INDUSTRIAL FINANCE CORPORATION vs. STATE TAX COMMISSION (and four companion cases [Note 1]).

TAURO, C.J. These are consolidated appeals of the Industrial Finance Corporation (the taxpayer) and Merritt, Chapman and Scott Corporation, [Note 2] pursuant to G. L.

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c. 58A, Section 13, as amended through St. 1969, c. 692, [Note 3] from decisions of the Appellate Tax Board (the Board) denying abatements of corporate excise taxes paid under G. L. c. 63, Section 32, for the taxable years 1963 through 1967.

The taxpayer is in the business of lending money. Its loans, represented by promissory notes, range in amount from $2,000 to over $1,000,000 and are made for personal and business purposes. Some of the notes are unsecured. The collateral for secured notes consists, interalia, of real estate mortgages, chattel mortgages, assignments of accounts and pledges of stock.

In each of the taxable years in question, the taxpayer [Note 4] filed timely applications with the Commissioner of Corporations and Taxation (Commissioner) for classification as a domestic securities corporation entitled to favorable tax treatment under G. L. c. 63, Section 38B. [Note 5] Each of the applications was denied by the Commissioner. For each of the years, the taxpayer filed corporation excise returns in which it computed the excise under G. L. c. 63, Section 38B, as a domestic securities corporation. For each of the years, the State Tax Commission (Commission) gave notice to the taxpayer of its intention to assess a tax on the increased taxable net income and, thereafter, assessed an excise computed under G. L. c. 63, Section 32. The assessed excises were paid, [Note 6] and applications for

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abatement were filed. [Note 7] Each of the applications was deemed to be denied by operation of law by reason of the failure of the Commission to act thereon prior to the expiration of six months from the date of filing. G. L. c. 58A, Section 6. The taxpayer [Note 8] then initiated timely appeals to the Board from such denials. The appeals were consolidated for hearing before the Board under the formal procedure. The taxpayer filed requests for rulings of law. On November 1, 1972, the board issued its decisions sustaining the position of the Commission. On November 9, 1972, the taxpayer entered a request for "Findings of Fact and Report." The Board promulgated its "Findings of Fact and Report" on January 4, 1974. These appeals followed. The amount in controversy exceeds $1,000,000.

1. General Laws c. 63, Section 38B, as amended by St. 1962, c. 756, Section 7, [Note 9] and St. 1966, c. 698, Section 60, [Note 10] provides favorable excise tax treatment for every domestic business corporation [Note 11] "which is engaged exclusively in buying, selling, dealing in, or holding securities on its own behalf and not as a broker." In these appeals, the taxpayer asks us to focus narrowly on the question whether promissory notes are securities within the meaning of G. L. c. 63,

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Section 38B. This, it urges, was the sole question addressed by the Board, and is the sole question properly before this court. If promissory notes are, indeed, such securities, the taxpayer claims that, because it exclusively dealt in and held promissory notes, it must be held entitled to an abatement of the corporate excise. The Commission responds that the true issue is a broader question whether a corporation engaged in the taxpayer's various business activities can be classified as a security corporation under G. L. c. 63, Section 38B. The Commission argues that the Board was correct in finding that the business of the taxpayer was lending money and not holding and dealing in securities.

The Commission's formulation of the issues of the case is the correct one. It is true that, under G. L. c. 58A, Section 13, this court cannot "consider any issue of law which does not appear to have been raised in the proceedings before the board." Assessors of Dover v. Dominican Fathers Province of St. Joseph, 334 Mass. 530, 535 (1956). However, the broad question whether the taxpayer's activities qualified it for classification as a security corporation entitled to beneficial tax treatment under G. L. c. 63, Section 38B, was raised in the Board proceedings. The reasoning of the Board in its opinion was not confined to the narrow definitional issue whether a promissory note is a security. In reaching its decisions, the Board examined the taxpayer's business to determine if the business met the statutory requirement. It found the taxpayer's business to be "lending money" and not "investing, reinvesting, or trading in securities." Moreover, the taxpayer's own "Request for Rulings of Law," granted in this respect, identified the issues in the case in the same expansive vein as the Commission does: "1. The only issues raised by the evidence in this matter are: . . . (2) whether Industrial Finance Corporation was engaged exclusively in buying, selling, dealing in, or holding securities during the period 1963-1967; and (3) whether Industrial Finance Corporation is entitled to be taxed as a

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security corporation in accordance with the provisions of M.G.L. Ch. 63, Sec. 38B."

2. "The general and familiar rule is that a statute must be interpreted according to the intent of the Legislature ascertained from all its words construed by the ordinary and approved usage of the language, considered in connection with the cause of its enactment, the mischief or imperfection to be remedied and the main object to be accomplished, to the end that the purpose of its framers may be effectuated." Hanlon v. Rollins, 286 Mass. 444, 447 (1934). Accord, Lincoln-Sudbury Regional Sch. Dist. v. Brandt-Jordan Corp. of New Bedford, 356 Mass. 114, 117-118 (1969). "Where the [legislative] intent is clear, the statute, if reasonably possible, must be construed to carry out that intent." Commissioner of Corps. & Taxn. v. Assessors of Boston, 324 Mass. 32, 36 (1949). From the legislative history of G. L. c. 63, Section 38B, and commentary on that history, it is plain that a corporation such as the taxpayer which actively engaged in secondary financing [Note 12] and making loans is not within the class of corporations intended to be benefited by G. L. c. 63, Section 38B. This class of corporations includes only those corporations which acquire securities for investment.

Two annual reports of the Commissioner provide insight into the legislative intent in enacting G. L. c. 63, Section 38B. In the annual report wherein the initial enactment of G. L. c. 63, Section 38B (St. 1929, c. 359, Section 1), is proposed, the Commissioner explained the need for the provision. Under the heading, "Security Investment Corporation," he urged that domestic "corporations

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having primarily investments in securities" receive tax advantages to offset tax benefits which could be achieved by incorporation in other States and to encourage them to incorporate under Massachusetts law. 1929 House Doc. No. 14, p. 8.

In his report two years later, the Commissioner, while proposing an amendment to the law, specified those corporations within the coverage of the statute: "Security Corporations. -- By the passage of chapter 359 of the Acts of 1929 the Legislature of Massachusetts undertook to deal with the problem of the so-called investment trust which had incorporated, and which in taxation did not lend itself to the tax laid generally against domestic business corporations under which corporation laws the security companies were obliged to incorporate, by providing that the tax on security corporations should be the same as that paid by an individual under the Massachusetts income tax law. These corporations dealing exclusively in securities for their certificate holders seemed clearly to be entitled to treatment which was accorded the individual." 1931 House Doc. No. 115, p. 3.

The commentators agree with the quoted position of the Commissioner that investment trusts which had incorporated were the intended beneficiaries of St. 1929, c. 359, Section 1, and G. L. c. 63, Section 38B. Philip Nichols wrote that G. L. c. 63, Section 38B, benefits a "newly created class of corporations engaged in the business of buying, selling and holding securities, sometimes called `incorporated investment trusts.'" Nichols, Taxation in Massachusetts 611 (3d ed. 1938). Accord, Barrett and Bailey, Taxation, Section 842 (1961).

The incorporated investment trust supplies an investment vehicle for its stockholders. The stockholders contribute to the corporate pool of capital for investment and receive the advantages of investment diversification and expert management. See Aldred Inv. Trust v. Securities & Exch. Commn. 151 F. 2d 254, 260 (1st Cir. 1945), cert. den. 326 U.S. 795 (1945); Note, 41 Col. L.

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Rev. 270 (1941). One authority has characterized the investment trust as "an agency (i.e., it may be a corporation, a common law trust . . .) by which the combined funds . . . of different participants . . . are placed in securities . . . showing a distribution of risk . . . such as to introduce the `law of average' in protection of the principal; and which aims solely at the safe and reasonably profitable employment of the subscribed investment funds while definitely avoiding any and all of those responsibilities of control, management, finance, direction or special interest which are sometimes tied in with investment." Robinson, Investment Trust Organization and Management, 13-14 (Rev. ed. 1929). The essential function of these trusts is, thus, investment in portfolio securities.

Recent amendment has broadened the applicability of G. L. c. 63, Section 38B. In 1966, St. 1966, c. 698, Section 60, imposed a specific less onerous excise on a "regulated investment or bank holding company under the Federal Internal Revenue Code." [Note 13] The bank holding company, which may exercise control and management responsibility, does not fit the above mentioned definition of the investment trust, but now is entitled to benefit from G. L. c. 63, Section 38B. Nevertheless, the bank holding company is a company which invests in securities. We believe that amendments to the statute contain no indication that the Legislature intended to extend G. L. c. 63, Section 38B, to corporations which do not invest in securities. We hold that to qualify under G. L. c. 63, Section 38B, the corporation engaged exclusively in buying, selling, dealing in, or holding securities on its own behalf must do so for investment.

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The taxpayer is not an incorporated investment trust or other corporation whose business is making investments in securities. The taxpayer lends money in the daily course of business and obtains promissory notes to evidence its loan transactions. The taxpayer may best be characterized as a "`business that has for its object the acquisition of gain'" through daily transactions and face-to-face business dealings rather than as a "trust [or corporation] for investment" which conserves and augments capital and provides income through judicious acquisition and retention of securities. See Williams v. Milton, 215 Mass. 1, 12 (1913). Cf. Gordon v. State Tax Commn. 335 Mass. 431, 434-435 (1957). Though, in some circumstances, promissory notes may constitute "securities" under G. L. c. 63, Section 38B, when held for investment by a company whose business is investment, we do not now reach that issue. The taxpayer manifestly does not hold its promissory notes for investment in the necessary sense (cf. Barnes v. State Tax Commn. 363 Mass. 589, 594 [1973]) and cannot qualify for advantageous excise treatment under G. L. c. 63, Section 38B.

The decisions of the Appellate Tax Board are affirmed.

So ordered.