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supporting and adding cogency to the prior administrative construction, such as the proviso at the close of section 30, as follows:
“Any tax paid under the provisions of sections twenty-nine and thirty shall be deducted from the particular legacy or distributive share on account of which the sum is charged;" a provision plainly importing a practically contemporaneous right to receive the legacy or distributive share, and one which would be impracticable of execution if the tax was to be assessed and collected before the beneficiary and the rate of tax could certainly be ascertained.
Further elucidation as to the meaning of the amendatory act of 1901 is unnecessary in view of the subsequent legislation of Congress. By the act of April 12, 1902, 32 Stat. 96, section 29 of the act of 1898, as amended on March 2, 1901, was repealed to take effect on July 1, 1902. The repealing act, however, saved “All taxes or duties imposed by section 29 of the act of June 13, 1898, and the amendments thereof, prior to the taking effect of this act.” On June 27, 1902, 32
” Stat. 406, an act was adopted, the third section of which reads as follows:
“SEC. 3. That in all cases where an executor, administrator, or trustee, shall have paid, or shall hereafter pay, any tax upon any legacy or distributive share of personal property under the provisions of the act approved June thirteenth, eighteen hundred and ninety-eight, entitled 'An act to provide ways and means to meet war expenditures, and for other purposes, and amendments thereof, the Secretary of the Treasury be, and he is hereby, authorized and directed to refund, out of any money in the Treasury, not otherwise appropriated, upon proper application being made to the Commissioner of Internal Revenue, under such rules and regulations as may be prescribed, so much of said tax as may have been collected on contingent beneficial interests which shall not have become vested prior to July first, nineteen hundred and two. And no tax shall hereafter be assessed or imposed under said act,
approved June thirteenth, eighteen hundred and ninety-eight, upon or in respect of any contingent beneficial interest which shall not become absolutely vested in possession or enjoyment prior to said July first, nineteen hundred and two."
In view of the provision for refunding we see no escape from the conclusion that this statute was in a sense declaratory of what we hold was the true construction of the act of 1898, and which, as we have seen, had prevailed prior to the amendment of March 2, 1901, and which was only departed from by the administrative officer under a misconception of the import of that amendatory act. There is no suggestion that any prior practice prevailed in the enforcement of the act of 1898, calling for the enacting of the refunding clause, except the mistaken construction placed on the amendatory act of 1901. The act of 1902 was, therefore, a legislative affirmance of the construction given to the act of 1898, prior to the amendment of 1901. It follows that the act of 1902 was, moreover, a legislative repudiation of the construction of the act of 1898, now insisted on by the Government. It is, we think, incontrovertible that the taxes which the third section of the act of 1902 directs to be refunded and those which it forbids the collection of in the future are one and the same in their nature. Any other view would destroy the unity of the section and cause its provisions to produce inexplicable conflict. From this it results that the taxes which are directed in the first sentence to be refunded, because they had been wrongfully collected on contingent beneficial interests which had not become vested prior to July 1, 1902, were taxes levied on such beneficial interests as had not become vested in possession or enjoyment prior to the date named, within the intendment of the subsequent sentence. In other words, the statute provided for the refunding of taxes collected under the circumstances stated and at the same time forbade like collections in the future.
In view of the text of the act of 1898 and the other considerations to which we have referred, we have not deemed it
necessary to advert to a contention made by the Government in argument, that the true meaning of the act of 1898 is shown by the administrative construction placed upon the act of July 1, 1862, levying legacy taxes, 12 Stat. 432, 485, of which in effect the act of 1898 was a reproduction. It is undoubtedly true that both under the act of 1862 and the act of June 30, 1864, 13 Stat. 223, 285, there was an administrative construction by which vested interests, although unaccompanied with the right of immediate possession or enjoyment, were treated as at once taxable. Without entering into details on the subject, we content ourselves with saying that it is also true that the correctness of that construction was in effect repudiated by legislative action (act of July 13, 1866, 14 Stat. 98, 140), and was, moreover, in substance, treated as unsound by the reasoning of the opinion in Clapp v. Mason, 94 U. S. 589.
Thus, by legislative action and judicial interpretation, it came to pass that the acts of 1862 and 1864 signified exactly what we now construe the act of 1898 to mean. It was doubtless this concordance of legislative action and judicial interpretation concerning the earlier acts which caused the administrative department of the Government, when the act of 1898 was adopted, to interpret that act, not as the acts of 1862 and 1864 had been originally erroneously interpreted in administration, but in accord with the subsequent legislative and judicial construction which had been placed upon the language of those acts, and which language in effect was repeated in the act of 1898.
Concluding, as we do, that there was no authority under the act of 1898 for taxing the interest of Alfred G. Vanderbilt, given him by the residuary clause of the will, conditioned on his attaining the ages of thirty and thirty-five years, respectively, it is unnecessary to determine whether such interest was technically a vested remainder, as claimed by counsel for the Government. In passing, however, we remark that in a case recently decided by the Court of Appeals of New York, Matter of Tracy, 179 N. Y. 501, it was declared
that such interest was a contingent and not a vested remainder.
Coming to apply the construction which we have given the statute to the solution of the questions propounded by the Court of Appeals, it follows that the first, second and fourth questions are unnecessary to be answered, and the third question should be answered in the negative.
And it is so ordered.
WESTERN TIE AND TIMBER COMPANY V. BROWN.
APPEAL FROM THE CIRCUIT COURT OF APPEALS FOR THE EIGHTH
No. 232. Argued January 5, 1905.—Decided February 20, 1905.
The bankrupt was largely indebted to a corporation whose laborers pur
chased supplies from him; periodically he rendered the corporation a statement of amounts due from its laborers which it deducted from their wages and remitted to him in a lump sum. Prior to, and within four months of, the filing of the petition, the corporation several times de ducted from its pay-roll, amounts aggregating over $2,000, so due by its laborers but did not pay them over, and on filing its claim it embodied as an integral part thereof the amounts so deducted and retained as a proper credit or offset. The Circuit Court of Appeals found that the corporation retained the amounts with the knowledge of the bankrupt's insolvency and with the intention to secure a preference to that extent thereby, but that the bankrupt had no such intention, and ordered that the entire claim be expunged unless the corporation paid the amount so retained to the trustee. On appeal objections were taken to the jurisdic
tion of this court. Held: that As the claim to set-off is controlled by and is necessarily based on the
provisions of $ 68 of the Bankrupt Act and its construction is necessarily involved, and the question is one which might have been taken to this court on appeal or writ of error from the highest court of a State, this
court has jurisdiction of the appeal. Under the facts as found below the deductions from pay-roll did not give
rise to a voidable preference nor was the corporation entitled to credit them as a set-off as they were not mutual debts and credits within the set-off clause of the bankrupt act, but were collections made independ
ently of other transactions and as trustee for the bankrupt. The corporation was entitled to prove its gross debt with the alleged set-off eliminated and was a debtor to the bankrupt for the amount of such deductions, and the court below has power to protect the bankrupt's estate in respect to dividends to the corporation in case it should not discharge its obligations.
This is an appeal from a decree of the Circuit Court of Appeals for the Eighth Circuit, affirming, as modified, an order of the District Court of the United States for the Eastern District of Arkansas, directing that the claim of the Western Tie and Timber Company against the estate of S. F. Harrison, a bankrupt, be expunged, unless the company paid to the trustee in bankruptcy a specified sum, found to have been transferred to the company by the bankrupt and decided to have operated a voidable preference. 129 Fed. Rep. 728.
The facts were thus found by the Circuit Court of Appeals:
"1. On February 24, 1903, a petition to procure an adjudication that S. Frank Harrison was a bankrupt was filed in the District Court of the United States for the Eastern District of Arkansas, and Harrison was then adjudged a bankrupt.
“2. The Western Tie and Timber Company was a corporation and a creditor of Harrison. It presented a claim against his estate in bankruptcy of $24,358. The trustee moved to expunge this claim on the ground that the tie company had secured a voidable preference. The District Court ordered the claim expunged unless the tie company should pay to the trustee $2,210.73, and an appeal from this order was taken.
“3. For some years prior to February 24, 1903, the tie company and Harrison had been engaged in removing timber from land of the former and converting it into ties, which the company received and sold. For many months prior to October, 1902, Harrison had owned and conducted stores in the vicinity of the places where the work of cutting and hauling the ties was carried on, and had furnished the laborers engaged in that work with groceries and other supplies. These laborers and Harrison were paid by the tie company in this way: Once in two or four weeks an inspector sent to the tie company a pay