The court erred in sustaining the affidavit of illegality and dismissing the execution.
DECIDED DECEMBER 1, 1942. REHEARING DENIED DECEMBER 19, 1942. On April 17, 1930, the Commissioner of Revenue of the State of Georgia issued an execution against R. A. Wardlaw for the sum of $330.33 principal, and $56.98 interest, for income taxes alleged to be due the State for the taxable year of 1936. Wardlaw filed an affidavit of illegality and gave the required bond. The Commissioner of Revenue filed a traverse to the affidavit, and the case was tried by the judge without a jury upon an agreed stipulation of facts. The affidavit of illegality was sustained and the execution dismissed, and that judgment is assigned as error.
The stipulation of facts shows that Wardlaw was a resident of Walker County, Georgia, and that on February 23, 1935, he owned *Page 717 twenty-six shares of the capital stock of the Coca-Cola Bottling Works of LaFayette, Georgia; that on that day he surrendered his certificate of said stock to said bottling works, and a new certificate for fifteen shares of the stock was issued to Louise C. Wardlaw, his wife, and this certificate still exists in her name on the books of the company. On April 2, 1936, Mrs. Wardlaw deserted her husband, and on April 24, 1936, a written agreement was made by them in settlement of their property rights, a copy of the agreement being attached as "Exhibit A," and made a part of the stipulation of facts. The agreement contemplated that Walter B. Shaw, Mrs. Wardlaw's attorney, would act as trustee and hold physical possession of the certificate of stock to prevent her disposal of it. Mrs. Wardlaw deposited the certificate with Mr. Shaw who now continues to have physical possession of it. The dividends for the year 1936, upon which the tax was assessed and for which the execution was issued, arose from the payments of the dividends to Wardlaw on the stock standing in the name of his wife on the books of the company, under the terms of their contract. After the execution of the contract Mrs. Wardlaw, on May 1, 1936, filed a suit in Reno, Nevada, to divorce her husband, and the divorce was denied. In 1937, in Miami, Florida, she filed another suit for divorce which was also denied. On May 11, 1937, in LaFayette, Georgia, Wardlaw obtained a complete divorce from his wife. The material parts of "Exhibit A" read as follows:
"Georgia, Walker County. Whereas R. A. Wardlaw and Mrs. R. A. Wardlaw, on account of differences that have arisen between them, desire to settle certain property rights and provide for the support and maintenance of said Mrs. R. A. Wardlaw, in lieu of alimony and in lieu of any and all other liability on the part of said R. A. Wardlaw to support his wife, said Mrs. R. A. Wardlaw, it is agreed between the parties hereto, R. A. Wardlaw and Mrs. R. A. Wardlaw, as follows:
"1. That R. A. Wardlaw will pay to Mrs. R. A. Wardlaw, in lieu of all liability for alimony, support, and maintenance, the sum of $275 per month, the first payment of $275 to be made on May 1, 1936, and on the first day of each and every month thereafter.
"2. In consideration of the aforesaid payments of $275 per month, said Mrs. R. A. Wardlaw agrees to place in trust with *Page 718 Walter B. Shaw, trustee, a certificate of stock standing in the name of Mrs. R. A. Wardlaw for fifteen shares of the capital stock of the Coca-Cola Bottling Works, LaFayette, Georgia, and that said certificate of stock shall be continuously held in trust by the said Walter B. Shaw, as trustee, for the purposes hereinbefore provided, the said Wardlaw shall have the right to vote this stock, as he sees fit in all matters which affect the management of the Coca-Cola Bottling Works, LaFayette, Georgia, and in all matters that may arise in any meeting or meetings of the stockholders of said Coca-Cola Bottling Works, LaFayette, Georgia, except that he shall not have authority to vote said stock on any matter proposing a change in the charter of the corporation or a change in the capital stock of the corporation, or the sale of any of the physical assets, franchises or bottling rights of the corporation, in which said excepted matters the said Mrs. R. A. Wardlaw reserves the right to vote said capital stock. This agreement constitutes full authority and power of attorney to the said R. A. Wardlaw to vote said fifteen shares of the capital stock of said Mrs. R. A. Wardlaw, in said Coca-Cola Bottling Works, LaFayette, Georgia, as herein provided, without any further power of attorney from the said Mrs. R. A. Wardlaw. The said R. A. Wardlaw is further hereby authorized to receive all dividends due to the said Mrs. R. A. Wardlaw on said capital stock in said Coca-Cola Bottling Works, LaFayette, Georgia, and this agreement is full and complete authority to said Coca-Cola Bottling Works, LaFayette, Georgia, to pay said dividends to the said R. A. Wardlaw. It is further understood that, in consideration of the payment of $275 per month to said Mrs. R. A. Wardlaw, as herein provided, the said R. A. Wardlaw is to have all dividends accruing on said stock in said Coca-Cola Bottling Works, LaFayette, Georgia, standing in the name of Mrs. R. A. Wardlaw, and is not to account to said Mrs. R. A. Wardlaw for said dividends.
"3. In the event of the discontinuance by the said R. A. Wardlaw of the monthly payments to said Mrs. R. A. Wardlaw, as herein provided, during the lifetime of said R. A. Wardlaw, said stock in the Coca-Cola Bottling Works, LaFayette, Georgia, standing in the name of said Mrs. R. A. Wardlaw and placed in trust, as herein provided, is to be surrendered by the trustee, herein provided, shall not be construed as a default on the part of said R. A. Wardlaw to make said payment until after the expiration of thirty days *Page 719 from the time said payment is due to have been made, as herein provided, and in the event the said R. A. Wardlaw is unable to locate the said Mrs. R. A. Wardlaw, a deposit of any monthly payment in the Bank of LaFayette, to the credit of said Mrs. R. A. Wardlaw, shall constitute a payment to said Mrs. R. A. Wardlaw.
"4. In the event of the death of the said R. A. Wardlaw, prior to the death of the said Mrs. R. A. Wardlaw, the representatives or executors of the estate of the said R. A. Wardlaw shall have the option to continue the payments of $275 per month to said Mrs. R. A. Wardlaw for the balance of her lifetime, but in the event said executors or representatives of the estate of said R. A. Wardlaw do not, within sixty days after the death of the said R. A. Wardlaw, elect to continue said monthly payments, the said Mrs. R. A. Wardlaw is to be paid, for the balance of her life, all dividends that may accrue on the stock in said Coca-Cola Bottling Works, LaFayette, Georgia, standing in her name.
"5. On the death of said Mrs. R. A. Wardlaw, provided the monthly payments have been continued until the time of the death of the said R. A. Wardlaw, the stock in the Coca-Cola Bottling Works, LaFayette, Georgia, standing in the name of said Mrs. R. A. Wardlaw, is to vest absolutely, share and share alike, in R. A. Wardlaw Jr. and James C. Wardlaw, the sons of the parties hereto, and the vesting of said stock, share and share alike, in said R. A. Wardlaw Jr. and said James C. Wardlaw, on the death of said Mrs. R. A. Wardlaw, is irrevocable, except for a failure on the part of said R. A. Wardlaw to make the monthly payments herein provided, and is not to be revoked by a failure of the executors or representatives of the estate of R. A. Wardlaw to continue said payments. [Paragraphs 6 and 7 of "Exhibit A" are omitted.]
"8. It is understood that said R. A. Wardlaw will reimburse said Coca-Cola Bottling Works, LaFayette, Georgia, for the $2000 withdrawn from the account of said Coca-Cola Bottling Works, LaFayette, Georgia, by said Mrs. R. A. Wardlaw on a check signed by said Mrs. R. A. Wardlaw, and a failure on the part of said R. A. Wardlaw to reimburse said Coca-Cola Bottling Works, LaFayette, Georgia, for said sum of $2000 within sixty days from this date, will authorize the trustee herein to return said certificate of stock in said Coca-Cola Bottling Works, LaFayette, Georgia, to said Mrs. R. A. Wardlaw. The said R. A. Wardlaw further agrees *Page 720 not to institute any criminal proceedings against said Mrs. R. A. Wardlaw on account of the withdrawal of said sum of $2000 from the account of the said Coca-Cola Bottling Works, LaFayette, Georgia, in the Bank of LaFayette by said Mrs. R. A. Wardlaw, but this agreement to refrain from instituting any criminal proceedings on the part of said R. A. Wardlaw shall not be construed as an agreement to settle any criminal liability on the part of said Mrs. R. A. Wardlaw, if same exists, but nothing contained in this agreement shall be construed as an admission upon the part of the said Mrs. R. A. Wardlaw that any criminal liability exists on account of the withdrawal of said sum of money from the account of said Coca-Cola Bottling Works, LaFayette, Georgia.
"9. The said Mrs. R. A. Wardlaw hereby agrees, in consideration of the payments by said R. A. Wardlaw as herein provided, that she will not institute against the said R. A. Wardlaw any suit for damages on account of any alleged slander of her character by the said R. A. Wardlaw, and will not lend her aid or assistance in the institution or prosecution of any suit for slander on the part of any other party, or participate in any such suit by any other party further than she may be compelled so to do by the processes of the courts. However, this paragraph applies to such acts of the said R. A. Wardlaw as may have occurred prior to this date and shall not be construed to be an agreement on the part of said Mrs. R. A. Wardlaw to refrain from bringing suit for any slander that may occur after this date.
"10. In the event of the death, disability, or failure, for any cause, of the trustee, herein provided, to act and to carry out the terms and conditions of this agreement, so far as the same may devolve upon him as trustee, the parties hereto may by mutual consent, entered into in writing and attached to this agreement, name another trustee to act herein, and in the event the parties hereto do not name a successor trustee within sixty days after the death, disability, or failure of the trustee herein named to act, either party hereto may request in writing the clerk of the superior court to act as trustee herein, and the acceptance by the clerk of such written request to act as trustee shall vest said clerk of the superior court with as full and complete authority to act as trustee as the trustee herein named.
"11. This contract and agreement is in lieu of all claims on the *Page 721 part of said Mrs. R. A. Wardlaw for alimony and for any claims for a child's part or a year's support out of the estate of said R. A. Wardlaw, and is in lieu of any and all claims on the part of said Mrs. R. A. Wardlaw for support or maintenance from the said R. A. Wardlaw.
"12. The said Mrs. R. A. Wardlaw agrees, in consideration of the payments herein provided, not, under any circumstances, to contract any indebtedness in the name of the said R. A. Wardlaw; and it is understood that the said R. A. Wardlaw shall not hereafter become liable for any debts of any sort contracted by the said Mrs. R. A. Wardlaw.
"13. The said Mrs. R. A. Wardlaw hereby agrees to pay and satisfy any indebtedness heretofore incurred, within a period of sixty days prior to this agreement, for any personal purchases, aside from groceries and supplies purchased for the running of the house, which may have been charged to the said R. A. Wardlaw or for which he may become liable." (After stating the foregoing facts.) The question for determination is whether the dividends on the fifteen shares of stock received by Wardlaw during the taxable year 1936, were taxable to him as a part of his income. In the brief of his counsel the following statement is made: "The lower court held that they were not taxable to R. A. Wardlaw, in whose name the stock did not stand, and that as between Mrs. R. A. Wardlaw and R. A. Wardlaw the same amounted to a gift by her to R. A. Wardlaw. We submit that, under the decisions of the courts, this judgment is correct." We can not agree with this contention. The agreed statement of facts, including the settlement contract between Wardlaw and his wife, shows conclusively that a valuable consideration was given by both parties thereto. Wardlaw agreed to pay his wife $275 every month, in lieu of any alimony payments, in consideration of her giving him the right to receive all dividends on the stock, and to vote and control the stock, except on certain minor contingent matters. It clearly appears from the settlement agreement that Wardlaw realized that he would probably, or possibly, be liable for alimony payments to his wife, and *Page 722 that, in order to escape making such payments, he bargained with her to obtain the dividends on the stock which he had given her a short time before, and to regain substantial control, but not physical possession, of the stock itself. He not only agreed to pay her $275 a month in lieu of alimony, but he also agreed to pay the bottling company $2000 which his wife owed it. In Douglasv. Willcuts, 296 U.S. 1 (56 Sup. Ct. 59, 80 L. ed. 3, 101 A.L.R. 391), the court held: "1. The annual sums to which a divorced wife is entitled out of the income of a trust created by her husband in contemplation of the divorce and ordered by the divorce decree to be set up in lieu of other alimony or other interest in the husband's property or estate are taxable income of the husband. 2. Amounts paid to a divorced wife under a decree for alimony are not regarded as income of the wife for tax purposes, but as paid in discharge of the husband's general obligation to support, which is made specific by the decree."
In the instant case the $275 monthly payment to his wife was made in lieu of alimony payments to her and therefore was not deductible by him, and the fact that he made an agreement with her whereby he indirectly offset his liability for alimony payments by receiving income out of another transaction will not relieve him from paying the income tax due on the $7500 dividends received by him on the stock in question. To allow him such relief would be permitting him indirectly to receive a deduction from his income tax of the alimony payment to his wife, which he could not do directly. In Wollman v. Commissioner, 31 U.S. B. T. A. 37, a husband executed an instrument wherein he declared himself a trustee of certain property for one year, to receive the income therefrom and to pay it to his wife. The Board of Tax Appeals pointed out that he was attempting to do indirectly what he could not do directly — to obtain a deduction from his income for the expenses of supporting his wife, and held that he was liable for the tax on the income of the property. In Shellabargerv. Commissioner, 38 Fed. 2d, 566 (4), the court held: "Where beneficiary of a trust assigned interest in the income therefrom, the grantee who received income pursuant to agreement, and not the grantor, was liable for federal income tax thereon." In Van Meter v. Commissioner, 61 Fed. 2d, 817 (4-6), the court held: "Where different persons earn, receive, and enjoy income, in determining person *Page 723 taxable therefore, vital matter is relation of earner to income. Intent of taxing statutes is that earner of income which he normally would receive and enjoy is not relieved because he chooses not to receive or enjoy it. Where income earner merely transfers income to another, or where he retains any control over income-earning property or income therefrom, such income is taxable to him."
In the instant case it conclusively appears that Wardlaw, and not his wife, was the income earner of the family and that he retained a material measure of control over the income-earning property. In Commissioner v. Waterbury, 97 Fed. 2d, 383 (2), the court said: "Where trust instruments contained no express reservation of discretionary power to grantors to divert income from their designated beneficiaries, provided for current distribution of entire income to beneficiaries, and conferred authority on trustee to accumulate income, trust income realized from the sale of stock was not taxable to grantors but to beneficiaries." In the instant case the wife had practically divested herself of all right to receive the income from the property in question. In Little War Creek Coal Co. v. United States, 25 F. Supp. 764 (8), it was said: "Where a taxpayer receives or retains money under a claim of right and without restriction concerning its disposition, he has received `income' which he is required to return." It is true that in Helveringv. Gordon, 87 Fed. 2d, 663 (3), the court held: "Under income-tax law, taxpayer need not actually receive money to which he is entitled before he is required to include it in his income-tax returns, but whenever it is available to him, and he is authorized to receive it, or to direct its payment to another, it must be accounted for by him for income-tax purposes." This decision is not contrary to our present ruling, for, under the settlement agreement, Mrs. Wardlaw was not entitled to receive the dividends from the stock in question, and her husband was the only person authorized to receive them, and they were available to him alone, and he must account for them in his income-tax returns. The many "gift" cases cited in behalf of the defendant are not here applicable.
In our opinion the evidence conclusively shows that the transfer to Wardlaw of the right to receive and to keep for himself the dividends in question was not a gift from his wife, but was a matter of bargain and sale for valuable considerations. It follows that *Page 724 a judgment in favor of the plaintiff was demanded by the law and the evidence, and the court erred in sustaining the affidavit of illegality and dismissing the execution.
Judgment reversed. MacIntyre and Gardner, JJ., concur.
ON MOTION FOR REHEARING.