279 U.S. 732
BOSTON & M. R. R.
Reargued April 15, 1929.
Decided June 3, 1929.
The Attorney General, for the United States.
Mr. James S. Y. Ivins, of Washington, D. C., for Boston & M. R. Co.
Mr. Chief Justice TAFT delivered the opinion of the Court.
As indicated in Old Colony Trust Co. v. Commissioner of Internal Revenue, No. 130, 279 U.S. 716 , 49 S. Ct. 499, 73 L. Ed. -, just decided, this case [279 U.S. 732, 733] comes here by certificate from the Circuit Court of Appeals for the First Circuit and on the following statement:
[279 U.S. 732, 734] 'The claim for refund of this additional tax was duly filed with the Commissioner of Internal Revenue, but was never formally acted upon, and more than six months having elapsed after it was filed, this action was brought for the recovery of the tax so paid (under par. 20, Section 24 of the Judicial Code, as amended by Sec. 1310(c), c. 136, 42 Stat. 310; 28 USCA 41(20)).'
The judgment of the District Court was appealed to the Circuit Court of Appeals for the First Circuit, and, upon the facts recited, and under section 239 of the Judicial Code, as amended by the Act of February 13, 1925, c. 229, 43 Stat. 936, 938 (28 USCA 346), the Court of Appeals has asked the instruction of the Supreme Court upon the following question:
The merits of this case must be disposed of in accord with the rule already laid down in the Old Colony Case just decided. Like that, it is one in which the lessee has paid to the government the taxes due under the law from the lessor. The payment is made in accord with the contract of lease, and is merely a short cut whereby that which the lessee specifically agreed to pay as part of the rental effects that payment by discharging the obligation of the lessor to pay the tax to the government.
Our conclusion is in accordance with the practice of the Department. Treasury Decision 2620 (19 Treas. Dec. 411). In answer to a question suggested by this Court, the Commissioner states in the appendix to the government's brief on reargument in No. 130 that it has been the uniform practice to treat taxes paid, where by agreement between the parties the tax laid upon the income actually received by one of them has been paid by the other, as income of the taxpayer whose liability has thus been discharged. He refers to the decision of the Circuit Court [279 U.S. 732, 735] of Appeals for the First Circuit in the case of West End Railway Co. v. Malley, 246 F. 625, where the dividends paid by a lessee corporation directly to the stockholders of the lessor corporation were held to be income to the lessor under the Revenue Act of October 3, 1913 (38 Stat. 114). It was carried into Regulation 33, promulgated January 2, 1918, as article 102, reading as follows:
Article 102 of Regulations 33 has been substantially embodied in all subsequent regulations as article 546 of Regulations 45, article 547 of Regulations 62, 65 and 69, and article 70 of Regulations 74, promulgated under the Revenue Acts of 1918 (40 Stat. 1057), 1921 (42 Stat. 227), 1924 ( 43 Stat. 253), 1926 (44 Stat. 9), and 1928 (26 USCA 2001 et seq.), respectively.
Article 109 of Regulations 45, promulgated January 28, 1921, reads as follows:
This provision is also found in article 109 of Regulations 62, article 110 of Regulations 65 and 69, and article 130 of Regulations 74. [279 U.S. 732, 736] In addition to the foregoing general provisions, a specific ruling on this question was published in May, 1920, as A. R. M., 16 C. B. 2, p. 62. The facts in that case are stated by the Commissioner as follows:
The Commissioner says that no single instance has been found where the Bureau has departed from this general practice of construing taxes paid under the present circumstances to be income to the taxpayer whose tax liability has been discharged in such a manner.
The Commissioner says that it was the purpose of the instructions to establish a consistent policy, and that, if they have not been followed in individual cases, it is due to an unauthorized departure from the Bureau's instructions. More than this, it should be added that neither before nor since 1923 has any algebraic formula been used by the Bureau in computing taxes.
Not only, therefore, is the conclusion that the question must be answered 'Yes' sustained by the practice of the Department under all of the Revenue Acts, but the cases cited in the Old Colony Case require the same view.