
    STUYVESANT TOWN CORPORATION (A CORPORATION) v. THE UNITED STATES
    [No. 49770.
    Decided April 7, 1953]
    
    
      
      The Reporter’s statement of the case:
    
      Messrs. Eugene Meacham and Daniel O. Dechert for the plaintiff.
    
      Mr. Joseph S. Sheppard, with whom was Mr. Acting Assistant Attorney General Ellis N. Slack, for the defendant. Mr. Andrew D. Sharpe was on the brief.
    
      
       Plaintiff’s petition for writ of certiorari pending.
    
   Littleton, Judge,

delivered the opinion of the court:

The plaintiff seeks to recover documentary stamp taxes in the amount of $110,321.20 alleged to have been erroneously collected from plaintiff on the issuance by it of approximately $100,290,000 worth of “income debenture certificates.” These instruments were issued by plaintiff, a wholly owned subsidiary of the Metropolitan Life Insurance Company, to its parent corporation to evidence sums of money advanced by Metropolitan to plaintiff. The question presented is whether the “income debenture certificates” so issued are subject to the documentary stamp tax imposed by section 1801 of the Internal Revenue Code, 26 U. S. C. (1946 Ed.) § 1801.

Plaintiff corporation was organized under the laws of the State of New York, with its principal place of business located in New York City. Pursuant to the provisions of the Redevelopment Companies Law of New York, the Metropolitan Life Insurance Company, a New York corporation, caused the plaintiff corporation to be organized April 28, 1943, as a wholly owned subsidiary, for the purpose of rehabilitating and modernizing substandard and unsanitary areas in the City of New York.

The plaintiff’s certificate of incorporation sets forth, inter alia, the purposes for which the corporation was to be formed; that the capital stock of the corporation should consist of ten shares of the par value of one hundred dollars each.; that the corporation might issue income debenture certificates as provided in section eleven of the Redevelopment Companies Law, with interest payable only out of net earnings of the corporation that would be applicable to payment of dividends if there were no income debentures, and that mortgage indebtedness, income debenture certificates, and stock oif the corporation might be retired if, as, and when, there should be funds available for amortization purposes in its treasury.

On June 1,1943, the City of New York, the plaintiff, and the Metropolitan Life Insurance Co., entered into an agreement, pursuant to the Redevelopment Companies Law, for the undertaking of a redevelopment project of a substandard area on the Island of Manhattan. The agreement contemplated that plaintiff would clear the buildings from this area and erect therein a project known as Stuyvesant Town, consisting of apartment buildings having controlled moderate rentals. Title to the area was to be acquired to the extent necessary by the City of New York for the plaintiff, who would then reimburse the City for the cost.

The agreement is set out in part in finding 4. Among other provisions, the agreement specified that the capital structure of plaintiff would consist of not more than ten shares of capital stock of the par value of one hundred dollars per share, and income debenture certificates which should be issued in an aggregate principal amount equal to that part of the total actual final cost of the project which should exceed the par value of the capital stock. The agreement further provided that each debenture should mature by its terms January 1,1984, and should bear interest at 4^ percent per annum. Metropolitan agreed to own all of the stock and debentures of the corporation, and during the period of local and municipal tax exemption as provided for in sections 306 and 601, not to sell, assign, or otherwise transfer any of the stock or debentures without the consent of the Board of Estimate of the City of New York.

The local tax exemption above referred to was for a period of 25 years from the date of the completion of the project, except that plaintiff might, at any time after five years from the completion of the project, terminate the exemption upon the terms and conditions set forth in section 601.

Plaintiff completed the project known as Stuyvesant Town on July 1, 1949. During the progress of the work, and in conformity with the agreement of June 1,1943, Metropolitan advanced and loaned to plaintiff on some forty-nine different occasions varying amounts of money. These advances or loans were evidenced by a similar number of income debenture certificates issued by plaintiff to Metropolitan. These certificates were identical in form, the only differences being as to the face amount, the date of issuance, and the number in the upper left hand corner. They were on plain white paper, did not bear the seal of the corporation, did not have interest coupons attached, and were not in registered form. The form and contents of the certificates are substantially set out in finding 5.

These certificates were nonnegotiable, and could be assigned only in compliance with the terms and conditions of the agreement between the plaintiff, Metropolitan, and the City of New York.

As before stated, plaintiff is a wholly owned subsidiary of Metropolitan. The officers and directors of plaintiff are, with one exception, also officers and directors of Metropolitan. Plaintiff’s assistant treasurer and manager of the project is not an officer or director of Metropolitan. The officers and directors who are common to the two corporations are paid entirely by Metropolitan, and there are no salaried employees or officers of plaintiff at the home office of Metropolitan.

The general counsel of Metropolitan is also the secretary and a director of plaintiff, and when it appeared during the course of the project that plaintiff needed money, the project manager of plaintiff would advise the general counsel of Metropolitan of that fact. The income debenture certificate book was kept in Metropolitan’s vault, and the general counsel would prepare a requisition for it on receipt of a request for funds. He would then prepare the income debenture certificate in the amount of the funds required, and authorize the drawing óf a check for the documentary stamps attributable to the issuance of the certificate. A letter was then sent to Metropolitan’s comptroller requesting that a check be drawn for the amount involved, whereupon the general counsel, apparently acting in his capacity as secretary of plaintiff, would turn over to Metropolitan the executed debenture certificate and receive Metropolitan’s check. The executed certificate was then placed in Metropolitan’s vault, and the check was deposited in plaintiff’s bank account in the Chase National Bank. This procedure was followed in issuing each of the 49 certificates here involved.

Prior to the issuance of any of the certificates, Metropolitan’s general counsel sent a letter to the Commissioner of Internal Revenue on May 19, 1943, in which he requested a ruling as to whether the certificates would be subject to tax under section 1801 of the Internal Revenue Code. On May 31, 1943, the Commissioner replied that in his opinion they were so taxable on either of two bases, that is, as a debenture, or as a certificate of indebtedness. In accordance with the Commissioner’s ruling, plaintiff paid at various times between April 30, 1945, and March 1, 1949, sums aggregating $110,321.20 for documentary stamps which were duly affixed to the certificates issued to Metropolitan.

On April 29,1949, plaintiff filed a claim for refund of this amount, and on August 18,1949, the Commissioner rejected the claim. See finding 10.

Sections 1800 and 1801 of the Internal Revenue Code, 26 U. S. C. (1946 Ed.), read in part as follows:

§ 1800. Imposition op tax.
There shall be levied, collected, and paid, for and in respect of the several bonds, debentures, or certificates of stock and of indebtedness, and other documents, instruments, matters, and things mentioned and described in sections 1801 to 1807, inclusive, or for or in respect of the vellum, parchment, or paper upon which such instruments, matters, or things, or any of them, are written or printed, the several taxes specified in such sections.
§ 1801. Corporate securities.
On all bonds, debentures, or certificates of indebtedness issued by any corporation, and all instruments, however termed, issued by any corporation with interest coupons or in registered form, known generally as corporate securities, on each $100 of face value or fraction thereof, 11 cents: * * *.

Plaintiff contends that the tax imposed by section 1801 does not apply to the income debenture certificates (1), because they are not known generally as corporate securities, and (2), because they do not bear interest coupons and are not in registered form. Defendant takes the position that, in order for section 1801 to apply, it is not necessary to the imposition of the tax by Sec. 1800 that instruments be known generally as corporate securities, or that they bear interest coupons or be in registered form.

The evidence is clear and convincing, and defendant concedes, that the income debenture certificates issued by plaintiff are not of the type known generally to those who deal in the corporate security trade as bonds, debentures, certificates of indebtedness, or corporate securities.

In Wilkinson v. Mutual Bldg. & Sav. Ass'n., 13 F. 2d. 997, construing a similar section in the Revenue Act of 1921, the court said, at p. 998:

* * * The words “known generally as corporate securities,” must be held, not only by reason of the subject-matter of the section, but also by reason of the punctuation, to refer to “bonds, debentures or certificates of indebtedness,” as well as to those instruments specifically referred to as being issued by corporations. * * *

In G. C. M. 11794,1933 Cum. Bull., p. 425, it is said:

The position taken by the court [in the Willdnson case] has been followed by the Bureau. Accordingly, in order to be subject to the tax imposed by Schedule A-l [of the Revenue Act of 1926], instruments of indebtedness must not only (1) fall within one of the four classes of instruments described in the statute, namely, (a) bonds, (b) debentures, (c) certificates of indebtedness, and (d) instruments bearing interest coupons or in registered form, but must also (2) be such as are known generally as corporate securities.

Since that time, however, the matter has been considered by other courts, and a contrary conclusion reached. The Bureau of Internal Revenue has also changed its position on the question. As we are in agreement with the later cases as showing the correct interpretation of the statute, we must decline to follow the conclusion reached in the Wilkinson case.

A construction of the statute which would require all corporate instruments to be “known generally as corporate securities” in order to be subject to the stamp tax is, we think, unjustified. We think that it is apparent from the face of the statute that Congress contemplated a stamp tax upon two classes of corporate instruments, namely, (1) bonds, debentures, and certificates issued by a corporation, which are among the ordinary and usual methods of attracting capital for the carrying on of the business of the corporation, whether known generally as corporate securities or not, and (2) all other instruments, however termed, bearing interest coupons or in registered form and known generally as corporate securities. General Motors Acceptance Corporation v. Higgins, 161 F. 2d 593, cert. den. 332 U. S. 810; In Re Follansbee Bros. Co., 42 F. Supp. 448; Commercial Credit Co. v. Hofferbert, 93 F. Supp. 562, affirmed per curiam, 188 F. 2d 574.

An examination of the history of the stamp tax legislation supports this conclusion. Section 1801, supra, is derived from Schedule A of the Revenue Act of 1898, 31 Stat. 940, which imposed a tax upon certain designated instruments, including bonds, debentures, and certificates of indebtedness. The phrase “* * * and all instruments, however termed, issued by any corporation with interest coupons or in registered form, known generally as corporate securities,” was added by amendment in the Revenue Act of 1918, 40 Stat. 1057, 1135. This amendment must have been intended to increase the scope of what is now section 1801 by adding to what was already taxable, viz., bonds, debentures, and certificates of indebtedness issued by any corporation, all other instruments, however termed, issued by any corporation with interest coupons or in registered form if the instruments to which taxation was extended were known generally as corporate securities.

Treasury Regulations 71 (1941) reads in pertinent part:

Seo. 113.50. Scope op tax. — Section 1801 imposes a tax upon the issue by any corporation of bonds, debentures, certificates of indebtedness, and all instruments, however termed, with interest coupons or in registered form and known generally as corporate securities. Every renewal of the above described instruments is taxable as a new issue. [Italics supplied.]
Sec. 113.55. Issues subject to tax. — Ordinarily, a corporate instrument styled a bond, debenture, or certificate of indebtedness is subject to the tax. However, the taxability of an instrument is not determined by the name alone but depends upon all the circumstances, such as the name, form, and terms of the instrument, etc. Hence, an instrument, however designated, having all the essential characteristics of a bond debenture, or certificate of indebtedness is taxable as such. Similarly, an instrument issued with interest coupons, or with provision for registration, and coming within the class known generally as corporate securities will be held subject to the tax regardless of the name by which it may be called. [Italics supplied.]

The language of these regulations is consistent with our interpretation of the statute, and lends weight to the conclusion we have expressed above. The regulations should not be disregarded or overruled except for weighty reasons. Commissioner v. South Texas Lumber Co., 333 U. S. 496, 501.

Accordingly, we must reject plaintiff’s contention that the words “with interest coupons or in registered form, known generally as corporate securities,” appearing in section 1801, were intended to modify or qualify the terms “bonds, debentures, and certificates of indebtedness issued by any corporation,” set forth in section 1800.

In reaching this conclusion, we have carefully considered the many cases cited by plaintiff in its briefs, but we find in them no sound reason for reaching a different result. In Fidelity Investment Association v. United States, 78 C. Cls. 333, cert. den. 291 U. S. 685, the issue was whether “Special income contracts” and “Special annuity contracts,” which concededly were not taxable as bonds, debentures, or certificates of indebtedness, were “known generally as corporate securities.” As we found that they were not so known, we held that the tax did not apply. We find nothing in the facts of that case which requires a conclusion contrary to our decision on the facts in the present case, as applied to the language of the statute.

Plaintiff next contends that even if instruments can be bonds, debentures, or certificates of indebtedness although not “known generally as corporate securities,” the income debenture certificates issued by plaintiff to Metropolitan are not within the intendment of section 1801. The essence of this argument is that the words used in the statute refer to instruments with essential characteristics absent in the instant case. Defendant says that the instruments were properly taxed by the Commissioner on either of two bases, that is, as debentures, or as certificates of indebtedness.

The income debenture certificates were without seal, on plain white paper, were nonnegotiable, and were assignable only with the consent of the Board of Estimate of the City of New York. Plaintiff contends that the extraordinary characteristics of the instruments place them in a class apart from and outside of section 1801. Defendant places primary reliance on General Motors Acceptance Corp. v. Higgins, supra, and Commercial Credit Co. v. Hofferbert, supra. The instruments issued by Stuyvesant were clearly more than mere evidences of debt. The income debenture certificates were intended to, and did, represent a long-term investment by Metropolitan in the Stuyvesant Town Project carried on by its wholly owned subsidiary. As such, it is believed that the decision of the Treasury Department and our conclusion herein that the instruments were subject to the stamp tax imposed by sections 1800 and 1801 are sound. Cf. United States v. Ely & Walker Dry Goods Co., 201 F. 2d 584.

Treasury Regulations 71, promulgated in connection with the statute, do not expressly define the terms “bonds, debentures, or certificates of indebtedness.” In pertinent part, section 113.55 reads: “Hence, an instrument, however designated, having all the essential characteristics of a bond, debenture, or certificate of indebtedness is taxable as such.”

We think it significant that no effort has been made to define precisely the meaning of the words used in the statute. Taxing statutes are to be construed and given effect in the light of the taxing purpose they evidence, Burnet v. Harmel, 287 U. S. 103, and it was obviously contemplated by the Congress that the statute in question should be construed as being broad and comprehensive in scope. Fidelity Investment Association v. United States, supra; Motter v. Bankers Mortgage Co., 93 F. 2d. 778, cert. den. 304 U. S. 568; Willcuts v. Investors’ Syndicate, 57 F. 2d. 811, cert. den. 287 U. S. 618. The reach of a taxing statute whose purpose is as obvious as the present is not to be restricted by technical refinements. Raybestos-Manhattan Co. v. United States, 296 U. S. 60.

The tax imposed by Congress by the enactment of sections 1800 and 1801 was intended to apply to an infinite number and variety of transactions whereby a corporation, through the issuance of certificates and securities, obtained the necessary funds with which to carry out its corporate functions. We are of the opinion that the consequences of a statute as all-inclusive as the present one cannot be avoided merely because of the absence of a corporate seal, or because of the fact that the instruments are not printed on tinted paper with engraved borders, etc. The negotiability or assign-ability of corporate securities is of importance in determining their attractiveness for investment purposes, but it cannot be entirely determinative of the incidence of the stamp tax act upon the securities.

We find it unnecessary to decide whether the income debenture certificates are technically “debentures” or “certificates of indebtedness,” for the reason that, in our opinion, the terms and purposes of the income debenture certificates combine to put them well within the class of investment securities which Congress intended to tax.

It accordingly follows that the action of the Commissioner in taxing the income debenture certificates was proper, and plaintiff’s petition is therefore dismissed.

It is so ordered.

Howell, Judge; Madden, Judge; Whitaker, Judge; and Jones, Chief Judge, concur.

FINDINGS OF FACT

The court makes findings of fact, based upon the evidence, the report oí Commissioner Richard H. Akers, and the briefs and argument of counsel, as follows:

1. The plaintiff is a corporation organized and existing under the laws of the State of New York with its principal place of business at One Madison Avenue, New York, New York.

2. Pursuant to the provisions of the Redevelopment Companies Law of New York (Chapter 2, Title 11 of the Unconsolidated Laws of New York, Sections 3401-3426, enacted by Chapter 845 of the Laws of 1942, as amended by Chapter 234 of the Laws of 1943), the Metropolitan Life Insurance Company, organized and existing under the Insurance Law of the State of New York and hereinafter sometimes called “Metropolitan”, caused the plaintiff corporation to be organized on or about April 28,1943, as a wholly owned subsidiary for the purpose of rehabilitating and modernizing substandard and unsanitary areas in the City of New York.

3. The plaintiff’s certificate of incorporation states that it is prepared “pursuant to Section 4 of the Redevelopment Companies Law” and reads in part as follows:

2. The purposes for which the Corporation is to be formed are as follows:
(a) To acquire one or more areas under a plan or plans, and to construct, own, maintain, operate, improve, develop, sell, transfer, mortgage, lease, and convey projects and real or personal property, tangible or intangible, of every kind and description used or useful in connection with any project, pursuant to the terms and provisions of the Redevelopment Companies Law; and
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4. The capital stock of the Corporation shall consist of ten shares of the par value of one hundred dollars each, all of which shall be of the same class and limited in respect of dividends to the rate of four and one-half per centum per annum.
* * * * *
_ 10. The Corporation may issue income debenture certificates, as provided in section eleven of the Redevelopment Companies Law. Subject to the provisions of the Redevelopment Companies Law, interest shall be paid on such income debenture certificates only out of net earnings of the Corporation that would be applicable to payment of dividends if there were no income debentures.
* * * * *
16. Mortgage indebtedness, income debenture certificates and stock of the Corporation may be retired, if, as and when there shall be funds available for amortization purposes in its treasury.

4. Under date of June 1, 1943, and pursuant to the provisions of the Redevelopment Companies Law, the City of New York, Stuyvesant Town Corporation (plaintiff), and the Metropolitan Life Insurance Company entered into an agreement for the undertaking of a redevelopment project, as defined in the act, of a substandard area on the Island of Manhattan comprehended by East 14th and East 20th Streets and First Avenue, Marginal Street (East River Drive) and Avenue C, together with certain other properties in that vicinity. The agreement contemplated the clearance of the area by the plaintiff and the erection by the plaintiff within such area of a project known as Stuyvesant Town consisting of apartment buildings having controlled moderate rentals. Title to the area was to be acquired to the extent necessary by the City of New York for the plaintiff at the latter’s cost. In that agreement the Metropolitan Life Insurance Company is referred to as “Metropolitan” and the plaintiff as “Corporation”. The agreement read in part as follows:

301. Metropolitan and the corporation agree that the capital structure of the Corporation shall consist of not more than ten (10) shares of capital stock, of the par value of One Hundred Dollars ($100) per share, limited to cumulative dividends of Four and 50/100 Dollars ($4.50) per share per annum, and income debenture certificates (hereinafter called debentures) which shall be issued in an amount equal to that part of the total actual final cost of the project which exceeds the par value of such capital stock.
302. Metropolitan shall from time to time lend to the Corporation moneys in an aggregate principal amount equal to that part of the total actual final cost of the project which exceeds the par value of such capital stock. Each such loan, including any loans to supply moneys for the deposit or deposits contemplated by paragraph 203 of Article II hereof, shall be made as such moneys shall reasonably be required by the Corporation.
In consideration of such loans, the Corporation shall, as each such loan is made, issue to Metropolitan its debentures dated as of the date and in the amount of such loan. The Corporation shall not issue stock or debentures except in anticipation of or to provide for expenditures properly included within the total actual final cost, and in no event shall the Corporation issue a total of stock and debentures in an amount greater in the aggregate than the total actual final cost of the project.
303. The Corporation shall not mortgage any portion of the property comprising the area without the consent of the City.
304. Each debenture shall mature by its terms January 1,1984, and shall bear interest from the date thereof at the rate of four and one-half per centum (4%%) per annum payable as hereinafter provided, and the Corporation shall make annual payments to Metropolitan for amortization (without premium) of the principal debt represented by the debentures, on the dates, in the amounts and to the extent hereinafter provided. Interest on the debentures for each calendar year shall accrue during such year and, if and to the extent that available earnings as of December 31 of such year, shall be sufficient therefor, shall be payable on the first date thereafter on which such available earnings shall be determined, in no event later than the next succeeding March 1. Such date of each year is hereinafter referred to as the annual payment date. Amortization in respect of each calendar year shall accrue during such year, and shall be an amount equal to, and shall be limited to, the excess of six per centum (6%) of the total actual final cost of the project over the amount of interest and dividends accrued on the debentures and stock of the Corporation for such year; and, to the extent that available earnings as of December 31 of such year shall be sufficient therefor after providing for the payment of interest accrued for such year and accumulated unpaid interest for prior years, shall be payable on the next annual payment date.
Any deficiency in such interest and amortization in any year shall be paid, from the first available earnings, in subsequent years as hereinafter provided. Interest accrued for any calendar year or portion thereof and not paid on the next annual payment date shall, together with accumulated unpaid interest for prior years, accumulate and become payable on the annual payment date in the next succeeding year to the extent that available earnings as of the December 31 next preceding such annual payment date are sufficient therefor; provided, however, that interest accruing prior to the date of actual completion of the project snail (to the extent not theretofore paid) be deemed a part of the total actual final cost of the project and shall be added to the indebtedness of the Corporation and shall be incorporated in one or more debentures, to be delivered to Metropolitan and to be dated as of, and to bear interest from, the date of actual completion of the project. Amortization accrued for any calendar year and not paid on the next annual payment date shall, together with accumulated unpaid amortization for prior years, accumulate and become payable on the annual payment date in the next succeeding year to the extent that available earnings as of the December 31 next preceding such annual payment date are sufficient therefor after providing for current and accumulated interest.
Each amortization payment shall be applied, as of the date when made, to the reduction of the principal debt represented by the debentures then outstanding. Interest on the principal amount of debentures so paid shall accrue to the date of such amortization payment, and shall be payable out of available earnings on or before the next annual payment date, and if not so paid shall accumulate and be payable as hereinabove provided.
The stock of the Corporation shall bear dividends at the rate of four and one-half per centum (4/2%) per annum, payable for the preceding calendar year on each annual payment date out of available earnings, after providing for the payment of current and accumulated interest and amortization. Unpaid dividends shall be cumulative whether or not earned and shall be paid on annual payment dates in subsequent years from the first available earnings after providing for the payment of current and accumulated interest and amortization.
At the time the principal amount of all the debentures outstanding shall become or be due and payable or be paid, whether at maturity of the debentures or in connection with a dissolution of the Corporation or otherwise, all accumulated and accrued unpaid interest on the debentures shall become and be immediately and unconditionally due and payable and shall be paid from any assets of the Corporation. In connection with any dissolution of the Corporation all accrued and accumulated unpaid dividends on the stock of the Corporation outstanding immediately prior to such dissolution shall become and be immediately and unconditionally due and payable and shall be paid from any assets of the Corporation.
305. The debentures shall be issuable in any denomination or denominations, and need not be under seal. Metropolitan may, at any time and from time to time, at its option surrender any or all of the debentures and receive in exchange therefor a debenture or debentures of equal aggregate principal amount and of any denomination or denominations. Upon receipt of evidence, satisfactory to the Corporation, of the loss, theft, destruction or mutilation of any debenture, and upon surrender and cancellation of such debenture, if mutilated, the Corporation will deliver to Metropolitan a new debenture of like amount, in lieu of such lost, stolen, destroyed or mutilated debenture. Upon the making of any amortization payment on any debenture, the Corporation will, upon surrender of said debenture, deliver to Metropolitan a new_ debenture for the aggregate principal amount remaining unpaid on the debenture so surrendered, or, at the option of Metropolitan, the debenture on which such payment shall have been made may be presented to the Corporation for the notation thereon of payment of the portion of the principal thereof so paid. Debentures delivered in accordance with the provisions of this paragraph shall be dated as of the date to which interest has been paid on the debenture or debentures so exchanged or replaced.
306. Pursuant to Section 26 of the Enabling Act, the City, acting by its Board of Estimate, agrees to, and hereby does, exempt, from local and municipal taxes, other than assessments for local improvements, all of the value of the property (including land formerly constituting streets) included in the project which represents an increase over the assessed valuation of the real property, both land and improvements, acquired for the project at the time of its acquisition by the Corporation for the period (subject to paragraph 601 of Article VT of this contract) of twenty-five (25) years, commencing from the date on which the benefits of such exemption first become available and effective. The date on which the benefits of such exemption shall first become available and effective shall be the date of completion of the project.
* * * * *
307. The Corporation agrees that during the period of tax exemption provided in paragraph 306 of this Article it shall not charge rentals for residential apartments in buildings constructed in the area constituting the project at rates in the aggregate exceeding an average rental of Fourteen Dollars ($14) per month per room; provided, however, that if the revenue derived from such rental should be insufficient, after the payment of all proper and reasonable expenses, taxes and assessments, to provide a sum for interest, amortization and dividends equal to but not exceeding six per centum (6%) per annum of the total actual final cost of the project, then the Corporation shall make application to the Board of Estimate of the City for permission to increase the maximum average rental per month per room and give evidence to said Board of Estimate that under the existing rentals it is not possible to pay annually out of available earnings, the sums for interest, amortization and dividends accruing as provided in paragraph 304 of this Article. If upon public hearing duly had, such facts shall be established by a preponderance of the credible evidence, the Board of Estimate shall grant the application of the Corporation to increase the maximum average rental per month per room by an amount sufficient to provide such sums annually thereafter and to provide the sums for interest, amortization and dividends theretofore accumulated and unpaid. If after such hearing the Board of Estimate refuses to grant the application of the Corporation as and to the extent requested, then the Corporation shall have the right to cause the action of the Board of Estimate to be reviewed by instituting an appropriate proceeding under Article 78 of the Civil Practice Act for such purpose.
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308. Metropolitan shall provide from time to time as necessary for the operation of the project or any portion thereof amounts for working capital equivalent in the aggregate to three per centum (3%) of the estimated total actual final cost of the project or of the total actual final cost of the project, if the total actual final cost shall be greater than such estimated cost. The total amount of such working capital shall be provided not later than the date of completion of the project, or the earliest date thereafter upon which the total actual final cost of the project shall be determined. Debentures in principal amount equal to the amounts so provided shall from time to time as such amounts are advanced be issued and delivered to Metropolitan as hereinbefore provided.
309. Metropolitan owns or shall own all of the stock and debentures of the Corporation, and during the period of tax exemption Metropolitan shall not sell, assign or otherwise transfer any of said stock or debentures without the consent of the Board of Estimate of the City.
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601. The Corporation may at any time after five years from the completion of the project elect to pay to the City the total of all accrued taxes for which exemption has been granted and received under paragraph 306 of Article III of this contract, together with interest at the rate of five per centum (5%) per annum (computed without rests) from the final date upon which such taxes would have been payable without penalty or interest in the absence of such exemption. For tms purpose the Corporation may use any cash surplus in its treasury, whether or not constituting earned surplus or contributed capital. Upon such payment the tax exemption of the project shall thereupon cease and terminate.
:f: # $ %
603. Upon dissolution of the Corporation in accordance with the provisions of Section 24 of the Enabling Act there shall be paid into the general fund of the City any cash surplus derived from earnings and remaining in the treasury of the Corporation after providing for the payment of all current operating expenses, all taxes (including, without limitation, all accrued taxes, and interest thereon, which the Corporation shall have elected to pay to the City pursuant to paragraph 601 of this Article VI) all unpaid debentures and other indebtedness and all accrued and accumulated interest thereon, and the par value of and accrued and accumulated dividends on the stock of the Corporation outstanding immediately prior to such dissolution and after conveyance of the project as contemplated by the provisions of said Section 24.
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702. Except for the covenants contained in paragraph 405 of Article IV of this contract, the provisions of this contract shall terminate upon dissolution of the Corporation or at the end of twenty-five (25) years from the date of completion of the project or upon any date prior thereto upon which, pursuant to tne provisions of paragraph 601 of Article VI of this contract, the Corporation shall pay to the City the total of all accrued taxes for which exemption has been granted and received under paragraph 306 of Article IH of this contract, together with interest at the rate of five per centum (5%) per annum (computed without rests) from the final date upon which such taxes would have been payable without penalty or interest in the absence of such exemption.
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704. Nothing expressed in or to be implied from this contract, or in or from the debentures or the stock of the Corporation, is intended or shall be construed to give any person, firm or corporation, other than the parties hereto and the holders of the debentures and the holders of the stock of the Corporation any legal or equitable right, remedy or claim under this contract, or under any agreement or provision herein contained; this contract and all such agreements and provisions being for the sole and exclusive benefit of the parties hereto and the holders of the debentures and the holders of the stock of the Corporation, as herein provided.

5. The project known as Stuyvesant Town was completed July 1, 1949. During the progress of the work thereon and pursuant to and in conformity with the agreement referred to in the preceding finding, Metropolitan advanced and loaned to the plaintiff on some forty-nine different dates certain funds in varying amounts which advances or loans were evidenced by forty-nine income debenture certificates issued by the plaintiff to Metropolitan. These certificates were identical in form the only difference being as to the face amount, the date of issuance and the number in the upper left-hand corner. There were no interest coupons attached to the certificates and they were not in registered form. They were printed on plain white paper and did not bear the seal of the corporation. The face of the certificates was in form and substance as follows:

No. $__________
STUYVESANT TOWN CORPORATION 4%% Income Debenture Certificate Due January 1, 1984.
STUYVESANT TOWN CORPORATION (hereinafter called the Corporation), a redevelopment company duly organized and existing under and pursuant to the Redevelopment Companies Law of the State of New York hereby certifies that it is indebted to Metropolitan Life Insurance Company in the principal sum of _______________________DOLLARS ($_____________) and hereby promises to repay said principal sum on or before January 1, 1984, and to pay interest on said principal sum, or the unpaid portion thereof, at the rate of four and one-half per centum (4%%) per annum from the date hereof at the times and to the extent provided in a contract (hereinafter called the Contract), entered into as of June 1,1943, by and between The City of New York, the Corporation, and Metropolitan Life Insurance Company.
Payment of the principal of, and the interest on, this certificate shall be made at the home office of Metropolitan Life Insurance Company in the Borough of Manhattan, City and State of New York, in such coin or currency of the United States of America as at the time of the payment shall be legal tender for the payment of public and private debts.
This certificate is one of a number of income debenture certificates issued or to be issued pursuant to the Contract. The debenture certificates are issuable in any denomination or denominations and the several denominations of debenture certificates are interchangeable as provided in the Contract.
> This certificate is entitled to the benefit of the provisions contained in the Contract relating to the accrual, accumulation and payment of interest and amortization, and the principal hereof, or any portion thereof, is subject to prepayment by application of amortization and other payments to be made by the Corporation at the times and to the extent provided in the Contract.
In witness whereof, Stuyvesant Town Corporation has caused this certificate to be signed by its duly authorized officers.
Stuyvesant Town Corporation By_________________________
Dated:----------------, 194__.

On the back of each certificate was space for notation of amortization payments.

6. As heretofore shown, the plaintiff is a wholly owned subsidiary of Metropolitan. The officers and directors of the plaintiff are also officers and directors of Metropolitan, except the assistant treasurer of the plaintiff who is the manager of the project. These officers and directors who are common to the two corporations are paid entirely by Metropolitan. There are no salaried employees or officers of the plaintiff at the home office of Metropolitan. The general counsel of Metropolitan is the secretary and a director of the plaintiff. The plaintiff has various employees of its own on the site of the project, including the manager and several hundred employees who take care of its operation, the collection of rents, and similar duties. These latter employees are paid by the plaintiff. All functions of the plaintiff which are performed at the offices of Metropolitan are performed by Metropolitan employees without payment therefor by the plaintiff.

7. During the course of the construction of the project, money was needed from time to time to pay the general contractor and for other purposes. When it appeared that the plaintiff needed money, the plaintiff’s project manager would advise the secretary of plaintiff who was also general counsel of Metropolitan. That latter individual would then have prepared a requisition for the certificate book which was kept in Metropolitan’s vault and the book would be sent to him. He would then prepare the income debenture certificate in the amount of the funds required and authorize the drawing of a check for the documentary stamps attributable to the issuance of such certificate. The next step was a letter of requisition to Metropolitan’s comptroller requesting that Metropolitan draw a check for the amount involved; whereupon the plaintiff would turn over to Metropolitan the executed debenture certificate and receive Metropolitan’s check. Thereupon Metropolitan would place the executed debenture certificate in its vault and an employee of Metropolitan would deposit Metropolitan’s check in the plaintiff’s bank account in the Chase National Bank branch which was located in the Metropolitan Life Insurance Building. The income debenture certificates involved in this proceeding and more particularly described in finding 5 were issued in accordance with the practice described above.

8. The plaintiff’s income debenture certificates involved in this proceeding are not in the form and of the character of those certificates usually handled by brokerage and investment concerns which are known generally as bonds, debentures, certificates of indebtedness, or corporate securities. Bonds, debentures, certificates of indebtedness and corporate securities dealt in by brokerage and investment concerns are assignable and usually negotiable. The plaintiff’s debentures were non-negotiable and could be assigned only in accordance with the terms of the agreement, referred to in finding 4, between the plaintiff and Metropolitan.

9. On May 19, 1943, and prior to the issuance of any of the debenture certificates referred to above, the general counsel of Metropolitan sent a letter to the Commissioner of Internal Revenue in which he described the general nature of the project about to be undertaken by the plaintiff and Metropolitan, described the method of financing through the issuance of income debenture certificates as heretofore set out in these findings, and requested a ruling by the Commissioner as to whether these certificates would be subject to tax under Section 1801 of the Internal Revenue Code. On May 31, 1943, the Commissioner replied that in his opinion they were taxable, his letter concluding as follows:

Section 1801 of the Code, imposes a tax on all bonds, debentures, or certificates of indebtedness issued by any corporation. Upon consideration of all of the circumstances, it is the view of this office that the instrument is taxable under section 1801 on either of two bases, that is, as a debenture or as a certificate of indebtedness. It is accordingly ruled that the issuance of the debenture certificates incurs the stamp tax as imposed by section 1801 of the Internal Revenue Code.

In accordance with that ruling and pursuant to the provisions of Sections 1800 and 1801 of the Internal Revenue Code the plaintiff, on various dates from April 30, 1945, to March 1, 1949, inclusive, paid to the Collector of Internal Revenue for the Third Collection District of New York sums aggregating $110,321.20 for documentary stamps which were duly affixed by the plaintiff to the income debenture certificates which were issued by the plaintiff to Metropolitan.

10. On April 29,1949, the plaintiff filed a claim for refund of the amount paid for documentary stamps, as shown in the preceding finding, on the following ground:

That documents termed “income debenture certificates’^ issued by taxpayer, in connection with the issue of which the tax stated above was paid, were not “bonds, debentures or certificates of indebtedness”, or instruments “known generally as corporate securities”, either in form or in substance, or in light of the purposes for which and the conditions under which they were issued, within the meaning of the quoted language as used in Section 1801 of the Internal Revenue Code, and were hence not subject to tax under said Section.

On August 18, 1949, the Commissioner rejected the foregoing claim, his letter of rejection concluding as follows:

Section 1801 of the Code imposes a tax on all bonds, debentures or certificates of indebtedness issued by any corporation. It is held that the income debenture certificates issued by you are taxable under section 1801 supra, on either of two bases, that is, as debentures or certificates of indebtedness. Your claim for redemption is accordingly rejected.

CONCLUSION OE LAW

Upon the foregoing findings of fact, which are made a part of the judgment herein, the court concludes that as a matter of law the plaintiff is not entitled to recover, and the petition is therefore dismissed.

Judgment is rendered against the plaintiff for the cost of printing the record herein, the amount thereof to be entered by the clerk and collected by him according to law. 
      
       Chapter 2, Title 11 of the Unconsolidated Laws of New York, Sections 3401-3426, enacted by Chapter 845 of the Laws of 1942, as amended by Chapter 234 of the Laws of 1943.
     