The question in this case is whether the Income Tax Law of September 8, 1916, c. 463, 39 Stat. 756, as amended by the Act of October 3, 1917, c. 63, 40 Stat. 300, requires the Contributors to the Pennsylvania Hospital, a corporation of Pennsylvania, created for charitable uses and purposes, no part of whose net income is for the benefit of any private stockholder or individual, to pay a tax on the income of a residuary estate devised to it by the will of Alexander J. Derbyshire in 1879 and inuring to its benefit under the following circumstances. The devise was subject to the payment of certain annuities. All of the annuitants are dead save one. The Supreme Court of that State decided that the income could not be paid outright to the Hospital until the death of all the annuitants and until then, must remain in control of the trustee appointed under the will. Derbyshire's Estate, 239 Pa. St. 389. The trustee transferred the whole residuary
Section 2 (b) of the Income Tax Law of 1916, supra, is as follows:
"Income received by estates of deceased persons during the period of administration or settlement of the estate, shall be subject to the normal and additional tax and taxed to their estates, and also such income of estates or any kind of property held in trust, including such income accumulated in trust for the benefit of unborn or unascertained persons, or persons with contingent interests, and income held for future distribution under the terms of the will or trust shall be likewise taxed, the tax in each instance, except when the income is returned for the purpose of the tax by the beneficiary, to be assessed to the executor, administrator, or trustee, as the case may be: Provided, That where the income is to be distributed annually or regularly between existing heirs or legatees, or beneficiaries the rate of tax and method of computing the same shall be based in each case upon the amount of the individual share to be distributed."
Section 11 (a) of the same act provides:
"That there shall not be taxed under this title any income received by any . . . corporation or association organized and operated exclusively for religious, charitable, scientific, or educational purposes, no part of the net income of which inures to the benefit of any private stockholder or individual."
Upon these facts, Lederer, the internal revenue collector, assessed Stockton, the trustee, on the income from
This residuary fund was vested in the Hospital. The death of the annuitant would completely end the trust. For this reason, the trustee was able safely to make the arrangement by which the Hospital has really received the benefit of the income subject to the annuity. As the Hospital is admitted to be a corporation, whose income when received is exempted from taxation under § 11 (a), we see no reason why the exemption should not be given effect under the circumstances. To allow the technical formality of the trust, which does not prevent the Hospital from really enjoying the income, would be to defeat the beneficent purpose of Congress.
The judgment of the Circuit Court of Appeals is