There is presented upon this appeal another phase of the vexed question as to the proper basis of an assessment for the taxation of the capital stock and surplus profits of a domestic corporation. The relator, the Delaware and Hudson Canal Company, a corporation owning and operating a railroad in this State, leased from other corporations also owning and operating railroads in this State their property and franchise for and during the full term of the respective charters of the lessors, the lessee paying thé taxes and charges, upon the property, interest upon the bonded debt, and certain fixed dividends upon the capital stock of the lessor corporations. The-charter of the Albany and Susquehanna Railroad Company, one of the lessor corporations, expires April 2, 2001, and the charter of the Rensselaer and Saratoga Railroad Company, another of the lessor corporations, expires January 1, 2500. A copy of these, leases, at. the request of the commissioners of taxes and assessments,, was produced upon the hearing before the commissioners and submitted as part of the examination of the relator. The commissioners had, therefore, before them the evidence of the title of the. relator to the property of those lessor corporations. The tax commissioners fixed the value of the property subject to taxation at: $71,580,397. This was made up as follows:
Assets per statement............................ $46,462,144-
Value of real estate leased from the Albany and Susquehanna Railroad Company in perpetuity...'..... 9,442,534-
Value of personal property leased in perpetuity from the Albany and Susquehanna Railroad Company... 4^758,231
Value of real estate leased in perpetuity from the Rensselaer and Saratoga Railroad Company ........... 9,569,744-
Value of personal property leased in perpetuity from the Rensselaer and Saratoga Railroad Company.... 1,347,744-
Total assets................................. $71,580,397'
*131It will be seen that in this statement of the property of the relator there was included the gross value of the real estate and personal property leased from the Albany and Susquehanna and the Rensselaer and Saratoga Railroad Companies as though the relator owned this property. There was no evidence before the tax commissioners, nor before the court below, as to the value of the leases, and the assessment was based solely upon the ground that by the leases the railroad had become the owner of the property of the lessor corporations. This property thus leased was subject to the liens of certain mortgages to secure the payments of certain bonds issued by the lessor corporations, and the leases contained provisions that upon the failure of the lessee corporation (the relator) to pay the interest upon the bonds and the dividends upon the stock reserved as rent, or upon the failure to perform the other covenants and conditions of the lease, that the lessor should have the right of re-entry and to again take possession of the property leased. To assume this to be an absolute transfer of the property to f the relator, subject to the mere rent charge, as seems to have been? assumed by the commissioners, would seem to be opposed to the! intent of the parties as expressed by these leases. It is quite clear1 from their provisions that neither of the parties thereto considered that the property of the lessor corporations had been conveyed to the lessee. Undoubtedly it was the intention of the parties that these leases should continue so long as the lessor company performed its obligations, but the continued possession of the lessee was based upon the continued payment by the relator of the interest and dividends guaranteed upon the obligations and' stock of the lessor companies. Assuming, however, that the commissioners were right in their conclusion that all this property of the lessor corporation had vested in the relator, the property that the relator acquired by the leases would be the leased property subject to the liens upon it. Certainly, all that the relator acquired was . the property subject to these liens, and to determine the actual value of the property acquired by the lessee there must be deducted from the gross value of the leased property the amount of these outstanding liens. I do not think, however, that under these leases the lessor acquired the title to the property, but that their interest in it was solely that of lessee. The relator being the *132owner of the leases, they were property which should have been included in ascertaining the actual value of the relator’s capital stock and surplus; and in fixing the value of the leases the commissioners had the right to consider the nature of the estate granted to the relator, its duration and the profit, if any, that it acquired in operating the lessor railroad, deducting, however, the value of the right acquired by the lessee by a lease of the franchises of the lessors, as under the act in question the franchise cannot be valued or included in the assessment, it being taxed under another statute. (People ex rel. Manhattan R. Co. v. Barker, 152 N. Y. 439.) The provision of the statute under which the assessment was made (Tax Law, Laws of 1896, chap. 908, § 12) is : “ The capital stock oí every company liable to taxation, except such part of it as shall, have been excepted in the assessment-roll or shall be exempt by law, together with its surplus profits or reserve funds exceeding ten. per centum of its capital, after deducting the assessed value of its real estate, and all shares of stock in other corporations actually owned by such company which are taxable upon their capital stock under the laws of this state, shall be assessed at its actual, value.” Under this provision-it was the duty of the commissioners to ascertain the actual value of the real estate and personal property of the corporation up to the amount of the par value of the stock issued, and then the surplus profits or reserved funds that have been accumulated in addition which exceed ten per cent of its capital stock. (People ex.rel. Manhattan R. Co. v. Barker, 165 N. Y. 339.) The actual value of the real and personal property qf this corporation was found by the commissioners to be $46,462,144. To that valuation there seems to have been no objection. In addition to this there was the actual value of the leases of the property, excluding the value of a lease of the franchises of the lessor corporation, and from that property the relator was entitled to a deduction of $46,938,030. The commissioners, however, instead of ascertaining the value of these leases, estimated the value of the real estate and personal property leased by these two lessor corporations to the relator and included that in the amount of the property of the corporation. This, we think, was upon an incorrect basis. There was' no finding by the tax commissioners, nor by the court below, as to the value of these leases, and in such a case we think the proceed*133ings should be sent back for a reassessment so that the value of these •leases, deducting therefrom the value of the right to use the franchises of the leased corporations, should be ascertained and added to the value of the real estate and personal property of the relator and from this total, making the deductions which are allowed by the statute. As this court has the power to send the proceedings back for a reassessment (People ex rel. Manhattan R. Co. v. Barker, 165 N. Y. 319), we think that this is the disposition that should be made of this case.
The court below held that certain outstanding bonds of the Albany and Susquehanna Railroad Company, aggregating about $10,000,000, which are secured by the consolidated mortgage of that company, issued in pursuance of an agreement made in connection with the lease, were original obligations of the relator for which it is primarily and originally liable, and that such liability is not on account of any indirect liability of surety, grantor, indorser or otherwise. We do not think that this was correct. The statute' (§ 6) provided that no deduction shall be made in the assessment of personal property by reason of any indebtedness of the owner for or on account of any “ indirect liability as surety, guarantor, indorser or otherwise.” Three hundred and seventy-seven thousand dollars of this ten millions of bonds was issued in exchange for bonds previously outstanding, and none of these bonds were issued to the relator. The balance, over nine million of dollars, was issued directly to the relator —■ $3,073,000 in exchange for outstanding bonds which it had purchased, and $6,550,000 in payment for sums expended by it in construction work upon the property.
These bonds were not, when issued, obligations of the relator, but were obligations of the Albany and Susquehanna Railroad Company, and secured by a mortgage upon its property. When the relator sold these bonds, it guaranteed the payment of the principal and interest thereon, but that guaranty did not make the relator the principal debtor. Whether it actually paid the holders of the bonds 'the interest, or paid that sum to the Albany and Susquehanna Company, in order to enable it to pay, such interest was paid as part of the rent reserved by the lease of the property of the Albany and Susquehanna Company. Under that lease the relator had the right to receive from the Albany and Susquehanna Railroad *134Company new bonds for any of these bonds it was compelled to pay. And should it pay one of these bonds under this guaranty, there would arise at once an obligation on behalf of the Albany , and Susquehanna Railroad Company to repay such bond. It certainly cannot be said, however, that this obligation to pay the principal upon these bonds is an original obligation or anything more than a guaranty of the obligation of the Albany and Susquehanna Railroad Company to pay the bonds.
The order appealed from is-, therefore, so modified as to vacate the .assessment and order a reassessment by the tax commissioners, with costs of this appeal to abide the final determination of this proceeding. *
Yan Brunt, P. J., O’Brien and McLaughlin, J j., concurred.
Order modified as directed in opinion, with costs of appeal to abide the final event.