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(274 F.) ing drink, while."sweet cider" is either unfermented juice, or juice the fermentation of which has been prevented.

[Ed. Note.-For other definitions, see Words and Phrases, First and Second Series, Cider.] At Law. Action by the Monroe Cider Vinegar & Fruit Company against Vincent H. Riordan, late Collector of Internal Revenue. Judgment for defendant.

William W. Armstrong, of Rochester, N. Y., for plaintiff.

Stephen T. Lockwood, U. S. Atty., and Edward N. Mills, Asst. U. S. Atty., both of Buffalo, N. Y. (Carl A. Mapes, Solicitor of Internal Revenue, of Washington, D. C., and Russell N. Shaw, of Washington, D. C., Atty. Treasury Department, of counsel), for defendant.

HAZEL, District Judge. [1] This is an action at law against the collector of internal revenue to recover $386.22, representing beverage taxes assessed under section 628 (a) of the act of Congress passed February 24, 1919 (Comp. St. Ann. Supp. 1919, § 616112d), and paid by plaintiff corporation under protest. The material allegations of the complaint are admitted, and it is urged that the tax assessed was collected without authority of law, in that sweet cider, the beverage in question, was not taxable as a soft drink or otherwise, and further, that the sale price, including the container, was not taxable. The Revenue Act in question, subdivision (a), provided as follows:

“Upon all unfermented grape juice, ginger ale, root beer, sarsaparilla, pop, artificial mineral waters (carbonated or not carbonated), other carbonated waters or beverages, and other soft drinks, sold by the manufacturer, producer, or importer, in bottles or other closed containers, a tax equivalent to 10 per centum of the price for which so sold.

In the earlier Act of October 3, 1917 (Comp. St. 1918, § 61611/2a, subd. [b]), omitting nonessential parts, it was provided : "Upon soft drinks

in bottles or other closed containers,

sold

a tax of one cent per gallon." The departmental regulations (article 13) relating to the taxation of soft drinks and other beverages sold in bottles or closed containers states that the term "other soft drinks" includes apple juice, loganberry juice, lime fruit juice, and other fruit juices sold as beverages, etc.

[3] The provision under which the tax in controversy was assessed does not in words include cider or sweet cider, and hence the question is whether sweet cider is taxable as a soft drink. It is commonly understood that cider is the juice of apples, either before or after fermentation; hard cider being fermented cider, a concededly strong, spirituous, and intoxicating drink, while sweet cider is either unfermented, or fermentation has been prevented. It was held a number of years ago in Eureka Vinegar Co. v. Gazette Printing Co., 35 Fed. 570, that the terms "sweet cider" and "hard cider" are in popular use to distinguish between the juices of the apple before and after fermentation; that the juice of the apple before fermentation is apple juice pure and simple, and becomes cider by fermentation only.

Sweet cider is commonly understood to be a soft drink, and as drinks of that description are specifically taxed, the assessment in question in

274 F.-47

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ny opinion, was in contemplation of the act. In enacting the law Congress had in mind the essential distinction between hard and soft cider, and the comprehensive term "soft drinks" was used to include it and other soft drink beverages fairly and reasonably coming within that classification. It is not conceivable that the law-making power intended to exclude sweet cider, which has less than one-half of 1 per centum of alcohol, from taxation, and to tax other soft drinks which also have hardly any alcoholic content. In Bradford v. Jones, 142 Ky. 820, 135 S. W. 290, the words "soft drinks" were held to mean nonintoxicating beverages, and the court took judicial notice of the fact that such beverages were sold in places where there were formerly sold intoxicating liquors. Such has become the common understanding, and therefore the language of the statute niust be taken in the sense in which it will be understood by the public. U. S. v. Isham, 17 Wall. 496, 21 L. Ed. 728; Brown v. Piper, 91 U. S. 42, 23 L. Ed. 200. Giving effect to the rules of construction enunciated in these adjudications requires me to hold that the words "other soft drinks," as used in the statute, clearly include for taxation the beverage sweet cider. There is no ambiguity in the term, and its meaning is plain, when we adhere to the comnion understanding. The doctrine of noscitur a sociis, or ejusdem generis, urged by plaintiff, need not be called upon to assist in interpreting the statute, in view of the apparent intent with which the term was used in the statute.

[2] The basis for computing the amount of the tax was the price of the beverage and container, and plaintiff challenges the same. The Commissioner of Internal Revenue, with the approval of the Secretary of the Treasury, has the right to make reasonable rules and regulations to enforce the acts of Congress with reference to the assessment and collection of internal revenue. If such rules and regulations are not in conflict with the expressed will of Congress, they have the force and effect of law (Maryland Casualty Co. v. U. S., 251 U. S. 342, 40 Sup. Ct. 155, 64 L. Ed. 297), and judicial notice will be taken of them. The language of section 628 (a)—i. e., “and other soft drinks, sold

in bottles or other closed containers, a tax equivalent to 10 percentum of the price for which so sold"-seems to me to be in thorough harmony with the letter of the statute, and Congress authorized and intended the assessment of a tax on the sale price of the beverage, since the selling price evidently comprises the amount paid by the customer for the beverage and container. Should the purchaser, however, return the container to the vendor, receiving a refund on the price paid, the regulation affords 'ample protection to the vendor from the payment of a double tax, by giving him credit therefor in the monthly return required to be filed by him. It is not unreasonable that the tax should attach when the beverage is actually sold, since the sales price includes the container. That such was the intention of Congress is quite apparent upon comparing the Revenue Acts of 1917 and 1918. The former authorized levying a tax of one cent per gallon "upon

drinks * containing less than one-half of 1 per centum of alcohol sold

in bottles or other closed contain: ers," while the latter, instead of levying a tax of one cent a gallon,

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(274 F.) authorizes a levy equivalent to 10 per cent of the price for which the beverage is sold.

My conclusion upon the question submitted is, first, that sweet cider, within the intendment of Congress, was and is a soft drink, a beverage specified under section 628 (a) of the Revenue Act of 1918, and the assessment of tax thereon by the collector was lawful; and, second, that such tax is payable upon the sales price of the beverage and the container.

The complaint does not state facts sufficient to constitute a cause of action and accordingly a judgment may be rendered for the defendant.

DOERSCHUCK v. UNITED STATES (three cases).

THOMAS V. SAME. (District Court, E. D. New York. March 17, 1921.) Internal revemie w 7–Debenture bonds issued as dividends to stockholders

held taxable as "income."

Debenture bonds, issued by a corporation to its stockholders, representing accumulated surplus or undivided profits, so far as they represent earnings since March 1, 1913, held taxable as "income" of the stockholders, under Act Sept. 8, 1916, § 2a (Comp. St. 8 6336b [a]).

[Ed. Note. For other definitions, see Words and Phrases, First and Second Series, Income.) At Law. Separate actions by Richard R. Doerschuck, by Ralph M. Thomas, by Walter J. Doerschuck, and by George C. Doerschuck against the United States. Complaints dismissed.

Harold H. Seaton, of Brooklyn, N. Y., for plaintiff.

Leroy W. Ross, U. S. Atty., of Brooklyn, N. Y. (Chas. J. Buchner, Asst. U. S. Atty., of Brooklyn, N. Y., of counsel), for the United States.

CHATFIELD, District Judge. The plaintiff in each of the above actions has paid income tax on one-quarter of an issue of debenture bonds of the North American Brewing Company, which came into the hands of the plaintiffs because of the ownership by each of 1,230 shares (or one-quarter) of the entire capital stock of said North American Brewing Company. The directors of said corporation had voted an issue of $738,000 of debenture bonds from a surplus or undivided profits amounting to $840,368.09, which had accrued between 1906 and July 1, 1916. The portion of the bonds representing surplus earned before March 1, 1913, was not taxed and hence is not involved in these actions. The balance, viz. $262,334.44, was assessed as income for the year 1916, during which year each of the plaintiffs had received his one-quarter part of said funds.

In the case of Eisner v. Macomber, 252 U. S. 189, 40 Sup. Ct. 189, 64 L. Ed. 521, 9 A. L. R. 1570, shares of stock were issued in the form of a dividend to stockholders, leaving ownership of the property in the stockholders the same as before the issuance; that is, the prop

For other cases see same topic & KEY-NUMBER in all Key-Numbered Digests & Indexes

erty representing the value of the stock was the same, and the only change was that each stockholder held two certificates, representing in the aggregate and in theory the same stock value as previously had been represented by one certificate. It was held in that case that such stock dividend was not equivalent, for the purposes of income tax, to the payment of a dividend in property or in cash, and was not to be taxable as income under Act Sept. 8, 1916, SS 1, 2, and 3 (Comp. St. $$ 6336a-6336c).

The plaintiffs in the present action rely upon the case of In re Fechheimer Fishel Co., 212 Fed. 357, 129 Ć. Č. A. 33, which holds that debenture bonds, having the characteristic features of preferred stock, are, from the standpoint of creditors of the corporation, when the corporation becomes insolvent, no different than such preferred stock. It would follow from this that, for the purpose of liquidation or dissolution of the corporation, or for consideration in insolvency or bankruptcy proceedings, such debenture holders would not rank as general creditors.

Plaintiffs also cite the case of Cass v. Realty Securities Co., 148 App. Div. 96, 132 N. Y. Supp. 1074, which held that bonds having a definite date and conditioned as were the debenture bonds in the present action were for the purposes under consideration in that case equivalent to preferred stock, and should not be considered as bonds in the usual meaning of that word. It has been held in Peabody v. Eisner, 247 U. S. 347, 38 Sup. Ct. 546, 62 L. Ed. 1152, that a dividend of shares in another corporation is taxable as income of the corporation owning the shares and distributing it as a dividend in specie rather than in money.

In Strattan's Independence v. Howbert, 231 U. S. 399, 34 Sup. Ct. 136, 58 L. Ed. 285, it was held that the transformation of ores in a mine into cash proceeds through the business of mining was a production of income, in so far as net profits were concerned, and that the amount by which the body of ore was reduced should not be added as a part of the expenses of conducting the business. This illustrates the difference between the production of income and the mere changing of form in which capital may be owned by the individual stockholder. In Eisner v. Macomber, supra, 252 U. S. at page 208, 40 Sup. Ct. at page 194, 64 L. Ed. 521, 9 A. L. R. 1570, the court says:

“The stockholder has the right to have the assets employed in the enterprise, with the incidental rights mentioned; but, as stockholder, he has no right to withdraw, only the right to persist, subject to the risk of the enterprise, and looking only to dividends for his return.”

It is apparent, therefore, in the present case, that the plaintiffs received an actual payment (in the form of securities available for disposition in the market, and entirely severed or distinguished from their control of the property as stockholders) of profits which the company wished to distribute as earnings to its stockholders. It did this by distribution of obligations which, like a promissory note, called for the payment of cash, and did not invest the holder with merely a different form of holding of stock.

There is no question here between the persons receiving this dividend and creditors as to priority of payment. Evidently, so far as these

(274 F.) debenture bonds are concerned, the corporation was solvent, and to whatever extent they might be of value this value was separated from any stockholders' control of the corporation. As stated in Eisner v. Macomber, supra, 252 U. S. at page 212, 40 Sup. Ct. at page 195, 64 L Ed. 521, 9 A. L. R. 1570:

"It is said that a stockholder may sell the new shares acquired in the stock dividend; and so he may, if he can find a buyer. It is equally true that, if he does sell, and in doing so realizes a profit, such profit, like any other, is income, and, so far as it may have arisen since the Sixteenth Amendment, is taxable by Congress without apportionment."

The debenture bonds in the suit at bar fall into the class of. stock sold father than stock held in a continued status of shareholder.

The complaints should be dismissed.

In re SOL GROSS & Co., Inc.

(District Court, S. D. New York. July 16, 1921.) Bankruptcy 384, 484—Composition not to be confirmed where allowance to

receiver exceeds that prescribed by act.

Under Bankruptcy Act, 8 480 (Comp. St. § 9632[d]), providing that on confirmation of a composition the commissions allowed a receiver or marshal shall not exceed one-half of 1 per centum of the amount to be paid creditors, and section 72 (Comp. St. § 9656), providing that “neither the referee, receiver, marshal, nor trustee shall in any form or guise receive, nor shall the court allow him, any other or further compensation for his services than that expressly authorized and prescribed in this act," a court is without power to confirm a composition which provides for compensation of a receiver in a sum largely in excess of that prescribed in section 48d.

In Bankruptcy. In the matter of Sol Gross & Co., Inc., bankrupt. On application for order confirming composition. Denied.

Hays Hershfield & Wolf, of New York City, for bankrupt.
Robert P. Levis, of New York City, for receiver.

KNOX, District Judge. From the affidavit filed herein in conformity with bankruptcy rule 17 (89 Fed. viii, 32 C. C. A. xix) it appears that the bankrupt has agreed to pay for the services and disbursements of the receiver the sum of $800. The items of disbursement are not segregated from the amount payable as fees. I assume, however, that disbursements constitute a minor portion of the amount agreed upon. The terms of the composition are that the bankrupt shall pay all priority claims, the costs of the bankruptcy proceedings, and 20 per cent. in cash upon filed and allowed claims of creditors. The cash distribution to be made to creditors amounts to $9,619.37. Waivers from creditors aggregate $9,912.85.

Section 48d of the Bankruptcy Act (Comp. St. $ 9632[d]) provides : “That in case of the confirmation of a composition such commissions shall not exceed one-half of one per centum of the amount to be paid creditors on such composition. em For other cases see same topic & KEY-NUMBER in all Key-Numbered Digests & Indexes

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