(1 F.)

UNITED STATES v. LITTLE MIAMI, COLUMBUS & XENIA RAILROAD COMPANY.

(Circuit Court, 8. D. Ohio. March, 1880.!

INTERNAL REVENUE-ACT OF JUNE 30, 1864-ACTION TO RECOVER TAXES WITHOUT AN ASSESSMENT.-An action of debt may be maintained to recover taxes without an assessment, where the statute describes the subject of the taxes and fixes the rates, so that the amount may be ascertained by evidence.

SAME ASSESSMENT MADE AND PAID-SUBSEQUENT SUIT FOR BALANCE BEYOND ASSESSMENT.-An assessment and payment are not a bar to a suit for the recovery of an amount claimed to be due over and above the amount which has been thus assessed and paid. SAME-CORPORATION-STATUTE OF LIMITATIONS.-The limitation of 15 months within which an assessment may be made has no application to an action against a corporation for taxes imposed by statute. RAILROAD CORPORATION-LEASE.-The lease of a railroad does not dissolve such corporation, and it may still be sued for liabilities incurred prior to such lease.

SAME DEPRECIATION OF ASSETS-DEDUCTION FROM PROFITS.-The depreciation of assets during a certain period cannot be deducted from profits earned during the same period, in determining the taxable profits of a railroad corporation under the act of June 30, 1864.

Channing Richards, District Attorney, for the United States. Stanley Matthews, for defendant:

SWING, J. This suit was brought by the United States to recover the tax of 5 per cent. imposed by the internal revenue act of June 30, 1864, upon profits earned from the first of July, 1864, to the first of December, 1869, and used in construction, or carried to the credit of certain funds. It was claimed by the United States that the defendant has earned profits which were so used during that period amounting to $326,000, on which no tax was paid.

The defences were: First, that returns were made each year, and accepted by the government, upon which taxes were assessed and paid; that no assessment has been made for the additional amounts now claimed, and if there were errors and omissions in the returns they cannot now be corrected, nor can the taxes now be recovered without an assessment; second, that the defendant in fact paid taxes on all profits made

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during the period in question, and that the profits shown by their books during that period, on which tax is claimed, are fully wiped out by certain items charged to profit and loss in 1869.

The court disposed of the first defence as follows: An action of debt may be maintained to recover taxes, without an assessment, where the statute describes the subject of the taxes and fixes the rates so that the amount may be ascertained by evidence. Dollar Savings Bank v. U. S. 19 Wall. 227; King v. U. S. 99 U. S. 229; The U. S. v. S. J. Tilden, 24 Int. Rev. Rec. 99. Nor will the fact that an assessment has been made and paid be a bar to a suit for the recovery of an amount claimed to be due over and above the amount which has been assessed and paid U. S. v. Hazard, 22 Int. Rev. Rec. 309; U. S. v. S. J. Tilden, 24 Int. Rev. Rec. 99.

The tax imposed by section 122 of the statute, although substantially a tax upon the stockholder, so far as its effects and results are concerned, yet the obligation to pay the tax, is by this section imposed upon the corporation, and this would seem to be the view entertained by the supreme court of the United States in the Michigan Central R. Co. v. Slack, Collector, 26 Int. Rev. Rec. 60.

This being an action against the corporation for taxes imposed by statute, and not upon an assessment for taxes, the limitation of 15 months within which an assessment may be made does not apply; and congress not having fixed a time within which an action of this character shall be brought, "no laches can be imputed to the government, and against it no time can run so as to bar its rights." The U. S. v. Thompson, 98 U. S. 486; The U. S. v. Kirkpatrick, 9 Wheat.; The U. S. v. Williams, 5 McLean, 133.

It is not necessary now to consider the effect of the lease by the defendant to the Pennsylvania Central & St. Louis Railway and the Pennsylvania Railroad Company further than to say that such lease did not dissolve the corporation, and it may still be sued for liabilities incurred prior to such lease. But whether the property can be subjected to the

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satisfaction of a judgment obtained, and the mode of subjection, are questions not now before the court. ̧Ñ

Upon the second defence the court held that a portion of the items charged to profit and loss in 1869 was properly chargeable to expenses and losses incurred in operating the road during the period named, and should be deducted from the amount of apparent profits shown by their current reports, thus reducing the sum to $168,707.22, upon which the plaintiff was entitled to recover the tax of 5 per cent., amounting to $8,435.36. The remaining items charged to profit and loss in 1869, being the estimated depreciation of assets during the period in question, the court held not to be properly chargeable to expenses, and could not be deducted from profits earned during the period, and used in construction or carried to the credit of any fund.

Exceptions were taken by the defendant, and the case will be carried to the supreme court.

(10 F.)

UNITED STATES v. CENTRAL NATIONAL BANK.

(District Court, S. D. New York. February 3, 1882.)

1. BANKS-INTERNAL REVENUE-RETURNS, WHAT DEDUCTIONS "PROFITS" DEFINED.

ALLOWED

In ascertaining the "amount of profits which have accrued or been earned and received" by a bank, for which it was required to make returns by section 121 of the act of June 30, 1864, (13 St. at Large, 284,) embezzlements during the period covered by the returns may be deducted. By "profits" is meant net profits after deducting expenses and losses from whatever sources connected with the business.

2. RETURNS OF PROFITS-DEDUCTION OF LOSSES BY EMBEZZLEMENT.

Where, for the years 1866, 1867, and 1868, the defendant, in making its returns, deducted the amounts paid by it for state taxes upon the value of the shares of capital stock, and required by the state law to be paid "out of its funds," and suit being now brought for a duty of 5 per cent. on the amount so paid by the bank on account of the state tax, on the ground that it was unlawfully deducted from the returns made, and it appeared that the amount of losses by embezzlement suffered by the bank during each year was greater than the amount so paid for taxes and deducted from the returns, and that such losses had not been deducted, because not discovered by the bank till after the returns made and its duties paid thereon, held, that its returns being in fact fully equal to all the bank's profit for those years, no further duty could be recovered.

3. JUDGMENT ON DEMURRER-GOING BACK TO FIRST FAULT.

Upon demurrer the whole record is presented, and judgment goes against the party in whose pleading there is found the first substantial fault. 4. PLEADING-INSUFFICIENT ALLEGATIONS IN COMPLAINT.

Where the complaint claimed duty for alleged insufficient returns for the year 1870, under section 121 above referred to, but did not state that the defendant had "neglected to or omitted to make a return of dividends or additions to its surplus or contingent funds as often as once in six months," and, upon an answer claiming the right to deduct the state tax, as above stated, the plaintiff demurred to the defence for insufficiency in law, held, without passing upon this defence, that the complaint was insufficient, and judgment should be ordered for the defendant unless plaintiff amended as allowed.

Demurrer to an Answer.

S. L. Woodford, Dist. Atty., and E. B. Hill, Asst., for the United States.

Martin & Smith, for defendant.

BROWN, D. J. This action was commenced on July 22, 1881, to recover the sum of $12,456.94 principal, besides interest, for arrears. of income tax alleged to be due from the defendant for the years 1866, 1867, 1868, and 1870, under sections 120 and 121 of the revyenue act passed June 30, 1864, (13 St. at Large, c. 173, p. 283.)

The complaint alleges that in 1866 the defendant made and realized in its business, as a bank, certain profits, to-wit, $56,555.69, whereof no return was ever made to the assessor; that said profits were liable to a tax of 5 per centum, none of which has ever been paid. Similar averments are made in reference to the years 1867, 1868, and 1870.

Besides certain denials, the answer sets forth two separate de. fences:

First. That by the law of the state of New York the defendant was required to retain from the dividends paid to its stockholders the amount of the municipal tax levied by the state against the stockholders upon the value of their shares of the capital stock, and that the defendant was also required by the state law to pay to the state officers, out of its funds, the amount of taxes thus levied upon the par value of the stock, and to deduct said amount ratably from dividends to be paid by the defendant to its stockholders; that, in accordance with the state law, the defendant did so retain and pay to the proper state authorities the state taxes so levied for that year upon the capital stock of its stockholders, amounting to the said sum of $56,555.69, and its returns to the assessor of the district deducted the amount of taxes so paid, as it claims to have the right under the law to do; and that it paid the duty upon such returns, deducting such state taxes. Second, that in 1866 defendant made returns of its profits for that year to the amount of $478,947.36, and paid to the collector the duty upon that amount; that in July, 1869, defendant discovered certain losses by embezzlement during the years 1866, 1867, and 1868, which had been previously concealed and unknown to it; that the amount of such losses during 1866 was at least equal to the amount of the state tax which had been deducted from the returns of that year, so that, aside from the deduction of the state tax, the amount of its returns to the assessor was fully equal to all its profits for that year; and that, in fact, the duty paid was greatly in excess of that to which it was liable under the act of congress.

The same defences are made to the duties claimed for the years 1867 and 1868. To the claim for the year 1870 the second defence does not apply, but only the first. The plaintiff demurs to each of these defences as insufficient in law.

In behalf of the United States it is claimed that the losses sustained by the bank through embezzlements should not be deducted from its returns; that it must pay taxes upon all its profits earned, and that it is immaterial what becomes of these profits after they have been made, whether lost by embezzlement or otherwise; that it is only legitimate expenses which can be deducted from the profits in making returns to the assessor. No authorities are cited for such a construction, and it seems to me altogether unreasonable. Section