The opinion
SteRNhagen, J., concurring only in the result: In my opinion, the decision in Elizabeth Morainville, 46 B. T. A. 753, should not be overruled, for the facts in the two cases are different. The dividend of two shares in the Moraiowille case was separately and unconditionally declared to discharge the accumulated unpaid dividends on the preferred shares. There was no such ambigous attempt as in the present case to declare a dividend “in consideration of the exchange of” the old shares for new as an integral part of a statutory reorganization exchange. The Moramville dividend was not a part of the consideration in the exchange, but was payable as a dividend to all preferred shareholders in discharge of the arrears. It was received by the shareholders as a dividend, and was, I think, properly taxable to them as such, even though the corporation was contemporaneously issuing other shares in a recapitalization. The decision to that effect was in accord with the prior authorities.
There is no necessity for an all-embracing rule that a payment of dividends in arrears may not be recognized as such if it is made contemporaneously or in conjunction with a recapitalization or other statutory reorganization. As long as the evidence shows that the two things, the dividend and the exchange, were separately done and there is no circumstance requiring doubt of bona pies, I see no reason why they may not be recognized as separate, one as a dividend and the other as an exchange in reorganization, each with its separate tax effect. Either the shareholders are taxable on the dividends or the corporation gets no dividends paid credit, so the tax effect throws no great light on the motive or the legal character of the payment.
In the present case the alleged payment of the dividend is not clearly declared or treated as such, but is expressly stated and shown to be a factor in the reorganization exchange. The petitioner is, therefore, not in position to claim the dividends paid credit, for the receiving shareholders would, upon the same evidence, not be taxable upon the “dividends.”
Mellott, /., agrees with the above.