Gotham Can Co. v. United States, J-255.

• Decision Date: 20 January 1930
• Docket Number: No. J-255.,J-255.
• Citation: 37 F.2d 793
• Parties: GOTHAM CAN CO. v. UNITED STATES.
• Court: U.S. Claims Court

37 F.2d 793 (1930)

GOTHAM CAN CO. v. UNITED STATES.

No. J-255.

Court of Claims.

January 20, 1930.

Theodore R. Benson, of Washington, D. C. (Joseph R. Little, of Washington, D. C., on the brief), for plaintiff.

George H. Foster, of Washington, D. C., and Herman J. Galloway, Asst. Atty. Gen., for the United States.

Before BOOTH, Chief Justice, and GREEN and GRAHAM, Judges.

GREEN, J.

This suit is brought to recover taxes alleged to have been illegally collected from the plaintiff. It appears without dispute that in April, 1919, the plaintiff made a return of its corporation income and profits tax for the year 1918 and paid taxes in accordance therewith. In September, 1922, the Commissioner of Internal Revenue assessed an additional tax against plaintiff for the year 1918 in the amount of $43,467.92, and on October 17, 1922, demanded payment thereof from the plaintiff. On October 27, 1922, plaintiff filed a claim for abatement of the taxes assessed for 1917 to 1920, inclusive, which claim included the amount of additional taxes assessed for the year 1918. Upon consideration of the claim for abatement, in April, 1924, the commissioner notified the plaintiff that this claim for abatement, in so far as it related to additional taxes for 1918, would be allowed in the sum of $7,346.74 and rejected in the amount of $36,121.18, for which amount, together with interest and penalty thereon amounting to $2,070.84, a total of $38,192.02, the commissioner made demand upon plaintiff on October 2, 1924, and with such demand stated that if payment thereof was not received in ten days, collection would be made by seizure and sale of property. Shortly thereafter, plaintiff paid the amount demanded and received credit therefor as shown in the Findings of Fact. On June 15, 1927, the plaintiff filed, in due form, a claim for refund of the sum so paid, which was rejected by the Commissioner of Internal Revenue.

The facts present a case in which a tax additional to that shown by the return of plaintiff was assessed within the proper time by the Commissioner of Internal Revenue. A claim of abatement was then filed by the plaintiff, which, after consideration, was, about a year and a half later, partially allowed by the commissioner, who, at the later date and after the statute of limitations had expired, made demand for the tax as finally determined, accompanied with the statement that unless the tax was received in ten days collection would be made by seizure and sale of the property. Plaintiff paid the tax in accordance with the demand, and about two years and eight months later filed a claim for refund of the taxes so paid, which claim was rejected by the commissioner.

The claim of the plaintiff is that the collection of the tax was prohibited by section 250 (d) of the Revenue Act of 1921 (42 Stat. 265), and was erroneous and illegal. On the part of defendant, it is urged that sections 607 and 611 of the act of 1928 (26 USCA §§ 2607, 2611) prevent any recovery on the part of the plaintiff.

The views of this court upon the questions involved, with one exception, are very fully expressed in the decision upon the similar case of Oak Worsted Mills v. United States (No. J-180) 36 F.(2d) 529, decided December 2, 1929, and we think it unnecessary to say anything more on the points therein determined than that we see no reason to change the conclusion set out in the opinion rendered therein.

In addition to the cases cited as supporting the opinion in the Oak Worsted Mills Case, supra, the recent case of Goodcell v. Graham & Foster (C. C. A.) 35 F.(2d) 586, 587, is directly in point and holds that by section 611 (26 USCA § 2611) "Congress evidently intended to cover cases where actual delay had resulted from the filing of a claim in abatement. The idea of a legal or compulsory or involuntary stay is neither expressed nor implied."

The one point which was not raised or decided in the Oak Worsted Mills Case relates to the construction of section 1106 (a) of the act of 1926 (repealed by the act of 1928). Section 612 of the act of 1928 (45 Stat. 875) reads as follows:

"Section 1106 (a) of the Revenue Act of 1926 is repealed as of February 26, 1926."

The act of 1928 was not approved until May 29, 1928. This case was begun May 4, 1928. Whether this repealing clause would affect an action which was begun before the 1928 act went into effect, we do not find it necessary to determine, for the reason that in our opinion section 1106 of the act of 1926 (44 Stat. 113) is of no benefit to plaintiff if held applicable. On the contrary, we think it clearly indicates the intention of Congress to provide that a suit cannot be maintained to recover taxes collected after the period of limitations has run, if the taxes so paid had originally been rightfully assessed.

Counsel quote from the section last above referred to as follows:

"The bar of the statute of limitations against the United States in respect of any internal-revenue tax shall not only operate to bar the remedy but shall extinguish the liability. * * *" It is contended on behalf of plaintiff that this provision created a vested right in plaintiff of which it could not be deprived without due process of law and without just compensation. There might be some basis for this argument if the provision of the law stopped with the language above set out, and at some later date or possibly by some provision in some other section of the same act a limitation was fixed upon the effect of the language quoted. But in construing a statute, part of a sentence cannot be lifted out and entirely separated from qualifying words contained in another clause thereof. It will be observed that the part of the statute quoted ends with a semicolon. The remainder of the sentence must be considered in connection with the portion set out above. It is as follows: "But no credit or refund in respect of such tax shall be allowed unless the taxpayer has overpaid the tax."

This is a qualifying clause. Manifestly the two clauses must be read and construed together, and in such a case as we have here the second clause is clearly a limitation on the effect of the first clause. The meaning is clear. By the first clause it was intended to extinguish the liability and prevent collection of any tax barred by the statute of limitations, but under the second clause of the section it was made clear that if the tax had been collected after the limitation period but prior to the passage of the revenue act of 1926, only the amount collected in excess of the correct tax for the year could be recovered. If it is not so construed, the words of the second clause are obviously of no use whatever in any case. No citations are needed to show that we should construe the words of the second clause so as to give some force and effect thereto if this can consistently be done, but it requires no straining of the language to construe section 1106 in the manner stated above. The language is specific and direct, that there shall be no refund unless the taxpayer has overpaid the tax. In other words, there was to be no refund where the taxpayer had paid only the tax which was originally due and owing notwithstanding the statute of limitations had run against the collection thereof. In this case, there being no evidence to the contrary, the presumption is that the tax was originally due and owing and that the taxpayer has not overpaid the tax. Section 1106 vested no right in the taxpayer who had not overpaid the tax. On the contrary, it specifically declared that no refund should be allowed him. The whole matter may be summed up by saying that the plaintiff was deprived of no vested right for the reason that the right which he claims never came into existence under the statute.

It should be kept in mind in considering cases of this nature that the right to bring a suit at all against the government is purely statutory, and that the right to recover back taxes wrongfully collected rests upon the same basis. The government may limit this right by statutory directions and refuse to refund the tax even where it is wrongfully collected, if application is not made in the manner provided by law, and may provide, as it has in this case, that an action shall not be maintained to a successful conclusion under certain circumstances. In this particular case, the matters necessary to maintain the action did not exist. The provision under discussion did not forbid suit being brought. It merely attached a...