Fajardo Sugar Co. v. Holcomb, No. 1938.

CourtU.S. Court of Appeals — First Circuit
Writing for the CourtBINGHAM, JOHNSON, and ANDERSON, Circuit
Citation16 F.2d 92
PartiesFAJARDO SUGAR CO. OF PORTO RICO v. HOLCOMB, Auditor.
Docket NumberNo. 1938.
Decision Date23 November 1926

16 F.2d 92 (1926)

FAJARDO SUGAR CO. OF PORTO RICO
v.
HOLCOMB, Auditor.

No. 1938.

Circuit Court of Appeals, First Circuit.

November 23, 1926.


16 F.2d 93

David A. Buckley, Jr., of New York City (O. B. Frazer, of San Juan, Porto Rico, on the brief), for appellant.

William C. Rigby, Lieutenant Colonel, Judge Advocate, of Washington, D. C. (George C. Butte, Atty. Gen., of Porto Rico, and Russell H. Brennan, of Washington, D. C., on the brief), for appellee.

Before BINGHAM, JOHNSON, and ANDERSON, Circuit Judges.

ANDERSON, Circuit Judge.

In the court below, after hearing, the bill was dismissed on the narrow ground of lack of the jurisdictional amount of $3,000.

On the merits, the gist of the case is whether the auditor of Porto Rico has, under section 20 of the Organic Act, 39 Stat. 951 (Comp. St. § 3803gg), power to revise and to reassess taxes already assessed (and in part paid), under the statutes enacted by the Porto Rican Legislature.

The plaintiff is a Porto Rican corporation carrying on a large sugar business. Pursuant to the Porto Rican statutes, No. 80 of 1919, as amended by No. 18 of 1920, and No. 43 of 1921, the sugar company filed with the treasurer of Porto Rico its income tax return for the year ending July 31, 1920. On this return, a tax of $540,337.44 was in due course assessed by the treasurer and paid by the sugar company. Subsequently the treasurer, after inspection and audit of the sugar company's books, levied and assessed an additional tax of $398,524.72. From this assessment, an appeal was duly taken to the board of equalization and review, which reduced the additional tax to $180,977.84. The appellant contends that under the tax statutes, supra, the decisions of the board of equalization and review are final; that at any rate the auditor has no power to revise such decisions.

In May, 1925, the auditor sent employees of his office to the office of the sugar company and demanded the right to examine the books and documents of the company for the years 1919 and 1920 in order to ascertain the correctness of the decisions of the board of equalization and review; and in June, 1925, the auditor caused to be served upon the sugar company's manager a summons duces tecum to produce in the auditor's office on June 26 the ledgers of the sugar company for 1919 and 1920, to be used in whole or in part as evidence in the matter of the company's income tax for 1920.

The purpose of the proceeding is accurately shown by the following letter of the auditor to the sugar company:

"June 19, 1925

"The undersigned, auditor of Porto Rico, being satisfied that the income tax returns submitted by you for the year 1920, and the final liquidation based thereon, made by the board of review and equalization, are unsound and incorrect, and the Governor of Porto Rico, being advised of this fact, the said Governor has requested the auditor of Porto Rico, and the auditor finds it necessary, to examine, audit, and settle the said accounts between you and the government of Porto Rico, and between the government of Porto Rico and the treasurer thereof.

"You are hereby notified that, in the execution of the said duty, the auditor will hold a hearing in his office in the city of San Juan, Porto Rico, on the 25th day of June beginning at 10 a. m.

"I respectfully ask your assistance and co-operation in order that the true facts may be ascertained, and you are invited to be present at said hearing, and submit any evidence, oral or written, that you may desire. You will understand, however, that this is not a lawsuit, but is an examination and audit, conducted by the auditor, in authority with section 20 of the Organic Act of 1917, and by direction of the Governor of Porto Rico.

"Given under my hand and seal of office, this 19th day of June, 1925.

"Respectfully "W. L. Kessinger "Auditor of Porto Rico."

The sugar company refused obedience to the summons, and on June 25, 1925, filed a bill in which it asks that the auditor and his employees be enjoined from "taking any evidence or making any investigation as to the amount of income taxes due or claimed from complainant for its fiscal year ended July 31, 1920, and from disregarding or attempting to evade the decision of the board of equalization and review fixing the amount of

16 F.2d 94
said taxes, and from auditing and settling or attempting to audit and settle the account of complainant with the people of Porto Rico for 1920 income taxes."

In his answer, the auditor contends that although, under the Porto Rican tax law above referred to, "the decisions of the board of review and equalization are by law final, said decisions cannot abridge or limit the authority of the auditor of Porto Rico, granted by the Organic Act of Porto Rico as to the investigation to be made in order to audit, examine or settle the accounts of the government in any of its departments," and that, as such auditor, "he is legally bound to examine, audit, and settle all accounts pertaining to the revenues and receipts of the government of Porto Rico from whatever source."

At the trial the auditor's position was stated by the Assistant Attorney General as follows:

"Our contention is twofold: One, that the auditor of Porto Rico has a right to audit the accounts of the treasurer; and, second, that the auditor of Porto Rico, as a consequence of that power that he has, has the right to revise any decision of the treasurer of Porto Rico."

This amounts to asserting that the auditor is a part — almost a dominant part — of the tax levying and collecting power.

While at the trial there was some controversy over the amount involved in the mere production of the books under the summons duces tecum, we are unable to adopt the view of the court below that the amount involved in the case could, either on the pleadings or on the evidence, be found to be less than $3,000. It is true that the company's general manager testified to the obvious fact that, if the auditor proceeded no farther than to require the company to produce in his office its ledgers for his examination, the expense to the company would be less than $3,000. But the fair construction of his testimony, as a whole, is consistent with the facts (manifest from the general situation), viz. that, if the company had to submit to a general investigation of its tax return and to a reaudit of its accounts, its expense therefor would far exceed $3,000, even if the auditor should, after such examination, make no attempt to change the tax already determined by the board of equalization and review.

But, apart from the amount of expense involved in the reaudit, the case falls under the doctrine illustrated in such cases as American R. R. Co. v. South Porto Rico Sugar Co. (C. C. A.) 293 F. 670; Berryman v. Whitman College, 222 U. S. 334, 32 S. Ct. 147, 56 L. Ed. 225; Bitterman v. Louisville, etc., R. R., 207 U. S. 205, 28 S. Ct. 91, 52 L. Ed. 171, 12 Ann. Cas. 693; Packard v. Banton, 264 U. S. 140, 44 S. Ct. 257, 68 L. Ed. 596. The right to have its taxes determined by the duly authorized tax officials involved much more than $3,000.

It was error to dismiss the bill on the ground that the jurisdictional amount was not shown.

2. Nor is there anything in the suggestion, rather faintly made, that the sugar company has a plain, adequate, and complete remedy at law. If right in its contention as to the auditor's lack of power to revise tax assessments, the sugar company is entitled to relief in equity. Greene v. Louisville, etc., R. R., 244 U. S. 499, 37 S. Ct. 673, 61 L. Ed. 1280, Ann. Cas. 1917E, 88; Ex parte Young, 209 U. S. 123, 28 S. Ct. 441, 52 L. Ed. 714, 13 L. R. A. (N. S.) 932, 14 Ann. Cas. 764; Camunas v. N. Y. & P. R. S. S. Co., 260 F. 41, 48, 49, 171 C. C. A. 76.

3. The gist of the auditor's...

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2 practice notes
  • Arocho v. People of Porto Rico, No. 2019.
    • United States
    • U.S. Court of Appeals — First Circuit
    • 23 Noviembre 1926
    ...subject, or they relate directly or indirectly to the main subject, and have a mutual connection with and are not foreign to the subject 16 F.2d 92 of such act, or when the provisions of the act are of the same nature and come legitimately under one subject." 25 R. C. L. "Since a statute ma......
  • Sancho v. Serralles, No. 3409.
    • United States
    • United States Courts of Appeals. United States Court of Appeals (1st Circuit)
    • 2 Agosto 1939
    ...on February 26, 1925, in accordance with the agreement of the parties. The Fajardo Sugar Company of Porto Rico v. Holcomb, Auditor, 1 Cir., 16 F.2d 92. This action of the Treasurer on that date changed the identity of the sum of $24,367.43. It had ceased to be a "1924 refund" and it became ......
2 cases
  • Arocho v. People of Porto Rico, No. 2019.
    • United States
    • U.S. Court of Appeals — First Circuit
    • 23 Noviembre 1926
    ...subject, or they relate directly or indirectly to the main subject, and have a mutual connection with and are not foreign to the subject 16 F.2d 92 of such act, or when the provisions of the act are of the same nature and come legitimately under one subject." 25 R. C. L. "Since a statute ma......
  • Sancho v. Serralles, No. 3409.
    • United States
    • United States Courts of Appeals. United States Court of Appeals (1st Circuit)
    • 2 Agosto 1939
    ...on February 26, 1925, in accordance with the agreement of the parties. The Fajardo Sugar Company of Porto Rico v. Holcomb, Auditor, 1 Cir., 16 F.2d 92. This action of the Treasurer on that date changed the identity of the sum of $24,367.43. It had ceased to be a "1924 refund" and it became ......

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