(dissenting).-
I regret that I am unable to concur in the opinion of my associates. Their opinion lays stress and is based entirely on the status of the stockholders as third party beneficiaries and the lack of control of the corporate taxpayer over the income. The opinion seems to ignore what in my opinion is a vital factor in the. conclusion to be reached, the relationship between taxpayer and stockholders. At the most, that the stockholders may sue directly as third party beneficiaries on the promisor’s undertaking, is of little consequence and emphasis thereon tends only to confuse the issue. Moreover, I do not believe that the doctrine of constructive receipt is governed solely by the “control of income” test, nor is it my impression that the federal courts -have been imposing tax liability with regard to that test exclusively. Apparently the majority opinion indorses the statement in Northwestern Telegraph Co. v. Wisconsin Tax Commission, 212 Wis. 219, 248 N.W. 164, 166, that “the test is control over that which is taxed.” I think the Wisconsin Supreme Court’s view of constructive receipt is very narrow and has not won recognition by the federal courts, Gold & Stock Telegraph Co. v. Commissioner, 2 Cir., 83 F.2d 465, 467.
Corporation X transfers railroad property to Corporation Y in consideration of the payment of fixed amounts (“dividends”) to the stockholders of Corporation X. Let us suppose a transfer (1) by lease for 999 years, (2) by perpetual lease lacking a defeasance clause, and (3) by perpetual lease containing a defeasance clause. In each case the question is whether the amounts so paid the stockholders, which X never actually receives, constitutes income to X. In cases (1) and (3) the reversion, separated as it is from the consideration, is of questionable value. In case (2) the reversion, if any, and separated as it is from the consideration, is of negligible value. In each case control by X over the income has been relinquished. See Concurring Opinion, Harwood v. Eaton, 2 Cir., 68 F.2d 12, 14. In each case X had control of the disposition of income and could have received it, but at the time of payment the stockholders were legally entitled to it and actually received it.
In case (1) it is conceded that X is the taxable person. Pacific & Atlantic Telegraph Co. v. Commissioner, 83 F.2d 469. In case (2) the majority opinion holds that X is not taxable. In case (3) I believe that the majority opinion would be compelled to hold X taxable. It follows that either the law conceded to be controlling *178in (1) is not correct or that the law applied by the majority opinion in (2) is erroneous. Manifestly this is true, for the majority opinion turns the case mainly on the element of control over income and it is a fact that in the three cases corporate control over the income has been relinquished. It-is my conclusion that the majority opinion has relied unduly on the presence or absence of a defeasance clause and hence has sacrificed substance at the altar of form.
Various theories have been advanced for the result reached in case (1) above. Rensselaer & S. R. R. Co. v. Irwin, D.C., 239 F. 739, affirmed 2 Cir., 249 F. 726, certiorari denied, 246 U.S. 671, 38 S.Ct. 424, 62 L.Ed. 931; Blalock v. Georgia Ry. & Elec. Co., 5 Cir., 246 F. 387; West End St. Ry. Co. v. Malley, 1 Cir., 246 F. 625, certiorari denied, 246 U.S. 671, 38 S.Ct. 423, 62 L.Ed. 931. The substance of the arguments used by the federal courts center around the relationship between the corporate taxpayer and its stockholders. The rationale of these opinions apply as well to cases (2) and (3) as to case (1) and the same result should be reached in each case. As stated in Gold & Stock Telegraph Co. v. Commissioner, 2 Cir., 83 F.2d 465, 467, “As the lessor corporation still exists to serve its stockholders for some purposes, we think it reasonable to treat it as a link in the income receiving chain which should not be disregarded as a taxpayer.” Judge Learned Hand reasons that in cases such as these, there is a necessity for disregarding the corporate entity entirely and simply regarding payments to stockholders as payments to the corporation. Concurring Opinion, Harwood v. Eaton, 2 Cir., 68 F.2d 12, 14, 15. See also Gold arid Stock Telegraph Co. case, 26 B.T.A. 914, 927; Kansas City, St. L. & C. R. R. Co. v. Commissioner, B.T.A. case promulgated November 6, 1940. Some of the courts above are also influenced in their opinions hy the fear that a contrary view would open the door to future circumvention of the corporate income tax.
It is clear in our case that the rights of the stockholders to the payments of income spring from their status as members of the transferor corporation and that these payments could only have been made because the corporation was under an existing obligation to distribute earnings not required for its business. See also Raynolds v. Diamond Mills Paper Co., 69 N.J.Eq. 299, 60 A. 941; Dodge v. Ford Motor Co., 204 Mich. 459, 170 N.W. 668, 3 A.L.R. 413. I believe that either the payments to the stockholders should be treated as dividend distributions, or that in thus obtaining the discharge of an obligation definitely owing to its stockholders it received something of value which can properly be treated as 'income to it. In either event the income received by the stockholders should be treated as income of the corporation for purposes of the tax.
I believe that the judgment of the Dis- . trict Court should be affirmed.