Alabama Pipe Co. v. United States

Full title: ALABAMA PIPE CO. v. UNITED STATES.

Court: United States Court of Claims.

Date published: Nov 1, 1937

21 F. Supp. 173 (Fed. Cl. 1937)

Opinion

21 F.Supp. 173 (Ct.Cl. 1937) ALABAMA PIPE CO. v. UNITED STATES. No. 42981. United States Court of Claims. Nov. 1, 1937.

        Suit by the Alabama Pipe Company against the United States.

        Judgment for plaintiff.

        This case having been heard by the Court of Claims, the court, upon the stipulation of facts and the evidence, makes the following special findings of fact:

        1. The plaintiff, Alabama Pipe Company, is a corporation of duly organized and existing under the laws of the state of Alabama, with its principal office at Anniston, Ala. Plaintiff was organized on November 1, 1924, with an authorized capital stock of 80,000 shares of common stock of no par value, and 40,000 shares of 6 per cent. cumulative preferred stock of a par value of $100 per share.

        2. On February 19, 1932, plaintiff's directors adopted the following resolution:

        "Resolved that the accumulated dividends upon the company's outstanding preferred stock for the year 1931 may be paid when and if the company's finances make it advisable to do so, the decision to be left to the judgment of the President and General Manager; also, that the smaller stockholders may be paid first; also that by agreement between or among the three groups of the larger stockholders (Hamilton-Kilby-Byrd) any of said group may be paid first, either in full or on account, but that no payment at all shall be made to anyone unless the President and General Manager decides that it shall be done, at the time.

        C.A. Hamilton was at that time and still is president and general manager of plaintiff. The directors of the plaintiff at that time, all of whom were present at the meeting of February 19, 1932, were C.A. Hamilton, William M. Byrd, Jr., Thomas E. Kilby, and Whitfield Clark.

        3. At the time of the adoption of the resolution of February 19, 1932, plaintiff had outstanding 24,329 shares of preferred stock which were held principally by three family groups, known respectively as the Kilby, Byrd, and Hamilton groups. The names of the stockholders and the number of shares of such stock held at that time were as follows:

Number	Name of Shares
Kilby Group:
Kilby Car & Foundry Co ........	8,170
Byrd Group:
William F. Byrd ..................	99
Mrs. William M. Byrd, Jr .........	80
William M. Byrd, Jr ...........	5,500
Hamilton Group:
C. A. Hamilton, Jr ..............	100
F. T. Hamilton ..................	100
J. R. Hamilton ..................	100
Julia Hamilton ..................	100
Mrs. M. D. Hamilton ...........	1,000
Superior Pipe Company .........	3,023
C. A. Hamilton ................	5,137
Miscellaneous:
Walker Reynolds .................	450
Mrs. Mary W. Reynolds ............	10
T. H. Collins ...................	460

        4. At the time of the adoption of the resolution of February 19, 1932, plaintiff had an earned surplus of $1,211,656.95. It had on hand cash of approximately $400,000, but the directors had decided, following conferences with the larger stockholders, to postpone payment of the dividend to the larger stockholders who were not in immediate need of the money, because of fixed obligations of approximately $150,000 which were to fall due before the end of the year 1932, and because of the fear that most, if not all, of the balance of the cash would be needed for working capital in plaintiff's operations for the year, in view of the depressed business conditions then existing.

        5. Immediately after the meeting of February 91, 1932, entries were made in the plaintiff's current books of account, dated January 1, 1932, crediting to each of the preferred stockholders his pro rata share of such dividend, such credits being entered in the personal accounts of the various stockholders with the corporation, and a corresponding entry was made reducing the surplus account by the total amount of the dividends so declared, namely, $145,974. The dividends had in fact been paid to some of the smaller stockholders in January and the early part of February, 1932, and the dividend on the stock held by Kilby Car & Foundry Company had been paid on February 10, 1932.

        As the amounts so credited to the stockholders were thereafter paid (as shown in detail in findings 6 to 9 hereof) the amount of each payment was, at the time of such payment, charged to the account of the stockholder to whom paid and the company's cash account was correspondingly deceased. When the books were closed at the end of the year, the unpaid balance of the amounts so credited to the stockholders appeared upon the balance sheet in a liability account designated "Dividends Payable."

        The same method of bookkeeping had been adopted with reference to the dividends on the preferred stock for the years prior to 1932, except that the dividend for the year 1930 was paid in cash in January, 1931.

        6. Of the total of $145,974.00 due its stockholders under the resolution of February 19, 1932, plaintiff paid $114,856.80 prior to June 16, 1933, and during the months of July, August, and November, 1933, it paid further sums, pursuant to the terms of the resolution, as follows:

July 1933 ......	$2,500.00
August 1933 .....	7,500.00
November 1933 ..	14,000.00

        The remainder of $145,974.00, namely $7,117.20, was paid after November, 1933.

        7. The amount of $114,856.80 mentioned in finding 6 was paid to the following stockholders on the dates and in the amounts here set out:

------------------------------------------
Stockholder	Date	Amount
-----------------------------------------
Kilby Car & Foundry Co...........	February 10, 1932 ..	$49,020.00
William F. Byrd..................	March 7, 1932 ......	594.00
Mrs. William M. Byrd,
Jr..............................	March 7, 1932 ......	480.00
William M. Byrd, Jr...........	April 22, 1932 .....	377.70
"..........	August 27, 1932 ....	1,500.00
"..........	September 8, 1932 ..	1,000.00
"..........	November 19, 1932 ..	5,000.00
".........	December 7, 1932 ...	1,000.00
"..........	December 12, 1932 ..	4,000.00
"..........	January 26, 1933 ...	5,000.00
"..........	February 25, 1933 ..	5,000.00
"..........	February 28, 1933 ..	2,883.69
C. A. Hamilton, Jr...............	March 7, 1932 ......	600.00
F. T. Hamilton...................	March 7, 1932 ......	600.00
J. R. Hamilton...................	March 7, 1932 ......	600.00
Julia Hamilton...................	March 7, 1932 ......	600.00
Mrs. M. D. Hamilton..............	August 5, 1932 .....	6,000.00
Superior Pipe Company..........	May 20, 1932 .......	11,259.41
"..........	August 5, 1932 .....	4,500.00
C. A. Hamilton...................	February 6, 1933 ...	9,322.00
Walker Reynolds..................	January 4, 1932 ....	2,700.00
Mrs. Mary W. Reynolds............	January 4, 1932 ....	60.00
T. H. Collins....................	February 13, 1932 ..	2,760.00

        8. The amounts of $2,500, $7,500, and $14,000 mentioned in finding 6 as having been paid in July, August, and November, 1933, were paid to the following stockholders on the dates and in the amounts here set out:

Stockholder	Date	Amount
William M. Byrd, Jr.....	July 17, 1933 .....	$2,500.00
C. A. Hamilton..........	August 16, 1933 ...	7,500.00
"................	November 4, 1933 ..	14,000.00

        9. The amount of $7,117.20 mentioned in finding 6 hereof as having been paid after November, 1933, was paid to the following stockholders on the following dates and in the following amounts:

Stockholder	Date	Amount
William M. Byrd, Jr.....	December 11, 1933 ...	$400.00
" .............	January 4, 1934 ......	157.94
" .............	January 4, 1934 ....	4,180.67
Superior Pipe Company ..	January 9, 1934 ....	2,378.59

Each of the payments described in this finding and in findings 7 and 8 was made by the secretary and treasurer of plaintiff corporation on verbal instruction from C.A. Hamilton, the president and general manager, given at the time of payment.

        10. Pursuant to the provisions of section 213(a) of the National Industrial Recovery Act approved June 16, 1933 , the Commissioner of Internal Revenue, with the approval of the Acting Secretary of the Treasury, on July 14, 1933, promulgated Treasury Decision 4372, which provided various regulations with respect to filing returns under the foregoing statute.

        11. Pursuant to the provisions of Treasury Decision No. 4372, plaintiff duly filed returns for the months of July, August, and November, 1933, reporting therein in each instance the aggregate amounts of dividends paid in each of those months, as more fully set out in finding 6 hereof, but deducted in each instance the full amount reported, supporting such deduction by a statement attached to the return which set forth in full the resolution of February 19, 1932. None of these returns show any tax liability under section 213 and no tax was paid by plaintiff at the time of filing such returns. The Commissioner, however, on March 16, 1934, notified the plaintiff that he had determined the resolution of February 19, 1932, did not constitute a declaration of a dividend within the meaning of section 213 of the National Industry Recovery Act and that the amounts of dividend paid during the months of July, August, and November, 1933, were subject to a tax of 5 per centum under that act. Pursuant to that determination, the Commissioner assessed against plaintiff the following amounts as taxes and interest due under section 213, all of which amounts were paid by plaintiff August 18, 1934:

Month of Dividend Payment	Tax	Interest	Total
July, 1933 ..................	$125.00	$14.16	$139.16
August, 1933 ................	375.00	38.86	413.86
November, 1933 ..............	700.00	83.14	783.14
	--------	--------	--------
Totals ...................	1,200.00	136.16	1,336.16

        12. September 17, 1934, plaintiff duly filed claim for refund of the entire amount paid as set out in finding 11, assigning as the ground for such claim that the dividends paid in July, August, and November, 1933, were declared on February 19, 1932, and therefore were not subject to the tax imposed by section 213(a) of the National Industrial Recovery Act.

        13. November 8, 1934, the Commissioner refunded $38.84 of the interest collected on the tax assessed upon the dividend payments of November 1933. Shortly prior thereto, namely October 26, 1934, the claim for refund filed September 17, 1934, was otherwise rejected.         Howard Cecil Kilpatrick, of Washington, D.C., (Frederick A. Ballard, of washington, D.C., on the brief), for plaintiff.

        Fred K. Dyar, of Washington, D.C., and James W. Morris, Asst. Atty. Gen. (Robert N. Anderson and George H. Foster, both of Washington, D.C., on the brief), for the United States.

        Before BOOTH, Chief Justice, and GREEN, LITTLETON, WILLIAMS and WHALEY, Judges.

        WHALEY, Judge.

        The plaintiff seeks to recover $1,297.32 paid as a tax on dividends pursuant to the provisions of section 213(a) of the National Industry Recovery Act (48 Stat. 195, 206), enacted June 16, 1933, and reading as follows:

        "Sec. 213. (a) There is hereby imposed upon the receipt of dividends (required to be included in the gross income of the recipient under the provisions of the Revenue Act of 1932) by any person other than a domestic corporation, an excise tax equal to 5 per centum of the amount thereof, such tax to be deducted and withheld from such dividends by the payor corporation. The tax imposed by this section shall not apply to dividends declared before the date of the enactment of this Act."

        February 19, 1932, plaintiff adopted the resolution set out in our findings wherein it provided that dividends on its preferred stock for 1931 "may be paid when and if the company's finances made it advisable to do so, the decision to be left to the judgment of the President and General Manager." The resolution also provided that dividends might be paid to certain stockholders in advance of the payments to other stockholders, but that no payments should be made except in the discretion of the president and general manager.

        At the time the resolution was adopted, plaintiff had an earned surplus many times the dividends covered by the resolution and also had on hand sufficient cash with which to pay the dividends. In fact, at the time the resolution was adopted a substantial part of the dividends had already been paid, and prior to the enactment of the act in question $114,856.80 of the total of $145,974 had been paid. Upon the adoption of the resolution the personal accounts of each of the preferred stockholders was credited, upon the books of plaintiff, with his pro rata share of such dividend, and as payments were made to these stockholders appropriate charges were made to these accounts. Postponement of the payment of dividends to certain of the larger stockholders, who were not in immediate need of funds, was made because of certain fixed obligations of plaintiff which were coming due and also in order to conserve working capital to meet possible emergencies which might arise during the period of the depression.

        Of the dividends which remained unpaid on June 16, 1933, $24,000 was paid in July, August, and November, 1933. The remainder was paid thereafter but it is not involved in this suit. Plaintiff made returns on account of the dividend payments of $24,000 but paid no tax thereon at that time, on the ground that such dividends had been declared (under the resolution of February 19, 1932) prior to the date of the enactment of the National Industrial Recovery Act (48 Stat. 195) and therefore were exempt by the Commissioner to pay a tax on these dividends in the net amount of $1,297.32, and it is this amount which plaintiff seeks to recover in this suit.

        In view of our decision in the case of Evening Star Newspaper Company v. United States, 16 F.Supp. 1020, 1023, 84 Ct.Cl. 263, an extended discussion is unnecessary. In that case we held: "The purpose of section 213 of the National Industrial Recovery Act (supra) is, as defendant states, to impose a tax upon the recipients of dividends subsequent to its passage, and to exclude a tax upon dividends declared before the date of the act. The payment of dividends subsequent to the date of the act which had been declared previously was admittedly nontaxable, and we can perceive no force in an argument predicated upon this fact."

        In our opinion, the dividends in question were declared before the enactment of the National Industry Recovery Act and therefore under section 213(a) of that act are exempt from tax.

        Plaintiff is accordingly entitled to recover $1,297.32, with interest, as provided by law. It is so ordered.