Department of Treasury of Indiana v. Jackson

• Decision Date: 22 October 1941
• Docket Number: 16608.
• Citation: 37 N.E.2d 31,110 Ind.App. 36
• Parties: DEPARTMENT OF TREASURY OF INDIANA v. JACKSON et al.
• Court: Indiana Appellate Court

37 N.E.2d 31

110 Ind.App. 36

DEPARTMENT OF TREASURY OF INDIANA v. JACKSON et al.

No. 16608.

Appellate Court of Indiana, in Banc.

October 22, 1941

Omer S. Jackson, Atty. Gen., and Jos. P. McNamara, Deputy Atty Gen., for appellant.

Jones Obenchain & Butler and Francis Jones, all of South Bend for appellees.

BLESSING Chief Judge.

This was an action by the appellees against the appellant to recover a sum of fifteen hundred and fourteen dollars and sixty-nine cents ($1514.69) previously paid by appellees as gross income taxes. The taxes paid by appellees include those assessed against the Building and Loan Association of South Bend for the year of 1935 and taxes assessed against the appellees' trustees for the last eleven months of 1936. The Tower Federal Savings and Loan Association joined in the complaint below for the sole purpose of consenting to the recapture of the taxes paid by appellees' trustees, and the controversy here concerns only the appellant and said appellees' trustees. The action was brought pursuant to the provision of the Acts of 1937, Ch. 117, § 14; § 64-2612 Burns' 1933 (Supp.);§ 15994, Baldwin's Statutes Supp 1937. All of the evidence was stipulated. The material facts as they appear from the record disclose that during the year of 1935, the Building and Loan Association of South Bend, Indiana, hereinafter referred to as the Association, operated on a restricted basis under the supervision of the Department of Financial Institutions of this state. In certain instances its accounts and notes receivable were obligations from persons who were not then able to pay the entire amounts owing by them, and also in certain instances the real estate before sold by the Association on land contracts could not then be sold at a price which would yield the total amount then due on the land contracts respectively.

On February 1, 1936, the Association was reorganized and federalized under the name of Tower Federal Savings and Loan Association, whereby certain acceptable assets of the old association were transferred to the Tower Federal Savings and Loan Association, and certain other assets were transferred to appellees' trustees under a certain trust indenture for the purpose of liquidation. Said trustees by reason of the assets transferred to them issued Participation Certificates to the stockholders of the old association in lieu of their stock. In the year of 1935 and before the reorganization, the Association then under the supervision of the Department of Financial Institutions of the State of Indiana, settled and compromised many loans secured by mortgages, in which the securing property had depreciated in value below the principal sum owing, and by reason of which the credit of the debtors was destroyed or materially impaired. During this period and in compromise and settlement of their indebtedness, certain debtors, in lieu of cash, surrendered stock which they held in said Association in full settlement and satisfaction of the indebtedness due said said Association including principal and interest. Such stock so surrendered was accepted at its par or face value and of the outstanding shares of stock received by it in compromises and settlements, the Association applied $55,795 in par value to interest due and the remainder in par value to the principal of said mortgage debts. The appellees' trustees followed the same plan and under like circumstances in 1936, and of the outstanding Participation Certificates received by them in lieu of cash in compromises and settlements of numerous items of indebtedness secured by mortgages they applied $60,012.65 in par value of said certificates so received to interest accruals on the respective compromised debts. However, in the process of bookkeeping, by both the Association and the trustees, in said instances of compromises and settlements the full amount of principal was credited to the debtor's account and the full amount of accrued interest was likewise credited to the debtor's account and if in a particular instance, a loss at par value was sustained it was elsewhere charged to a fund for contingent losses.

Appellant, Department of Treasury, demanded of the Building and Loan Association and the trustees, that they pay gross income tax on the entire amounts credited on their books to interest as a result of the transactions in the years of 1935 and 1936, wherein stock and participation certificates were accepted in lieu of cash at their par or face value. Taxes on such total amount of interest so credited at the rate of 1% were paid by appellees' trustees after written protests and objections had been overruled. Following the denial by appellant of a claim for a refund of the taxes so paid by said trustees this action was brought to recapture the taxes so paid. The demand for such taxes made by the appellant was based on the section of the Gross Income Tax Act, which provides that in case of building and loan associations the term "gross income" shall be deemed to be gross earnings. § 1(g) of Chapter 50, page 390, Acts 1933, Burns' 1933, § 64-2601(g), Sec. 15981, Baldwin's Ind.Stat.1934.

Upon the evidence submitted to it by stipulation the court found that appellees' trustees were entitled to recover the sum of $1,514.69 together with interest and costs, and that appellee Tower Federal Savings and Loan Association had no interest in said property and entered judgment accordingly. From this judgment appellant appealed assigning as error the overruling of its motion for a new trial, the specifications in said motion, and not waived in appellant's brief, being that the decision of the court is not sustained by sufficient evidence and is contrary to law, and also error of the court in admitting in evidence, over objection, Item 1 of the stipulation referred to as "Joint Exhibit B".

It appears from Item 1 of "Joint Exhibit B" that during the year of 1935 the market value of shares of stock of said Association was at no time in excess of 64 cents on the dollars, and the average market value during that year was 63.26 cents. It also appears that in the year of 1936 the market value of the Trust Participating Certificates, issued by appellees' trustees did not exceed 51 cents on the dollar, and the average market value for the year was 50.115 cents.

Item 1 of "Joint Exhibit B" also contains this language "Shares of stock in said Building and Loan Association and the Participating Certificates issued by said original trustees had an actual value substantially less than their face value." While the appellant admitted the truth of this statement and the correctness of the figures as to the market value of the said stock and certificates hereinbefore set out, under its reservation to object to the competency of the facts it objected to the above quoted language for the reason that it is not supported by the books and records of either the Building and Loan Association or by the books and records of the trustees. Appellant also objected to Item 1 of said exhibit and contended that the best evidence of the actual value were the books and records of...