218 Fed. 206), both cases being affirmed by C. C. A. in 223 Federal 1022, 1915.

11. In the absence of evidence to the contrary, the profits and losses on sales of real estate, acquired by mutual insurance companies through foreclosure of mortgages securing loans made by them, and carried by said companies as assets at a valuation equal to the original cost to the company, should be treated as having been made or sustained during the year, and the company was chargeable in its gross income with the profits made, and entitled to a deduction of the full amount of the losses. (Connecticut Mutual Life Ins. Co. v. Eaton, 218 Fed. 206, 207, 1914. Affirmed in 223 Fed. 1022, 1915.) 12. Only premiums actually received in cash during the year, and not premiums accruing or becoming due, but not paid within the year, nor money previously received in payment of a premium, but applied within the year to pay a different premium, or a renewal policy, instead of a policy holder, on expiration of his policy, taking his expiration return premium, or dividend in cash as he had a right to do, are "income received within the year" by a mutual insurance company, within excise tax act, section 38, clause 2; an estimation on a "cash," as opposed to a "revenue," basis being contemplated by the act. (Lumber Mutual Fire Ins. Co. v. Malley, 256 Fed. 380, 1916.)

Increase or decrease in book value of bonds held by a mutual insurance company as investment does not affect "income received within the year," within excise tax act, section 38, clause 2. (Id.)

13. Income may be defined as the gain derived from capital, from labor, or from both combined. (Connecticut Gen. Life Ins. Co. v. Eaton, 218 Fed. 188, 1914, and Stratton's Independence v. Howbert, 231 U. S. 399, 1913; but see Maryland Casualty Co., 52 Ct. Cls., 201, 1917, pending in U. S. Supreme Court.)

14. A mutual life company is not under necessity to return as part of gross income under corporation tax act, section 38, interest accrued on policy loans. (Northwestern Mut. Life Ins. Co. v. Fink, 248 Fed. 568, 1917.)

15. The fact that in the ascertainment and apportionment of dividends to its policyholders a mutual life insurance company acted obediently to St. Wis. 1915, section 1952, requiring mutual life insurance surpluses to be apportioned annually to policies, does not estop it as against the collector of internal revenue, or avail against its contention that such dividends were not income within this act.

Mutual life company's return under section 38, imposing excise tax on insurance companies of 1 per cent on net income above $5,000 should not include premiums and interest due but not received.

So-called dividends of a mutual life insurance company doing business on the level-premium plan, consisting merely of the portion of the premium charged in excess of the cost of insurance, returned annually to the policyholders after the first year, so far as they were used to reduce subsequent premiums, were not "income received," and were not subject to taxation. (Northwestern Mutual Life Ins. Co. v. Fink, 248 Fed. 568, 1917.) See similar decision in case 10 on income.

16. An insurance company is obligated to report in full the total sums received in cash, both amounts received at the home office, and those paid to its lawful agencies during the calendar year.

Income means what has come in, or receipts.

Reserve funds when released are in their very essence income. (Maryland Casualty Co. v. U. S., 52 Ct. Cls. 201, 1917, pending in U. S. Supreme Court; Chicago & Alton R. R. Co. v. U. S., 53 Ct. Cls. 41.)

17. Plaintiff was a public waterworks company, which received from its consumers amounts for service connections and extensions, the greater part of which it expended in making the connections and extensions. It sues to recover the tax paid under protest on the amount of such receipts without deduction of the expenditures. Held, that such receipts were part of the corporation's "gross income," and did not fall within any of the deductions provided for, and that plaintiff was liable for the tax on the full amount of such receipts, which, in fact, were invested in permanent improvements, adding to the value of the property.

The fact that plaintiff was a public utilities corporation, which, under the laws of the State, was not the owner of the property, but merely entrusted with the use thereof, which it must devote to the public, does not entitle it to more favorable treatment than other corporations; it being a corporation organized for profit, having a capital stock represented by shares, and the act making no exceptions in favor of public utilities.

Nor does the fact that the State commission had ruled that service connections paid for by consumers were not to be included within the valuation of the company, on which it was entitled to a fair