1 Biss. 461 | U.S. Circuit Court for the Northern District of Illnois | 1864
The 81st section of the act of July 1, 1802, provides that on and after that day “all dividends in scrip, or money, or sums of money thereafter declared due or payable to stockholders of any railroad company, as part of the earnings, profits or gains of said companies, shall be subject to and pay a duty of three per centum on the amount of all such * * * dividends whenever the same shall be paid; and said railroad companies or railroad corporations, or any person, or persons owning, possessing or having the care or management of any railroad company, or railroad corporation, are hereby authorized and required to deduct and withhold from all payments made to any person, persons or party, after the first day of July, as aforesaid, on account of any * * * dividends due and payable as aforesaid, the said duty or sum of three per centum.” 12 Stat. 469, 470. In conformity with the joint resolution of July 17, 1S62 [12 Stat. 627], the secretary of the treasury gave notice that the time mentioned in the foregoing section should be construed as referring to the first day of September, 1862.
It is insisted on the part of the government that the issuing of the certificates of stock in November, 1862, was a division among its stockholders of the profits and earnings of the road, or a dividend in scrip within the meaning of the law. There can be no doubt the assets, securities and mortgages held and owned by the plaintiff at the time of the passage of the law, and which were then in course of foreclosure and sale in.this court, were partly, acquired with the earnings and profits of the road; but they were laid out and invested in them — a large share prior to 1860, and all prior to July 1, 1862. These profits and earnings had then actually been disbursed for them and they were held as a part of the general property or assets of the company. When the company enforced its lien by a sale, the property and assets, in part purchased with the earnings of the road, did not produce the money which had been paid for them, but the company took in their place that part of the Peoria and Oquawka Railroad extending
We think in no just sense can this be considered as a dividend. It was not intended or treated as such by the company. It is true that it is not necessary the division should be of money, but the act clearly contemplates that when it is in scrip, it shall be of a'character to be paid, — and the payment of which can be deducted and withheld from the stockholders by the managers of the railroad, — and that it shall be due and payable. Apply these tests to this property and it will be seen the facts will not warrant the right claimed. Before the sale, it could be regarded only as a loan or purchase made; after, as a bona fide title acquired in the property by the company, — consequently by all the stockholders — and not as something due and payable to them. If heretofore it had been converted into money, or hereafter it ever shall be, and the amount divided among the stockholders, there might be now, or then, some apparent reason for the position taken. And if the company had had on hand at the time of the passage of the law a portion of its earnings, and afterwards purchased with them property which it converted into stock, there would be some force in urging that the company could not in that way avoid the payment of the taxi to the government. But the argument here is, that it is of no consequence what the actual value of the property was in November, 1862, or at the time of the advances, — though not one quarter of the money paid, — yet it must be regarded as a dividend for the whole, and it goes even further, and seeks to establish either that the property must be sold in whole or part to pay the tax, or that earnings on hand and not divided, or subsequently acquired, and for which, therefore, there might be a tax due, shall have an additional burden to the three per centum already imposed. It is plain that such a principle would reach every purchase made with its profits by a railway company in past years, either of real or personal property, added to the general stock, and any apportionment of stock so acquired, for which a certificate might be given after September 1, 1862, showing the amount of such purchase or apportionment, and the share of the stockholder in the same. A construction which leads to such consequences ought not to be given to this statute unless the language imperatively demands it. There is nothing in the scope or spirit of the law, or in its terms, to require such a construction. The true question must always be in these cases: Has there been a bona fide dividend in money or scrip paid to the stockholders, or has there been an attempt to cover up or conceal the payment of a dividend by some device or mere form? If there-has been, it may be conceded that the tax should be paid.
If in 1860 a man had bought an estate, or a mortgage on one, with a portion of his income for that year, he thereby added to his estate the value of the purchase. If he in that way increased his income for 1862, that would be taken into account in assessing it, but if he were then to foreclose the mortgage or perfect his title, that would only be consummating a right of property by enforcing an absolute lien. If he made sale of the property, would the proceeds become part of his income for that year, even though reinvested in another estate?
It is contended on the part of the plaintiff' that the law only refers to the earnings received after its passage, July 1, 1862. There is much force in the argument, particularly upon comparing the eightieth with the eighty-first section, the former of which declares-that, On and after a certain day, railroad managers shall be subject to, and pay a duty of three per centum on the gross amount of all receipts for the transportation of passengers; but it is not necessary for us to decide that question. We think, however, that there must be, in substance or in fact, after the 1st of September, 1862, a distribution of a dividend in money or scrip, made to the stockholders, and not the mere evidence given of a title in property, the right to which already existed. But it may be said that when there are earnings to be divided, the right to them exists before the division. That is-true, but it is also true that until actually divided, the managers of the railroad have control of them, and may appropriate them to the improvement or repairs of the road. It is the setting them apart as a dividend in money or scrip that makes the law operate-upon them so as to authorize the tax of three-per cent.
We think, therefore, under the circumstances of this case, these certificates of stock cannot be regarded as -a dividend declared due and payable to the stockholders in November, 1862. The company and the stockholders treated that part of the property acquired with these earnings as capital stock, and it cannot be at the same time stock added to the capital and a dividend.
At the argument, objection was made by the counsel of the government, though not pressed, that the court, ought not to interfere in this summary manner to prevent the collection of the revenue, and various authorities-were cited upon that point. We have not fully considered that question, and any temporary order that may be made will be regarded as leaving that open for future consideration. This, we understand, is the wish of the counsel, while at the same time desiring the opinion of the court on the merits of' the case. The plaintiff insists that a suit at law would be unavailing in consequence of the pecuniary irresponsibility of the collector,.
We are informed that the judges of the circuit court of the United States for the eastern district of Michigan, at the June term of the present year, have decided that the sureties of the collector were not liable for illegal collections. If this be so, and the collector himself is not able to respond in damages in an action at law, there would seem to be some ground for the application in this case. However this may be, or whether the distinction taken in some of the cases is sound, that courts of equity will interfere when the tax is illegal or the property not subject to the tax (Chicago, B. & Q. R. Co. v. Frary, 22 Ill. 34), and not in other cases, we need not now inquire. The question in this case has been examined because of the desire expressed by the counsel to that effect, on both sides. If necessary, the right of the court permanently to interfere and arrest the collection of this tax may be hereafter considered. It is proper to add that Judge Davis, to whom it has been submitted, entirely concurs in this opinion.