[1] Statutes imposing taxes are not extended by implication beyond the clear import of the language used. In a case of doubt, the doubt is to be resolved in favor of the taxpayer and against the government. Gould v. Gould, 245 U. S. 151, 153, 38 S. Ct. 53, 62 L. Ed. 211; United States v. Field, 255 U. S. 257, 41 S. Ct. 256, 65 L. Ed. 617, 18 A. L. R. 1461; Smietanka v. First Trust & Savings Bank, 257 U. S. 602, 42 S. Ct. 223, 66 L. Ed. 391; Shwab v. Doyle, 258 U. S. 529, 536, 42 S. Ct. 391, 66 L. Ed. 747, 26 A. L. R. 1454; United States v. Merriam, 263 U. S. 179, 187, 44 S. Ct. 69, 68 L. Ed. 240, 29 A. L. R. 1547; Old Colony Trust Co. v. Malley (D. C.) 288 F. 903, 910; Central R. R. Co. of New Jersey v. Duffy (C. C. A.) 289 F. 358.

[2] The defendant contends that the resolution of January 18, 1918, and that of 1917, herein before set forth, constituted the declaration of dividends which reduced the "invested capital" of the company by the amount thereof, and that the amounts so credited and not withdrawn by the stockholders, when used by the company, constituted "borrowed money," and therefore were excluded from "invested capital" of the company under the provision of section 326 (b). It is said that in each of the resolutions it was provided that the net profits for the preceding year should be divided among the stockholders in proportion to their stock ownership, and that the proportionate amounts should be credited to their individual surplus accounts. And, it is added that on the books of the company the separate individual account of each stockholder was credited with his proportionate share of the current net profits. This, it is insisted, was sufficient to constitute a declaration of a dividend. We do not share in that opinion. Neither of the resolutions, to which reference has been made, constituted the declaration of a dividend. The Century Dictionary stated that "To declare a dividend" is "to announce readiness to pay a specified dividend."

The usual manner of declaring a dividend is to pass a vote that a dividend of a designated amount per share, or of a designated percentage on the outstanding stock, be declared payable on a stated day to stockholders of record at the close of business on a designated day. If the directors intended to declare a dividend, they would have said so. But they did not in their vote make use of the term. And they did not state the amount or percentage to be

paid, or designate the time upon which it was to become payable, or even that it was to be paid at all.

In 14 C. J. 798, the term "dividend” as applied to corporate stock is defined "as that portion of the profits and surplus funds. of a corporation which has been actually set apart, by a valid act of the corporation for distribution among the stockholders according to their respective interests, in such a sense as to become segregated from the corporation, and to become the property of the stockholders distributively."

Mr. Cook in his authoritative work on Corporations (7th Ed.) vol. 2, p. 1579, § 541, states that, "when a dividend out of the earnings of a company has been regularly declared and is due, it becomes immediately the individual property of the stockholder. There is at once a severance, for the use and benefit of the members of the corporation, of so much of the accumulated earnings as are declared; and the dividend thereafter exists as a separate fund, distinct from the capital stock or surplus profits. It then becomes the absolute property of the stockholders." There is no doubt about the correctness of this statement of the law. It is abundantly sustained by the authorities, many of which are cited by the learned author.

An examination of the resolutions, upon which the government relies in this case, shows that their adoption did not work a severance of the part declared from the remainder of the accumulated earnings. It created no separate fund distinct from the capital stock or surplus profits. No fund was at any time deposited anywhere to pay the so-called "dividend." If at any time after the resolution was passed the company had failed, there was no fund "set aside" which had so become the property of the shareholders that it could not have been reached at any time by the creditors of the corporation. Moreover, at the time this socalled dividend was declared, there was no "fund" which could have been set aside, out of which it could have been paid in cash as the findings of fact made by the district judge show "that said sum of $391,892.13 was not in cash, but was invested in machinery, material in process, manufactured stock, accounts due from customers, and cash essential to the operation of the business; that no physical division or allocation of such property was ever made to the several stockholders."

It is true that a dividend need not always

be paid in cash. Dividends are also payable in stock, in bonds or scrip, or in property. But the resolutions, herein relied upon, do not upon their face indicate that they are to be paid in stock, in bonds or scrip, or in property as distinct from cash. And at the argument it was not suggested that the resolutions relied upon created other than a cash dividend. That they did not amount to a declaration of any form of dividend seems to us very clear.

The resolutions relied upon certainly did not constitute a dividend within the meaning of the Revenue Act of 1918 which expressly defined the term, and by which we must be governed in this case. The act, in title 2, 8 201 (a), 40 Stat. 1059, declares "that the term 'dividend' when used in this title (except in paragraph (10) of subdivision (a) of section 234) means (1) any distribution made by a corporation, other than a personal service corporation, to its shareholders or members, whether in cash or in other property or in stock of the corporation, out of its earnings or profits accumulated since February 28, 1913, or (2) any such distribution made by a personal service corporation out of its earnings or profits accumulated since February 28, 1913, and prior to January 1, 1918." Comp. St. Ann. Supp. 1919, § 63361⁄4gb.

And title 3, § 300, 40 Stat. 1086, declares "that when used in this title the terms 'tax able year,' 'fiscal year,' 'personal service corporation,' 'paid or accrued,' and 'dividends' shall have the same meaning as provided for the purposes of income tax in sections 200 and 201. Comp.

St. Ann. Supp. 1919, § 63367/16a.

No distribution of its accumulated earnings or profits to its shareholders or members was made in the year herein involved, either in cash, or in other property or in stock by this corporation. And the resolutions did not create any indebtedness. An indebtedness is an obligation payable on some date, or on some condition, or on demand. These resolutions fixed no time of payment, and the surplus was capitalized in machinery, raw materials, goods finished, goods in process, etc. In other words, the surplus became invested capital. The surplus became incapable of distribution or division if the corporation was to continue to function.

As respects these resolutions, and the bookkeeping entries, it may be said of them as the Supreme Court remarked in Eisner v. Macomber, 252 U. S. 189, 209, 40 S. Ct.

189, 194 (64 L. Ed. 521, 9 A. L. R. 1570), concerning certain entries therein:

"For bookkeeping purposes, the company acknowledges a liability in form to the stockholders equivalent to the aggregate par value of their stock, evidenced by a 'capital stock account.' If profits have been made and not divided they create additional bookkeeping liabilities under the head of 'profit and loss,' 'undivided profits,' 'surplus account,' or the like. None of these, however, gives to the stockholders as a body, much less to any one of them, either a claim against the going concern for any particular sum of money, or a right to any particular portion of the assets or any share in them unless or until the directors conclude that dividends shall be made and a part of the company's assets segregated from the common fund for the purpose. The dividend normally is payable in money, under exceptional circumstances in some other divisible property; and when so paid, then only (excluding, of course, a possible advantageous sale of his stock or windingup of the company) does the stockholder realize a profit or gain which becomes his separate property, and thus derive income from the capital that he or his predecessor has invested."

We are not now particularly concerned about the entries which were made in the books of the company. We may repeat what we said in Douglas v. Edwards (C. C. A.) 298 F. 229, 234, that it is well "to realize that, in this case, the rights of the parties can neither be established nor impaired by the bookkeeping methods employed, or by the names given to the various items."

[3] It may be said in passing that, in adopting the resolutions, which the government insists amounted to the declaration of a dividend, the directors of the corporation do not appear to have so intended or to have so understood their action. We may assume that they knew the law of Connecticut which gave them corporate existence and governed their action. If these resolutions constituted declarations of dividends, the directors failed to comply with the law of the state, as there is no notation of the names of the directors voting in favor of the resolutions. General Statutes of Conn. 1918, § 3423. Furthermore, if the contention of the government is correct, these officers of the corporation committed, it would seem, penal offenses in furnishing financial statements carrying a corporate surplus which indicated a worth in excess

of $400,000, where the true worth of the corporation was but $20,000, and they borrowed money on the basis of such statements.

[4] As the plaintiff employed its surplus in its business, it must have been either as "invested capital" or as "borrowed capital." The surplus having never been distributed but during the entire period was retained in its own treasury, it could not have constituted "borrowed capital." The corporation could not borrow its own funds. And the shareholders could not loan what they at no time owned or had received. The sur

plus could not constitute "borrowed capital," borrowed from the stockholders, because the stockholders at no time had a right to it, either as against the corporation or the creditors of the corporation. The only way in which the shareholders could have reached their interest in this company, and the interest herein sought to be taxed, would have been by a liquidation of the concern. This "surplus," in our opinion, did not constitute "borrowed capital" but was "invested capital," and should have been so regarded by the officials of the government. Judgment affirmed.

In prosecution of druggist for possession of liquor in violation of Volstead Act (Comp. St. Ann. Supp. 1923, § 101384 et seq.), and holding liquors for sale contrary to regulations and his permit, a single sale may be enough to show that it was an instance of habitual practice, sufficient to justify finding that whole stock is held for illicit sale.

3. Criminal law 878(4)—Acquittal on charg. es of unlawful sales and maintaining liquor nuisance, and conviction for unlawful possession, permissible on same evidence.

Notwithstanding acquittal of druggist having permit to possess liquor of maintaining a nuisance and unlawful sale of liquor, conviction on the same evidence under count charging un

lawful possession will not be disturbed, though apparently inconsistent, in that the unlawful possession could only be proved by unlawful sales.

In Error to the District Court of the United States for the Southern District of New York.

Nathan Steckler was convicted of unlawful possession of intoxicating liquor, and he brings error. Affirmed.

Writ of error on a judgment of conviction on the second count of an information under the Volstead Act (Comp. St. Ann. Supp. maintaining a nuisance; count 2, for unlaw1923, § 101384 et seq.). Count 1 was for ful possession; count 3, for an unlawful sale on April 8, 1924; count 4, for another sale on the same day. The jury acquitted the defendant on the other three counts.

Louis Bennett, of New York City, for plaintiff in error.

Emory R. Buckner, U. S. Atty., of New York City (John M. Cashin, Sp. Asst. U. S. Atty., of New York City, of counsel), for the United States.

Before ROGERS, HOUGH, and HAND, Circuit Judges.

HAND, Circuit Judge. [1, 2] Steckler was a druggist with a permit to possess liquor. It was therefore essential to a conviction under count 2 to show that his possession, prima facie legal, had been abused, and that he was holding the liquors for sale contrary to the regulation under which he did his business.. This the prosecution tried to do by proving sales of liquor at the defendant's shop. Two of such sales were laid in counts 3 and 4, and proved as of that day. A third was not laid at all. but proved as of April 11. The jury acquitted the defendant on the sale counts and on count 1 for maintaining a nuisance. The defendant's possession would not be protected under his permit, if it were shown that he was engaged habitually in unlawful sales. We accept the ruling in Lipschutz v. Quigley (D. C.) 287 F. 395. Francis Drug Co. v. Potter (D. C.) 275 F. 615, and In re Alpern et al. (D. C.) 280 F. 432, are to be read as depending upon the fact that a single sale was not enough to prove that all liquors were intended for sale. Yet, as in the case of a nuisance, a single sale may be enough to show that it was an instance of a habitual practice; that depends upon the circumstances which attended it. The evidence at bar would have justified a jury in concluding that the whole stock was held for

[3] The real point in the case is the inconsistency in the verdict. Count 2 could have been proved only by showing that the defendant had been guilty of unlawful sales, and the verdict in counts 3 and 4 showed that the jury were not willing to find the defendant guilty on the sales of April 8. It is theoretically possible that they might still have found that the sale of April 11 took place, especially as the defense was not so strong in respect of that. But, if that had been the jury's reasoning, it is impossible to account for their verdict on the nuisance count. There is a plain inconsistency in saying that the liquors were kept for sale, and in saying that the shop in which they were was not one in which the same liquors were kept for sale. We cannot, therefore, avoid the question whether this inconsistency invalidated the verdict of guilty on count 2.

The point has usually arisen where the verdict was in fact not inconsistent. Thus in Panzich v. United States, 285 F. 871 (C. C. 9), acquittal on the sale count could stand with a conviction on the count for a nuisance. The general character of the business might have persuaded the jury though they had doubts about the sale. The same was true of Carrignan v. United States, 290 F. 189 (C. C. A. 7), though the court took a broader ground. In Woods v. United States, 290 F. 957 (C. C. A. 9), the acquittal on the possession count could be reconciled with a conviction for selling because a single sale might not color the whole possession. In American Socialist Society v. United States, 266 F. 212, 214 (C. C. A. 2), we reconciled the verdicts between two defendants. No doubt it has generally been assumed that, if the verdict was rationally inconsistent, the conviction ought not to stand, and probably that was the common law, though it is hard to find a case squarely so holding.

In any event, our decision in Marshallo v. United States, 298 F. 74, rules here. That case was the converse of that at bar now, for the defendant was convicted for maintaining a nuisance and acquitted of possession. It was obviously as impossible to say that the house was one where liquors were illegally kept or sold, and to doubt that the liquors were themselves kept in the same way. In Dimmick v. United States, 121 F. 638, 642 (C. C. A. 9), 57 C. C. A. 664, the court declined to consider the effect of an

The

and while it is probable that there were formal differences between the counts in Boone v. United States, 257 F. 963, 169 C. C. A. 113 (C. C. A. 8), that does not appear. Both in that case and in Carrignan v. United States, supra, the court declined, as we did in Marshallo v. United States, supra, to consider the inconsistency. most that can be said in such cases is that the verdict shows that either in the acquittal or the conviction the jury did not speak their real conclusions, but that does not show that they were not convinced of the defendant's guilt. We interpret the acquittal as no more than their assumption of a power which they had no right to exercise, but to which they were disposed through lenity.

That the conviction may have been the result of some compromise is, of course, possible; but to consider so is to consider too curiously, unless all verdicts are to be upset on speculation. That it represented their deliberate judgment seems to us beyond any reasonable doubt. Judgment affirmed.

SCHROEDER v. UNITED STATES. (Circuit Court of Appeals, Second Circuit. May 4, 1925.)

No. 318.

1. Searches and seizures 7-Federal Consti

tution does not protect citizens against unreasonable searches by state government and its agencies.

Const. Amend. 4, does not protect citizens against unreasonable searches by state government and its agencies.

2. Criminal law 395-Liquor obtained by state and municipal officers under invalid search warrant may be used in federal court in criminal case.

Liquor obtained by state or municipal officers under invalid search warrant, or without warrant, may be used in federal court in criminal case.

3. Intoxicating liquors 239 (4)-Charge held not erroneous.

Where evidence in prosecution for possessing and transporting intoxicating liquor was sufficient for jury, there was no error in charge that jury must be satisfied beyond reasonable doubt that defendant had liquor in his possession, and must have known that the packages contained liquor with unlawful content.

4. Intoxicating liquors 173-Imposing sentence on count for possession held erroneous.

Where only act of possession was possession necessarily involved in transportation,