and the assessment of the tax.

(United States v. General Inspection & Loading Co., 192 Fed. 223, 1911. Affirmed by C. C. A. 204 Fed. 657.)

The tax is one upon doing business in a corporate capacity, and receivers of an insolvent corporation, duly appointed by a court of equity, which corporation was not doing business when the act was passed, and has done no business since, are not within the act, nor required to make returns and pay taxes on the income realized by them while acting as officers of the court and under its direction. (Pennsylvania Steel Co. v. New York City Railway Co., 198 Fed. 774, 1912. C. C. A., affirming the decision of the District Court in 193 Fed. 286.)

Excepted corporations Public utilities.

The fact that plaintiff was a public utilities corporation, which, under the laws of the State, was not the owner of the property, but merely intrusted with the use thereof, which it must devote to the public, does not entitle it to more favorable treatment than other corporations; it being a corporation organized for profit, having a capital stock represented by shares, and the act making no exceptions in favor of public utilities. (Union Hollywood Water Co. v. Carter, 238 Fed. 329, 1917.)

Excepted corporations Charitable organizations.

Corporations organized under the laws of Minnesota, not for charitable or eleemosynary purposes but for the pecuniary advantage of their shareholders, Held, "organized for profit" within the meaning of the corporation tax law of August 5, 1909, and not excepted from tax liability. (Von Baumbach v. Sargent Land Co., 242 U. S. 503, 1917.)

Excepted corporations

Domestic building and loan associations.

A building and loan association, organized under the laws of Washington (Pierce's Code, secs. 7128, 7130, 7131, 7149, 7154, 7160), which loaned funds to nonmembers, issued preferred or guaranteed interest-paying stock not borrowed upon, is not within the exception in the act subjecting corporations to an annual tax, except building and loan associations organized exclusively for the mutual benefit of members. (Pacific Building and Loan Assn. v. Hartson, 201 Fed. 1011.)

A building association is not excluded from the right to such exemption as not one "organized and operated exclusively for the mutual benefit of its members" because it issues both prepaid and installment stock; the prepaid stock being entitled to a fixed dividend, payable however, only out of earnings of the association, though under its plan of operation there might be inequality in the

returns to the prepaying stockholder, etc., since the word "mutual” is not to be construed as synonymous with "equal." (Parkview Building & Loan Assn. v. Herold, 203 Fed. 876, 1913. Affirmed in Herold v. Parkview Building & Loan Assn., 210 Fed. 577.)

Issuance of prepaid stock does not destroy mutuality. (Parkview Building and Loan Assn. v. Herold, 203 Fed. 876, 1913. Affirmed by Herold v. Parkview Building & Loan Assn., 210 Fed. 577, 1914.) Held, that the final clause, "no part of the income of which,' etc., applies only to the fourth group of corporations named, i. e., religious, etc., corporations, and has no application to building associations which are organized for the express purpose of benefiting their stockholders, but that all such associations, if they come within the terms of the proviso as to organization and operation, are exempted. (Herold v. Parkview Building & Loan Assn., 210 Fed. 577, 1914.)

Borrowing money from or loaning money to nonmembers does not deprive domestic building and loan associations of exemption as organized and operated for the mutual benefit of members. (Central Building, Loan and Savings Co. v. Bowland and Bellefontaine Building & Loan Co. v. McMaken, 216 Fed. 526, 1914. U. S. D. C.)

Excepted corporations Fraternal beneficiary societies.

Fraternal beneficiary associations, not operating under the lodge system, are not included in the exemption from tax set forth in the proviso of subdivision 1 of section 38.

The absence of profit in the operation of such an association is not the criterion as to whether it is within the exemption as a fraternal beneficiary society, but the want of a fraternal side and object which it is in some measure organized to promote. (Commercial Traveler's Life & Accident Assn. v. Rodway, 235 Fed. 370, 1913.)

Foreign corporations.

Where a foreign corporation owned timber lands in a State and operated a match factory, but sold such timber lands to another company, as well as its plant, the payments to be made in installments, the foreign company to retain title until paid in full, although retaining an attorney in the State to look after its interests and an agent for service of process, as required by State statute, such corporation was not thereafter "doing business" in the State, so as to render the property sold taxable to it under Corporation Tax Act, August 5, 1909. * * * (Bryant & May, Ltd., v. Scott, 226 Fed. 875, 1914.) Where a Canadian corporation, making newspaper paper, sent agents into the United States to solicit purchasers for its product, paying their expenses, hiring desk room in the United States, empowering the salesmen to make written contracts, in part in the United States, subject to the corporation's approval in Canada, and, when

approved, to deliver the contracts, paying rent, storage charges on paper shipped into the United States, and also for work done by checks drawn on a bank in the United States, where the company kept its funds received for goods delivered in the United States to purchasers, and then, to perform its written contracts, shipped paper consigned to itself in the United States to different points, where it hired storage rooms, and had the paper delivered to itself at such rooms, where it stored it in its own name and at its own risk pending delivery, doing so for its own convenience and to insure delivery according to contract, also shipping into the United States and storing in such manner paper to meet anticipated demands, such Canadian company "did business" in the United States and "engaged in business" therein, and also "transacted business" in the United States, so that it was liable to taxation under act of August 5, 1909, and under income-tax law October 3, 1913, chapter 16, section 2, A, subdivision 1, and G (a). (Laurentide Co. v. Durey, 231 Fed. 223, 1916.)

Receivers.

The tax imposed by section 38, act August 5, 1909, is ono upon doing business in a corporate capacity, and receivers of an insolvent corporation, duly appointed by a court of equity, which corporation was not doing business when the act was passed, and has done no business since, are not within the act, nor required to make returns and pay taxes on the income realized by them while acting as officers of the court and under its direction, notwithstanding the property seized did not include the corporate franchise to be a corporation, and its organization was maintained. (Pennsylvania Steel Co. v. New York City Ry. Co., 176 Fed. 472, 1910; 193 Fed. 286, 1912; 198 Fed. 774, 1912; and United States v. Whitridge and United States v. Joline & Robinson, 231 U. S. 144, 1913.)

SUBDIVISION II, SECTION 38.

Second. Such net income shall be ascertained by deducting from the gross amount of the income of such corporation, joint-stock company or association, or insurance company, received within the year from all sources, (first) all the ordinary and necessary expenses actually paid within the year out of income in the maintenance and operation of its business and proporties, including all charges such as rentals or franchise payments, required to be made as a condition to the continued use or possession of property; (second) all losses actually sustained within the year and not compensated by insurance or otherwise, including a reasonable allowance for depreciation of property, if any, and in the case of insurance companies the sums other than dividends, paid within the year on policy and annuity contracts and the net addition, if any, required by law to be made within the year to reserve funds; (third) interest actually paid within the year on its bonded or other indebtedness to an amount of such bonded and other indebtedness not exceeding the paid-up capital stock of such corporation, joint-stock company, or association or insurance company, outstanding at the close of the year, and in the case of a bank, banking association, or trust com

pany, all interest actually paid by it within the year on deposits; (fourth) all sums paid by it within the year for taxes imposed under the authority of the United States or of any State or Territory thereof, or imposed by the government of any foreign country as a condition to carry on business therein; (fifth) all amounts received by it within the year as dividends upon stock of other corporations, joint-stock companies or associations, or insurance companies, subject to the tax hereby imposed: Provided, That in the case of a corporation, joint-stock company or association, or insurance company, organized under the laws of a foreign country, such net income shall be ascertained by deducting from the gross amount of its income received within the year from business transacted and capital invested within the United States and any of its Territories, Alaska, and the District of Columbia, (first) all the ordinary and necessary expenses actually paid within the year out of earnings in the maintenance and operation of its business and property within the United States and its Territories, Alaska, and the District of Columbia, including all charges such as rentals or franchise payments required to be made as a condition to the continued use or possession of property; (second) all losses actually sustained within the year in business conducted by it within the United States or its Territories, Alaska, or the District of Columbia not compensated by insurance or otherwise, including a reasonable allowance for depreciation of property, if any, and in the case of insurance companies the sums other than dividends, paid within the year on policy and annuity contracts and the net addition, if any, required by law to be made within the year to reserve funds; (third) interest actually paid within the year on its bonded or other indebtedness to an amount of such bonded and other indebtedness, not exceeding the proportion of its paid-up capital stock outstanding at the close of the year which the gross amount of its income for the year from business transacted and capital invested within the United States and any of its Territories, Alaska, and the District of Columbia bears to the gross amount of its income derived from all sources within and without the United States; (fourth) the sums paid by it within the year for taxes imposed under the authority of the United States or of any State or Territory thereof; (fifth) all amounts received by it within the year as dividends upon stock of other corporations, joint stock companies or associations, and insurance companies, subject to the tax hereby imposed. In the case of assessment insurance companies the actual deposit of sums with State or Territorial officers, pursuant to law, as additions to guaranty or reserve funds shall be treated as being payments required by law to reserve funds.

Deductions.

BUSINESS EXPENSES.

An ordinary expenditure by a mutual life insurance company for renewal of office furniture and equipment did not constitute assets, but was rather an expense of maintenance and operation, which it was entitled to deduct in determining the net income on which it was taxable under corporation tax act. (Mutual Benefit Life Ins. Co. v. Herold, 198 Fed. 199, 1912, and Conn. Mutual Life Ins. Co. v. Eaton, 218 Fed. 206, 1914.)

Where the State tax on capital stock of banks falls directly on the stockholders, these taxes can not be legally deducted from gross income in returns made by banks. The tax is not upon the banks, and in paying it they act as agents. (Eliot National Bank v. Gill, 210 Fed. 933, 1913, which was affirmed by C. C. A. in 218 Fed., 601, 1914, Eliot National Bank v. Gill. Same point similarly decided in National Bank of Commerce in St. Louis v. Allen, 211 Fed. 743, 1914,

which was affirmed in National Bank of Commerce in St. Louis v. Allen, 223 Fed. 472, 1915, and in Northern Trust Co. v. McCoach, 215 Fed. 991, 1914.)

Where a corporation sells its own bonds at a discount, if a loss sustained thereby is an expense it will not be paid until the maturity of the bonds, and should therefore be prorated over the life of the bonds and not deducted in full in the year in which the bonds were issued.

Government's theory that the discount should be apportioned over the lifetime of the bonds is sustained.

A book charge because of the sale of an issue of bonds at less than par or because of bad debts or for money paid out for charities is not a part of the "expenses actually paid within the year out of income" to be deducted from gross income. (Baldwin Locomotive Works v. McCoach, 215 Fed. 967, 1914. Affirmed in 221 Fed. 59, 1915, C. C. A.) and Chicago & Alton R. R. Co. v. U. S. (53 Ct. Cls. 41.)

Expenditures for additions and betterments to the property such as expenditures for sidings or spur tracks are not authorized deductions from gross income.

Payments for labor and materials which go into the actual operating of the road and the property are deductible as operating expenses. Maintenance means the upkeep or preserving of the condition of the property to be operated and does not mean additions to the equipment, additions to the property, or improvements of former condition of the road.

(Grand

Whore old rails are replaced with new and heavier rails, wooden bridges and culverts with concrete and steel bridges and culverts, the rule is that the cost of renewals with like kind and quality is allowable, but excess cost is not allowable as a deduction. Rarids & Indiana Ry. Co. v. Doyle, 245 Fed. 789, 1915.) Profits of corporation distributed to stockholders nominally as salaries not deductible from gross income as they do not differ from dividends on stock. (Jacobs & Davies (nc.) v. Collector. Decision of lower court affirmed in 228 Fed. 505, 1915.)

A corporate shipowner is entitled to deduct necessary repairs; that item not being included in "depreciation," which means the lessening in value due to obsolescence, etc. (San Francisco & P. S. S. Co. v. Scott, 253 Fed. 854, 1918.)

DEPRECIATION.

Insurance companies owning securities taken at market value may not, under this act, deduct from gross income as depreciation the net decrease in market value of such securities, as depreciation is limited to the loss in actual use value due to wear and tear reflected in a fall in money value. (Opinion of Judge Hand, U. S. D. C.