CASES ADJUDGED

IN THE

SUPREME COURT OF THE UNITED STATES

AT

OCTOBER TERM, 1922.

STATE OF WYOMING v. STATE OF COLORADO ET AL.

IN EQUITY.

No. 3, Original. October Term, 1921. Petition for rehearing denied. Modified final decree entered October 9, 1922.

The original decree, herein modified, is reported in 259 U. S., at p. 496.

Mr. Victor E. Keyes, Attorney General of the State of Colorado, Mr. William R. Ramsey, Mr. Delph E. Carpenter, Mr. Julius C. Gunter and Mr. L. Ward Bannister, for defendants, submitted the petition.

1. On consideration of the defendants' petition for a rehearing heretofore presented by leave of the court, it is considered, ordered and decreed that the decree entered herein on June 5, 1922, be modified to read as follows:

This cause having been heretofore submitted on the pleadings and the evidence taken before and reported by the commissioners appointed for the purpose, and the Court being now fully advised in the premises:

It is considered, ordered and decreed that the defendants, their officers, agents and servants, be, and they are hereby, severally enjoined from diverting or taking from the Laramie River and its tributaries in the State of Colorado more than fifteen thousand five hundred (15,500)

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acre-feet of water per annum in virtue of or through what is designated in the pleadings and evidence as the Laramie-Poudre Tunnel appropriation in that State,

Provided, that this decree shall not prejudice the right of the State of Colorado, or of any one recognized by her as duly entitled thereto, to continue to exercise the right now existing and hereby recognized to divert and take from such stream and its tributaries in that State eighteen thousand (18,000) acre-feet of water per annum in virtue of and through what is designated in the pleadings and evidence as the Skyline Ditch appropriation in that State; nor prejudice the right of that State, or of any one recognized by her as duly entitled thereto, to continue to exercise the right now existing and hereby recognized to divert and take from such stream and its tributaries in that State four thousand two hundred and fifty (4,250) acre-feet of water per annum in virtue of and through the meadow-land appropriations in that State which are named in the pleadings and evidence; nor prejudice the right of the State of Colorado, or of any one recognized by her as duly entitled thereto, to continue to exercise the right now existing and hereby recognized to divert and take from the headwaters of Deadman Creek, a Colorado tributary of the Laramie River, the relatively small amount of water appropriated therefrom prior to the year 1902 by and through what is designated in the evidence as the Wilson Supply Ditch; nor prejudice or affect the right of the State of Colorado or the State of Wyoming, or of any one recognized by either State as duly entitled thereto, to continue to exercise the right to divert and use water from Sand Creek, sometimes spoken of as a tributary of the Laramie River, in virtue of any existing and lawful appropriation of the waters of such creek;

And it is also considered, ordered and decreed that the costs of this suit be apportioned among and paid by the

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Statement of the Case.

parties thereto as follows: The State of Wyoming onethird, the State of Colorado one-third, and the two corporate defendants jointly one-third.

And it is further considered, ordered and decreed that the clerk of this Court do transmit to the chief magistrates of the States of Colorado and Wyoming copies of this decree duly authenticated under the seal of this Court.

2. In view of the modifications hereby made in the decree of June 5, 1922, the petition for rehearing in this cause is hereby denied.

LEDERER, COLLECTOR OF INTERNAL REVENUE FOR THE FIRST DISTRICT OF PENNSYLVANIA, v. STOCKTON, SOLE SURVIVING TRUSTEE OF DERBYSHIRE, DECEASED.

CERTIORARI TO THE CIRCUIT COURT OF APPEALS FOR THE THIRD CIRCUIT.

No. 16. Argued October 5, 1922.-Decided October 16, 1922.

The Income Tax Law of 1916, §§ 2 (b) and 11 (a), taxes income from trust estates, but exempts income received by any corporation organized and operated exclusively for charitable purposes no part of the net income of which inures to the benefit of any private stockholder or individual. Where a fund was held by a testamentary trustee to pay an annuity and, upon the annuitant's death to transfer the fund and accumulated interest to a hospital corporation, and the trustee lent the money to the hospital upon mortgage security receiving back only interest sufficient to satisfy his administrative charges and the annuity, held, that the remaining income, retained by the hospital, was not taxable. P. 8. 266 Fed. 676, affirmed.

CERTIORARI to a judgment of the Circuit Court of Appeals affirming a judgment recovered by the respondent Stockton, in an action to recover back money paid by him as income taxes.

Argument for Petitioner.

260 U.S.

Mr. Assistant Attorney General Ottinger, with whom Mr. Solicitor General Beck and Mr. Charles H. Weston, Special Assistant to the Attorney General, were on the brief, for petitioner.

The provision in § 11 (a) of the Act of September 8, 1916, exempting from tax "income received " by a charity, does not apply to trust income which the trustee is required to add to the principal of a fund which is to go ultimately to a charity.

The trust, as interpreted by the highest court of Pennsylvania, is an active one which can not be terminated, even with the consent of all the parties in interest. The Pennsylvania Hospital does not have legal title to the trust income or any right to its immediate possession, nor any control over its administration or management. The income of the trust is therefore not "received" by the Hospital, whether this word as used in § 11 (a) is interpreted as covering income to which a charity obtains legal title, or income to which it obtains the right of immediate possession, or income as to which it enjoys some right of control or management.

The fact that the trustee lends the balance of the trust income, after payment of the annuity, to the Hospital under a blanket mortgage and bond given by the Hospital, the Hospital paying interest on advances thus made, does not alter the situation. The moneys thus received by the Hospital are received by it, not as income, but as money borrowed, for which it is legally indebted to the trustee and which it may be required to repay to him. Certainly, the trustee and the Hospital can not enter into any voluntary arrangement which will exempt from tax income otherwise taxable.

The fact that § 11 (a) is included in a part of the law dealing exclusively with the tax on corporations and that it immediately follows § 10, which levies the tax on corporations, indicates that the exemption accorded by § 11

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Argument for Petitioner.

(a) was intended to apply solely to the taxes imposed by § 10. If this view be correct, § 11 (a) has no application to taxes imposed, as in the present case, under § 2 (b) in a part of the law dealing with the tax on individuals. But, even if this construction be not accepted, the tax exemption given in § 11 (a) with reference to "income received" can scarcely be broader in meaning or have any different scope than the tax imposed upon "income received" in § 10. Maryland Casualty Co. v. United States, 251 U. S. 342, 346.

This decision as to what constitutes income "received" by a corporation is fully applicable to the Income Tax Act of 1916, which even more explicitly than the Income Tax Act of 1913 taxes the income "received" by a corporation within the taxable year. Since, therefore, the mere possibility, probability or certainty of future payments is not "income received" upon which an income tax is imposed, the exemption from tax of "income received" by a charitable corporation can not extend to income received by a third person as to which there is a possibility, probability, or even certainty that it will be paid to a charitable corporation at some future date.

The fact that the Act of 1916 did not make any exemption in favor of income accumulated in a trust fund to go ultimately to a charity is entirely consistent with the basis upon which Congress in that act provided for the taxation of trust income. Congress there clearly expressed its intention of taxing the income of trust estates without regard for the character or interest of the ultimate beneficiaries of the estate. The tax was upon the income of the estate as such.

The provisions of § 219 (b) of the Income Tax Act of 1918, which authorized income permanently set aside for a charity to be deducted in computing the income of trust estates, raise no inference that Congress intended to permit a like deduction to be made in computing the income of trust estates under the Act of 1916.