STOCK DIVIDENDS 27
exist for an apportionment among the States of taxes laid on income. Brushaber
v. Union Pacific R. R. Co. (240 U. 8. 1, 17-19); Stanton ». Baltic Mining Co.
(240 U. 8S. 103, 112 ét seq.); Peck & Co. v. Lowe (247 U. S. 165, 172-173).
A proper regard for its genesis, as well as its very clear language, requires also
that this amendment shall not be extended by loose construction so as to repeal
or modify, except as applied to income, those provisions of the Constitution
that require an apportionment according to population for direct taxes upon
property, real and personal. This limitation still has an appropriate and impor-
tant function, and is not to be overridden by Congress or disregarded by the courts.
In order, therefore, that the clauses cited from Article I of the Constitution
may have proper force and effect, save only as modified by the amendment,
and that the latter also may have proper effect, it becomes essential to distin-
guish between what is and what is not “income,” as the term is there used; and
to apply the distinction, as cases arise, according to truth and substance, without
regard to form. Congress can not by any definition it may adopt conclude the
matter, since it can not by legislation alter the Constitution, from which alone
it derives its power to legislate, and within whose limitations alone that power
can be lawfully exercised.
The fundamental relation of “capital” to ‘income’ has been much discussed
by economists, the former being likened to the tree or the land, the latter to
the fruit or the crop; the former depicted as a reservoir supplied from springs,
the latter as the outlet stream, to be measured by its flow during a period of
time. For the present purpose we require only a clear definition of the term
“income,” as used in common speech, in order to determine its meaning in the
amendment; and, having formed also a correct judgment as to the nature of «
stock dividend, we shall find it easy to decide the matter at issue.
After examining dictionaries in common use (Bouv. Law Dictionary; Standard
Dictionary; Webster's International Dictionary; Century Dictionary), we find
little to add to the succinet definition adopted in two cases arising under the
corporation tax act of 1909 (Stratton’s Independence ». Howbert, 231 U. S. 399,
415; Doyle v. Mitchell Bros. Co., 247 U. 8. 179, 185)—‘ Income may be defined
as the gain derived from capital, from labor, or from both combined,” provided
it be understood to include profit gained through a sale or conversion of capital
assets, to which it was applied in the Doyle case (pp. 183, 185). :
Brief as it is, it indicates the characteristic and distinguishing attribute of income
essential for a correct solution of the present controversy. The Government;
although basing its argument upon the definition as quoted, placed chief emphasise
upon the word “gain,” which was extended to include a variety of meanings,
while the significance of the next three words was either overlooked or miscon-
ceived, “Derived from capital”; “the gain derived from capital,” ete. Here
we have the essential matter; not a gain accruing to capital, not a growth or
increment of value in the investment; but a gain, a profit, something of exchange-
able value proceeding from the property, severed from the capital, however, in-
vested or employed, and coming in, being “derived” —that is, received or drawn
by the recipient (the taxpayer) for his separate use, benefit, and disposal-—that,
is income derived from property. Nothing else answers the description.
The same fundamental conception is clearly set forth in the sixteenth amend-
ment—*“‘incomes, from whatsoever source derived ”’—the essential thought being
expressed with a conciseness and lucidity entirely in harmony with the form and
style of the Constitution.
Can a stock dividend, considering its essential character, be brought. within
the definition? To answer this, regard must be bad to the nature of a corpora-
tion and the stockholder’s relation to it. We refer, of course, to a corporation
such as the one in the case at bar, organized for profit, and having a capital stock
divided into shares to which a nominal or par value is attributed.
Certainly the interest of the stockholder is a capital interest, and his certificates
of stock are but the evidence of it. They state the number of shares to whicli
he is entitled and indicate their par value and how the stock may be transferred.
They show that he or his assignors, immediate or remote, have contributed
capital to the enterprise, that he is entitled to a corresponding interest propor-
tionate to the whole, entitled to have the property and business of the company
devoted during the corporate existence to attainment of the common objects,
entitled to vote at stockholders’ meetings, to receive dividends out of the cor-
poration’s profits if and when declared, and, in the event of liquidation, to
receive a proportionate share of the net assets, if any, remaining after paying
creditors. Short of liquidation or until dividend declared he has no right to
withdraw any part of either capital or profits from the common enterprise: on
