visions of § 7 and as interpreted by the commissioner in its application to these defendants, is to be levied only on such increases in values as have been realized by sales within the year, using as the basis of value in instances where stock was owned by the taxpayer on January 1, 1916, the fair cash value at that time. Thus the income as ascertained for tax purposes is the annual income in its strict sense. It is a direct apportionment of the increment from this source to the year in which it was received and converted into cash. See Doyle v. Mitchell Brothers, 235 Fed. Rep. 686; 149 C. C. A. 106; Biwabik Mining Co. v. United States, 242 Fed. Rep. 9, and Cleveland, Cincinnati, Chicago & St. Louis Railway v. United States, 242 Fed. Rep. 18, each decided by the Circuit Court of Appeals for the Sixth Circuit on May 8, 1917. Therefore no question either of statute interpretation or constitutionality is raised in the cases at bar as to an attempt to tax gains on the value of property which have not been realized by sale and which would be known in common speech as mere paper profits, and nothing to that point is here decided.

The argument against the validity of the tax, as likely to cause confusion in keeping accounts of trustees and others and in making divisions and apportionments, is based merely on convenience and cannot be regarded as of much weight. Illustrations were put in argument and readily can be imagined of instances where hardship may be wrought by this decision. But that is likely to be true of every general rule of law and particularly of tax statutes.

These reasons lead to the conclusion that the tax upon gains in excess of losses arising from sales of stock during the year 1916 is a tax upon income and not upon principal.

In reaching this conclusion we are not unmindful of decisions of other jurisdictions more or less apparently at variance. See for example, Gray v. Darlington, 15 Wall. 63; Hudson Bay Co. v. Stevens, 25 T. L. R. 709; Tebrau (Johore) Rubber Syndicate, Ltd. v. Farmer, 47 Sc. L. Rep. 816; Lynch v. Turrish, 236 Fed. Rep. 653; 149 C. C. A. 649, and cases there collected; Lynch v. Hornby, 236 Fed. Rep. 661; 149 C. C. A. 657. But the grounds upon which this judgment rests are such as to render unnecessary a critical examination of those decisions. They relate to other statutes enacted under constitutional provisions different from those of the Forty-fourth Amendment.

The word "income" is susceptible of a meaning sufficiently broad to include gain of the kind and from the sources here in question. The circumstances under which the Forty-fourth Amendment was adopted are of persuasive force in requiring the conclusion that it was the purpose of the people to include within its scope everything that by reasonable intendment can be said to be income.

The income tax act does not violate the provisions of the Forty-fourth Amendment so far as concerns this item of income. It does not levy a tax at a different rate upon incomes derived from the same class of property. The rate levied upon gains from the sales of intangible personal property is three per cent, § 5 (c), while that upon the dividends from stock and interest on bonds and notes is six per cent, § 2. But these two sources of income do not belong to the same class. When a classification is made of property for purposes of taxation, the question is, as was said in Nicol v. Ames, 173 U. S. 509, 521, "whether there is any reasonable ground for it, or whether it is only and simply arbitrary, based upon no real distinction and entirely unnatural." A classification will not be declared void as unreasonable "unless it was plainly and grossly oppressive and unequal, or contrary to common right." Oliver v. Washington Mills, 11 Allen, 268, 279. The tax upon interest and dividends is levied upon a return which comes to the owner of the principal security without further effort on his part. The tax upon excess of gains over losses in the purchases and sales of intangible personal property is levied, not upon income derived from a specific property but from the net result of the combination of several factors, including the capital investment and the exercise of good judgment and some measure of business sagacity in making purchases and sales. Gain derived in this way, to express it in "summary and comprehensive form," "is the creation of capital, industry, and skill.” Wilcox v. County Commissioners, 103 Mass. 544. It is not the production of capital alone and does not arise solely from a simple investment.

The question was somewhat argued at the bar whether the tax authorized by the Forty-fourth Amendment and levied by the instant statute is wholly a property tax, as was said in Opinion of the Justices, 220 Mass. 613, 623, 625, Perkins v. Westwood,

226 Mass. 268, Pollock v. Farmers' Loan & Trust Co. 157 U. S. 429, 581; S. C. 158 U. S. 601, or whether in some aspects and applications it may be an excise, Springer v. United States, 102 U. S. 586, 602, Brushaber v. Union Pacific Railroad, 240 U. S. 1, 16, 17, Flint v. Stone Tracy Co. 220 U. S. 107, 150, 152, Glasgow v. Rowse, 43 Mo. 479, 491, Waring v. Mayor & Aldermen of Savannah, 60 Ga. 93, 100, Drexel & Co. v. Commonwealth, 46 Penn. St. 31, 40. It is not necessary to do more than to refer to 220 Mass. 623-627, for it is plain that the Forty-fourth Amendment modified the provisions of c. 1, § 1, art. 4 of the Constitution, to the effect that property taxes must be proportional, so that the Legislature now has power to levy taxes upon whatever rightly may be held to be "income" at different rates upon income derived from different classes of property, provided there is uniformity in rate upon incomes from the same classes of property. It follows that in this connection the rule stated in Gleason v. McKay, 134 Mass. 419, and O'Keeffe v. Somerville, 190 Mass. 110, to the effect that no valid excise can be imposed upon the exercise of a natural right, has no relevancy.

2. The second question is whether gains derived from the sale of rights to subscribe for new shares of stock to be issued by a corporation are taxable as income.

The respondent Putnam received during 1916 proceeds from the sale of rights, declared in that year, to subscribe to shares of new stock in corporations in which he was a stockholder previous to 1916.

The same reasons which already have been stated, as to the right to treat gains in excess of losses from purchases and sales of intangible personal property as subject to an income tax, lead to the conclusion that gains arising from the sale of rights to subscribe for new stock issued by corporations may also be treated as income by the General Court for purposes of taxation under the Forty-fourth Amendment. Such rights are themselves a species of intangible property. They come to the stockholder as a gratuity. They are a new thing of value which he did not possess before. The amount for which he sells them is a gain.

In the management of trusts as between a life tenant and remainderman rights to subscribe for stock, Atkins v. Albree, 12 Allen, 359, 361, Davis v. Jackson, 152 Mass. 58, 61, and stock

dividends, D'Ooge v. Leeds, 176 Mass. 558, 560, Rand v. Hubbell, 115 Mass. 461, are regarded as capital and not as income in this Commonwealth. The rule of this Commonwealth, to the effect that as between life tenant and remainderman stock dividends are treated as capital and not as income, perhaps may have grown up in part at least by reason of its convenience and it appears to be widely adopted. Gibbons v. Mahon, 136 U. S. 549.

But, however that may be, it is manifest that there is no inherent, necessary and immutable reason why stock dividends should always be treated as capital. This is apparent because in several jurisdictions they are treated either in whole or in part as income and not as capital. Matter of Osborne, 209 N. Y. 450. (See McLouth v. Hunt, 154 N. Y. 179; Robertson v. de Brulatour, 188 N. Y. 301; Lowry v. Farmers' Loan & Trust Co. 172 N. Y. 137.) Pratt v. Douglas, 11 Stew. 516, 541. Earp's Appeal, 28 Penn. St. 368. Holbrook v. Holbrook, 74 N. H. 201, 203, 204. Pritchitt v. Nashville Trust Co. 96 Tenn. 472. Hite v. Hite, 93 Ky. 257. Thomas v. Gregg, 78 Md. 545. Goodwin v. McGaughey 108 Minn. 248. Soehnlein v. Soehnlein, 146 Wis. 330, 339. The same is true of our rule (which prevails also at least in the federal and English courts, see Gibbons v. Mahon, 136 U. S. 549, 567; Bouch v. Sproule, 12 App. Cas. 385) to the effect that rights to subscribe for new stock which have a market value are to be attributed to principal and not to income. Some other States hold the value of such rights to be income and not principal. Wiltbank's appeal, 64 Penn. St. 256. See Lord v. Brooks, 52 N. H. 72.

It seems impossible to say, when a kind of gain is in many States held even as between life tenant and remainderman to be income and not capital, that the word "income," used in an amendment to the Constitution adopted for the express purpose of enabling a tax to be levied broadly on all that rightly may be described as income, should be construed as excluding such gains simply because this court has held that it was not income in a single branch of law while numerous other courts have held the contrary even upon that point. However strong such an argument might be when urged as to the interpretation of a statute, it is not of prevailing force as to the broad considerations involved in the interpretation of an amendment to the Constitution

adopted under the conditions preceding and attendant upon the ratification of the Forty-fourth Amendment.

The rights to subscribe for stock, when sold and converted into cash, rightly may be treated as taxable as a gain on the sale of intangibles under § 5 (c) of the income tax act. These rights commonly are represented by certificates and pass by indorsement. They are a species of intangible property. They are not regarded ordinarily as a profit from the prosecution of the business, but are an inherent and constituent part of the shares. Atkins v. Albree, 12 Allen, 359, 361. Hyde v. Holmes, 198 Mass. 287, 293. Their sale resulted from an exercise of judgment to that effect on the part of the stockholder. They are indistinguishable in principle from a sale of the stock itself, and gains derived from sales of such rights fall within the same class of income. The statute in this regard is not in conflict with the amendment.

The question whether rights to subscribe for stock, which are exercised by subscription, are taxable as income is not raised on this record and is not decided.

3. The third question is whether a stock dividend, declared and paid after the statute went into effect out of profits earned before it took effect, is taxable as income. The respondent Garfield received during 1916 a stock dividend declared in that year on shares of stock in corporations owned by her before that time.

The stock dividends in the Garfield case were declared out of an accumulation of earnings which before 1916 had been invested in permanent additions to the plants of the corporations involved. It is urged that these earnings, therefore, had become a part of capital before 1916 and hence cannot in the nature of things be taxed as income. It is true that, in instances of this sort arising between life tenant and remainderman, the fact that the surplus of a corporation has been used in permanent increases of the property devoted to the business of the corporation is oftentimes of significance. Minot v. Paine, 99 Mass. 101, 111. Hemenway v. Hemenway, 181 Mass. 406, 410. But upon this point the inquiry is as to the intention of the Legislature as manifested by the words it has used. Those pertinent in this connection are in § 2 (b), where are subjected to the tax "Dividends on shares in all corporations and joint stock companies... [with