
    Philadelphia, Germantown & Norristown Railroad Company v. Philadelphia & Reading Railway Company, Appellant.
    
      Lease — Covenant by lessee to pay taxes upon rentals — United States war excess profits tax — Railroads—Landlord and tenant.
    
    A covenant by a lessee to pay all taxes and assessments upon tbe rent payable under tbe lease, requires tbe lessee to pay tbe United States war excess profits tax assessed against tbe lessor on account of such rentals.
    
      Argued May 14, 1919.
    Appeal, No. 13, Jan. T., 1920, by defendant, from order of C. P. No. 4, Phila. Co., June T., 1918, No. 3420, making absolute rule for judgment for want of a sufficient affidavit of defense in the case of Philadelphia, Germantown and Norristown Railroad Company v. Philadelphia & Reading Railway Company.
    Before Brown, C. J., Moschzisker, Frazer, Walling, Simpson and Kephart, JJ.
    Affirmed.
    Assumpsit to recover $11,976.75 for reimbursement on account of corporation excess profits tax assessed plaintiff by United States government.
    Defendant, by its affidavit of defense, claimed that plaintiff should not have paid any excess profits tax because it was not engaged in business, its road being operated by defendant under lease, and denied that under the terms of the lease, defendant was liable for the amount of the excess profits tax.
    The court entered judgment for want of a sufficient affidavit of defense for the reasons stated in the opinion by Audenried, P. J., filed September 26,1919, as follows:
    There can be no doubt that the plaintiff was bound to pay the income tax and the war excess profits taxes assessed against it for the year 1917 by the federal government. By clause third of the lease under which defendant occupies and operates the plaintiff’s property, the former agreed to pay all taxes and assessments upon the rent reserved by the latter in that instrument, for the payment of which taxes the plaintiff would otherwise be liable. The defendant failed to pay the war excess profits tax assessed against the plaintiff for the year 1917 and it has been paid by the plaintiff, which brings this action to secure reimbursement for that which it has thus expended. It was held by our Supreme Court in North Pennsylvania R. R. Co. v. Phila. & Reading Ry. Co., 249 Pa. 326, that a covenant by the lessee to pay all taxes imposed upon the rent payable under such a lease as that with which we are here concerned, obligated it to pay the United States income tax assessed against the lessors whose annual income consisted of the rental payable by the lessee. In Philadelphia City Passenger Ry. Co. v. Phila. Rapid Transit Co., 263 Pa. 561, it was decided that in this respect the war excess profits tax stood upon the same footing with the income tax on net profits. This case is ruled by this precedent. Further discussion of the subject is not necessary. Rule for judgment is affirmed.
    Defendant appealed.
    
      Error assigned was the order of the court.
    
      Abraham M. Beitler, with him Charles Heebner, for appellant.
    The federal excess profits tax for 1917 was not applicable to a corporation which was not engaged in business during any part of 1917.
    A corporation which is not actually engaged in business and has no profits but merely income, is not liable for a tax which is essentially a tax on profits: McCoach v. Mine Hill & Schuylkill Haven R. R. Co., 228 U. S. 295; U. S. v. Emery B. T. Realty, 237 U. S. 28.
    The federal excess profits tax levied against the plaintiff for the year 1917 was neither a tax on the yearly payments made by the lessee under the lease nor a tax on the dividends declared by such lessor.
    
      Jas. Wilson Bayard, of Prichard, Sami, Bayard & Evans, for appellee.
    The appellee was bound to pay income and excess profits taxes under the Federal War Revenue Act of 1917.
    The appellant is bound under the lease under which it operates appellee’s railroad to refund any sum paid as federal income or excess profits taxes.
    June 21, 1919:
   Per Curiam,

This judgment is affirmed on the opinion of the court below making the rule for it absolute. The judgment in Philadelphia City Passenger Railway Company v. Philadelphia Rapid Transit Company was affirmed by this court in an opinion filed February 17, 1919, 26B Pa. 561.

Judgment affirmed.  