This is a bill for declaratory relief under G.L. (Ter. Ed.) c. 231A brought in this court and reserved and reported by the single justice without decision for determination by the full court upon the bill, a demurrer, and an answer and case stated which are operative if the demurrer is overruled.
The grounds of demurrer in so far as they have not been waived are (1) that the bill does not state a cause of action for declaratory relief, (2) that the plaintiff has not exhausted his administrative remedies under c. 62, and (3) that these remedies are exclusive because of c. 62, § 48.
In the recent case of Meenes v. Goldberg, 331 Mass. 688, we held that the traditional reluctance of courts of equity
There seem to us to be two answers to this contention.
(1) The sections to which reference is made in § 48 provide for petition to the commission for abatement of overpayments of assessed taxes (§ 43 as appearing in St. 1954, c. 269) and then for appeal to the Appellate Tax Board. § 45, as most recently amended by St. 1953, c. 654, § 48. In the present case there has been no assessment and there has been no overpayment. The question as to which the bill specifically sets forth an "actual controversy" (c. 231A, § 1) relates only to the present legal duty of the plaintiff in making his return relative to the "conversion" of his stock. Although it is hardly conceivable that a decision now will not affect the ultimate assessment, yet it is true that the plaintiff must first make a return under oath with possible penalties (c. 62, §§ 22, 24, 55, 56
(2) A broader and perhaps more satisfactory answer is found in the nature of declaratory relief. The present comprehensive statute (c. 231A) was enacted long after c. 62, § 48, which contains the exclusive remedy provision. The
We conclude that a bill for declaratory relief may be entertained in the discretion of the court notwithstanding the "exclusive" provision in c. 62, § 48. Booth v. New York, 268 App. Div. (N.Y.) 502. The remedies referred to in that section still remain as therein provided the "exclusive" remedies available as of right.
It follows that the demurrer must be overruled.
Turning now to the merits, the case stated agrees in general with the factual allegations of the bill and need not be recapitulated here. The question is whether the receipt by the plaintiff of his new Scott stock in exchange for the Hollingsworth stock that he formerly held produced a taxable gain measured by the difference between what he originally paid for his Hollingsworth stock and the value of his new stock within the provisions of G.L. (Ter. Ed.) c. 62, § 5 (c), as appearing in St. 1935, c. 481, § 1, as amended by St. 1954, c. 599, § 1.
The contentions of the plaintiff are in brief that the conversion of shares upon a statutory merger or consolidation results by operation of law and is not a purchase or sale; that it is not a taxable event; and that the attempt is here made to tax mere paper profits. The plaintiff cites a great many cases, including many dealing with subjects other than taxation, for the purpose of showing that the exchange of shares in a constituent corporation for shares in a merged or consolidated corporation is not a sale or purchase. It cannot be doubted, however, that in general an exchange may be a sale or purchase for tax purposes. Bryant v. Commissioner of Corporations & Taxation, 291 Mass. 498, 500. See the cases hereinafter cited. And we know of no reason why the Legislature cannot make an exchange, even in the case of a merger, a taxable event, if it so desires. The question here is simply one of the construction of c. 62, § 5 (c), and that construction is materially affected by the wording of the sentence last quoted above. In our opinion there was in this instance a "reorganization of one or more corporations" and an "exchange of shares," and the new shares received by the plaintiff in exchange for the shares surrendered did not "represent the same interest in the same assets," because they represented an interest in the assets of the Scott company as well as an interest in those of the Hollingsworth company. The sentence we have been discussing was inserted in subsection (c) by St. 1922, c. 449, § 1, approved on May 20 of that year. In the case of Osgood v. Tax Commissioner, 235 Mass. 88, decided in 1920, this court had held that an exchange of stock upon reorganization
But the plaintiff contends that this case is different, because we are here dealing with a merger or consolidation of two corporations into one, and because, as he says, as soon as the requisite number of stockholders of each corporation has voted in favor of the merger his exchange of stock is accomplished by operation of law and ceases to be voluntary and so lacks the elements of a sale. Nevertheless the fact remains that the stockholder has given up one thing and in exchange for it has received something different representing different assets. He was not obliged to do this, since c. 156, § 46E, inserted by St. 1941, c. 514, § 2, gives any stockholder a right to object to the merger and to receive payment for his stock at a valuation to be fixed as provided in § 46. Even if there is still some element of compulsion in this it is no more than a consequence of the legislative power over corporations to which the plaintiff submitted when he acquired his stock. See G.L. (Ter. Ed.) c. 155, § 3. It has been held in various cases that a forced or involuntary sale is none the less a sale for tax purposes. Helvering v. Hammel, 311 U.S. 504, 510. Electro-Chemical
Whatever result might be reached in other jurisdictions that have taken a more liberal attitude toward the taxation of exchanges of stock we must conclude that the law as developed in this Commonwealth from the beginning of income taxation as shown by the cases herein cited considers this transaction as more than a mere paper transaction and as a sale in which the gain has been realized.
It must not be thought that because we have entertained this bill we are likely to permit taxpayers to by-pass the Appellate Tax Board in other cases by bills for declaratory relief. In addition to reasons already stated we have been influenced in this instance by the novelty of the question in this Commonwealth and by the large number of persons who are interested in its solution.
An interlocutory decree is to be entered overruling the demurrer, and a final decree is to be entered declaring that the plaintiff is required to make return of the transfer of his stock as a sale.