US SUPREME COURT DECISIONS

The Corporation Tax of 1909, 36 Stat. 112, was not an income tax, but an excise upon the conduct of business in a corporate capacity, the tax being measured by reference to the income in a manner prescribed by the act itself.

Where a corporation carries a current indebtedness exceeding the .amount of its paid-up capital stock, the interest deductions allowed in determining the net income subject to the corporation tax is limited to so much of the indebtedness as does not exceed the capital.

Congress has power to adopt a basis of distinction between corporations carrying indebtedness that exceeds the amount of the capital and those that do not, and the provision in the Corporation Tax Act limiting the amount of interest deductions to so much of the indebtedness as does not exceed the capital stock is not an arbitrary classification.

The operations of corporations having indebtedness exceeding their capital stock may be considered as conducted more for the benefit of the creditors than of the stockholders, and the contributions of the corporation to the expenses of the government be admeasured with this fact in view, and so held as to a corporation having $600 capital stock and $4,750,000 bonded indebtedness.

The facts, which involve the construction of the Corporation Tax Act of 1909 and the liability of a realty corporation to pay the tax imposed thereby, are stated in the opinion. chanrobles.com-red

Page 239 U. S. 70