terms which, by recognized rule of construction, limit general words and terms superadded to the same general character or kind as the things previously specified. They contain no suggestion that, in addition to all taxes on the premises and nominated rent, the lessee must also pay his landlord's personal income tax, a matter of greater moment and easier description than certain of the requirements clearly and distinctly specified. It is not an unreasonable presumption that, had the contracting parties had in mind, agreed upon, or intended to impose payment of the landlord's income tax on the lessee, they would have expressed the intent in equally clear and positive language, with appropriate descriptive terms, which they could readily have done without multiplying words. In the reflected light of the matters dealt with in detail with descriptive terms, and the context surrounding the generalizing language under consideration, we are constrained to agree with the following conclusion of the trial court: 'In addition to the foregoing, it is also my conclusion that it cannot be held that the minds of the contracting parties met upon the proposition that the lessee should pay the landlord's income tax.'"

In Woodruff v. Oswego Starch Factory (1903) 177 N. Y. 23, 68 N. E. 994, affirming (1902) 70 App. Div. 481, 74 N. Y. Supp. 961, it was held that a New York statute, providing for the taxation of rents reserved in any lease in fee to the person entitled to receive the same as personal property, did not require that a tenant who had covenanted to pay all taxes, charges, and assessments on the demised premises, or on the lessor, his heirs, or assigns in respect thereof, should pay the tax imposed on the lessor on the rents reserved under the lease. In reaching this conclusion, Gray, J., argued in part as follows: "The actual controversy between these parties relates to the construction to be given to the covenant in question. The liability under this covenant is of a twofold nature. The lessee is to pay all taxes, ordinary and extraordinary,

which shall be imposed upon the demised premises, and he is also required to pay such as shall be imposed on the lessors 'in respect thereof.' The taxes in question were not assessed upon the demised premises. A tax upon rents may, doubtless, be regarded, in legal theory, as a tax upon the land; but, while as a general proposition that may be true, it has no influence upon the question here. The legislature has, for the purposes of taxation, separated the rents reserved in such leases from the real estate demised, and hence the question arises under the language of this covenant, whether, notwithstanding the legislative action, the covenantor is liable for the taxes against the lessors, as being taxes assessed in respect of the demised premises. Is the assessment, in such a case, in relation to the property demised, or is it in relation, essentially, to the rents or income therefrom? The ordinary meaning of the words employed, read in connection with the provisions of the statute, should influence our judgment. It was the view of the learned court below that the taxes to which the covenant related must be such as were directed specifically against the demised property, or against the lessors in respect of, or on account of such property, and that an assessment against the lessor upon the rents reserved under a lease, not based upon or measured by the lands leased, was not a tax in respect of the demised premises. I am inclined to that view." And upon similar facts, a like conclusion was reached in Van Rensselear v. Dennison (1850) 8 Barb. (N. Y.) 23, the theory of the decision being that a tax upon the rental reserved in a lease is neither a tax charged or assessed upon the leased "premises," nor a tax upon the lessor "for and in respect of such premises." So in Pennsylvania (Robinson v. Allegheny County (1847) 7 Pa. 161), it was held that a covenant in a lease in perpetuity, obligating the lessee to pay all taxes assessed on the demised premises without any deduction from the rent, did not include a tax assessed upon the ground rent.

Of course, a lessee may covenant for

exemption from payment of any income tax imposed upon the lessor with respect to the rent reserved in the lease. Thus, in Rensselaer & S. R. Co. v. Delaware & H. Co. (1915) 168 App. Div. 699, 154 N. Y. Supp. 739, which reversed (1915) 88 Misc. 639, 152 N. Y. Supp. 376, and which was affirmed without opinion in (1916) 217 N. Y. 692, 112 N. E. 1072, in construing a lease in perpetuity of a railroad with covenants by the lessee to pay all taxes and assessments upon the premises demised, and upon the business done upon the road, but exempting him from payment of the then present income tax, or any tax thereafter to be imposed upon the rental, it was held that a Federal income tax, imposed under the Laws of 1913 upon the rental reserved in the lease, was not chargeable to the lessee. Kellogg, J., said: "There is a broad distinction between a tax upon leased property and an income tax upon the rental. An income tax is not a tax upon specific property, but is a tax upon the annual net gain of the individual or corporation, received from its business, the use of its property, or otherwise. The obligation of a tenant to pay taxes upon demised property rests solely upon the terms of the lease. In the absence of an agreement upon that subject, they must be borne by the landlord. By the eighteenth subdivision of the lease the tenant agrees to pay the taxes levied and imposed upon the demised property. This income tax is clearly not a tax imposed upon that property. The tenant is also to pay the tax upon the business done upon the said railroads. The lease assumed, and probably correctly, that at the time there was a tax upon the business done by the railroads, or upon their earnings, and contemplated that a change in the law as to the manner of levying that tax should not affect the defendant's liability. This income tax is not the tax referred to as the tax upon the business done. The dividends to be paid by the defendant bear no relation to the business done, 9 A.L.R.-99.

and must be paid, whether the operation of the road is profitable or unprofitable. If the road is not operated, er is operated at a loss, the defendant must still pay the rental. The rental does not come from the earnings of the road, but is a direct obligation upon the defendant company for which the earnings from its other property, and all of its property, is liable. It is true for a nonpayment of the rental the lease may be forfeited, but the rental is a general liability against the defendant company, without reference to the earnings of the leased property. The income tax is based, not upon the earnings of the roads, but upon the amount of rental agreed to be paid, and is the same whether the earnings are large or small. It is a tax arising, not from the business of the roads, but from the lease. The plaintiff is in receipt of a net income under the lease, upon which the government of the United States has imposed a tax. Subdivision 19 has made clear the intent of the parties that a tax of the nature of the then income tax is not a tax contemplated by subdivision 18. The fact that for many years the plaintiff and its stockholders were relieved from an income tax is no reason why, when such a tax is again imposed (but for a less amount), they should ask the defendant to pay it. It is a tax of like nature, taking the place of the former tax, and the exemption of subdivision 18 makes it clear that the intention of the parties was that it must come from the plaintiff or its stockholders, and not from the defendant. The lease contemplates that the amount of the dividends payable to the stockholders will be decreased by whatever income tax may be imposed upon account of such dividends. The plaintiff having paid the tax, the burden falls upon the stockholders. The United States authorities treated the dividends payable to the stockholders as income of the plaintiff corporation; the argument has proceeded upon that theory, and we have so considered it." G. J. C.

247 U. S. 339, 343, 62 L. ed. 1149, 1151,

38 Sup. Ct. Rep. 543.

Congress having the right to tax undivided profits, this right cannot be destroyed by the issuance of stock certificates to represent such undivided profits, and since the certificates of stock issued in this case represent earnings of the corporation accruing subsequent to March 1, 1913, they are clearly made taxable as income by the Act of 1916.

Peabody v. Eisner, 247 U. S. 347, 62 L. ed. 1152, 38 Sup. Ct. Rep. 546; Bailey v. New York C. & H. R. R. Co. 22 Wall. 604, 635, 22 L. ed. 840, 848; Swan Brewery Co. v. Rex [1914] A. C. 234, 83 L. J. P. C. N. S. 134, 110 L. T. N. S. 211, 30 Times L. R. 199.

The Act of 1916, however, expressly taxes stock dividends, and hence Towne v. Eisner, 245 U. S. 418, 62 L. ed. 372, L.R.A.1918D, 254, 38 Sup. Ct. Rep. 158, and of Lynch v. Hornby, 247 U. S. 339, 62 L. ed. 1149, 38 Sup. Ct. Rep. 543, are not controlling.

In the Act of 1916, Congress was clearly within its power when it declared that by "dividends" it meant either cash or stock dividends, in accordance with the meaning of the term as understood and construed by the courts of most of the states.

1

Pritchitt v. Nashville Trust Co. 96 Tenn. 472, 33 L.R.A. 856, 36 S. W. 1064; Thomas v. Gregg, 78 Md. 545, 44 Am. St. Rep. 310, 28 Atl. 565; McLouth v. Hunt, 154 N. Y. 179, 39 L.R.A. 230, 48 N. E. 548; Pabst's Will, 146 Wis. 330, 131 N. W. 739; Lord v. Brooks, 52 N. H. 72; Hite v. Hite, 93 Ky. 257, 19 L.R.A. 173, 40 Am. St. Rep. 189, 20 S. W. 778; Moss's Appeal, 83 Pa. 264, 24 Am. Rep. 164; Paris v. Paris, 10 Ves. Jr. 185, 32 Eng. Reprint, 815; Tax Comr. v. Putnam (Trefry v. Putnam) 227 Mass. 522, L.R.A.1917F, 806, 116 N. E. 904; Re Osborne, 209 N. Y. 450, 50 L.R.A. (N.S.) 510, 103 N. E. 723, 823, Ann. Cas. 1915A, 298; Goodwin v. McGaughey, 108 Minn. 248, 122 N. W. 6.

Messrs. Charles E. Hughes and George Welwood Murray, for defend

ant in error:

The tax is sought to be laid upon the property in question solely by reason of ownership, and cannot be sustained unless it is authorized by the 16th Amendment.

Pollock v. Farmers' Loan & T. Co. 158 U. S. 601, 637, 39 L. ed. 1108, 1125, 15 Sup. Ct. Rep. 912; Brushaber v. Union

493, 501, 502, L.R.A.1917D, 414, 36 Sup. Ct. Rep. 236, Ann. Cas. 1917B, 713; Flint v. Stone Tracy Co. 220 U. S. 107, 55 L. ed. 389, 31 Sup. Ct. Rep. 342, Ann. Cas. 1912B, 1312; Stratton's Independence v. Howbert, 231 U. S. 399, 58 L. ed. 285, 34 Sup. Ct. Rep. 136; Doyle v. Mitchell Bros. Co. 247 U. S. 179, 182, 183, 62 L. ed. 1054, 1058, 38 Sup. Ct. Rep. 467; Hays v. Gauley Mountain Coal Co. 247 U. S. 189, 191, 192, 62 L. ed. 1061, 1062, 38 Sup. Ct. Rep. 470; Stanton v. Baltic Min. Co. 240 U. S. 103, 60 L. ed. 546, 36 Sup. Ct. Rep. 278; William E. Peck & Co. v. Lowe, 247 U. S. 165, 172, 62 L. ed. 1049, 1050, 38 Sup. Ct. Rep. 432; Southern P. Co. v. Lowe, 247 U. S. 330, 335, 62 L. ed. 1142, 1147, 38 Sup. Ct. Rep. 540.

The fundamental fact is that there was no gain or income to the defendant in error by virtue of the receipt of the additional shares constituting the stock dividend. The value of the shares held by the defendant in error was not increased by the increase in the number of shares. The shareholder was no richer than before.

Towne v. Eisner, 245 U. S. 418, 62 L. ed. 372, L.R.A.1918D, 254, 38 Sup. Ct. Rep. 158.

The tax cannot be sustained as a tax laid upon the shareholder's interest in the undivided profits of the corporation. Apart from the serious question of the validity of such a tax as an income tax, that was not the scheme of the act. It is sought to lay the tax in question upon the so-called "stock dividend" per se; that is, upon the mere readjustment of the evidence of a capital interest already owned.

Collector v. Hubbard (Brainard v. Hubbard) 12 Wall. 1, 20 L. ed. 272; Gibbons v. Mahon, 136 U. S. 549, 560, 34 L. ed. 525, 527, 10 Sup. Ct. Rep. 1057; Michigan C. R. Co. v. Collector (Michigan C. R. Co. v. Slack) 100 U. S. 595, 598, 25 L. ed. 647, 648; United States v. Erie R. Co. 106 U. S. 327, 329, 331, 27 L. ed. 151, 154, 1 Sup. Ct. Rep. 223; Barnes v. Philadelphia & R. R. Co. 17 Wall. 294, 309, 319, 21 L. ed. 544, 548, 551; United States v. Baltimore & O. R. Co. 17 Wall. 322, 21 L. ed. 597; Stockdale v. Atlantic Ins. Co. 20 Wall. 323, 329, 337, 22 L. ed. 348, 350, 353; Bailey v. New York C. & H. R. R. Co. 22 Wall. 604, 22 L. ed. 840; Bailey v. New York C. & H. R. R. Co. 106 U. S. 109, 27 L. ed. 81; Memphis & C. R. Co. v. United States, 108 U. S. 228, 234. 27 L. ed.

States v. Louisville & N. R. Co. 33 Fed. 829; Pollock v. Farmers Loan & T. Co. 157 U. S. 578, 601, 636, 39 L. ed. 818, 826, 838, 15 Sup. Ct. Rep. 673; Southern P. Co. v. Lowe, 247 U. S. 330, 336, 62 L. ed. 1142, 1147, 38 Sup. Ct. Rep. 540; Hylton v. United States, 3 Dall. 171, 1 L. ed. 556; Pacific Ins. Co. v. Soule, 7 Wall. 433, 443, 19 L. ed. 95, 98; Veazie Bank v. Fenno, 8 Wall. 533, 541, 19 L. ed. 482, 485; Brushaber v. Union P. R. Co. 240 U. S. 1, 19, 60 L. ed. 493, 502, L.R.A.1917D, 414, 36 Sup. Ct. Rep. 236, Ann. Cas. 1917B, 713; Towne v. Eisner, 245 U. S. 418, 62 L. ed. 372, L.R.A. 1918D, 254, 38 Sup. Ct. Rep. 158.

So far as the present question is concerned, the word "income" in the 16th Amendment has no broader meaning than the word "income" in the Income Tax Act of 1913, under which the question arose in the Towne Case.

Towne v. Eisner, supra; Lynch v. Hornby, 247 U. S. 344, 345, 62 L. ed. 1151, 1152, 38 Sup. Ct. Rep. 543; Swan Brewery Co. v. Rex [1914] A. C. 231, 83 L. J. P. C. N. S. 134, 110 L. T. N. S. 211, 30 Times L. R. 199; Tax Comr. v. Putnam (Trefry v. Putnam) 227 Mass. 522, L.R.A.1917F, 806, 116 N. E. 904.

Stock dividends of the sort here in question are not income within the meaning of the 16th Amendment.

People ex rel. Union Trust Co. v. Coleman, 126 N. Y. 433, 12 L.R.A. 762, 27 N. E. 818; Kaufman v. Charlottesville Woolen Mills, 93 Va. 673, 25 S. E. 1003; Williams v. Western U. Teleg. Co. 93 N. Y. 162; DeKoven v. Alsop, 205 Ill. 309, 63 L.R.A. 587, 68 N. E. 930; Gray v. Hemenway, 212 Mass. 239, 98 N. E. 789; Spooner v. Phillips, 62 Conn. 62, 16 L.R.A. 461, 24 Atl. 524; Green v. Bissell, 79 Conn. 547, 8 L.R.A. (N.S.) 1011, 118 Am. St. Rep. 156, 65 Atl. 1056, 9 Ann. Cas. 287; Terry v. Eagle Lock Co. 47 Conn. 141; Brinley v. Grou, 50 Conn. 66, 47 Am. Rep. 617; Bouch v. Sproule, L. R. 12 App. Cas. 385, 56 L. J. Ch. N. S. 1037, 57 L. T. N. S. 345, 36 Week. Rep. 193; Jones v. Evans (1913] 1 Ch. 23, 82 L. J. Ch. N. S. 12, 107 L. T. N. S. 604, 57 Sol. Jo. 60, 19 Manson, 397; Carson v. Carson [1915] 1 Ir. R. 321; Guinness v. Guinness, 6 Sc. Sess. Cas. 5th series, 104; Minot v. Paine, 99 Mass. 101, 96 Am. Dec. 705; Davis v. Jackson, 152 Mass. 58, 23 Am. St. Rep. 801, 25 N. E. 21; D'Ooge v. Leeds, 176 Mass. 558, 57 N. E. 1025; Hyde v. Holmes, 198 Mass. 287, 84 N. E. 318; Brown's Petition, 14 R. I. 371, 51 Am. Rep. 397; Billings v. Warren, 216

III. 281, 74 N. E. 1050; Lancaster Trust Co. v. Mason, 152 N. C. 660, 136 Am. St. Rep. 851, 68 S. E. 235; Great Western Min. & Mfg. Co. v. Harris, 63 C. C. A. 51, 128 Fed. 321; Kepner v. United States, 195 U. S. 100, 49 L. ed. 114, 24 Sup. Ct. Rep. 797, 1 Ann. Cas. 655; Latimer v. United States, 223 U. S. 501, 56 L. ed. 526, 32 Sup. Ct. Rep. 242.

A genuine dividend constitutes a debt between the corporation and the shareholders.

King v. Paterson & H. R. R. Co. 29 N. J. L. 504; Hunt v. O'Shea, 69 N. H. 600, 45 Atl. 480; Lockhart v. Van Alstyne, 31 Mich. 76, 18 Am. Rep. 156; Stoddard v. Shetucket Foundry Co. 34 Conn. 542.

There has been a general agreement that stock dividends declared during a trust life estate, which are based on earnings made by the corporation prior to the creation of the trust, are not income, a position fatal to the contention that stock dividends are income per se.

Re Osborne, 209 N. Y. 450, 50 L.R.A. (N.S.) 510, 103 N. E. 723, 823, Ann. Cas. 1915A, 298; Day v. Faulks, 81 N. J. Eq. 173, 88 Atl. 384.

In the case of a stock dividend, he obtains nothing but an evidence of what he already owns; he has no freedom to invest or not invest; and the investment is permanently capitalized.

Davis v. Jackson, 152 Mass. 58, 23 Am. St. Rep. 801, 25 N. E. 21.

Income may be defined as the gain derived from capital, from labor, or from both combined.

Stratton's Independence v. Howbert, 231 U. S. 399, 415, 58 L. ed. 285, 292, 34 Sup. Ct. Rep. 136; Doyle v. Mitchell Bros. Co. 247 U. S. 179, 185, 62 L. ed. 1054, 1059, 38 Sup. Ct. Rep. 467; Seligman, Income Tax, p. 19.

Of course it is not denied that income may be in the form of property, although it is well settled that, in construing an income tax act, income is taken to mean money in the absence of any special provision of law to the contrary, and not the mere expectation of receiving it.

United States v. Schillinger, 14 Blatchf. 71, Fed. Cas. No. 16,228. Mere appreciation in value of capital assets is not to be called income.

Gray v. Darlington, 15 Wall. 63, 66, 21 L. ed. 45, 46; Lynch v. Turrish, 247 U. S. 221, 231, 62 L. ed. 1087, 1093, 38 Sup. Ct. Rep. 537; Baldwin Locomotive Works v. McCoach, 136 C. C. A. 660, 221