#### YALE & TOWNE MANUFACTURING COMPANY v. THE UNITED STATES

[No. C-1053.

Decided November 3, 1924]

*On the Proofs*

*Internal Revenue; refund of stamp taxes; interest.*— The judgment of the Court of Claims refunding stamp taxes erroneously collected under Title XI, sections 1100-1107 of the Eevenue Act of 1921, 42 Stat. 301-303, should embrace interest provided for by section 177 of the Judicial Code, as amended by section 1324(b) of the said Eevenue Act of 1921, 42 Stat. 316.

*The Reporter's*statement of the case:

*Messrs. Louis H. Porter*and *F. Carroll Taylor*for the plaintiff.

*945*Mr. Fred K.*Dyar, with whom was *Mr. Assistant Attorney General Robert H.*Lovett, for the defendant. *Messrs. Nelson T. Hartson*and *Chester A. Gwinn*were on the brief.

The following are the facts of the case as found by the court :

I. The plaintiff, the Yale & Towne Manufacturing Company, is a corporation organized and existing under the statutes of the State of Connecticut, with its principal place of business in the city of Stamford, in said State, and engaged in the manufacture and sale of locks, builders’ hardware, and other articles of commerce.

II. At the time immediately prior to the T7th day of November, 1922, the authorized capital stock of the petitioner was the sum of $25,000,000, divided into 250,000 shares of the par value of $100 each, of which there was then issued and outstanding $5,000,000, represented by 50,000 shares of stock. All of the said authorized and issued stock Avas common stock having equal voting powers.

III. The plaintiff by its charter was granted the right by a tAvo-thirds vote of all its outstanding stock at a meeting called for the purpose to change the par value of its shares by quadrupling the number thereof and reducing the par value of each share to $25, so that the aggregate par value of its stock should not thereby be changed. In case of such action, it was authorized to call in and cancel the outstanding stock certificates and issue in exchange therefor certificates for four times as many shares of the new par value as the surrendered and canceled certificates should have represented of the former shares.

IY. The present charter of the plaintiff is contained in a series of special statutes of the State of Connecticut, the first special statute being approved February 22, 1882, and the subsequent statutes containing amendments thereof. The amount and par value of its authorized capital stock and the powers and limitations governing the issue and rights of such stock at the time of the change of par value hereinafter mentioned are contained in the last amendment, approved under date of March 29, 1921. Copies of the said statute of 1882 and of all amendments to date are correctly *946set forth in Exhibit A attached to the petition and made a part hereof by reference.

Y. On or about the llth day of November, 1922, at a meeting of the stockholders of the plaintiff duly called for the purpose, according to law, the following resolutions were duly adopted by the affirmative vote of more than two-thirds of such stockholders:

“ *Resolved and*voted, That it is desirable and this meeting does authorize, approve, and recommend that the company exercise the right granted to it by the amendment of its charter approved March 29, 1921, and change the number and par value of the shares of stock representing its authorized capital by quadrupling the number of such shares and reducing the par value of each share to $25, so that the aggregate par value of its authorized capital stock shall not thereby be changed. And it is further.

*“Resolved and*voted, That the president and officers of the company be, and they hereby are, authorized and directed to call in and cancel the outstanding stock certificates of the company and issue in exchange therefor certificates for four times as many shares of the new par value as the surrendered and canceled certificates shall have represented of the former shares, provided, however, that until such exchange be accomplished stockholders retaining certificates for shares of the par value of $100 shall be considered in the future proceedings of the company as entitled to a representation and interest in the company proportionate to the par value of such holdings. And it is further

*“Resolved and*voted, That the president, directors, and officers be, and they hereby are, authorized to execute and issue all necessary certificates, notices, and other instruments, and to do any and all things necessary and proper in their discretion for the accomplishment of the purposes expressed in the foregoing resolutions.”

Thereafter plaintiff duly filed with the secretary of state of the State of Connecticut a certificate as to such action by its stockholders, and on the 18th day of November, 1922, the secretary of state of the State of Connecticut indorsed his approval thereon. The certificate of the secretary of state of the State of Connecticut with his approval thereon is correctly set forth in Exhibit B annexed to the petition and made a part hereof by reference.

VI. The action of the' stockholders aforesaid did not result in the acquisition of any new property at the time of *947the exchange of shares provided for; nor did any stockholder pay to the plaintiff any consideration therefor. No change was made by such transaction in any stockholder’s interest in the property and assets of the plaintiff, and there was no change in the management and organization of the plaintiff made thereby; nor was there any readjustment or change made thereby in the rights or interests of the stockholders or any of them as to amount, income, or priority, or in respect to their proportionate voting powers,, but the stockholders were left in exactly the same position they were before the change, except that they held four certificates each of the par value of $25 in place of each certificate held prior thereto of the par value of $100.

VII. Thereafter and on or about the 28d day of November, 1922, plaintiff sent a notice to all of its stockholders requesting them to deliver their cvertificates of stock of the par value of $100 to the plaintiff on or after December 4, 1922, for cancellation and for exchange for four times as many shares of the par value of $25 as the surrendered certificates should represent of the former shares. Such notice is correctly set forth in Exhibit C annexed to the petition and made a part hereof by .reference.

VIII. Prior to the 4th day of December, 1922, a representative of the Internal Revenue Department of the United States informed plaintiff that it would be necessary for it to affix to its records showing the issuance of such shares of the par value of $25 in exchange for the shares of $100 par value, Federal documentary stamps at the rate of five cents for each $100 of the face value of such new shares, to wit, an aggregate of such stamps amounting to $2,500. The basis of the said ruling was that such new shares of the par value of $25 were an original issue of capital stock under the provisions of Title XI, Schedule A, Paragraph 2, of , the Revenue Act of 1921.

Thereafter the plaintiff appealed to the Commissioner of Internal Revenue, who ruled that the exchange of certificates, necessitated by reason of the above described change of par value, was subject to the stamp tax above mentioned.

IX. Thereafter, and acting under duress and compulsion, plaintiff on the 4th day of December, purchased, un*948der due protest, from the Collector of Internal Revenue for the Second District of New York, Federal documentary stamps in the sum of $2,500 for the purpose of complying with the said ruling of the Commissioner of Internal Revenue.

X. Thereafter the stockholders of the plaintiff delivered to it all of their shares of stock of the par value of $100 each and received in exchange for each old certificate certificates for four shares of the par value of $25 each in place of each share of the par value of $100; and plaintiff also under the protest affixed the said $2,500 documentary stamps purchased as above described to its records showing the issue of such stock.

XI. Thereafter and on or about the 29th day of December, 1922, plaintiff filed with the Collector of Internal Revenue for the Second District of New York a claim for refund for the $2,500 paid by it for the documenta^ stamps as aforesaid. A correct copy of said claim for refund appears as Exhibit D attached to the petition and made a part hereof by reference.

XII. Thereafter and under date of July 10, 1923, the Commissioner of Internal Revenue rejected the claim for refund hereinbefore mentioned and specified his reasons for such rejection. A correct copy of the said letter of the Commissioner of Internal Revenue is given as Exhibit E annexed to the petition and made a part hereof by reference.

XIII. The plaintiff is a citizen of the United States and has at all times borne true allegiance to the Government of the United States, and has not in any way voluntarily aided, abetted, or given encouragement to rebellion against said Government; and it is the sole and absolute owner of the claim herewith presented; it has made no transfer or assignment of said claim or of any part thereof; and there are no credits and set-offs against the same-

Camrbedl, *Chief*Justice,

delivered the opinion of the court:

Under a construction given the provision of Title XI of the Revenue Act of 1921, 42 Stat. 301, 303, the plaintiff was. required to pay and did pay a tax amounting to $2,500 upon *949certain certificates of shares of its corporate stock. The Commissioner of Internal Eevenue ruled that the exchange of shares of stock issued by plaintiff to its stockholders in the proportion of four new shares for one of the old shares was subject to< the tax imposed by Title XI, Schedule A, paragraph 2 of the act mentioned. The stamps were purchased and applied in accordance with this ruling. The stipulated facts upon which the case was submitted to this court show that the tax was paid under protest and under duress. The plaintiff then applied to the Commissioner of Internal Eevenue for a refund of the tax, claiming in its application that the amount “ should be refunded, with interest from December 4, 1922, the date of the purchase thereof.”

This claim was disallowed by the Commissioner under date of July 10,1923, he holding, as above stated, that plaintiff was liable for the tax. It is now admitted that this ruling -was erroneous, and the Government concedes the correctness of the decision in *West Virginia Pulp & Paper Co.*v. Bowers, 293 Fed. 144, affirmed by the United States Circuit Court of Appeals for the Second Circuit, 297 Fed. 225, Avhere the same question was involved. In the Government’s brief it is stated that since these decisions the Commissioner has been willing and has offered to pay the principal sum which plaintiff expended, but without interest. The right of plaintiff to recover this principal sum is here admitted, and the sale question is whether plaintiff is entitled to interest from the date of the required payment of the tax. Conceding that the tax was illegally or erroneously assessed and wrongfully collected, the Government contends that the “ plaintiff’s claim is, in effect, for the redemption of stamps and not a claim for refund of taxes illegally or erroneously assessed or collected, and therefore is governed by the provisions of section 1 of the Act of May 12, 1900, 31 Stat. 171, relating to the redemption of stamps and not by section 3220 of the Eevised Statutes as amended by the Revenue Act of 1921 (sec. 1315) and the Revenue Act of 1924 (sec. 1011), relating to refunds and credits.”

We thus quote the language of the Government’s brief in order to say that the claim set up in the petition is for a *950refund as authorized by section 3220, as' we construe the application for a refund made to the Commissioner as predicated upon the same statute. It claimed interest from the date of payment. In asserting, therefore, that “ plaintiff’s claim is, in effect, for the redemption of stamps ” the Government’s contention resolves itself into the position that the plaintiff can have a redemption of the stamps affixed to the stubs of the several stock certificates under the Act of May 12, 1900, but can not have a refund under the provision of section 1315 of the Revenue Act of 1921, 42 Stat. 314, amending section 3220, Revised Statutes. This section provides a remedy for the taxpayer by authorizing the Commissioner to remit, refund, and pay back all taxes erroneously or illegally assessed or collected or in any manner wrongfully collected. Subsequent sections amend sections of the Revised Statutes relating to refunds to and actions by the taxpayer, and among other things extend the time fixed in the older acts within which the claims may be presented to the Commissioner or actions brought in court. Section 1324* provides that upon the allowance of a claim for the refund of internal-revenue taxes paid “ interest shall be allowed and paid ” from a date designated. This section also amends section *177*of the Judicial Code so as to authorize this court to allow interest in its judgment for taxes erroneously or illegally assessed or collected.

In view of this specific legislation, it is difficult to understand the contention that for illegal or erroneous collections made under a mistaken construction of section 1100 a different remedy must be found from that applicable to similar collections under other sections of the act. In the first place, it seems plain that Congress intended to authorize the allowance of interest when the claims for refunds are allowed for taxes illegally or erroneously collected under the provision of the act, because the one act imposes the several taxes and authorizes relief against their illegal or erroneous exaction. Certainly the terms of the act are sufficiently comprehensive in this regard. In the second place, while the taxes imposed under Title XI of the act follow a heading designated Stamp Taxes, the language used in section 1100 that “ there shall be levied, collected, and paid * * * the several *951taxes specified” is substantially the same language that is used in the imposition of other taxes. (See sec. 301 imposing a war and excess profits tax; sec. 500, imposing a tax on certain messages; sec. 800, imposing a tax on admissions, and sec. 900, imposing excise taxes.) Why a different, status should be given to claims for illegal exactions under these several sections from that given to claims under section 1100 is not apparent, nor does the act purport to give them a different status.

The act of May 12, 1900, requires that a claim for redemption or allowance be made within two years. See *B. & O. R. R. Co.*case, 260 U. S. 565. The Revenue Act of 1921 (sec. 1316, amending sec. 3228, Revised Statutes) allows four years for presenting claims for a refund of taxes erroneously or illegally collected. We do not think it was the intention of Congress to allow some of the taxpayers, who were illegally required to pay taxes, four years in which to present their claims and to have interest added to the claims when allowed and to deny other taxpayers, who had been illegally or erroneously required to pay taxes as imposed by the same act, a shorter time in which to present their claims or to deny them the benefits of the sections providing for interest. Concededly, the plaintiff is entitled to a refund of the amount of the tax. In virtue of the statute it is also entitled to interest on that sum from the date of its payment.

Judgment will be entered in favor of plaintiff for the sum of $2,500, with interest from December 4, 1922, at the rate of six per cent per annum. And it is so ordered.

GRAHAM, *Judge;*Hat, *Judge;*DowNey, *Judge;*and Booth, Judge, concur.