Wyman, Partridge & Co. v. United States ( 1930 )

GREEN, Judge.

Additional income and excess profits taxes were assessed against the plaintiff for tue fiscal year of 1918 and collected together with interest thereon after the period of limitations had expired. Plaintiff now brings this suit to recover the amount so paid.

The plaintiff relies on section 1106 (a) of the Revenue Act of 1926 (26 USCA § 1249 note), the provisions of which will hereinafter be set out. The defendant cites the cases of Oak Worsted Mills v. United States, 68 Ct. Cl. 539, and Gotham Can Co. v. United States, 68 Ct. Cl. 749, as authorities in its favor, and elaims that under the rules laid down therein it is entitled to judgment. Counsel for plaintiff insists that the decisions in these eases are erroneous. We do not agree with either of these contentions for reasons that follow.

The instant case is similar to the two eases cited above in some respects. There was an additional tax assessed within the period of limitations as fixed by the second waiver, a plea in abatement filed by the taxpayer, proceedings were stayed until the plea in abatement could be considered, and upon consideration the tax was in part abated and in part confirmed after the statute of limitations had run. Thereafter demand was made for the payment of the unabated portion, which the plaintiff paid under protest with ■interest thereon, and shortly after filed a claim for refund of the amount so paid.

There is, however, an important difference in the facts in the instant case which renders it necessary for us to review the decisions in the Oak Worsted Mills Case, supra, and the Gotham Can Case, supra, and see whether or not they are in fact controlling. The payment of the tax in controversy was made August 17,1926, after the passage of the 1926 Revenue Act and while it was still in force. This presents a different situation than that shown by the facts in the Oak Worsted Mills Case and the Gotham Can Case, for in both the „tax was collected prior to the passage of the Revenue Act of 1926. In Mascot Oil Co. v. United States (Ct. Cl.) 37 F.(2d) 986, decided February 17, 1930, a case in which the taxes were collected after the expiration of the period of limitations and after the passage of the 1926 act, we called attention to the fact that the Gotham Can Case was not controlling,' but did not pass on the effect of section 1106 (a) of the 1926 act by reason of other facts in the ease which we deemed did not make such a decision necessary. The opinion in the Mascot Oil Co. Case, supra, has been withdrawn and a new opinion this day rendered upon the amended findings in order that a matter not discussed in the original opinion might be given attention, but the second opinion uses the same language with reference to the point above referred to, and tbe judgment is the same as before.

In the Oak Worsted Mills Case the question of the effect of section 1106(a) of the act of 1926 (26 USCA § 1249 note) was not presented in argument or discussed in the opinion. It is true that it was contended therein that the plaintiff had a vested right in the money which it sought to have refunded, but it was argued that this right accrued by reason of the limitation placed upon the time within which it could be collected, and we held that no vested right accrued to the taxpayer by reason of the running of the period of limitations for the collection of a valid tax. The chief contention made by counsel for plaintiff in the instant ease is that plaintiff has obtained a vested right, but the claim now is that this right was obtained through section 1106(a), to which reference has been made above.

In the Gotham Can decision we had occasion to discuss the application of section 1106 (a) to the facts in that particular ease, which, however, as we have before noted, were different from those of the ease at bar. In the opinion in the Gotham Can Case we quoted from section 1106(a) of the act of 1926 the, following: “The bar of the statute of limitations against the United States in respect of any internal-revenue tax shall not only operate to bar the remedy but shall extinguish the liability. * * * ”

It is contended now, as it was in the ease last cited, that this provision created a vested right in plaintiff of which it could not he deprived without due process of law and without just compensation. In the Gotham Can Case we called attention to the fact that this provision was separated only by a semicolon from a qualifying clause reading as follows: “But no credit or refund in respect of such tax shall be allowed unless the taxpayer has overpaid the tax.”

This, we said, was a qualifying clause which must be construed together and in connection with the danse first quoted and we further' stated: “By the first clause it was intended to extinguish the liability and prevent collection of any tax barred by tbe statute of limitations, but under the second clause of the section it was made clear that if the tax had been collected after the limitation period but prior to the passage of the revenue aet of 1926, only the amount collected in excess qf the correct tax for the year co-uld be recovered. If it is not so construed, the words of the second clause are obviously of no use whatever in. any case.”

And we further pointed out that it was onr duty in construing the aet to give these words some meaning if it could consistently be done. While some other language is used in the opinion, which standing by itself might be considered to have general application, it was intended that it should apply only to the particular facts in that ease, and we think it is apparent that the chief point involved in the case at bar was not involved in, the Gotham Can Case. This will become more evident when we consider the difference which is made when we apply the statute to the facts in the instant ease as distinguished from those in the two oases cited.

In the Oak Worsted Mills Case and the Gotham Can Case, the tax, being collected before the enactment pf section 1106(a) of the aet of 1926, was still a liability of the taxpayer, although the statute of limitations had run against the remedy provided for its collection. The payment of the tax having been made upon this liability and before it was extinguished, the taxpayer had not “overpaid the tax” and in such cases section 1106 (a) provided that “no credit or .refund * * * shall he allowed.” But in the instant ease, by force of the same statute, the liability had been entirely extinguished when the payment was collected. Necessarily “the taxpayer has (had) overpaid the tax” for there was no tax owing at the time and no liability existed when the money was collected. The collector or Commissioner, therefore, took money which was not owing to the United States and for that reason could not belong to it after it had been received. After it had been, paid it was still the rightful property of the taxpayer. It is plain, therefore, that the question of whether a vested right had been acquired is quite different from what it was in the Gotham Can Case, nor does it depend upon the statute of limitations as it did in the Oak Worsted Mills Case. The statute, when applied to the facts in the instant ease, did not merely put a limitation on the collection of the tax, but it completely extinguished the liability, and this was done before the tax was collected. Under such circumstances we think the plaintiff obtained a vested right which could not be taken away by the subsequent repeal of section 1106(a) as of the day upon which it was enacted.

Although tho decisions in the Oak Worsted Mills Case and the Gotham Can Case are only applicable to cases where the taxes were collected after tho expiration of the period of limitations but before the enactment of section 1106(a) of the 1926 act, it has become necessary to review them at length. Unless our construction of section 1106(a), as applied to eases where the taxes were paid after the enactment of this statute fits logically and harmoniously with tho construction we have heretofore given it, obviously it cannot stand.

Keeping this in mind, some further considerations supporting the rules laid down in the cases cited and in the ease at bar can be added to support the statutory construction which has been given to section .1106(a), and we find there is an, important matter which seems hitherto to have been overlooked. While the existence of conditions precedent are necessary in order that section 1106(a) may become applicable and these conditions are stated therein, section 11.06(a) is not by its terms retroactive, and, in tho very nature of the subject matter to which it is applicable, it cannot be. Where prior to tho passage of the 1926 act the payment had been made of a tax which was a liability although the remedy had been barred, the money so paid became tho property of tho United States; tho transaction was closed; there remained neither debtor nor creditor. In such cases tho liability for tho tax was extinguished before the enactment of section 1106(a) by the collection thereof. Manifestly, the provision of section 1106(a) with reference to extinguishing the liability of the taxpayer did not and could not apply to eases in which no liability existed by reason of the whole matter being settled and closed. Section 3106(a) therefore does not change the situation of the taxpayer as to taxes collected before its enactment. Congress, of course, might have given the taxpayer the right to recover any taxes which he had paid after the period of limitations had expired for the collection of the tax, for Congress can create a claim against the United States where none exists under tho law as it stands; but in order to do this a very different provision from section 1106(a) would have been required directly authorizing the person paying the tax, or from whom the tax had been collected, to sue the government and recover back the amount paid. But this was not done, and we think it is quite manifest that Congress not only did not make the statute retroactive, but had no intention of so doing.

It has been suggested that the construction which we havo given to section 1106(a) deprives this section of any force whatever, because the taxpayer could always recover any overpayment, providing, of course, that he duly filed a claim for refund. The statement that we havo made above shows the error of such a conclusion, for we apply section 1106 (a) to cases that arose after it was enacted. In tho Gotham Can Case tho tax was collected before the passage of section 1106(a), and we applied tho second clause of that section as preventing suits to recover taxes collected before its enactment. This situation distinguishes the Gotham Can Case from the case at bar.

While some have criticized the language of this section as not being clear, we think its meaning and purpose are plain. It was intended as a statute of repose. It had no application to what had been done prior to its enactment, but it warned the public officials that after it was enacted the exaction of a payment upon a tax as to' which the statute of limitations had run was taking money from the taxpayer without any liability on its part existing, or, in short, a collection made where there was no debt. This construction appears to us to be a reasonable one from every point of view. There was no intention of making the statute retroactive and thus upsetting what had already been done, but it was intended that further collection of taxes after the period of limitations had run should stop. This would prevent further litigation and come nearer doing abstract justice than any other lino of procedure that could have been provided.

Section 1106(a) of the 1926 act was repealed as of the date of its enactment by the 1928 Revenue Act but the rights of the plaintiff having become vested they were not affected by this repeal. See William Danzer & Co. v. Gulf R. R., 268 U. S. 633, 637, 45 S. Ct. 612, 69 L. Ed. 1126, and the contention of the plaintiff on this point must be sustained.

One other question remains to be decided. Section 607 of the Revenue Act of 1928 ( 26 USCA § 2607) provided that a tax paid after the expiration of tho period of limitations should be considered an overpayment, and section 611 of the same act (26 USCA § 2611) qualified section 607 providing that, where a tax was assessed within the period of limitations, a plea in abatement filed, and collection stayed, the payment of the tax before or within, one year after the aet went into force “shall not he considered as- an overpayment under the provisions of section 607.”

As before stated, we held in the Oak Worsted Mills Case and the Gotham Can Case that, where the tax had been assessed within the period provided by the statute, a plea in abatement filed, and the collection of the tax stayed, section 611 applied, and there could be no recovery of the tax paid unless it was an actual overpayment. But these decisions applied only to cases where the tax had been collected prior to the enactment of the 1926 statute. In a case like the one at bar, where the rights of the plaintiff had vested before the enactment of the 1928 aet, the enactment of section 611 of that act had no more effect on plaintiff’s rights than the repeal of section 1106(a) of the 1926 act.

In accordance with these, conclusions judgment will be entered in favor of the plaintiff for the amount prayed in its petition, to wit,"$45,197.74, with interest at the rate of 6 per cent, per annum from August 17,1926, until paid. It is so ordered.

BOOTH, Chief Justice, and WILLIAMS, Judge, concur.