
    THE CITY OF LOUISVILLE ET AL. v. THE UNITED STATES.
    [No. 18315.
    Decided December 2, 1895.]
    
      On the Proofs.
    
    Under theaet 30th June, 1864, a railroad company pays taxes on dividends and on profits not declared as dividends. In 1890 Congress pass an act authorizing the Commissioner of Internal Revenue to adjust the claim of the city of Louisville for a refund of “ taxes on dividends’’ which the city owned, it being, under the decision of the Supreme Court, “ a portion of the sovereign power of a State." A refund is allowed, both for taxes withheld from dividends and for taxes paid by the company on surplus profits which subsequently, in 1868, entered into a stock dividend. These refunds are paid under a special appropriation to pay “ tile amount found due under the act of" 1890. In 1893 Congress pass a third act, authorizing the adjustment of claims “for internal-revenue taxes collected on railroad dividends on stoelc and on interest on railroad bonds owned by said county and city." The Commissioner makes an award, which is not questioned, but, the Comptroller deducts from it the refund previously allowed for taxes paid on surplus profits not declared as dividends. (See County of Logan v. The United States, post.)
    I. An allowance by the Commissioner of Internal Revenue as a refund of taxes illegally collected, duly approved by the Secretary of the Treasury, is an award upon which an action may be maintained; it is conclusive unless impeached, and the burden of imimaching it is upon the defendants.
    
      II. Money paid l>y authority of a specific appropriation of Congress can not he recovered hack.
    III. The Act of 25th February, 189S (27 Stat. L., p. 477), requires the Commissioner of Internal Revenue to audit and adjust the claim of the city of Louisville “for internal-revenue taxes collected on railroad dividends on stock, and on interest on railroad bonds” “to the extent that sack taxes were deducted from any dividends or interest due and payable,” and directs that the amounts when ascertained, if “not heretofore refunded, shall be paid out of the permanent annual appropriation.” This does not authorize the accounting officers to reopen and reexamine a refund previously allowed' hy the Commissioner and paid under a special appropriation hy Congress.
    
      The Reporters’ statement of tbe case:
    Tbe following are tbe facts of case as court:
    I. Between Louisville, Ky., owned a large amount of tbe stock and bonds of tbe Louisville and Nashville Bailroad Company. Tbe company paid tbe interest on its bonds and cash dividends on its stock from time to time, retaining, however, in each of tbe years 1865 to 1871, inclusive, an undistributed surplus. Under tbe internal-revenue laws in force during that period tbe said com-
    pany paid taxes to tbe United States upon its gross receipts, its undistributed surplus, the interest payable on its bonds, and its cash dividends. Tbe taxes paid on interest and dividends were deducted from tbe amounts due as interest and dividends, so that tbe revenues of tbe city of Louisville accruing from these sources were diminished to tbe extent of sucb deduction, but sucb deduction was not known to tie sinking fund commissioners of tbe city until tbe time bad expired for an application for a refund of tbe taxes so deducted.
    II. On November 16,1867, tbe directors of tbe said company resolved to make an increase of its capital stock to tbe extent of 40 per cent, the same to be distributed among the owners-of stock in proportion to tbe amounts owned by them on a certain date, by certificates of stock to be issued therefor after February 10, 1868. Tbe city of Louisville received in 1868 certificates for its due proportion of tbe said increase of stock.
    On October 6, 1880, tbe directors of tbe said company resolved to increase its caxiital stock 100 per cent, sucb increase to be distributed among tbe owners of stock and stock liabilities in proportion to tbe amount owned by them on a certain date, by certificates of paid-up stock to be issued after December 1, 1880. The city of Louisville, having continued to hold the stock of the said company, received in 1881 certificates for its due proportion of the said increase of stock.
    III. On March 10, 1890, the board of the commissioners of the sinking fund of Louisville, Ely., presented a petition to the ■Committee on Claims of the House of Representatives, stating that the city of Louisville had owned stock in the Louisville and Nashville Railroad Company; that dividends had been declared from time to time on the said stock, which dividends had become due and i>ayable to the said board, and that taxes had been levied upon such dividends as stated in Finding I. The petition asked favorable consideration of a bill which had been introduced to require a refund of these taxes, but made no mention of any other taxes than such as had been levied upon “dividends due and made payable” only.
    1Y. Under the Act of June 16,1890 (26 Stat. L., 157), the city of Louisville and the sinking fund commissioners of the said city applied for a refund of $65,578.32 on account of taxes claimed to have been illegally exacted of the said city through the Louisville and Nashville Railroad, which amount was stated; in a schedule annexed to a claim, as being composed of the following items:
    1. Dividends (distributed). $24,801.14
    2. Dividends (undistributed or surplus). 21, 721.29
    3. Interest on bonds owned by city. 815.30
    4. Gross receipts. 18,240.59
    Total tax due.. 65, 578. 32
    Evidence was presented of the 40 per cent increase in the stock of the railroad company in 1867-68, mentioned in the second finding, but it does not appear that any evidence as to the 100 per cent increase of stock in 1880 was presented at that time.
    Y. This claim was duly audited and adjusted by the Commissioner of Internal Revenue, who allowed $24,801.14 on account of taxes paid by the Louisville and Nashville Railroad Company on dividends paid to the city of Louisville, and $17,712.89 on account of taxes paid in 1865,1866, and 1867 by the said railroad company on its undistributed surplus, the said sum of $17,712.89 being proportioned to the amount of stock issued to tbe city óf Louisville out of the 40 jier cent stock dividend above mentioned. He refused to allow the claim on account of taxes paid on gross receipts and on interest and so much of the claim on account of taxes on undistributed surplus as concerned the taxes levied in 1868,1869,1870, and 1871. The action of the Commissioner was approved by the Secretary of the Treasury, and when the claim reached the First Comptroller, through the Fifth Auditor, the correctness of the finding was not questioned, but the Comptroller reported that there was no appropriation out of which payment could be made.
    The following papers show more specifically the action of the Commissioner, Auditor, and Comptroller:
    “ Treasury Department,
    “Office of InterNal Revenue,
    
      “Washington, D. 0., January 24, 1891.
    
    “ Hon. William Windom,
    “ Secretary of the Treasury.
    
    “ Sir: I have the honor to submit herewith for your consideration and advisement the claim of the sinking fund commissioners of the city of Louisville, in the State of Kentucky, for the refunding of taxes collected from the Louisville and Nashville Railroad Company to the amount of $65,578.32.
    
    
      “ The taxes were collected prior to 1873, and the claim was filed in September, 1890.
    “ The claim is therefore barred except so far as the act of June 16,1890 (Public, No. 157), authorizes the adjustment of it. That act directs the adjustment of this claim ‘ to the extent that such taxes were deducted from any dividends due and payable,’ and does not direct the adjustment of the claim to the extent that taxes were deducted from interest or gross receipts.
    “ I have, therefore, only to consider the amount deducted from dividends accruing to the city of Louisville by virtue of its shares of stock in the railroad company.
    “ The tax on dividends was paid by the railroad company under the provisions of section 122 of the act of June 30,1804.
    “ So far as this tax was deducted from dividends accruing to the city of Louisville it was unlawfully deducted and paid over to the Hnited States. (See decision of the U. S. Supreme Court in the case of United States v. Railroad Company, 17 Wall., 322.)
    “The amount so deducted from the share of dividends to which the city of Louisville was entitled is found to be $'42,514.03, which embraces the sum of $24,801.14 collected on cash dividends and $17,712.89 collected as tax on surplus profits, which were afterwards set apart by resolution of the board of directors of the railroad company as the basis of a stock dividend which was declared in 1868.
    “I propose to allow the claim for the sum of $42,514.03.
    ' “ Respectfully, yours,
    “ JohN W. Mason,
    “ Commissioner.”
    “Treasury Department,
    “Fieth Auditor’s Oeeioe,
    
      u February 3d, 1891.
    
    “I hereby certify that I have examined and adjusted an account between the United States and the Oomm’r of Int. Rev., and find that the sum of forty-two thousand live hundred thirteen dollars is due from the United States, as follows, viz:
    “For the refunding of taxes deducted from dividends on shares of stock in the Louisville and Nashville Railroad Co. Schedule No. 1317. Private act app’d June 16, ’90.
    “Payable to the board of the sinking- fund commissioners of the city of Louisville, Ky.
    “Care of Gomm’r Int. Rev., 5th district, Ky.
    “ Pay out of the appropriation for the relief of the board of comm’rs of the sinking fund of the city of Louisville, Ky., app’d June 16, ’90, as appears from account and vouchers herewith transmitted for decision of the First Comptroller of the Treasury thereon.
    “J. L. Tucker,
    
      “Acting Auditor.
    
    “$42,513.95.
    “To the First Comptroller or the Treasury.”
    “Treasury Department,
    “First Comptroller’s Oppice,
    “ March 7, 1891.
    
    “I admit and certify that a balance of forty-two. thousand five hundred fourteen and dollars is due and payable as stated in the above report. Pay out of the appropriation for ‘payment to city of Louisville, Ky.’ Deficiency act approved March 3, 1891.
    “A. O. Matthews,
    
      11 First Comptroller,
    
    “By J. R. GrARRISON,
    
      u Deputy First Comptroller.”
    YI. The two items allowed amounted to $42,514.03. This amount was reported to Congress by the Secretary of the Treasury February 14, 1891, as having been found due under the act of June 16,1890, .and as having remained unpaid for lack of an appropriation, but no statement of the items of the claim made or of those composing tbe amount allowed appears to have been made to Congress. Subsequently tbe sum of $42,514.03, appropriated by tbe Act of March 3,1891 (26 Stat. L., 854, 857), was paid to tbe city of Louisville.
    Tbe following are tbe communications by which tbe refund of tbe Commissioner of Internal Revenue was transmitted to
    Congress:
    “TREASURY DEPARTMENT,
    “Office of the Secretary,
    “ Washington, D. C., February 14, 1891.
    
    “Sir: Referring to an act for tbe relief of the board of commissioners of tbe sinking fund of tbe city of Louisville, Ky., approved June 16, 1890 (25 Stat., p. 157), which directed tbe audit and adjustment of tbe claim of said board of commissioners for internal revenue tases, etc., I have the honor to inclose copy of a report made by tbe First Comptroller in tbe case, of this date, showing that tbe sum of $42,514.03 is found due tbe claimants.
    “As there is no appropriation available for tbe payment of tbe claim, tbe sum found due as shown by tbe Comptroller’s letter is respectfully submitted for the action of Congress. “Respectfully, yours,
    “A. B. Hettleton,
    “ Acting Secretary.
    
    “ Tbe Speaker of the House of Representatives.”
    “Treasury Department,
    “First Comptroller’s Office,
    
      “Washington, February 14,1891.
    
    
      “ Sir : Tbe letter of Senator Blackburn, in regard to tbe claim of tbe sinking fund commissioners of tbe city of Louisville, Ky., is respectfully returned with tbe remark that the act for tbe relief of tbe claimaut was passed by tbe Fifty-first Congress at tbe first session, on tbe 10th of June, 1890. It directed tbe Secretary of tbe Treasury and tbe Commissioner of Internal Revenue to audit and adjust tbe claim, which they have done, finding tbe amount of $42,514.03 due the claimant, tbe correctness of which finding is not questioned by this office. In due course, on the 4th instant, this claim, so adjusted, reached this office for- payment. Tbe act requiring tbe audit and adjustment does not carry an appropriation for tbe ptayment of tbe amount to tbe claimant, nor can it be paid out of tbe permanent annual appropriation, under section 3689, Revised Statutes.
    “As the present Congress has bad this matter under consideration, and referred it for adjustment, I see no impropriety in reporting it at once for appropriation.
    “Very respectfully, “A. O. Matthews,
    “Comptroller.
    “Hon. A. B. Nettleton,
    
      “Acting Secretary of the Treasury.”
    
      Reporters’ statement of the case.
    YII. Under tbe Act of February 25,1893 (27 Stat. L., 477), tbe city of Louisville and tbe sinking fund commissioners applied for a refund of $34,667.80 on account of taxes claimed to have been illegally exacted, which amount was stated in a schedule annexed to the claim as being composed of certain items described in the claim, as follows:
    
      United States of America dr., to commissioners of the sinking fund of the city of Louisville and the city of Louisville.
    
    To internal-revenue tax on undistributed dividends or surplus (which was afterwards, to wit, in April, 1881, reduced or converted into a scrip or
    stock dividend) collected as follows:
    Oct. 31, 1868 . $1, 304.20
    Nov. 30, 1869. 529.15
    Jan. 10, 1871. 829.25
    Nov. 10,1871.•. 345.80
    Total amount. 3,008.40
    FINAL SUMMARY.
    1. Am’t collected on interest on bonds, supra. $31, 659.40
    2. Ain't collected on surplus or undistributed dividends. 3, 008.40
    Entire total. 34, 667. 80
    Evidence ivas presented of the 100 per cent increase in the stock of the railroad company in 1880, mentioned in the second finding. The claim for the amounts stated to have been collected from the railroad company on account of taxes levied upon its undistributed surplus in 1868 to 1871 (amounting to $3,008.40 in all) had been included in the claim presented in 1890, but, as stated in the fifth finding, had not been allowed.
    VIII. The Acting Commissioner of Internal Revenue audited and adjusted this claim, and as incidental to such audit and adjustment he reexamined the claim allowed in 1891. He allowed the entire claim on account of taxes on interest on bonds ($31,659.40), and also that on account of taxes on surplus, which he found to amount to $3,248.51, making a total gross allowance of $34,907.91. In consequence of the reexamination of the allowance of 1891, out of the sixteen items then allowed on account of taxes on dividends, eight were decreased, five were increased, and three were not changed, the aggregate result being a reduction of $221.34, or from $24,801.14 to $24,579.80. Tbe allowance of 1891 on account of taxes on surplus was reduced by $3,327.55, or from $17,-712.81 to $14,385,26,
    
      Argument for tlie claimants.
    making a total reduction on both branches of the allowance of 1891 of $8,548.89, which being subtracted from $34,907.91 allowed left a net allowance of $31,359.02.
    The Acting Commissioner reported to the Secretary of the Treasury as follows in regard to the claims of 1891 and 1893, treated as one:
    . “The total.amount so withheld from said city [Louisville] on account of tax on the coupons of said bonds is found to be thirty-one thousand six hundred and fifty-nine dollars and forty cents ($31,059.40), and the total share of taxes on dividends and surplus borne by the city is found to be forty-two thousand two hundred and thirteen dollars and fifty-seven cents ($42,213.57), making an aggregate of seventy-three thousand eight hundred and seventy-two dollars and ninety-seven cents ($73,872.97). Of this aggregate the sum of forty-two thousand five hundred and thirteen dollars and ninety-five cents ($42,513.95) has been refunded (see Fifth Auditor’s report No. 58114), which leaves thirty-one thousand three hundred and fifty-nine dollars and two cents ($31,359.02) to be refunded. I propose to allow the claim for. this amount.”
    IX. The balance so allowed, having been approved by the Acting Secretary, was certified by the Fifth Auditor to the First Comptroller, who deducted therefrom the sum of $17,633.85, leaving a balance of $13,725.17, for which sum he directed a draft to be issued to the city of Louisville. The amount so
    deducted ($17,633.85) was made up as follows:
    Amount allowed and paid in 1891 for taxes on surplus. $17, 712.89
    Excess paid in 1891 for taxes on cash dividends. 221. 34
    Total erroneous allowance paid in 1891. 17,934.23
    
      Net amount deducted by Commissioner (for errors in 1891) from allowance for taxes on interest. 300.38
    Balance of erroneous allowance to be deducted. 17, 633. 85
    
      Mr. Alphonso Hart for the claimants:
    1. No doctrine is better established than that the head of a Department or bureau can not set aside, reverse, or modify the decision of his predecessor in office, except for error in computation, newly discovered and material evidence, or fraud. It will not be contended that any of these things exist in this case.
    The proposition we have stated is not only founded in reason, but it is supported by the long practice of the Government, and by a long line of judicial authorities. It seems superfluous to enter into any detailed examination of authorities, but we take the liberty of referring to a few cases.
    ■ In United States v. Bank of Metropolis (15 Peters, 114), the ■court says:
    ‘■‘The right in an incumbent of reviewing a predecessor’s ■decisions extends to mistakes in matters of fact, from errors in calculation, and to cases of rejected claims in which material testimony is afterward discovered and produced.”
    This doctrine has been followed ever since and expressed in a variety of forms and with great emphasis. The question has been before the Court of Claims in a number of instances. The last case is that of Armstrong and 158 others, decided in March, 1894. The opinion of the court contains a careful and able review of the authorities upon the subject. It adopts as sound law the decision in the Waddell Case (25 O. Cls. B., 323, .327):
    “The law has been too well settled to be in doubt at this time; that public officers cannot open and reexamine cases decided by their predecessors, except for fraud, mistakes in matters of fact arising from errors in calculation, or newly •discovered material evidence.”
    The same idea is expressed in another form in the Jackson •Case (19 O. Cls. B., 504).
    The opinions of the Attorneys-General are uniformly in the same direction. Some of these opinions are referred to in the Armstrong Case, and set forth most clearly and with great strength that the doctrine of res adjudieata applies to claims •considered by the head of a Department, and that a decision made, whether right or wrong, can not be overruled by his successor.
    The Comptroller, in the brief which he has filed, admits to a certain extent the correctness of the doctrine which we have stated, but seeks to avoid its force by offering certain reasons or excuses for his action in overruling the act of Congress and the act of the former Commissioner and Secretary.
    His reason for disregarding the act of Congress in appropriating the money to pay the amount allowed by the former Commissioner is, in substance, that that body may have acted ignorantly; and as one of his excuses for setting aside the action of Commissioner Mason and Secretary Windom he claims that the present Commissioner of Internal Bevenue himself reviewed their action and he, the Comptroller, is only-following his example.
    As to whether Congress acted intelligently or not in making the appropriation, we submit that the presumption is that Congress in enacting a law does act intelligently, and when a law is passed it is presumption on our part to seek to undermine or set it aside upon the ground that Congress did not understand its business. If every law was impeached because some outside party questioned its wisdom, or because such party knows more than the body enacting the law, it would be difficult to tell what statutes are in force and what are not.
    As to the assertion that the present Commissioner of Internal Revenue himself reopened and reexamined the action of the former Commissioner, our answer is, first, that this statement is erroneous, and second, if tlie Commissioner did take such action, it does not justify the Comptroller in doing it. One illegal act does not justify another.
    By the decision of the courts, scrip and stock dividends are held subject to taxation the same as cash dividends. They are paid under the same rule and treated in precisely the same manner. It is conceded by counsel for the Oovernment that taxes paid on cash dividends should be refunded. By the same rule of reason, taxes illegally collected on stock dividends should also be refunded.
    2. The special act of February 25, 1893, is very specific. It expressly declares what shall be the duty of the Commissioner of Internal Revenue and the Secretary of the Treasury. It is for them to ascertain how much is due the city of Louisville and the county of Logan, and whether any portion of it has been refunded; and when they have made their investigation and rendered their judgment it is final.
    It is wholly beyond the Comptroller’s jurisdiction. He is merely a part of the machinery by which, when the amount is ascertained, the money is to be paid. He has nothing to do with it, or any control over the question of liability. The Commissioner of Internal Revenue and the Secretary of the Treasury are the tribunal to which the law commits the determination of tlie case. The Conrptroller has no right to overrule his superiors or override their decision. Neither has he any right to seek to defeat and neutralize their findings by going back and undoing, or attempting to undo, the work of a former administration.
    
      If Congress bad intended to constitute bim a member of tbe tribunal wbicb was to decide tbe questions submitted in tbe special act, it would bave added bis name to tbe list; and if it bad intended be should review tbe action of tbe Commissioner and Secretary, it would bave said so in plain language.
    We are not left to speculation upon tbe point now under consideration. It will not be doubted that tbe special act of 1893 imposed upon tbe Commissioner and Secretary tbe authority and duty of adjusting these claims. They performed tbe work assigned them, and their finding and judgment is binding upon tbe Covernment. This question has been decided by tbe Supreme Court. Tbe case of The United, States v. Kaufman (96 U. S. R., 567) is directly in point. (See Bonton’s Gase, 12 C. Ols. R., 336.) Tbe case of United States v. Savings Banh (104 II. S. R., 728), reaffirms tbe doctrine.
    
      Mr. Charles O. Binney (with whom was Mr. Assistant Attorney-General Bodge) for tbe defendant:
    1. Tbe whole claim for a refund of taxes paid on stock dividends falls to tbe ground, for tbe very sufficient reason that no such taxes were paid; and hence, as already stated, the allowance of such a claim was wholly without warrant of law.
    To prevent misunderstanding, it may be as well to state that bad any stock dividends issued by tbe railroad company been taxed, tbe claimants’ share in them would bave been exempt, under United States v. Railroad Company (17 Wall, 322); Stoelc-dale v. Insurance Companies (20 id., 323,330), and Bailey v. Railroad Company (22 id., 604, 632).
    As stated in tbe last two cases cited above, this doctrine bolds, whether tbe tax levied under section 122 of tbe act of 1864 be regarded as a tax on tbe income of stockholders and bondholders, as was held in tbe earlier cases {Haight v. Railroad Co., 6 Wall., 15; Railroad Go. v. Jaclcson, 7 id., 262, and United States v. Railroad Co., 17 id., 322), or as a tax on tbe net earnings of the corporation, as laid down in Barnes v. The Railroads (17 Wall., 294); Railroad Co. v. Collector (100IJ. S., 595); United States v. Brie Railway Co. (106 id., 327), and Memphis and Charleston Railroad Co. v. United States (108 id., 228).
    In tbe present case, however, there were, as already stated, no stock, dividends wbicb were taxed, and a comparison of tbe items constituting tbe claim for taxes paid on “surplus ■dividends” with tbe tax returns made by the railroad company shows that the claim was not in reality for any taxes paid on “dividends in scrip” or “stock dividends” issued to the claimants at all, but for a certain proportion of the taxes paid on that part of the profits which was not distributed in dividends, but constituted what the acts of 1864 and 1866 call “profits carried to the account of any fund or used for construction.” These profits were, however, a very different thing' from the stock dividends, and the taxes paid upon them were in no sense taxes upon any stock dividend.
    It is familiar doctrine that the property of a corporation belongs to it and not to its stockholders, and this is no less true of its undisturbed net earnings than of any other kind of property. (Minot v.Paine, 99 Mass., 101,106; Gibbons v. Mahon, 136 TJ. S., 549, 558.) This doctrine was recognized by the act of 1864 itself, for while that act authorized corporations to deduct from the amounts paid out as interest and cash dividends the amount of the taxes on such interest and dividends, no such deduction was possible in the case of profits carried to surplus account, because the company retained these profits, so that they never came into the possession of the stockholders. Whether, as the earlier cases held, the tax on interest and dividends was an income tax on bondholders and stockholders or not, it is perfectly clear that the tax on undistributed profits, whether carried to surplus account or used in construction, was, like the tax on gross earnings, a tax on the corporation and not on its stockholders.
    The declaration of a stock dividend in 1867 in no way altered the character of the previous surplus earnings. They were not distributed among the stockholders, but remained the property of the corporation precisely as they had been before. “A stock dividend does not distribute property, but simply dilutes the shares as they existed before.” (Williams v. Western Union Tel. Go., 93 N. Y., 162, 189.)
    In 1868 the city of Louisville owned 40 per cent more shares in the stock of the Louisville and Nashville Eailroad Company than it did before, but as the holding of every other stockholder was similarly increased, the city’s interest in the undistributed surplus earnings was not changed. Each share represented less of the total surplus than it did before in proportion to the extent to which the stock had been “ watered,” but tlie total iuterest of eacli stockholder iu the surplus remained the same. The surplus earnings remained the property of the corporation after the new stock was issued, just as. they had been previously. The corporation, not the stockholders, paid the taxes on each year’s surplus earnings as they were carried to surplus account, or used for construction, and the stockholders’ income was in no way diminished thereby. It is true that each share of stock represented less property than if the taxes had not been levied and paid, but the same is true as regards the taxes on gross earnings. The act of 1890 did not authorize a claim on account of the diminution of the corporate assets by taxation, but merely a claim for the taxes “ deducted from dividends due and payable.” The taxes on undistributed surplus were never so deducted, either at the time they were paid or at any subsequent time, and hence were-not within the contemplation of the act of 1890.
    Even if the claimants’ theory that the stock dividend declared in 1867 was a dividend or distribution of earnings, theretofore undistributed could possibly stand, this would not give them any right to a refund of the taxes that had been paid upon those earnings. (Bailey v. Railroad Company, 106 U. S., 109.)
    The only taxes which the act of 1890 which authorized the Commissioner of Internal Revenue to consider were such as. had actually been deducted from dividends due and payable, and this because until dividends become due and payable they wmre not taxable under the act of 1864, and therefore no tax could have been deducted from them. Hence, even if the stock dividend of 1868 could possibly be regarded as representing the surplus profits of prior years, the taxes upon such profits, having been paid before that dividend became due and payable, could not possibly have been paid upon it or deducted from it, and could not possibly come within the act of 1890.
    The claimants’ contention that the act of 1890 authorized. the Commissioner to allow a claim for taxes on the railroad company’s surplus, because the company had subsequently declared a stock dividend, applies equally well to the taxes on gross receipts. Had the gross receipts not been taxed, the net surplus would have been greater, and in consequence, according to the claimants’ theory, the stock dividend would have been greater. In point of fact, the claimants took this view at first and presented a claim for $18,240.59 for taxes on gross receipts. Their right to recover this amount was precisely the same as their right to recover for taxes on surplus. Every argument that could be brought to support a claim on the latter account applies equally well to the former, and how the Commissioner could have rejected the former while allowing the latter is inexplicable on any other theory than that of a determination to “ draw the line somewhere.”
    The claimants’ contention that the act of 1890 contemplated a claim for taxes on surplus profits afterwards “converted” into a stock dividend is, moreover, untenable on account of the nature and operation of the taxes themselves, as will be readily seen when the object of the act of 1890 and the reason for its passage are considered. The reason for the passage of the act was that the United States had no right to tax the revenues of a municipal corporation by the indirect process of authorizing a railroad company to deduct the taxes levied upon the dividends paid by it from such portion of those dividends as accrued to a municipal corporation as a stockholder; and the object of the act was to put the city of Louisville in the same position that it would have held had the dividends on its stock been excepted originally from the operation of the tax law, as they ought to have been. Had they been so excepted, the city would have received from year to year the same dividend that it did receive plus the amount of the tax which was deducted from it. The total amount of the taxes so deducted constituted the amount by which the revenues of the city had been diminished — the measure of its damages — and the repayment of this tax would put the city back precisely where it would have stood had the tax law contained the proper exception in favor of municipal corporations, saving only as to the deprivation of its use of the money in the meantime.
    Neither this reason nor this object exist in regard to a payment to the city of a part of the taxes upon the railroad company’s surplus earnings proportionate to the amount of stock held by the city. Such a payment would not put the city back where it would have stood if no tax had been levied on a portion of the surplus earnings of a company proportionate to the amount of its stock held by municipal corporations. If such an exception from the operation of the tax had been made, the benefit would not have gone to the city, but would have remained with tbe company, and this simply because the surplus earnings did not go to the city, but remained with the company. Now, conceding for a moment the claimants’ wholly untenable propositions that the surplus earnings of a number of years were ultimately “converted into” a stock dividend, and that that stock dividend would have been larger or more valuable had no taxes been levied on a portion of the surplus earnings proportionate to the amount of stock held by the city, what would have been the result? The exemption of any portion of the surplus earnings from taxation would have simply increased the amount of those earnings in the company’s treasury, and applicable to the purchase of additional property, the improvement of what it already had, or the extension of its business. G-ranting that the stock dividend would have been larger or more valuable on that account, the increase would not have inured to the benefit of the city alone, but to that of all the stockholders pro rata, because the increased amount of surplus due to the partial exemption from taxation would not have constituted a separate fund, but would have been “converted” into a general stock dividend, along with the rest of the surplus, for the benefit of all the stockholders pro rata.
    2. To hold that the appropriation was a ratification or legalization of the unauthorized allowance, is' to read into the act such words as these:
    “And the finding so made and reported is hereby recognized as properly made, within the true intent and meaning of the act of June 16,1890.”
    Or these:
    “ To be paid to the said city of Louisville whether the said amount was actually and legally due under the said act of June 16,1890, or not.”
    Or these:
    “And the finding so made and reported is adopted as if it had been made in jmrsuance of the act of June 16, 1890, and had been within its true intent and meaning.”
    The idea that Congress intended to waive errors or illegalities, and to pay the claim whether justly due under the act of June 16,1890, or not, is supported by no evidence whatever, and certainly the existence of such an intention can not be presumed. The idea that Congress saw fit to ratify the illegal act of the Secretary and the Commissioner, and to treat it as if the act of June 10,1890, had authorized an allowance on account, of taxes on surplus earnings is equally untenable, because it is. familiar law that a principal can not be held to have ratified the unauthorized acts of his agent unless he be shown to have had lull knowledge of the facts. (Bells7. Cunningham, 3 Pet., 69,81; Owings v. Hull, 9 Pet., 007, 629; Billings v. Morrow, 7 Cal., 171; Field v. Small, 17 Col., 386; Davis v. Talbot (Ind.),. 30 N. E. Rep., 1098; Adams Fxpress Go. v. Trego, 35 Md., 47, 69; Bannon v. Warfield, 42 Md., 22,42; Harley v. Watson, 92 Mich.,. 121; Dowden v. Oryder (N. J.), 26 Atl. Rep., 941; Trustees v. Bowman, 130 N. Y., 521.) The only ground on which it can be contended that the appropriation of $42,514.03 was a ratification of the entire action of the Secretary and the Commissioner in finding that amount to be due is that the position of Congress and these officers was somewhat analogous to that of a principal and his agents, and there being no evidence that Congress was aware of the real nature of the claim which these officers had seen fit to approve, or of the fact that they had exceeded their authority — it being, in fact, evident that Congress was misled by the statements made to it — it is clear that one necessary condition of a ratification (viz, full knowledge on the part of the principal) does not exist in this case, and hence that the theory of a ratification must fall.
    These officers had no judicial authority to construe the law, and it appears that Congress was not informed as to the peculiar construction which they put upon it. It was held in Savings Bank v. United States (19 Wall., 227, 237), that the-reeuaetment of a tax law, in the same language as that of the earlier law, did not indicate that Congress adopted the construction put by the Commissioner upon that language during a period of three years; and certainly in the present case there is even less reason for holding that his construction was adopted, as there is every indication that Congress did not know what that construction was.
    3. Even if it could be held that this act did not necessarily require the United States to reopen the settlement of 1891 of its own motion, it unquestionably authorized the claimants tn demand a reopening. The permission given them to present claims for taxes on interest and dividends “not heretofore refunded” entitled them to renew any claims of that character wliicli bad previously been refused, and sucb renewal necessarily involved tbe demand that tbe settlement of 1891 should be reopened, and tbe action then taken reconsidered. Tbe claimants availed themselves of this right, presenting again tbe previously rejected claims for taxes on surplus in 1868-1871 (which surplus they alleged to have been “subsequently converted into a scrip or stock dividend”), and to insure that tbe reconsideration should be favorable they strengthened their position by offering evidence of the declaration of a stock dividend, and issuance of certificates of stock therefor in 1880-81, a precaution which they had neglected in 1890.
    As long as the settlement of 1891 remained closed, it was a bar to the further consideration by the Commissioner of any portion of the claim of 1890 which had been disallowed on that settlement, just as a judgment of a court is a bar to the further consideration by that court of any portion of the claim in regard to which the judgment has been rendered, until a new trial is granted. When once the settlement was reopened, however, it was reopened for all purposes, and the claimants were no longer in a position to maintain that any portion of it was final or binding upon the United States,‘as the Supreme Court has said in an analogous case. (MoMrath v. United States, 102 U. S., 426,441.)
    In the Commissioner’s report to the Secretary the former treated the claims of 1890 and 1893 as one, upon which a partial allowance had been made and upon which a final allowance was recommended. Such a treatment of the claims would have been wholly inappropriate had the settlement of 1891 not been reopened.
    4. The Commissioner’s decisions, under section 3220, are in the nature of awards by arbitrators, not to be impeached nor subject to review by the Comptroller for a mistake of judgment or discretion, but imxieachable for fraud, want of jurisdiction, patent mistake, or other like irregularities. (Banlc of Green-castle v. United States, 15 C. Cls. JR,., 225; Nixon v. Same, 18 id., 448, 454; Bidgway v. Same, id., 707; Sybrandt v. Same, 19 id., 461; Freriehs v. Same, 21 id., 16; see also McKnight v. Same, 13 id., 292, 309.)
    Now, the jurisdiction to allow a claim on account of taxes on surplus was precisely what the Commissioner lacked under the act of 1893, which only gave him jurisdiction over claims on account of tases “ deducted from any dividends or interest due and payable,” and bence bis allowance of $3,248.55 on account of taxes on surplus for 1868-1871 was an illegal assumption of jurisdiction, and it was tbe Comptroller’s duty, as well as witliin bis power, to correct tbe error by deducting the amount erroneously allowed. (Seat v. United States, 18 O. Cls. B., 458.)
    It is equally beyond question that when tbe Comptroller deducted from tbe allowance of 1893 so much of what bad been paid in 1891 as tbe Commissioner bad not himself already deducted, tbe former did not reopen tbe settlement of 1891. When the allowance of 1893 came before him, that settlement, as lias been shown above, bad already been reopened, and tbe allowance then made, merged in that of 1893, so that tbe claims of 1891 and 1893 bad practically become a single claim, upon which there bad been a payment on account. Tbe question of the Commissioner’s jurisdiction to allow a claim for taxes on surplus therefore came before tbe Comptroller as properly in regard to those claims for taxes on surplus which had been allowed in 1891 and paid as in regard to those which bad been rejected in 1891 but subsequently reconsidered and allowed in 1893, and the Commissioner having been equally without such jurisdiction on both occasions, tbe Comptroller’s action was equally proper as to both allowances.
    Tbe case of United, States v. Kaufman (96 TJ. S., 567, affirming 11 O. Cls. B., 659) and United States v. Savings Banlc (104 TJ. S., 728, affirming 16 C. Cls. B., 335), both of which are relied on in claimants’ brief, pages 31-33 (Bee., pp. 103-105), furnish no argument against the authority of tbe Comptroller in cases of this sort; they merely confine bis authority within its proper limits. The question in those cases was whether or not the Court of Claims had jurisdiction after the Comptroller had decided the matter, and it was held that it had. In the Kaufman Case it was also held that until the decision of the Commissioner of Internal Bevenue in favor of a claim was impeached in some appropriate form, the liability of the Government was conclusive; that is to say, that the mere fact of a disallowance by the Comptroller did not shift the burden of proof, and that “ the affirmative of the impeachment [was still] upon the Government.”
    5. The present claim, being founded on acts of the Commissioner of Internal Bevenue involving the assumption of a jurisdiction which he did not possess, can not be maintained in this court.
    Although the Comptroller’s right to deduct the allowance for taxes on surplus from that for taxes on interest appears, as above shown, to be well founded in law, it is not essential to the decision of this case. Whatever be the respective limits of the authority of the Commissioner and the Comptroller, the former, equally with the latter, is under the law, and the extent of his statutory jurisdiction is a matter of law, to be decided by the proper court. In the present case, the Commissioner in 1891 allowed a claim on account of taxes upon the surplus profits of the Louisville and Nashville Railroad Company, as well as a claim on account of taxes actually deducted from dividends due the claimants, although the statute under which he claimed to act authorized him to allow a claim of the latter character only. Again, in 1893, his successor did the same thing, both as regards that portion of the ■original claim which had been rejected in 1891 and was again presented, and as to that portion which had been allowed in 1891, but which, on the reopening, was reviewed and readjusted. His allowances on this account were made without lawful authority, and were therefore void, and can not form the ground of an action in this court. (Seat v. United States, 18 C. Cls. R., 458, 470.)
    In the application of the doctrine laid down in the case just cited it can make no difference that in that case the suit was brought to recover the Commissioner’s allowance, which had not been paid at all, whereas the present suit is to recover a portion of an allowance which has been paid, but which has been deducted from a subsequent valid allowance. By virtue of the jurisdiction of this court to hear and determine “all set-offs, counterclaims, * # * or other demands whatsoever on the part of the Government of the United States against any claimant against the Government in said court,” the propriety of the allowance of 1891, and the defendant’s right to have a portion of that allowance set off and deducted from whatever may be justly due under the act of 1893, are put in issue, and this court can decide the questions raised quite as effectually as if the illegal portion of the allowance of 1891 had been struck out by the then Comptroller at that time and suit had then been brought to recover it.
    Nor does it matter that the error of the Secretary and the Commissioner was one of law and not of fact. If executive officers have allowed and paid a claim by mistake of law, this may prevent their successors from reopening it, but is no bar to a judicial determination of the matter in a court of law. Thus, in United States v. Bartlett (2 Ware, 1), it was held that a fishing bounty paid by a collector of a port unde! a mistake of laAv could be recovered back in a suit by the Government, because a principal could not justly be charged with the consequences of his agent’s mistake of law, the agent’s authority extending only to acts done in accordance with law, not to anything done in disregard of it.
    If the United States has a right to sue for the recovery of an alio Avance illegally made or credit illegally given, whether the officer who gave the allowance or credit be still in office or not, it has of course the same right to have such allowance or credit set off in any suit brought against it by the recipient of such illegal allowance or credit. But for the stress which claimants’ counsel lay upon the action of the Secretary,-Commissioner, and other officers in regarding taxes upon surplus earnings as the same as taxes deducted from dividends, it would be unnecessary to state in this connection that the court and not these officers must judge of the legality of their acts. In any suit coming before a court involving the construction of a law, “the court,” as the Supreme -Court has expressly said, “certainly would not be bound to adopt the construction given by the head of a Department [or any other officer], and if they supposed his decision to be wrong, they would of course so pronounce their judgment.” (Decatur v. Paulding, 14 Pet., 497, 515.)
    The court is perfectly well aware that in the mass of business in the Executive Departments each matter is referred to a clerk, who prepares it for final action by the head of the Department, or of some particular branch, whose final action consists merely in affixing his signature; so that it is only in rare instances that official action results from the personal investigation or indicates the personal opinion of the officer who gives a matter his official sanction. For this, if for no other reason, official action rarely commands the same sort of respect that attaches to the judgments of a legal tribunal. It does not appear in the present case’that the various official papers which the claimants have put in evidence indicate anything more than the opinions of the clerks who drafted them, and though the opinion of the former Solicitor of Internal Revenue is an exception to the rule, it adds nothing to the brief, because the claimants having had the good fortune to secure him, on his retirement from office, as the leading counsel in their behalf, every page of their brief expresses his opinion just as much as that portion where it appears in the form of a quotation.
   Nott, J'.,

delivered the opinion of the court:

A number of points were presented and ably argued on the hearing of this case, but in the opinion of the court it turns and must be decided upon only one of them.

The action is to recover an unpaid balance of a refund of internal-revenue taxes allowed by the Commissioner of Internal Revenue and approved by the Secretary of the Treasury. Such an allowance is an award, and upon it an action may be maintained in. this court. (United States v. Kaufman, 96 U. S. R., 567, affirming decision in 11 O. Cls. R., 659.) Such an award is conclusive unless impeached, and the burden of impeaching it is upon the defendants. In this case they have not sought to do so.

The defense is in fact, though not in form, by way of set-off, and goes only to a portion of the demand. That is to say, the amount set up by the defense is less than the amount of the award.

The facts which present the point to be determined are practically embodied in two acts of Congress. In 1890 a statute was passed authorizing the Secretary of the Treasury and the Commissioner of Internal Revenue to adjust the claim of the city of Louisville for a refund of “taxes on dividends on shares of stock” which the city owned in the Louisville and Nashville Railroad. The Secretary and Commissioner made a refund in which they allowed the city $24,801.14 on account of taxes paid on cash dividends and $17,712.89 on account of taxes paid on “undistributed surplus,” or profits of the road, the whole amounting to $42,514.03. Subsequently Congress, by the Deficiency Act, 30th of June, 1891 (26 Stat. L., pp. 862, 867), made the following appropriation:

“Payment to city of Louisville, Kentucky: For payment to the city of Louisville, Kentucky, tbe amount found due under the act of Congress approved June sixteenth, eighteen hundred and ninety, and reported to Congress in House Executive Document if umbered Two hundred and sixty, of the present session, forty-two thousand five hundred and fourteen dollars and three cents.”

The defendants insist that the allowance by the Commissioner of Internal Revenue of the amount of $17,712.80 on account of taxes paid on stock dividends was erroneous and unauthorized by the act of 1890, and that the subsequent Act 25th of February, 1893 (27 Stat. L., p. 477), has reopened the matter so that the erroneous allowance of the Commissioner can be set off against the unquestioned award which is the subject of the present suit.

This act of 1893, like the act of 1890, authorizes and requires the Commissioner of Internal Revenue to audit and adjust claims of the city of Louisville and of certain counties in Kentucky for internal-revenue taxes on dividends declared by the Louisville and Nashville Railroad Company. It also directs that this shall be done notwithstanding “ any statute of limitations to the contrary;” and it finally directs that “the amounts when ascertained, as aforesaid, and not heretofore refunded, shall be paid out of the permanent annual appropriation provided for similar claims allowed within the present fiscal year.”

If Congress intended to make the remedy granted by this statute conditional upon the reexamination of the claim previously adjudicated and paid under the acts of 1890-1891, there should have been a provision signifying such an intent. If it had provided that the Secretary and Commissioner, or the accounting officers of the Treasury, might reexamine the award that had then been made and satisfied, and deduct any erroneous overpayment from any amount which might be allowed on the claims which might be allowed under the act of 1893, the claimant by seeking relief under the statute would be deemed to have agreed to the prescribed condition. But the statute as it stands expresses no intent to disturb what has been done, and no such intent can be read into it where there is no such implication. The question, therefore, is whether the refund of taxes, if made by the Commissioner of Internal Revenue in excess of his statutory authority, can be recovered back after it has been paid under and by the express authority of an act of Congress.

It is the opinion of the court that money paid to a designated person by authority of a specific appropriation of Congress can not be recovered back because of subsequently discovered mistake of fact or error of law. The Supreme Court said in United States v. Jordan (113 U. S. R., pp. 418, 422, and see 19, C. Cls. R., 108):

“ The Court of Claims held that the statute did not admit of that interpretation, nor leave open any question for the court or for' the accounting officers of the Treasury except the identity of the claimants with the persons named in it; and that its language, taken together, was too clear to admit of doubt that Congress undertook, as it had a right to do, to determine not only what particular citizens of Tennessee by name should have relief, but also the exact amount which should be paid to each one of them. We concur in this view.”

The language is authoritative to this court and decisive of the present case. The judgment of the court is that the claimant recover the amount withheld by the accounting officers from the award made under the act of 1893, to wit, the sum of ^$17,633.43.  