[968]*968OPINION.
Trammell:
The first question for determination is whether the taxpayer was a stockholder of the General Motors Corporation with respect to the stock which had been issued in his name and was held by the bonus custodian. Upon the solution of this issue depends that of whether distributions made by the corporation on the basis of stock held by the bonus custodian were dividends in the hands of the taxpayer or whether they constituted additional compensation.
The stock was issued in the name of the taxpayer as a part of his compensation in accordance with agreements between the issuing corporation and the taxpayer, the latter having performed the services required. The corporation laws of the State of Delaware under which the General Motors Corporation is organized provide that capital stock may be purchased “ by labor done.” (Section 14, General Corporation Laws.) In this case the taxpayer had fully performed the services for which the stock was to be issued, but, under the bonus plan of the corporation and the agreement under which he performed the services, he waived his right to physical possession of the stock certificates. Article 10 of the bonus plan specifically gives the persons to whom an award of stock has been made all the rights of stockholders except the right to sell, assign, or pledge their interest in the stock. The waiving by the taxpayer of his right to possession of the stock certificates did not make him any the less the owner of the stock under the definitions of that term. An owner is “ one who has dominion over a thing, which he may use as he pleases, except as restricted by law or by agreement; * * * one who has the legal or rightful title whether he is the possessor or [969]*969not; * * * the person in whom property is for the time being beneficially Tested, and who has the occupation or control or usufruct of it.” 29 Cyc. 1549.
It is well established that a person need not have in his possession stock certificates to be a stockholder, the certificates being merely evidence of stock ownership. In Pacific National Bank v. Eaton, 141 U. S. 221, the United States Supreme Court said:
Millions of dollars of capital stock are hold without any certificate; or, if certificates are made out, without their ever being delivered. A certificate is authentic evidence of title to stock; but it is not the stock itself, nor is it necessary to the existence of the stock. It certifies to a fact which exists independently of itself.
See also Beardsley v. Beardsley, 138 U. S. 262.
The certificates in question were made out and appeared in the name of the taxpayer, except that the corporation gave effect to the assignments and trust agreements in paying dividends on the stock.
In Turnbull v. Payson, 95 U. S. 418, it was held that the name of a person appearing on the stock book as a stockholder, or a receipt given for a dividend upon the shares standing upon the books in his name, creates a prima facie presumption of his being a stockholder. See also Franklin Bank v. Commercial Bank, 36 Oh. St. 350; State v. Ferris, 42 Conn. 560; Swobe v. Brictson Mfg. Co., 279 Fed. 560.
While the taxpayer might have forfeited a part of the stock by severing his connection with the company before a specified date, the fact remains that, while he was in the employ of the company, his relation to it was that of a stockholder. Furthermore, the evidence shows that the cash dividends were paid periodically as dividends by the company in accordance with the usual declaration resolutions, and that in authorizing dividends on its stock the board of directors of the company made no distinction between the so-called bonus stock and the remainder of its outstanding capital stock.
From what has been said above it clearly follows, in our opinion, that the amount of $67,311 paid to the taxpayer or his nominees constituted dividend payments and not additional compensation. Consequently, that amount is subject only to the surtax.
It was stipulated by the parties to this appeal that the so-called stock dividends “ were paid as such ” by the company. Holding, as we do above, that the taxpayer was actually a stockholder of the company in so far as the stock here involved is concerned, it is clear that the 1,703-36/40 shares of stock issued by the company in 1920 were true stock dividends, and accordingly are not subject to tax under the decision in Eisner v. Macomber, 252 U. S. 189.
[970]*970The dividends which were paid to the taxpayer’s wife were paid to her by virtue of a contract dated July 2, 1920. This contract provided that the taxpayer “ assigns, transfers, sets over and delivers unto the second party [Bertha S. Warner] all his right, title and interest in and to any and all dividends, rights or income payable or accruing on or in respect to the said Twelve thousand five hundred (12,500) shares of the common stock of General Motors Corporation without nominal or par value, held by said General Motors Corporation for the first party.” This right was assigned to the taxpayer’s wife only for the period during which the stock was held by the General Motors Corporation for the taxpayer. The instrument does not purport to convey or transfer the stock itself.
Ordinary dividends are the distributions of earnings of a corporation to its stockholders. A corporation is not authorized to distribute earnings as dividends to those not stockholders, except under the authority and at the request of those entitled to receive them as stockholders. When dividends are declared the corporation then becomes indebted to its stockholders for the amount. United States v. Guinzburg, 278 Fed. 363, and Plant v. Walsh, 280 Fed. 722. If the stockholder assigns his right to receive the dividend, the corporation by paying the dividend to the assignee satisfies an obligation to the stockholder. The right to receive it from the corporation accrues by virtue of the stock ownership. It is a stockholder’s right, although they are paid to others whose rights are derived from the stockholder’s right to receive them. The situation is analogous to a case where A owes B a debt and authorizes O to pay money owing to him to satisfy the debt. In so far as A is concerned, he receives income when his debt to B is paid.
In the case of Rensselaer & Saratoga R. R. Co. v. Irwin, 249 Fed. 726 (certiorari denied by the United States Supreme Court, 246 U. S. 671), the Circuit Court of Appeals had before it what seems to us a similar situation. There a corporation leased its railroad and agreed that the rental should be paid to its stockholders and bondholders, except that an amount not in excess of $1,000 per year should be paid to the corporation. It was contended- that the corporation did not receive the rents and did not have the right to receive them, and therefore the amounts should not be included in its taxable income. This contention was denied by the court, which used the following language:
It is true that the rent of its road does not go into the plaintiff’s treasury and that it has no means of withholding the tax from it.
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[968]*968OPINION.
Trammell:
The first question for determination is whether the taxpayer was a stockholder of the General Motors Corporation with respect to the stock which had been issued in his name and was held by the bonus custodian. Upon the solution of this issue depends that of whether distributions made by the corporation on the basis of stock held by the bonus custodian were dividends in the hands of the taxpayer or whether they constituted additional compensation.
The stock was issued in the name of the taxpayer as a part of his compensation in accordance with agreements between the issuing corporation and the taxpayer, the latter having performed the services required. The corporation laws of the State of Delaware under which the General Motors Corporation is organized provide that capital stock may be purchased “ by labor done.” (Section 14, General Corporation Laws.) In this case the taxpayer had fully performed the services for which the stock was to be issued, but, under the bonus plan of the corporation and the agreement under which he performed the services, he waived his right to physical possession of the stock certificates. Article 10 of the bonus plan specifically gives the persons to whom an award of stock has been made all the rights of stockholders except the right to sell, assign, or pledge their interest in the stock. The waiving by the taxpayer of his right to possession of the stock certificates did not make him any the less the owner of the stock under the definitions of that term. An owner is “ one who has dominion over a thing, which he may use as he pleases, except as restricted by law or by agreement; * * * one who has the legal or rightful title whether he is the possessor or [969]*969not; * * * the person in whom property is for the time being beneficially Tested, and who has the occupation or control or usufruct of it.” 29 Cyc. 1549.
It is well established that a person need not have in his possession stock certificates to be a stockholder, the certificates being merely evidence of stock ownership. In Pacific National Bank v. Eaton, 141 U. S. 221, the United States Supreme Court said:
Millions of dollars of capital stock are hold without any certificate; or, if certificates are made out, without their ever being delivered. A certificate is authentic evidence of title to stock; but it is not the stock itself, nor is it necessary to the existence of the stock. It certifies to a fact which exists independently of itself.
See also Beardsley v. Beardsley, 138 U. S. 262.
The certificates in question were made out and appeared in the name of the taxpayer, except that the corporation gave effect to the assignments and trust agreements in paying dividends on the stock.
In Turnbull v. Payson, 95 U. S. 418, it was held that the name of a person appearing on the stock book as a stockholder, or a receipt given for a dividend upon the shares standing upon the books in his name, creates a prima facie presumption of his being a stockholder. See also Franklin Bank v. Commercial Bank, 36 Oh. St. 350; State v. Ferris, 42 Conn. 560; Swobe v. Brictson Mfg. Co., 279 Fed. 560.
While the taxpayer might have forfeited a part of the stock by severing his connection with the company before a specified date, the fact remains that, while he was in the employ of the company, his relation to it was that of a stockholder. Furthermore, the evidence shows that the cash dividends were paid periodically as dividends by the company in accordance with the usual declaration resolutions, and that in authorizing dividends on its stock the board of directors of the company made no distinction between the so-called bonus stock and the remainder of its outstanding capital stock.
From what has been said above it clearly follows, in our opinion, that the amount of $67,311 paid to the taxpayer or his nominees constituted dividend payments and not additional compensation. Consequently, that amount is subject only to the surtax.
It was stipulated by the parties to this appeal that the so-called stock dividends “ were paid as such ” by the company. Holding, as we do above, that the taxpayer was actually a stockholder of the company in so far as the stock here involved is concerned, it is clear that the 1,703-36/40 shares of stock issued by the company in 1920 were true stock dividends, and accordingly are not subject to tax under the decision in Eisner v. Macomber, 252 U. S. 189.
[970]*970The dividends which were paid to the taxpayer’s wife were paid to her by virtue of a contract dated July 2, 1920. This contract provided that the taxpayer “ assigns, transfers, sets over and delivers unto the second party [Bertha S. Warner] all his right, title and interest in and to any and all dividends, rights or income payable or accruing on or in respect to the said Twelve thousand five hundred (12,500) shares of the common stock of General Motors Corporation without nominal or par value, held by said General Motors Corporation for the first party.” This right was assigned to the taxpayer’s wife only for the period during which the stock was held by the General Motors Corporation for the taxpayer. The instrument does not purport to convey or transfer the stock itself.
Ordinary dividends are the distributions of earnings of a corporation to its stockholders. A corporation is not authorized to distribute earnings as dividends to those not stockholders, except under the authority and at the request of those entitled to receive them as stockholders. When dividends are declared the corporation then becomes indebted to its stockholders for the amount. United States v. Guinzburg, 278 Fed. 363, and Plant v. Walsh, 280 Fed. 722. If the stockholder assigns his right to receive the dividend, the corporation by paying the dividend to the assignee satisfies an obligation to the stockholder. The right to receive it from the corporation accrues by virtue of the stock ownership. It is a stockholder’s right, although they are paid to others whose rights are derived from the stockholder’s right to receive them. The situation is analogous to a case where A owes B a debt and authorizes O to pay money owing to him to satisfy the debt. In so far as A is concerned, he receives income when his debt to B is paid.
In the case of Rensselaer & Saratoga R. R. Co. v. Irwin, 249 Fed. 726 (certiorari denied by the United States Supreme Court, 246 U. S. 671), the Circuit Court of Appeals had before it what seems to us a similar situation. There a corporation leased its railroad and agreed that the rental should be paid to its stockholders and bondholders, except that an amount not in excess of $1,000 per year should be paid to the corporation. It was contended- that the corporation did not receive the rents and did not have the right to receive them, and therefore the amounts should not be included in its taxable income. This contention was denied by the court, which used the following language:
It is true that the rent of its road does not go into the plaintiff’s treasury and that it has no means of withholding the tax from it. It is also true that the rent reserved by the lease is paid by the lessee in fixed sums to third parties. All the same, the rent is the property of the plaintiff, and remains such, though by the terms of the lease paid out to others, whose rights are derived through it. While the rent is a debt of the lessee to the lessor, it is, [971]*971as between tbe lessor and its stockholders, tbe lessor’s income, out of which the dividends, if any, are to be paid.
The application of the rent under the lease is a mere labor-saving device, the effect being exactly the same as if it be paid to the lessor and by it paid out as far as necessary to bondholders for interest, and the surplus in dividends to its stockholders. The description of the fixed sum to be paid by the lessee of 8 per cent, to the lessor’s stockholders as a dividend shows that the payment is made as agent of the lessor.”
To the same effect, see also Blalock v. Georgia Ry. & Electric Co., 246 Fed. 387; Anderson v. Morris & Essex R. R. Co., 216 Fed. 83; West End Street Ry. Co. v. Malley, 246 Fed. 625; Houston Belt & Terminal Ry. Co. v. United States, 250 Fed. 1; Boston Terminal Co. v. Gill, 246 Fed. 664; Hamilton v. Kentuclcy & Indiana Terminal R. R. Co., 289 Fed. 20.
In view of the foregoing, we are-of the opinion that the dividend from the stock, the dividends or right to dividends on which were assigned to the taxpayer’s wife, was income to the taxpayer before it could he diverted to another, and, as such, the amount of cash dividends received by the taxpayer’s wife is subject to tax as the taxpayer’s income. Appeals of Ormsby McKnight Mitchel, 1 B. T. A. 143; American Telegraph & Cable Co., 2 B. T. A. 991.
With respect to the 10,218 shares of which the petitioner created trusts for his two sons, a different situation exists. A valid trust having been created with respect to those shares, it is clear that the dividends are not taxable to the petitioner in his individual capacity.
Judgment will be entered after 15 days’ notice, under Rule 50.