BULOVA WATCH CO. v. UNITED STATES

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Argument of Bernard Weiss

Chief Justice Earl Warren: Number 241, Bulova Watch Company, Incorporated, Petitioner, versus United States.

Mr. Bernard Weiss: May it please --

Chief Justice Earl Warren: Mr. Weiss.

Mr. Bernard Weiss: May it please the Court.

This proceeding is consigned with the question in computing interest as provided by law that the judgment of the United States Court of Claims, Section 2411 (a) of Title 28 of the U.S. Code Section 3771 (e) of the Internal Revenue Code of 1939, which is Title 26 apply.

It is the -- the petitioner's contention that Section 2411 (a) govern since it is contained in the Judicial Code, now called Title 28, a judiciary into the -- under the title, Judiciary and Judicial Procedure and the question of determining.

The interest on a judgment is peculiarly within the province of the Court which is adjudicating a case.

Section 2411 (a) is a specific provision in the Judicial Code dealing with interest in an -- with interest on any overpayment and federal tax, as a result of obtaining a judgment to such overpayment in any court.

I'm going to read these two Sections which are alleged to be in conflict and then I'll try to distinguish them and show why.

3771 (e) never applies in any case where we run into a situation where the Commissioner of Internal Revenue refuses to allow the claim for refund.

That Section is only applicable when the Commissioner of Internal Revenue has allowed it.

And if he doesn't allow, the claim for refund within the -- those provisions, that Section cannot be used.

This is an administrative proceeding when you say, “If the Commissioner determines.”

He's not a judicial officer.

Therefore, when we use this particular expression, if the Commissioner determines an overpayment in tax which is attributable to an unused excess profits, credit carry-back or a net operating loss, credit carry-back from a subsequent year, what we're in effect saying is that the Commissioner has now made a determination.

There is no judgment of any kind involved because when he makes the determination, there isn't -- the -- the taxpayer is in no position to refer to the Judicial Code.

And therefore, when the taxpayer seeks to -- seeks a refund, he has to come within the meaning of the law.

Now, when the -- I'm going to read these two Sections and this is what it said, reading now 2411 (a).

It says, “In any judgment of any court rendered that (whether against the United States, a collector or deputy collector of internal revenue, or the personal representative in case of death) for an overpayment in respect of any internal-revenue tax, interest shall be allowed at the rate of 6 per centum per annum upon the amount of the overpayment, from the date of the payment or collection thereof to a date preceding the date of the refund check by not more than 30 days, such date to be determined by the Commissioner of Internal Revenue.”

Now, the language of this particular provision of the Judicial Code requires no further explanation than just the words themselves.

They speak for themselves, they're unambiguous.

And what does Section 3771 (e) say?

It says, “If the Commissioner determines that any part of any overpayment is attributable to the inclusion in computing the net operating loss deduction for the taxable year of any part of the net operating loss for succeeding taxable year or to the inclusion in computing the -- unused excess profits credit adjustment for the taxable year of any part of the unused excess profits credit for succeeding taxable year, no interest shall be allowed or paid with -- with respect to such part of the overpayment for any period before the filing of a claim for credit or refund of such part of the over -- of the overpayment or the filing a petition with the Tax Court, whichever is earlier."

Now, before I go into discussing these two provisions, I want to make a short statement of what the facts are.

It's only one paragraph and we can deal with that.

March 28th, 1959, the petitioner obtained a judgment in the United States Court of claims against the defendant for overpayments of income and excess profits taxes in the sum of $520,000, approximately, when adjustments for interest as provided by law for the fiscal year ended March 31, 1942 to March 31, 1946, inclusive.

This judgment included an overpayment of $211,900 of excess profits tax for the fiscal year ended March 31, 1942 of which amount $150,000 was attributable to an unused excess profits credit carry-back from the fiscal year ended March 31, 1943.

The defendant in computing the amount of interest on the overpayment of $150,000 commenced with the date of June 14th, 1945, which is the date the claim for refund was filed rather than March 31st, 1943, which is the close of the year, giving rise to the unused excess profits credit carry-back resulting in several payment.

It is alleged that Section 3771 (e) requires such computation.

Now, interest on the rest of the overpayment in the fiscal year ended March 31, 1942 was properly computed.

The Court of Claims agreed with the basis of computation as set forth by the defendant, but rendered no opinion, the taxpayer petitioned for certiorari and this Court rendered it.

Now, it's the petitioner's contention that the language of Section 2411 (a) applies to any overpayment of federal tax which has been determined by a judgment of the Court, except for slight modifications which are not material in this proceeding.

The statute as it reads today is the same as it read at that -- as it has been since the Revenue Act of 1928, when it was known as Section 177 of the Judicial Code.

The Judicial Code was incorporated into the U.S. Code in 1948.

Probably, due to some error, Section 177 or its equivalent or words to the same effect, were omitted when they -- when they merged the Judicial Code into the U.S. Code.

This error, however, was corrected in May 1949, when Section 177 (b) was put right back into the law.

At the time that they had put in, when they eliminated Section 177, they came in with a Section called 2516, which they thought might be the equivalent of the old Section 17 -- 177.

But an examination of 2516 which is shown in the respondent's brief in his appendix and an -- in the next to the last column reads, 2516, “Interest on claims and judgment, interest on claim against the United States shall be allowed on a judgment of the Court of Claims only under a contract or act of Congress expressly providing for payment thereof.”

Now, there are shortcomings in this particular Section.

It must be obvious, because it only talks about the Court of Claims.

It doesn't mention anything about what would happen if you had a case in the District Courts.

And whatever the reason was, the fact of the matter is that the Congress saw fit to put it back in.

And at that point, 3771 (e), when this would for a particular provision now known as 2411 (a) was put into the code, Section 3771 (e) was in the code.

And despite the language of that code, if there is any alleged difference between the two sections and we claim there is none, we claim that Section 3771 (e) applies in -- in administrative proceedings when the Commissioner of Internal Revenue allows it.

They did not allow anything.

In fact, they fought this taxpayer for a period of 14 years and refused to allow it.

The claim for refund based on its excess profits credit carry-back or the two there from the year 1943 to the year 1944.

Justice Charles E. Whittaker: May I --

Mr. Bernard Weiss: And this is a non -- yes, sir.

Justice Charles E. Whittaker: May I ask you please, sir?

Do you -- does that argument mean that you contend that Section 2411 applies only to instances where judgments are rendered?

Mr. Bernard Weiss: That's right.

Justice Charles E. Whittaker: Well then, is it not true that in all except where an excess profits credit adjustment is involved, the administrative remedies by the Commissioner in the absence of a judgment pay its interest from the date of the overpayment?

Mr. Bernard Weiss: Oh, yes.

I know, but we're now talking about -- we're talking about this special provision which is a limitation.

Section 3771 says that there's any overpayment of tax.

Now, the taxpayer is entitled to receive interest on the overpayment of tax from the date of overpayment.

It says so, but the Commissioner of Internal Revenue or the defendant in this case says that 3771 (e) prevents the taxpayer from receiving interest from a date prior to the date that he files his claim for refund.

But what does it say?

It says only if the Commissioner determines and allows it.

It's only when you allow it that -- that that particular provision applies.

It's ridiculous to talk about applying a section of law where you're refusing to conform with the -- with the language of the statute and that is one that -- that is the thing that we claim.

Now, this question is not an old question as to whether or not, they are claiming supremacy here of the provisions of the -- of the section -- the internal Revenue Code over the Judicial Code.

The only time you go into the Judicial Code is because the Commission of Internal Revenue has refused to allow your claim.

They haven't allowed it.

Now, you are forced to go in -- go into court and sue to collect that which your claim calls for.

Now, what does -- what -- what are -- and let -- let's me see whether we get any help from the Internal Revenue Code itself.

Section 37 -- I'm going to read some of these sections and then we will see whether we're coming in.

Section 3770 is a section in the code which deals with the question of making refunds or repayments to the taxpayer in the case he's overpaid his tax.

3771, now that he's made an overpayment tax, deals with the question of allowing him interest.

Now, when we get into Section 2772 says that if you can't get along with the Commissioner of Internal Revenue and he's not going to allow your claim, you have a right to go in and sue.

And what do you have to do?

There are some conditions proceeding to sue.

At the suit, you have to put in a -- you -- have to file a claim for refund.

You assert the basis on which you claim your refund.

In this -- that the Commissioner was entitled to have six months within which to consider your claim.

If the Commissioner considers your claim and allows it, then we don't have to talk about what's Section 2411 (a).

And if he does allow it, then under that expressed language of Section 3771 (e), he is entitled to -- to get -- to restrict the interest that the taxpayer is to receive from the date of payment to the date that he files a claim for refund and not the date of overpayment.

Now, they seem to be confused.

Justice Charles E. Whittaker: Are you saying you're (Inaudible)

Mr. Bernard Weiss: Now, in my claim -- in my claim, the Commissioner of Internal Revenue disallowed the claim.

They denied that we had an unused excess profits credit carry-back.

Therefore, they can't talk about a section which though -- and where they're disallowing your claim and say that this is the basis upon which we're -- we're going to give you interest.

If you don't want to allow us to claim and you force me to sue, the law rears that I'm now forced to sue, 2411 (a) says, that I will receive interest on the day -- on the amount of the overpayment from the date of the overpayment to the -- to the date of the payment, 30 days before the refund -- before the refund check.

Justice Charles E. Whittaker: Not as so (Inaudible) your argument imply defendant is ordered by a judgment acknowledged (Voice Overlap) --

Mr. Bernard Weiss: That is correct.

That is correct.

Now, this -- in this particular case, the Bulova Watch people are not making any claim for any interest for a period prior to the date that the unused excess profits credit arises which is at the end of the taxable year.

That's the only thing that we say.

Now, to help us out in this situation, the -- the Commissioner or the defendant cites a case, which I'm very pleased are being decided, the Seeley Tube.

Now, in the first place, the Seeley Tube case is not a case involving a judgment.

There's nothing to do with judgment, so that when a taxpayer comes in and they allow the refund which is what they did in the Seeley Tube case, it was proper for the Court to say that the -- since the right for the refund, only accrues at the end of the period giving lives to the lost.

That entry should not be paid for any period prior to that.

Now, what happened in that Seeley Tube case?

In the Seeley Tube case, the -- the taxpayer had filed an income tax return and paid his tax.

Thereafter, he -- the tax return was examined on one of these quickie examinations by reason of the fact that the corporation had gone into receivership.

The -- then the Commissioner now asserted a tax -- they asserted a tax based on the fact that the income for that year was -- was under -- the net income was understated and therefore, there was an additional tax.

The taxpayer now said that since the net loss, operating loss, wiped out all of the income, there's no tax due.

And this Court properly stated that the cause of action did not arise until the loss -- until your loss arose and therefore you're not entitled to (Inaudible).

Now, what is the -- where -- what is the position of the defendant?

The defendant says in this particular case that having -- it says that the three -- there are three sections of the -- three parts that would affect any -- well, that -- let me put it this way.

The excess profits credit carry-back is allowed on the Section 710 (c) of the U.S. Internal Revenue Code.

The Section 122 (c) is the net operating loss section, which allows you to take a subsequent year's loss and carry it -- and carry it back.

And so they say that this is one of the restraints, one of the limitations if they allow the claim.

That's true, if they allow the claim, which they didn't do.

And it's -- from now, the question has come up.

Several times before, whether or not, a provision of the Judicial Code takes precedents over a provision of the U.S. Code that I in my brief, in my reply brief on page 2 have sighted the Bonwit Teller case.

Now, the Bonwit Teller case was a case in the United States Court of Claims.

That case -- that case arose in this way, the taxpayer filed a claim for refund.

They were entitled to -- they were entitled to the -- and the Commissioner determines that they're -- they're entitled to an overassessment.

He now signs a certificate of overassessment.

By signing the certificate of overassessment, Section 1116 of the Internal Revenue Code of -- of the Internal Revenue Act of 1928, in effect, stopped interest from being paid for any period of time after the signing of that certificate of overassessment.

But what did the Commissioner in fact, do?

Did he pay him the money?

No, he refused to pay him the money.

As a result of which the taxpayer sued.

The taxpayer recovered the judgment in the United States Court of Claims.

And the United States Court of Claims, in dealing with this particular section had this to say, “That the papers of Section 177 (b) of the Judicial Code has amended is, where it is necessary for a taxpayer to bring a suit.

So give him interest upon amounts erroneously collected as a tax from the date of its payment, then a date preceding the date of a check therefore, by not more than 30 days.

And if swept aside any argument in here, that the internal revenue provision, the precedents over the U.S. Code.”

They said when you put -- the man -- you're putting the taxpayer any expense of going in there and fighting in the courts, they're entitled to get.

They are entitled to get interest from (Inaudible).

I think I'd better stop with this, (Inaudible)

Chief Justice Earl Warren: Mr. Davis.

Argument of Oscar H. Davis

Mr. Oscar H. Davis: Mr. Chief Justice, may it please the Court.

This is an interest case.

It's a case that involves the question of how much interest is payable on a refund judgment.

And the interest is not after the judgment has been rendered, but from what time the interest should be computed in the past.

It arises in the context and the -- the reason for the -- its arising is the fact that there are two separate provisions of the federal laws which are said to be applicable.

The petitioner says that Section 2411 of the Judicial Code as he says, if you just read on its face, something that we do not agree.

That if you read it on its face, it holds in his -- it -- it rules his case.

We say that 3771 (e) of the Internal Revenue Code is precisely applicable here.

Now, why -- why does this case raise a problem?

It raises a problem in particular, because you have to tell what the interrelationship of these two provisions of the federal legislation is.

And in our mind, it raises a problem, a second problem because it is quite clear that this taxpayer could have sought the route of going through the Tax Court and -- if he wanted to or if the taxpayer had wanted to.

And in that case, it is undoubtedly true that 3771 (e), which is at the very beginning of the Government's brief, would have been applicable and that is that the -- the limited interest for which we contend and which the Court of Claims allowed in this case, would have been the only one allowed.

He did not do so.

I mean the taxpayer did not do so.

It paid the tax and then sued for a refund and it claims that because it did -- it took the route of paying the taxes and suing for a refund, it's entitled to more interest than if it had gone through the other procedure of going to the Tax Court.

I think I also -- also want to say before launching into the burden of my argument.I want to spell out a little bit perhaps more for the Court, precisely what kind of -- of taxes are involved here.

There is no doubt that when the -- the tax here involved is the one ending, March 31st, 1942 -- March 31st, 1942.

There is no claim that the taxes which were assessed and to -- and collected in 1942 for that year were in any way illegal or erroneous or improper as of the time they were assessed or collected.

There was no such claim.

What it -- it said is that Congress, in allowing the carry-back provisions which the Court has had in several cases, said that if at the end of the next succeeding year, March 31st, 1943, the taxpayer discovers that he has an unused excess profits credit applicable to the excess profits tax of World War II, which he hasn't had to use for that year, he can carry it back and alter or change his tax for the year 1942.

And that -- and he has that right under the statute and that was done in this case.

And that his claim is that when he does that, when he carries it back by grace of Congress, therefore, he is entitled to interest from the Government, interest from -- not from the time he makes his claim that he should be allowed the carry-back, but from the time that he says the -- the right to make this carry-back arose, March 31st, 1943.

Now, the answer we think and I'll try to spell that in some more detail, is that Congress deliberately chose not to make the interest run from that period.

That it deliberately chose to say, “Interest shall not run until you make your claim for refund which this taxpayer didn't do the two years later.

The difference is the tax between March 31st, 1943 when the claim could have been made and June 14th, 1945, a little over two years later, when the claim was actually made.

Justice Felix Frankfurter: How much time did he have to make the claim within which --

Mr. Oscar H. Davis: Over three years.

Justice Felix Frankfurter: Over three years.

Mr. Oscar H. Davis: Some -- some -- quite a long period.

And that Mr. Justice is why Congress deliberately chose as the -- as Senate report shows to say interest will not run until you make your claim in -- in putting Section 3771 (e) into the statute.

They were aware of this problem and the Senate report says “We want to require prompt filing of refund claims and therefore we will not allow interest to run until that has occurred.”

Justice Felix Frankfurter: You said--

Mr. Oscar H. Davis: That --

Justice Felix Frankfurter: Mr. Davis, you said that Congress deliberately chose not to.

Is that right?

Mr. Oscar H. Davis: Yes.

Justice Felix Frankfurter: Well, so I'm going to wait for that demonstration so I would have to read your -- your (Inaudible) will I?

Mr. Oscar H. Davis: If you will turn the -- perhaps and anticipating the -- page 16 of our brief, Mr. Justice.

You will see the Senate report and in the middle of it, they're talking about carry-backs there and they're talking about this section which was put into the code on which we rely, 3771 (e).

And they say there, “He must therefore file his return and pay his tax without regard to such deduction,” that's the carry-back deduction.

“And must file a claim for refund at the close of succeeding year, when he's able to determine the amount of the carry-back.”

Then they go on, “Inasmuch as any overpayment resulting from the deduction of such carry-back does not occur as a practical matter until the net operating loss or the unused excess profits credit and the future taxpayer has determined and inasmuch as it is desirable to ensure promptness in the filing of claims to inform the Commissioner that such deductions have been determined, this section provide that no interest will be allowed with respect to any such overpayment for any period before the claim therefore is filed, or a petition asserting such overpayment is filed with the Board of Tax Appeals, now the Tax Court, whichever is earlier."

So, would they adverted to this precise problem and they their made a choice.

Chief Justice Earl Warren: Mr. Davis, how much time does he claim he has, the petitioner, in which to do this and still date it back to the original date?

Mr. Oscar H. Davis: I don't know what the --

Chief Justice Earl Warren: Yes, they don't --

Mr. Oscar H. Davis: -- petitioner has not said, but we -- we figure he has about three years or -- or -- quite a long time.

He -- he took actually two years and two --

Chief Justice Earl Warren: Yes.

Mr. Oscar H. Davis: -- and two months in which to do it.

Chief Justice Earl Warren: Yes.

Mr. Oscar H. Davis: And I --

Chief Justice Earl Warren: But does he claim there is no limitation on --

Mr. Oscar H. Davis: He has not stated it.

Chief Justice Earl Warren: Is not said?

Mr. Oscar H. Davis: He has not said anything.

Justice Felix Frankfurter: Well, except the statute of limit -- except that there's no limitation if he can make any claim at all.

Is that right?

Justice Charles E. Whittaker: Well, isn't -- isn't --

Mr. Oscar H. Davis: We figured out to be as 39 and a half months.

Justice Felix Frankfurter: Well, if he has 39 and a half months --

Mr. Oscar H. Davis: From the end of the year.

Justice Felix Frankfurter: Yes.

There isn't any weight stationed by any provision of law either he has what he claims full time within which he can file or review claims.

Mr. Oscar H. Davis: Well, no.

We -- we don't deny that he has the full -- the right to -- to wait to 39 and a half months.

Justice Felix Frankfurter: I understand that, but not get interest if he waits.

Mr. Oscar H. Davis: That's right.

That's what Congress said.

Justice Felix Frankfurter: But I'm saying is for that -- if he can get interest for any part of the time, he can get it for all of the time, because there's no provision in the law which --

Mr. Oscar H. Davis: Well, that's right.

Justice Felix Frankfurter: -- says he can get perhaps two years or one and a half year or is there?

Mr. Oscar H. Davis: No, there is not.

Justice Felix Frankfurter: So, the either it's all or nothing, he claims for all or nothing.

Isn't it?

Mr. Oscar H. Davis: Yes.

Perhaps that was quite out of -- out of the order of my argument.

I should say right at this moment that though the taxpayer has not indicated to the Court, he is not relying on the literal words of Section 2411 which is the section in the Judicial Code printed in our brief at 3 and 4.

Because that section says that the -- interest -- it's on page 4 of our brief, the Government's brief.

It says, “Interest shall be allowed at the rate of 6 per centum per annum on the amount of the overpayment from the date of the payment or collection thereof.

Now, he paid these taxes in 1942 and if you take those words in the ordinary sense in which they have any meaning to people in the English language or that they have the meaning in the -- in the tax law.

He paid the tax in 1942, because that's when he paid the tax.

But he isn't claiming that he is entitled to interest from that time, because he knows it would be absurd to do so.

That it would be absurd to claim that even though there was nothing wrong at the time he paid the tax as far as the Government was concerned, even though the events had not come into existence, made the carry-back provision proper and would not come into existence until a year later, March 31st, 1943, a year after that the tax -- the -- the end of the tax year with which we're concerned.

He says that he is limiting his claim for refund to the end of that succeeding year.

All I wish to point out now here, is that he is not relying on the -- on the words of 2411, of course if he did, he would be claiming interest back to a period before the any of the events that occurred which made the carry-back -- which brought the carry-back into existence.

Justice Felix Frankfurter: Nor is he implying on -- on unjust in Richmond.

You've been putting his money to use after the --

Mr. Oscar H. Davis: Oh, no.

That -- that I will try to develop too as that precisely what -- what hasn't been happening here, because this is not something where there was an illegal attack at the very beginning.

This is --

Justice Felix Frankfurter: Not at the very -- but there comes a time wherein something was owing to him from the Government for which he could have been there and there sued.

Mr. Oscar H. Davis: And Congress --

Justice Felix Frankfurter: If he had sued, he would've had interest from, if he succeeded.

Mr. Oscar H. Davis: He would have to --

Justice Felix Frankfurter: Well, I'm suggesting you, the matter of unjust in Richmond, you've used his money.

Presumably, the Government has also put it out on interest and so he wants to have the interest to which you're not entitled.

Mr. Oscar H. Davis: But Congresses has said that --

Justice Felix Frankfurter: I'm not saying that's true, but that is --

Mr. Oscar H. Davis: No, no.

But Congress has said in the 1939 -- in the 1942 Act which is the one involved here.

And I should say that all of this arises under the 1939 Code, because the 1954 Code did change the provision.

This arises under the 1939 Code.

And Congress did say as I pointed out deliberately that until he brings to the Commissioner's attention, the facts which show that there has been an overpayment on his part, he isn't entitled to any of these.

Justice Felix Frankfurter: But it must be more complicated though as -- as you'd sit down at this point.

Justice Potter Stewart: Well obviously, Mr. Davis, it is, isn't it?

Mr. Oscar H. Davis: Yes.

Justice Potter Stewart: You're relying -- you can't be relying on the literal language of 3771 (e) either.

Mr. Oscar H. Davis: Yes.

Justice Potter Stewart: Alright.

Mr. Oscar H. Davis: Well, no.

Justice Potter Stewart: Because at the very four words.

Mr. Oscar H. Davis: I'm -- I'm -- well, but I'm -- I'm trying to go back and I will try to go back now and to state my -- what I want to do is to clear the ground from some of what I think some of the -- the provisions here which cannot be applied on their phase.

Justice Potter Stewart: Yes.

Mr. Oscar H. Davis: And what the problem really is, is that you have these two provisions I set at the beginning, which have to be integrated.

And --

Justice William O. Douglas: It's the same kind of problem that was present in the Carter case, in the Ninth Circuit decided in 1939?

Mr. Oscar H. Davis: No.

It's -- it's a different problem in two respects from the Carter case, Mr. Justice Douglas.

One is that in that case, the tax when it was collected was erroneous and illegal at that time it was collected, so that the Carter case is different in that very important respect.

And the second thing in which the Carter case is different is that in the Carter case, related to excess -- excise taxes in which there was not the double rule applying either through the Tax Court or through the -- the Court of Claims in the District Court.

And one of the points of our -- of our argument is that Congress has been trying to equate as -- at least as between people who go through the Tax Court and people who go through the Court of Claims of the District Court, the provisions were interest, since interest was first allowed in 1921.

Neither those two factors was -- was present in the -- in the Carter case in 1938.

But if I may go back and state more generally, our -- we have two general positions.

First, the broader one and which is that 2411 of the code is a general proscription and that there are qualifications and exceptions to it which are found in the Internal Revenue Code.

That is that the -- these, the provisions have to be read together as if they were an integrated body of law.

And though they appear in different provisions of the code, they are part of a single whole and that the provision which we're concerned with, 3771 (e), is a specific qualification and exception.

And that unless something is found in the -- in the wording of the particular provision, it should be applied whether the case is one that goes through the Tax Court or one that goes through the -- the District Courts or the Court of Claims to the refund method of procedure.

And in general, we would say that the specific restrictive interest provisions of the Internal Revenue Code in which there are a number.

Someone has counted 15, of -- of various kinds are applicable, whichever way the taxpayer brings -- seeks judicial review of his -- of his proceeding.

That is through the Tax Court or through the Court of Claims of the District Court unless there is some specific reason to think that that particular specific provision of the Internal Revenue Code should not be applicable as a qualification or exception to 2411 of the Judicial Code.

And the more particular position which we have which I've already stated in part, rests on the fact that this is a -- an unused excess profits tax carry-back.

That is even though as it -- and there maybe other provision -- other restrictive interest provisions which are not applicable under 2411 that is when suit is in the Court of Claims.

This provision is applicable because of its history to which I've averted, the Senate Committee that they deliberately wished to start interest only from a certain time, because its purpose was to require the prompt filing of refund claims which would not -- which would be frustrated if the petitioner's view of interest would be allowed.

And because of the other factor that I've mentioned that is consistent effort by Congress to get -- to attain equality as in interest matters, as between taxpayers who seek review through the Commissioner and then onto the Tax Court and Court of Appeals and possibly this Court, and those other taxpayers who pay the tax and make -- and -- and make refunds.

But there's been a consistent history, we believe, of an effort to attain equality as between those -- those two sets of taxpayers.

I should say a word to because I think it is relevant about the fact that this is an interest case because from the beginning of -- of Anglo-Saxons jurisprudence on this subject.

And certainly in this country, interest has been looked at with a very severe eye with respect to claims against the Government.

Interest does not -- it was not allowed at common law on claims against the Government, when the Court of Claims was established as a tribunal for the settlement of claims against the Government.

In the 1860's, Congress provided that unless there was a specific provision to the contrary, specific provision, interest was not to be allowed prior to judgment in a suit against the Government.

And -- and this Court has applied that rule as Mr. Justice Brandeis said, “rigorously.”

And this, we think is -- and they've applied it in -- in income tax cases.

There was no interest against the Government in income tax cases either administratively or in -- in court cases until 1921.

Now, it's true you could sue the collector and get interest against him, but the Court early held that when you sued the collector and got a judgment against him and then you didn't go around to the Treasury and file your certificate of probable cause for years -- to the years later, you didn't get interest on the judgment from the time you've got the judgment against the collector because the Court said, “When you turned it into a claim against the Government, the usual rule providing against payment of interest was applicable.”

Now, I mentioned these general principles because -- I should even say that when -- when Congress and statutes has said that that there is -- just compensation shall be allowed on a claim in a non-eminent domain context.

Just compensation which are words which in eminent domain cases clearly involves interest, the Court has said that just because Congress used the word “just compensation,” does not mean interest is allowable prior to judgment.

That -- that Congress has to be more specific.

Now, all of these body of law we think is important, because we think that it puts upon the taxpayer the burden of showing specifically that Congress intended that he obtained the interest which he seeks in a -- in a case.

It's not this --

Justice Potter Stewart: Not that -- is that -- quite right.

You have a general statute giving 6% interest from the --

Mr. Oscar H. Davis: Yes.

Justice Potter Stewart: -- time of judgment.

Now, doesn't the burden fall on you to show that for -- for some reasons, some special statute is an exception to that general rule?

Mr. Oscar H. Davis: Well, perhaps in --

Justice Potter Stewart: Regardless of all the history to be sure, interest was thrown down against the Government of common law and all the rest of it.

But now, Congress has enacted a general statute of general application applying the tax refund claim saying the judgment of 6% shall run.

And now -- and that certainly is of --

Mr. Oscar H. Davis: Yes.

Justice Potter Stewart: -- of general applicability.

Now, isn't it up to him and says there's something peculiar about this kind of a tax refund claim to show that that general statute shall not be applicable?

Mr. Oscar H. Davis: Well --

Justice Potter Stewart: It's the burden there rather than where you seek through it.

Mr. Oscar H. Davis: Well, we think the history does indicate that even in this situation, it's up to the taxpayer to show that -- that the section should be applied as he says it should be applied.

And I would point out again, Mr. Justice Stewart, that he doesn't --

Justice Potter Stewart: Yes.

Mr. Oscar H. Davis: -- seek to apply it in the literal terms of the statute.

Justice Potter Stewart: Yes.

Mr. Oscar H. Davis: And because he -- I think because he thinks have lead to an absurd result, so he seeks to -- to modify that thing.

But even on the assumption that you make Mr. Justice, I think that perhaps one -- one of the ways I can be helpful is to say -- is to point out to the Court that the provision on interest in overpayments in the Judicial Code which is at Page 2 of our brief, starts out with a general statement, “Interest shall be allowed and paid upon any overpayment in respect of any internal revenue tax at the rate of 6 per centum per annum.”

Now, it doesn't say there except as otherwise provided or anything else.

It's a general provision.

Later on in the same Section, Congress provided that in the case of the type we have here, interest should be more restrictive than the general provision at the beginning of Section 3771.

Now, what I'm saying is that we don't think it would make any difference if in 1942, when Congress added the restrictive provision on which we rely (e), 3771 (e), if it -- if in 1942, it added that as another part of the Internal Revenue Code or as a separate statute or perhaps even if they put it in to the Judicial Code, that you would have to read them altogether because they relate -- all relate to -- to taxes and so we think it does make any difference here that there is this general provision of 2411 in the Judicial Code that you have to when you're -- when you're dealing with interest on -- in tax matters, look throughout the body of federal tax law to see whether there are any exceptions to -- to this general statute.

And here we say you find a -- a section which we think it is applicable in its terms and which Congress desired should be applicable here.

So we -- what I'm really saying I think is that you can't look at these as desperate or discreet provisions of the -- of the law.

You have to look at all the interest provisions of the internal -- of the internal revenue legislation whether they appear in the Internal Revenue Code or whether they appear in the Judicial Code or in a separate statute as a body of law.

And just as you would do with any body of law, you then organize them to see whether there isn't a general provision and exceptions to it.

Justice John M. Harlan: Are you going to --

Mr. Oscar H. Davis: And --

Justice John M. Harlan: -- deal with this argument that turns on whether the payment is voluntary or involuntary in the sense the taxpayer has to sue -- sue for it.

Mr. Oscar H. Davis: Well, that I think is just another way of saying that --

Justice John M. Harlan: That's his whole case.

Mr. Oscar H. Davis: His whole case is that if -- if what I -- I'll try to answer that by saying that Congress didn't make a distinction between the taxpayer who goes to the Tax Court.

This payment in a sense wasn't -- this -- this taxpayer could have gone to the Tax Court, there's no doubt in the world that he could've gone to the Tax Court, I think.

And -- and if he had gone to the Tax Court to -- to test the deficiency which the Commissioner says, he then would've gotten a -- a decision of an overpayment, which would've been paid for the interest only under subsection (e).

Justice Potter Stewart: Now, how could he have gone to the Tax Court?

I just want to be clear.

Mr. Oscar H. Davis: Because the Commissioner assessed deficiency.

See this -- the excess profits taxes and the income taxes of -- for the year 1942 were correlative.

That is the higher your one was, the lower the other one was.

And so when the Commissioner assessed the deficiency against him, that necessary --

Justice Potter Stewart: For -- for what year?

Mr. Oscar H. Davis: For -- for 1952 -- 1942, I'm sorry, I may not say 1952.

For 1942 that necessarily meant that the other -- that Commissioner did assess a deficiency against him in regular income taxes.

He could've gone to the Tax Court --

Justice Potter Stewart: On that.

Mr. Oscar H. Davis: -- on that deficiency.

Justice Potter Stewart: Yes.

Mr. Oscar H. Davis: That would've opened up the whole thing.

And there's some specific provision of the Internal Revenue Code which says that the Tax Court can consider whether the deficiency exists for that year or whether there's an overpayment for that year and it can determine what the overpayment is.

And if there has been an overpayment, this overpayment shall be refunded by the Commissioner.

Now --

Justice Felix Frankfurter: Well that would draw the overlapping?

Mr. Oscar H. Davis: Pardon me?

Justice Felix Frankfurter: That would draw it.

That would draw into that Tax Court proceeding.

Mr. Oscar H. Davis: This, yes.

That's what I'm saying.

And if had gone to the Tax Court on -- on this claim, then 3771 (e) would clearly have been applicable.

In fact it ends by saying that the interest starts running at the filing of a petition with the Tax Court.

Justice John M. Harlan: And you say that's a so-called involuntary payment on that premise which by its terms carries interest only on a limited basis.

Mr. Oscar H. Davis: That's right.

Justice John M. Harlan: And therefore, his distinction between -- broadly between 3771 and 28 and the Judicial Code is not a tenable distinction issue.

Mr. Oscar H. Davis: That's right.

Justice John M. Harlan: (Voice Overlap) --

Justice Potter Stewart: Now, is there any disagreement between you as to what you just told us about the fact that he could've gone to the Tax Court without question?

Mr. Oscar H. Davis: I don't know because I -- I think that --

Justice Potter Stewart: That's not developed in the case.

Mr. Oscar H. Davis: Nothing -- it's nothing developed, but I think it's quite clear that it could have been.

Justice Potter Stewart: Alright.

Mr. Oscar H. Davis: And anyway, I would say, Mr. Justice Stewart, that Congress quite clearly decided when it added subsection (e) that the Tax Court was -- was a -- an appropriate vehicle in most of the cases, because it provided that interest shall stop when -- when a petition was filed in the Tax Court.

Justice Potter Stewart: Yes.

But that might -- wouldn't necessarily arise in a way that this you say, could have arisen by a -- on a -- on a deficiency assessment on an ordinary income tax.

Mr. Oscar H. Davis: Well, it could have arisen in one several ways.

In whichever way it arose, there was a probability.

I can't really say to you that it could occur in every single case, but there was a broad probability that these -- that these provisions could go -- I mean the -- the claims of this type could go to the Tax Court, as well as through the refund system.

And --

Justice Charles E. Whittaker: For what situation wouldn't or couldn't?

Mr. Oscar H. Davis: Well, I -- I'm not enough with the Tax law -- lawyer, Mr. Justice Whittaker --

Justice Charles E. Whittaker: I don't understand that there is any proposed deficiency by the Commissioner that is not subject to redetermination by the Tax Court in its timely petition.

Justice Potter Stewart: Well, I don't either --

Mr. Oscar H. Davis: It's not -- I --

Justice Potter Stewart: -- in some areas of course, but on a proposed deficiency in income tax whether or not that opens up all the person's excess profits.

Mr. Oscar H. Davis: Well, I think that is clear.

I think that is clear, Mr. Justice --

Justice Potter Stewart: Indeed, the Tax -- the Tax Court is the final -- the final court on excess profits tax type to the question of most kinds.

Mr. Oscar H. Davis: Sir, other kinds.

Justice Potter Stewart: Yes.

Mr. Oscar H. Davis: Now, I think that's clear.

The one thing I'm not clear is whether this kind of a -- a claim by a petitioner like this could arise without a deficiency occurring.

And -- and in -- in a particular --

Justice Potter Stewart: This claim did, didn't it?

Mr. Oscar H. Davis: This claim arose as a result of a deficiency.

That -- that is the -- the Commissioner assessed additional taxes for the year --

Justice Potter Stewart: Income taxes.

Mr. Oscar H. Davis: Income taxes and he could have gone to the -- to the Tax Court saying there was no deficiency --

Justice Potter Stewart: But he did not.

Mr. Oscar H. Davis: -- of the time when it's overpaid.

Justice Potter Stewart: He did not.

The actual claim filed in the Court of Claims did not result from any deficiency (Voice Overlap) --

Mr. Oscar H. Davis: No, because he paid the tax.

Justice Potter Stewart: Yes.

Mr. Oscar H. Davis: Because he paid the tax.

Justice Charles E. Whittaker: Mr. Davis.

Mr. Oscar H. Davis: Yes.

Justice Charles E. Whittaker: Do you -- do -- do you have the same understanding of Mr. Weiss' position as I, which is this that with substantive right of the taxpayer here to interest, depends upon form in which of the matter is determined.

If in an Article III court, then it's from the date of overpayment, but if it's not in an Article III court, then it's from the date of notice or claim.

Mr. Oscar H. Davis: I think that is correct.

But I would say -- because you mentioned the term Article III court --

Justice Charles E. Whittaker: Yes.

Mr. Oscar H. Davis: And this is an answer I think also to what Mr. Justice Stewart pointed out at the beginning of the -- of Subsection (e), says, “If the Commissioner determines.”

Now I don't think that can be read literally because clearly, if he goes -- if the taxpayer goes to the Tax Court, The Tax Court which is not the Commissioner who determines that there was an overpayment, the interest provisions of -- of subsection (e) would apply.

Similarly, if the Tax Court were held against him and he appealed to the Court of Appeals or ultimately to this Court which are Article III courts -- and courts and they held that there was a -- an overpayment which -- for which he is entitled a refund, 3771 (e) would apply.

I think his basic argument is not that it's an Article III court versus a -- a non-Article III court, but it's a refund suit versus the -- the Tax Court deficiency rule and I think that his basis.

Justice Charles E. Whittaker: (Inaudible) including the word, “judgment” that found 2411 (a) and it's a good common law (Inaudible).

And what's behind it and the facts to it is not a judgment.

Mr. Oscar H. Davis: It's a decision.

Justice Charles E. Whittaker: It's as settling an order of an administrative agency.

Mr. Oscar H. Davis: Yes.

But -- but at this -- but on -- on review by the Court of Appeals, if the Tax Court had decided against the petitioner on this repayment and the Court of Appeals had reversed, there would surely be a judgment order.

And undoubtedly I think, 3771 (e) would apply in that situation.

So, I don't think that any meaningful distinction can be drawn between the two different methods of -- of testing the Commissioner's refusal to pay the -- of that instant.

Now, I would like to pay --

Justice Potter Stewart: Go ahead.

Mr. Oscar H. Davis: I -- I would just like to point out to the Court before my time elapses that this Commissioner has recovered interest from -- I think it's June 1945, through April 1959, when he received the check.

So he -- he has recovered interest of -- for 14 years at 6%.

Justice William J. Brennan: How can the proceeding take 14 years?

Mr. Oscar H. Davis: I don't really know, Mr. Justice Brennan.

They were -- there -- he didn't file his petition in the Court of Claims until 1953.

And then because -- unfortunately, the -- the statute of limitations says that he has -- if the Commissioner doesn't disallow a claim, you just go on forever.

I mean the statute of limitations doesn't begin to run until the Commissioner disallows the claim.

And the Commission never got around to disallowing these particular claims, so he didn't have to bring his suit until 1953 in the Court of Claims and then it proceeded along in ordinary course.

But I do want to point out that he has received interest at 6% from that time and he -- what he's claiming --- and this interest is a desirable amount of money that the -- the actual principal involved is I think about $150,000 and he's already gotten $124,000 in interest on this -- on that principal.

And he's claiming another $23,000 for the two-year difference between March 31st, 1942 and June 14th, 1945.

And to grant interest for this prior period is really to say that the Government should be penalized because he -- he saw his contest through the Court of Claims rather than through the Tax Court.

And this is contrary to some -- to -- to all the legislation not only on this field, but in other fields.

Congress has never sought to penalize the Government in -- in this respect.

And as I -- as I pointed out before, again, because this taxpayer sued in the Court of Claims, he can set -- talk about delay.

If he'd gone through the Tax Court mechanism, there may have been the same amount of delay, but he would not have been able to make the claim as -- as he makes here because 3771 (e) would clearly have been applicable.

The -- my time has expired.

Chief Justice Earl Warren: Mr. Weiss.

Rebuttal of Bernard Weiss

Mr. Bernard Weiss: I would like to take a plot some of these arguments that's been -- been advanced to you on my behalf.

Some of the statements, I am alleged to have made somewhere in my brief.

If they'll find the page, I want to see it.

Now, in the first place, they think that I am saying something in here on Section 2411 (a).

I want to call attention to a particular way that they are ignoring, the defendant is ignoring, the word, thereof.

That's the most important word in that whole section and they leave it alone.

How the taxpayer -- what are you collecting?

You're collecting the overpayment thereof when the taxpayer paid and he wants to get interest, he's going to get it from the time -- from the times that he overpaid the tax.

Now, when did that period arrive in this particular case?

It arrives when the cause of action arises and when does the cause of action arise?

Only at the end of the year of a -- excess profits tax year, which gave right to the excess profits credit carry-back.

That's the only term, there's no cause of action previous that I found and that's what the taxpayer is insisting on.

We're not asking for interest in the time we paid it, why not?

Because that wasn't the time that we overpaid it, it's the overpayment that counts.

Justice Charles E. Whittaker: Now that -- that factor, I -- I agree with you, but that's determined by Section 3771, isn't it?

Mr. Bernard Weiss: No, sir.

Justice Charles E. Whittaker: Wasn't it?

Mr. Bernard Weiss: No, sir.

The -- the Section 3771 is not the determining to your -- the overpayment.

Justice Charles E. Whittaker: No.

Mr. Bernard Weiss: The -- the (Inaudible) the overpayment is being -- just a minute, the overpayment as being determined by the fact that Section 710 (c) of the Internal Revenue Code allows you a carry-back.

That's -- that's the section that allows it and that's the reason that they -- that -- that they're giving it to us.

They're not giving us anything here that we're not entitled to receive.

Normally, it's the taxpayer requesting it.

In this case, we're not requesting anything.

Everybody that sues the Government whose -- and recovers a judgment, they're all treated alike.

Anytime you have a claim before the -- the Commissioner and if he allows it, he gets the benefits.

He can restrict your interest and make a -- and gain by allowing you your claim, which he's refusing to do.

For 14 years, he hit those taxpayers by over pillar of boats.

They'd -- they went around on there, they did it like -- what they're using in here is using a -- a hatchet and they're trying to tell the man he's got -- that he's smelling beautiful flowers.

That's what -- that's what going on here in -- in this particular thing.

Now, they pulled all sorts of cases in here that have no applicability whatsoever.

Every time they cite a case over here, it's when the cause of action arises.

They come in here, they give you Section 7 of the Technical Changes Act of 1949 as if that's got something to do for the proposition that we have before this Court.

The taxpayer -- the Section 7 of the Technical Changes Act of 1949, they so -- they cite four cases here with regards.

That's -- let's take -- let's care of those four cases.

The -- that provision was put in, in order to remedy what appeared to be an outrageous tax that was being illustrated against to the decedent, who was being taxed on a theory that citing property which he had transferred might conceivably come back to him.

And therefore, they taxed him irrespective (Inaudible).

How minute that refers here -- who -- minute the value was this proportion of re-interest, so they came in and they now put into the Court.

They -- they passed an act in which they said that they were going to give relief.

So 7 (a) provides that any person who paid a tax on the basis of a reversionary interest which was less than 5% of the value of the property on the date -- on the day before the date of that.

That that -- that person could get a -- could a refund of his tax.

What?

They've put in a further condition that you can -- but you in fact, you'll get your tax back but you wouldn't get interest.

Now, why is that?

Because in the years to which the tax applied, there was no overpayment, not according to the way the law read.

The law read in a given way.

This -- this -- the possibility of refutative was just another of -- of a reversionary interest coming back to the (Inaudible), was just enough to be able to tax into that -- state that thing.

So therefore, your cause of action didn't arise until 1949, so therefore, when you're giving back people money, you can only stop in the date of the enactment of the act and that's what it says.

Now, when they come in here and they're -- they -- they quote a case in here which is odd basic.

They -- they're giving you this case called Graham versus Goodcell.

Now, just imagine that anybody quoting a case like the Graham versus Goodcell.

Now, what is the Graham versus Goodcell case about?

The Graham versus Goodcell case where -- goes back to Revenue Act of 1924 in 20 years, at that time, we had a provision in the Internal Revenue Code.

If an assessment is placed on the books by the Commission that he has to go out and collect that assessment within five years of the date of the filing of the return.

Somebody and a few -- if the Commissioner is now assessing the tax, the taxpayer wants to complain about the facts, they gave him a provision.

They put in that he could ask for a -- they could file the claim in abatement of this tax.

At the same time, he did that, the -- in most cases, they'd ask you to put up some sort of a bond and at the same time, the taxpayer would go off and get a stay of -- so that the collector of internal revenue wouldn't go and collect this tax.

Now, what do these people do?

They got the bright idea that they could hold this case long enough.

The statute would expire while the stay is on and the -- and the collector wouldn't be able to collect the tax.

Now, what -- why -- so they now said, "We don't owe you the tax."

And then loads and loads of taxpayers got this -- this marvelous idea of how to beat the Government out of the tax.

And so they -- with all these delays that were -- that they -- they just file without paying the tax.

Now, there is a section in the law that in this 1928 Code which prove -- at 1928 Internal Revenue Act, which said, “That an overpayment of tax, if you made a payment to the Government with respect to any assessed tax after the statute of limitation arose, you got an overpayment from tax and therefore, if you filed a claim, you will be able to get -- to get a refund.”

So everybody had to file.

They thought that this was a great idea.

When the Commissioner got wise to this thing, what did they do?

The Commissioner went out there and they seize people's properties, they foreclosed all the funds.

They did all that sort of thing.

And on top of that, now, they went to the Congress and they got themselves an act in there which said, “That wherever the Commissioner of Internal Revenue assessed a tax and the taxpayer had filed a -- a claim for credit and had gotten the advantage of a -- of a state, then thereafter, any payment made after the statute of limitations under those circumstances that that constitute an overpayment.”

Now, what happens to the taxpayer?

He has no -- has no place to go.

He can't -- he can't recover because the very act which gave him the right to fit -- fit the payment there for the statute of limitations as a -- overpayment was now destroyed.

He -- he -- they took it away from him.

Now, what does this got to do with us in this particular case?

I don't know.

But this is one of the cases that they have used to try to establish their point and they talked about equity.

Got to help the people that have to rely on equities, when they took this taxpayer and hit him over the lot and then -- then -- I'm now talking about a -- an equitable piece of legislation.

We've got some more or I'd be back here again on --

Justice John M. Harlan: Now, we will -- if you --

Mr. Bernard Weiss: -- on the same subject of interest.

Justice John M. Harlan: -- if you win this case, you want won't have had a bad investment of 6% for 14 years?

Mr. Bernard Weiss: Oh, I don't think that that's the point, Your Honor.

Justice John M. Harlan: Oh, I thought you were complaining.

Mr. Bernard Weiss: Well, I -- and then I say, we're don't have time -- and all that I'm saying in here is this.

That the taxpayer is entitled to what the law gives him.

It's rare enough that we -- that the taxpayer can actually get money from the Government.

So when you -- when they -- when they owe you money and the law permits you to receive this money, I think the thing to do is go and collect.

And we're not asking for non-reasonable thing here.

I think they have tried to present this in a way that if any -- he who runs can understand the case.

And I believe that the taxpayer -- the judgment of the court below should be reversed and that interest should be allowed to this taxpayer in the date of the payment to the -- to the date, 30 days before the refund check.

Thank you very much.