Opinion
No. 42588.
March 4, 1935.
Hugh C. Bickford, of Washington, D.C. (R. Kemp Slaughter and Slaughter Bickford, all of Washington, D.C., on the brief), for plaintiffs.
Joseph H. Sheppard, of Washington, D.C., and Frank J. Wideman, Asst. Atty. Gen., for the United States.
Before BOOTH, Chief Justice, and GREEN, LITTLETON, WILLIAMS, and WHALEY, Judges.
Action by the Chicago Junction Railways Union Stock Yards Company, in consolidation with the Union Stock Yard Transit Company and others, against the United States.
Petition dismissed.
Plaintiffs bring this suit to recover $3,483.97, alleged overpayment of income tax for 1919, with interest, on the ground that under the provisions of section 230(b) of the Revenue Act of 1918 ( 40 Stat. 1076) the income derived from government operations was subject to an income tax at the rate of 8 per cent. instead of at 10 per cent. at which the tax was computed and paid. A case of plaintiffs for the same taxable year was previously before this court on other issues which were decided and judgment entered and paid before this suit was instituted. The defendant interposes the defense of res adjudicata.
Special Findings of Fact.
1. Plaintiffs filed a consolidated income and profits tax return for 1919, which was audited by the Commissioner of Internal Revenue, and an additional tax in excess of that shown thereon was determined, assessed, and collected.
The Chicago Junction Railways Union Stock Yards Company, one of the plaintiffs, was the owner of a railway system which during the period of federal control was operated by the Director General of Railroads. Section 1 of the Federal Control Act ( 40 Stat. 451), approved March 21, 1918, provided for the payment of just compensation for the use of property, and for the payment of taxes it specified that: "Every such agreement shall provide that any Federal taxes under the Act of October third, nineteen hundred and seventeen, or Acts in addition thereto or in amendment thereof, commonly called war taxes, assessed for the period of Federal control beginning January first, nineteen hundred and eighteen, or any part of such period, shall be paid by the carrier out of its own funds, or shall be charged against or deducted from the just compensation; that other taxes assessed under Federal or any other governmental authority for the period of Federal control or any part thereof, either on the property used under such Federal control or on the right to operate as a carrier, or on the revenues or any part thereof derived from operation (not including, however, assessments for public improvements or taxes assessed on property under construction, and chargeable under the classification of the Interstate Commerce Commission to investment in road and equipment), shall be paid out of revenues derived from railway operations while under Federal control."
Section 230 of the Revenue Act of 1918 ( 40 Stat. 1075) provided:
"That, in lieu of the taxes imposed by section 10 of the Revenue Act of 1916, as amended by the Revenue Act of 1917, and by section 4 of the Revenue Act of 1917, there shall be levied, collected, and paid for each taxable year upon the net income of every corporation a tax at the following rates:
"(1) For the calendar year 1918, 12 per centum of the amount of the net income in excess of the credits provided in section 236; and
"(2) For each calendar year thereafter, 10 per centum of such excess amount.
"(b) For the purposes of the Act approved March 21, 1918, entitled `An Act to provide for the operation of transportation systems while under Federal control, for the just compensation of their owners, and for other purposes,' five-sixths of the tax imposed by paragraph (1) of subdivision (a) and four-fifths of the tax imposed by paragraph (2) of subdivision (a) shall be treated as levied by an Act in amendment of title I of the Revenue Act of 1917."
Under this section four-fifths or 8 per cent., of the income tax at the rate of 10 per cent. for 1919 was to be paid by the carrier out of its own funds, or charged against or deducted from the just compensation, while the remaining 2 per cent. was to be paid by the United States "out of revenues derived from railway operations."
2. March 1, 1919, the United States Railroad Administration issued and published accounting circular No. 79, which provided that:
"The net income of the Director General of Railroads, as reflected by the Federal records of railroads under Government control, is not subject to the tax. The provisions of the law apply to the net income of each railroad corporation, and the returns should be based upon the corporate records indicating the amount of its standard return, other income, and authorized deductions.
"If complete data is not available, due to claims pending for extra compensation or for other reasons, approximate figures may be submitted, to be followed later by accurate returns.
"The tax return should be prepared and certified by the proper corporate officer, and the tax payments should be made by the corporate treasurer, unless, under special conditions, authority is granted by the Director of the Division of Finance and Purchases to the Federal Treasurer to do so.
"One-sixth of the tax payable on the net income of the corporation for the year 1918 shall be assumed by the Federal Railroad Administration, and credit may be allowed to the corporation of the amount assumed through the account, (name of corporation) Corporate Transactions. If, under special conditions, authority is secured by the Federal Treasurer for the payment of the tax, five-sixths of the amount paid should be charged to the corporation through the above-named account."
3. The taxpayers in making their consolidated return for 1919 and the Commissioner in his audit thereof computed the income tax upon the income of plaintiffs at the rate of 10 per cent. for 1919, and such tax was paid.
After payment of the additional taxes for 1919, plaintiffs filed a claim for refund on certain grounds other than the ground that it was entitled to a refund of 2 per cent. of the income tax paid for 1919. This claim was rejected by the Commissioner, and thereafter, on May 18, 1929, plaintiffs filed suit in this court for the recovery of $96,466.85, taxes alleged to have been overpaid for 1919, 1920, and 1921. The case involved four issues, none of which concerned the question of the 2 per cent. tax under section 230(a) of the Revenue Act of 1918 ( 40 Stat. 1075), of which issues the defendant conceded three and controverted the fourth. All the facts were stipulated, and the defendant, in the stipulation, admitted that plaintiffs were entitled to certain deductions for depreciation and were entitled to recover $13,449.80 for 1919, with interest. The case was submitted to the court February 16, 1931, and on October 19, 1931, the court decided the case sustaining the defendant's contention concerning the fourth issue involved and entered judgment for plaintiffs in the sum of $28,675.80, with interest at 6 per cent. per annum (Chicago Junction Rys. Union Stock Yards Co. v. United States, 52 F.2d 906, 72 Ct. Cl. 639), of which judgment $13,449.80 related to the year 1919. This judgment was paid June 7, 1932.
4. After the filing of the previous suit on May 18, 1929, plaintiffs, on September 22, 1930, made claim to the Director General of Railroads for repayment of the 2 per cent. tax paid, and on October 9, 1930, received from the Railroad Administration the following letter:
"This office cannot entertain your claim amounting to $1,983.06 because of the fact that under decisions of the Board of Tax Appeals there is no liability resting upon the Director General of Railroads to assume the 2-percent proportion of the tax for the period of Federal control. Doubtless, you are familiar with these decisions but for your ready reference I quote below the docket and volume numbers of the Board of Tax Appeals reports in which the decisions were published. * * *
"The Director General takes the position in respect to the payment of additional income taxes for the period of Federal control that he is not liable for such tax under the decisions above referred to. It is our position that the Bureau of Internal Revenue committed an error in assessing the tax at the rate of twelve percent for the year 1918 and ten percent for the years 1919 and 1920, and, therefore, any claims that your company has would therefore be against the Bureau of Internal Revenue and not against the Director General of Railroads."
5. Thereafter, on November 15, 1930, plaintiffs filed an additional claim for refund with the Commissioner of Internal Revenue within the statutory period following the payment of the tax on May 11, 1927. This claim was based on the ground that under the provisions of section 230(b) of the Revenue Act of 1918 the income derived by the Chicago Junction Railway Company, of Chicago, which income was included in a consolidated return filed by the Chicago Junction Railways Union Stock Yards Company for 1919, operated during that year under federal control by the Director General of Railroads, was subject to income tax at the rate of 8 per cent., whereas the taxpayer paid an income tax thereon at the rate of 10 per cent.
No action was taken on this refund claim by the Commissioner, and the six-month period following the filing of the same, after which plaintiff could have instituted suit in this court or amended its petition in the case then pending before the court involving the year 1919, expired May 15, 1931. The case then pending before the court was not decided until five months later. The present suit was instituted January 17, 1934.
The parties are in agreement that plaintiffs overpaid the tax for 1919 in the amount of $3,483.97 in excess of the amount for which the court heretofore entered judgment in a previous suit by plaintiffs against the United States for the same taxable year. The question is whether the judgment in the previous suit operates as a bar to the present suit based upon an item giving rise to an overpayment in the same taxable year for which a timely claim for refund was filed upon a ground different from that stated in the previous suit.
Plaintiffs insist that the present suit is not based upon the same cause of action as the suit heretofore decided by the court involving taxes for the same taxable year, but that the present suit is grounded upon a different claim or demand. In support of this contention it is argued that the statute requires the filing of a claim for refund specifying the ground therefor before suit can be brought; that, as the refund claim upon which the previous suit was based did not mention the 2 per cent. income tax, and that as plaintiffs later filed a timely and sufficient claim for refund for the overpayment, on the ground that it was not liable for 2 per cent. of the 10 per cent. tax paid, it has a right under the provisions of section 3226 of the Revised Statutes, as amended by section 1103(a) of the Revenue Act of 1932 (26 USCA § 156), to maintain a separate suit on the second claim for refund. In other words, plaintiffs contend that, inasmuch as the statute requires a claim for refund as the basis for suit, and makes the claim the only possible means of bringing suit, the cause of action is confined to the allegations made in the claim for refund and not to a taxable period. In our opinion, this contention cannot be sustained.
Each taxable year constitutes a separate cause of action, and in every suit for a refund one of the questions presented is the amount by which the taxpayer has overpaid his taxes for the year involved. While the court is limited in its consideration of a case to the questions raised before the Treasury Department in a timely refund claim, a decision of a case upon the issues presented is a bar to a subsequent suit in respect to all matters and items that could have been raised and presented for decision in the first case, in the absence of facts and circumstances such as were involved in the case of Cambridge Loan Building Co. v. United States (Ct.Cl.) 57 F.2d 936. Cf. Newport News Shipbuilding Dry Dock Co. v. United States, decided by this court March 5, 1934.
The fact that the statute makes the filing of a claim for refund a condition precedent to the right to sue the United States for the recovery of an overpayment of tax does not, we think, give the taxpayer a right to bring a second suit where the matter of the tax liability for the same taxable year has been litigated and decided. Moreover, in the present instance, it appears that the plaintiffs were not in any way misled and that they were free to present the item involved in this case to the court before the previous suit was decided. At the time the previous case was briefed and submitted to the court for decision, no representation had been made to plaintiffs that their claim for refund of 2 per cent. of the income tax paid would be refunded. No mention was made when the case was submitted that such claim was pending and no motion to amend the petition in the previous case was tendered before the judgment was entered, although the date on which the petition could have been amended so as to raise the question arrived five months before the judgment of the court was entered.
In these circumstances, the judgment heretofore entered in a case between the same parties for the same taxable year is a bar to the maintenance of the present action. International Curtis Marine Turbine Co. v. United States, 56 F.2d 708, 74 Ct. Cl. 132. The petition must therefore be dismissed, and it is so ordered.