United States v. Boston

• Citation: 73 L.Ed. 929,279 U.S. 732,49 S.Ct. 505
• Parties: UNITED STATES v. BOSTON & M. R. R. Re
• Decision Date: 03 June 1929
• Court: United States Supreme Court

279 U.S. 732

49 S.Ct. 505

73 L.Ed. 929

UNITED STATES

v BOSTON & M. R. R. Reargued April 15, 1929. Decided June 3, 1929.

No. 129.

The Attorney General, for the United States.

Mr. James S. Y. Ivins, of Washington, D. C., for Boston & M. R. Co.

Mr. Chief Justice TAFT delivered the opinion of the Court.

As indicated in Old Colony Trust Co. v. Commissioner of Internal Revenue, No. 130, 279 U. S. 716, 49 S. Ct. 499, 73 L. Ed. —, just decided, this case comes here by certificate from the Circuit Court of Appeals for the First Circuit and on the following statement:

'This action is brought by the Boston & Maine Railroad to recover income taxes for the year 1917, claimed to have been erroneously collected. In the District Court (for the District of Massachusetts) the plaintiff recovered a judgment for the full amount of its demand-$3,920.55 and interest.

'June 30, 1900, the Fitchburg Railroad Company leased all its railroad and property of every description to the Boston & Maine Railroad for the term of ninety-nine years. In the lease the lessee covenanted to pay specified rentals, to maintain and replace the leased properties in manner indicated, to pay all operating expenses, and to pay 'all taxes of every description, Federal, State, and municipal, upon the lessor's property, business, indebtedness, income, franchises, or capital stock, or said rental,' and to pay divers other charges. In 1918 an income-tax return, under the provisions of the Revenue Acts of 1916 (39 Stat. 756) and 1917 (39 Stat. 1000), was filed on behalf of the Fitchburg Railroad Company for the calendar year 1917, upon which taxes amounting to $61,422.06 were assessed. These taxes were paid to the Commissioner of Internal Revenue by the Boston & Maine Railroad pursuant to the term of the lease. The Fitchburg Railroad Company was consolidated with the Boston & Maine Railroad in 1919.

'In 1921 the Commissioner of Internal Revenue assessed an additional income tax against the Fitchburg Railroad Company of $3,920.55. In doing this he treated the payment of $61,422.06 made by the Boston & Maine Railroad to the collector of internal revenue as additional taxable income to the Fitchburg Railroad Company to the extent of $65,342.61. This additional tax of $3,920.55 was paid to the collector of internal revenue by the Boston & Maine Railroad in July, 1921.

'The claim for refund of this additional tax was duly filed with the Commissioner of Internal Revenue, but was never formally acted upon, and more than six months having elapsed after it was filed, this action was brought for the recovery of the tax so paid (under par. 20, Section 24 of the Judicial Code, as amended by Sec. 1310(c), c. 136, 42 Stat. 310; 28 USCA § 41(20)).'

The judgment of the District Court was appealed to the Circuit Court of Appeals for the First Circuit, and, upon the facts recited, and under section 239 of the Judicial Code, as amended by the Act of February 13, 1925, c. 229, 43 Stat. 936, 938 (28 USCA § 346), the Court of Appeals has asked the instruction of the Supreme Court upon the following question:

'Did the payment by the lessee of the net income taxes assessable against the lessor constitute additional taxable income to such lessor?'

The merits of this case must be disposed of in accord with the rule already laid down in the Old Colony Case just decided. Like that, it is one in which the lessee has paid to the government the taxes due under the law from the lessor. The payment is made in accord with the contract of lease, and is merely a short cut whereby that which the lessee specifically agreed to pay as part of the rental effects that payment by discharging the obligation of the lessor to pay the tax to the government.

Our conclusion is in accordance with the practice of the Department. Treasury Decision 2620 (19 Treas. Dec. 411). In answer to a question suggested by this Court, the Commissioner states in the appendix to the government's brief on reargument in No. 130 that it has been the uniform practice to treat taxes paid, where by agreement between the parties the tax laid upon the income actually received by one of them has been paid by the other, as income of the taxpayer whose liability has thus been discharged. He refers to the decision of the Circuit Court of Appeals for the First Circuit in the case of West End Railway Co. v. Malley, 246 F. 625, where the dividends paid by a lessee corporation directly to the...