CARY, COLLECTOR,
v.
THE SAVINGS UNION
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The Supreme Court held that payments made by a savings union to its depositors constituted dividends rather than interest, because the depositors contracted for a share of the company's profits rather than a fixed rate of return, and the company pooled all funds and distributed net earnings proportionally to contributors. The Court affirmed the Circuit Court's determination that this distinction was significant and reflected the parties' own understanding as expressed in their contracts.
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The CHIEF JUSTICE delivered the opinion of the court.
A distinction is expressly recognized in the act of Congress between interest and dividends, and the Circuit Court decided that the payments to the depositors were for dividends. The question is whether this decision was correct.
We think it was. The depositors contracted not for a rate of iuterest to be paid upon their deposits, but for a share of the profits of the business in which their money was, by agreement, to be employed. It is true that the profits of the company were principally to be derived from interest upon loans made, but they were none the less on that account profits. The interest received for the loan of each deposit was not kept by itself, and paid to the depositors after deducting a charge to cover expenses, but all was placed in a common fund, and when the net result of the business was ascertained, that was divided among the several contributors according to the value of their contributions. Such a division clearly produces a dividend according to the common understanding of that term. The parties themselves so understood it, for they gave it that name in the contracts, executed wheu the depositors made their deposits. They stipulated for the payment of dividends and not interest.
Judgment accordingly.
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Helvering v. Midland Mut. Life Ins. Co., 300 U.S. 216 (U.S. 1937)…f the record. It is, therefore, disregarded. See Revenue Act of 1928, § 23 (b), 45 Stat. 791, 799. See also Kentucky Improvement Co. v. Slack, 100 U. S. 648, 658, 659; Bailey v. Railroad Co., 106 U. S. 109, 115, 116; compare Cary v. Savings Union, 22 Wall. 38, 41. Compare Bell’s Gap R. Co. v. Pennsylvania, 134 U. S. 232, 236; Hatch v. Reardon, 204 U. S. 152, 159; Paddell v. New York, 211 U. S. 446, 449, 450; New York v. Latrobe, 279 U. S. 421, 427. Taxability has frequently been determined without refe…
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Commissioner of Internal Revenue v. Aaron Ward & Sons, 65 F.2d 758 (3d Cir. 1933)…he profits made and apportioned among the stockholders constituted a dividend of profits. This is so, although the profits were accumulated until the shares matured, instead of being declared and paid at regular intervals. See Cary v. Savings Union, 22 Wall. 38, 22 L. Ed. 779. The order of the Board of Tax Appeals is affirmed.…
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Oulton v. Sav. & Loan Soc'y, 154 U.S. 615 (U.S. 1877)…Mr. Chief Justice Waite delivered the opinion of the court. The material facts in these cases are the same as in Cary v. The San Francisco Savings Union, 22 Wall. 38, just decided. The judgments are all reversed for the reasons assigned in that case, and the causes are all remanded with instructions to render judgment in each of them for the defendant. Reversed.…