STOCK DIVIDENDS 25 
income of $19,877 because of the new shares; and an appeal to the Commissioner 
of Internal Revenue having been disallowed, she brought action against the 
collector to recover the tax. In her complaint she alleged the above facts, and 
contended that in imposing such a tax the revenue act of 1916 violated Article I, 
§ 2, clause 3, and Article I, § 9, clause 4, of the Constitution ofthe United States, 
requiring direct taxes to be apportioned according to population, and that the 
stock dividend was not income within the meaning of the sixteenth amendment. 
A general demurrer to the complaint was overruled upon the authority of 
Towne ». Eisner (245 U. 8S. 418); and, defendant having failed to plead further, 
final judgment went against him. To review it, the present writ of error is 
prosecuted. 
The case was argued at the last term, and reargued at the present term, both 
orally and by additional briefs. 
We are constrained to hold that the judgment of the District Court must be 
affirmed: First, because the question at issue is controlled by Towne ». Eisner, 
supra; secondly, because a reexamination of the question, with the additional 
light thrown upon it by elaborate arguments, has confirmed the view that the 
underlying ground of that decision is sound, that it disposes of the question here 
presented, and that other fundamental considerations lead to the same result. 
In Towne ». Eisner, the question was whether a stock dividend made in 1914 
against surplus earned prior to January 1, 1913, was taxable against the stock- 
holder under the act of October 3, 1913 (eh. 16, 38 Stat. 114, 166), which provided 
(§ B, p. 167) that net income should include “dividends,” and also “gains or 
profits and income derived from any source whatever.” Suit having been 
brought by a stockholder to recover the tax assessed against him by reason 
of the dividend, the District Court sustained a demurrer to the complaint. 
(242 Fed. Rep. 702.) The court treated the construction of the act as inseparable 
from the interpretation of the sixteenth amendment; and, having referred to 
Pollock ». Farmers’ Loan & Trust Co. (158 U. 8. 601), and quoted the amendment, 
proceeded very properly to say (p. 704): “It is manifest that the stock dividend 
in question can not be reached by the income tax act, and ould not even though 
Congress expressly declared it to be taxable as income, unless it is in fact income.” 
[t declined, however, to accede to the contention that in Gibbons ». Mahon 
(136 U. 8. 549), “stock dividends” had received a definition sufficiently clear to be 
controlling, treated the language of this court in that case as obiter dictum in 
respect of the matter then before it (p. 706), and examined the question as res 
nova, with the result stated. When the case came here, after overruling a motion 
to dismiss made by the Government upon the ground that the only question 
involved was the construction of the statute and not its constitutionality, we 
dealt upon the merits with the question of construction only, but disposed of 
it upon consideration of the essential nature of a stock dividend, disregarding the 
fact that the one in question was based upon surplus earnings that accrued before 
the sixteenth amendment took effect. Not only so, but we rejected the reason- 
ing of the District Court, saying (245 U. S. 426): “Notwithstanding the thought- 
ful discussion that the case received below we ean not doubt that the dividend 
was capital as well for the purposes of the income tax law as for distribution 
between tenant for life and remainderman. What was said by this court upon 
the latter question is equally true for the former. ‘A stock dividend really takes 
nothing from the property of the corporation, and adds nothing to the interests 
of the shareholders. Its property is not diminished, and their interests are not 
increased. * * * The proportional interest of each shareholder remains the 
same. The only change is in the evidence which represents that interest, the new 
shares and the original shares together representing the same proportional in- 
terest. that the original shares represented before the issue of the new ones.’ 
Gibbons ». Mahon (136 U. S. 549, 559, 560). In short, the corporation is no 
poorer and the stockholder is no richer than they were before. Logan County v. 
United States (169 U. S. 255, 261). If the plaintiff gained any small advantage 
by the change, it certainly was not an advantage of $417,450, the sum upon 
which he was taxed. * * * What has happened is that the plaintiff's old 
certificates have been split up in effect and have diminished in value to the extent 
of the value of the new.” 
# This language aptly answered not only the reasoning of the district court 
but the argument of the solicitor general in this court, which discussed the essential 
nature of a stock dividend. And if, for the reasons thus expressed, such a divi- 
dend is not to be regarded as “income” or ‘dividends’ within the meaning of 
the act of 1913, we are unable to see how it can be brought within the meaning 
80601—S. Doe. 26, 70-1——p