Sirian Lamp Co. v. Manning

• Decision Date: 17 November 1941
• Docket Number: No. 7753.,7753.
• Citation: 123 F.2d 776
• Parties: SIRIAN LAMP CO. v. MANNING, Collector of Internal Revenue.
• Court: U.S. Court of Appeals — Third Circuit

123 F.2d 776 (1941)

SIRIAN LAMP CO. v. MANNING, Collector of Internal Revenue.

No. 7753.

Circuit Court of Appeals, Third Circuit.

Argued October 9, 1941.

Decided November 17, 1941.

Howe P. Cochran, of Washington, D. C., for appellant.

Carl J. Marold, of Washington, D. C., for appellee.

Before MARIS, JONES, and GOODRICH, Circuit Judges.

MARIS, Circuit Judge.

The plaintiff filed its income tax return for 1929 and paid the tax shown thereon to be due. In 1934 the Commissioner of Internal Revenue assessed a deficiency of $7,534.14, which together with interest to August, 1934, amounted to $10,959. On July 19, 1938, the plaintiff paid the defendant, the collector of internal revenue, the sum of $1,150 on account of this deficiency tax. The following day, on July 20, 1938, the plaintiff filed with the Commissioner a claim for the refund of the amount so paid. This claim was rejected on November 21, 1938. On January 10, 1939, the plaintiff brought suit against the collector in the District Court for the District of New Jersey to recover the sum thus paid. It alleged that the deficiency assessment was erroneous because the Commissioner had included as taxable income an item which was a capital asset and because the plaintiff had not received notice of the assessment as required by Section 272(a) of the Internal Revenue Act of 1928. 26 U.S.C.A. Int.Rev.Code, § 272(a). Upon motion the district court dismissed the complaint as premature. It held that the entire tax assessed as a deficiency must be paid as a condition precedent to a suit for the recovery of any part thereof. 36 F.Supp. 539. This appeal followed.

We think the court did have jurisdiction and that it was error to dismiss the complaint. In paragraph 4 of the complaint the plaintiff avers that the suit arises, inter alia, under the Revenue Act of 1928. The cause of action is, therefore, one over which the district court has jurisdiction since it arises under the internal revenue laws of the United States.¹ In paragraph 3 the plaintiff avers that the suit is to recover $1,150 illegally collected by the defendant and unlawfully retained by him. This is a cause of action, quasi contractual in character, which was well known at common law. Stone v. White, 301 U.S. 532, 534, 57 S.Ct. 851, 81 L.Ed. 1265.

The defendant takes the position that the right of the plaintiff to sue him is derived from Section 3226, Revised Statutes, as amended by Section 1103(a) of the Revenue Act of 1932, 26 U.S.C.A. Int.Rev.Acts, p. 652,² and that when this section refers to recovery of a "tax" it limits the meaning of "tax" to the entire amount assessed by the Commissioner. It is clear, however, that the statute referred to is not the source of the plaintiff's right to bring suit against the collector. On the contrary that right had its source in the common law. City of Philadelphia v. The Collector, 72 U.S. 720, 5 Wall. 720, 18 L.Ed. 614; Lowe Bros. Co. v. United States, 304 U.S. 302, 306, 58 S.Ct. 896, 82 L.Ed. 1362. The appropriate action at common law was in assumpsit, for money had and received. The theory upon which recovery was allowed was that the retention of the moneys received would result in the unjust enrichment of the defendant. Stone v. White, 301 U.S. 532, 534, 57 S. Ct. 851, 81 L.Ed. 1265. If a tax assessment is erroneous, unjust enrichment results whether the defendant has received moneys sufficient to pay the entire tax assessed or only a portion of it. The important factor is that the retention of the money would be unjust because there was no tax legally due. The common law liability of the collector to refund the money thus unjustly retained is still enforced and the action remains as a personal one against him. Smietanka v. Indiana Steel Co., 257 U.S. 1, 42 S.Ct. 1, 66 L.Ed. 99. The effect of section 3226 is merely to require a preliminary unsuccessful appeal to the Commissioner of Internal Revenue as a condition precedent to the enforcement of the common law liability, (Sage v. United States, 250 U.S. 33, 36, 37, 39 S.Ct. 415, 63 L.Ed. 828), to eliminate the common law requirement that the payment sought to be recovered back must have been made under protest or duress, and to prescribe a period of limitation within which the suit must be brought. It is true that the section has an additional purpose in the case of a suit against the United States,³ but that purpose does not concern us here.

The district court's conclusion that the complaint was premature was based upon the assumption that if litigation concerning any part of the deficiency tax were pending in the courts collection of the sum remaining due would necessarily be held in abeyance and that thus the prosecution of such litigation amounted in effect to an injunction against the collection of the balance of the tax and came within the prohibition of Section 3224 of the Revised Statutes.⁴ We see no basis, however, for the assumption that a suit for the recovery of a portion of a tax will necessarily prevent collection of the remainder while it is pending. It is true that there is a statutory provision (subparagraph (a) of Section 272 of the Internal Revenue Code) to the effect that when a petition is filed with the Board of Tax Appeals to redetermine a tax deficiency no distraint or proceeding in court for its collection shall be made, begun or prosecuted until the decision of the Board has become final. If, however, no petition has been filed subparagraph (c) of Section 272 of the Internal Revenue Code provides that "the deficiency * * * shall be assessed, and shall be paid upon notice and demand from the collector." This statute makes no...