UNITED STATES
v.
SIOUX CITY AND PACIFIC RAILROAD COMPANY
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The United States sued the Sioux City and Pacific Railroad Company to recover five percent of its net earnings pursuant to a subsidy agreement, but the Supreme Court held that interest payments on the company's first-mortgage bonds must be deducted from gross receipts to calculate net earnings, and since those interest payments consumed all earnings during the relevant period, no net earnings existed from which the government could claim its share. The Court affirmed that the government cannot recover the five percent subsidy when net earnings are entirely absorbed by prior obligations.
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Mr. Justice Bradley delivered the opinion of the court.
This was an action brought by the United States against the defendant in the court below to recover five per cent of its net earnings.
The facts of the case were admitted by the parties, and, amongst others, the following: —
“ 5. That if the amount paid by the company as hereinbefore stated for interest on its first-mortgage bonds during said time should, under the law, be deducted from the receipts of the company in order to ascertain the net earnings thereof, then there were no net earnings during said time; but if, on the other hand, the said payments of interest should not be deducted from the earnings of the road to ascertain the net earnings, then the net earnings of the road during said period amounted to the sum of four hundred and seven thousand seven hundred and ninety-nine -^°¶ dollars ($407,799.50).”
It thus appears that, although the company made net earnings to the amount of $407,799.50, during the period covered by the time in respect of which the suit was brought, yet that they were all absorbed by the interest accruing on the first-mortgage bonds. According to the principles laid down in our decision, Union Pacific Railroad Co. v. United States (supra, p. 402), the government cannot claim the five per cent which v ould otherwise be applicable to its subsidy.
Judgment affirmed.
Mr. Justice Strong and Mr. Justice Harlan dissented.
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