accretion to his capital. If B writes a single article for a magazine and is paid for it, the payment is not income to him. If C writes a single book and sells the rights to publish it for a lump sum he is not in receipt of income. If he sells the rights for a royalty and receives his royalties over a period exceeding a year he is regarded as receiving an income therefrom. Profits from a trade are income. Profits not from trade are income if they are annual. The line between what constitutes a trade and what does not is not clearly drawn, and, of course, cannot be. If a person with another regular business from time to time buys and sells stocks on the stock exchange through a broker he may, if his transactions are sufficiently numerous, be considered to be trading in stocks and taxable on his profits. But just how many transactions he may have before being considered taxable cannot be stated. While there are many decisions of the courts on the question of what constitutes a trade, the question in this form has seldom come up for adjudication, since decisions of the Commissioners on questions of fact are final unless it can be shown that they have made their decisions on insufficient evidence. It is probable that the Revenue officials do not attempt to tax profits from stock exchange transactions unless the taxpayer devotes practically all his time to them and has no other business or occupation. Taxpayers with losses from such transactions are probably loath to claim such losses as deductions in trade, because of their hope that future transactions will be profitable, and they do not want to be in the position of having themselves declared traders.

In the United States all the transactions above mentioned would be considered as giving rise to taxable gain or deductible loss. The United States conception of "income " includes in the scope of that term practically all realizations of increments of capital. Like the British conception, however, income must always be money or something capable of being valued in terms of money. A mere exchange of assets having no market value does not result in income or

1 See, however, Lowry v. Income Tax Commissioners, C.A., December 15, 1925.

loss. The United States Revenue officials, however, frequently go to great lengths to find a value for assets received on an exchange when a taxable gain can be shown if such a valuation is possible. Under the 1921 law, the term "readily realizable value " was frequently used. This term is not found in the present law, but its omission is not the result of any change of intent as to the scope of the law, but is due rather to the fact that the term was too vague to be of any practical use as a guide in determining whether a transaction was taxable or not. In general, it may be said that in the United States an exchange of assets comes within the scope of the income tax law if the asset received has a market value. It will be obvious that this rule by no means disposes of all the difficulties. What market value is, and when an asset has market value, are questions capable of very different answers. But the above general rule, at least, gives a good idea of the scope of the United States law as to exchanges of property.

The British regard as income the annual value of a residence occupied by the owner. This intangible income is not subject to tax by the American law. In the United States the annual value of living quarters furnished to an employee is treated as taxable income. As a general rule, it is otherwise under the British law. No allowance is made for many wasting assets in Great Britain, while in the United States elaborate provision is made for an annual deduction from gross income on this account. The laws differ in some respects because of the limitations imposed upon Congress by the United States Constitution. In the succeeding chapters these differences will be discussed in more detail.

No constitutional difficulties arise in Great Britain in connection with the imposition of the income tax. Parliament is quite competent, if it so desires, to tax capital as well as income or to extend the meaning and definition of "income " so as to include many objects not now commonly considered to be income.

Under the Constitution the Congress of the United States has a general power to lay and collect taxes, duties, imposts

and excises. The Constitution, of course, made no reference to an income tax, but certain express limitations to the above power were provided. It was provided in that document: (1) That all duties, imposts and excises shall be uniform throughout the United States; and (2) that no direct tax shall be laid unless in proportion to the census or enumeration directed in the Constitution to be taken.

In declaring the Income Tax Act of 1894 unconstitutional the Supreme Court in 1895 held that taxes upon income from real and personal property were direct taxes and therefore constitutional only when apportioned among the States according to their populations. Such an apportionment would have led to so many inequalities as to make a Federal income tax impossible. To relieve the Federal Government from this limitation the Sixteenth Amendment to the Constitution was adopted in 1913.2 That Amendment authorized the Congress" to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration." The only effect of the Sixteenth Amendment was to remove the limitation of apportionment theretofore imposed on Congress. The amendment in no sense attempted to define the word "income." 3

Congress may now impose an income tax without apportionment among the States, but there must be nothing in such a tax that is not in reality a tax on "incomes." Congress cannot by statute make anything income which is not, in fact, income. The question Congress must always keep in mind is: What is income? Neither the Constitution nor the Sixteenth Amendment thereto provides any guide. "Income," like many other words, has different meanings, depending upon the connection in which it is used and the result intended to be accomplished by its use. An analysis

1 Pollock v. Farmers' Loan & Trust Co., 157 U.S. 429, 158 U.S. 601. While the Sixteenth Amendment was proclaimed on February 25, 1913, all subsequent income tax laws have, for convenience, adopted March 1, 1913, as the date of the amendment for purposes of valuation of property, etc.

3 "The whole purpose [of the Sixteenth Amendment] was to relieve all income taxes, when imposed, from apportionment" (Brushaber v. Union Pacific R.R. Co., 240 U.S. 1).

of the conceptions of the word by economists is apt to have little practical value in this connection. The economists are usually concerned with income as a measure of the individual's economic welfare, and this conception is not necessarily that of the ordinary man. Certain elements of economic welfare which to the economist constitute part of an individual's income must be disregarded by the legislator as having no measure in money.1

In determining the meaning of "income " as used in the Constitution we are under no necessity to ascertain its economic or technical connotation-in fact, it is not permissible to do so. As so used, the word must be held to have been used in its common, ordinary meaning and not in its technical or true economic sense, for it is a common rule of statutory construction that ordinary words (i.e. words having no generally accepted special or technical legal meaning) used in constitutions and statutes must be given their usual and common significance, if such meaning harmonizes with the evident intent of the language employed and the purpose to be accomplished. Are there, then, any general rules which can be formulated as to the common meaning of "income" which may be used in determining whether any particular item may be said to come within its scope

?

Our only source of information is the decisions of the courts in construing the word as used in the income tax statutes or in statutes where the word has similarly been used in its ordinary sense. It has been said that income may be derived from capital invested or in use, from labour, from the exercise of skill, ingenuity, or sound judgment, or from a combination of any or all of these factors. The definition now generally accepted by the United States courts is: "The gain derived from capital, from labour, or

See, e.g., Dalton, The Inequality of Incomes, Pt. III, Chap. II. Among others, Dr. Dalton cites as examples of real income, free education, the use of parks, highways, etc., the benefits of air, sunlight, and a good climate. These, of course, must be discarded for our purposes.

1 Van Dyke v. City of Milwaukee, 159 Wis. 460; 146 N.W. 812; 150 N.W. 509.

3 Trefry v. Putnam, 227 Mass. 522; 116 N.E. 904.

from both combined, provided it be understood to include profit gained through a sale or conversion of capital assets." I But this definition (except the proviso) is so general as to be of little practical service, and while in the United States it probably would be quarrelled with by no one, in England the only part of it which is in any way definite, viz. the proviso, is not accepted.2

The fact is that the " common, ordinary meaning" of income is impossible to determine with anything approaching accuracy. What is income to one man's mind is not income to another's. In the final analysis, income in the United States is what Congress says it is unless on any point an appeal has been taken to the United States Supreme Court, in which case the decision of that Court is final.3

We have noted differences in opinion in Great Britain and the United States as to the concept of income. In some cases a similar result is attained by different reasoning. An example of this is the treatment of stock dividends (known as bonus shares in England). In neither the United States nor Great Britain are stock dividends treated as income. In the United States it is considered that stock dividends do not increase the wealth of the recipients. They effect merely a capitalization of income by the corporation declaring them and give to the shareholders nothing but additional pieces of paper evidencing their interests in the corporation. In one sense stockholders are actually worse off after the dividend than before, since, by the declaration of the stock dividend, the income of the corporation formerly available

• Merchants' Loan & Trust Company v. Smietanka, 255 U.S. 509; Eisner v. Macomber, 252 U.S. 189; Stratton's Independence v. Howbert, 231 U.S. 399; Doyle v. Mitchell Brothers, 247 U.S. 179; Gavit v. Irwin, 275 Fed. 643.

A picturesque definition is contained in Waring v. The Mayor, 60 Ga. 93, which is as follows: "The fact is, property is a tree; income is the fruit; labour is a tree; income the fruit; capital the tree; income the fruit. The fruit, if not consumed as fast as it ripens, will germinate from the seed which it encloses, and will produce other trees and grow into more property; but so long as it is fruit merely, and plucked to eat and consumed in the eating, it is no tree, and will produce itself no fruit."

3 The United States Bureau of Internal Revenue, strange to say, pays little attention to adverse decisions of the District Courts or Circuit Courts of Appeal.

4 Eisner v. Macomber, 252 U.S. 189.