
    RAY CONSOLIDATED COPPER COMPANY, A CORPORATION, v. THE UNITED STATES
    
    [No. B-160.
    Decided May 19, 1924]
    
      On the Proofs
    
    
      Internal revenue tax; domestic corporations; capital stock tax.'— TRe special excise tax on every domestic corporation imposed by paragraph 1 oí section 1000 (a) of the revenue act of 1918, 40 Stat., 1126, on “ the fair average market value of its capital stock,” should be assessed and collected on its net assets.
    
      The Reporter's statement of the case:
    
      Messrs. William, Wallace, jr., and Arthur A. Ballentine for the plaintiff. Root, Clark, Buckner <& Rowland and Mr. George E. Cleary were on the briefs.
    
      Messrs. Fred K. Dyar and Forrest D. Siefkin, with whom was Mr. Assistant Attorney. General Robert H. Lovett, for the defendant. Mr. Nelson T. Rartson was on the brief.
    The following are the facts of the case as found by the court:
    I. The Ray Consolidated Copper Company, the plaintiff herein, is, and at all times mentioned in the petition herein was, a domestic corporation organized and existing under the laws of the State of Maine, engaged in the business of mining and haying an office at 25 Broad Street, Borough of Manhattan, in the city and State of New York.
    II. Plaintiff was incorporated on May 14, 1907, for the purpose of conducting general mining, milling, and smelting operations. During 1919 and prior years, plaintiff owned, and still owns, together with other properties, mining lands near Ray, Ariz., consisting of 126 patented mining claims containing 2,143 acres, which mining lands and claims were acquired prior to March 1, 1913. These ore bodies occur in what is known as a blanket formation; that is to say, the ore is found in a horizontal zone, somewhat irregular on its upper and lower boundaries, but is distinguished from veins or lodes in that it does not extend at an angle and to great depths into the earth. The particular character of this dé-posit renders it susceptible of accurate measurement as to its extent, and its metal contents capable of definite ascertainment. The property was explored very thoroughly by the plaintiff, beginning in 1907, by what are known as “ churn drills.” In exploring its ore deposit, plaintiff caused to be drilled at corners of 200-foot squares a total of 353 drill holes covering an area of something in excess of 183 acres, the total amount of drilling aggregating 147,449 feet, or approximately 27 miles; the average depth of these holes was 417 feet. The drilling was continued until the exterior limits of the ore deposits were reached laterally and the holes showed no ore of commercial value. Of the holes thus drilled 277 showed ore of commercial value — the average depth of these holes being 440 feet and the average thickness of the ore 101 feet. The diameter of the holes drilled averaged about eight inches. The rock thus removed from the holes in the course of drilling was carefully sampled and assayed so that the grade of ore was definitely determined and the tonnage and metallic content was susceptible of mathematical determination.
    After the extent and grade of the ore bodies were determined, the property was developed by shafts and drifts on a very elaborate scale and the actual mining of the ore has demonstrated the accuracy of the sampling of the drill holes as originally made. The outstanding characteristic of these porphyry copper mines is precisely that their ore bodies are well ascertained; and that this is the outstanding characteristic is well known to the mining world. The property was fully equipped' by the construction of a concentrating plant with a capacity of 12,500 tons per day. The exploration of this property had proceeded before March 1, 1913, to such an extent that the minimum tonnage, or cubical contents, of ore, and the copper content per unit of ore, -were at that time known to the management of the company. The property was not fully explored on March 1, 1913, and there was a strong probability of further ore contents, which probability has since been turned into- a certainty, and there is even yet a probable ore tonnage not now taken into account. The minimum quantities were determined with an accuracy and certitude that do not require verification, but subsequent mining operations have fully verified it. During 1919, 1920, and prior years, this mining property was actively operated by plaintiff and a large amount of copper mined, smelted, and sold. On December 31, 1919, large reserves of unmined ore had been developed, as before stated, and were known to exist.
    III. In the year 1918 the plaintiff submitted to the Commissioner of the Internal Kevenue a statement as to the value of its mineral property on March 1, 1913 (upon which depletion deductions for income tax purposes were to be based) as follows:
    “ RAT CONSOLIDATED COPPER COMPANY-MEMORANDUM AS TO DEPLETION ALLOWANCE POR INCOME TAX RETURNS PURSUANT TO TREASURY DECISION NO. 244 0
    “ The mining property of this company is owned in fee and was acquired prior to March 1, 1913.
    “ The method by which the value of the property as of March 1, 1913, was determined is as follows:
    la. The gross copper contents of the mine as of December 31, 1916, was estimated by the company’s engineers at_._ 3, 798, 422, 834 lbs.
    lb. To the foregoing was added the gross copper contents of the ore mined from March 1, 1913, to December 31, 1916, or_ 362,769,548 “
    2. Making the total gross copper contents, as of March 1, 1913_ 4,161,192, 382 lbs.
    3. The life of the mine from March 1, 1913, is estimated at 24.29 years. This is based on the period elapsed from March 1, 1913, to December 31, 1916, 3.83 years plus 20.46 years, being the time which will be required to deplete the above number of pounds of copper based on a daily production of 12,500 tons_-_ 24. 29 yrs.
    4a. The net copper contents of the ore mined to December 31, 1916, was_ 236, 980, 583 lbs.
    4b. The net copper contents of the balance of the ore in the mine estimated upon an extraction of 78.048%_ 2, 964, 599, 926 “
    5. Making a total net copper contents as of March 1, 1913_ 3, 201, 580, 509 íbs.
    6. The selling price of copper during the life of the mine was based on the average price of copper for 10 years ending December 31,' 1916, which was- 16. 6739 c. per lb.
    7. The cost of production over the remaining life of the mine is estimated at___ 7. 7181 e. per lb.
    
      8. The estimated net value per lb. of copper, using the foregoing selling price and cost of production, is--- 8. 9658 c. per lb.
    9a. The value in the mine as of March 1, 1913, of 236,980.583(4) lbs. of copper mined during the 3 years and 10 months ending December 31, 1916, allowing for Interest at the rate of 6% per annum aud a replacement of capital by investment at 4%— $15, 286, 326. 00
    9b. The value in the mine as of March 1, 1913, of 2,964,599,926(5) lbs. of copper to be mined during the remaining life of the property, allowing for interest at the rate of 6% per annum and a replacement of capital by investment at 4%, less 6% compounded for the 3 years and 10 months, March 1, 1913, to December 31, 1916, is__ 112,417,291.00 Making the total value as of March 1,-1923 _ 127, 417, 291. 00
    10. The total value “ en bloc” (9) divided by the total estimated number of per-pound units (2) gives a per-pound unit value to be used in each year to determine the amount of depletion to be deducted under the ruling of the Treasury decision of— 
       3. 026 c.
    “For the year 1916 — mined during the year, 109,767,451 lbs. X3.062 c.==$3,361,079.44.”
    In tliis statement plaintiff contended that the determination of the value of the whole, or a portion of the physical and tangible assets of a corporation, by the ascertainment of the market value of its shares, with adjustments, has no support in law, and contended that the value of its mining property as of March 1,1913, should be. determined at $127,-417,291 in accordance with the above statement. The Commissioner of Internal Revenue changed certain factors in this computation and determined that the fair market value of the plaintiff’s property on March 1, 1913, for the purpose of determining the depletion allowance deductible for income tax was $93,678,245.28.
    IY. On July 30, 1920, the plaintiff duly filed with the said collector of internal revenue its return on official form 707, with a rider attached thereto, for the year ended June 30, 1921, for the special tax imposed by section 1000 of Title X of the revenue act of 1918. Upon said return, plaintiff reported as the fair value of its capital stock for the preceding year ending June 30, 1920, determined by Exhibit B in . such return, the sum of $34,803,608.99, and as the total tax due thereon the sum of $34,798.00. (A true copy of said return and rider as filed by plaintiff is made a part of this finding by reference thereto.)
    Y. Plaintiff at all times mentioned in the petition herein kept, and now keeps, its accounts and records on the basis of the calendar year. The stock of plaintiff at all times mentioned in the petition herein, was, and now is, all common stock. On December 31, 1919, there were outstanding 1,-577,179 shares of plaintiff’s common stock, each share having a par value of $10. The same number of shares was outstanding during all of 1919 and 1920.
    VI. Said outstanding shares of common stock of plaintiff were at all times mentioned in the petition herein listed on the New York Stock Exchange. During the calendar year 1919, 537,938 shares of said common stock were traded in in bona fide transactions upon the New York Stock Exchange, such transactions occurring on practically every business day. The average of the twelve monthly mean prices realized on the above transactions in each of the twelve months of the year 1919 was $22,067 per share.
    VII. The value ($34,803,608.99) reported by plaintiff on Form 707 as the fair value of its total capital stock (determined by Exhibit B) was determined by multiplying the number of shares outstanding during its last preceding fisca] year, the calendar year 1919, by the average sale value of common stock per share during 1919, determined as above stated, and was based directly upon the said sales and purchases of plaintiff’s shares of stock in the transactions on the Newr York Stock Exchange during said year 1919, as set out herein above.
    VIII. The information stated on said official form 707 as to the purchases and sales of shares of plaintiff’s common stock, as aforesaid, was stated for the period and in the manner required by the instructions on said official Form 707 and the regulations of the Treasury Department, and the computation of the average sale value of common stock per share from such sales was made in the manner required by the instructions on said form and in said regulations. The parties hereto agree that for the purposes of this suit, the value of the corporate assets, in so far as such value may be determined to indicate the fair average value of the plaintiff’s capital stock for the year ending June 30, 1920, may be determined as of December 31, 1919, and that the average sale value of the shares of the common stock of the plaintiff, in so far as such average selling price may be determined to indicate the fair average value of the plaintiff’s capital stock for the year ending June 30, 1920, may be determined by taking the average of the twelve monthly mean prices realized on sales in the transactions of the New York Exchange, referred to herein above, during the calendar year 1919.
    IX. Upon the capital stock tax return filed by the plaintiff on July 30, 1920 (as set out in Finding IY hereof), a special tax was assessed against plaintiff under section 1000 of the revenue act of 1918 in the sum of $34,789.00. The plaintiff duly paid said assessment, upon notice and demand, to the said collector of internal revenue.
    X. After the receipt by the Treasury Department of the capital stock tax return with attached rider (filed by the plaintiff on July 30, 1920, as set out more fully in Finding IY hereof), and upon an examination of the return and rider by the Commissioner of Internal Revenue, it appeared that the valuation of property reported by the plaintiff on the first line of Exhibit A of its capital stock tax return differed from and was lower than that shown by the statement of plaintiff referred to in Finding III hereof. Said rider stated that the book figures as stated on Exhibit A did not include the valuation used as the basis of depletion in computing Federal income taxes. Thereupon on December 30, 1920, the Bureau of Internal Revenue addressed a communication to the plaintiff in words and figures as follows:
    CST-2 N. Y.-CAD. December 30, 1920. Ray CoNsolidated Copper Company,
    
      25 Broad Street, New Yorh, N. Y.
    
    Gentlemen: Your capital stock tax return for the 1921 taxable period, reporting a fair value of $34,803,608.99, as shown by Exhibit B of the return, has been received.
    A statement accompanying the return is to the effect that the book figures, as stated under Exhibit A, do not include the valuation used as the basis of depletion in computing Federal income taxes.
    Special instructions, paragraph 6, on page 4 of Form 707,. state:
    “ * * * In the case of mines, oil and gas wells, other natural deposits, and timber, valuations reported as the basis of depletion in computing Federal income and profits taxes should be shown in the £ Fair value ’ column.”
    As the valuation claimed for depletion -purposes is evidently in excess of the figure shown on the books and would in all probability greatly increase the valuation as shown by Exhibit A, it is requested you state the fair value of the item in question as well as your reasons for not considering the valuation reflected through the fair value columns as indicative of the fair value of your capital stock.
    Respectfully,
    Jambs Hagerman, Jr.,
    EMF. Deputy 0ommissioner.
    
    In reply to the above-mentioned letter, the plaintiff on January 12, 1921, addressed a letter to the Deputy Commissioner of Internal Revenue, in words and figures as follows:
    C'ST-2 N. Y.-C. A. D.
    Ray CoNsolidated Copper Company,
    
      January fU, 19M.
    
    Hon. James Hagerman, Jr.,
    
      Deputy G otmnisisoner of 'Internal Revenue,
    Washington, D. G.
    
    Sir : By your letter of December 30, (ivith identifying reference as above) you refer to our capital stock return for the 1921 taxable period, call attention to the statement accompanying the return to the effect that the book figures as stated under Exhibit A do not include the valuation used as a basis of depletion in computing Federal income taxes, refer us to the instructions contained in paragraph 6 on page 4 of Form 707, and request that we now furnish a statement of the depletion valuation.
    Complying with your request, we advise you that the valuation of the mineral property of this company as of March 1, 1913, as now determined in the Income Tax Unit of the Bureau of Internal Revenue is $93,678,245, from which must be deducted all items to. be treated as credits to depletion reserve since that date amounting, in total, up to December 31, 1919, to $13,318,384.31. This valuation was used by the company in filing its income and excess profits tax return
    
      We are advised that the depletion valuation, necessarily made as of March 1, 1913, has little if any bearing upon the “ fair average value of the capital stock” of the company for the 1921 period. The proper valuation of our capital stock for that period rests upon the grounds which we have set forth in our return.
    Your letter indicates that you may be inclined to regard the depletion Valuation as interrelated with the capital stock, valuation. We feel that our views upon this very important question can be more satisfactorily presented and those of the department more satisfactorily discussed in oral conference than by exchange of letters. After such conference we shall be glad to file a statement of our views, should that prove to be necessary.
    Therefore, we respectfully ask such a conference with the proper officers of the bureau, at a convenient time and place to be named by you.
    Respectfully,
    ARthue J. RoNaghaN,
    
      Assistant Secretary.
    
    The Commissioner of Internal Revenue thereupon caused to be m'ade an audit of the capital stock tax return filed by plaintiff on July 30, 1920, as aforesaid, and determined the fair value of the property of the plaintiff as of December 31,1919, to be the sum of $93,678,245.28. This value was determined from the statement of plaintiff that its mining property for depletion purposes was $127,417,291 on March 1,1913 (as more particularly referred to in Finding III hereof), and upon other information. The fair value of such property as of December 31, 1919, so determined by the Commissioner of Internal Revenue, was fixed at $93,678,-245.28. All other items shown by the plaintiff under “ Debits and assets ” of Exhibit A of its return were adopted by the Commissioner of Internal Revenue. Under the title “ Credits and liabilities ” of Exhibit A of the plaintiff’s capital stock tax return, the Commissioner of Internal Revenue adopted all the items and figures included therein by the plaintiff, and in addition thereto allowed the claimant $13,318,384.31 as its depletion 'allowance on account of ore removed since March 1, 1913. As a result of this audit the total of debits and assets was determined by the commissioner to be $121,417,862.95, and the total of credits and liabilities were determined by the commissioner to be $17,507,-453.88. The difference between these two amounts, to wit, $103,910,409.07, was determined and fixed by the commissioner as the fair Value of the total capital stock of the plaintiff, by which value the amount of capital stock tax due from the plaintiff was to be measured and computed. Such computation resulted in an. additional capital stock tax due from the plaintiff in the sum of $69,107.00. (A true and correct copy of the capital stock tax return filed by plaintiff on July 30, 1920, as stated in Finding IV hereof, showing the changes made therein by the commissioner, the fair Value of .tire assets as determined by the commissioner, and the additional tax due, is marked “ Exhibit No. 2 ” and made a part hereof by reference.)
    XI. Under date of February 23, 1922, the Commissioner of Internal Revenue notified the plaintiff by letter that an additional assessment of capital stock tax amounting to $69,107.00 would be made against it for the year ending June 30, 1921. Said letter contained the following statement :
    “ You contend that the fair value of your capital stock is represented by the average prices of shares of stock established through nr'arket trading, whereas this office holds that in the case of your company, the fair value of the capital stock considered as a whole is not materially less than the net fair value of the assets. By using the values established for depletion purposes in connection with Federal faxes, the net worth reflected by the excess of assets over liabilities is $103,910,000.00, which is considered indicative of the fair value of the capital stock for the purpose of this tax. You contended for a valuation of the mineral land as of March 1, 1913, less depletion sustained, equ'al to or in excess of the values shown in the above computation. Furthermore, it is not shown that there has been any material change from such values.
    
      “ On the basis determined, additional tax is computed as follows:
    Fair value-$103, 910, 000. 00
    Deduction_ 5, 000. 00
    Fair value in excess oí $5,000- 103, 905, 000. 00
    Tax at $1 for each full $1,000- 103, 905. 00
    Tax paid___ 34, 798.00
    Additional tax due- 69,107.00
    
      In determining the net fair value of the assets on December 31, 1919, the Commissioner of Internal Revenue took as the value of the plaintiff’s property on that day the sum of $93,678,245.28. This amount had therefore been determined by the Commissioner of Internal Revenue to be the fair market value of such property on March 1, 1913, for the purpose of computing the depletion deduction to which the plaintiff was entitled in computing taxable income under the revenue act of 1916. Because of such valuation of plaintiff’s property, the said Commissioner of Internal Revenue determined the item of “Property ” to be $93,678,245.28 instead of $8,657,620.28 as reported by the company in its return filed as above stated hereinbefore. The commissioner allowed as an additional deduction on Exhibit A of Form 707 filed by plaintiff as aforesaid, the amount of $13,318,-384.31 as depletion sustained through removal of ore betwen March 1, 1913, and December 31, 1919. As to all other assets ancl liabilities, the commissioner accepted the amounts reported by the company in Exhibit A on said official Form 707. In this manner the commissioner determined that the net fair value of the assets of the plaintiff on December 31, 1919, was $103,910,409.07 and estimated and determined that the fair value of the capital stock of the plaintiff on that date was $103,910,409.07. In accordance with said determination, the commissioner assessed an additional capital-stock tax in the amount of $69,107 against the plaintiff, and forwarded the same for collection to the collector of internal revenue.
    XII. Thereafter, on March 28, 1922, the said collector of internal revenue made demand upon plaintiff for the payment of said additional capital-stock tax of $69,107. Such additional amount was based wholly upon the increase in the amount of the “fair value” of the capital stock of the plaintiff resulting from the use of the aforesaid value for the mineral property. On April 6, 1922, plaintiff duly filed with the said collector of internal revenue a claim for abatement of said additional assessment of capital-stock tax amounting to $69,107. Said claim for abatement was rejected by the said Commissioner of Internal Revenue under date of May 27, 1922.
    
      XIII. Thereafter, on June 2. 1922, the said collector of internal revenue made a second demand for the payment of said additional assesment of capital-stock tax for the year ending June 30, 1921, amounting to $69,107, and also made demand for interest on said sum at'the rate of one per cent-per month for one month, amounting to $691.07. On June 5,-1922, the plaintiff, under threat by the said collector of seizure and sale of its property if it failed to make said payments, and in the belief that said threat would be carried out, paid to the said collector the said sum of $69,107 for additional capital-stock tax and the said sum of $691.07 as interest thereon. The total amount so paid was $69,798.07. Said payments were made under duress and protest, and at the time of making such payments the plaintiff filed with fne said collector of internal revenue a written protest against such additional assessment and against the payment thereof and of interest thereon. Exhibit A attached to the petition herein is a true and correct copy of such protest and the contents thereof are made a part hereof by reference.
    XIV. The total sum of $69,798.07 so paid by the plaintiff under protest to the said collector was thereafter by him turned over and deposited into the Treasury of the United States of America as in the usual course of his official business.
    XV. On June 14, 1922, the plaintiff duly filed with the said collector a claim for refund of said payment of $69,798.07. (Exhibit B is a true and correct copy of said claim for refund and the contents thereof are made a part of this finding by reference thereto.) Under date of June 29, 1922, such claim for refund was rejected in full by the said Commissioner of Internal Revenue.
    XVI. Plaintiff maintains that it is entitled to a refund of $69,798.00 paid by it on June 5, 1922, under duress and written protest to the collector of internal revenue for the second New York district at New York City, New York, as an additional capital-stock tax of $69,107.00 assessed by the Commissioner of Internal Revenue of the United States for the period ending June 30, 1921, together with $691.07 interest thereon. The provision of law upon which the plaintiff bases its claim for such refund is secton 1000 of Title X of tlie act of February 24, 1919, entitled “An act to provide revenue and for other purposes” and known as the revenue act of 1918.
    XVII. The parties hereto agree that certain regulations promulgated by the Commissioner of Internal Revenue with the approval of the Secretary of the Treasury, and certain forms issued by the Commissioner of Internal Revenue, may be referred to without the incorporation of such regulations or forms bodily by quotations ip these findings of fact. The regulations and forms so referred to and incorporated herein by reference are the following:
    “(«) Regulations No. 38 relating to the capital-stock tax under the revenue act of September 8, 1916, promulgated October 19, 1916.
    
      ”{b) Regulations No-. 38 (revised) relating to the capital-stock tax under the revenue act of September 8, 1916, promulgated August 9, 1918.
    ‘•(c) Regulations No. 50,- relating to the capital-stock tax under the revenue act of 1918, promulgated April 29, 1919.
    
      "{d) Regulations No. 50 (revised) relating to the capital-stock tax under the revenue act of 1918, promulgated June 21, 1920.
    “(c) Regulations No. 64 relating to the capital-stock tax under the revenue act of 1921, promulgated June 15, 1922.
    “(/) Form 707, revised June 1918.”
    XVIII. Plaintiff filed its capital-stock tax return on official Form 707, revised June, 1920, which said form contained certain instructions on page 4 thereof. The instructions so contained thereon are set out fully in the copy of said Form 707 as Exhibits No. (1) and No. (2), and the said instructions are made a part of this finding by reference thereto.
    XIX. No other action than as aforesaid has been had on this claim in Congress or by any of the departments. The plaintiff has at all times borne true allegiance to the Govern-nient of the United States. It has hot in any way voluntarily aided, abetted, or given encouragement to rebellion against such Government. It is and. always has been the sole and absolute owner of the claim here presented. It has made no transfer or assignment of said' claim or of any part thereof or of any interest therein.
    
      
       Appealed.
    
    
      
       This figure is erroneous. The correct figure is 3.062 c.
    
   Booth, Judge,

delivered tlie opinion of the court:

This is a suit to recover the sum of $21,240.30 alleged to be due the plaintiff company because of an alleged íwenue tax assessed and collected by the Commissioner of Internal Revenue under the provisions of section 1000, Title X, of the revenue act of 1918 (40 Stat. 1126), which reads as follow's:

“Sec. 1000. (a) That on and "after Julyl, 1918, in lieu of the tax imposed by the first subdivision of section 407 of the Revenue Act of 1916—
“(1) Every domestic corporation shall pay annually a special excise tax with respect to carrying on or doing business, equivalent to $1 for each $1,000 of so much of the fail-average value of its capital stock for the preceding year ending June 30 as is in excess of $5,000. In estimating the value of capital stock the surplus and undivided profits shall be included;
“ (2) Every foreign corporation shall pay annually a special excise tax with respect to carrying on or doing business in the United States, equivalent to $1 for each $1,000 of the average amount of capital employed in the transaction of its business in the United States during the preceding year ending June thirtieth.
“ (b) In computing the tax in the case of insurance companies such deposits and reserve funds as they are required by law or contract to maintain or hold for the protection of or payment to or apportionment among policyholders shall not be included.
“ (c) The taxes imposed by this section shall not apply in any year to any corporation which was not engaged in business (or in the case of a foreign corporation not engaged in business in the United States) during the preceding year ending June 30, nor to any corporation enumerated in section 231. The taxes imposed by this section shall apply to mutual insurance companies, and in the case of every such domestic company the tax shall be equivalent to $1 for each $1,000 of the excess over $5,000 of the sum of its surplus or contingent reserves maintained for the general use of the business and any reserves the net additions to which are included in net income under the provisions of Title II, as of the close of the preceding accounting period used by such company for purposes of making its income tax return: Provided, That in the case of a foreign, mutual insurance company the tax shall be equivalent to $1 for each $1,000 of the same proportion of the sum of such surplus and reserves. which the reserve fund upon business transacted within the United States is of the total reserve upon all business transacted, as of the close of the preceding accounting period used by such company for purposes of making its income tax return.
“(d) Section 257 shall apply to all returns filed with the commisioner for the purposes of the tax imposed by this section.”

The Kay Consolidated Copper Company is a domestic corporation incorporated under the laws of the State of Maine. The company is engaged on a large scale in the general mining, milling, and smelting of copper ore. On July 30, 1920, the plaintiff company filed with the collector of internal revenue for the second district of New York, on forms prescribed and in pursuance of regulations adopted by the Commissioner of Internal Revenue, its return upon which capital-stock taxes in accord ivith the foregoing statute were to be assessed. Exhibit B discloses the average sale value of 537,938 shares of the plaintiff’s 1,577,179 shares of common stock outstanding and traded in on the New York Stock Exchange during the calendar year 1919. The computation given and the results obtained were reached by taking the mean of the high and low sales for each month of the calendar year. By this process an average value of $22.067 is accorded to each share, and multiplied by the whole number of shares issued and outstanding gives to the total number of shares a resultant value of $34,803,608.99. Having then reached this claimed demonstrable conclusion the plaintiff company, in a separate note attached to its return, contended that the method employed was and is within the terms of the capital stock tax act and the intent of Congress when the tax was laid upon “ the fair average value of its capital stock for the preceding year.” A check for $34,798 in payment of the tax according to its contention accompanied the return.

The Commissioner of -Internal Revenue declined to accede to plaintiff’s contention, and instead assessed and collected the tax on the basis of the net assets of the corporation. The commissioner gave full credit to all evaluation estimates of the plaintiff with respect to its corporate property save one. The basic .capital oí the corporation is an extensive and valuable copper mine in Arizona. The plaintiff returned this property as worth $8,657,620.28. The commissioner enhanced its worth to $32,282,993.56. The commissioner’s conclusion respecting this item of mining property was predicated exclusively upon a return previously made by the plaintiff, where for the basis of ascertaining income taxes the corporation itself valued the mine at $127,417,291. Subsequently, by the application of a depletion allowance formula put in force by the commissioner, and satisfactory to the plaintiff, the value of the mine was fixed at $93,678,-245.28. Allowing the plaintiff its conceded ratio of depletion and extending the same over a period of six years from March 1, 1913, to December 31, 1919, the commissioner finally fixed the mining property as worth on the latter date $32,282,993.56 for the purposes of capital-stock assessment. The plaintiff in this litigation makes no protest against the proceedings of the commissioner referable to the accuracy of his computation, but the challenge is to the method employed. Therefore it is conceded that if the commissioner was within his legal rights in assessing and collecting the tax upon the fair average value of its net assets, fixed by him after allowing all just credits and debits at $55,828,541.66, it may not recover the alleged overpayment- of $21,240.30 with interest thereon, for which this suit is brought, the plaintiff having paid the same under protest.

It is apparent from the stipulated findings and what has just been said that the single issue involved herein is the construction of the section of the statute authorizing the imposition of the tax. The plaintiff insists that the fair average value of its shares of stock “ based upon bona fide transactions on a large scale in the open market establishes the value of its capital stock for the purpose of the tax,” the defendant, on the other hand, insisting that the term “capital stock” as used in the act has no such restricted meaning; that clearly within the intendment■ of the statute Congress was imposing an excise tax on domestic corporations as going concerns, a tax on the privilege of conducting-business as such, and directed the admeasurement of the same upon the value of such a privilege, ascertainable from the net value of its holdings, its possessions, the things tangible and intangible which concentrated into a single unit are fundamentally its capital stock, from which earnings and dividends are expected to flow. As aptly stated, “ the tools,"’ the instrumentalities available to the management in the prosecution of the corporate enterprise; that no precise, unyielding method, resting upon a fixed standard of evaluation, such as the average market value of the corporation’s shares of stock, is intended by the term “ capital stock,” but that, on the contrary, the generality of the tax, the differing and manifold complexities of corporate organizations, the character of business involved, clearly import a legislative intention to tax “the entire potentiality of the corporation to profit by the exercise of its corporate franchise.”

There are many cases in the books where this identical controversy has been involved. They illustrate with preciseness the seeming flexibility of the meaning of the term “ capital stock.” In both the courts and the financial world the term itself has not assumed a fixed and determined sig; nificance capable of identifying its use as alone applicable to shares of stock of a corporation as opposed to accumulated assets of the same. As a matter of fact, it is frequently used in legislation to indicate one or the other. It may, we think, be said — at least the adjudications of the State courts are' almost uniform upon this point — that in the imposition of property taxes laid upon the capital stock of corporations the term is held to mean the assets of the corporation, its real possessions which the corporation uses and employs in its corporate activities. Pacific Hotel Co. v. Lieb., 83 Ill. 602; Chicago Union Traction Co. v. State Board of Equalisation, 112 Fed. 607; Henderson Bridge Co. v. Commonwealth, 99 Ky. 623; 166 U. S. 150; Security Co. v. Hartford, 61 Conn. 89-101; State v. Duluth Gas & Water Co., 76 Minn. 96; People v. Coleman, 126 N. Y. 433; Adams Express Co. v. Ohio, 166 U. S. 185; First National Bank v. Douglas Co., 124 Wis. 15.

In excise taxing statutes where there are no qualifying terms indicative of an express limitation of the term “ capital stock ” the ambiguity thus arising is resolvable only by recourse to the usual and elementary principles of statutory construction. What did Congress intend when it used the term as it did in this particular law?

The imposition of excise taxes, especially corporate excise taxes, is not a new form of revenue legislation. It has been frequently resorted to by both the State and Nation, and in the course of such legislation the value of the corporation’s shares of stock, its assets, its net and gross income, etc., have been employed as the standard of measuring the tax. As a matter of fact, the factor of its ascertainment rests in the discretion of the legislature enacting the law. Spreckles Sugar Co. v. McClain, 192 U. S. 397; Flint v. Stone Tracy Co., 220 U. S. 107.

By the act of June 13,1898, 30 Stat. 4-48, Congress imposed a special excise tax upon the banking business of the country. A mere reading of the law seems sufficient to confirm the assertion that its policy was rigidly limited to the compu tation of the same upon the basis of capital, surplus, and undivided profits. In other words, the tax was to be measured by the net assets of the bank. The act of October 22, 1914, 38 Stat. 745, continued the banker’s tax of 1898, with changed provisions as to the amount of the imposition, but still adhering to the legislative policy of measuring the tax in accord with the net assets of the bank. Leather Manufacturers National Bank v. Treat, 128 Fed. 262.

In 1916 Congress adopted a more comprehensive policy in the matter of excise tax legislation, and instead of limiting the tax to bankers broadened the scope of the enactment and included all domestic corporations, joint-stock companies, and associations organized for profit and having a capital stock represented by shares. The tax was to be measured upon the basis of “ the fair value of its capital stock, and in estimating the value of capital stock the surplus and undivided profits shall be included.” The act of 1918, which followed the general policy of the act of 1916, substituted as the basis for computing the tax “ the fair average value of its capital stock ” instead of the “fair value ” of the same.

An analysis of this legislation, considered in the light of its inception, as appears from the bankers taxing statute, clearly imports a legislative policy to measure the excise taxes provided for on the basis of the assets of the corporation. It was not until 1916, when the field, was broadened and all domestic corporations came within the scope of the capital stock tax law, that doubt in this respect could possibly arise.

In the case of Central Union Trust Co. v. Edwards, 282 Fed. 1008, a case involving the construction of the act of 1916, the plaintiff contended that capital stock ” in association with the other provisions of the law clearly meant paid-in capital, surplus, and undivided profits, less liabilities, or, in other words, net assets. It so happened in this particular case that the market value of the corporation’s shares of stock was largely in excess of its book value, due to large and most attractive dividend distributions for some years. The collector of internal revenue, ignoring this contention, assessed and collected the tax upon the basis of the corporation as a going concern, including in his estimate all the factors, both tangible and intangible, which-added to any were possessed by the corporation in the course of its going business. In other words, the collector computed the tax upon the “fair value of total capital stock,” without limiting the computation to net assets. Manifestly this resulted in a largely increased tax. The district judge, in a written 'opinion, sustained the collector and was affirmed by the circuit court of appeals for the second circuit in 287 Fed. 324.

The reasoning of the court in both opinions cited above follows the channel marked out by the Supreme and State courts in construing corporate excise tax laws. Emphasis is put upon the character of the tax, an exaction demanded for a privilege, an imposition laid upon the legal entity known as a corporation and. measured by .its resources, “-the entire potentiality of the corporation to profit by the exercise of its corporate franchise,” and not upon property emanating therefrom but belonging to individuals.'

When the Congress used the expression “ the fair average value of its capital stock,” as it did in 'the act of 1918, it manifested an intent to prescribe an equitable basis for the assessment of the tax, a design to apply justly a tax exaction which, because of its general extent, in pursuance of the taxing policy adopted, was incapable of restraint within rigid rules for ascertainment. Fair ” means “ just ”; “ average” indicates apportionment. It is not difficult to obtain an average value, and it would appear as a logical inference that the interposition of the adjective “ fair ” was notice that in the adoption of “ capital stock ” as the basic factor for computing the tax it was not always possible to fix its average value, and therefore some discretion, some leeway, must be granted, some room allowed, so that the burden imposed would fall with measurable equality upon all corporations taxed. “Fair value” means market value ordinarily, the amount which sellers are willing to take and buyers to give, and if a fair, open market were always available, it may well be that the fair average value of a corportion’s capital stock is the average of its market value. But the vast majority of domestic corporations do not list their shares of stock upon the New York or local stock exchanges. In fact, an insignificant number do. Many incorporated insurance companies have no shares of stock; others have both preferred and common; in hundreds of corporations the stock is closely held and rarely, if ever, sold. So that it seems to us that Congress was endeavoring in the use of the term “ fair average value of the capital stock ” to formulate a basis for the computation of the tax that would allow the commissioner in its assessment to take into consideration the resources of the corporation, its assets and liabilities, its entire possessions actually at work to produce earnings, the instrumentalities available to its management as a going concern, and from the sum total thus ascertained, strike a fair average value, a value fair to the corporation and to the Government. As said by Mr. Justice Brewer in Powers v. Detroit, G. H. & M. Ry. Co., 201 U. S. 543, 561:

“ Again, the tax is to £ be estimated upon the last annual report of the corporation.’ While such report might be expected to include not merely the property belonging to the corporation but also the number and names of the stockholders and the number of shares held by each, and possibly also the amount paid in by each, yet the word £ estimated ’ carries with it the idea of valuation rather than of mathematical apportionment. It suggests that the property reported by the corporation is to be the basis upon which the assessors shall make their valuation, so that the tax is ‘estimated’ upon that properly rather than fixed by mere process of multiplication or division. * * * Under those circumstances we are o.f the opinion that the tax provided for by section 9 is a tax upon the property of the corporation and not a tax upon the shares of stock held by the shareholders.”

If. as contended for, the market value of the shares of stock is the fundamental and only basis for measuring the tax when available, the word fair ” is decidedly meaningless. No difficulties present themselves in ascertaining the real, mathematical average market value, of the same.

Again, the 1918 capital stock act .contains an express provision:In estimating the value of capital stock the surplus and undivided.prófit'9,sikzi£be included.” (Italics ours.) Congress during the whole course of excise tax legislation has persistently and continuously inserted this provision in connection with the term “ capital stock.” Assuredly it may not be said that under any circumstances this clause is to be ignored. It is. indeed, the one plain and unambiguous provision which points out a definite, inflexible factor for entering into the estimate of capital stock. “Shall be included ” is the language of the statute. Obviously, when given effect it precludes the idea of earnings of the corporations as furnishing the basis of computation for the tax. It precludes a consideration of profits, and discloses an intended purpose to use assets — at least assets represented by surplus and undivided profits — as one factor in arriving at the value of capital stock. But it is said that this provision serves a dual purpose. It furnishes a method for ascertaining the value of shares of stock when no market value of the same is available, and it prevents the commissioner from taking the par value of the shares in arriving at his estimate. There is no language in the statute which warrants us in dealing with alternatives. The difficulties in the administration of the law are not before the court for correction. It is no concern of ours whether the market value of shares of stock reflect the paid-in value of the authorized capital and the surplus and undivided profits, or not. The law says, and plainly says, that surplus and undivided profits shall be included in concluding an estimate of capital stock, and it may not be legally administered without their consideration. If the clause was designed to preclude resort to par value, it signally fails in effectiveness, if market value of the shares of stock, Avhen available, is the single standard, for innumerable shares of corporate stock are quoted for years on the stock market and freely offered at less than their par value.

When Congress expressly included surplus and undivided profits in the estimation of the capital stock of a corporation, it necessarily excluded resort to the market value of the shares of stock of the corporation, even when available, as the one and only basis of assessing an excise tax against the same, and. intentionally predicated the assessment of the tax upon an asset basis. Home Savings Bank v. Des Moines. 205 U. S. 503.

Some things said and words used during a running but not prolonged interrogation of the chairman of the committee in charge of the bill in the House of Representatives, just prior to its passage, lend countenance to the plaintiff’s insistence. Taken as a whole, however, it is more impressive as an exposition of opinion as to the detail of administration rather than a construction of the law. In any event, what was said is not sufficiently explicit to turn the issue in this case. No express meaning was definitely given to the term capital stock, differentiating it from shares of stock.

The commissioner’s administration of the law and the regulations promulgated by him in nowise militate against its uniform application. Corporate organizations covers every form of business enterprise, and if we are correct in our view as to the meaning of capital stock, it is manifestly impossible to prescribe a set rule for its ascertainment in each particular instance. The plaintiff company’s organization and business activity illustrate the manifold difficulties. Like many other corporations dependent for prosperity upon extracting elements from the earth, its capital stock is subject to depletion and fluctuation. Therefore it is apparent that what may reflect the average value of capital stock as applicable to one class of corporations may be wholly inapplicable to others of a different character and engaged in a wholly different business. The uniform measure of the tax is the fair average value of the capital stock, and if the regulations and the assessments made by the commissioner re-suit in disclosing the fair average value, it may not be said to be without uniformity because the exact, unyielding basis is not employed in every instance. The plaintiffs contention, if conceded, would not remove the contingent aspect of regulations necessary to administer the law with uniformity or simplify its administration.

The facts in the case of the Central Union Trust Co. v. Edwards, supra, demonstrate the situation. The average market value of the trust company’s shares of stock was $788.75 each, the book value $400 each. So that if two corporations, capitalized at the same amount, paying the same dividends, in one case where market value of its shares of stock is available, would be taxed on the basis of $788.75 for each share, and the other., where market value is not available, on the basis of $400 per share, and this situation was not unusual during the war. In other words, if plaintiff is correct, the tax is computed in some cases upon the average market value of the corporation’s shares of stock, never less than par, and in others upon the assets of the corporation. Whatever else may be said, it is difficult to believe that Congress intended capital stock to mean shares of stock predicated upon market value in one instance and upon asset value in another, differentiating the two by the interposition of sales only.

Capital stock and shares of stock owned by an individual have, and always have had, a distinct meaning. How simple it would have been for "Congress to have used the term “ shares of stock ” or “ shares of capital stock,” instead of “ capital stock,” if it intended the former. If it was not contemplated by Congress to employ the assets of the corporation to measure the tax, why did it use apt words to so indicate? It had before it the act of 1916 containing a descriptive provision, viz, “ having a capital stock represented by shares.” It was familiar with the legislative policy of taxing capital employed and used in corporate business; it knew excise taxes had been measured by income; it knew it had the unrestricted right to select the measure and method of computing the tax; its knowledge of corporate organization was complete, and from what has been said, may we import into the law the word “ shares,” when the statute reads “ capital stock,” a term when used in connection with corporate taxation is more frequently held to contemplate the actual holdings and possessions of the corporation, its own property, as opposed to shares of stock? More especially is this true when the term itself is considered in connection with the express mandate to include surplus and undivided profits in estimating the tax.

We had prepared and were just on the point of announcing the opinion in this case when the opinion of the Supreme Court in Hecht v. Malley, reached the court. The Hecht case, decided May 12, 1924, 265 U. S. 144, we think, disposes of this one. The opinion follows the decision of the Circuit Court of Appeals in Central Union Trust Co. v. Edwards, supra.

The petition will be dismissed. It is so ordered.

Hay, Judge; DowNey, Judge; and Campbell, Chief Justice, concur.  