Pennsylvania Steel Co. v. New York City R. Co.

• Decision Date: 18 July 1912
• Docket Number: 242.,241
• Citation: 198 F. 774
• Parties: PENNSYLVANIA STEEL CO. et al. v. NEW YORK CITY RY. CO. et al. CENTRAL TRUST CO. OF NEW YORK v. THIRD AVENUE R. CO. et al.
• Court: U.S. Court of Appeals — Second Circuit

198 F. 774

PENNSYLVANIA STEEL CO. et al. v. NEW YORK CITY RY. CO. et al.

CENTRAL TRUST CO. OF NEW YORK v. THIRD AVENUE R. CO. et al.

Nos. 241, 242.

United States Court of Appeals, Second Circuit.

July 18, 1912

Appeals from the District Court of the United States for the Southern District of New York.

Henry A. Wise, U.S. Atty., and Addison S. Pratt and John N. Boyle Asst. U.S. Attys.

Evarts Choate & Sherman and Herbert J. Bickford, for Whitridge receiver.

Masten & Nichols (Arthur H. Masten and Ellis W. Leavenworth, of counsel), for Joline and Robinson, receivers.

Before COXE, WARD, and NOYES, Circuit Judges.

COXE Circuit Judge.

The facts are undisputed. The question is one of law, and may be epitomized as follows: Are receivers of an insolvent corporation, duly appointed by a court of equity, which corporation was not engaged in business when the taxing act was passed and has done no business since, required to make returns and pay taxes upon the income realized by them while acting as officers of the court and under its direction?

Section 38, so far as it is applicable to the present controversy, provides that every corporation organized for profit and having a capital stock represented by shares, shall be subject to pay annually a special excise tax, with respect to the carrying on or doing business by such corporation, equivalent to one per centum upon the entire net income, over and above five thousand dollars, received by it from all sources during such year, exclusive of amounts received by it as dividends upon stock of other corporations, joint stock companies or associations or insurance companies, subject to the tax hereby imposed.

The act further provides that a true and accurate return under oath or affirmation of its president, vice president, or other principal officer, and its treasurer or assistant treasurer, shall be made by the corporation to the collector for the district in which such corporation has its principal place of business, setting forth the amount of its paid-up capital stock, the amount of its bonded and other indebtedness, the gross amount of its income received during the year from all sources, the amount received by way of dividends, the total amount of all ordinary and necessary expenses actually paid out of earnings in the maintenance and operation of the business and the total amount of all losses actually sustained during the year. The act also provides for an accurate return of the interest paid during the year on the bonded and other indebtedness of the corporation, the amount paid by it for taxes and its net income after making the deductions authorized by the act.

The act in question, levying, as it does, a tax upon the citizen, must be strictly construed; it cannot be enlarged by construction to cover matters not clearly within its purport. The question is not what Congress might have done or should have done, but what it actually did do. When this is ascertained the duty of the court is accomplished. We are of the opinion that the act is inapplicable to receivers for the following reasons:

First.-- The taxation of business done and income received by receivers is not contemplated by the act, receivers are not mentioned. This omission cannot be attributed to inadvertence. The lawmakers unquestionably understood the situation; they knew that corporations frequently become bankrupt and are placed in the hands of receivers and yet no provision in the act relates to this contingency. It is not improbable that the intention was to avoid the decision of the Supreme Court in the Pollock Case by confining the tax strictly to the doing of business in a corporate capacity.

Whatever the reason may have been, the fact remains that the doing of business by receivers in their representative capacity, as officers of the court, is not taxed by the act and no provision is made therein for the ascertainment and collection of such a tax.

Second.-- There can be no doubt that the special excise tax provided for by the act is imposed as a tax upon doing business in a corporate capacity. In other words, if an enterprise be carried on through the instrumentality of a corporation, it must pay for the privilege. We so understand the decision of the Supreme Court upholding the act in question in Flint v. Stone Tracy Co., 220 U.S. 107, 31 Sup.Ct. 342, 55 L.Ed. 389, Ann. Cas. 1912B, 1312. The court says:

'The tax is imposed not upon the franchises of the corporation irrespective of their use in business, nor upon the property of the corporation, but upon the doing of corporate or insurance business and with respect to the carrying on thereof. * * *

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