Carney v. Crocker, 3303.

• Decision Date: 15 February 1938
• Docket Number: No. 3303.,3303.
• Citation: 94 F.2d 914
• Parties: CARNEY v. CROCKER et al.
• Court: U.S. Court of Appeals — First Circuit

94 F.2d 914 (1938)

CARNEY v. CROCKER et al.

No. 3303.

Circuit Court of Appeals, First Circuit.

February 15, 1938.

L. W. Post, Sp. Asst. to Atty. Gen. (James W. Morris, Asst. Atty. Gen., and Sewall Key, Sp. Asst. to Atty. Gen., and Francis J. W. Ford, U. S. Atty., and Arthur L. Murray, Sp. Asst. to U. S. Atty., both of Boston, Mass., on the brief), for appellant.

Lawrence E. Green, of Boston, Mass. (Raymond B. Roberts and Hale & Dorr, all of Boston, Mass., on the brief), for appellees.

Before BINGHAM, WILSON, and MORTON, Circuit Judges.

BINGHAM, Circuit Judge.

This is an appeal from a judgment of the federal District Court for Massachusetts in favor of the plaintiffs in the sum of $4,605, together with interest ($829.67) from June 20, 1934. The action is one at law to recover an excise tax, assessed and collected under section 213(a) of the National Industrial Recovery Act of 1933, 48 Stat. 206, on the ground that it was illegally assessed, that section 213(a) is not applicable to this case as the dividend upon which the tax was assessed was declared prior to June 16, 1933, the date on which the tax statute became operative.

It appears that the plaintiffs are citizens of Massachusetts and trustees of the Crocker, Burbank & Co. Association, a Massachusetts trust created March 29, 1912; that the defendant, Carney, is and at all times here in question has been the duly qualified collector of internal revenue for the district of Massachusetts; that, on June 28, 1933, the plaintiffs filed a return for the association showing no tax liability under the provisions of section 213, for the alleged reason that the dividend had been declared prior to June 16, 1933, the effective date of the act; that, on June 5, 1934, the Commissioner notified the plaintiffs to file an amended return for the month of June, 1933, and to include therein as subject to tax the dividend amounting to $92,100 declared March 24, 1933, and paid June 29, 1933; that on June 20, 1934, the plaintiffs filed an amended return as required and paid a tax amounting to $4,605; that on October 5, 1934, the plaintiffs, in behalf of the association, filed a claim for refund of the tax as an illegal assessment on the dividend; and that the Commissioner rejected the claim December 31, 1935, whereupon this suit was brought.

The association in question is now and at all times here material has been known as the Crocker, Burbank & Co. Association. The seven plaintiffs are its trustees or directors. By the terms of the declaration of trust, property was conveyed to the trustees to hold for the following purposes, among others:

"3. In trust to collect and receive all rents and income from the property, and semi-annually or oftener at their convenience, to distribute such portion thereof as they may, in their discretion, determine to be fairly distributable net income, to and among the several cestui que trusts shareholders according to their respective fractional interests. * * *"

On March 24, 1933, the plaintiffs, as trustees of the association, adopted the following resolution:

"Resolved that a distribution of One Dollar ($1.00) per share be paid on June 29, 1933, to Shareholders of record June 22nd, 1933, subject to the approval of the President and Treasurer and Assistant Treasurers."

At the time of the adoption of this resolution, the board of trustees, the directors of the association, consisted of six members, and of seven at the time this suit was brought. Charles T. Crocker, its president and treasurer, and Barton Crocker and C. T. Crocker, 3d, its assistant treasurers, were its officers.

It was found by the District Court that, prior to June 16, 1933 (on or about April 25, 1933), the president, treasurer, and assistant treasurers of the association met and discussed its financial condition, the advisability of approving the making of a distribution in accordance with the resolution adopted by the trustees, and informally approved the resolution; that the trustees owned more than 50 per cent. of the shares of the association, and that the informal approval of the resolution of March 24, 1933, by the above-named officers became known to the trustees, who held a little more than a majority of its shares, but that no record of the approval of the resolution was made by the officers or by the trustees on the records of the association; that the officers made no minutes of the meeting and took no formal action indicating their approval. The court made no finding and there was no evidence to support a finding that the informal approval of the officers was known or made known to shareholders other than the trustees, the directors, who voted the resolution, and who held a majority of the shares of the association. The association at the time of the adoption of the resolution and of the informal approval, had on hand adequate funds to warrant the dividend, but no funds were set aside to meet it.

On June 29, 1933, the association paid $92,100 to its shareholders in accordance with their share holdings and pursuant to the resolution. This suit is to recover the tax of $4,605 so paid, with interest from the date of payment.

Section 213(a) of the National Industrial Recovery Act, c. 90, 48 Stat. 195, 206, reads:

"Sec. 213. (a) There is hereby imposed upon the receipt of dividends (required to be included in the gross income of the recipient under the provisions of the Revenue Act of 1932) by any person other than a domestic corporation, an excise tax equal to 5 per centum of the amount thereof, such tax to be deducted and withheld from such dividends by the payor corporation. The tax imposed by ...