text:
    MAXSON v. UNITED STATES.
    No. K-180.
    Court of Claims.
    June 1, 1931.

      Theodore B. Benson, for plaintiff.
    Charles B. Rugg, Asst. Atty. Gen. (Ralph C. Williamson, of Washington, D. C., on the brief), for the United States.
    Before BOOTH, Chief Justice, and GREEN, WILLIAMS, and LITTLETON, Judges.
   GREEN, Judge.

Plaintiff, who is receiver of the International High Speed Steel Company, a corporation, brings this suit to recover $32,945.60 alleged to have been illegally collected as income and profits taxes for the year 1918 from said company.

The parties have stipulated as to the facts. On a casual reading, the findings of fact made pursuant to this stipulation seem like a maze of returns, amended returns, computations made with reference to the taxes involved, and overassessments, together with recomputations thereof. In reality, the facts essential to a determination of the legal questions involved in the ease are not only few and comparatively simple, but undisputed, and the only difficulty presented is in determining their legal effect. Nor are the issues complicated.

If we were to again set out in the opinion all of the facts recited in the stipulation of the parties and set forth in the findings, it would only serve to obscure the real points in the ease. We think all the facts necessary to be considered can be stated in much simpler form as follows:

The corporation which plaintiff represents as receiver filed in 1919 a tentative return of its income and profits taxes and paid thereon a total of $32,916.80. On March 20, 1919, the corporation filed with the collector a claim for abatement in the sum of $55,-000, but, as this claim for abatement was based on ordinary depreciation, it need not be considered. On September 17, 1919, the corporation filed a completed return for 1918, and claimed therein a deduction for amortization of war facilities in the amount of $11,219.24, and on August 4j 1920, the corporation made “An Amended Return” for 1918 under which its taxes were computed at $9,045.96. The same. deduction was claimed for amortization and also a deduction “for loss of year 1919.” On December 26, 1922, a certificate of overassessment for $29,075.38 was issued. In this certificate the correct tax liability of the corporation for 1918 was stated to be $3,812.62, and in determining this amount the entire deduction claimed for amortization was disallowed. The amount stated for the overassessment was erroneous, as it should have been stated at a larger sum, but the tax was correctly determined if no allowance was made for amortization. The said amount of overassessment was on March 31, 1923, applied on an outstanding additional assessment for 1917, made in January, 1920. On November 24, 1924, another certificate of overassessment was issued as a supplement to the previous certificate in which the amount of overassessment was fixed at $36,149.45, the correct tax liability after certain abatements had been made stated the same as before, and the balance due the corporation according to the Commissioner’s books was refunded. On February 17, 1925, the corporation filed a brief protesting the disallowance of the amount claimed on its returns for amortization and claiming a total deduction therefor in the amount'of $35,186.-68.

Upon the facts above stated, the plaintiff seeks to recover, first, the sum of $3,812.62 collected on the taxes of 1918; second, $29,-132.98 which was applied on the taxes of 1917.

These claims will be taken up in their order.

The stipulation shows that, if a proper allowance had been made to the corporation for amortization of war facilities, a deduction would have been made of $35,186.68 on account of amortization, which would have eliminated the entire taxable income for 1918 and resulted in an overpayment of $3,812.62 for said year. Defendant concedes that plaintiff is entitled to recover this sum if a proper and timely claim for refund has been filed. On behalf of plaintiff, it is conceded that no formal claim for refund was filed, but it is insisted that the claim for allowance of amortization made by the corporation in its returns constituted an informal claim for refund, and that this claim was supplemented by its brief. The argument is in effect that thereby the statute requiring a claim for refund to be filed was substantially complied with.

It will be observed that the evidence fails-to show that a refund was claimed or requested either in the returns made by the corporation or in the brief filed by it, although it was claimed therein that a deduction for amortization should be made as stated above. It may well be doubted whether a claim for a deduction from income which contains no direct reference to a refund can, when disallowed, be treated as a claim for refund, which the statute requires to be filed. In this connection it should be observed that, by reason of the claim for amortization having been denied, this case differs from the cases of Lasher v. United States, 65 Ct. Cl. 295, and Bonwit Teller & Co. v. United States, decided by the Supreme Court April 13, 1931, 283 U. S. — 51 S. Ct. 395, 75 L. Ed.-, for in both of these eases the informal claim had been considered and held sufficient by the Commissioner. In such event the question of waiver of the requirements of the statute may arise, as well as other matters which under such circumstances may make a statement sufficient which does not expressly claim or request a refund. See Wausau Sulphate Fibre Co. v. United States, 49 F.(2d) 665, decided by this court May 4, 1931. But it is not necessary to decide the question of whether the statements made in the returns constituted a claim for refund.

The stipulation shows that in making up the first certificate, which showed the correct tax liability for 1918 to be $3,812.62, the entire deduction for amortization which had been claimed in two previous returns was disallowed. This certificate was issued bn December 26,1922. Even if it be conceded that the claim for amortization made in the returns constituted an informal claim for refund, it appears that it was rejected on the last-named date. Having thus been rejected, it could not be amended by a claim filed after the statute of limitations had expired. In Sugar Land Ry. Co. v. United States, 48 F.(2d) 973, 976, decided by this court April 6, 1931, it was said with reference to the claim therein filed:

“It had been considered and rejected by the Commissioner of Internal Revenue, and it could not subsequently, after the statute of limitations had expired, be enlarged or supplemented so as to give the taxpayer any greater right than existed under an original claim filed at such time.”

This court accordingly, in the case last cited, refused to consider the claim filed after the statute of limitations as supplemental to what was alleged to be an informal claim, but said that the claim filed after the expiration of the statutory period must be treated as an original claim and therefore “subject to the limitation provisions of the Revenue Act of 1924.” So, also, in this case, without considering any of the other objections made to the brief filed by the corporation in the Commissioner’s office after the expiration of the statute of limitations, we are constrained to hold that it must be considered separately and by itself, and, if so considered, the claim stated therein is barred by the statute of limitations. See, also, Mutual Life Ins. Co. of N. Y. v. United States, 49 F.(2d) 662, decided by this court May 4, 1931.

If we are correct in the foregoing conclusions, it follows that the claim for amortization made in the returns must also be considered by itself and alone. Conceding again for the purposes of the argument that it constituted an informal claim for a refund, it was rejected on December 26,1932, as before stated, and this suit was not begun until May 7,1929, more than six years afterwards. The period within which suit could be brought had expired, and, even if it be conceded that an informal claim was thus made, it also is barred by the statute. It follows that plaintiff can not recover the $3,812.62 paid on the 1918 taxes.

In addition to the foregoing, it should be pointed out that.the amended return for 1918 relied upon by the plaintiff to constitute an informal claim for refund is not in evidence, and we do not know what statements were made therein, nor is the brief of February 17, 1925, in evidence and we do not know what statements it may have contained. Furthermore, it appears that the deduction for amortization mentioned in the amended return had been claimed in the original completed return, and, to that extent, was merely a restatement of the items in the original return; the main purpose of the filing of the amended return apparently being to claim the benefit of a net loss for 1919 against the tax due for 1918. The Commissioner appears to have allowed the net loss, and, as a result, determined an overpayment which was refunded. At the time the amended return was filed on August 4,1920, the Commissioner had not audited the original return for 1918 and had made no disallowance of the deduction claimed for amortization. A restate-. ment therefore in an amended return of the deductions claimed in an original return before the Commissioner has taken any action thereon cannot be held to constitute a claim for refund merely because the Commissioner subsequently disallowed the deduction.

Plaintiff’s right to recover on the second item for which it brings suit depends upon whether the Commissioner lawfully applied an overassessment of $29,075.38 against an outstanding additional assessment for 1917 made in January, 1920, this overassessment having been determined ” on December 26, 1922, and a certificate of overassessment issued accordingly.

Plaintiff contends that the allowance of an overassessment in this amount still left outstanding a large amount of the original assessment of $80,000 for the year 1918, and that therefore the commissioner had no right to apply any of this amount on the taxes of 1917. We are unable to agree with this con-ulusion. It will be conceded that the Commissioner could not take money paid on 1918 taxes and apply it on those of 1917 while there was anything left unpaid or anything due on the 1918 taxes. But there was nothing due. It is true that the amount of over-assessment was erroneously understated in the certificate of overassessment first issued, but the amount remaining due, which was stated in the certificate as the “tax liability corrected,” had been correctly determined, and was correctly stated in the certificate. A sefeond certificate of overassessment was issued on November 24, 1924, which stated the tax liability the same as in the first certificate and fixed the overassessment at $36,149.45. This increase in the overassessment did not make the credit of a smaller sum upon the 1917 taxes erroneous. We have no occasion to determine whether the Commissioner (iould have credited more than he did, but at least he could credit that much, provided this amount was due on the 1917 taxes, and, in the absence of evidence to. the contrary, we must assume it was. It is clear that the error in the overassessment in no way prejudiced plaintiff. The fact that no certificate of overassessment had been issued against part of the original assessment did not make the corporation liable for anything beyond the correct amount of the tax, as determined by the Commissioner. When such a determination was made and the amount thereof satisfied, it was the end of the corporation’s liability for the year 1918, and any excess in •the hands of the Commissioner could be ap_-plied on taxes due for another year. It is true that in September, 1924, there was credited from an overpayment for the year 1917 the sum of $13,279.28 against the assessment still outstanding of $36,149.45 for the year 1918, which left a balance of $22,870.17. But subsequently the Bureau corrected and balanced its books by a second certificate of overassessment in which the correct tax liability was stated the same as before, and the $13,279.28 which had been credited out of the overpayment for 1917 was refunded. There was nothing in any of these transactions or the other facts in the case which deprived the Commissioner of the right to credit the over-' assessment of $29,075.38 upon the taxes of 1917 at the time when the credit was made.

It seems to be suggested rather than argued that the 1917 taxes were outlawed at the time when the credit was applied thereon, which was March 31, 1923. But the corporation had filed an unlimited waiver for 1917 on February 25, 1921, which did not expire-until April 1, 1924.

From what has been said above, it follows • that plaintiff cannot recover on either of the-items for which suit has been brought, and that its petition must be dismissed. It is accordingly so ordered.

WHALEY, Judge, did not hear this case, and took no part in its decision.


source: Caselaw Access Project

author: PER CURIAM.

license: Public Domain

text:
    CRAWFORD MFG. CO., Inc. v. UNITED STATES.
    No. H-494.
    Court of Claims.
    June 1, 1931.

      George M. Wilmeth, of Washington, D. C. for plaintiff.
    Ralph C. Williamson, of Washington, D. C., and Charles B. Rugg, Asst. Atty. Gen., for the United States.
    Before- BOOTH, Chief Justice, and GREEN, LITTLETON, WILLIAMS, and WHALEY, Judges.
   PER CURIAM.

See Atwater Kent Mfg. Co. v. United States, 62 Ct. Cl. 419; Advance Automobile Accessories Corp. v. United States, 66 Ct. Cl. 304; Borg & Beck Co. v. United States, 67 Ct. Cl. 242; Cuno Engineering Corp. v. United States, 43 F.(2d) 259, 70 Ct. Cl. 384, and Universal Battery Co. v. United States, 281 U. S. 580, 50 S. Ct. 422, 74 L. Ed. 1051.


author: GREEN, Judge.

text:
    CHRISTENSEN MACH. CO. v. UNITED STATES.
    No. J-370.
    Court of Claims.
    June 1, 1931.

      Allen H. Gardner, of Washington, D. C. (George M. Morris and KixMiller, Baar & Morris, all of Washington, D. C., on the briefs), for plaintiff.
    James A. Cosgrove, of Washington, D. C., and Charles B. Rugg, Asst. Atty. Gen., for the United States.
    Before BOOTH, Chief Justice, and GREEN, WHALEY, WILLIAMS, and LITTLETON, Judges.
   GREEN, Judge.

Plaintiff brings this suit to recover certain sums specified in the petition paid at different times on its taxes for 1920, 1921, 1923, and 1924, alleged to have been collected by the defendant in excess of the amount legally due. The issue in the ease is whether the plaintiff is entitled to deductions from gross income for the years in controversy on account of payments made for a certain contract with one Christensen, to which reference will hereinafter be made more particularly.

There is no material conflict in the testimony, but the parties dispute as to the inferences and ultimate conclusions that may be drawn therefrom. The evidence shows that the plaintiff is a corporation, and during the time involved in the ease was engaged in manufacturing and selling book stitcher-feeding machinery. Its capital stock when organized was divided into 50 shares, of which 25 shares were issued to F. J. Greene, 24 shares to Martin Christensen, and one share to Mrs. Christensen. Some time during the year 1917, the plaintiff’s capital stock was increased from $5,000 to $25,000. Greene paid in $10,000 in cash, and Christensen $5,000 or $6?000 in cash, and released a credit due him from the corporation. Each received an additional 100 shares of the capital stock. From the first Christensen was the active figure in the corporation. He originated and perfected the inventions owned by it, directed the manufacture, and made the sales. Greene looked after the company’s finances, but was not known to the customers. In 1920 Christensen and Greene disagreed with reference to the business, and decided to sever relations. On February 21, 1920, a written contract was executed by and between Greene, Christensen, and the corporation under which Christensen sold all of his stock in the plaintiff corporation to Greene, ■made certain special covenants with reference to the inventions used by the company, and agreed for the period of 5 years not in any way, directly or indirectly, to compete With the business carried on by the corpora^ tion. The consideration for his agreement therein was $60,000, which was paid by the corporation.

In making up its returns for the years involved the plaintiff claimed to be entitled to a deduction from gross income for exhaustion of the agreement of Christensen not to compete, allocated pro rata over1 the years involved. The .Commissioner refused to make any deduction on account of the $60,000 paid under the first contract, but did make such an allowance for the amount paid on the second contract not to compete. The ease turns upon the question of'whether this ruling of the Commissioner was correct.

The defendant practically concedes that such a deduction would be proper if the evidence definitely showed the value of the agreement not to compete contained in the first contract. Specifically it is contended on behalf of the defendant:

First. That, in addition to the contract not to compete, there were other promises, covenants, and agreements made by Christensen to the corporation which had a value whieh must be ascertained before the cost of the contract not to compete can be determined, and that, as there is no evidence of such value, the court cannot find or determine the cost of the contract not to compete.

Second. That, if it be conceded that the other agreements were merely incidental or had at most merely a nominal value, the cost of the agreement not to compete would be the difference between the total amount paid under the contract and the value of Christensen’s stock and financial interests, and there is no satisfactory evidence of such value.

Considering the first contention made on behalf of defendant, it must he conceded there were other promises and agreements made by Christensen in the first contract besides the one not to compete; but we think, as said by the Board of Tax Appeals in determining the -same question between the same parties, that (Christensen Machine Company v. Commissioner, 18 B. T. A. 266): “The other engagements of 'Christensen were only incidental and precautionary so far as Greene and the petitioner were concerned.” The first agreement provided that during the term thereof Christensen should not “directly or indirectly,” or “in any manner whatever, engage in the business of manufacturing or selling stitcher-feeding machinery, or machinery or improvements, devices, or attachments of any kind adapted for use in connection with book stitcher-feeding machines which will compete commercially.” The agreement not to grant any other person the patent or application on any new invention that would compete with the business of the corporation merely made the agreement before recited more specific, and defined in part the meaning of the words “directly or indirectly.” The other agreements appear to be merely precautionary devices, as by them Christensen agreed to do certain things contingent upon the happening of certain events, but there is no evidence that any of these events happened or were likely to happen. Such agreements could have only a nominal value at most. Even if it be conceded that the other agreements had some value, and that there is no evidence from which that value can be found, there is still sufficient evidence for the court to find and determine that their total value was not large enough to make any substantial difference in the way of reducing the income of the corporation when spread over a period of years. De minimis non curat lex. Courts are not powerless to act and prevented from rendering a judgment because the amount thereof can not be determined with precise mathematical accuracy.

Where stock has no established market value and no recent sales or offers to purchase or offers to sell have been made, it is always difficult to determine its value accurately. But, where the nature' of the business is shown, its operations described, its profits for several prior years fixed, the amount of its tangible assets known, and the testimony shows the surrounding circumstances which bear on the question of what its profits are likely to be in the future, the court cannot say that there is no evidence of value, but must proceed to determine the value as accurately as it can from the evidence which is before it.

Taking up now the evidence as to the value of the capital stock, we find that the Commissioner of Internal Revenue determined in another proceeding that the fair average value of plaintiff’s capital stock for the period of June 30, 1919, to June 301,1920, was $42,-017.67, but we have no knowledge of how the Commissioner arrived at that sum. The average earnings for the years December 31, 1912, to December 31, 1919, inclusive, were only $4,263.63, and, if the value of the stock was computed on that basis, the amount fixed by the Commissioner was, in our opinion, large enough. But from 1915 up to the last of 1918 the corporation was exposed to competition from the Dexter Folding Company, which had a superior machine, and in 1917 the corporation actually had a small deficit. Then Christensen invented a machine which was much superior to the Dexter machine, and in 1918 the profits rose to nearly $4,000, and were $18,731.49 in 1919. But the value of the stock cannot be properly computed on the earnings for 1919. As the Board of Tax Appeals states in its opinion (Christensen Machine Co. v. Commissioner, supra) :

“ * * * Christensen was leaving. Ho had been the most important person in the business. He had invented the machines, he had manufactured them and had sold them. Greene knew but little about conducting the business, but before he agreed to the purchase of this stock, which was to make him sole owner of the corporation, he made an extensive investigation to learn just what he would have, how much he could reasonably expect to make out of it and how much the stock was worth.”

After making this investigation, Greene concluded that Christensen’s stoek and his agreement not to compete for 5 years, which he considered “the life of the contract,” or, in other words, an essential element of the contract, were worth together $60,000. The Board of Tax Appeals, in its opinion, allocated one-half of the $60,000 to each of the two principal things purchased, or, in other words, concluded that Christensen’s stoek was worth $30,000 and the agreement not to compete the same amount. As Christensen had half of the stock, the total value thereof would be $60,000. We think this is substantially correct. Counsel for plaintiff have presented an elaborate computation based on the average earnings for all of the years above referred to and capitalizing the return on tangibles at 10 per cent, and on intangibles at 20 per cent. By this computation the value of Christensen’s 125 shares is found to be $25,182.12. Deducting this from $60,000 would make the cost of the agreement not to compete $34,817.88. But this calculation, in our opinion, does not make sufficient allow-anee for the change in the condition of the business of the company brought about by the invention of a superior machine as above stated. Making due allowance for the fact that Christensen was going out of the business on the one hand, and on the other for the fact that a superior machine had been acquired by the corporation, we concur in the finding of the Board of Tax Appeals.

As the contract cost $30,000 and ran for 5 years, at the end of which it would be exhausted, the average deduction for each year would be $6,000.

The amount of taxes due from plaintiff for the years in controversy, when a deduction from gross income is made in accordance with the foregoing opinion, is merely a matter of computation, but no computation has been submitted on the basis of the values which we have fixed therein. The plaintiff is entitled to judgment, but the entry thereof will be withheld until a computation is presented to the court in accordance with the opinion. If the parties agree with reference to the result of the computation, judgment will be entered for the amount so fixed; otherwise the court will have the computation made and judgment entered.


author: LITTLETON, Judge.

text:
    MOORE SHIPBUILDING CO. v. UNITED STATES.
    No. K—72.
    Court of Claims.
    June 1, 1931.

      Gregory A. Harrison, of 'San Francisco, Cal. (Brobeck, Phleger & Harrison, of San Francisco, Cal., and Vogelsang, Brown, Cram & Feely, of Washington, D. C., on the brief), for plaintiff.
    Charles R. Pollard, of Washington, D. C., and Charles B. Rugg, Asst. Atty. Gen. (D. Louis Bergeron, of Washington, D. C., on the brief), for the United States.
    Before BOOTH, Chief Justice, and GREEN, LITTLETON, WILLIAMS, and WHALEY, Judges.
   LITTLETON, Judge.

The question of interest on the overpayment. for 1918 and that portion of the overpayment for 1919 credited to the unpaid original tax and accrued interest for 1920 is governed by the decisions of this court in Riverside & Dan River Cotton Mills, Inc., v. United States, 37 F.(2d) 965, 69 Ct. Cl. 70, and Andrews Steel Co. v. United States, 42 F.(2d) 573, 70 Ct. Cl. 235. Since the 1920 original tax which was satisfied by a portion of these overpayments and the interest on the 1920 tax became due and accrued prior to the date of the overpayments for 1918 and 1919, no interest is allowable on the credits-.

The next question is whether plaintiff is entitled to interest on $10,837.76 of the overpayment for 1919 on January 7, 1926, and $434,296.07 of the overpayment for 1919 on May 4, 1921, totaling $445,130.83, credited against a 50 per cent, penalty assessed by the Commissioner on June 22, 1926, on a deficiency in tax for 1920. This penalty was included in an additional assessment made under the Revenue Act of 1918 within the meaning of section 1116, Revenue Act of 1926 (26 USCA § 153 note). Interest on the credit is therefore payable only to the due date of the amount to which the overpayments were credited.

The Commissioner of Internal Revenue ■ refused to allow and pay any interest upon these overpayments credited to the penalty on the ground that .the 501 per cent, penalty imposed by section 250 of the Revenue Act of 1918 (40 Stat. 1082), assessed on the deficiency for 1920, became a part of the tax and the due date thereof was the same as the date on which the first installment of the tax for 1920 became due, to wit, March 15, 1921. The position of the plaintiff is that the 50 per cent, penalty which the Commissioner is authorized to assess and collect in certain circumstances is not due under the statute until it is determined and assessed, and therefore it is entitled to interest on that portion of the overpayment for 1919 credited against this penalty from the date on which the 1919 tax so credited was overpaid to June 22, 1926, the date of the assessment of the penalty; the interest claimed on $10,837.76 being $297.99 and on $434,293.07 being $133,762.-25, or a total of $134,060.24.

We are of opinion that plaintiff is entitled to the interest claimed on the overpayments credited against the penalty. The tax and penalty for 1920 were imposed by the Revenue Act of 1918, which was retained in force by the subsequent Revenue Acts for the purpose of assessment and collection of taxes, penalties, and interest accrued thereunder. Section 250 (a) and (e) of the Revenue Act of 1918, fixes the due date of the tax and provides the circumstances under which interest thereon shall become due. Nothing is said about the date on which a penalty becomes due, other than that it shall be added to the deficiency in tax and paid upon demand by the collector. If the entire tax has been paid before discovery of a false understatement, the penalty is to be collected in the same manner as the tax. See, also, section 250 (e) and (h) of the Revenue Act of 1921 (42 Stat. 264). Section 250 (b) of the 1918 act provides that, as soon as practicable after the return is filed, the Commissioner shall examine it, and, if it then appears that the correct amount of the tax is greater or less than the amount shown in the return, the installments shall be recomputed. If the amount already paid exceeds that which should have been paid on the basis of the installments recomputed, the excess so paid shall be credited against the subsequent installments; and, if the amount already paid exceeds the correct amount of tax, the excess shall be credited or refunded to the taxpayer. If the amount already paid is less than that ■which should have been paid, the difference shall, to the extent not covered by any credits then due to the taxpayer, be paid upon notice and demand by the collector. This subdivision further provides that, “if the understatement [in the return] is false or fraudulent with intent to evade the tax, then, in lieu of the penalty provided by section 3176 of the Revised Statutes, as amended, for false or fraudulent returns willfully made, but in addition to other penalties provided by law for false or fraudulent returns, there shall be added as part of the tax 50 per cen-tum of the amount of the deficiency.” This penalty for a-willfully false or fraudulent understatement or valuation in any return or list was first fixed in the amount of 100 per cent, of the duty by section 14 of the Act of June 30, 1864, 13 Stat. 223, 226, and has ever since been continued with certain amendments in section 3176 of the Revised Statutes (26 USCA §§ 97, 98). Upon the advent of the income tax the penalty was made specifically applicable to income taxes, and these Taxing Acts provided for its assessment and collection in the same manner as the tax. In the Revenue Act of 1918 the penalty was fixed at 50 per cent, of the deficiency in tax.

The 50 per centum which the statute directs the Commissioner to add to the deficiency in tax when he determines that the understatement ip the return was willfully false or fraudulent is designated a penalty by the statute when it directs such an assessment “in lieu of the penalty provided by section 3176 of the Revised Statutes” and “in addition to other penalties,” and when it provides that, if an understatement is made without fault, “there shall be no penalty.” The amount thus added under the section for a willful understatement is a penalty rather than a tax. Wright v. Blakeslee, 101 U. S. 174, 25 L. Ed. 1048; Thome v. Lynch (D. C.) 269 F. 995. The 50 per centum does not relate to income, but is founded solely upon fraud and is not payable by reason of income but by reason of fault. There must be a finding of a false and fraudulent omission whereby the penalty was incurred without which it can neither become due nor be added. Michigan Central R. Co. v. Slack (Circuit Court, Mass.) Fed. Cas. No. 9527.

The requirement that the penalty shall be “added as part of the tax” means merely that it be assessed and collected as though it were a tax; without this provision the Commissioner could not assess and collect the penalty by the summary proceeding of distraint. Li the very nature of things, therefore, the reason for the penalty does not exist until the Commissioner has determined that the return was willfully false or fraudulent with intent to evade the tax and the taxpayer is not required to pay it until demand is made. The statute fixes the due date of the tax imposed upon the income as the date for filing the return, unless p^id in installments. At the taxpayer’s option the tax is due in four installments and, upon the exercise of that option, there are different due dates for each of the four quarters of the tax. It directs that the Commissioner shall then recompute the tax, or the installments, shown on the return, and then requires the assessment of penalties upon certain specified contingencies. Only after the exercise of the power thus conferred upon the Commissioner to find fraud does the statute provide for payment of the penalty. It is then for the first time due, and is payable upon demand by the collector.

As pointed out in Riverside & Dan River Cotton Mills, Inc., v. United States, supra, the purpose of the interest provisions of the Revenue Act of 1926 is to allow interest upon an overpayment only during the time that the taxpayer is not indebted to the United States in a like amount. Carrying out that purpose, we hold that the plaintiff became indebted to the United States for the penalty at the time it was assessed on June 22, 1926, and that date must be used as the due date of the penalty for the purpose of the allowance of interest upon the overpayment for 1919 credited against it, notwithstanding for administrative purposes the penalty, like an additional assessment, is not required to be paid by the plaintiff until notice and demand by the collector. This is the view which the plaintiff takes of the matter, and it sues to recover interest on the overpayment for 1919 credited against the penalty from the date of the overpayment to the date /on which the commissioner assessed the penalty. The penalty in this case was paid by the credit made on the second day after its assessment. Plaintiff is entitled to recover the interest sued for, totaling $134,060.24.

The last item relates to interest on $17,-305.22 of the overpayment made on May 4, 1921, for 1919, which was first credited on June 24, 1926, to interest assessed on June 22, 1926, on a deficiency for 1920 under section 283 (d) of the Revenue Act of 1926 and later, on December 23, 1926, refunded, inasmuch as the interest'to which the plaintiff was entitled upon" $890,261.66 made on January 7, 1926, for the year 1919, counterbalanced the interest on the deficiency from February 26, 1926, to the date of the assessment on June 22, 1926.' See Riverside & Dan River Cotton Mills, Inc., v. United States, supra. The amount of $17,305.22 was • therefore an overpayment which should have been refunded along with the $140,175.32, and interest thereon should have been paid from the date of the overpayment on May 4, 1921, to June 24, 1926, the date of the allowance of the refund. Plaintiff is therefore entitled to recover interest of $5*341.55 from May 4,1921, to June 24,1926.

Judgment in favor of the plaintiff for $139,401.79 will be entered. It is so ordered.


author: WILLIAMS, Judge.

text:
    LEWIS A. CROSSETT CO. v. UNITED STATES.
    No. J-580.
    Court of Claims.
    June 1, 1931.
    Donald Horne, of Washington, D. C., for plaintiff.
    G. H. Poster, of Washington, D. C., with whom was Chas. B. Rugg, Asst. Atty. Gen., for defendant. ■

      Donald Home, of Washington, D. C., for plaintiff.
    G. H. Foster, of Washington, D. C., and Chas. B. Rugg, Asst. Atty. Gen., for the United States.
    Before BOOTH, Chief Justice, and WHALEY, LITTLETON, GREEN, and WILLIAMS, Judges.
   WILLIAMS, Judge.

The plaintiff sues to recover the sum of $100,000, with interest thereon, an alleged overpayment of its income and excess profits-taxes for the fiseal year ended March 31, 1920.

The basis of the suit is that the Commissioner of Internal Revenue, in computing plaintiff’s invested capital for the year in question, erroneously failed to include therein certain sums representing good will.

The plaintiff corporation upon its organization in 1912 acquired all the assets of every name, kind, and character, including good will, trade-marks, trade-names, both tangible and intangible personal property and assets of its predecessor corporation, Lewis A. Cros-sett, Inc., for which it issued and paid therefor, $749,009 par value of its stock.

The said transfer was made upon an agreed balance sheet which showed assets amounting to $1,294,650.20, and liabilities amounting to $525,389.09. There was no issue of stock for good will, and no good will appeared on the books of the predecessor corporation, no good will was listed on the balance sheet showing the assets of such corporation, which was the basis of the transfer, and, so far as shown, no good will was set up on the books of the plaintiff corporation. The expenditures for advertising trademarks, etc., which had been made by the predecessor corporation, were by that corporation charged to current expense of doing business and were not capitalized.

Section 326 (a) (4) of the Revenue Act of 1918 (40 Stat. 1092), which specifies the conditions under which intangible property may be included in invested capital, reads: “Intangible property bona fide paid in for stock or shares prior to March 3, 1917,' in an amount not exceeding (a) the actual cash value of such property at the time paid in-, (b) the par value of the stock or shares issued therefor, or (c) in the aggregate 25 per centum of the par value of the total stock or shares of the corporation outstanding on March 3,1917, whichever is lowest. * * - * ”

The findings disclose that of the property transferred, sufficient was to be taken at book value to pay at par for the stock issued, and the balance was to constitute paid-in surplus. The net worth of the tangibles transferred, at their book value as shown by the balance sheet, was $769,261.11, for which stock in the plaintiff corporation at the par value of $749,000 was issued and paid, which makes a paid-in surplus of $20,261.11, as of the date of the transfer.

The good will which the statute authorizes to be included in invested capital is that for which payment has been made bona fide, “specifically as such,” or good will bona fide purchased prior to named dates. Stewart Electric Co. v. United States, 65 Ct. Cl. 21.

Intangible property bona fide was not paid in for stock or shares on the transfer of the assets of the predecessor corporation to the plaintiff, and there can be no inclusion of good will in plaintiff’s invested capital. A paid-in surplus may not be allowed in respect of an intangible asset. Colorado Continental Lumber Co. v. United States, 42 F.(2d) 327, 70 Ct. Cl. 413; Daily Pantagraph, Inc., v. United States, 37 F.(2d) 783, 68 Ct. Cl. 251.

The plaintiff, however, if otherwise entitled to recover, is barred from bringing this suit because of a failure to file a sufficient claim for refund of the taxes involved. The claim for refund filed March 24,1925, stated the following grounds:

“In view of the fact that there appear to be adjustments of capital and income and tax, including the redetermination of the tax under special relief sections of the law, which will effect the tax liability of this corporation for the above period and in view of the approaching effective date of the statute of limitations, this' claim is filed so that when the matters referred to are finally passed upon, if the result is an overassessment such overassessment can be refunded. Such data as has not already been filed in support of this claim for refund will be filed at a later date, including possible data covering grounds not mentioned herein but which it may be necessary to rely upon, in connection with which it is requested/that we be granted an oral conference prior to final action upon this claim. The enumeration of the specific grounds upon which this claim is made shall not be construed to prevent the subsequent assertion of additional grounds as it is specifically stated that additional data in support of this claim and additional grounds for the claim will be filed at a subsequent date.”

The second claim for refund filed June 13,1925, stated as grounds for the allowance of such claim:

“Based upon the following data submitted in its brief to the Commissioner of Internal Revenue ¡
“(I) Accrual of State taxes fiscal year ending March 31, 1920.
“(2) Minor adjustments to invested capital.
“(3) Consideration of assessment under sections 327 and 328.”

In neither claim did the plaintiff set out as a ground for the refund its right to an increase of its invested capital for the year by an inelusion of an amount for good will. The second claim stated three specific grounds: (1) Deduction for accrued state taxes; (2) minor adjustments to invested capital; and (3) special assessment.

The first ground, deduction for accrued state taxes, is not being, urged in this suit, and whether or not it was allowed by the Commissioner is immaterial. The second ground, minor adjustments to invested capital, was allowed by the Commissioner. The third ground was based on the right of plaintiff to have special assessment. The plaintiff neither in this, nor the former claim for refund filed March 24, 1925, makes any mention of its right for a refund on the ground urged in this suit, that it is entitled to have included in invested capital an amount for good will. Colorado Continental Lumber Co. v. United States, supra.

Section 3226 of the Revised Statutes (section 1318 of the Revenue Act of 1921 [26 USCA § 156 and note]), provides that “no suit * * »• shall be maintained in any court for the recovery of any internal-revenue tax alleged to have been * * * illegally * * * collected * * * until a claim for refund or credit has been duly filed with the Commissioner of Internal Revenue, according to the provisions of law in that regard, and the regulations of the Secretary of the Treasury. * * * ” Article 1036, Treasury Regulations 62, provides that claim for refund shall be made on form 843 and that “all facts relied upon in support of the claim shall be clearly set forth. * * «»

[,4] The precise grounds upon which refund is demanded must be stated in the application to the Commissioner, and a taxpayer cannot base a recovery in court on an entirely different and distinct ground from that presented to the Commissioner. Red Wing Malting Co. v. Willcuts (C. C. A.) 15 F.(2d) 626, 49 A. L. R. 459; Feather River Lumber Co. v. United States, 66 Ct. Cl. 54; United States v. Felt & Tarrant Mfg. Co., 51 S. Ct. 376, 75 L. Ed.-, decided by the Supreme Court, April 13, 1931.

The plaintiff not having filed with the Commissioner of Internal Revenue ■ within the time provided by law, a claim for refund setting forth the grounds relied upon in 'this action, cannot maintain suit in this court.

The petition will be dismissed. It is so ordered.


text:
    NEW YORK LUBRICATING OIL CO. v. UNITED STATES.
    No. H-63.
    Court of Claims.
    June 1, 1931.

      Donald Horne, of Washington, D. C., for plaintiff.
    Geo. H. Foster, of Washington, D. C., and Chas. B. Rugg, Asst. Atty. Gen., for the United States.
    -Before BOOTH, Chief Justice, and WHALEY, LITTLETON, GREEN, and WILLIAMS, Judges.
   WILLIAMS, Judge.

The plaintiff brings this suit to recover an alleged overpayment of income and excess profit taxes for the year 1918, with interest thereon as provided by law.-

The basis of plaintiff’s claim is that it is entitled to have its invested capital for the year in question increased from the kmount computed by.the Commissioner of Internal Revenue by the inclusion therein of certain amounts for good will.

Two defenses are interposed by the government to the plaintiff’s right to recover: (1) That no claim for refund was filed by the plaintiff which asserts a right to include in invested capital any sum for good will, and (2) that no good will of any value was acquired by the plaintiff for stock or shares, as required by section 326 (a) (4) of the Revenue Act of 1918 (40 Stat. 1092).

Conceding, without deciding, that the claim for refund filed by plaintiff on March 14, 1924, was timely under the statute, it is precluded from recovering under the first defense interposed by the defendant.

The issue with reference to the sufficiency of the claim for refund and the facts relative thereto is identical with a similar issue and the facts presented in Lewis A. Crossett Co. v. United States (Ct. Cl.) 50 F.(2d) 292, this date decided. The claim for refund in this case contained no claim of the right to include any amount in invested capital on account of good will, and presented no facts that would support such a claim! For the reasons stated in the Crossett Case, supra, and upon the authorities cited therein, the petition in this case must be dismissed. It is so ordered.


author: BOOTH, Chief Justice.

text:
    SAMUEL WINSLOW SKATE MFG. CO. v. UNITED STATES.
    No. H-74.
    Court of Claims.
    June 1, 1931.

      Jay Clark, Jr., of Worcester, Mass., for plaintiff.
    Joseph H. Sheppard, of Washington, D. C., and Charles B. Rugg, Asst. Atty. Gen., for the United States.
    Before BOOTH, Chief Justice, and WHALEY, WILLIAMS, LITTLETON, and GREEN, Judges.
   BOOTH, Chief Justice.

This tax ease involves a construction of section 900 of the Revenue Act of 1918 (40 Stat. 1057, 1122). The sole issue'is whether the excise tax of ten per centum of the price for which a certain, type of roller skates was sold applies to that type. The taxing act taxed the manufacturer, producer, or importer ten per centum of the price for which “skates” were sold, and plaintiff contends that sidewalk roller skates, manufactured and adapted for use by children 'of from seven to twelve years of age in skating on sidewalks, are not taxable, and seeks refund of the taxes collected by the Commissioner of Internal Revenue upon all such roller skates.

The plaintiff is a Massachusetts corporation engaged, among other activities, in manufacturing ice, roller, and what it designates as sled skates. On November 17, 1920, the Commissioner of Internal Revenue assessed against the plaintiff the following taxes: $48,502.97 tax, $14,550.91 penalties. ■ The plaintiff had not made any excise tax returns under the act of 1918.

Section 900 of the Revenue Act of 1918 (40 Stat. 1057, 1122) provides as'follows:

“Sec. 900. That there shall be levied, assessed, collected, and paid upon the following articles sold or leased by the manufacturer, producer, or importer, a tax equivalent to the following percentages of the price for which so sold or leased— * *
“(5) Tennis rackets, nets, racket covers and presses, skates, snowshoes, skis, toboggans, canoe paddles and cushions, polo mallets, baseball bats, gloves, masks, protectors, shoes and uniforms, football helmets, harness and goals, basket-ball goals and uniforms, golf bags and clubs, lacrosse sticks, balls of all kinds, including baseballs, footballs, tennis, golf, lacrosse, billiard and pool balls, fishing rods and reels, billiard and pool tables, chess and checker boards and pieces, dice, games and parts of games (except playing cards and children’s toys and games), and all similar articles commonly or commercially known as sporting goods, Id per centum.”

The plaintiff on July 2, 1924, filed its claim for a refund of $18,678.63 of the total amount of tax paid for the months of February to November, 1919, inclusive, predicating its claim upon an allegation that sidewalk roller and sled skates did not fall within the taxing statute and hence were not taxable. The refund claim was rejected by the Commissioner on December 1, 1924. This suit is for the recovery of said sum.

Plaintiff’s insistence in its final analysis converges to the single issue, that the word “skates” in the taxing act includes only ice skates. True, it concedes tax liability and paid taxes upon an alleged type of roller skates, but this concession is rested upon the so-called residuary clause of the revenue law taxing “all similar articles commonly or commercially known as sporting goods.” The record establishes that for many years prior to the period herein involved the plaintiff manufactured and sold several types of roller and ice skates. One type of roller skates was constructed along substantial lines, made strong and durable for theatrical and athletic use. Another type, less substantial, adapted more for general adult use, was made and sold in quantities. A third type differing from the ones just mentioned, while constructed along identical lines, was somewhat lighter in weight, doubtless an inducement for purchase, appealing to skaters desiring a minimum of weight. The fourth type, the type exclusively involved in this suit, designated as “sidewalk roller skates,” was of light weight, much less substantial as to parts of construction and designed especially for children. Means for adjusting the skates to varying sizes of shoes obtained, arid, in so far as the skate- itself is concerned, differed from all the previous types only in material used to make, the same. They were not intended for adult use because not susceptible to the wear and tear such use necessarily involved. ' The plaintiff insists that they are classifiable as children’s toys and hence exempt from taxation under the revenue act. Section 900 of the Revenue Act under consideration, after designating by name a large number of articles known as sporting goods,provides in this eonneetion as follows “Games and parts of games (except playing cards and children’s toys and games), and all similar articles commonly or commercially known as sporting goods.” If this contention is sustainable, as pointed out in defendant’s brief, the above parenthetical clause modifies the taxability of each of the articles enumerated in the statutes, and is distinct legislation intended to exempt any of the articles mentioned if they are in fact mere toys. Aside from the fact that the punctuation used and the obvious intention of the law negative plaintiff’s argument, we do not believe this particular type of skates may be considered as children’s toys within the meaning of the taxing statute. Beyond doubt, they are so constructed as to glide over concrete walks; function in every particular as adult skates function, and afford the same pleasurable sensation that roller skates in general afford. A child sufficiently old to use them may adjust them for use, and they are in no sense mere imitations of useful articles which serve to amuse and entertain children, but which in themselves are incapable of functioning as the original and are not so designed and intended. A child acquiring a miniature pair of roller skates to affix to a doll or other imitation of a person acquires a mere toy. A child acquiring a pair of sidewalk roller skates uses them for an entirely different purpose than noted above, and obtains precisely the same sensations and exercise an adult obtains from their use. They are not toys in the ordinary and common acceptation of the term, but, as we think, a type of roller skates made and adapted for the use of children old enough to use roller skates and especidlly useful for the designed purpose. The plaintiff in its interesting and able brief urges as a means of construing the statute that the Congress used the word “skates” in its commonly accepted trade and commercial meaning, and that as so used it could not include any other type of skates than ice skates. A large number of eases are cited to sustain the contention. The eases cited have to do exclusively with the classification of merchandise imported into the United States, and involve without exception the applicable tariff rates to the same.. The cases cited, too many to review, do not, we think,, apply. The revenue act under consideration was passed at a time when Congress was intending to .tax articles which a majority of the people could very well get along without, i. e., luxuries and semiluxuries. As a source of revenue Congress resorted to this class of articles and imposed upon them a tax to help defray the enormous expense of the war and was, we think, intending to use descriptive designations in their generic sense, a tax imposed in accord with the taxpayers’ ability to pay and necessarily and essentially incapable of being set forth in detail in all respects, and hence made general as to the subject matter by the residuary clause of the 'statute. LaBelle Iron Works v. United States, 256 U. S. 377, 386, 41 S. Ct. 528, 65 L. Ed. 998. In the case of Jordan v. Roche, 228 U. S. 436, 445, 33 S. Ct. 573, 575, 57 L. Ed. 908, the court said:

■ “A general answer to them is that the purpose of the Eoraker act was, as we have said, to subject Porto Rican articles to the internal revenue laws of the United States, and under those laws, articles are taxed not by their commercial names or uses, but according to their alcoholic content, under the generic name of 'distilled spirits.’ ”

We think the fact that sidewalk roller skates were commercially known as toys is immaterial. A taxing act is involved and its terms prevail. Congress was not dealing with commercial distinctions, but with articles as generally understood and recognized.

What we have said applies ’ with equal force to sled skates. We think the different types of skates made and sold by the plaintiff were in all respects skates, and that the variation in design. and structure was no more than a. purpose to cater to the wants of those desiring to use skates, either roller, ice, sled, or sidewalk, a commercial intent to supply the trade with a type of skate adapted to the particular use and status of the prospective customers, a mere variation in style and structure of an existing and long-identified article of amusement and exercise well known and easily recognizable as “skates.”

The petition will be dismissed. It is so ordered.


text:
    HILLS v. UNITED STATES.
    No. L—153.
    Court of Claims.
    June 1, 1931.

      Merritt E. Haviland, of New York City, for plaintiff.
    J. A. Rees, of Washington, D. C., and Charles B. Rugg, Asst. Atty. Gen., for the United States.
    Before BOOTH, Chief Justice, and GREEN, LITTLETON, WILLIAMS, and WHALEY, Judges.
   GREEN, Judge.

The petition alleges in substance that the plaintiff is the exeeutrix of the estate of Alfred K. Hills, and as such executrix filed an estate-tax return June 6, 1921, which showed that a tax of $18,108.42 was due, of which $360 was abated later, and the balance of $17,748.42 was paid July 26, 1921. It further shows that on April 24, 1925, the commissioner notified plaintiff that he had determined the correct tax liability to be $19,476.-02 and that there was a deficiency in payment of $1,727.60. A jeopardy assessment of this deficiency was made April 27, 1925, and on May 1,1925, was paiá by the plaintiff by her.cheek “as an installment on account of the entire estate tax.” That about October 2, 1926, plaintiff filed a claim for refund of $4,371.33 based upon payment of administration expenses incurred after filing the estate return, and on June 29,1927, the commissioner advised plaintiff that after audit it was determined that the tax upon the transfer was $16,057.64, and “since the claim for refund was not filed within four years next succeeding the date the sum of $17,748.42 was paid, only the amount shown to have been paid on May 16, 1925, or $1,727.60 is subject to refund.?’

With reference to claims for refund, it is alleged that on March 1, 1928, plaintiff filed a claim for refund of $4,743.25 based upon payment of certain administration expenses incurred since the previous claim was filed and certain other administration expenses not reported to the commissioner. On June 28, 1928, plaintiff received a certificate of over-assessment of $4,080.81 dated May 25, 1928, in which was set out the computation of the overassessment, and the same reasons were stated why only $1,727.60 could be refunded, and further stating that the balance of the overassessment in the sum of $2,353.21 was barred.

That on April 30, 1929, plaintiff filed a third claim for refund of the unpaid portion of the overassessment, stating reasons why it was claimed that the same was not barred, and on July 13, 1929, the commissioner advised the plaintiff that said claim was considered as an application to reconsider prior claims and rejected.

Upon these facts the plaintiff asks judgment for $2,353.21, being the unpaid portion of the overassessment and the amount of the refund asked in the third claim.

The defendant demurs to the petition on the ground that it does not set out a cause of action. More specifically the defendant contends that none of the three claims were filed in time by'plaintiff and that action on all of them is barred by the statute of limitations.

The issues raised by defendant are controlled by two sections of the Revised Statutes. Section 3226 (26 USCA § 156) provides with reference to the filing of claims and the time of beginning suit as follows: “No such suit or proceeding shall be begun before the expiration of six months from the date of filing such claim unless the commissioner renders a decision thereon within that time, nor after the expiration of five years from the date of the payment of such tax, penalty, or sum, unless such suit or proceeding is begun within two years after the dis-allowance of the part of such claim to which such suit or proceeding relates.”

Section 3228 (26 USCA § 157) also provides with reference to the time of presenting claims for refund to the commissioner, as follows: “See. 3228. (a) All claims for the refunding or crediting of any internal-revenue tax alleged to have been erroneously or illegally assessed or collected, or of any penalty alleged to have been collected without authority, or of any sum alleged to have been excessive or in any manner wrongfully collected must, * * * be presented to the Commissioner of Internal Revenue within four years next after the payment of such tax, penalty, or sum.”

If the time when the final payment was made on the tax fixes the date when the statute of limitations commenced to run under section 3228, as plaintiff contends, then all three of the claims of plaintiff were filed within the four-year period fixed by this section. But if, on the other hand, this date applies only to the amount then paid, the recovery of any prior payments is barred not only by section 3228 but by section 3226 as well.

For reasons which follow we hold that if plaintiff is entitled to recover at all, her recovery must be based on the second claim filed March 1, 1928.

The disallowance of the first claim was more than two years before the suit was begun, and consequently this claim is of no avail to the plaintiff regardless of whether it was filed before the expiration of five years from the date of the payment of the “tax, penalty, or sum,” as provided by the statute. What plaintiff refers to as her third claim is merely a repetition of the second claim and for the purposes of the case we think adds nothing thereto.

Defendant contends that there was no action by the commissioner on the second claim, but the certificate of overassessment, which was issued after the second claim had been filed, showed very plainly and directly that the claim had been allowed in part for the same sum as before and disallowed to an extent corresponding to the amount for which plaintiff now asks judgment. The defendant contends that in any event the statute of limitations commenced to run from the date of the disallowance of the first claim, citing Altman & Co. v. United States, 40 F.(2d) 781, 69 Ct. Cl. 721. If the second claim was the same in all respects as the first claim, this might be conceded, but we think that a comparison of the exhibits attached to the plaintiff’s petition, which set out these claims in full, shows that the specific grounds are different, and that in such a ease a new claim may be filed and the two-year limitation will not begin to run until it has been disallowed. In the instant case the disallowance was within the two-year period. The statute, however, also provides that “no such suit or proceeding shall be begun * * * after the expiration of five years from the date of the payment of such tax, penalty, or sum,” and the question arises as to what that “date” is in the case at bar. This question involves the construction of the language above quoted. The plaintiff contends that the words “payment of such tax, * * * or sum” refer to the payment of the whole tax, and that as the deficiency assessed was not paid until May 16, 1925, the whole of the tax was not paid until that date. The suit, having been begun April 29,1930, under this construction was within the live-year limitation.' The contention of the defendant is, in substance, that only that “sum” or portion of the tax which was paid within five years from the time suit was begun can be recovered under a proper construction of the statute, and that as the amount which the commissioner refused to pay is part of the $17,748.42 paid on July 26, 1921, it is therefore barred. This question can properly be discussed in connection with defendant’s contention that none of the claims were filed in time, for, although this depends on section 3228, the language used with reference to the date of payment is practically the same and, we think, susceptible of the same construction.

It will be observed that in both sections 3226 and 3228 it is the date of the “payment of such tax, penalty, or sum” which fixes the time from which the limitation must run. If these words refer only to the time when all of the tax which has been found to be due is paid, then all of plaintiff’s claims were filed within the period fixed by law, and the suit is not barred by the statute of limitations. On the other hand, if the words “payment of such tax, penalty, or sum” refer to a payment of a part or portion of the tax, then the period of limitation dates from the time of the actual payment of the particular sum sought to be recovered, and plaintiff’s claims were not filed in* time to enable her to recover any portion of the tax not paid within the period of limitations.

Each of the sections of the statute refers to the “payment of such tax, penalty, or sum.” It will be observed there is a division into three separate matters. With one of these — the penalty — we are not now concerned. The question therefore is narrowed so as to require the determination of whether the expressions “such tax * * * or sum” both refer to the whole tax, or whether one of them may refer to a part of the tax where such parts are collected under a different section or levy. The word “tax,” or the words “the tax,” as used in the revenue acts, generally refer to the whole of the tax, but in some instances do not, and the word “sum” evidently refers to a particular amount,, which, however, may not be, strictly speaking, the tax itself, but only what is added thereto or collected with the tax under some provision of the law, and a difficult and doubtful question arises in connection with the proper construction of these words. In-order to determine it, we shall consider in what form the sections in which they are included were originally enacted, and in connection with other provisions of the revenue-law endeavor to determine what construction Congress intended to have put thereon.

Section 3228 was enacted June 6, 1872; substantially as it now stands, except that the period in which suit must be brought was limited to two years.

Section 3226 was originally contained in two sections — 3226 and 3227 of the Revised Statutes, 3226 having been enacted July 13, 1866, and 3227 on June 6, 1872. Section 3226 provided that the suit should not be brought to recover a tax until appeal had been made to the Commissioner of Internal Revenue, and section 3227 provided that no such suit should be maintained unless brought within two years after the cause of action accrued.

Section 3226 was amended by th.6 Revenue Act of 1921 (section 1318 [42 Stat. 315]) and the original sections 3226 and 3227 were combined in one section and the limitation period was extended.

Apparently the purpose of making reference in sections 3228 and 3226 to the three items of the “tax, penalty, or sum” was to make it clearly understood that before suit could be brought claims had to be filed for the refund of any penalty or sum sought to be recovered in the same manner as required for the refund of the tax. The amendment of section 3228 by the Revenue Act of 1921 (section 1316 [42 Stat. 314]) was made to apply retroactively to claims for refund under the revenue acts of 1916, 1917, and 1918. The word “sum” appears to have been used in order to leave no doubt as to the inclusion of certain items which, while in one sense made part of the tax, were imposed by Congress in eases where the taxpayer had failed to observe the statute. These items in many instances were not designated as a part of the tax, or as a penalty. They were simply additional amounts required to be collected. Eor example, in some instances the additional amount to be collected was specified as interest, and in the income and profits tax statutes from 1916 on, the amounts that were required to be added to the tax under certain circumstances were merely specified as a certain per centum of the tax, or of the amount of tax due; in other cases the per centum was specified as “the sum”; and, in still other cases, it was directed that a specific sum “be added as part of the tax.” Many other similar instances might be mentioned. But always whether as interest, a per centum, an amount, or a sum, these additions were to bo collected in the same manner as the tax and as part of it. The word “penalty” was not used with respect to any of these amounts which were to be added to the tax, but they were always referred to as interest, or a specified per centum, or as an amount, or as a sum, although they were in the nature of a penalty. In the provisions with reference to the excise taxes any additions to be collected, when distinguished from interest as such, were specifically referred to as a penalty.

In the provisions with relation to the estate tax, we find interest is to be added to such a portion of the tax as is not paid within one year and six months after the decedent’s death. In section 407 of the Revenue Act of 1921 (42 Stat. 281) there is a provision for the payment of interest at the rate of 10 per cent, upon the “amount” of any additional estate taxes found to be due. Another provision-of the statute requires “25 per centum of the amount” of the (estate) tax to be added where there is a faitee to file a return, and in case of a false or fraudulent return that there shall be added to the tax 50 per cent, of its amount.

These different provisions tend to show that the use of the word “sum” was for the purpose of making it clear that the statute covered amounts which were required to be added to the taxes, although they were not specifically designated as either taxes or penalties. We think it can be definitely stated that, unless the intent of Congress is otherwise indicated, there is nothing in the use of the word “sum” which would make it refer to a part of the tax as distinguished from the whole of the tax in the manner claimed by defendant.

We think also that other legislative action indicates the intent of Congress and the construction which that body placed upon the sections of the Revised Statutes under consideration.

In section 281 of the Revenue Act of 1924, 26 USCA § 1065 note (now embodied in section 322 of the Revenue Act of 1928 [26 USCA § 2322]), a provision was inserted with reference to income and excess profits taxes to the effect that a credit or refund should not “exceed the portion of the tax paid during the four years immediately preceding the filing of the claim.” (Italics ours.) The Solicitor of Internal Revenue rendered an opinion which in substance held that without this language there would be nothing to prevent any amount erroneously collected from being recovered, even though a recovery of part of the payment, standing alone, would have been barred by the statute of limitations. As faifas’we can ascertain, this seems to have been the practice of the Internal Revenue Bureau with reference to amounts recoverable on refund claims up to the time of the Reyenue Act of 1924.

The Solicitor of Internal Revenue correctly held in the opinion, to which we have before referred, that Congress clearly intended by the change in the Revenue Act of 1924 to make it plain that where any “portion” of the tax had been paid at a time barred by the statute of limitations, such portion could not be recovered after the revenue act of that year went into effect. Or, in other words, Congress thereby required that ,the practice of the bureau should be changed in this respect with reference to the taxes to which section 281 of the Revenue Act of that year applied. But this section applied only to income and excess profits taxes and if Congress intended to have the practice of the bureau changed as to estate taxes also, it would seem as if it would have made the section apply to all internal revenue taxes, or specified estate taxes along with income and excess profits taxes. This it did not do, and we think its failure so to do tends to show that it intended that a different rule should be applied 'where it was sought to recover estate taxes wrongfully collected.

What we have said above shows that the language of the statute is ambiguous and its construction doubtful. The general rule in such cases is that the doubt should be resolved in favor of the taxpayer, and we may properly turn to the committee reports in order to ascertain the intent and purpose of Congress. A consideration of these reports, as set out below, will show that they tend to support the contention of plaintiff.

Clause (2) of subdivision (b), section 281, of the Revenue Act of 1924 (26 USCA § 1065 note), which gives rise to the controversy presented by the demurrer in this case, was inserted by reason of the change made by section 281 of the Revenue Act of 1924 in section 252 of the Revenue Act of 1921 (42 Stat. 268).

The revenue bill of 1924, as it passed the House, shortened the period of limitation within which a claim for refund might be filed ' from five years after the return was due, as provided by section 262 of the Revenue Act of 1921, to four years after the date of payment of the tax and did not contain a provision which was finally inserted in this section — section 281 — by subdivision (b) (2). The report of the Committee on Ways and Means, No. 179, 68th Congress, 1st session, stated: “The limitation on credits and refunds contained in the first .proviso of section 252 of the existing law has been changed in two principal respects. The date from which- the period of limitation runs has been changed from the due date of the return to the date of the payment of the tax. Logically, the period of limitation should run from the date of payment, since it is at that time that the right accrues. Again, the complicated provisions of the present section with reference to the length of the periods of limitation, which vary from two years from the time the tax was paid to six years from the time the return was due, have been simplified by fixing the period at four years.”

The Senate Committee on Finance, amending section 2?lj inserted a provision therein restricting the amount of a credit or refund to a portion of the tax paid during the four years immediately preceding the filing of the claim, and, after stating the same reasons for the change in the provisions of section 252 of the existing law as had been given in the report of the Committee on Ways and Means, stated, in addition in its report No. 398, page 33, that: “In order that a late payment of a small portion of the tax due may not extend the time for filing a claim for refund of the entire tax, a limitation has been inserted by the committee restricting the amount of a credit or refund to the portion of the tax paid during the four years immediately preceding the filing of the claim.”

The amendment, with slight change, was ■agreed to in conference and the statement in the conference report, No. 844, by the managers on the part of the House appears at pages 24 and 25, as follows: “Amendment No. 117:' The Senate amendment rewords subdivision (b) of section 281, in order to restrict the amount of a credit or refund to the portion of the tax paid during the four yeafs immediately preceding the filing of a claim therefor. The House recedes with an amendment providing that if no claim was filed the amount of the credit or refund shall not exceed the portion of the tax paid during the four years immediately preceding the allowance of the credit or refund.”

We think these extracts from the reports of the committees of the House and Senate indicate that in the view of Congress, unless a special provision was inserted making recoverable only that part of the tax which was paid within the period of limitations, such period would date from the time when all of the tax was paid.

For the reasons above stated, we resolve the doubt in favor of the plaintiff and it is ordered that the demurrer be overruled.

      Th.e wording of tlie portion omitted is slightly changed in the 1928 act from that in the 1926 act, hut the change is not material to the case under consideration.

       See section 250 of the Revenue Acts of 1918 and 1921 (40 Stat. 1082; 42 Stat. 264).

       See subdivision (e) of section 200 of the Revenue Act of 1918 (40 Stat. 1082).

       See subdivision (f) of section 250 of the Revenue Act of 1918 (40 Stat. 1082).

       See the third paragraph of section 3176, Rev. St., as amended by section 1311 of the Revenue Act of 1921 (42 Stat. 313 [26 USCA §§ 97, 98]).

       See S. M. 3380, C. B. IV-1, p. 80.


text:
    M. J. WHITTALL ASSOCIATES, Limited, v. UNITED STATES.
    No. K-166.
    Court of Claims.
    June 1, 1931.
    Howe P. Cochran, of Washington, D. C. (Harry Friedman, of Washington, D. C., on the brief), for plaintiff.
    Lisle A. Smith, of Washington, D. C., and Charles B. Rugg, Asst. Atty. Gen. (D. Louis Bergeron, of Washington, D. C., on the brief), for the United States.
   PER CURIAM.

It appears that by the error of a clerk a check for an overassessment of taxes due the plaintiff was made to another party and then sent to the plaintiff. On discovery of the error, the plaintiff consented to a correction of the cheek, but before the check could be corrected and paid considerable time had elapsed, on account of which plaintiff seeks to have an additional allowance of interest on the overpayment. The Commissioner allowed additional interest, but not sufficient to cover the amount to which plaintiff is entitled by reason of the delay. Subsequently, the general counsel for the Bureau of Internal Revenue filed an opinion in whieh we concur, that there was no defense to the claim, and in substance that interest should be computed and allowed up to and within thirty days of the date of the corrected check. The date of the corrected cheek was October 27, 1928, and the date to which* interest should be computed is therefore September 27,1928. When so computed, the amount due the plaintiff was found by the Bureau to be $674.41. Judgment will accordingly be rendered to the plaintiff for the amount so found to be due.


author: MARTIN, Chief Justice.

text:
    LARSEN v. BURNET, Commissioner of Internal Revenue.
    No. 5023.
    Court of Appeals of District of Columbia.
    Argued Nov. 5, 1930.
    Decided Dec. 1, 1930.
    Petition for Rehearing Denied Jan. 10, 1931.
    Walter E. Barton and Harrison Brand, Jr., both of Washington, D. C., for appellant.
    Sewall Key, C. M, Cbarest, J. G. Harlan, and Helen R. Carloss, all of Washington, D. C., for appellee.
    Before MARTIN, Chief Justice, and ROBB áud VAN ORSDEL, Associate Justices.
   MARTIN, Chief Justice.

This appeal involves a deficiency in appellant’s individual income tax for the year 1923 in the sum of $1,842.79; and is taken from an order of redetermination of the Board of Tax Appeals reported in 14 B. T. A. 160.

It appears that appellant and his wife moved to the state of Washington in 1906, at which time they possessed no money or other property. From 1906 to 1922 they lived in that state and gradually accumulated considerable property by means of wages, salary, and dividends, which under the community property laws of the state belonged one-half to appellant and one-half to his wife.

In the year 1922 appellant and one For-cia, a business associate, moved to Oregon with the intention of starting a sawmill business there. They at once formed a copart-nership as Foreia So Larsen, and entered into contracts for the purchase of timber lands, and the construction of a sawmill thereon. Appellant’s family soon joined him.

Appellant invested the sum of $25,662.21 in the partnership business in Oregon, of which the sum of $15,662.21 represented community property belonging in equal shares to himself and his wife, and $10,000 additional, which was borrowed by them upon their joint note.

Appellant and his wife were well informed concerning the community property law of the state of Washington, and while residing in that state they had regularly made individual income tax returns, each for one-half of thfeir community income. These returns were approved by the Commissioner of Internal Revenue. They both rested under the erroneous belief that similar community property laws prevailed in the state of Oregon, which was not the case, and that the status of their community property and the method of reporting their taxable incomes would not be affected by their change of residence. Accordingly, after they had moved to Oregon, they considered and understood that they were equal owners in the investment in the timber lands and sawmill business o-f For-cia & Larsen. ( When appellant and Foreia purchased the timber lands in Oregon, they used their own names only, but both believed that the property when purchased became community property; as would have been the case iu the state of Washington. In that state business is conducted in tbe name of tbe husband, notwithstanding tbe investment may consist of community property in which the wife has a vested one-half interest. Washington, Remington’s Comp. Stats. 1922, § 6892,

During the year 1923 the copartnership of Foreia So Larsen realized a net income of $51,027.19, after the deduction of salaries of $5,000 each for Foreia and appellant. A partnership income return was made to the government by Foreia So Larsen for 1923, under section 224, Revenue Act of 1921,42 Stat, 227, 250, showing a net income of $51,027.19. A sworn statement was made on the return that the distributive share of appellant was one-half and that of Foreia one-half thereof.

Acting, however, upon their mistaken belief that the community property law prevailed in Oregon, and that they should make their individual tax returns in like manner as in the state of Washington, appellant and his wife each returned one-half of $30,513.60 ($25,513.60 income and $5,000 salary), as income for the year 1923.

The Commissioner of Internal Revenue held that the entire sum should have been returned by appellant, and determined a deficiency in his return in the sum of $1,842.79. The Board of Tax Appeals sustained this determination, and this appeal followed.

In our opinion the Board’s decision is correct. It is conceded by appellant that the filing of separate returns by himself and wife for 1923 upon a community property basis was unauthorized and erroneous, since such a basis was not recognized by the laws of Oregon. He contends, however, that his wife was the owner of one-half of the funds which were contributed as their share of the partnership assets, and that it was understood by and between them that she should remain the owner thereof as before. He claims accordingly that he became a trustee for her as to the one-half of the investment and also one-half of the profits accruing therefrom, and that the one-half thus received by each was properly taxable to each.

We think this argument is untenable. It is true that the wife’s interest in the community property is regarded as a present vested right under the laws of the state of Washington, Henry v. Commissioner, 6 B. T. A. 131, and that this interest was not affected by the removal of the parties to the state of Oregon, Phillips v. Commissioner, 9 B. T. A. 153. It is also true that appellant was accountable to his wife under the circumstances 'for the investment which he was managing for her. Nevertheless appellant’s wife was not an actual partner in the firm, for the copartnership consisted of appellant and Foreia alone; and the applicable statute requires that the distributive share of each partner, of the net income of a partnership shall be included in the individual return of the partner for the taxable year.

The language of the act, section 218 (a) Revenue Act of 1921, 42 Stat. 227, 245, reads in part as follows: “See. 218. (a) That individuals carrying on business in partnership shall be liable for income tax only in their individual capacity. There shall be included in computing the net income of each partner his distributive share, whether distributed or not, of the net income of the partnership for the taxable year. * * * ”

In Treasury Department Regulations 62, art. 331, the following ruling appears: “Partnerships. — Partnerships as sueh are not subject to taxation under the statute, but are required to make returns of income. See section 224 of the statute and articles 411 and 412. Individuals carrying on business in partnership are, however, taxable upon their distributive shares of the net income of sueh partnership, whether distributed or not, and are required to include sueh distributive shares in their returns. * * * ”

This subject was considered in Mitchel v. Bowers, Collector of Internal Revenue (C. C. A. 2nd) 15 F.(2d) 287, wherein it was held, in a majority decision, that in New York a contract between a husband and his wife, entitling her to one-half of the husband’s profits from a certain partnership, and making her liable for one-half of the losses, assented to by the other partners, did not make the wife a partner, since it did not give-her any present interest equitable or legal in the firm’s assets, and also that such a subpartnership contract did not affect the taxability of the husband’s, income from the original partnership under Revenue Act of 1918, § 218 (a), 40 Stat. 1070. See, also, Harris v. Commissioner of Internal Revenue (C. C. A.) 39 F.(2d) 546.

This decision is not touched upon by- Commissioner of Internal Revenue v. Barnes’ Estate (C. C. A. 3d) 30 F.(2d) 289, for in the latter ease the wife was entitled directly to receive a share in the profits of a partnership by virtue of an assignment executed in accordance with the Uniform Partnership Act of Pennsylvania (Act of March 26, 1915), pt. 5, § 27 (1), 59 PS § 74. See Barnes’ Estate, 7 B. T. A. 924.

Inasmuch, therefore, as appellant’s wife was not a partner in the copartnership of Foreia & Larsen, she was not required to include in her individual return any part of the net income of the partnership for 1923. But appellant was required to include in his return the full distributive share of sueh net income, as the Board has held.

The decision of the Board of Tax Appeals is affirmed.


author: GRONER, Associate Justice.

text:
    NATIONAL PIANO MFG. CO. v. BURNET, Commissioner of Internal Revenue.
    No. 5002.
    Court of Appeals of District of Columbia.
    Argued April 8, 1931.
    Decided May 4, 1931.
    J. S. Seidman, of New York City, for appellant.
    Gr. A. Youngquist, Asst. Atty. Gen., and Sewall Key, F. E. Mitchell, C. M. Charest, and Prew Savoy, all of Washington, D. C., for appellee.
    . Before MARTIN, Chief Justice, and ROBB, YAN ORSDEL, HITZ, and GRO-NER, Associate Justices.
   GRONER, Associate Justice.

This is a petition for a review of a decision of the Board of Tax Appeals, and presents the single query: Is appellant (petitioner) entitled to have the payment by it in 1922 of twenty-two thousand odd dollars, representing tbe federal income tax for th<5 year 1921 of tbe National Automatic Music Company, allowed as a deduction in computing appellant’s net income for either of tbe years 1921 or 1922. (

Appellant, an Arizona corporation incorporated in 1917, is tbe successor of an Illinois corporation of the same name. We shall hereafter speak of it as tbe piano company. Its predecessor bad in 1913 entered into an agreement with the National Automatic Music Company, which we shall heretafter speak of as tbe music company, for the .sale and servicing of its product, and this contract remained in effect after tbe new company was organized, and was in effect in 1922. In 1925, tbe piano company and the music company were consolidated under the name of Automatic Musical Instrument Company. .Subsequent to the consolidation, and upon a question involving the tax of the consolidated company, the piano company amended its previously filed petition with the bureau, by which amendment it claimed that in the computation of its income for the year 1922, the commissioner failed to include as a deductible item the amount of $22,048.76 paid by it in that year on behalf of the music company under a contract binding it so to do. The commissioner declined to allow the deduction, and the Board of Tax Appeals sus-' tained his ruling in this respect. The ground on which the board approved the eommission,er’s action was that the piano company had failed to prove that it was under any legal obligation to pay the tax of the music company, or to furnish evidentiary facts from which such ultimate fact would follow as a conclusion of law. If the payment represented an ordinary and- necessary business expense, it was deductible. Section 234 (a), Revenue Aet 1921, 42 Stat. 227, 254. If it was not such an expense, it was not deductible, and, on this review, it is our duty to examine the record to determine whether there is substantial evidence to support the board's finding. If there is, it is our duty to affirm. If there is not, the finding so made is not in accordance with law. Ox Fibre Brush Co. v. Blair (C. C. A.) 32 F.(2d) 42, 68 A. L. R. 696. The evidence returned by the board shows very definitely, we think, that the claim of the piano company for a deduction was bottomed entirely on a single paragraph of the contract of 1913 between piano company’s Illinois predecessor and music company. The paragraph reads as follows: “The party of the first part (Piano Company) will maintain all such, pianos in repair and change the music thereon as often as in its judgment may be required and will change the locations thereof whenever in its judgment it may be necessary, paying all the expenses of operation and maintenance of such pianos, including the expenses of weekly collections, and shall receive as compensation twenty percent (20%) of the net returns, after payment of percentage to location lessee.”

When the president of the consolidated company, who was likewise president of the piano company and music company, was asked the ground upon which the piano company claimed the right to deduct the payment of the musie company’s 1922 tax, he pointed to the quoted paragraph above, and when the secretary 'of piano company, who was also secretary and treasurer of the consolidated company, was asked the same question, he likewise said that, under that provision of the contract, it was understood that the piano company would bear the expenses of the music company. Certainly there is nothing in the paragraph in question which, directly or indirectly, imposes upon the piano company the obligation to bear the expenses of the music company, or to pay its income taxes, and therefore there is nothing in either the oral or documentary evidence which would sustain the conclusion that the payment of the tax was an ordinary and necessary expense of the piano company. In these circumstances, we are unable to see how we could justify a contrary holding, and, in saying this, we do not overlook the fact that it is recognized by all parties that the claimed deduction was a payment actually made by one corporation for the benefit of another, and that ordinarily such things do not happen except as the result of coercion arising from some obligation, contractual or otherwise, but this does not excuse the failure to show the true facts, whatever they may be, for it is not the payment alone that is the test of deductibility,' but also that it was made as a “necessary expense.” It is conceivable, and we think not unreasonable, that, •in the intimate interrelationship of the two corporations, the payment might well have been gratuitous and voluntary, and, in such case, admittedly it would not have been deductible, and, 'if it was not, it was the duty of the piano company to have shown otherwise, for it bore the burden and alone possessed knowledge of the facts. It has had its day in court, and stands upon the record made, and does not now ask that the ease be remanded for further evidence or for further findings in accordance with the evidence, but insists that the record is sufficiently complete to dispose of the matter in issue.

In that view, we think the piano company has wholly failed to overcome the presumption in favor of the correctness of the commissioner’s ruling, and, pince this requires that we affirm the finding of the board, it is not necessary to pass upon the other questions discussed in the briefs.

Affirmed.


text:
    DAVISON v. MORGAN et al.
    No. 5085.
    Court of Appeals of District of Columbia.
    Argued April 15, 1931.
    Decided May 4, 1931.

      J. Guy Neel and Vincent A. Sheehy, both of Washington, D. C., for appellant.
    Joseph A. Burkart and Harry I. Quinn, both of Washington, D.' C., for appellees.
    Before MARTIN, Chief Justice, and ROBB and GRONER,- Associate Justices.
   MARTIN, Chief Justice.

An appeal from a decree holding a certain deed of trust valid, and dismissing bill of complaint praying that it be set aside for fraud.

In July, 1927, the appellant, Mrs. Da^ vison, was the owner in fee and with her husband was in possession of the residence property known as 1432 Meridian Street N. W., in Washington, D. C., which was free of incumbrance. Appellant desired to sell the property, whereupon one Cissel, a real estate' agent, after some conferences professed to have secured a buyer, one Morgan. In fact, however, Morgan was a “straw man” who was aiding Cissel in a scheme to defraud appellant. Cissel then came to appellant’s house with a dee’d of conveyance for her to sign conveying the property to Morgan, also • a cheek for $1,500, and a purchase-money note for $9,000 payable to appellant with a deed of trust to secure the same executed by Morgan and his wife. Appellant and her husband were persuaded to sign the deed of conveyance to Morgan, and deliver it together with the deed of trust to Cissel to be recorded. Cissel pretended to be a notary public, and professed to take the acknowledgment of the grantors in the deed. In.fact, however, he was not a notary, but afterwards deceived a notary into signing such an acknowledgment to the deed. Thereupon Cis-sel withheld from record the deed of trust securing the $9,000 purchase-money note due to appellant, and by means of the deed' of conveyance procured a loan of $5,500 from Wilcox, Hane & Co., upon a note and deed of trust executed by Morgan and his wife upon ■ the property. In this transaction the records were examined by a title company, and the title to the property was of course found - to be in Morgan’s name and free of incum-brance, and the loan was made upon that assurance. There is no evidence tending to prove-knowledge of the fraud of Cissel and the Morgans upon the part of any of the oth-.. er parties. ,

' The deed of trust signed by the Morgans for the $5,500 loan was placed upon record, and soon afterwards came to appellant’s-knowledge, whereupon she filed her bill of-complaint in this case praying that the de-. fendants be enjoined from incumbering the property in any manner, and that the deed to Morgan be set aside.

The lower court held upon the evidence that the deed from appellant to Morgan was not acknowledged, but that an acknowledgment was not necessary to the validity of the deed between the parties, and that the title had passed to Morgan; also that the evidence 'was not sufficient to charge the holders of the $5,500 trust with knowledge of the fraud of Cissel and the Morgans; and consequently that the bill should be dismissed as tq them. -

This appeal was then taken by Mrs. Da-, vison.

In the recent case of Munsey Trust Co. v. Alexander, Inc., 59 App. D. C. 369, 42 F.(2d) 604, we held that, at common law, a deed is valid between parties if signed, seabed, and delivered, though not acknowledged or recorded, and that statutory requirements respecting the acknowledgment of a deed to authorize the recording thereof do not affect the validity of an unacknowledged deed'between the parties. The authorities cited in the opinion in that ease need not be reviewed here. Accordingly we sustain the, view, of' the lower court that the deed of conveyance' from appellant to Morgan was not made invalid as between the parties by the lack of an aeknowlédgment. We are also of the opinion that the evidence in the ease does not implicate the parties taking or holding the dee'd of trust from Morgan to secure the $5,500 loan. '

Moreover, we are constrained to agree with the view that the case is governed by the principle that, where “situations have been created by the action, inaction or negligence of parties, they should not be permitted to take advantage of them to the detriment of those innocent persons who have been, without negligence of their own, led to act upon such situations.” Mr. Justice Morris, in Carusi v. Savary, 6 App. D. C. 344. In general it may be said that, if a situation arises which must result in loss to one of two parties, that one must suffer whose negligence has brought the situation about.

In this case it was the action of Mrs. Davison in intrusting the two documents, to wit her deed of conveyance to Morgan and Morgan’s deed of trust to her, into the possession. of Cissel as her agent to have them recorded, which placed in Cissel’s hands the means of consummating the fraud from which a loss must fall either upon appellant or upon the holders of the $5,500 trust. The latter, parties are without blame for this situation and should not suffer from it.

Accordingly we affirm the decree of the lower court, with costs.


author: ROBB, Associate Justice.

text:
    COFFEY v. COLONIAL TRUST CO.
    No. 5026.
    Court of Appeals of District of Columbia.
    Submitted Feb. 9, 1931.
    Decided May 4, 1931.
    T. Morris Wampler, of Washington, D. C., for appellant. .
    Charles F. Wilson, Swagar Sherley, and Frederick Dee. Faust, all of Washington, D. C., for appellee.
    Before MARTIN, Chief Justice, and ROBB and YAN ORSDEL, Associate Justices.
   ROBB, Associate Justice.

Appeal from a judgment in the Supreme Court of the District for the defendant (ap-pellee here).

Appellant (plaintiff below) filed a declaration in three counts. A demurrer was interposed, whieh was sustained, and plaintiff by leave of court filed an amended declaration. To this, a. demurrer was filed and sustained. By leave of court, a second amended declaration was filed. Again a demurrer was interposed and sustained. Again leave was given to amend, but plaintiff elected to stand on her second amended declaration.

In the first count of the declaration it is alleged that defendant is a foreign corporation doing business in the District of Columbia; that from the 4th of October, 1927, to the 29th. of August, 1928, plaintiff “was in. the possession and occupancy of premises known as Apartment 606, at 130.1 Mass. Avenue, Northwest, in the City of Washington, in the District of Columbia, and paid rent to the defendant for the occupancy of the said premises”; that the possession and occupancy of the premises was held by her under and by virtue of a certain lease to her in writing, dated the 4th day of October, 1927, for the period of twelve months, commencing on the 1st of October, 1927, and whieh said lease was on- the 29th day of August, 1928, in full force and effect; that on the 29th of August, 1928, she was not in default “of any of the terms and conditions of the said lease”; that upon the 29th of August, 1928, “while she was in the possession and occupancy of the said premises as aforesaid, under said lease, she attempted to enter the said premises and was wrongfully and unlawfully prevented by the defendant from doing so. The said defendant wrongfully and unlawfully blocking her entrance into said premises, and wrongfully and unlawfully prohibiting her from entering the same.” She further alleges “that by reason of the premises, she has been put to great inconvenience and annoyance, mortification and humiliation, and her business has been ruined and destroyed.”

The second count differs from the first, in that it is alleged that the plaintiff held the premises as a tenant by 'sufferance, “without an agreement for a term.”

The third count is substantially, like the second.

Defendant contends, and evidently the court below found, that “the form of the action is misconceived, it being impossible from the structure and phraseology of the declaration to determine whether it is intended to be in trespass, covenant, ease or some other form.”

This being plaintiff’s third attempt to state her ease, it must be assumed that she has stated it in its most favorable aspect. Sloan v. Thompson, 58 App. D. C. 318, 30 F.(2d) 560; Lyons v. Reinecke (C. C. A.) 10 F.(2d) 3, 7; Chambers v. Whelen (C. C. A.) 44 F.(2d) 340, 341. She alleges that she “paid rent to the defendant for the occupancy of the said premises.” Her failure to allege that the defendant was the lessor or owner justifies the inference that it merely collected the rent for the landlord. Had the relationship of landlord and tenant existed, it would have been very easy for the pleader to have alleged the facts out of which such a relationship sprang. Certainly collecting rent for the landlord does not make the collector a landlord. Further support is found for this conclusion in the averment that “the said premises aforesaid was held by her under and by virtue of a certain lease to her in writing,” etc. Here, again, the pleader for some reason failed to reveal the identity of the lessor. Why? Certainly it may not be assumed that the defendant was the lessor.

Notwithstanding the failure of plaintiff to allege facts giving rise to the relationship of landlord and tenant, her counsel contended below, and contends here, that the action is against the defendant as landlord for disturbing its tenant in the possession of the premises; in other words, that this is an action ex contractu. For the reasons already indicated, we are of the view that the declaration does not state such a cause of action. Nor is it our duty in the circumstances to attempt a reconstruction of plaintiff’s declaration to make a case differing from that evidently intended. “Having therefore, elected to stand on the complaint as it is now written, there is no reason why the court should attempt to give to their pleading some form and theory which they themselves are unwilling to adopt.” Richard v. American Union Bank, 241 N. Y. 163, 169, 149 N. E. 338, 340, 43 A. L. R. 512. See, also, Schilling v. Moore, 34 Okl. 155, 125 P. 487.

The judgment is affirmed, with costs.

Affirmed.