21 F. Cas. 380 | U.S. Circuit Court for the District of California | 1873
The first point made by the defendant is, that the suit was prematurely commenced, on the ground that an appeal must be taken to the commissioner after payment before suit brought. 14 Stat. Ill, 152, § 19, and regulations prescribed by the secretary of the treasury.
But an appeal was taken from the assessment before payment, and decided against plaintiff. This I think sufficient. There could be no object in appealing a second time to the same officer in the same cause, and upon precisely the same question. The commissioner had already decided the identical question, and the object or the law was accomplished in the first appeal.
The next question arises under section 120 of the internal revenue act as amended in 1SGG. The plaintiff insists that the said sums paid to depositois are interest paid to depositors within the meaning of the proviso, and not dividends within the meaning of the term as used in the body of the section. The body of the section, so far as it affects the question. is as follows:
“There shall be levied and collected a tax of five per centum on all dividends * * * declared due * * * and * * * payable to depositors * * * as a part of the earnings, income or gain of any * * * savings institutions; * * * and said * * * savings institutions * * * are hereby authorized to deduct * * * from any dividends or sums of money that may be due and payable as aforesaid, the said tax. * * * And a list or return shall be made * * * on or before the tenth day of the month following that on which any dividends or sums of money become due or payable as follows: ‘Provided: * * * the annual or semi-annual interest allowed or paid to the depositors in savings banks or savings institutions “shall not” be considered dividends.’ ” 14 Stat. 138.
It was certainly contemplated by the provision in the body of this act to tax something as dividends in the hands of “savings institutions,” for they are expressly named. What is it that is to be taxed? The act says: “Dividends * * * declared due * * * and * * * payable to depositors * * * as .part of the earnings, income, or gains of any savings institutions.” The only income, earnings or gains of the plaintiff were-the moneys before mentioned, and these moneys were the very earnings, income and gains, and the only ones which the plaintiff either could, or did, in fact, divide and declare “due- and payable to its depositors.” They clearly come within the express terms of the act, and nothing else belonging to plaintiff or arising in its business does come within the terms-But plaintiff says, conceding this to be so, yet these payments are interest, and nothing else, as a rate per cent, is ascertained depending upon the amount of earnings, and then the-amount to be paid found by calculating the sum to be paid upon the amount deposited for the'time it has been on deposit, after beginning to draw interest at the rate per cent, fixed, and that this constitutes interest, notwithstanding the rate per cent, is determined by the amount of earnings; that it is compensation paid for the use of money; that being interest allowed depositors, it is by the express terms of the proviso taken out of the general definition of the term dividends, as it would be otherwise construed in the body of the act In other words, that the act itself in the proviso limits by express definition the term dividends as used in the body of the section, by saying this interest shall not be considered dividends as the word is there used. It is not apparent to what the term “dividends payable to depositors” could apply, if not to these earnings. On the other hand, it is suggested that there are, or ma¿ be, cases where interest in the strict sense of the word is paid to depositors upon which the words of the proviso may operate; that in some savings institutions in the United States an option is given to their depositors to take a pro rata share of the earnings, that is to say, dividends, or to take a fixed rate of interest without regard to earnings, whether great or small; and that there are different classes of depositors in some institutions, some of whom are entitled to share pro rata in the earnings, and others only to receive a low rate of interest, irrespective of profits or earnings, and that the proviso is intended to apply to those who thus elect to take interest, or who are only entitled to receive interest instead of sharing in the profits. It is also claimed that those in this company, who draw their deposits between dividend days, and are only entitled to a low rate of interest in lieu of dividends, are within the proviso.
The cases suggested may, perhaps, be within its provisions; but, however that may be, or whatever cases the proviso may be intended to cover, I am satisfied that the sums in question are not within the exception. Interest is the sum paid by the party having or
[On July 14, 1S70, the date of the passage •of the declaratory act, it was income in the hands of the depositors, and, as it was not then within the exception of “income received from institutions or corporations whose officers are required by law to withhold a per centum of the dividends made by such institutions, and pay the same to the officers authorized to receive the same,” under section 117, it was taxable, under other provisions 'of the act, if rendered taxable at all by the said declaratory act of July 14th,- in the hands of depositors only, and not in the hands of the plaintiff, from whose control it had already passed. Says Mr. Justice Strong, in the case already cited: “It was their [the plaintiffs’] right as well as their duty, to pay over the entire dividend to the stockholders who had then acquired a vested right in it, and the plea of the defendants does not aver that the whole dividend was not at once thus paid over. Then the distress which the plea attempts to justify was made to enforce the performance of a duty that has no existence. It was substantially an attempt to enforce a penalty upon the plaintiffs for an omission to do that which they had no right to do, a penalty equal to the amount of a five per cent, tax with an additional five per cent, thereon. It is to be remembered that the tax is levied upon the shareholders, and that the company is merely the governmental agent to collect it Its liability to a distress, if any there be, arose out of an unlawful failure to collect the tax and pay it over. But the failure was not unlawful at the time. Surely it will not be maintained that the declaratory act of 1870 can be regarded as operating retrospectively, to make the act or omission of the plaintiff unlawful, and punishable as an offence, when the act or omission was innocent at the time when it occurred. Were it conceded that the construction given by congress is binding in all eases where it would not disturb vested rights, or operate practically as an ex post facto law, it is not to be presumed it was intended for application to such a case as the present.” It necessarily follows from this view that the assessment of this tax against, and collection from, the plaintiff was made without authority of law. The effect would be to impose a penalty upon the plaintiff for not doing an act which, at the time it could have been done, was not required by law, and which it had no authority to do.
[As to the one twenty-fourth of one per cent, assessed and collected under the 110th section of the internal revenue act (14 Stat. 136). the facts are substantially the same as In the case of German Saving & Loan Soc. v. Oulton [Case No. 5,362], decided in this court by Mr. Justice Field, in September, 1871. On the authority of that case, I hold that this tax was also collected without authority of law. Let judgment be entered for plaintiff.]
[From 17 Int. Rev. Rec. 109.]
[From 17 Int. Rev. Rec 109.]