The opinion of the court was delivered by: GOURLEY
In this reorganization proceeding, the issue is raised as to whether the provisions of Section 57, sub. j, of the Bankruptcy Act apply to a tax penalty which has been liened of record prior to the institution of said reorganization.
Section 57, sub. j, of the Bankruptcy Act provides as follows:
The Hankey Baking Company was required to file a return, and pay any sums due, for federal insurance contributions and withholding taxes for the first quarter of 1952. This tax return was required to be filed during the month of April, 1952. It was not filed by the taxpayer until May 6, 1952. Therefore, in addition to the tax of $ 17,840.73, the District Director of Internal Revenue assessed a five per cent penalty against the company. This penalty amounted to $ 892.04, and was assessed pursuant to the provisions of Section 3612(d) of the Internal Revenue Code. Later, on July 8, 1952, the tax and penalty were liened of record in the office of the Prothonotary of Allegheny County, Pennsylvania. On September 16, 1952, the present reorganization proceedings were filed. On June 2, 1954, the Trustee paid to the United States the amount of this tax and penalty, along with payment of other taxes due.
It is now the position of the Trustee that this penalty should not have been allowed and should not have been paid.
It has been stipulated by the Government and Trustee that only simple interest of six per cent per annum on the tax claims from their due dates to the date of the filing of the petition for reorganization was allowable. The Government has correctly computed that part of its interest claim to be $ 1,841.72. It is the Trustee's contention that against such allowance of interest should be subtracted the Government's penalty claim of $ 892.04, which under the provisions of Section 57, sub. j, of the Bankruptcy Act cannot be exacted.
It is well settled that Section 57(j) is applicable in corporate reorganizations under Chapter X. Matter of Pressed Steel Car Company of New Jersey, 3 Cir., 100 F.2d 147, certiorari denied Wick v. State, 306 U.S. 648, 59 S. Ct. 589, 83 L. Ed. 1047; Beardsley & Wolcott Mfg. Co., 2 Cir., 82 F.2d 239, 104 A.L.R. 881.
The Government attempts to avoid the application of Section 57, sub. j, of the Bankruptcy Act by asserting that the lien for the tax and the penalty had been filed prior to the filing of the reorganization petition, and cites the following authorities in support of its position: Grimland v. United States, 10 Cir., 206 F.2d 599; In re Knox-Powell-Stockton Co., Inc., 9 Cir., 100 F.2d 979; Com. of Kentucky ex rel. Unemployment Compensation Comm. v. Farmers Bank & Trust Co., 6 Cir., 139 F.2d 266.
The record in this case discloses that the penalty of $ 892.04 was incorporated in a lien for withholding taxes for the first quarter of 1952, which was filed on July 8, 1952, within four months of the filing of the petition for reorganization (September 16, 1952).
This court has ruled in its orders approving and confirming the Trustee's plan of reorganization that the debtor corporation was insolvent. The argument of the Government in this proceeding that Section 57, sub. j, of the Bankruptcy Act does not apply because the penalty was incorporated in a lien filed prior to reorganization is no more sound than was its argument in the Matter of Industrial Machine and Supply Company, Debtor, that it was entitled to post-reorganization interest on taxes which had been reduced to liens prior to reorganization as distinguished from unliened tax claims. In re Industrial Machine & Supply Co., D.C., 112 F.Supp. 261.
In that opinion I stated that I find no basis in law or policy for an arbitrary distinction between tax claims reduced to liens and tax claims not reduced to liens.
The proper rule to be applied in regard to penalties for nonpayment of taxes is clearly enunciated in Volume 3 of Collier on Bankruptcy (14th Edition), page 301, as follows:
Numerous decisions have failed to recognize any distinction between a liened or unliened penalty. Matter of 168 Adams Building Corp., D.C., 27 F.Supp. 247, affirmed 7 Cir., 105 F.2d 704, certiorari denied Steinbrecher v. Toman, 308 U.S. 623, 60 S. Ct. 378, 84 L. Ed. 520; People of State of New York v. Jersawit, 263 U.S. 493, 44 S. Ct. 167, 68 L. Ed. 405; Matter of Pressed Steel Car Company of New Jersey, supra; Com. of Pennsylvania v. York Silk Mfg. Co., 3 Cir., 192 F. 81; United States v. Childs, 266 U.S. 304, 45 S. Ct. ...