Denholm & McKay Co. v. Commissioner of Int. Rev.

• Decision Date: 14 December 1942
• Docket Number: No. 3797.,3797.
• Citation: 132 F.2d 243
• Parties: DENHOLM & McKAY CO. v. COMMISSIONER OF INTERNAL REVENUE.
• Court: U.S. Court of Appeals — First Circuit

132 F.2d 243 (1942)

DENHOLM & McKAY CO. v. COMMISSIONER OF INTERNAL REVENUE.

No. 3797.

Circuit Court of Appeals, First Circuit.

December 14, 1942.

Howe P. Cochran, of Washington, D. C. (Margaret F. Luers, of Washington, D. C., on the brief), for petitioner for review.

Joseph M. Jones, Sp. Asst. to the Atty. Gen. (Samuel O. Clark, Jr., Asst. Atty. Gen., Sewall Key, Samuel H. Levy, and Arthur Manella, Sp. Assts. to the Atty. Gen., and J. P. Wenchel, Chief Counsel, Bureau of Internal Revenue, and John M. Morawski, Sp. Atty., Bureau of Internal Revenue, both of Washington, D. C., on the brief), for Commissioner.

Before MAGRUDER, MAHONEY, and WOODBURY, Circuit Judges.

MAGRUDER, Circuit Judge.

For present purposes, it stands conceded that Denholm & McKay Company, the taxpayer-petitioner herein, made an overpayment of income tax for its fiscal year ending January 31, 1935, in the sum of $821.37. In its attempt to obtain a refund, the taxpayer has run into a legal obstacle of a somewhat unusual nature, and one not covered by any decided case, so far as we can discover.

The case, in brief, is this: After hearing upon a petition for redetermination of a deficiency, the Board duly entered its decision to the effect that there was no deficiency and, in addition, that the taxpayer was entitled to a refund of an overpayment for the tax year in question. After the period of 30 days within which, by the then applicable rules of the Board,¹ a petition for rehearing might be filed, but before the expiration of the statutory period of three months allowed for the filing of a petition for review in this court,² the Commissioner filed before the Board a motion for reconsideration. The Board's docket entries disclose no action by the Board on this unseasonable motion until a date long after the expiration of the three months' period for court review, when the Board vacated its decision in the taxpayer's favor. Thereafter, it entered a new decision, 41 B.T.A. 986, determining that the overpayment was barred from allowance by the statute of limitations. The taxpayer now, in its petition to review the new decision, contends that the Board's earlier decision had become final and beyond the Board's power to reopen. We think that the taxpayer is right.

The taxpayer's income tax return for the year ending January 31, 1935, showed an amount due of $821.37. This sum was paid by the taxpayer on April 18, 1935. On June 24, 1937, the taxpayer duly filed before the Board its original petition for redetermination of the deficiency found by the Commissioner. This petition made no specific claim for a refund, though it contained a general prayer for "such other and further relief as the nature of this case may warrant." The Commissioner answered the petition. Thereafter, on May 7, 1938, the taxpayer filed an amended petition, which included a prayer for a refund based upon a point not theretofore brought into issue, namely, that the taxpayer in its return had omitted to claim an allowable deduction in respect to certain accrued taxes owing to the city of Worcester. The Commissioner's answer to the amended petition raised no question as to the statute of limitations.

The Board on April 14, 1939, handed down its opinion, 39 B.T.A. 767, in the taxpayer's favor on the petition and amended petition. On May 26, 1939, the Commissioner, pursuant to the Board's Rule 50, filed its computation conformable to the Board's opinion, showing a refund of $821.37 due to the taxpayer. Shortly thereafter, on June 5, 1939, the Commissioner filed a motion for leave to withdraw this computation. In this motion the Commissioner raised for the first time the contention that since the taxpayer's original petition did not claim any overpayment, and since the taxpayer's amended petition was filed more than three years after the date of the alleged overpayment, the said overpayment could not be allowed as a credit or refund under § 322(d) of the Revenue Act of 1934, as amended by § 809(a) of the Revenue Act of 1938.³ The Commissioner cited as authority on the point Commissioner v. Rieck, 3 Cir., 1939, 104 F.2d 294. A hearing was held on July 5, 1939, on this issue as to the statute of limitations. The Board member rejected the Commissioner's contention and entered a decision July 24, 1939, reciting: "That there is an overpayment in income tax for the fiscal year ended January 31, 1935, in the amount of $821.37, which was paid within less than three years before the filing of the original petition." If, as the taxpayer contends, this decision became final, the issue as to the statute of limitations is res judicata between the Commissioner and the taxpayer⁴, and it is the ministerial duty of the Commissioner to make the credit or refund, whether or not the case of Commissioner v. Rieck, supra, was correctly decided, as to which we intimate no opinion.

On September 8, 1939, more than 30 days after the date of the Board's decision, the Commissioner filed a "Motion to Vacate Decision and for Reconsideration," urging again the point that no credit or refund of the overpayment could be allowed because the taxpayer's amended petition was filed more than three years after the date of the alleged overpayment. The Board member entered an order on April 4, 1940, vacating the decision of July 24, 1939, the order reciting that the Commissioner's said motion "was duly entertained by the Board, action thereon being postponed pending action of the Supreme Court on application for writ of certiorari in the case of Rieck v. Helvering 3 Cir., 104 F.2d 294,⁵ and to await decision of the Circuit Court of Appeals for the Second Circuit in Commissioner v. Estate of George M. Dallas."⁶ Despite this recital, the Board's docket entries disclose no action by the Board by way of entertaining the Commissioner's motion for reconsideration prior to April 4, 1940, which was over eight months after the entry of the original decision.

Subsequently, the Board member handed down an opinion on April 30, 1940, 41 B.T. A. 986, which was reviewed by the Board, to the effect that the taxpayer's amended petition raising a new issue, "filed more than three years after the payment of the tax, does not relate back to the time of filing of the original petition for the purpose of applying section 322(d) of the Revenue Act * * *." On February 27, 1942, the decision now under review was entered ordering and deciding: "That there is an overpayment in income tax for the fiscal year ended January 31, 1935, in the sum of $821.37, which is barred from allowance under the opinion of the Board promulgated April 30, 1940."

Ordinarily, a court does not lose power to vacate a judgment merely upon the lapse of the statutory period during which an appeal may be taken. Wayne United Gas Co. v. Owens-Illinois Glass Co., 1937, 300 U.S. 131, 136, 57 S.Ct. 382, 81 L.Ed. 557. But in § 1005(a) of the Revenue Act of 1926, 44 Stat. 110, 111 (now Int.Rev.Code § 1140), Congress has set out in precise detail the dates on which decisions of the Board of Tax Appeals become final.⁷ As we pointed out in Sweet v. Commissioner, 1 Cir., 1941, 120 F.2d 77, 81, "final" as consistently used in this section of the revenue act "means that at the indicated point of time the decision of the Board must stand as rendered, without power in the Board or in the courts to modify it thereafter." Under § 1005(a) (1) the decision of the Board becomes final "Upon the expiration of the time allowed for filing a petition for review, if no such petition has been duly filed within such time." If the Board's decision of July 24, 1939 became final within three months after that decision was rendered, the Board was powerless to vacate it thereafter. J. S. Rippel & Co. v. Commissioner, 1937, 36 B.T.A. 789; Sweet v. Commissioner, supra.

Despite statutory provisions requiring appeals to be taken within a stated period "after the entry of the judgment" or "after the judgment is rendered" or words to the same effect, it has long been held that if a petition for rehearing is seasonably presented and entertained by the court, the time limited for appeal does not begin to run until the petition is disposed of. Brockett v. Brockett, 1844, 2 How. 238, 11 L.Ed. 251; Memphis v. Brown, 1876, 94 U.S. 715, 24 L.Ed. 244; Texas Pacific Ry. Co. v. Murphy, 1884, 111 U.S. 488, 4 S.Ct. 497, 28 L.Ed. 492; Aspen Mining & Smelting Co. v. Billings, 1893, 150 U.S. 31, 14 S.Ct. 4, 37 L.Ed. 986; Northern Pacific R. R. v. Holmes, 1894, 155 U.S. 137, 15 S.Ct. 28, 39 L.Ed. 99; Kingman & Co. v. Western Mfg. Co., 1898, 170 U.S. 675, 18 S.Ct. 786, 42 L.Ed. 1192; United States v. Ellicott, 1912, 223 U.S. 524, 32 S.Ct. 334, 56 L.Ed. 535; Chicago Great Western R. R. v. Basham, 1919, 249 U.S. 164, 39 S.Ct. 213, 63 L.Ed. 534; Citizens' Bank v. Opperman, 1919, 249 U.S. 448, 39 S.Ct. 330, 63 L.Ed. 701; Morse v. United States, 1926, 270 U.S. 151, 46 S. Ct. 241, 70 L.Ed. 518; Gypsy Oil Co. v. Escoe, 1927, 275 U.S. 498, 48 S.Ct. 112, 72 L.Ed. 393; United States v. Seminole Nation, 1937, 299 U.S. 417, 57 S.Ct. 283, 81 L.Ed. 316. The foregoing rule has been applied to timely petitions for rehearing filed in the Board of Tax Appeals; in such cases the period for filing a petition for court review does not begin to run until the Board has disposed of the petition for rehearing. Griffiths v. Commissioner, 7 Cir., 1931, 50 F.2d 782; Burnet v. Lexington Ice & Coal Co., 4 Cir., 1933, 62 F.2d 906; Helvering v. Continental Oil Co., 1933, 63 App.D.C. 5, 68 F.2d 750; Helvering v. Louis, 1935, 64 App.D.C. 263, 77 F.2d 386, 99 A.L.R. 620. The common explanation is that when such a timely petition for rehearing is filed, the judgment does not take final effect for the purposes of appeal until the petition is disposed of. Northern Pacific R. R. v. Holmes, supra, 155 U.S. at page 138, 15 S.Ct. 28, 39 L.Ed. 99; Kingman v. Western Mfg. Co., supra, 170 U.S. at page 678, 18 S.Ct. 786, 42 L.Ed. 1192; United States v....