Bailey v. Railroad Company

• Citation: 89 U.S. 604,22 Wall. 604,22 L.Ed. 840
• Parties: BAILEY v. RAILROAD COMPANY
• Decision Date: 01 October 1874
• Court: United States Supreme Court

89 U.S. 604

22 L.Ed. 840

22 Wall. 604

BAILEY v. RAILROAD COMPANY.

October Term, 1874

ERROR to the Circuit Court for the Northern District of New York; the case being thus:

The 22d section of the Internal Revenue Act of June 30th, 1864,¹ enacts:

'That any railroad company that may have declared any dividend in scrip or money, due or payable to its stockholders, as part of the earnings, profits, income, or gains of such company carried to the account of any fund or used for construction, shall be subject to and pay a tax of 5 per centum on the amount of all such dividends or profits, whenever and wherever the same shall be payable; and said companies are hereby authorized to deduct and withhold from all payments on account of any dividends, due and payable, as aforesaid, the tax of 5 per centum.

'And a list or return shall be made and rendered to the assessor, on or before the 10th of the month following that in which said dividends became due and payable, and as often as every six months; and said list or return shall contain a true and faithful account of the amount of tax, and there shall be annexed thereunto a declaration of the president or treasurer of the company, under oath or affirmation, that the same contains a true and faithful account of said tax.

'And for any default in making or rendering such list or return, or in the payment of the tax aforesaid, the company making such default shall forfeit as a penalty the sum of $1000.'

The fourteenth section of the act thus enacts:²

'If any person shall not deliver a monthly or other list or return by the time required by law; or if any person shall deliver or disclose to any assessor or assistant assessor any list, statement, or return, which in the opinion of the assessor is false or fraudulent, or containing any understatement or under-valuation, it shall be lawful for the assessor to summon such person, his agent, or other person having possession, custody, or care of books of account containing entries relating to such person, to appear before such assessor, produce such books at any time or place therein named, to give testimony, to answer interrogations under oath or affirmation respecting any objects liable to tax as aforesaid on the lists, statements, or returns thereof on any trade, business, or profession liable to any tax as aforesaid; and the assessor may summon as aforesaid any person residing or found within the State in which his district is situated; and when the person intended to be summoned

does not reside, and cannot be found within the State, then the assessor may enter any collection district where such person may be found and there make the examination, hereinbefore authorized, and to this end he shall have and may exercise all the power and authority he has or may lawfully exercise in the district to which he is commissioned. . . . It shall be the duty of the assessor or assistant assessor of the district within which such person may have taxable property to enter into and upon the premises, if it be necessary, of such person so refusing or neglecting, or rendering a false or fraudulent return, and to make, according to the best information he can obtain, including that derived from the evidence elicited by the examination by the assessor, and on his own view and information, such list or return, according to the form prescribed, of the property, goods, merchandise, wares, and all articles or objects liable to tax, owned or possessed, or under the care or management of such person, and assess the tax thereon, including the amount, if any, due for special or income tax. . . . And the list or return so made, and subscribed by said assessor or assistant assessor, shall be taken and reputed as good and sufficient for all legal purposes.'

Section nineteen of the same statute enacts:³

'That the assessor . . . shall give notice by advertisement, in one newspaper published in each county, and shall post notices, &c., stating the time and place where appeals shall be received and determined, relative to any erroneous or excessive valuation. . . . And such assessor is hereby authorized at any time to hear and determine in a summary way, according to law and right, upon any and all appeals by parties who shall appear voluntarily before him, &c. And shall have power to re-examine and determine upon the assessments and valuations, and rectify the same as shall appear just and equitable.'

On the 19th of December, 1868—the above-quoted enactment being then in force—the New York Central Railroad—a company having its road between Albany and Buffalo, and which had been in existence since 1853—passed resolutions authorizing the issue of certain certificates to the stockholders of the company, to the amount of 80 per cent of the amount of the capital stock of the company. The company by its charter was restricted to annual dividends of 10 per cent. The certificates were named 'interest certificates,' and the aggregate amount of them authorized by the said resolutions was $23,036,000. The amount of the capital stock of the company, at the time said resolutions were passed, was $28,795,000, and it was at this time all taken. The resolutions and certificate referred to each other, and all together made the form of the certificate. The following is a copy of the resolutions and certificate:

'THE NEW YORK CENTRAL RAILROAD COMPANY.

'Whereas, This company has hitherto expended of its earnings for the purpose of constructing and equipping its road, and in the purchase of real estate and other properties, with a view to the increase of its traffic, moneys equal in amount to 80 per cent. of the capital stock of the company; and whereas, the several stockholders of the company are entitled to evidence of such expenditure, and to reimbursement of the same at some convenient future period; now, therefore,

'Resolved, That a certificate, signed by the president and treasurer of this company, be issued to the stockholders severally, declaring that such stockholder is entitled to 80 per cent. of the amount of the capital stock held by him, payable ratably with the other certificates issued under this resolution, at the option of the company, out of its future earnings, with dividends thereon, at the same rates and times as dividends shall be paid on shares of the capital stock of the company, and that such certificates may be, at the option of the company, convertible into stock of the company, whenever the company shall be authorized to increase its capital stock to an amount sufficient for such conversion.'

The certificates were in this form:

THE NEW YORK CENTRAL RAILROAD COMPANY.

No.

Interest Certificate.

Under a resolution of the board of directors of this company, passed December 19th, 1868, of which the above is a copy, the New York Central Railroad Company hereby certifies that A. B., being the holder of _____ shares of the capital stock of said company, is entitled to _____ dollars payable ratably with the other certificates issued under said resolution at the pleasure of the company out of its future earnings, with dividends thereon, at the same rates and times as dividends shall be paid upon the shares of the capital stock of said company.

This certificate may be transferred on the books of the company on the surrender of this certificate.

In witness whereof, the said company has caused this certificate to be signed by its president and treasurer, this 19th day of December, 1868.

________, President.

________, Treasurer.

At the foot of each certificate there was a form of transfer in blank:

For a valuable consideration I. A. B., do hereby sell, assign, and transfer all interest in the above certificate to C. D., and do hereby irrevocably appoint E. F. attorney, to execute a transfer thereof on the books of the railroad company therein mentioned.

The company declared two dividends of $921,440 each upon these interest certificates, payable respectively, February 20th and August 20th, 1869, which were duly returned to the United States assessor, who assessed a tax of $46,072 upon each of them, which tax the company paid. The company also declared two dividends of $1,151,800 each, upon its capital stock, payable, respectively, February 20th and August 20th, 1869, which were also duly returned to the United States assessor, who assessed a tax of $57,590 upon each of them, which tax also the company paid. At the times these dividends upon the interest certificates and upon the stock were returned to the United States assessor, no allegation was made by the officers of the government, that the returns of the said dividends were false, or, that as to them there was 'any understatement or undervaluation,' or, that there had been any neglect on the part of the company to make a return as to the issue of said interest certificates; or that the said returns should have included the interest certificates themselves as well as the dividends upon them.

At the time when these certificates were issued and taxes were paid, as for some years before, there existed in the State of New York a railroad company known as the Hudson River Railroad Company; a company having a road running from the city of New York to East Albany, and there connecting by ferry with the road of the New York Central Railroad Company, just above mentioned; the two making a line of transit from the city of New York to Buffalo.

On the 1st of November, 1869, somewhat less than a year after the 80 per cent. 'dividend of scrip' above mentioned was made by the New York Central Company, the two roads were consolidated, under a general act of the legislature of New York, into a new company by the name of 'The New York Central and Hudson River Railroad Company.'

The act under which the consolidation was made, enacts that it shall be lawful for any railroad company 'to merge and consolidate its capital stock, franchises, and property with the capital stock, franchises, and...