'* * * The argument is that the taxpayer having once got back, through credit or refund, the difference between the amount of the tax 'accrued' in 1944 and the amount finally determined to be due, no double benefit should be inferred. The double benefit, it is argued, should certainly be denied when the figure upon which it is based has no economic reality.
'But the rule that general equitable considerations do not control the measure of deductions or tax benefits cuts both ways. It is as applicable to the Government as to the taxpayer. Congress may be strict or lavish in its allowance of deductions or tax benefits. The formula it writes may be arbitrary and harsh in its applications. But where the benefit claimed by the taxpayer is fairly within the statutory language and the construction sought is in harmony with the statute as an organic whole, the benefits will not be withheld from the taxpayer though they represent an unexpected windfall.'
2. Argument that the refund of 1944 excess profits tax constitutes income under the tax benefit principle, since this tax is deductible in computing the net 1946 operating loss forming the basis of this claim for refund of 1947 income taxes (pages 19-25 of Government's brief of May 1956).
Again, the United States Supreme Court would have reduced the taxpayer's 1946 net operating loss in the Lewyt case
by the amount of its 1944 excess profits tax refund (which accrued on the last day of 1946 when that loss became certain) if this principle was applicable in this situation.
Although this principle was not contained in the Supreme Court briefs or opinion, the federal appellate courts have laid down the rule that a lower federal court should not disregard a holding of the United States Supreme Court on the ground that a certain legal point had not been raised. See Bingham v. United States, 1935, 296 U.S. 211, 218-219, 56 S. Ct. 180, 80 L. Ed. 160;
United States ex rel. Trinler v. Carusi, 3 Cir., 1948, 168 F.2d 1014, 1016; Bank Line v. United States, 2 Cir., 1938, 96 F.2d 52, 54;
Kowalski v. Chandler, 6 Cir., 1953, 202 F.2d 413, 414, affirmed 346 U.S. 356, 74 S. Ct. 78, 98 L. Ed. 64; cf. Sunbeam Corp. v. Wentling, 3 Cir., 1951, 185 F.2d 903, 905, vacated on other grounds 1951, 341 U.S. 944, 71 S. Ct. 1012, 95 L. Ed. 1369; Tucker v. Norton, D.C.E.D.Pa.1943, 49 F.Supp. 483, 484.
Furthermore, since (a) the definition of 'prior tax' in Section 22(b)(12)(B) of the Code is limited to a 'tax on account of which a deduction or credit was allowed for a prior taxable year,' (b) the only years for which the deduction for the 1944 excess profits tax refunded could have been allowed are 1946 (the year in which the refund accrued
) or 1947 (when it was received), and(c) neither of these years is a 'prior taxable year' to the year the refund accrued, the trial judge can find no merit in defendant's contention in its second amended answer
that the $ 4,968,544.42 of 1944 excess profits tax refund, which accrued in 1946 and was received in 1947, is 'taxable income to the plaintiff * * * under the Tax Benefit Rule as provided in Section 22(b)(12) * * *.'
B. Possible Application of the Statute of Limitations
Defendant contends that the terms of Section 322(b)(2)(A)
prevent the refund of the $ 400,000 paid on March 15, 1948, when plaintiff filed his 'tentative' return and the $ 400,000 paid on June 15, 1948, which amounts were placed by the Collector to plaintiff's credit in his suspense account, since 'the amount of the * * * refund shall not exceed the portion of the tax paid * * * during the three years immediately preceding the filing of the claim (July 11, 1951).'
However, the United States Supreme Court has held that amounts paid on account of a tax to be computed in a return to be filed later and placed in a Collector's suspense account are not 'paid' for the purpose of the statute of limitations until they are applied by the Collector, through assessment or similar action, to the particular tax involved. See Rosenman v. United States, 1945, 323 U.S. 658, 65 S. Ct. 536, 89 L. Ed. 535.
The trial judge has been unable to find any significant differences in the facts before the court in the Rosenman case and the facts in this case on this issue.
The opinion in the Rosenman case used this language in rejecting the defendant's contention 323 U.S. at page 662, 65 S. Ct. at page 538:
'But the Government contends 'payment of such tax' was made on December 24, 1934, when petitioners transferred to the Collector a check for $ 120,000. This stopped the running of penalties and interest, says the Government, and therefore is to be treated as a payment by the parties. But on December 24, 1934, the taxpayer did not discharge what he deemed a liability nor pay one that was asserted. There was merely an interim arrangement to cover whatever contingencies the future might define. The tax obligation did not become defined until April 1938. And this is the practical construction which the Government has placed upon such arrangements. The Government does not consider such advances of estimated taxes as tax payments. They are, as it were, payments in escrow. They are set aside, as we have noted, in special suspense accounts established for depositing money received when no assessment is then outstanding against the taxpayer. The receipt by the Government of moneys under such an arrangement carries no more significance than would the giving of a surety bond. Money in these accounts is held not as taxes duly collected are held but as a deposit made in the nature of a cash bond for the payment of taxes thereafter found to be due.'
The Government relies on language used in reports of Congressional Committees
and of the Association of the Bar of the City of New York,
concerning proposals to amend the Internal Revenue Code, to support its contention that the statute of limitations is a bar to recovery of these amounts paid prior to filing of the return and placed in the Collector's suspense account. However, even if the language used in these reports was applicable to this situation,
non-judicial statements as to the meaning of statutory language made after the enactment of the statute may not be considered in construing the statute. See Fogarty v. United States, 1950, 340 U.S. 8, 13, 71 S. Ct. 5, 95 L. Ed. 10;
and United States v. United Mine Workers, 1947, 330 U.S. 258, 281-282, 67 S. Ct. 677, 91 L. Ed. 884.
The United States Court of Appeals for the Third Circuit has reached a result consistent with the holding of the Rosenman case on an analogous factual situation. See Busser v. United States, 3 Cir., 1942, 130 F.2d 537.
For the reasons stated above, plaintiff is entitled to judgment.
Plaintiff may submit an appropriate order for the entry of judgment in accordance with the foregoing Findings of Fact, Conclusions of Law and Discussion, upon 15 days' notice to defendant.