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 Amend

ment.

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 income equal to a given percentage on the actual value of the property devoted 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

Dunlap v. United States, 173 U. S. 65, 75, 43 L. ed. 616, 619, 19 Sup. Ct. Rep. 319.

Clear language was used by which "appreciation" was included in "invested capital." This being true, the meaning could not be changed by any subsequent misunderstanding of a committee, or erroneous view of a Senator, as to the construction which should be placed upon a previous law.

United States v. Fisher, 2 Cranch, 358, 385, 2 L. ed. 304, 313; Hadden v. Collector (Hadden v. Barney) 5 Wall. 107, 109, 112, 18 L. ed. 518-520; Denn ex dem. Scott v. Reid, 10 Pet. 524, 527, 9 L. ed. 519, 520; Webster v. Luther, 163 U. S. 331, 342, 41 L. ed. 179, 182, 16 Sup. Ct. Rep. 963; United States v. Oregon & C. R. Co. 164 U. S. 526, 542, 41 L. ed. 541, 545, 17 Sup. Ct. Rep. 165; Bate Refrigerating Co. v. Sulzberger, 157 U. S. 1, 37, 39 L. ed. 601, 611, 15 Sup. Ct. Rep. 508; United States v. St. Paul, M. & M. R. Co. 247 U. S. 310, 313, 62 L. ed. 1130, 1132, 38 Sup. Ct. Rep. 528.

The words "invested capital," in their known and ordinary signification (Levy v. M'Cartee, 6 Pet. 102, 110, 8 L. ed. 334, 337), and as used in common speech (Eisner v. Macomber, 252 U. S. 189, 206, 64 L. ed. 521, 528, 9 A.L.R. 1570, 40 Sup. Ct. Rep. 192), or if taken in their natural, straightforward, and literal sense (Five Per Cent Discount Cases (United States v. M. H. Pulaski Co.) 243 U. S. 97, 107, 61 L. ed. 617, 621, 37 Sup. Ct. Rep. 346), include appreciation. Therefore, they should be so construed. This will carry into force the sense and broad purpose of the act, without regard to any refinement or any attempt to narrowly define particular statutory words.

4 Century Diet. "investment." 3173; Black's Law Dict. "investment," 643; 4 Century Dict. & Ene. 3172; 28 Cyc. 348,

ner v. Macomber, 252 U. S. 189, 211, 64 L. ed. 521, 530, 9 A.L.R. 1570, 40 Sup. Ct. Rep. 195; Black's Law Dict. 169; 9 C. J. 1278, 1279; Beach, Priv. Corp. § 466; Tradesman Pub. Co. v. Knoxville Car Wheel Co. 95 Tenn. 654, 31 L.R.A. 593, 49 Am. St. Rep. 943, 32 S. W. 1102; Morawetz, Priv. Corp. § 791; People ex rel. Union Trust Co. v. Coleman, 126 N. Y. 433, 12 L.R.A. 762, 27 Ń. E. 818; Hemenway v. Hemenway, 181 Mass. 406, 63 N. E. 919; 1 Century Dict. & Enc. "appreciate," 277; Gray v. Darlington, 15 Wall. 63, 64, 21 L. ed. 45, 46; Lynch v. Turrish, 247 U. S. 221, 230, 231, 62 L. ed. 1087, 1093, 1094, 38 Sup. Ct. Rep. 537; Bailey v. Clark, 21 Wall. 284, 287, 22 L. ed. 651, 652; Leather Mfrs.' Nat. Bank v. Treat, 62 C. C. A. 644, 128 Fed. 263; Williams v. Western U. Teleg. Co. 93 N. Y. 162; 2 Cook, Corp. 7th ed. § 536; Doyle v. Mitchell Bros. Co. 247 U. S. 179, 187, 62 L. ed. 1054, 1060, 38 Sup. Ct. Rep. 467; Lynch v. Hornby, 247 U. S. 339, 344, 62 L. ed. 1149, 1151, 38 Sup. Ct. Rep. 543; Southern P. Co. v. Lowe, 247 U. S. 330, 339, 62 L. ed. 1142, 1149, 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; Doyle v. Mitchell Bros. Co. L.R.A.1917E, 568, 149 C. C. A. 106, 235 Fed. 686, affirmed in 247 U. S. 179, 62 L. ed. 1054, 38 Sup. Ct. Rep. 467; Lynch v. Turrish, 149 C. C. A. 649, 236 Fed. 653, affirmed in 247 U. S. 221, 62 L. ed. 1087, 38 Sup. Ct. Rep. 537; 14 C. J. 803; Gulf Oil Corp. v. Lewellyn, 248 U. S. 71, 72, 63 L. ed. 133, 134, 39 Sup. Ct. Rep. 35; Bassett v. United States Cast Iron Pipe & Foundry Co. 74 N. J. Eq. 668, 70 Atl. 929, affirmed in 75 N. J. Eq. 539, 73 Atl. 514; Hyams v. Old Dominion Copper Min. & Smelting Co. 82 N. J. Eq. 507, 89 Atl. 40, affirmed in 83 N. J. Eq. 705, 92 Atl. 588.

The context does not require the words "invested capital" to be used other than in their known and ordinary signification, or other than as used in common speech, or to be taken other than in their natural, straightforward, and literal sense. These words do, in fact, include appreciation or increase of value over actual cost. The context, instead of repelling, really supports, that construction. Such appreciation was, in 1912, actually evidenced by the declaration and payment of a stock dividend in an amount equaling such increase. The effect of the transaction was not to de

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 appellant 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. Ene. 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. MeClure 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