The opinion of the court was delivered, July 2d 1873, by
Agnew, J. —
The whole question in this case depends on the fact wnether the increase in the stock 'of this company was a stock dividend. If it was, it must be conceded that this increase is the subject of the tax of one-half mill for every one per cent, of dividend, under the fourth section of the Act of May 1st 1868: 2 Brightly’s Digest 1382, pi. 157. A stock dividend is a thing well understood, and has been passed upon by this court in several [90]*90instances. In the Commonwealth v. Clevel., Paines. & Ash. R. R. Co., 5 Casey 370, it was said that “in assessing the tax, no difference can be made between the dividends actually paid to the stockholders, and stock dividends, which are profits added to the stock of each corporator.” Nor is it necessary that the corporation should formally declare the dividend payable in stock. This was determined in the Lehigh Crane Iron Co. v. Commonwealth, 5 P. F. Smith 448. There a company with a capital of $100,000, from time to time increased its capital from its earnings until its stock reached to $900,000, and we held that the increase having resulted from earnings, was liable to the half mill tax. It was a dividend made though not so declared. We said then that the earnings of the original capital belonged to the owners of the stock, in proportion to their shares. So long as they remained in the profit and loss account, there was no division, express or implied, but when added to the capital and made a basis of dividends to the stockholders, they then reaped the actual benefit of the earnings of their stock.
On the question, what is the true capital of a company as the basis of dividends, a converse of the last ease is that of the Citizens’ Passenger Railway Co. v. The City of Philadelphia, 13 Wright 251. The authorized capital of that company, on which it declared its dividend, was $500,000, but its actual capital paid in was but $192,750, and the question was whether the tax should be estimated on the authorized or on the paid-up capital. The estimate on the nominal capital drew the dividend below six per cent., the charter limit, and hence the controversy. This court, by Thompson, J., held that the paid-up stock, not the nominal amount, was the true basis of taxation, and on that the dividend exceeded six per cent. The obvious reason is that the earning or profits of the stockholders on their actual investment, is the real ground on which the tax is laid. This purpose is manifested by the letter of the act as well as its spirit. The fourth section of the Act of May 1st 1868, is in these words: “The capital stock of all companies whatever, incorporated, &c., shall be subject to and pay into the treasury of the Commonwealth, annually, at the rate of one-half mill for each one per cent, of dividend made or declared by such company.” A dividend is not capital, but the product of capital, and this product it is which the law by its own terms makes both the criterion and the measure of the taxation of the capital. Thus, if a profit upon the actual capital or investment be either made or passed over to the stockholders without a declaration of dividend, or if a dividend be declared to them, the sum so made or so declared becomes the measure of the tax. If it be made and added to the investment of the shareholders in the form of new capital, though not declared as a dividend, still it must be taken and deemed to-be a dividend of the earnings of their original [91]*91capital, and the new stock is called a stock dividend. This is tne point decided in the Lehigh Crane Iron Works’ case, supra. On the other hand, if a dividend be declared and set apart to the shareholders, the stock is taxable on the basis of this declaration, of which it makes return by law to the auditor-general. The company is estopped by its declaration and report, whether the dividend be earned or not. Atlantic and Ohio Telegraph Company v. Commonwealth, 16 P. F. Smith 57. The late chief justice said, in the last case, the only question was whether the court below erred in regarding the returns as the true evidence of what dividends' were declared as the basis of the auditor-general’s settlement. He remarked, “ She (the Commonwealth) is dealing with her own corporation, and acting solely on the evidence of its doings in regard to the subject of its liability to taxes, viz.: dividends made or declared. This is shown by its proper officer, the treasurer, in his return to the auditor-general; and the basis of that taxation is the dividends declared and paid.” And again, “ By whomsoever the stock is held, the measure of the tax is upon the dividends declared, and no such thing as partial dividends is ever to be presumed. When a dividend is declared (he continues) that gives the measure and furnishes the rule for the tax.” This ruling derives greater force from the language of the original Act' of 29th April 1844, the prototype of- the Act of 1859, from which the fourth section of the Act of May 1st 1868, was taken. The Act of 1844 was that the amount of the tax chargeable oh the capital stock,'on which a dividend or profit of six per cent, per annum or more shall be made and declared, shall be at the rate of one-half mill on each one per cent, of such dividend or profit. This “profit” was the legislative synonym of the dividend which should measure the tax. In the case of the Phoenix Iron Co. v. Commonwealth, 9 P. F. Smith 104, the legislation on the subject of the tax on the capital stock is traced, and the difference is shown between the state tax on dividends specifically and on the capital stock as measured by the dividends. .In .that case the difference between the Acts of 1844 and 1859, was pointed out, which is that instead of a valuation of the stock, as per Act of 1844, when the dividend fell below six per cent., the Act of 1859 required payment of the tax at the rate of half a mill for each one per cent, of dividend made or declared, and provided for the valuation of the stock according to the Act of 1844, only when the corporation failed to make or declare any dividend. But when dividends are made or declared, they still continue to be the criterion and the measure of the tax. In this aspect, therefore, the law is still the same as under the Act of 1844, which expressly denominates the dividend as profit.
These two eases, the Lehigh Crane Iron Works and the Atlantic and Ohio Telegraph Company, have, therefore, settled the inter[92]*92pretation of the fourth section of the Act of May 1st 1888, according to its letter and its spirit, and they now furnish the rule for taxation. This is, that when a corporation has actually made dividends from its profits or property without formally declaring them, by adding them to the stock of the shareholders, or where it has declared dividends and returned them, whether earned or not, the sum thus added to the stock of the shareholders, or the sum thus declared and set apart to him, becomes the measure of the tax, the legislative intent being to make the profit transferred by the corporation to its shareholders from its treasury or property the measure of the taxation of its capital. Hence, it is clear that a mere nominal or arithmetical increase of the shares, without a transfer to the shareholders of anything out of the treasury or property of the corporation, is not a dividend or profit either made or declared. It is a mere change in the form of the capital or investment — a transmutation of one form into another. A dividend ex vi termini is a product of the stock, it is the legislative synonym of profit, not the capital which made it.
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The opinion of the court was delivered, July 2d 1873, by
Agnew, J. —
The whole question in this case depends on the fact wnether the increase in the stock 'of this company was a stock dividend. If it was, it must be conceded that this increase is the subject of the tax of one-half mill for every one per cent, of dividend, under the fourth section of the Act of May 1st 1868: 2 Brightly’s Digest 1382, pi. 157. A stock dividend is a thing well understood, and has been passed upon by this court in several [90]*90instances. In the Commonwealth v. Clevel., Paines. & Ash. R. R. Co., 5 Casey 370, it was said that “in assessing the tax, no difference can be made between the dividends actually paid to the stockholders, and stock dividends, which are profits added to the stock of each corporator.” Nor is it necessary that the corporation should formally declare the dividend payable in stock. This was determined in the Lehigh Crane Iron Co. v. Commonwealth, 5 P. F. Smith 448. There a company with a capital of $100,000, from time to time increased its capital from its earnings until its stock reached to $900,000, and we held that the increase having resulted from earnings, was liable to the half mill tax. It was a dividend made though not so declared. We said then that the earnings of the original capital belonged to the owners of the stock, in proportion to their shares. So long as they remained in the profit and loss account, there was no division, express or implied, but when added to the capital and made a basis of dividends to the stockholders, they then reaped the actual benefit of the earnings of their stock.
On the question, what is the true capital of a company as the basis of dividends, a converse of the last ease is that of the Citizens’ Passenger Railway Co. v. The City of Philadelphia, 13 Wright 251. The authorized capital of that company, on which it declared its dividend, was $500,000, but its actual capital paid in was but $192,750, and the question was whether the tax should be estimated on the authorized or on the paid-up capital. The estimate on the nominal capital drew the dividend below six per cent., the charter limit, and hence the controversy. This court, by Thompson, J., held that the paid-up stock, not the nominal amount, was the true basis of taxation, and on that the dividend exceeded six per cent. The obvious reason is that the earning or profits of the stockholders on their actual investment, is the real ground on which the tax is laid. This purpose is manifested by the letter of the act as well as its spirit. The fourth section of the Act of May 1st 1868, is in these words: “The capital stock of all companies whatever, incorporated, &c., shall be subject to and pay into the treasury of the Commonwealth, annually, at the rate of one-half mill for each one per cent, of dividend made or declared by such company.” A dividend is not capital, but the product of capital, and this product it is which the law by its own terms makes both the criterion and the measure of the taxation of the capital. Thus, if a profit upon the actual capital or investment be either made or passed over to the stockholders without a declaration of dividend, or if a dividend be declared to them, the sum so made or so declared becomes the measure of the tax. If it be made and added to the investment of the shareholders in the form of new capital, though not declared as a dividend, still it must be taken and deemed to-be a dividend of the earnings of their original [91]*91capital, and the new stock is called a stock dividend. This is tne point decided in the Lehigh Crane Iron Works’ case, supra. On the other hand, if a dividend be declared and set apart to the shareholders, the stock is taxable on the basis of this declaration, of which it makes return by law to the auditor-general. The company is estopped by its declaration and report, whether the dividend be earned or not. Atlantic and Ohio Telegraph Company v. Commonwealth, 16 P. F. Smith 57. The late chief justice said, in the last case, the only question was whether the court below erred in regarding the returns as the true evidence of what dividends' were declared as the basis of the auditor-general’s settlement. He remarked, “ She (the Commonwealth) is dealing with her own corporation, and acting solely on the evidence of its doings in regard to the subject of its liability to taxes, viz.: dividends made or declared. This is shown by its proper officer, the treasurer, in his return to the auditor-general; and the basis of that taxation is the dividends declared and paid.” And again, “ By whomsoever the stock is held, the measure of the tax is upon the dividends declared, and no such thing as partial dividends is ever to be presumed. When a dividend is declared (he continues) that gives the measure and furnishes the rule for the tax.” This ruling derives greater force from the language of the original Act' of 29th April 1844, the prototype of- the Act of 1859, from which the fourth section of the Act of May 1st 1868, was taken. The Act of 1844 was that the amount of the tax chargeable oh the capital stock,'on which a dividend or profit of six per cent, per annum or more shall be made and declared, shall be at the rate of one-half mill on each one per cent, of such dividend or profit. This “profit” was the legislative synonym of the dividend which should measure the tax. In the case of the Phoenix Iron Co. v. Commonwealth, 9 P. F. Smith 104, the legislation on the subject of the tax on the capital stock is traced, and the difference is shown between the state tax on dividends specifically and on the capital stock as measured by the dividends. .In .that case the difference between the Acts of 1844 and 1859, was pointed out, which is that instead of a valuation of the stock, as per Act of 1844, when the dividend fell below six per cent., the Act of 1859 required payment of the tax at the rate of half a mill for each one per cent, of dividend made or declared, and provided for the valuation of the stock according to the Act of 1844, only when the corporation failed to make or declare any dividend. But when dividends are made or declared, they still continue to be the criterion and the measure of the tax. In this aspect, therefore, the law is still the same as under the Act of 1844, which expressly denominates the dividend as profit.
These two eases, the Lehigh Crane Iron Works and the Atlantic and Ohio Telegraph Company, have, therefore, settled the inter[92]*92pretation of the fourth section of the Act of May 1st 1888, according to its letter and its spirit, and they now furnish the rule for taxation. This is, that when a corporation has actually made dividends from its profits or property without formally declaring them, by adding them to the stock of the shareholders, or where it has declared dividends and returned them, whether earned or not, the sum thus added to the stock of the shareholders, or the sum thus declared and set apart to him, becomes the measure of the tax, the legislative intent being to make the profit transferred by the corporation to its shareholders from its treasury or property the measure of the taxation of its capital. Hence, it is clear that a mere nominal or arithmetical increase of the shares, without a transfer to the shareholders of anything out of the treasury or property of the corporation, is not a dividend or profit either made or declared. It is a mere change in the form of the capital or investment — a transmutation of one form into another. A dividend ex vi termini is a product of the stock, it is the legislative synonym of profit, not the capital which made it. But capital, no matter what new form it may take, either by the increase or diminution of the number or nominal amount of its shares, so long as no new product is added to it from the treasury or property of the corporation, is still the same capital in substance and effect. Nor does the fact that its new form gives to the stock a greater commercial value, constitute it a dividend of any profit or property of the company. It resembles anon-negotiable note converted by consent of parties into a negotiable form. No new sum passes from the debtor to the creditor, the debt is the same, but the new form has given to the instrument a new commercial value in the hands of the creditor. The mere watering of stock, therefore, which has only subdivided existing shares and has transferred nothing from the treasury or property of the corporation to the pocket of the stockholder, is not a dividend either made or declared, within the letter or spirit of the act, and furnishes no basis for additional taxation upon the corporation. It must be remembered that the question before us concerns only the corporation. If the new form of the stock makes the shareholder amenable to additional taxation for more stock, as he was under the Act of 1844, and still is to a certain extent, that is his concern, and he must pay any new burthen the increase in his stock may impose upon him. But the legislature having made the corporation amenable to taxation only according to the dividends it declares, or the product of its capital actually invested in its shareholders in the form of new stock, the state can impose under the Act of 1st May 1868, no additional burthen founded only on a mutation in the form of its capital. This being the true interpretation of the fourth section of that act, which is almost a literal transcript of the Act of 1859, the solution of the present case is free from diificulty. The resolution of the stockholders [93]*93under which the change in the form of the stock took place, recites : That under the lease of the railway, to the Pennsylvania Railroad Company, a perpetual dividend fund is provided equal to pay twelve per cent, on the existing stock of the company, and that it is expedient that a guarantied stock entitled to dividends, at the rate of seven per cent, should be created in substitution of the now existing stock. Authority is then conferred on the directors to carry out this purpose. In pursuance of this authority, it was ordered that “ there should be issued to the stockholders new certificates tó be called ‘guarantied dividend stock,’ in exchange for the old certificates, at the rate of 171 shares of new stock for each 100 shares of the old.” This was but a change in the form of the stock, the new certificate representing precisely the same stock covered by the old certificate, altered only by a numerical subdivision of shares, which made 100 by the former computation to stand as 171 by the latter. Nothing new in the shape of profit or property, so far as it appears from the evidence, passed from the company to the stockholders. The existing shares summed up a capital of $11,497,700, on which twelve per cent, would yield a dividend of $1,379,724. The new or guarantied stock, at the rate of increase, gives a capital of $19,665,000, on which seven per cent, gives a dividend of $1,376,550, a shade less than the old form yielded. A further calculation shows also that the increased number of shares in the newform counterbalances the decreased per centage in the dividend, and that the Commonwealth loses nothing in her tax.
Thus standing on the report of the company, which according to the case of the Atlantic and Ohio Telegraph Company, must be taken to be true, in the absence of other evidence, no dividend or profit was made to the stockholders, and consequently the increase in the number of the shares was not a stock dividend and not a basis of taxation.
But had the rejected evidence been admitted, a new aspect might have been given to the ease. A grave question would then have arisen, whether the increase of the stock was not an increment, arising from an actual appreciation of the entire property of the corporation, which is sought to transfer to its stockholders, under color of a mere transmutation in the form of stock. If this were the case, it cannot be doubted that the value thus transferred in the form of stock, would constitute a stock dividend, and be the measure of the tax. The rejection of the evidence becomes, therefore, an important assignment of error. It involves a nice discrimination, and yet we think the court was right in its ruling. The document offered was not issued by the company, but was framed and circulated by the trustee in the mortgage given to secure the bond creditors of the company. As a document its assertions wore not binding on the company without evidence of their [94]*94previous authority or subsequent adoption. There was no evidence of either, excepting what shall be found in the letter of Mr. Earley, the auditor of the company, to the auditor-general, in response to an inquiry of the latter. There was no evidence of Mr. Earley’s authority to represent the company in this matter, or that the duties of an auditor of the companies extend to this business. Ilis authority, therefore, can only be an implication, and the extent of it cannot exceed the terms of the letter itself. Then, assuming an implication of authority to Mr. Earley, the document to which he refers, he adopted only to the extent of those parts to which he refers the auditor-general, as explanatory of the action of the railroad company. Beyond these parts of the document, there is no evidence of adoption by the company, actual or inferential. To infer that the statements of a trustee for a different purpose, with no evidence of his authority to make them, outside of the portions adopted by another person without evidence of his authority to adopt the entire document, are binding on the company, and would stretch the doctrine of presumptions beyond the boundaries of safety. Such a presumption would leave the company at the mercy, whim, caprice or prejudice of a jury. It was in the power of the Commonwealth or her officers, had they made the effort, to supply the evidence of authority, if it existed, or the evidence of the facts themselves recited in the circular. In regard to the facts, the causes of the Commonwealth must be tried according to the same rules of evidence which apply to other suitors, she must supply the evidence of them, and if by loss or a want of evidence she fails, the misfortune or the fault is her own. The absence of evidence cannot be supplied by presumptions at war with justice as well as with the ordinary rules of evidence. The error of the argument which, without evidence, demands a presumption of a dividend of profits from a mere increase of capital, will be treated of in an opinion to be read in the case of the Erie and Pittsburg Railroad Company v. Commonwealth. There being no evidence on the trial that there was a dividend either made or declared by the company, there was nothing to be submitted to the jury.
Judgment affirmed.