fits, was treated as taxable income. The fact that a
comparison of the market value of the shares in the older corporation
immediately before, with the aggregate market value of those shares plus
the dividend shares immediately after, the dividend showed that the
stockholders experienced no increase in aggregate wealth was declared
not to be a proper test for determining whether taxable income had been
received by these stockholders.[21] On the other hand, no taxable income
was held to have been produced by the mere receipt by a stockholder of
rights to subscribe for shares in a new issue of capital stock, the
intrinsic value of which was assumed to be in excess of the issuing
price. The right to subscribe was declared to be analogous to a stock
dividend, and "only so much of the proceeds obtained upon the sale of
such rights as represents a realized profit over cost" to the
stockholders was deemed to be taxable income.[22] Similarly, on grounds
of consistency with Eisner _v._ Macomber, the Court has ruled that
inasmuch as they gave the stockholder an interest different from that
represented by his former holdings, a dividend in common stock to
holders of preferred stock,[23] or a dividend in preferred stock
accepted by a holder of common stock[24] was income taxable under the
Sixteenth Amendment.

OTHER CORPORATE EARNINGS OR RECEIPTS: WHEN TAXABLE AS INCOME

On at least two occasions the Court has rejected as untenable the
contention that a tax on undistributed corporate profits is essentially
a penalty rather than a tax or that it is a direct tax on capital and
hence is not exempt from the requirement of apportionment. Inasmuch as
the exaction was permissible as a tax, its validity was held not to be
impaired by its penal objective, namely, "to force corporations to
distribute earnings in order to create a basis for taxation against the
stockholders." As to the added contention that, because liability was
assessed upon a mere purpose to evade imposition of surtaxes against
stockholders, the tax was a direct tax on a state of mind, the Court
replied that while "the existence of the defined purpose was a condition
precedent to the imposition of the tax liability, * * * this * * * [did]
not prevent it from being a true income tax within the meaning of the
Sixteenth Amendment."[25] Subsequently, in Helvering _v._ Northwest
Steel Mills,[26] this appraisal of the constitutionality of the
undistributed profits tax was but