return, show that payments for those connections are not to be included as part of the corporation's gross income. (Union Hollywood Water Co. v. Carter, 238 Fed. 329, 1917.)

18. The "mining leases" involved in these cases were not equivalent to sales of property, and the moneys paid by the lessees to the respondents were not converted capital, but rents or royalties, and as such were income proper to be included in measuring their taxes under the corporation tax law. (Von Baumbach v. Sargent Land Co., 242 U. S. 503, 1917, reversing 219 Fed. 31. Followed in U. S. v. Biwabik Mining Co., 247 U. S. 116.)

19. Actual value, and not book value, must be considered in determining the income.

The amount received from the sale of stock owned by a corporation and carried on its books at a value of $1 held not taxable as income where the evidence showed the stock had a greater value. "Income" means the flow of capital service, and is not synonymous with receipts. (United States v. Guggenheim Exploration Co., 238 Fed. 231, 1917.)

20. A railroad corporation purchasing stock in another corporation for investment prior to January 1, 1909, is taxable with respect to so much of the profit upon the sale of the stock as accrued after December 31, 1908. (C., C., C. & St. L. Ry. Co., v. United States, Affirmed by Supreme Court in 247 U. S. 195,

242 Fed. 18, 1917.)

1918.

The market value of the stock on December 31, 1908, may be determined by an inventory taken as of that date, and the stipulated fact of the market value of the stock on that date may be accepted. as supplying the lack of an inventory. Id.

21. Where a New Jersey corporation engaged in insurance business was required by New Jersey commissioner of banking and insurance to provide reserve for all policies written though premiums were not fully paid, all sums paid into reserve must be excluded in computing corporate income for taxation. (Prudential Ins. Co. v. Herold, 247 Fed. 681, 1918.)

So-called dividends paid by stock company engaged in writing insurance, to nonparticipating stockholders, can not be considered in computing company's income for taxation under corporation excise tax act of 1909. Id.

22. The act employs the term "income" in its natural and obvious sense, as in quoting something distinct from principal or capital and conveying the idea of gain or increase arising from corporate activities.

While a conversion of capital may result in income, in the sense of the act, where the proceeds include an increment of value, such is not the case where the increment existed when the act took effect.

In distinguishing preexisting capital from income subject to the act it is a mere question of method whether a deduction be made from gross receipts in ascertaining gross income, or from gross income, by way of depreciation, in ascertaining net income.

Before the corporation tax act a lumber company bought timberland to supply its mills, and after the act it manufactured part of the timber into lumber, which it sold. Held, that the amount by which the timber so used had increased in value between the date of purchase and the effective date of the act was not an element of income to be considered in computing the tax.

The income is to be determined from the actual facts, as to which the corporate books are only evidential. (Doyle v. Mitchell Bros. Co., 235 Fed. 686, affirmed in 247 U. S. 179, 1918.)

23. A corporation engaged in the brokerage business, which bought and carried securities for customers on margins, receiving interest payments from them on account of the margins, must list all such interest as part of its gross income, and in computing its net income can not, though it incurred indebtedness for the purchases and paid interest on the balance due, deduct interest on such indebtedness in excess of the amount of its paid-up capital, for such indebtedness was that of the corporation, and not its customers. (Altheimer & Rawlings Inv. Co. v. Allen, 248 Fed. 688, 1918.) Judgment of the United States District Court, 246 Fed. 270, affirmed. (Certiorari denied in U. S. Supreme Court, Nov., 1918, 248 U. S. 578.)

24. Whether the determination of the capital assets on December 31, 1908, should be made by taking an inventory upon the basis of market values then existing, or whether the entire increment accruing between the time of acquiring and the time of disposing of the assets should be prorated as if it had arisen through a series of gradual and imperceptible augmentations is a matter of detail to be settled according to the best evidence obtainable and in accordance with valid departmental regulations. The act measured the tax by the income received within the year for which the assessment was levied, whether it accrued within that year or in some preceding year while the act was in effect; but it excluded all income that accrued prior to January 1, 1909, although afterwards received while the act was in effect. (Hays v. Gauley Mt. Coal Co., 247 U. S. 189, 1918. Reversing 230 Fed. 110 and affirming decision of the district court.)

25. Interest payments of railway companies which organized and purchased stock of a terminal railway company on account of mortgage given by such terminal company held part of terminal company's income for purpose of determining the amount of its tax under the corporation excise tax act of August 5, 1909. (Houston Belt & Terminal Ry. Co. v. United States, 250 Fed. 1, 1918, C. C. A. affirming decision of the district court.)

26. The term "income" must be accepted as those more or less periodic earnings, as distinguished from permanent sources of wealth; hence, where the sole stockholder of a corporation which furnished the capital released a debt in favor of the corporation, such sum should be treated as capital rather than income, though such a release can not be treated as a mere matter of bookkeeping, but as adding to thé corporate assets. (United States v. Oregon-Washington R. & Nav. Co., 251 Fed. 211, 1918.)

27. Under corporation tax act August 5, 1909, where property is sold by a corporation at an advance over the original purchase price, the amount of such advance is a gain or profit received during the year, for the purpose of computing its net income. of computing its net income. (Scott v. Schwab, 255 Fed. 57, 1919.)

28. Where life insurance companies conducted on the mutual plan issue policies providing for a definite premium, which is usually fixed somewhat above the amount required to insure safety, and when a certain time has passed and it is found that a less sum may safely be taken for a specific year, the premium for that year is reduced to the lower sum, and the insured is allowed to invest the difference, if he care to do so, in additional paid-up insurance such amount of excess premium returned to the policyholder is not taxable as net income of the insurance company. In company bookkeeping the premiums are frequently entered at their full amount and the amounts of the rebate are entered as "dividends." They are in no true sense dividends, however they may be called, but abatements of premium. (Opinion of Judge Hand in New York Life Ins. Co. v. Anderson, U. S. D. C. So. Dist. of New York, 1919.) This case as reported in 257 Fed. 576 was further heard on a question of accounting only and is now on appeal on a question of so-called dividends. (See also case 3, this heading, on the authority of which Judge Hand relied.) Income of insurance companies, see cases 2, 3, 4, 5, 10, 11, 12, 13, 14, 15, 16, 21, 28-Income.

Income of mining companies, see cases 1, 1a, 13, 18-Income. "Paid-up capital stock."

After citing the cases of Central Bonding & Casualty Insurance Co. v. Mosely (174 S. W. 1037), Williams v. Brewster (117 Wis. 370), Willis v. St. Paul Sanitation Co. (16 L. R. A. 281), Houston Belt & Terminal Co. v. United States (250 Fed. 1), Altheimer & Rawlings Investment Co. v. Allen (248 Fed. 688), Boston Terminal Co. v. Gill (246 Fed. 664), Armstrong v. Union Trust & Savings Bank (249 Fed. 268), and Anderson v. Forty-Two Broadway (239 U. S. 69), the court continued:

Therefore the conclusion is imperative, after a careful analysis of the law and a consideration of the principles involved in all cases cited by both sides, that the "paid-up capital stock" of the corporation, as used in section 38 of the act, means

such an amount received by the corporation as does not exceed the par value of the outstanding shares plus the amount received for any part-paid stock, and that it does not mean the aggregate amount received by the corporation for the shares, the fullpaid stock receipts, and part-paid stock receipts issued by it even though said sum be in excess of the par value. (U. S. v. N. Y., N. H. & H. R. Co.) T. D. 2896. (U. S. D. C. Conn., 1919.)

Premiums received by a corporation for the sale of its stock are not a part of its outstanding capital stock and should not be added as a part of such corporation's outstanding paid-up capital stock in determining the deduction to be made in assessing corporation excise tax under section 38 of the act of August 5, 1909. (Decision of Judge Bingham, U. S. D. C., Dist. of Mass., 1919. Unreported to date-October, 1919. Case of United States v. Boston & Maine Railroad.)

SUBDIVISION III, SECTION 38.

Third. There shall be deducted from the amount of the net income of each of such corporations, joint stock companies or associations, or insurance companies, ascertained as provided in the foregoing paragraphs of this section, the sum of five thousand dollars, and said tax shall be computed upon the remainder of said net income of such corporation, joint stock company or association, or insurance company, for the year ending December thirty-first, nineteen hundred and nine, and for each calendar year thereafter; and on or before the first day of March, nineteen hundred and ten, and the first day of March in each year thereafter, a true and accurate return under oath or affirmation of its president, vice president, or other principal officer, and its treasurer or assistant treasurer, shall be made by each of the corporations, joint stock companies or associations, and insurance companies, subject to the tax imposed by this section, to the collector of internal revenue for the district in which such corporation, joint stock company or association, or insurance company has its principal place of business, or, in the case of a corporation, joint stock company or association, or insurance company, organized under the laws of a foreign country, in the place where its principal business is carried on within the United States, in such form as the Commissioner of Internal Revenue, with the approval of the Secretary of the Treasury, shall prescribe, setting forth (first) the total amount of the paid-up capital stock of such corporation, joint stock company or association, or insurance company, outstanding at the close of the year; (second) the total amount of the bonded and other indebtedness of such corporation, joint stock company or association, or insurance company at the close of the year; (third) the gross amount of the income of such corporation, joint stock company or association, or insurance company received during such year from all sources, and if organized under the laws of a foreign country the gross amount of its income received within the year from business transacted and capital invested within the United States and any of its Territories, Alaska, and the District of Columbia; also the amount received by such corporation, joint stock company or association, or insurance company within the year by way of dividends upon stock of other corporations, joint stock companies or associations, or insurance companies, subject to the tax imposed by this section; (fourth) the total amount of all the ordinary and necessary expenses actually paid out of earnings in the maintenance and operation of the business and properties of such corporation, joint stock company or association, or insurance company within the year, stating separately all charges such as rentals or franchise payments required to be made as a condition to the continued use or possession of property, and if organized under the laws of a foreign country the amount so paid in the maintenance and operation of its business within the United States and its Territories, Alaska, and the District of Coumbia; (fifth) the total amount of all

losses actually sustained during the year and not compensated by insurance or otherwise, stating separately any amounts allowed for depreciation of property, and in the case of insurance companies the sums other than dividends, paid within the year on policy and annuity contracts and the net addition, if any, required by law to be made within the year to reserve funds; and in the case of a corporation, joint stock company or association, or insurance company, organized under the laws of a foreign country, all losses actually sustained by it during the year in business conducted by it within the United States or its Territories, Alaska, and the District of Columbia, not compensated by insurance or otherwise, stating separately any amounts allowed for depreciation of property, and in case of insurance companies the sums other than dividends, paid within the year on policy and annuity contracts and the net addition, if any, required by law to be made within the year to reserve fund; (sixth) the amount of interest actually paid within the year on its bonded or other indebtedness to an amount of such bonded and other indebtedness not exceeding the paid-up capital stock of such corporation, joint stock company or association, or insurance company, outstanding at the close of the year, and in the case of a bank, banking association, or trust company, stating separately all interest paid by it within the year on deposits; or in case of a corporation, joint stock company or association, or insurance company, organized under the laws of a foreign country, interest so paid on its bonded or other indebtedness to an amount of such bonded and other indebtedness not exceeding the proportion of its paid-up capital stock outstanding at the close of the year which the gross amount of its income for the year from business transacted and capital invested within the United States and any of its Territories, Alaska, and the District of Columbia, bears to the gross amount of its income derived from all sources within and without the United States; (seventh) the amount paid by it within the year for taxes imposed under the authority of the United States or any State or Territory thereof, and separately the amount so paid by it for taxes imposed by the Government of any foreign country as a condition to carrying on business therein; (eighth) the net income of such corporation, joint stock company or association, or insurance company, after making the deductions in this section authorized. All such returns shall as received be transmitted forthwith by the collector to the Commissioner of Internal Revenue.

SUBDIVISION III.-RETURNS,

Insufficient net income.

All corporations of the kind specified in the act as subject to the tax were bound to file returns, though their net profits were not sufficient to render them liable to the tax. (United States v. Military' Construction Co., 204 Fed. 153, 1913, and United States v. Acorn Roofing Co., 204 Fed. 157, 1912.)

Receiver's liability.

The tax is one upon doing business in a corporate capacity, and receivers of an insolvent corporation, duly appointed by a court of equity, which corporation was not doing business when the act was passed, and has done no business since, are not within the act nor required to make returns and pay taxes on the income realized by them while acting as officers of the court and under its direction. (Pennsylvania Steel Co. v. New York City Railway Co., 198 Fed. 774, 1912. C. C. A. affirming the decision of the district court in 193 Fed. 286.)