Doyle v. Mitchell Bros. Co., 247 U.S. 179 (1918)

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Doyle v. Mitchell Brothers Company

No. 492

Argued March 4, 5, 6, 1918
Decided May 20, 1918
247 U.S. 179

CERTIORARI TO THE CIRCUIT COURT OF APPEALS

FOR THE SIXTH CIRCUIT

Syllabus

The purpose of the Corporation Tax Act of August 5, 1909, c. 6, 36 Stat. 11, 112, 38, is not to tax property as such, or the mere conversion of property, but to tax the conduct of the business of corporations organized for profit by a measure based upon the gainful returns from their business operations and property from the time the act took effect.

The act employs the term "income" in its natural and obvious sense, as importing something distinct from principal or capital, and conveying the idea of gain or increase arising from corporate activities.

While a conversion of capital may result in income, in the sense of the act, where the proceeds include an increment of value, such is not the case where the increment existed when the act took effect.

In distinguishing preexisting capital from income subject to the act, it is a mere question of method whether a deduction be made from gross receipts in ascertaining gross income, or from gross income, by way of depreciation, in ascertaining net income.

Before the Corporation Tax Act, a lumber company bought timber land to supply its mills, and after the act, it manufactured part of the timber into lumber, which it sold. Held that the amount by which the timber so used had increased in value between the date of purchase and the effective date of the act was not an element of income to be considered in computing the tax.

The principle upon which the removal of minerals by mining companies has been held not to produce a depreciation within the meaning of the act is inapplicable to the case of a company engaged in the business of manufacturing and selling lumber from timber supplied by it own timber lands, and which sell the lands incidentally after the timber is removed.

The income is to be determined from the actual fact, as to which the corporate books are only evidential.

235 F. 686 affirmed.

The case is stated in the opinion.