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vessels are registered under the laws of the United States, in foreign commerce, and empowered to require such carriers to file schedules of rates, service, routes, itineraries, and ports of call.

Has supervision of through export bills of lading and form thereof.

Government-aided railroad and telegraph companies required to file certain reports and contracts with Commission, and Commission's duty to decide questions relating to interchange of such business between such Governmentaided telegraph company and any connecting telegraph company.

Railway Mail Service pay act empowers Commission to fix and determine reasonable rates and compensation for transportation of mail matter by common carriers, and prescribing method of charges.

Standard time act authorizes Commission to fix the limits of standard time zones in continental United States and Alaska.

Safety-appliance acts give to Commission jurisdiction over installation by common carriers of all safety appliances specified in statutes, and provides for methods of prosecution for violations.

Has authority to make investigations of all accidents resulting to person or the property of carrier, and to require carriers to make full reports respecting accidents.

Duty of Commission to enforce provisions of hours of service act, wherein employees engaged in or connected with movement and operation of trains are forbidden to be on duty more than a specified number of hours in twenty-four.

Required to enforce Ash-pan act, wherein it is provided that no locomotive shall be used in moving interstate or foreign commerce not equipped with an ash pan which can be emptied without requiring a man to go under such locomotive. Penalties provided.

Required to make regulations for safe transportation of explosives by common carriers. Penalties provided.

Has jurisdiction to enforce locomotive and boiler inspection acts, compelling railroads to equip their locomotives with safe and suitable boilers and appurtenances thereto. Authorized to requrie common carriers to install automatic train-stop or train-control devices. Orders of Commission therein shall be issued and published at least two years before date specified for its fulfillment.

THE LEGAL CONCEPT OF "INCOME"

as a Subject of

FEDERAL TAXATION

PART ONE.

By

HUGH C. BICKFORD, LL. M., (National University).

Former Editor of The Review and Associate Tax Counsel of the Firm of Patterson, Teele & Dennis.

CHAPTER I.

THE CONCEPT OF INCOME.

"Income" as defined by the Supreme Court: With the enactment of the Corporation Tax Act of 1909 and the adoption of the Sixteenth Amendment to the Constitution of the United States, granting Congress the power to levy taxes upon "income from whatever source received," without apportionment among the states, the determination of the meaning of the term "income" became of comprehensive concern to American taxpayers.

To Mr. Justice Pitney, of the United States Supreme Court, may rightly be given credit for first defining the term in a generally acceptable manner. In stating the opinion of the Court in the case of Stratton's Independence v. Howbert, 231 U. S. 399, he observed that income may be considered as the "gain derived from capital, from labor, or from both combined," and this definition has been generally accepted by American authorities. In this case the court was considering the Corporation Tax Act of 1909, passed prior to the adoption of the Sixteenth Amendment, and it was not until a decision was rendered in the later, and leading, case of Eisner v. Macomber, 252 U. S. 189, that this same definition was applied to the term "income" as used in the amendment itself. Mr. Justice Pitney again delivered the opinion of the Court in the Macomber Case and for the purposes of this article no better explanation of

* Part Two will be published in the spring issue of the "National University Law Review."

the amendment and its meaning can be made than by including the important parts of that opinion, as follows:

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1

"The Sixteenth Amendment must be construed in connection with the taxing clauses of the original Constitution and the effect attributed to them before the amendment was adopted. In Pollick v. Farmer's Loan & Trust Company under the Act of August 27, 1894,2 it was held that taxes upon rents and profits from real estate and upon returns from investments of personal property were in effect direct taxes upon the property from which such income arose, imposed by reason of ownership; and that Congress could not impose such taxes without apportioning them among the states according to population, as required by article 1, section 2, clause 3, and section 9, clause 4 of the original Constitution.

"Afterwards, and evidently in recognition of the limitation upon the taxing power of Congress thus determined, the Sixteenth Amendment was adopted, in words lucidly expressing the object to be accomplished.

"The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several states, and without regard to any census or enumeration.'

"As repeatedly held, this did not extend the taxing power to new subjects, but merely removed the necessity which otherwise might exist for an apportionment among the States of taxes laid on income.3

*

"In order, therefore, that the clauses cited from article 1 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

1158 U. S. 601, 15 Sup. Ct. 912, 39 L. Ed. 1108.

'28 Stat. 509, 553, c 349, No. 27.

Brubacher v. Union Pac. R. R. Co., 240 U. S. 1, 17-19, 36 Sup. Ct. 236, 60 L. Ed. 493, Ann. Cas. 1917b, 713 L. R A. 1917b, 414; Stanton v. Baltic Mining Co., 240 U. S. 103, 112 et seq., 36 Sup. Ct. 278, 60 L. Ed. 546; Peck & Co., v. Lowe, 247 U. S. 105, 172, 173, 38 Sup. Ct. 432, 62 L. Ed. 1049.

essential to distinguish 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 cannot by any definition it may adopt conclude the matter, since it cannot by legislation alter the Constitution, from which it alone 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 out-let stream, to be measured by the 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,

"After examining dictionaries in common

use

we find little to add to the succinct definition adopted in two cases arising under the Corporation Tax Act of 1909 ", * 'income may be de

fined 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.

"Brief as it is, it indicates the characteristic and distinguishing attributes of income essential for a correct solution of the present controversy. The government, although basing its argument upon the definition as quoted, placed chief emphasis upon the word "gain," which was extended to include a variety of meanings; while the significance of the next three words were either overlooked or misconceived. 'Derived-fromcapital;' the 'gain-derived—from—capital,' etc. 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

(Bouv. L. D., Standard Dict.; Webster's Internat. Dict.; Century Dict.) 'Stratton's Independence v. Howbert, supra; Doyle v. Mitchell Bros. Co., 147 U. S. 179, 185, 38 Sup. Ct. 467-469, 62 L. Ed. 1054.

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