grounded.

Final order affirmed.

LA BELLE IRON WORKS, Appt.,

V.

UNITED STATES.

(See S. C. Reporter's ed. 377-395.)

Internal revenue - war excess profits tax

invested capital.

1. Neither the increased value of the ore lands of a corporation, though the result of an extensive exploration and develop ment work, nor the surrender of old stock in the corporation in exchange for new issues, based on such increased values, can be regarded as within the provision of the Act of October 3, 1917, § 207a, by which invested capital is defined for the purpose of computing the war excess profits tax imposed by that act, as "actual cash paid in," or "the actual cash value of tangible prop: erty paid in, other than cash, for stock or shares in such corporation," or "paid-in or earned surplus and undivided profits." [For other cases, see Internal Revenue. III. c. in Digest Sup. Ct. 1908.] Internal revenue

uniformity.

2. The only rule of uniformity prescribed by the Federal Constitution with respect to duties, imposts, and excises laid by Congress is the territorial uniformity which U. S. Const., art. 1, § 8, requires. [For other cases, see Internal Revenue, I. b, in Digest Sup. Ct. 1908.] Constitutional law due process of law - Federal war excess profits tax discrimination invested capital.

3. Defining invested capital according to the original cost of the property, to the exclusion of present higher values, as is done by the Act of October 3, 1917, § 207a, for the purpose of computing the war excess profits tax imposed upon corporations by that act, except that the tangible property paid in prior to January 1, 1914, may be taken at its actual cash value on that date, but in no case exceeding the prior value of the original stock or shares specifically issued for it, and provided that intangible property purchased bona fide prior to March 3, 1917, shall be included in invested capital at a value not to exceed the actual cash value at the time of purchase, does not make the act productive of such baseless and arbitrary discrimination as to render the tax invalid under the due process of law clause of the 5th Amendment to the Federal Constitution.

[For other cases, see Constitutional Law, IV. b, 6, a, in Digest Sup. Ct. 1908.]

[No. 453.]

review the dismissal of a petition claiming a refund of money alleged to have been erroneously assessed and exacted as a war excess profits tax. Affirmed.

The facts are stated in the opinion.

Mr. Charles McCamic argued the cause, and, with Messrs. Edward B. Burling and James Morgan Clarke, filed a brief for appellant:

Statutes imposing taxes are to be construed in favor of the taxpayer; the language employed is to be given its ordinary meaning. Such statutes are to be construed according to the spirit rather than the letter, when the letter would make them palpably unjust. Construed according to these rules the invested capital of La Belle Company should include all its outstanding stock where that is represented by property of an actual cash value not less than the par value of the outstanding stock.

Gould v. Gould, 245 U. S. 151, 153, 62 L. ed. 211, 213, 38 Sup. Ct. Rep. 53; Stratton's Independence v. Howbert, 231 U. S. 399, 414, 58 L. ed. 285, 291, 34 Sup. Ct. Rep. 136.

The ordinary meaning of the words "paid in or earned surplus and undivided profits" includes appreciation in

value.

Bennett, Corporation Accounting, 1917, § 291, p. 334; Dickinson, Accounting Practice & Procedure, 1917, p. 62; Hatfield, Modern Accounting, 1916, p. 237; Bentley, Science of Accounts, 1913, § 36, p. 24; 22 Greendlinger, Financial & Business Statements, 1917, pp. 195, 196; Year Book, American Association of Public Accountants, 1911, p. 124; 2 Machen, Corp. pp. 1092, 1095; 1 Morawetz, Priv. Corp. 2d ed. p. 412; Thomp. Corp. 2d ed. § 5307; 2 Cooley, Corp. 7th ed. § 536; Park v. Grant Locomotive Works, 40 N. J. Eq. 114, 3 Atl. 162; Williams v. Western U. Teleg. Co. 93 N. Y. 162; People ex rel. Manhattan F. Ins. Co. v. Tax & A. Comrs. 76 N. Y. 74; People ex rel. Manhattan R. Co. v. Barker, 165 N. Y. 305, 59 N. E. 151; McGinnis v. O'Connor, 111 Md. 695, 72 Atl. 614; Mangham v. State, 11 Ga. App. 440, 75 S. E. 508; Hutchinson v. Curtiss, 45 Misc. 484, 92 N. Y. Supp. 70; Simcoke v. Sayre, 148 Iowa, 132, 126 N. W. 816; Anderson v. Farmers' Loan & T. Co. 154 C. C. A. 202, 241 Fed. 326; Roberts v. Roberts-Wicks Co. 184 N. Y. 257, 3

L.R.A.(N.S.) 1034, 112 Am. St. Rep. 607, 77 N. E. 13, 6 Ann. Cas. 213; Hubbard v. Weare, 79 Iowa, 678, 44 N. W. 915; Miller v. Bradish, 69 Iowa, 278, 28 N. W. 594; Equitable Life Assur. Soc. v. Union P. R. Co. 212 N. Y. 360, L.R.A. 1915D, 1052, 106 N. E. 92.

The word "earned" does not limit the surplus which is to be included in invested capital. The statute merely contrasts earned with paid-in surplus.

Standard Dict. "earn;" Stevens v. United States Steel Corp. 68 N. J. Eq. 373, 59 Atl. 905; Lewis's Estate, 156 Pa. 337, 27 Atl. 35; Nuding v. Urich, 169 Pa. 289, 32 Atl. 409.

This court, in construing the 1909 Corporation Excise Tax Law and the 1913 Income Tax Law, held that appreciation accruing before the incidence of the tax was capital. The word "capital," as used in these cases, must include "surplus."

Hays v. Gauley Mountain Coal Co. 247 U. S. 189, 62 L. ed. 1061, 38 Sup. Ct. Rep. 470; Doyle v. Mitchell Bros. Co. 247 U. S. 179, 62 L. ed. 1054, 38 Sup. Ct. Rep. 467; Southern P. Co. v. Lowe, 247 U. S. 330, 62 L. ed. 1142, 38 Sup. Ct. Rep. 540; Towne v. Eisner, 245 U. S. 418, 62 L. ed. 372, L.R.A.1918D, 254, 38 Sup. Ct. Rep. 158; Lynch v. Turrish, 247 U. S. 221, 62 L. ed. 1087, 38 Sup. Ct. Rep. 537; Lynch v. Hornby, 247 U. S. 339, 62 L. ed. 1149, 38 Sup. Ct. Rep. 543. Were not the ore properties, at their increased value, the property paid in for the additional shares issued in 1912? Williams v. Western U. Teleg. Co. 93

N. Y. 190.

This court has said that if there were arbitrary confiscation in a taxing law of Congress, there would be a want of due

process.

Knowlton v. Moore, 178 U. S. 41, 44 L. ed. 969, 20 Sup. Ct. Rep. 747; Brushaber v. Union P. R. Co. 240 U. S. 1, 60 L. ed. 493, L.R.A.1917D, 414, 36 Sup. Ct. Rep. 236, Ann. Cas. 1917B, 713; Phillip Wagner v. Leser, 239 U. S. 207, 60 L. ed. 230, 36 Sup. Ct. Rep. 66; Twining v. New Jersey, 211 U. S. 78, 53 L. ed. 97, 29 Sup. Ct. Rep. 14; McCray v. United States, 195 U. S. 27, 49 L. ed. 78, 24 Sup. Ct. Rep. 769, 1 Ann. Cas. 561; Flint v. Stone Tracy Co. 220 U. S. 107, 55 L. ed. 389, 31 Sup. Ct. Rep. 342, Ann. Cas. 1912B, 1312; Billings v. United States, 232 U. S. 261, 58 L. ed. 596, 34 Sup. Ct. Rep. 421.

The due process clause in the 5th Amendment means the same thing as the due process clause in the 14th Amendment.

Carroll v. Greenwich Ins. Co. of New York, 199 U. S. 401, 50 L. ed. 246, 26 Sup. Ct. Rep. 66; Tonawanda v. Lyon, 181 U. S. 389, 45 L. ed. 908, 21 Sup. Ct. Rep. 609; French v. Barber Asphalt Paving Co. 181 U. S. 324, 45 L. ed. 879, 21 Sup. Ct. Rep. 625; Flint v. Stone Tracy Co. 220 U. S. 107, 55 L. ed. 389, 31 Sup. Ct. Rep. 342, Ann. Cas. 1912B, 1312; Hibben v. Smith, 191 U. S. 310, 48 L. ed. 195, 24 Sup. Ct. Rep. 88.

In Gast Realty & Invest. Co. Schneider Granite Co. 240 U. S. 55, 60 L. ed. 523, 36 Sup. Ct. Rep. 254, and in other cases in this court, tax laws of the states have been held so arbitrary and baseless as to violate the 14th Amendment.

Looney v. Crane Co. 245 U. S. 178, 62 L. ed. 230, 38 Sup. Ct. Rep. 85; International Paper Co. v. Massachusetts, 246 U. S. 135, 62 L. ed. 624, 38 Sup. Ct. Rep. 292, Ann. Cas. 1918C, 617; Southern R. Co. v. Greene, 216 U. S. 400, 54 L. ed. 536, 30 Sup. Ct. Rep. 287, 17 Ann. Cas. 1247.

The present law, as construed by the Department, is utterly arbitrary and therefore invalid, because the tax depends largely upon the cost of the taxpayer's property; so that two taxpayers who have the same income and property of equal value will pay wholly different taxes if the cost of the property is different.

Pollock v. Farmers' Loan & T. Co. 157 U. S. 429, 39 L. ed. 759, 15 Sup. Ct. Rep. 673, 158 U. S. 601, 39 L. ed. 1108, 15 Sup. Ct. Rep. 912; Willcox v. Consolidated Gas Co. 212 U. S. 19, 53 L. ed. 382, 48 L.R.A. (N.S.) 1134, 29 Sup. Ct. Rep. 192, 15 Ann. Cas. 1034; People ex rel. Jamaica Water Supply Co. v. State Tax Comrs. 196 N. Y. 39, 89 N. E. 581; Cumberland Teleph. & Teleg. Co. v. Louisville, 187 Fed. 637; Knowlton v. Moore, 178 U. S. 41, 44 L. ed. 969, 20 Sup. Ct. Rep. 747.

the cause, and, with Messrs. Edward B. Mr. Charles E. Hughes also argued Morgan Clarke, filed a brief for appelBurling, Charles McCamic, and James

lant.

Solicitor General Frierson argued the cause and filed a brief for appellee:

The ordinary meaning of the expression "invested capital" is the amount of money which has been paid for property or into a business; and not the value of the property in which such money has been invested.

Webster's New Int. Dict. and Funk & Wagnall's New Standard Diet. "to invest;" Century Diet. "investment."

Except as modified for the purpose of particular acts, the capital of a corporation has no other meaning in law than its ordinary meaning.

Bailey v. Clark, 21 Wall. 284, 286, 22 L. ed. 651, 652; Farrington v. Tennessee, 95 U. S. 679, 686, 24 L. ed. 558, 560; Tennessee v. Whitworth, 117 U. S. 129, 137, 29 L. ed. 830, 832, 6 Sup. Ct. Rep. 645; Bank of Commerce v. Tennessee, 161 U. S. 134, 147, 40 L. ed. 645, 649, 16 Sup. Ct. Rep. 456; Powers v. Detroit, G. H. & M. R. Co. 201 U. S. 543, 50 L. ed. 860, 26 Sup. Ct. Rep. 556; Wright v. Georgia R. & Bkg. Co. 216 Ú. S. 420, 54 L. ed. 544, 30 Sup. Ct. Rep. 242.

The regulations as to surplus and undivided profits are in accord with the recognized principles of accounting as applied to business throughout the country.

Esqueere, Theory Accounts, p. 30; Bennett, Corporation Accounting, p. 94; Hatfield, Modern Accounting, pp. 233, 237; Dickinson, Accounting Practice & Procedure, p. 81; 3 Journal, Accountancy, p. 102; Dicksee, Advanced Accounting, pp. 5, 6; Gilman, Principles of Accounting, pp. 179, 181; Cole, Accounts,

p. 173.

Law text-writers agree with the authorities on accounting as to the meaning of earned surplus and profits as used

in this statute.

Holmes, Income Tax, 1918 ed. p. 521; Holmes, Fed. Taxn. 1919 ed. "Earned Surplus," p. 727; Prentice-Hall, Tax Service, 1919.

Messrs. William D. Guthrie, Henry M. Ward, Henry F. Parmelee, and Langdon P. Marvin filed a brief as amici curiæ:

The increase in value of the ore lands of La Belle Iron Works was duly capitalized in 1912, and thereafter represented part of the invested capital of the corporation within the meaning of the excess profits tax provisions of the Revenue Act of October 3, 1917.

2 Cook, Corp. 7th ed. § 536, p. 1566; Eisner v. Macomber, 252 U. S. 189, 202, 64 L. ed. 521, 526, 9 A.L.R. 1570, 40 Sup. Ct. Rep. 189; Doyle v. Mitchell Bros. Co. 247 U. S. 179, 187, 62 L. ed. 1054, 1060, 38 Sup. Ct. Rep. 467; Hays v. Gauley Mountain Coal Co. 247 U. S. 189, 62 L. ed. 1061, 38 Sup. Ct. Rep. 470; Southern P. Co. v. Lowe, 247 U. S. 330, 62 L. ed. 1142, 38 Sup. Ct. Rep. 540; Lynch v. Turrish, 247 U. S. 221, 62 L. ed. 1087, 38 Sup. Ct. Rep. 537; Alpha Portland Cement Co. v. United States, - C. C. A. - 261 Fed. 339; Miller v. Gearin, 169

C. C. A. 293, 258 Fed. 225; Palmer v. Pullman Co. 252 Fed. 286; United States v. Guggenheim Exploration Co. 238 Fed. 231; Baldwin Locomotive Works v. McCoach, 136 C. C. A. 660, 221 Fed. 59; Kenton Furnace R. & Mfg. Co. v. McAlpin, 5 Fed. 737; Bailey v. New York C. & H. R. R. Co. 22 Wall. 604, 22 L. ed. 840; Gibbons v. Mahon, 136 U. S. 549, 559, 34 L. ed. 525, 527, 10 Sup. Ct. Rep. 1057; Gulf Oil Corp. v. Lewellyn, 248 U. S. 71, 72, 63 L. ed. 133, 134, 39 Sup. Ct. Rep. 35; United States v. Cleveland, C. C. & St. L. R. Co. 247 U. S. 195, 62 L. ed. 1064, 38 Sup. Ct. Rep. 472; Anderson v. Forty-Two Broadway Co. 239 U. S. 69, 72, 60 L. ed. 152, 154, 36 Sup. Ct. Rep. 17; Towne v. Eisner, 245 U. S. 418, 426, 62 L. ed. 372, 376, L.R.A.1918D, 254, 38 Sup. Ct. Rep. 158.

Messrs. Massey Holmes and Frank Hagerman filed a brief as amici curiæ for the National Lumber Manufacturers'

Association:

It

All doubt as to what is covered by the War Excess Profits Act should be resolved against the government. should be liberally construed in favor of the taxpayer, so as to assure (a) to him, free of this tax, a part of his inthe actual value of the property decome equal to a given percentage on voted by him to the production of that income, and (b) to the government, a proportion of all such income from such investment in excess of that percentage. This would necessarily include in invested capital the element of appreciation.

Black, Income Taxes, 3 ed. § 61; Hartranft v. Wiegmann, 121 U. S. 609, 616, 30 L. ed. 1012, 1015, 7 Sup. Ct. Rep. 1240; Eidman v. Martinez, 184 U. S. 578, 583, 46 L. ed. 697, 701, 22 Sup. Ct. Rep. 515; Benziger v. United States, 192 U. S. 38, 55, 48 L. ed. 331, 338, 24 Sup. Ct. Rep. 189; Gould v. Gould, 245 U. S. 151, 153, 62 L. ed. 211, 213, 38 Sup. Ct. Rep. 53; United States v. Wigglesworth, 2 Story, 369, Fed. Cas. No. 16,690; Powers v. Barney, 5 Blatchf. 202, Fed. Cas. No. 11,361.

No fancied, strained, or imaginative rule should be applied so as to construe the words "invested capital," or the words "paid in or earned surplus and undivided profits," as meaning something beyond their known and ordinary signification, or to deal with them other than as used in common speech, or to take them other than in their natural, straight forward, and literal sense.

Levy v. M'Cartee, 6 Pet. 102, 110, 8

Eisner v. Macomber, 252 U. S. 189, 211, 64 L. ed. 521, 530, 9 A.L.R. 1570, 40 Sup. Ct. Rep. 194; 2 Cook, Corp. 7th ed. § 536; Williams v. Western U. Teleg. Co. 93 N. Y. 188; Gibbons v. Mahon, 136 U. S. 549, 34 L. ed. 525, 10 Sup. Ct. Rep. 1057; Logan County v. United States, 169 U. S. 253, 42 L. ed. 737, 18 Sup. Ct. Rep. 361; Towne v. Eisner, 245 U. S. 418, 62 L. ed. 372, L.R.A.1918D, 254, 38 Sup. Ct. Rep. 158; Lynch v. Hornby, 247 U. S. 339, 345, 62 L. ed. 1149, 1151, 38 Sup. Ct. Rep. 543; Peabody v. Eisner, 247 U. S. 347, 62 L. ed. 1152, 38 Sup. Ct. Rep. 546; Gulf Oil Corp. v. Lewellyn, 248 U. S. 71, 63 L. ed. 133, 39 Sup. Ct. Rep. 35.

Irrespective, however, of any question as to whether the stock dividend, in effect, amounted to or represented a payment in tangible property, other than cash, for stock in such corporation, still the increase of $9,915,400 was admittedly actually part of the corporation's assets, and therefore is included somewhere in its invested capital. The express language of the act includes in invested capital paid-in or earned surplus and undivided profits. In known and ordinary signification and as used in common speech, this comprehensive phrase really, in substance, means the value of its entire assets over and above its corporate liabilities. The context of the act, therefore, supports, and does not repel, the construction for which appel

lant contends.

Eisner v. Macomber, 252 U. S. 189, 204, 64 L. ed. 521, 527, 9 A.L.R. 1570, 40 Sup. Ct. Rep. 191; 3 Century Dict. & Enc. "earn," "acquire," 1818; 4 Century Dict. "profits," 4757; 3 Century Dict. "gain," 2430; Stevens v. United States Steel Corp. 68 N. J. Eq. 380, 59 Atl. 908; Simcoke v. Sayre, 148 Iowa, 132, 126 N. W. 817; Anderson v. Farmers' Loan & T. Co. 154 C. C. A. 202, 241 Fed. 326; First Nat. Bank v. Moon, 102 Kan. 334, L.R.A. 1918C, 986, 170 Pac. 35; Southern P. Co. v. Lowe, 247 U. S. 330, 62 L. ed. 1142, 38 Sup. Ct. Rep. 540; Williams v. Western U. Teleg. Co. 93 N. Y. 163; McGinnis v. O'Connor, 111 Md. 695, 72 Atl. 614; 1 Cook, Corp. 7th ed. §§ 287, 536; 7 Century Dict. & Enc. "Surplus," 6086; 14 C. J. 802, 804; 1 Am. & Eng. Enc. Law, "Accumulated surplus," 2d ed. p. 481; Bank of Commerce v. Tennessee,

L. 128, 71 Atl. 62; Leather Mfrs. Nat. Bank v. Treat, 116 Fed. 775; People ex rel. Niagara F. Ins. Co. v. Tax & A. Comrs. 76 N. Y. 74; People ex rel. McClure Publications v. Purdy, 161 App. Div. 541, 146 N. Y. Supp. 647; People ex rel. Manhattan R. Co. v. Barker, 165 N. Y. 305, 59 N. E. 151; People ex rel. Union Trust Co. v. Coleman, 126 N. Y. 433, 12 L.R.A. 762, 27 N. E. 818; Hemenway v. Hemenway, 181 Mass. 406, 63 N. E. 919; State, People's F. Ins. Co., Prosecutors, v. Parker, 34 N. J. L. 482, 35 N. J. L. 576.

Congress refused to embody in the law an express exclusion of appreciation. The court below construed it as if it nevertheless contained such express exclusion. Such a construction should not be adopted, for it would make the act violative of the 5th Amendment of the Constitution.

United States v. Central P. R. Co. 118 U. S. 235, 241, 30 L. ed. 173, 175, 6 Sup. Ct. Rep. 1038; Brushaber v. Union P. R. Co. 240 U. S. 1, 24, 60 L. ed. 493, 504, L.R.A.1917D, 414, 36 Sup. Ct. Rep. 236, Ann. Cas. 1917B, 713.

Mr. Jesse Andrews filed a brief as amicus curia for the Long-Bell Lumber Company:

It is to be presumed that, in enacting the Revenue Act of 1917, Congress had in mind the right of corporations to issue additional stock as dividends, paid for in property already owned, the profit in which is reflected on the liability side of the balance sheet as surplus, and the probable exercise of that right, from time to time, by corporations.

2 Cook, Corp. 6th ed. 536; Thomp. Corp. § 2167; Morawetz, Priv. Corp. 2d ed. § 452; Gibbons v. Mahon, 136 U. S. 549, 34 L. ed. 525, 10 Sup. Ct. Rep. 1057; Williams v. Western U. Teleg. Co. 93 N. Y. 162; Lantz v. Moeller, 76 Wash. 429, 50 L.R.A. (N.S.) 68, 136 Pac. 687; McGinnis v. O'Connor, 111 Md. 695, 72 Atl. 614.

Stock may be issued by means of a stock dividend against any sound surplus that the corporation may have, including as well that resulting from an increase in the value of property owned by it as that purchased with earnings.

2 Cook, Corp. 536; Lantz v. Moeller, 76 Wash. 429, 50 L.R.A.(N.S.) 68, 136 Pac. 687; McGinnis v. O'Connor, supra.

The statutes or the decisions of many states require that property shall be