Opinion
The plaintiff corporation brings this suit against the defendant collector of internal revenue to recover, with interest, an amount collected from the plaintiff by the defendant as a tax under Schedule A(1), title 8 (section 807) of the Revenue Act of 1926 (44 Stat. 101), as amended by section 721(a) of the Revenue Act of 1932 (47 Stat. 272 (see 26 U.S.C.A. § 901)), which imposes a tax of 10 cents, in respect of bonds, debentures, or certificates of indebtedness issued by any corporation, on each $100 of face value or fraction thereof, and providing 'that every renewal of the foregoing shall be taxed as a new issue.'
The complaint alleges:
'III. Under date of May 17, 1927, the plaintiff, by its corporate resolution duly adopted, authorized an issuance of bonds to the total principal amount of three million dollars, such bonds to mature serially over the period beginning January 1, 1932, and ending January 1, 1941, and being secured by a mortgage or indenture of trust, covering certain timber lands owned by the plaintiff, which mortgage was given to the Detroit Trust Company of Detroit, Michigan, a corporation, as Trustee, for the protection of the bondholders. The said deed of trust contained a provision in Article XXX thereof, that a meeting of bondholders might be called by the mortgagor, the Trustee, or any bondholder, upon certain notice, at which a quorum should consist of seventy-five (75%) per cent of the outstanding bonds, and that
''Any action or resolution approved in writing at any such meeting by the holders or owners of at least seventy-five per cent (75%) of the bonds represented at such meeting and thereat or subsequently approved in writing by both Timber Company and Trustee, signed by their duly qualified officers, shall be sufficient authority to Timber Company and/or Trustee to act in pursuance of such action or resolution whether same shall necessitate a change or changes or modification of any or all of the terms of this instrument or shall necessitate other action.' 'Plaintiff was unable to meet its maturing bond obligations, and thereupon requested the calling of a meeting of the bondholders under said Article XXX, to consent to certain modifications and extensions of its obligations under the terms of its bonds and mortgage. As a result of this meeting, a written agreement was entered into, dated December 27, 1933, between the plaintiff and the Detroit Trust Company as Trustee, a copy of which, except for certain signatures thereto, is hereto attached and marked Exhibit 'A."
The agreement to which reference is made in the paragraph of the complaint above quoted, while it contains other provisions relating to the bonds secured by the deed of trust, in so far as the present suit is concerned, the only provision therein contained which need now be stated provided:
'First: The maturity dates of all of the bonds of this issue maturing prior to the year 1941, are by these presents hereby extended until January 1, 1941, so that all bonds of the issue hereinbefore described shall mature January 1, 1941, anything in said Indenture of Trust or in the bonds themselves contained to the contrary notwithstanding. Mortgagor covenants and agrees that it will pay on January 1, 1941 the entire amount of principal of bonds of this issue then outstanding, together with a premium of five per centum thereon, or, if all interest scrip shall not have been retired prior to January 1, 1937, as provided in Article Third Paragraph (b) hereof, then a premium of ten per centum thereon, and until so paid all of said bonds shall be treated on a parity one with another in like manner as if they had been originally issued all to mature January 1, 1941.'
The complaint further alleges:
'IV. That on the 27th day of November, 1933, there had been issued, and were then outstanding, bonds of said issue, amounting to the total principal sum of $1,382,000.00, the maturities of which were as follows:
January
1, 1933
$ 59,000.00
"
" 1934
165,000.00
"
" 1935
165,000.00
"
" 1936
165,000.00
"
" 1937
165,000.00
"
" 1938
165,000.00
"
" 1939
165,000.00
"
" 1940
164,000.00
"
" 1941
169,000.00
'V. * * *
'IV' (VI). 'That under the facts and circumstances above set forth, the agreement entered into between the Detroit Trust Company, as Trustee, and the plaintiff, did not constitute an issue or renewal of a bond or security and did not give rise to the imposition of any tax liability, and that said sum was wrongfully and unlawfully demanded of and collected from the plaintiff.'
The defendant demurs on the ground that the complaint does not state facts sufficient to constitute a cause of action.
Wright, Jones & Bronson, of Seattle, Wash., for plaintiff.
J. Charles Dennis, U.S. Atty., and Owen P. Hughes, Asst. U.S. Atty., both of Tacoma, Wash., and Thomas R. Winter, Sp. Atty., Bureau of Internal Revenue, of Seattle, Wash., for defendant. CUSHMAN, District Judge (after stating the facts as above).
The question presented is one of law. The plaintiff contends that, while the change made by the agreement (Exhibit A attached to the complaint) amounted to an extension of the maturity date of the bonds, it was not the renewal contemplated by the statute.
The demurrer will be sustained. Sheldon v. Mississippi Cottonseed Products Co. (C.C.A.) 81 F. (2d) 169, certiorari denied Mississippi Cottonseed Products Co. v. Sheldon, Collector, etc., 297 U.S. 721, 56 S.Ct. 599, 80 L.Ed. 1005, March 16, 1936. As shown in the foregoing case, the word 'renewal' may be given different meanings, included among them-- where bonds or other promises to pay are the subject-matter involved-- that of an 'extension' or postponement of the maturity date. To this extent there is ambiguity the word becomes properly the subject of executive construction, which construction, when general, uniform, or settled, and long-continued, being later followed by congressional re-enactment of the statute construed, may be considered as having received congressional approval.
In Cole v. Commissioner of Internal Revenue (C.C.A.) 81 F. (2d) 485, at page 488, the court concluded the statutes, which had received an administrative construction disapproved by the court, were not ambiguous, that there had been no departmental construction, that the administrative interpretation had not been general, uniform, nor long-continued.
Any order based on the foregoing ruling will be settled upon notice.
The clerk is directed to notify the attorneys for the parties of the filing of this opinion.