John F. Jelke Co. v. Smietanka

• Decision Date: 09 December 1936
• Docket Number: No. 5735.,5735.
• Citation: 86 F.2d 470
• Parties: JOHN F. JELKE CO. v. SMIETANKA, Former Collector of Internal Revenue.
• Court: U.S. Court of Appeals — Seventh Circuit

86 F.2d 470 (1936)

JOHN F. JELKE CO. v. SMIETANKA, Former Collector of Internal Revenue.^*

No. 5735.

Circuit Court of Appeals, Seventh Circuit.

November 27, 1936.

Rehearing Denied December 9, 1936.

John E. Hughes, of Chicago, Ill., for appellant.

Robert H. Jackson, Sewall Key, and Joseph M. Jones, all of Washington, D. C., and Michael L. Igoe, of Chicago, Ill., for appellee.

Before SPARKS, Circuit Judge, and LINDLEY and BRIGGLE, District Judges.

LINDLEY, District Judge.

Appellant, having sued the collector to recover an overpayment of income taxes, appeals from the judgment of the District Court in favor of appellee.

Early in 1918 appellant filed its income tax return for 1917 showing a tax due for that year of $562,605.33, which appellant paid, together with an additional tax of $79,974.91 later assessed. On July 31, 1919, appellant filed a claim for refund for part of the taxes paid, asserting an overpayment. The Commissioner determined that appellant had overpaid his tax in 1917 in the sum of $89,364.92, signing the schedules of refund and credits on July 12, 1923. Of this amount $11,057.71 was credited by the Commissioner to additional taxes due for the years 1909 to 1916 and was not refunded. The amount thus credited, was, under the act of Congress, barred from collection at the time, and it is for this sum that the present suit was begun.

Some seven years after the decision of the Commissioner, in 1930, appellant wrote to the Commissioner asking for refund of the amount credited, which he now demands. The Commissioner wrote, finally, in reply on September 12, 1930, that the credits had been made more than six years before and that the time for action had expired. Thereupon on October 8, 1930, appellant filed this suit.

Section 3226 of the Revised Statutes, as amended by section 1113 (a) of the Revenue Act of 1926, c. 27, 44 Stat. 9, 116, provides that no suit shall be maintained for the recovery of taxes alleged to have been erroneously or illegally collected until a claim for refund shall have been filed with the Commissioner. The act further provides that "no such suit or proceeding shall be begun before the expiration of six months from the date of filing such claim unless the Commissioner renders a decision thereon within that time, nor after the expiration of five years from the date of the payment of such tax, penalty, or sum, unless such suit or proceeding is begun within two years after the disallowance of the part of such claim to which such suit or proceeding relates." The direct question presented, therefore, is whether a taxpayer may maintain an action against the collector to recover an overpayment for the year 1917 which in 1923 was credited to deficiencies for taxes for prior years, the collection for which was then barred, or more specifically whether, when the Commissioner determined in 1923 that there had been an overpayment but credited it to deficiencies then barred by the statute of limitations, such action amounted to a disallowance of the claim for refund so that an action to recover must be instituted within two years of that date.

Appellant contends, first, that this provision of the statute is in effect a limitation upon the remedy and that appellee, having filed no plea of the statute of limitations, the court was powerless to consider such defense.

Where the limitation is in the nature of a condition to plaintiff's cause of action, he must allege facts showing that his action is within the statutory period, the limitation going to the right of action itself as well as to the remedy. 37 C.J. 1200, 1201. This rule is applicable to actions against individuals as well as to actions against the government. This doctrine is well expressed in Mason-Heflin Coal Co. v. Currie, 270 Pa. 221, 113 A. 202, 203, where the court said: "There is a vital distinction between cases where the claim was originally enforceable by suit, but recovery thereof may or may not have been lost by a failure to bring it within the time prescribed by the statute of limitations; and those * * * where the claim never was enforceable unless the statutory requirements were observed. Under the former, the facts necessary to take the case out of the statute need not be set forth * * * under the latter, which are in effect proceedings for specific performance of the contract * * * they must be averred in order to show a recovery, may be had under the statute."

The Circuit Court of Appeals for the First Circuit in American R. Co. v. Coronas, 230 F. 545, 546, L.R.A.1916E, 1095, in discussing the right of action under the Federal Employers' Liability Act (45 U.S.C.A. §§ 51-59), said:

"The language of the act makes it plain that the right and correlative liability thereby established are conditional upon the bringing of the suit within two years from the day the cause of action accrued. The bringing of the action, therefore, within the specified time, is a condition to the exercise of the right, and, if the condition is not complied with, the parties stand, with respect to the wrongful act, as though the statute had not been enacted. The limitation relates, not merely to the remedy, but to the right. * * * And it was incumbent upon the plaintiff to allege and prove that his cause of action was brought within the time limited."

"In the internal-revenue branch, it the government has further prescribed that no such suit shall be brought until the remedy by appeal has been tried; and, if brought after this, it must be within six months after the decision on the appeal. We regard this as a condition on which alone the government consents to litigate the lawfulness of the original tax. * * * It is essential to the honor and orderly conduct of the government that its taxes should be promptly paid, and drawbacks speedily adjusted; and the rule prescribed in this class of cases is neither arbitrary nor unreasonable." Cheatham v. United States, 92 U.S. 85, 89, 23 L.Ed. 561.

In Phillips Co. v. Grand Trunk R. Co., 236 U.S. 662, 35 S.Ct. 444, 445, 59 L.Ed. 774, in discussing the provisions of the Hepburn Amendment (34 Stat. 584), that all complaints for the recovery of damages should be filed within two years from the time the cause of action accrues and not after, the court said: "It is argued, however, that under the Conformity Act 28 U.S.C.A. § 724 the case is to be governed by the Michigan practice, which does not permit a defendant to take advantage of the statute of limitations by a general demurrer to the declaration. But that rule does not apply to a cause of action arising under a statute which indicates its purpose to prevent suits on delayed claims, by the provision that all complaints for damages should be filed within two years, and not after."

Under such a statute the lapse of time not only bars the remedy but destroys the liability (Finn v. United States, 123 U.S. 227, 8 S.Ct. 82, 31 L.Ed. 128), whether complaint is filed with a commission or suit is brought in a court of competent jurisdiction.

In Retzer v. Wood, 109 U.S. 185, 3 S. Ct. 164, 27 L.Ed. 900, relied upon by appellant, the court did not deem the statute relied upon as one which imposed a condition...