
    GUYLA S. PRINCE, INDIVIDUALLY AND AS EXECUTRIX OF THE ESTATE OF FREDERICK A. PRINCE, DECEASED v. THE UNITED STATES
    [No. 49444.
    Decided March 2, 1954]
    
      
      Mr. Burr Tracy Ansell for plaintiff.
    
      Mr. H. 8. Fessenden, with, whom was Mr. Assistant Attorney General H. Brian Holland, for defendant. Messrs. Andrew D. Sharpe and Ellis N. Slack were on the brief.
   Madden, Judge,

delivered the opinion of the court:

The plaintiff is the widow and executrix of the estate of Colonel Frederick A. Prince who died on September 3,1951. Colonel Prince had been receiving retired pay since 1943 on account of service in the United States Army. For the taxable years 1944,1945, 1946, and 1947 Colonel Prince and the plaintiff had filed separate income tax returns, each of their returns including one-half of the Colonel’s retired pay. Apparently this was because they were residents of California, a community property State. The asserted basis of the present suit is that the Colonel’s retired pay was exempt from taxation, hence neither of the spouses should have been taxed upon it. The plaintiff sues individually to recover the taxes paid by her, and as executrix to recover the taxes paid by her husband, upon his retired pay.

Colonel Prince was commissioned as a second lieutenant in the United States Army in 1908. He served continuously until July 31,1943. On July 25,1943, he reached the age of 60 years and, pursuant to the provisions of section 3 of the Act of June 13,1940, c. 344, 54 Stat. 379, 380, he was placed on the retired list of the Army, effective July 31,1943. Having served for more than 30 years he was entitled to retired pay of 75 percent of the active duty pay of a colonel with more than 30 years’ service. This was the same retired pay which he would have been entitled to if he had been retired for physical disability incurred in the service.

On August 1, 1943, the day after his retirement, Colonel Prince was recalled to active duty. However, on November 4,1943, he appeared before an Army Retiring Board. The Board found that he was incapacitated for active service; that his incapacity consisted of arteriosclerosis, hypertension, and deafness. It found that the arteriosclerosis and hypertension had originated about 1940, and the deafness about 1930; that all these disabilities were the results of incidents of service, and were permanent. The findings of the Board were, on. December 21,1943, duly approved by the President, acting through the Secretary of War. Colonel Prince’s active duty as a recalled retired officer thereupon terminated, and he began to receive only his retired pay.

The Act of June 29, 1943, 57 Stat. 249, provided that an officer on the retired list who had been retired for reasons other than disability, and had been recalled to active duty, and had incurred disability in the active service to which he had been recalled, should receive the retired pay which an officer retired for disability would receive. Colonel Prince’s situation did not meet the requirements of that statute, since his disability had not been incurred during the time that he served, after his retirement for age, under his recall to active duty. Upon Colonel Prince’s inquiry in 1945 as to whether he was entitled to the benefits of that statute, he was advised by the Adjutant General that he was not so entitled.

Section 22 (b) (5) of the Internal Revenue Code provides that amounts received by the taxpayer as a pension, annuity, or similar allowance for personal injuries or sickness resulting from active service in the armed forces of any country should he exempt from taxation. If Colonel Prince’s situation had satisfied "the requirements of the Act of June 29, 1943, his retired pay would have been tax-exempt, under this provision of the Internal Revenue Code. We are not advised as to what other advantages, if any, would have accrued to him if his retirement had been based on disability, rather than upon age and length of service.

The plaintiff does not now contend that the Act of June 29, 1943, applied to the case of Colonel Prince. Her argument for recovery is, as we understand it, twofold. The first phase of it is based on the letter of the law. She points to section 1251 of the Revised Statutes, which says:

When a retiring board finds that an officer is incapacitated for active service and that his incapacity is the result of an incident of service, and such decision is approved, by the .President, said officer shall be retired from active service and placed on the list of retired officers.

She says that a retiring board did make the findings specified in the statute; that these findings were approved by the President; ergo Colonel Prince should have been placed on the list of officers retired for disability. The Government answers that he could not be so retired, since he had already been retired, not for disability but for age.

The plaintiff’s second contention is, in effect, for the application of the maxim of equity that equity regards that has having been done which ought to have been done.

When Colonel Prince approached the age of mandatory retirement, which he reached on July 25,1943, he could, under section 1253 of the Eevised Statutes, have demanded and obtained a hearing before an Army retiring board. He must have been aware at least of his disability of deafness since it had been incurred about 1930, and was bilateral and serious. We do not know of a certainty why he did not ask for a retiring board hearing. It may be that it did not occur to him that there would be tax or other advantages in obtaining a retirement for disability. So far as retired pay itself was concerned, he would receive the same pay on either basis. More probably it did occur to him that if a board found him unfit for active service, he would not be recalled, after retirement, and would have no further part in the war. In any event, he let the automatic and mandatory retirement for age take effect, and was immediately recalled, as he probably knew he would be, for active service as a retired officer. Within a few months thereafter he suffered an illness which resulted in his appearance before a retiring board, which made the findings which we have described above. Although the purpose of the hearing was to determine whether he had incurred disabilities during the short period of his service under his recall, the Army has never, and the Government does not now, contest the correctness of the board’s findings as to the causes of Colonel Prince’s incapacity.

The situation, then, is this: A soldier, because of ignorance of the law, or for reasons of patriotism, permits his retirement status to take one form when he had a right to have it take another form which would have been advantageous to him. A few months later the probable purpose of his choice was frustrated by the breakdown of his health. A retiring board having confirmed the fact that he could have qualified for the more advantageous foi’m of retirement, he applied, after its creation, to the Army Board of Correction of Military Records pursuant to section 207 of the Legislative Reorganization Act of 1946,60 Stat. 837. This section says:

The Secretary of War, the Secretary of the Navy, and the Secretary of the Treasury with respect to the Coast Guard, respectively, under procedures set up by them, and acting through boards of civilian officers or employees of their respective departments, are authorized to correct any military or naval record where in their judgment such action is necessary to correct an error or to remove an injustice.

The Board recommended that no change be made in Colonel Prince’s record, and the Secretary of the Army approved the recommendation. It seems to us that the form in which Colonel Prince’s retirement had been cast resulted in a grave injustice to him, and that the refusal to give him any relief must have been based upon an unduly rigid adherence to form. The Board and the Secretary did not make use of their expressly granted authority “to remove an injustice.” In the circumstances, we will treat the situation as if the form were in accord with the facts and the justice of the case, and award the plaintiff the corresponding rights.

The Government urges that statutes granting exemptions from taxation are to be narrowly construed. That doctrine seems to us to have nothing to do with this case. There is no question of the interpretation of a tax statute. If we are right in our conclusion as to how equity should regard the facts, there can be no doubt concerning the application of the tax statute.

The Government cites us to Simms v. Commissioner (C. A. D. C.), 196 F. 2d 238, in which a fireman in the District of Columbia was retired for age in 1942. In 1948, the Board of Commissioners of the District by an order recited that at the time of retirement the fireman was suffering from physical disabilities incurred in the line of duty to such an extent that had he not been retired for age he could have been retired for physical disability. The fireman claimed that his retired pay was exempt from income tax. The court held it was not, pointing out that there had been no determination by the Commissioners as to the extent of disability as a basis for fixing an amount of relief for disability. That would seem to have disposed of the case. The court, also, however, expressed itself as unwilling to treat any payment not formally made as a payment for disability as if it were such. The Tax Court of the United States in Scarce v. Commissioner, 17 T. C. 830, and in Elmer D. Pangburn, 13 T. C. 169, seems to have taken a similar view. To whatever extent the reasoning in those cases is not compatible with the views expressed in this opinion, we respectfully disagree with them.

The plaintiff is entitled to recover, with interest according to law. Entry of judgment will be suspended to await the filing by the parties of a stipulation showing the amount due the plaintiff, in accordance with the foregoing opinion and the following findings of fact.

It is so ordered.

LittletoN, Judge; and JoNes, Chief Judge, concur.

WhitakeR, Judge,

dissenting:

It seems to me plaintiff chose a course which he must have known would deprive him of the tax exemption he now claims. If he did not know this course would have this result, his ignorance, according to a familiar maxim, does not excuse him. His motive was no doubt a patriotic one, but I think he must abide by the consequences of what he did.

BINDINGS OF FACT

The court having considered the evidence, the stipulation of facts entered into between the parties, and the briefs and argument of counsel, makes findings of fact as follows:

1. The plaintiff, Guyla S. Prince, is the widow of Frederick A. Prince, deceased, who, at the time of his death on September 3,1951, was on inactive status as Colonel, United States Army, Eetired, and a resident of Los Angeles County, California. The plaintiff is the executrix of the estate of Frederick A. Prince, having been appointed as such on November 21,1951, by the Superior Court of the State of California in and for the County of Los Angeles. The said Frederick A. Prince is hereinafter referred to as the “decedent.”

2. The decedent accepted a commission as second lieutenant of field artillery, United States Army, September 28, 1908. He served continuously as an officer of the Army on active duty from that time until his retirement July 31,1943. He held all commissioned grades up to and including that of colonel to which he was promoted November 1, 1937, which rank he held when he was subsequently retired.

3. The decedent, on July 25, 1943, attained the age of 60 years and was placed on the retired list of the Army pursuant to the provisions of Section 3 of the Act of June 13, 1940, 54 Stat. 380, and the Act of April 23, 1930, 46 Stat. 253, effective as of July 31, 1943. On August 1, 1943, he was recalled to active duty as a retired officer of the Army and served on such duty until January 19, 1944, when he was relieved from active duty. He then reverted to inactive status on the retired list. From January 20, 1944, until his death on September 3, 1951, the decedent remained on inactive status as Colonel, United States Army, Retired, and was paid the retired pay of an officer of his grade and length of service.

4. While on active duty as a retired officer, the decedent appeared before an Army Retiring Board which convened at Headquarters, Valley Forge General Hospital, Phoenixville, Pennsylvania, on November 4, 1943. The Army Retiring Board found that he was incapacitated for active service; that said incapacity was a result of an incident of service; that the causes of said incapacity were (1) arteriosclerosis, generalized, (2) arterial hypertension, moderate, and (3) defective hearing bilateral 10/20 both ears; that the cause of said incapacity was an incident of service; that said incapacity originated in or about 1940 as to causes (1) and (2) and about 1930 as to cause (3); and that said incapacity was permanent. The Army Retiring Board further found that he had incurred no physical disability while serving as a retired officer on active duty. The findings of the Army Retiring Board were concurred in by the Surgeon General of the Army and the findings and proceedings were approved by the President acting through the Secretary of War on December 21, 1943. Since no part of this incapacity was incurred while on active duty as a retired officer, it was held that the decedent was not entitled to the benefits of Section 5 of the Act of June 29,1943,57 Stat. 249.

5. On January 24, 1945, the decedent addressed a letter to the War Department inquiring as to his entitlement to the benefits of Section 5 of the Act of June 29,1943, 57 Stat. 250. By letter of February 23, 1945, the War Department responded to the decedent’s letter of January 24, 1945, as follows:

1. Tour letter of 24 January 1945 to General Arnold regarding benefits of Public Law 101, 78th Congress, approved 29 June 1943, has been referred to this office for reply.
2. The War Department does not dispute the fact that you are incapacitated for active duty and that your physical incapacity is the result of an incident of service. However, as previously advised the Act of 29 June 1943, does not provide nor is there any other authority whereby the statute under which a retirement was effected may later be changed to some other statute even though more than one retirement statute might have applied at the time of retirement.
3. Section 5 of the above cited Act operates to change the retirement status of an officer from that of one retired for reasons other than physical disability to that of one retired for disability incurred in line of duty provided he has incurred physical disability while serving on active duty as a retired officer in the same grade as that held by him on the retired list. The War Department approved the findings of the Army Retiring Board before which you appeared on 4 November 1943 at Valley Forge General Hospital, Phoenixville, Pennsylvania, which indicated that your disability was not incurred while serving on active duty as a retired officer and therefore you were denied benefits of the Act of 29 June 1943.
By order of the Secretary of War.
W. H. P. PUEDIN, Adjutant General.

6. On October 21, 1947, the decedent filed an application with the Army Board on Correction of Military Records under the provisions of Section 207 of the Legislative Reorganization Act of 1946, 60 Stat. 837. In this application, request was made that the records of the War Department be corrected to show decedent’s retirement for physical disability incurred while on active service in line of duty either (1) prior to retirement for age or (2) while on active duty as a retired officer. On May 21,1948, The Adjutant General of the Army advised the decedent that:

Your retirement record has been extensively and carefully reviewed by the Army Board on Correction of Military Records under the provisions of Section 207 of the Legislative Reorganization Act of 1946 (Public Law 601, 79th Congress) as requested by your application dated 21 October 1947. Recommendations of the Board “that no action be taken to disturb the records of the Department of the Army in the case of Colonel Frederick A. Prince, 02481, USA, Retired, and his retirement for statutory age remain unchanged”, have been approved by the Secretary of the Army.

7. Both the decedent and the plaintiff duly filed their separate individual income tax returns for each of the calendar years 1944,1945,1946, and 1947 on or before March 15 of each succeeding year, respectively, with the Collector of Internal Revenue for the Sixth California District. Each of the returns thus filed included as income one-half of the total amount of retirement pay received by the decedent during the taxable year involved. The total of the retirement pay so received and returned as income by the decedent and the plaintiff for each of such taxable years was as follows:

Year Total retired pay
1944 $4,262.50
1945 4,500. 00
1946 4,725. 00
1947 4, 950. 00

8. The income taxes paid by the decedent and the plaintiff as his wife upon the aforesaid retirement pay and other income reported in their returns filed for the years 1944,1945, 1946, and 1947 in installments and by withholding were as follows:

9. On March 12, 1948, the decedent and the plaintiff each filed with the Collector of Internal Revenue for the Sixth California District' a claim for refund of income tax paid for the year 1944 on Treasury Department Form 843 in the amount of $651.22 as to the decedent and $327.00 as to the plaintiff. On January 17, 1949, the decedent and the plaintiff each filed another claim for refund on Treasury Department Form 843 for the calendar year 1944 in the respective amounts of $651.22 and $327.00. On January 17, 1949, the decedent and the plaintiff each filed with the Collector of Internal Revenue for the Sixth California District claims for refund on Treasury Department Form 843 in the amounts of $512.36 for 1945, $491.00 for 1946, and $571.24 for 1947 as to the decedent and for $416.74 for 1945, $151.41 for 1946, and $369.00 for 1947 as to the plaintiff. All the said claims for refund were grounded upon the assertion that the retirement pay received by the decedent during these years was nontaxable for the reason that his retirement status should have been for physical disability instead of for age. Final action on the aforesaid claims for refund has not been taken by the Commissioner of Internal Revenue.

CONCLUSION OE LAW

Upon the foregoing findings of fact, which are made a part of the judgment herein, the court concludes that as a matter of law plaintiff is entitled to recover.

On June 8,1954, judgment was entered as follows:

Guyia S. Prince, as executrix, $1,972.06.
Guyla S. Prince, individually, $1,264.38. 
      
       See also Allen et al. v. Spencer et al., C. A. D. C. decided February 4, 1954.
     
      
       The Act of April 23, 1930, 46 Stat. 263, provides that the retirement of Federal personnel, including military, shall be effective on the first day of the month following the month in which the retirement would otherwise be effective. Section 3 of the Act of June 13, 1940, 64 Stat. 380, provides for the retirement of colonels on the promotion list at the age of 60 years, except that the Secretary of War could, in his discretion, retain on active duty colonels reaching the age of 60 years but not in excess of 6% of all colonels on the promotion list.
     
      
       Section 5 of the Act of June 29, 1943, 57 Stat. 250, provided :
      “Any officer of the Regular Army on the retired list who shall have been placed thereon for reasons other than physical disability shall, if he incurs physical disability while serving on active duty in the same grade as that held by him on the retired list, receive retired pay computed as otherwise provided by law for officers of such grade retired on account of physical disability incident to the service.”
     
      
      
         Section 207 of the Legislative Reorganization Act of 1946, 60 Stat. 837, provides in pertinent part as follows:
      “The Secretary of War, the Secretary of the Navy, and the Secretary of the Treasury with respect to the Coast Guard, respectively, under procedures set up by them, and acting through boards of civilian officers or employees of their respective departments, are authorized to correct any military or naval record where in their judgment such action is necessary to correct an error or to remove an injustice.”
     