The plaintiff brings his action against the defendant to recover a sum of money paid by him to the defendant under coercion, as part of a tax assessed ag’ainst him by the district assessor under the internal-revenue acts of the United States, and which the plaintiff claimed was illegally assessed.
There is upon the record a finding of facts by the court, and the usual reservation of the questions of law, and of “ what judgment ought to be rendered in the case,” for our opinion and advice.
It appears from the finding that at the time of the payment of the money to the defendant he was a legal collector of the internal revenue of the United States and had a right to collect the sum in dispute if the same was legally assessed against the plaintiff. The principal question involved relates to the legality of the assessment, but there are preliminary questions also, and others reaching to the jurisdiction of the court.
I. The defendant objects to the recovery by the plaintiff because the payment was voluntary. This claim cannot be sustained. The unwilling payment of an illegal tax to a collector, to avoid the seizure and sale of property, is not a voluntary payment. It clearly appears in this case from the finding that the payment was made unwillingly, for it was under protest, and that the seizure and sale of property was imminent, for the officer threatened to levy if payment was
2. The parties are at issue in respect to the rule of construction which should be applied to the act under which the assessment is made. We have no difficulty as to the rule applicable in such cases.
A law imposing a tax is not to be construed strictly because it takes money or property in invitum, (although its provisions are for that reason to be strictly executed,) for it is taken as a share of a necessary public burden; nor liberally, like laws intended to effect directly some great public object; but fairly for the government and justly for ihe citizen ; and so as to carry out the intention of the legislature, gathered from the language used, read in connection with the general purpose of the law, and the nature of the property on which the tax is imposed, and of the legal relation of the tax-payer to it.
3. We come then to the application of this rule to the provisions of law under which the assessment was made, and the application of those provisions correctly construed to the facts as found by the court, in order to determine the legality or illegality of the assessment in question.
Referring to the 116th and 117th sections of the act of 1864, under which the assessment was made, we find the general object and purpose of those sections was to collect, as a tax, of the various classes of persons named, a percentage on their respective incomes, and that the clause which is applicable to this case is as follows: “And also all income or gains derived from the purchase and sale of stocks or other property real or personal, and the increased value of live stock whether sold or on hand, and the amount of sugar, wool, butter, cheese, pork, beef, mutton or other meats, hay and grain or other vegetable or other productions of the estate of such person," sold, not including any part thereof unsold or on hand during the year next preceding the 31st of
The clause has received a judicial construction in this federal district. In 1865 the assessor for the first collection district of Connecticut applied to Judge Shipman for an attachment under the 14th section of the act of 1864, to compel one Layvson O. Ives to disclose and add to his list of gains and income the amount of undivided profits of the Willimautic Linen Company to which he was entitled as a stockholder, and which had been used by. the company in extending their works and business, and in good faith. The judge on a full hearing dismissed the application, and assigned therefor, in substance, with other reasons, the following:
First, that the answer to the questions involved in the case must depend upon the construction of the clause in the act on which this case must also turn, and that in fixing that construction, reference must be had to the object Congress had in view, and to the settled principles of law applicable to the relations subsisting between corporations and their stockholders.
Second, that the object of Congress in the 116th to the 123d sections of the revenue act inclusive, was to raise a revenue out of the gains or profits, exceeding six hundred dollars, coming into the hands of individuals, and that they could not be taxed upon any gains or profits earned by a corporation, simply because they were stockholders; for if such had been the intention of Congress they would presumptively have said so : whereas all they had said was that if gains or profits were made they should be taxable if the stockholder was “ entitled to the same.”
Third, that the inquiry, what gains and profits an individual stockholder was entitled to, in any particular year, was answered by the settled rules of law, and the answer was,
That decision was made by a judge of acknowledged ability, and Congress seems to have recognized its correctness by altering, soon thereafter, the phraseology of the law, to meet such a case. It has been assailed, but not effectively, in the argument. And it covers this case. Although not a controlling authority, it is a persuasive one, and we should be disposed to yield to it if the facts in this case were the same.
But the facts as found by the court below are materially variant and stronger. The annual balance sheet was made up, in this case as in that, and in good faith, and the profits of the year ascertained. In that case they were not divided, but in-this case they were, and the share of the plaintiff correctly returned to the assessor by the plaintiff in his list. It would certainly seem at first blush as if the requirements of
It may be admitted that' it was proper that the assessor should go behind the balance sheet, to see if by fraudulent undervaluation of the assets, or fraudulent exaggeration of the liabilities, the actual net gains and profits were to any extent concealed. But he obviously could not go behind the sheet to tax the gross amount of the earnings, or any special part of them, at his pleasure. In this case the assessor did go behind the sheet. He did not find any undervaluation in the assets, nor anything indicating an intention to defraud the government, but he found four items of expenditure charged in the accounts, a proportionate share of which he claimed should be charged to the plaintiff as income. The facts, in relation to” this, are thus briefly stated by the court.
“ The profits made by said corporations during said year, were to such an amount that if the interest of the plaintiff therein was legally subject to said assessment, the amount of $1,597 was the proper amount of such assessment.
' “ From timé to time during said year, and without any intention to defraud the government, unless the investment hereinafter named constituted such fraud by implication of law, said corporations invested said profits in part in real estate, machinery, and raw material, proper fo,r carrying on their business, and in part for the payment of debts incurred in previous years, and the same remained so invested at the time of such assessment and collection.”
Considered by themselves the first and second paragraphs above might, seem to import a finding of profits which should have been divided, but those paragraphs are introductory to and are qualified by the later one, which furnishes a full' explanation of the transaction. From this paragraph it appears that the term “ profits, ” previously used, was used to denote earnings, and not net profits; and so the term “ invested” in the last paragraph, is synonymous with “ expended ”• or “ used, ” for it is employed to describe an expenditure of earnings in a business, for the purchase of raw material and machinery and the payment of debts, and not a permanent location of funds by way of investment for the purpose of rental or income. .
A man cannot be said to invest as for rental or income when he purchases material for carrying on his business, or expends his money in the payment of his debts.
There can be no implication of bad faith, or intent to defraud the government, in this case, for in the first place, the law was not approved until the 30th of June, 1864, and it appears from the finding that the expenditures were made from time to time during the year and of course a part of them, and for aught that appears the principal part, before the law existed. Clearly there can be no implication of an intent to act in fraud of the law when there was no such law in existence.
In the second place, it is found that the purchases were all of articles proper for carrying on the business of the company, or for the payment of debts, and it is not found that materials or machinery were purchased in unusual or unnecessary quantites or to extend the works or business.
In the third place, it is utterly absurd to say that the payment of the debts of the corporation will justify aii implication of fraud against the government, or the assessment of a share of the money so paid as income to which the plaintiff was entitled. The assessment of that share of the earnings seems to us utterly indefensible upon any rule of construction or view of the law which can possibly be taken ; and as it constitutes an indistinguishable and inseparable part and proportion of the entire assessment, it renders the whole illegal, whatever may be said in relation to the other items composing it.
Butin the fourth place, there is a broader view to be taken
These considerations satisfy us that the assessment was illegal.
The defendant further insists that this suit is barred by
That act took effect August 1st, 1866, and at that time there was an action pending in the Circuit Court for the district of Connecticut, instituted by the plaintiff at the previous April term, for the recovery of the same money which is sought to be recovered in this action. That action was dismissed by the Circuit Court, at its June term, 1867, pursuant to the provisions of the section referred to. The plaintiff thereafter, on the 20th of August, 1867, instituted this suit in the Superior Court..
The defendant claims that this suit is barred by the act referred to, because no appeal was taken to the commissioner of the internal revenue before bringing the action, pursuant to the 19th section aforesaid.
The provision of the section referred to is as follows: “ That no suit shall be maintained in any court for the recovery of any tax alleged to have been erroneously or illegally assessed or collected, until appeal shall have been duly made to the commissioner of internal revenue, according to the provisions of law in that regard, and the regulations of the Secretary of the Treasury established in pursuance thereof, and a decision of said commissioner shall be had thereon, unless such suit shall be brought within six months from the time of said decision or within six months from the time this act takes effect.”
The provision in relation to the appeal to the commissioner of internal revenue, referred to in the foregoing clause, so far as the same is applicable and material is as follows: “ That the commissioner of internal revenue, subject to regulations prescribed by the Secretary of the Treasury, shall be, and is hereby authorized, on appeal to him made, to remit, refund and pay back all taxes, erroneously or illegally assessed or collected, all penalties collected without authority, and all taxes that shall appear to be unjustly assessed or excessive in amount, or in any manner wrongfully collected.”
The last section does not appear upon its face to confer upon the commissioner of internal revenue any authority to
Now the claim of the defendant is, that if the plaintiff had a right of action against the defendant for wrongfully taking his money by the coercion of an illegal assessment, that right was barred by his simple failure to make an application to the commissioner of internal revenue to have the money refunded before bringing his action, pursuant to the provisions of the 19th section of the internal revenue act. We are not satisfied that this claim is correct. In the first place we think that the act was prospective and not retrospective, and that Congress did not intend that it should retroact to affect an existing vested right. In the second place, we are not satisfied that the law should be construed to operate any farther than to exclude the plaintiff from maintaining a suit upon the claim in the courts of the United States. Carpenter v. Snelling, 97 Mass., 452; Griffin v. Ranney, 35 Conn., 240. And in the third place, if, as we assume, the money so taken by the defendant illegally from the plaintiff, was the money of the plaintiff in the hands of the defendant, which by the principles of the common law he had a vested right to recover, it was not competent for Congress by subsequent legislation to exclude the plaintiff from his right to apply to the Superior Court of this state, (of which the parties were both citizens,) for its recovery, or limit the time within which he should bring such action.
Eor these reasons the Superior Court must be advised to render judgment for the plaintiff.
In this opinion Hinman, C. J., concurred. Park and Carpenter, Js., dissented.