Opinion
January 9, 1936.
March 23, 1936.
Landlord and tenant — Lease — Construction — Payment by lessee of taxes upon dividends declared by lessor — Lessor liable for payment or collection — Tax imposed by section 213 of National Industrial Recovery Act.
Tax imposed by section 213 of the National Industrial Recovery Act upon the receipt of dividends, providing that such tax shall be deducted and withheld from the dividends by the payor corporation, and that the latter shall be liable for the tax, held within the terms of a lease which required payment by the lessee, inter alia, of all taxes upon dividends declared and paid by the lessor to its stockholders, for the payment or collection of which the lessor would be liable under any lawful authority.
Argued January 9, 1936.
Before SCHAFFER, MAXEY, DREW, LINN and BARNES, JJ.
Appeal, No. 114, Jan. T., 1936, by defendant, from judgment of C. P. No. 4, Phila. Co., Dec. T., 1933, No. 6248, in case of The North Pennsylvania Railroad Company v. Reading Company. Judgment affirmed.
Assumpsit.
Rule for judgment for want of a sufficient affidavit of defense made absolute.
The facts are stated in the opinion of the lower court, FINLETTER, P. J., as follows:
The North Penn Company leased its road to the Reading Company, under a lease which required payment, inter alia, of all taxes upon dividends declared and paid by North Penn to its stockholders for the payment or collection of which North Penn would be liable under any lawful authority.
By the National Industrial Recovery Act, section 213 (a) a tax was imposed "upon the receipt of dividends. . . . Such tax to be deducted and withheld from such dividends by the payor corporation." In other words the North Penn was by the statute made the collector of the tax.
It has been argued on behalf of the Reading that the N. I. R. tax is a tax on the receipt of the dividends by the individual stockholder, and therefore a tax due by the stockholder based on the moneys received as dividends by the stockholder.
It may be so, but the question is not to be determined by the statute alone but by the terms also of the lease. The character of the tax, whether it is an excise tax or a tax on property and the question who, under the statute, is ultimately liable are of no importance if the lease provides for payment by the lessee. Turning then to the lease, liability of Reading is not limited to taxes which are payable by North Penn as debts due by the corporation itself, but includes taxes "for the payment or collection of which North Penn would be liable." This tax is to be collected by North Penn. The statute expressly so provides. The "payor corporation shall deduct" and withhold (the tax) from such dividends; and (subsection c of section 213) "every such corporation (i. e., the 'payor corporation') is hereby made liable for such tax."
It is evident from the inclusion of payment by the lessee not only of taxes due by the corporation but also of taxes as to which it was only the collector, that the object of the lease was to see that the full dividend, unreduced by taxes, reached the stockholders.
If the only purpose had been to see that the operating lessee paid all taxes levied upon the lessor corporation there need have been no reference to taxes which it was bound or liable to collect. If the only tax which the lessee was bound to pay the lessor were a tax due by the company the reference to collection would be superfluous. But when "collection" is spoken of it must refer to sums due by a third party, which are collected by the company for the benefit of the State.
We are of opinion that, since the statute requires the tax to be collected by the lessor, and makes the latter liable, it is a tax which comes within the terms of that clause in the lease which provides that the lessee shall pay, as part of the rental, all taxes upon dividends declared and paid by North Penn to its stockholders for the collection of which North Penn would be liable under any lawful authority.
Defendant appealed.
Error assigned was decree.
Wm. Clarke Mason, with him H. Orvel Sebring, Jr., for appellant.
Ralph B. Evans, for appellee.
The judgment is affirmed on the opinion of President Judge FINLETTER.