219 F. 301 | D.N.J. | 1915
This action was originally brought in the Supreme Court of New Jersey, county of Essex, and was removed to this court on a writ of certiorari. Counsel and witnesses were heard on November 5, 1914, and briefs were submitted later.
The suit is for the recovery, with interest, of two sums of $542.20 each, assessed by the Commissioner of Internal Revenue, claiming to act under the act of Congress, hereinafter cited, approved August 5, 1909, as special excise taxes for the years ended December 31, 1909, and December 31, 1910, respectively, and paid by the Public Service
The complaint alleges that the Rapid Transit Street Railway Company leased all of its property and franchises, except its franchise to be a corporation, to the Newark Passenger Railway Company on June 1, 1893, for a term of 999 years from that date, and that the former company has not carried on any business whatsoever since that time, except to receive the rental under the lease and to distribute it among its stockholders; that, by virtue of mesne assignments and transfers, all of the leasehold property was transferred to, and became vested in, the Public Service Railway Company; that the Rapid Transit Street Railway Company was not doing business within the meaning of the act of Congress aforesaid, and hence was not liable for said taxes; and that the Public Service Railway Company, which, under the terms of its lease was required to pay all taxes against said Rapid Transit Street Railway Company or the leasehold estate, was wrongfully, illegally, and improperly compelled by the defendant to pay the said sums, which it did under protest. The plaintiffs made claim in writing to the Commissioner of Internal Revenue for a refund of the amounts so paid on the ground that they were illegally, improperly, and wrongfully assessed and collected, which claim was refused by the Commissioner on December 1, 1913. The plaintiffs claim that an action thereby, on that date, accrued to them.
In his answer, the defendant objects, because the complaint discloses no cause of action — that it fails to show compliance by plaintiffs with section 3226, 3227, and 3228, R. S. U. S. He admits the making of the lease of the Rapid Transit Street Railway Company to the Newark Passenger Railway Company, but denies that the former company has not done or carried on any business except the receipt of the rental under the lease and the distribution thereof among its stockholders. He admits also the assignment and transfer of the leasehold property to the Public Service Railway Company. He admits the assessment and collection of the taxes, but denies that they were wrongfully or illegally assessed or collected, and avers that, at the time of payment of said sums, they were due and owing by plaintiffs for taxes under the aforesaid act of Congress. Defendant pleads also the statute of limitations, alleging that no claims for refund of these taxes were filed with the Commissioner of Internal Revenue until November 28, 1913, more than two years after they were paid, and pleads that section 3228, R. S. U. S., provides that all claims for the refunding of any internal tax alleged to have been erroneously or illegally assessed or collected must be presented to the Commissioner of Internal Revenue within two years next after the cause of action accrued, that these claims were not so presented, and that they were, therefore, lawfully rejected by said Commissioner of Internal Revenue on December 1, 1913.
In their reply, the plaintiffs deny that these taxes were lawful taxes, and aver that claims for refund were filed before the expiration of two years after causes of action accrued. Section 38 of the act of Congress approved August 5, 1909, entitled “An act to provide revenue,
“That every corporation, * * * organized for profit and having a capital stock represented by shares, * * * and engaged in business in any state or territory of the United States, * * * 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 * * * subject to the tax hereby imposed.”
From the evidence, it appears that the Rapid Transit Street Railway Company was operated during the years 1909 and 1910 by the Public Service Railway Company as a part of its system of street railways in New Jersey, and that the rental for each of those years, under the provisions of the lease, was paid by the Public Service Railway Company to the Fidelity Trust Company, of New Jersey, as trustee, and by the latter company distributed among the stockholders of the Rapid Transit Street- Railway Company. The lease from Rapid Transit Street Railway Company to Newark Passenger Railway Company, after-wards assigned to Public Service Railway Company, covered the railroads and property of the Rapid Transit Street Railway Company; the rental after 1893 being semiannual payments of $29,610 each, to be paid to a trustee. The lessee assumed all incumbrances upon the property of the lessor, interest accruing on the bonds of the lessor theretofore issued or thereafter issued, and the principal of the bonds as they matured, and all assessments, taxes, and special taxes assessed upon the real estate, franchise, stock, or earnings of the leasing Company. Provision was made also for funding bonds already issued, and issuing new bonds of the lessor corporation equal in amount to the bonds retired, and reissuing certificates of the lessor company. At the termination of the lease, the lessee was to deliver to the Rapid Transit Street Railway Company, or its successors, all property received by it or pay the value. The lessee company agreed to keep in good. repair the railroad and its equipment, the lessor company having the right at times to make examination of the property and to notify the lessee company if the property is not put in good repair within 30 days from the notice by the lessee. The lessee company agreed to pay to the treasurer of the lessor company the sum of $100 annually for the “maintenance'of the corporate existence of the lessee company.” Operation of the road was required by the provisions of the lease in a manner to preserve the rights and franchises of the lessor company. Forfeiture clauses were incorporated in the provisions of the lease. Neither the stockholders nor the directors of the Rapid Transit Street Railway Company had met since 1903. The Public Service Railway Company paid the trustee’s fee. Under the lease referred to, all of the property connected with the lessor company was turned over in due course to the Public Service Company, and the only business done by the original lessor company has been the maintenance of its corporate'existence and. the annual collection, of the rental called for by the lease. The rental is distributed among the stock
We therefore have an instance of the collection of money as internal revenue taxes by an official of the government, claiming to act under the provisions of acts of Congress, but in reality and in good faith mistaking the applicability of the law, in that he has collected sums as taxes from a corporation not subject to the tax assessed.
The statutes directly pertinent are as follows:
“All laws relating to the collection, remission, and refund of internal revenue taxes, so far as applicable to and not inconsistent with the provisions of this section, are hereby extended and made applicable to the tax imposed by this section.” From section 38 of the act of August 5, 1909.
Sections 3220, 3226, 3227, and 3228, R. S. U. S.:
“Sec. 3220. The Commissioner of Internal Revenue, subject to regulations prescribed by the Secretary of the Treasury, is 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 appear to be unjustly assessed or excessive in amount, or in any manner wrongfully collected. * * * ”
“Sec. 3226. No suit shall be maintained in any court for the recovery of any internal tax alleged to have been erroneously or illegally assessed or collected, or of any penalty claimed to have been collected without authority, or of any sum alleged to have been excessive or in any manner wrongfully 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 the Commissioner has been had therein: Provided, that if such decision is delayed more than six months from the date of such appeal, then the said suit may be brought, without first having a decision of the Commissioner at any time within the period limited in the next section.
“See. 3227. No suit or proceeding for the recovery of any internal tax alleged to have been erroneously or illegally assessed or collected, or of any penalty alleged to have been collected without authority, or of any sum alleged to have been excessive or in any manner wrongfully collected, shall be maintained in any court, unless the same is brought within two years next after the cause of action accrued. * * *
“Sec. 3228. All claims for the refunding of any internal tax alleged to have been erroneously or illegally assessed or collected, or of any penalty alleged to have been collected without authority, or of any sum alleged to have been excessive or in any manner wrongfully collected, must be presented to the Commissioner of Internal Revenue within two years next after the cause of action accrued. * * * ”
Now, when the revenue officials looked into the particular matter of the status of these plaintiffs, they found two corporations organized under the laws of the state of New Jersey — one, the Public Service Railway Company; the other, Rapid Transit Street Railway Company. The charter of each showed that it was a living, existing, corporate organization, with right to operate a railroad (whether as lessee or otherwise), and to do those things which under the laws of the state of .New Jersey a public service corporation may lawfully do in the premises, including a right to issue bonds and to exercise the power of eminent domain. Each appeared to have officials for the ^transaction of corporate business, and each appeared to be a corporation organized for profit and having a capital stock represented by shares. Starting with this general information, surely the revenue officials were justified in assuming that each corporation was doing acts enough to subject it to the special tax, unless upon further investigation it should be ascertained that it was not carrying on or doing business. Necessarily determination of this further point involved ascertainment of certain additional conditions and facts and then drawing a conclusion therefrom whether, largely as a matter of law, the corporation investigated was carrying on or doing business as contemplated by the provisions of the excise tax statute. And what may we reasonably say the revenue officials found in such further investigation as to Rapid Transit Company ? That it had assigned its right to operate a railroad under its original charter, but that it had expressly reserved its corporate existence, and that it was maintaining the same in apparent accord with law;- that it was in the enjoyment of a considerable income paid to it semiannually by the Public Service Railway Company, apparent assignee of the rights originally leased to a predecessor lessee, and that the income so received by it from the Public Service Company, lessee, was distributed to the lessor’s stockholders as they appeared upon its corporate books. Finding these several things with respect to corporate affairs, the internal revenue officials, acting in a quasi judicial sense, concluded that the Rapid Transit Street Railway Company, as well as Public Service Company, was subject to tax and that its claim of exemption was not well founded.
Can it be that, under such a state of facts, the collector of internal revenue of the local district, whose duty was to collect the assessment made by his superior, the Commissioner, is to be looked upon as having gone so far outside of the scope of his official duty as a revenue officer as that, in demanding payment and receiving it, he must be held to have acted wholly without warrant of law, and is, therefore, individually liable? I should say no, because, being clothed with a general authority within his district to collect internal revenue
Defendant is entitled to judgment.