The term "capital," employed by a banker in the business of
banking, in the one hundred and tenth section of the Revenue Act of
July 13, 1866, does not include moneys borrowed by him from time to
time temporarily in the ordinary course of his business. It applies
only to the property or moneys of the banker set apart from other
uses and permanently invested in the business.
The one hundred and tenth section of the Revenue Act
Page 88 U. S. 285
of the United States, as amended on the 13th of July, 1866,
[
Footnote 1] enacts:
"That there shall be levied, collected, and paid a tax of one
twenty-fourth of one percentum each month . . . upon the capital of
any bank, association, company, or corporation, and on the capital
employed by any person in the business of banking beyond the
average amount invested in United States bonds."
And the seventy-ninth section of the same act, as amended,
declares:
"That every incorporated or other bank, and every person, firm,
or company having a place of business where credits are opened by
the deposit or collection of money or currency, subject to be paid
or remitted upon draft, check, or order, or where money is advanced
or loaned on stocks, bonds, bullion, bills of exchange or
promissory notes; or where stocks, bonds, bullion, bills of
exchange, or promissory notes are received for discount or for
sale, shall be regarded as a bank or as a banker. [
Footnote 2]"
During the years 1869 and 1870, Clark and others were bankers
within the meaning of this statute, doing business in the City of
New York under the name of Clark, Dodge & Co., and at various
times between the 1st of April, 1869, and the 1st of February,
1870, they made returns, as required by law, to the assessor of
internal revenue for the district, of the amount of their fixed
capital employed in banking and of the amount of moneys deposited
with them by their customers. The assessor required more than this;
he insisted, against the objection of Clark, Dodge & Co., that
all moneys borrowed by them from time to time, and temporarily in
the ordinary course of their business, formed a part of their
capital employed in the business of banking, and were subject to
the tax imposed upon capital under the section cited. He
accordingly assessed a tax upon the several amounts thus borrowed
within the dates mentioned, as part of the capital of the
company.
One Bailey was at the time collector of internal revenue
Page 88 U. S. 286
in the district, and as such officer enforced the payment of the
taxes thus assessed, amounting to over six thousand dollars. Clark,
Dodge & Co. protested at the time against the legality of the
assessment, and appealed from the decision of the assessor to the
Commissioner of Internal Revenue. Failing to obtain any rescission
of the assessment or restitution of the moneys paid, they brought
the present action for their recovery.
The action was tried by the court without the intervention of a
jury, by stipulation of the parties, under the recent act of
Congress. The court found the facts as above stated but with
greater detail, and held that the money thus temporarily borrowed
by the plaintiffs in the ordinary course of their business was not
capital of the company employed in the business of banking, and was
not, therefore, liable to assessment as part of such capital, and
that the assessment and collection of the tax was therefore illegal
and unauthorized. The court accordingly gave judgment for the
plaintiffs. To review that judgment, the case was brought here on
writ of error.
MR. JUSTICE FIELD, after stating the case, delivered the opinion
of the Court as follows:
As appears from the statement of the case, the only question for
determination relates to the meaning to be given to the term
capital in the one hundred and tenth section of the Revenue Act.
The term is not there used in any technical sense, but in its
natural and ordinary signification. And it is capital not merely of
individuals but of corporations and associations which is subject
to the tax in question. When used with respect to the property of a
corporation or association, the term has a settled meaning; it
applies only to the property or means contributed by the
stockholders as the fund or basis for the business or enterprise
for which the
Page 88 U. S. 287
corporation or association was formed. As to them, the term does
not embrace temporary loans, though the moneys borrowed be directly
appropriated in their business or undertakings. And when used with
respect to the property of individuals in any particular business,
the term has substantially the same import; it then means the
property taken from other investments or uses and set apart for and
invested in the special business, and in the increase, proceeds or
earnings of which property beyond expenditures incurred in its use
consist the profits made in the business. It does not, any more
than when used with respect to corporations, embrace temporary
loans made in the regular course of business. As very justly
observed by the circuit judge,
"It would not satisfy the demands of common honesty if a man
engaged in business of any kind, being asked the amount of capital
employed in his business, should include in his reply all the sums
which, in the conduct of his business, he had borrowed and had not
yet repaid."
There is no difference in the business of banking as conducted
by individuals from the business as conducted by corporations which
would warrant any different meaning to be given to the term capital
in the two cases. Nor can any good reason be stated why a
distinction should be made between banking corporations and
individual bankers in this respect.
Independently of these considerations, there would be great
practical difficulty in administering the law upon the theory that
moneys temporarily borrowed are to be treated as capital and
taxable as such. The amounts borrowed from time to time must
necessarily vary, and, if they are treated as additions to the
capital, the aggregate amount of the capital must be constantly
changing. It would therefore be necessary for the assessors of the
government, in order to determine the capital to be taxed every
month, to average the sums borrowed, and in adopting any such
course they would be obliged to interpolate into the statute the
word average, which was stricken out by the amendment of 1866.
We are satisfied that the term as used in the statute was
Page 88 U. S. 288
intended to embrace only the fixed capital employed in the
business of banking, as distinguished from deposits and temporary
loans made in the regular course of business, and that no
distinction is to be made in this respect between the capital of
individual bankers and that of banking corporations.
It is undoubtedly true, as stated by the Attorney General, that
capital used in the business of banking is nonetheless so because
it is borrowed. The mere fact that the money permanently invested
in the business is borrowed does not alter its character as
capital. The question here is whether money not thus permanently
invested, but borrowed temporarily in the ordinary course of
business to meet an emergency, is capital, and we are clear that
the term does not, either in common acceptation or within the
meaning of the statute, embrace loans of that character.
After controversies had arisen as to the interpretation to be
given to the statute, upon the question at issue in this case,
between bankers and the government, Congress passed the Act of
1872, defining the meaning of the terms "capital employed," in the
one hundred and tenth section, and enacted that the
"shall not include money borrowed or received from day to day in
the usual course of business from any person not a partner of, or
interested in, the said bank, association, or firm. [
Footnote 3]"
This enactment was evidently intended to remove any doubt
previously existing as to the meaning of the statute and declare
its true construction and meaning. Had it been intended to apply
only to cases subsequently arising, it would undoubtedly have so
provided in terms.
Judgment affirmed.
[
Footnote 1]
14 Stat. at Large 136.
[
Footnote 2]
id. 115.
[
Footnote 3]
17 Stat. at Large 256.
