Court Opinion

ID: 6851643
Source: CourtListenerOpinion
Date Created: 2022-07-23 20:36:55.836196+00
Date Added: 2024-06-11T16:05:05.074778
License: Public Domain

WHALEY, Judge
(dissenting).
I am unable to agree with the opinion of the majority in support of the demurrer.
In my opinion, the plaintiff is entitled to maintain this suit and to recover any over-payments of taxes for the years involved resulting from its failure to take adequate deductions for depreciation. Section 252 of the Revenue Act of 1921 (42 Stat. 268) provides: “ * K * That if upon examination of any return of income made pursuant to the Revenue Act of 1917, the Revenue Act of 1918, or this Aet, the invested capital of a taxpayer is decreased by tho Commissioner, and such decrease is duo to the fact that the taxpayer failed to'take adequate deductions in previous years, with the result that an amount of income tax in excess of that properly duo was paid in any previous year or years, then, notwithstanding any other provision of law and regardless of the expiration of such five-year period, the amount of such excess shall, without the filing of any claim therefor, be credited or refunded as provided in this section. * * * ”
This provision was continued in section 281 (e) of the Revenue Act of 1924 (26 tJKOA § 1065 note), and section 284 (c) of the Revenue Aet of 1926, 26 USCA § 1065 (e), in slightly different language but with ihe same meaning and effect.
These sections give no discretion to the Commissioner of Internal Revenue. In their scope and effect they are not purely administrative blit are mandatory. On a proper state of facts they create an absolute and unqualified claim against the United States, and give the taxpayer an unquestioned right to sue for the same, if refund should be denied him by the Bureau of Internal Revenue. The sections are mandatory in their provisions that the overpayments resulting from tho causes specified shall be refunded. This view is supported by the fact that the purpose of Congress in enacting the provision was to make an exception to sections 3228 and 3226, Revised Statutes, as amended, requiring a timely claim for refund as a condition precedent to the right to a refund after a stated time, or to sue therefor if it should be denied by the commissioner.
Tho provision is remedial and the language is exceptional. Every excess-profits tax year requires the determination and computation of statutory invested capital. It is provided that if the commissioner has under consideration and audit a return of income and in connection with such determination *838and audit he decreases the invested capital for such year below what it would otherwise fee under the statute by going back over prior taxable years and redetermining and increasing the deductions claimed by the taxpayer for such prior years, with the result that on the basis of inadequate deductions so redetermined and computed there has been an. overpayment of income, war-profits, or excess-profits taxes in such prior years, no claim for refund shall be required and such overpayments shall be refunded notwithstanding any other provision of law and regardless of the claim being filed. The congressional history of this section supports this view. Ways and Means Committee Report No. 350, p. 15; Senate Committee on Finance Report No. 275, p. 21.
The majority opinion holds that notwith- . standing the statutory invested capital for the fiscal year ending March 31, 1922, was decreased below the amount which it would otherwise have been if the depreciation reserve had not been increased through the increase of deductions taken in prior years, section 284 (e) of the Revenue Act of 1926 does not authorize the refund of overpajr-ments for the prior years unless an additional tax results from the- decrease in invested capital. The language of section 284 does not support this position. The only justification for this contention is the fact that the first nine months of the taxable year ending liar eh 31, 1922, in which the commissioner in this case decreased the statutory invested capital because of the failure of the taxpayer to take adequate deductions for depreciation in prior years, constituted the end of the im-. position of the excess-profits tax. Such tax was imposed for the Calendar years 1917 to 1921, inclusive. The Revenue Act of 1921, approved November 24, 1921, repealed the imposition of the excess-profits tax, effective December 31, 1921. There was no excess-profits tax prior to 1917. The provision that if invested capital is decreased and such decrease is due to the failure of the taxpayer to take adequate deductions in prior years, the overpayment resulting therefrom should be refunded without regard to other provisions of law, and without filing a claim for refund, was first enacted as part of section 252 of the Revenue Act of 1921. The language is plain and unambiguous. It is a remedial provision and should be liberally construed. The only condition made necessary by the statute to the right of refund for prior years is that the statutory invested capital for the year under consideration must be decreased, as a result of the increase in the deductions taken in prior years, below what the invested capital would otherwise be uncler the statute if computed on the basis of deductions of gross income actually taken in the prior years. The statute was not directed to any one taxable year or to those years only in which an additional tax resulted from the decrease in invested capital; nor is there anything in the section to warrant the conclusion that it does not apply, if, for 1921, the commissioner, although decreasing the statutory invested capital for that year because of inadequate deductions for prior years, determines a net loss. At the time this provision was enacted there were hundreds of eases involving excess-profits tax years pending in the Internal Revenue Bureau, unaudited and undecided.
Congress knew that in some years there would be additional taxes and in other years losses. The statute authorized the refund of overpayments for prior years if the statutory invested capital for the subsequent year under consideration should be decreased and such decrease should be due to the fact that the taxpayer failed to take adequate deductions in prior years. No exception was made. Had Congress intended that the taxpayer should have no right to the return of over-payments for prior years, if the decrease in invested capital should not result in an additional tax, it would doubtless have so provided.
In order to deny recovery to the plaintiff a meaning must be read into the words of the statute which is not apparent when rationally interpreted. The literal meaning of the words employed in the statute is most important. See Crooks v. Harrelson, 282 U. S. 55, 51 S. Ct. 49, 75 L. Ed. 156. “And the plain, obvious and rational meaning of a statute is always to be preferred to any curious, narrow, hidden sense that nothing but the exigency of a hard ease and the ingenuity and study of an acute and powerful intellect would discover.” Lynch v. Alworth-Ste-phens Co., 267 U. S. 364, 370, 45 S. Ct. 274, 276, 69 L. Ed. 660. In DeGanay v. Lederer, 250 U. S. 376, 39 S. Ct. 524, 63 L. Ed. 1042, it is held this rule applies to taxing acts. The taxpayer is entitled to have the tax laws liberally construed in his favor and doubts resolved in his favor and against the government. United States v. Merriam, 263 U. S. 179, 188, 44 S. Ct. 69, 68 L. Ed. 240, 29) A. L. R. 1547; Bowers v. N. Y. & Albany Co., 273 U. S. 346, 350, 47 S. Ct. 389, 71 L. Ed. 676.
*839This majority opinion strictly construes the statute against the taxpayer and all doubts and interferences aro decided in favor of the government.
The commissioner decreased the invested capital of the plaintiff for the iiscal year ending March 31, 1922, for the reason the taxpayer failed to take adequate deductions in prior years with the result that plaintiff overpaid its taxes for the iiscal years 1914 to 1921, inclusive, in amounts totaling' $18,455.-81. The statute demanded this overpayment should be credited or refunded. The fact that tire fiscal year ending' March 31, 1922, happened to be the last excess-profits tax year, and the fact that a loss was determined for that year, do not, in my opinion, render the provisions of section 234 (e) of the Act of 1926 inapplicable or prevent the plaintiff from recovering the overpayments.
In my opinion the demurrer should be overruled, and judgment entered for the plaintiff in the full amount of the overpay-ments.