
    AETNA INSURANCE COMPANY (1), GLENS FALLS INSURANCE COMPANY (2), HOME INSURANCE COMPANY (3), INSTITUTE OF LONDON UNDERWRITERS (4), MUTUAL FIRE MARINE & INLAND INSURANCE COMPANY (5), PEARL ASSURANCE COMPANY, LIMITED (6), SUN INSURANCE OFFICE, LIMITED (7), THE PENNSYLVANIA RAILROAD COMPANY (8) v. THE UNITED STATES
    [No. 281-52.
    Decided March 5, 1958]
    
      
      Messrs. Raymond E. Stefferson and Richard T. Graham for plaintiffs Nos. 1-7. Mr. Paul F. McArdle, for plaintiff No. 8, was on the briefs.
    
      Mr. Benjamin H. Pester, with whom was Mr. Assistant Attorney General Charles K. Rice, for defendant. Mr. James P. Garland was on the briefs.
   Reed, Justice (Ret.),

sitting by designation, delivered the opinion of the court:

This is a suit for a refund of tax paid on industrial alcohol lost as a result of a rail accident during shipment from a bonded warehouse. The plaintiffs are the Aetna Insurance Company and associated insurance companies, and The Pennsylvania Railroad Company. ' The facts upon which the claim for refund is founded are as follows:

On July 21, 1949, Midwest Solvents Company, Inc., hereinafter referred to as Midwest, a manufacturer of alcohol, withdrew from its Industrial Alcohol Bonded Warehouse 15,280.6 proof gallons of grain alcohol for shipment to Joseph E. Seagram & Sons, Inc., pursuant to a purchase agreement. At the time of the withdrawal of the industrial alcohol from the bonded warehouse, Midwest paid the United States excise taxes thereon in the amount of $137,525.40. This tax-paid alcohol was loaded aboard a tank car and consigned to a point in Pennsylvania. On July 25, 1949, while being transported by one of the trains of the Pennsylvania Railroad, and on the lines of that company, the tank car containing the alcohol was derailed and overturned. As a result of this accident 11,549.57 proof gallons of alcohol were lost.

Pursuant to the provisions of the uniform bill of lading, requiring payment for failure to deliver, under which the shipment was made, the carrier, Pennsylvania Railroad paid to the consignee $109,046.73 on account of the alcohol lost during shipment. Of this amount $103,954.50 represented excise taxes paid on the lost alcohol. Thereafter, the Pennsylvania Railroad requested Midwest to file a claim for refund with the Commissioner of Internal Revenue seeking a return of taxes paid on the destroyed alcohol. This claim was rejected on August 4, 1950, by the Commissioner on the ground that “[t]here is no provision of law for the refunding of tax where the spirits have been lost by casualty after the tax ascertained to be due has been paid.”

On or about May 19,1953, the Pennsylvania Railroad took an assignment from Midwest and Hunter-Wilson Distilling Company, the consignee of the alcohol shipment, of all their interest in the lost alcohol “including any and all taxes paid thereon, and any claim against the United States Government for a refund thereof.” The Pennsylvania Railroad has been partially indemnified by collection from Aetna Insurance Company and others, also parties to this suit, under insurance contracts in the amount of $53,945.50. By the terms of the insurance policies, and by special subrogation receipts, each of the insurance companies was subrogated to the rights of the Pennsylvania Railroad to the extent of the payment which each company made to the railroad.

Suit was brought on June 4, 1952, under section 3113 (a) of the Internal Revenue Code of 1939 in this court by the insurance companies and the Pennsylvania Railroad, for a refund of the tax represented by the loss of the industrial alcohol. This section reads as follows:

Whenever any alcohol is lost by evaporation or other shrinkage, leakage, casualty, or unavoidable cause during distillation, redistillation, denaturation, withdrawal, piping, shipment, warehousing, storage, packing, transfer, or recovery, of any such alcohol the Commissioner may remit or refund any tax incurred under existing law upon such alcohol, provided he is satisfied that the alcohol had not been diverted to any illegal use: Provided^ also, That such allowance shall not be granted if the person claiming same is indemnified against such loss by a valid claim of insurance.

The Government bases its defense to this action upon three main contentions, which are: (1) No statute provides a refund of taxes paid on distilled spirits where the loss occurs after tax payment; (2) The plaintiffs not having paid the tax may not maintain an action for its refund; (3) A train wreck is not a casualty within the meaning of section 3113 of the Code.

First. The Government says that section 3113(a) does not allow a refund of tax after its payment. It points out that the tax on alcohol is an excise tax on the manufacture of the spirits and attaches at the time of production, although payment is deferred until the time it is removed from a bonded warehouse. Once it has been removed from bond and the tax paid, the Government contends, no refunds may be made due to any loss. In support of this position the Government cites sections of the Internal Revenue Code dealing with refund of taxes paid on distilled spirits. Section 2901 of the 1939 Code allows refund of tax on distilled spirits, and has generally been interpreted by the courts as not allowing refund after the tax has been paid and the alcohol withdrawn from bond, see Erie Railroad Company v. United States, 140 C. Cls. 398. Cf. Stitzel-Weller Distillery, Inc. v. United States, 82 F. Supp. 50, aff’d 180 F. 2d 357. Apparently in order to make sure that such an interpretation of that section was followed by the courts and administrative offices, the Congress, after the Stitzel-Weller affirmation, quickly amended section 2901, 64 Stat. 7, in 1950 and provided' in its subsection (c) that:

* * * Nothing in section 2901 as hereby amended, or as heretofore amended, shall be construed to authorize refund of the tax where the loss occurred after the tax was paid.

This amendment restored to the Code a limitation concerning the refund of taxes on distilled spirits which had existed in prior acts. Rev. Stat. §3221; 1939 Code §2901 (b), 53 Stat. 341. This same congressional limitation on refunds of tax paid on distilled spirits was manifested in section 5011 (a) (3) of the 1954 Code.

We think that the Government’s reliance on these sections in its attempt to show the intention of Congress with respect to refunds claimed as here under section 3113 (a) is misplaced. Section 2901 of the 1939 Code was contained in Chapter 26, Subchapter A, Part IV, 53 Stat. 340. Subchapter A was headed DISTILLED SPIEITS and Part IY thereof Miscellaneous Provisions Belatmg to Distilled Spirits. On the other hand, section 3113 (a) is found in Subchapter C, part II, which came under the general heading INDITS-TEIAL ALCOHOL PLANTS. 53 Stat. 360. Thus the two sections relating to refunds of tax on alcohol cannot be said to be so interrelated that they must be read in pari materia. In fact an opposite conclusion seems to be justified.

There was a logical distinction between refunding taxes on distilled spirits and industrial alcohol. The latter was used in industry, commonly rendered nonpotable, and was like any other article of commerce. When not drinkable it did not offer the temptations incident to production, storage, and shipment of the other alcohol. Had Congress intended to provide the same restrictions on refunds of tax paid on industrial alcohol as those applied to distilled spirits, it had ample opportunity to do so.

In enacting section 5011 of the 1954 Code, Congress set forth in that section the requirements for refund of tax on both distilled spirits and industrial alcohol. However, the rule against refund after payment of tax is expressly limited to subsection (a) of section 5011 which deals only with distilled spirits. Subsection (c) of section 5011 sets forth the requirements for refund of tax paid on alcohol produced in an industrial alcohol plant and does not forbid a refund after payment of the tax. Section 5011 (c) is substantially the same as section 3113 (a) of the 1939 Code. The logical conclusion, therefore, would be that Congress did not intend to restrict, either in the 1939 Code or the 1954 Code, refunds of taxes on industrial alcohol to losses occurring prior to the time that the tax is paid.

The legislative history of the provision for refund of industrial alcohol taxes upon loss of the commodity confirms this view. The provision first appeared in the National Prohibition Act of 1919, Title III, Industrial Alcohol, § 14, 41 Stat. 321. It was inserted in the bill in the House, obviously to protect producers of industrial alcohol from losses, and agreed to there and in the Senate without significant discussion. 58 Cong. Rec. 2971; 4893, 4904. At that time, 41 Stat. 317, § 35, all tax provisions on intoxicating liquor were specifically continued in effect. The manufacture of distilled spirits largely for beverage purposes had long been closely supervised and taxed. The provisions for protection of the revenue were detailed and included provisions for recovery or abatement of taxes on distilled spirits only while in bond. The omission of the restrictions as to industrial alcohol can only be explained by the less likelihood of tax violations from its handling. As set out above, this difference between distilled spirits and industrial alcohol has continued down to this time. When section 5011 (c), supra, footnote 5, the present provision, was before Congress the Committee Reports on the Internal Revenue Code said, as to the subsection:

Subsection (c), “Loss or destruction of alcohol,” is existing law (see sec. 3113 (a)) except that the parenthetical statement “(produced at an industrial alcohol plant or imported under sec. 5311)” has been inserted following the words “Whenever any alcohol” at the beginning of the subsection, and the words “under existing law” Avere deleted in the phrase “may remit or refund any tax incurred under existing law upon such alcohol”. The parenthetical insertion is made to distinguish between alcohol produced at industrial alcohol plants or imported and high proof spirits produced at distilleries, in order that the loss provisions of the subsection may not be construed as applying to such spirits produced at registered distilleries. The deletion of the words “under existing law” is made for the purpose of clarity. [U. S. Code Congressional and Administrative News, 83d Cong., 2d sess., Vol. 3, House Report—Detailed Discussion of Bill, pp. 4476-4477; Senate Report, p. 5134.]

In Erie Railroad, supra, this court had occasion to discuss refunds of tax on distilled spirits under the Revenue Code of 1939. The plaintiff in that case was seeking refund under a situation quite like the one now presented. There is, however, one major and controlling difference between that case and this. There the refund was sought with respect to alcohol not produced in an industrial alcohol plant. As it was stated, Congress clearly did not intend to allow a refund on those distilled spirits after payment of tax. Section 2901 (c). This is not now the case before us and with respect to claims under section 8113(a) of the 1939 Code we hold that refund of the tax owed is not barred because the loss occurred after payment of the tax.

Second. The Government urges that the plaintiffs are not the correct parties to maintain suit for refund. As previously pointed out, the Pennsylvania Eailroad suffered the loss because of the liability imposed upon it by its shipping contract. We think that it is a correct party before this court. As the Pennsylvania Railroad was responsible for and paid the loss, it obtained the right by section 3113, which the taxpayer had, to recover any part of the taxes in order to extinguish or mitigate its loss. This section does not limit recovery to the taxpayer as did section 2901 (b) of the 1939 Code and section 5011 (a) (2) of the 1954 Code. Subrogees were not excluded. Cf. Niagara Fire Ins. Co. v. United States, 76 F. Supp. 850. Instead it speaks of “the person claiming same.” The railroad paid the consignee for its loss suffered through the casualty. Therefore the railroad bore the loss instead of the owner who had paid the tax for the producer in accordance with the purchase contract. The right of the Pennsylvania arose as a result of subrogation, and the agreement executed between Pennsylvania, Midwest and Hunter-Wilson did no more than express in words what was already in effect by operation of law.

The Government loses nothing by such a subrogation. It would have been liable to the taxpayer for the loss if he were still the owner and is equally liable to the railroad which bore the owner’s burden. The case is much like United States v. American Tobacco Co., 166 U. S. 468. There American recovered from the United States the value of stamps destroyed by fire for the benefit of its insurance carriers. The suit was brought under Eev. Stat. § 3426, as amended, 20 Stat. 327, 349, in the name of American Tobacco, the taxpayer, because that statute called for refund “to the owner thereof.” P. 470. But the insurance carrier, because of its payment to American, was subrogated to the taxpayer’s claim against the United States. “The suit is properly brought in the name of the insured for the use of the insurers but the cause of action rests on the rights of the insured.” P. 474.

In the present case, the carrier, the Pennsylvania Railroad, being liable to the owner by the terms of its bill of lading, on payment thereof became subrogated to the claim against the United States of the owner of the industrial alcohol, subject to all defenses the United States had against the owner, the consignee. This subrogation is not through any statute but by virtue of the nature of the carrier’s obligation under its bill of lading. When the owner is made whole, its right to salvage or recovery against third parties passes to the carrier and the carrier’s insurers. This follows the general principle of subrogation that when one obligated to indemnify an obligee satisfies his contract, the rights of the obligee arising from the transaction against third parties pass to the obligor. Vermilye & Co. v. Adams Express Co., 21 Wall. 138; Hardman v. Brett, 37 Fed. 803, 805. It was for this reason, in these very transactions that, to protect the insurers against any claim by the railroad, the consignee’s insurance policy contained a clause barring any claim by a carrier through subrogation.

We turn to consider a statutory limitation in section 3113, supra, page 3, on the right to recover for loss by casualty of industrial alcohol during “shipment.” This is the proviso, “That such allowance shall not be granted if the person claiming same is indemnified against such loss by a valid claim for insurance.” The Government argues without specific reliance on this proviso that the plaintiffs have no standing to sue. The plaintiffs attack the proviso directly. They assert the proviso is unconstitutional in that it works an arbitrary discrimination against insured and uninsured claimants for tax refunds which violates the Fifth Amendment of the Constitution.

The proviso has existed since the first industrial alcohol legislation, section 14, 41 Stat. 321. A similar provision still exists in respect to distilled spirits, 1954 Code, section 5011 (a) (4). It originally was passed May 27, 1872, 17 Stat. 162. It was inserted in the original refund bill concerning distilled spirits after a suggestion on the floor that if the taxpayer “should succeed in recovering from the insurance company one-half of the value of the spirits destroyed, it would be inequitable that he should not pay a portion at least of the tax on those spirits.” In form it was substantially like the present wording. Instead of the original word “tax,” it now reads “loss.” The meaning is the same.

It may be that as allowance of refund is an act of grace, the tax being payable upon the manufacture or withdrawal of the alcohol, the Congress favored only taxpayers who had suffered loss when the entire transaction was taken into consideration. At any rate we do not find the limitation so arbitrary or unreasonable as to violate the Fifth Amendment. When legislating for the refund of taxes, it is reasonable to classify taxpayers according to whether they did or did not suffer loss.

The right on a casualty to recover a refund covered by section 3113 passed from taxpayer to purchaser to consignee (Hunter-Wilson Distilling Co., a subsidiary of Joseph E. Seagram & Sons, Inc.). When the Pennsylvania Railroad paid Hunter-Wilson for the loss, as required by its bill of lading, it was subrogated, as we held above, to the consignee’s right to tax refund. It became the “person claiming same,” entitled to sue to recover, the real party in interest of Eule 17 of the Eules of Civil Procedure.

The amount paid by the Pennsylvania Railroad to the consignee was $109,046.73 (finding 8). The Pennsylvania Railroad received from, its own insurers, also plaintiffs here, $53,945.50. It sues for $50,000. Two issues arise as to the statutory limitation as to indemnification:

A. Was the owner-consignee “indemnified against such loss by a valid claim of insurance”? If so, its subrogee cannot recover because a subrogee takes only the rights of the creditor. The Pennsylvania Railroad must pay the consignee the loss because of the bill of lading. It is a debtor-creditor relation akin to insurance but we do not think it is the sort of obligation covered by the statutory phrase — “a valid claim of insurance.” It is not the “insurance” referred to on the floor of Congress at the time of its original adoption. That was a usual fire insurance policy carried by the distiller. Congress evidently did not have a bill of lading in mind when it allowed tax recovery in section 3113 for loss in “shipment.” Every carrier has the common law liability for “failure to transport safely goods intrusted to its care.” Chesapeake & Ohio Railway Company v. Thompson Manufacturing Company, 270 U. S. 416, 422. We do not think the bill of lading gave the consignee “a valid claim of insurance” within the meaning of the act. Therefore the Pennsylvania Railroad gained by subrogation the consignee’s right to recover from the Government.

B. Does the same rule apply to the plaintiff companies who insured the Pennsylvania Railroad against loss and thereby on payment to the railroad in turn became sub-rogated to its claim against the Government? We do not think that it does. The proviso of section 3113 (a), page 3, supra, says “such allowance shall not be granted if the person [Pennsylvania] claiming same is indemnified against such loss by a valid claim of insurance.” The Pennsylvania Railroad, the claimant, held valid claims of insurance for $53,945.50 paid by plaintiff companies. It cannot recover this because of the section 3113 proviso so, of course, its insurance company subrogees cannot either. They have only the rights of the Pennsylvania Railroad.

Third. Finally, the Government urges that section 3113, see page 3, supra, does not cover a loss by train wreck. Proper diligence by the carrier would have avoided the loss. Therefore it was “negligence, not a casualty,” which the Government urges is “an event which, a human cannot prevent,” citing Crystal Spring Distillery Co. v. Cow, 49 Fed. 555. The statute there in question, Rev. Stat. § 3221, allowed recovery for “destruction by accidental fire or other casualty.” The court refused recovery from loss by warpage and undiscoverable wormholes. He concluded such incidents were not a “casualty.”

Under this statute, section 3113 with its use of shrinkage, leakage, casualty, or unavoidable cause during “shipment * * * or transfer,” we cannot but conclude that a loss by train wreck is a loss by “casualty” in the ordinary meaning of the word and as covered by the statute.

Internal Eevenue taxation places on producers the duty to pay certain exactions for the support of the Government. Producers must pass these heavy luxury taxes on- to the consumer, the ultimate bearer. When casualty intervenes, after the tax is paid, the choice is with Congress whether to compel the producer to bear the loss or to refund the amount on terms dictated by legislation. We think the Pennsylvania Eailroad has met the requirements of the Congress and should recover.

It is the opinion of this court that plaintiff The Pennsylvania Eailroad Company may recover the tax paid on the alcohol lost by the wreck during shipment over its lines, for which it was liable, to the extent that such loss was not indemnified by insurance. The amount of recovery under the petition, together with interest as provided by law, will be determined pursuant to Eule 38 (c). It is further held that plaintiff Aetna Insurance Company and the other plaintiff insurance companies may not recover, and the petition as to them will be dismissed.

It is so ordered.

Madden, Judge; Littleton, Judge; and Jones, Chief Judge, concur.

Whitaker, Judge,

dissenting:

The correct decision in this case is not as plain as in Erie Railroad Company, et al. v. United States, 140 C. Cls. 398, but, even so, I do not think it was the intent of Congress to permit a refund of a tax on account of a casualty occurring after the alcohol had been withdrawn from bond and the tax had been paid.

Most of the occasions enumerated in section 3113 (a) of the Internal Eevenue Code of 1939, permitting a remission or refund of the tax, are tilings occurring before withdrawal from bond. For instance, “shrinkage”, “leakage”, “unavoidable cause during distillation, redistillation, denaturation”; all these, of course, occur prior to withdrawal.

Then the statute mentions “withdrawal”. I take it this means withdrawal from bond, and refers to a loss in this process. “Piping”, I suppose, refers to transmission of the alcohol by pipe from distillery to warehouse or within one or the other. “Storage” must mean storage in the warehouse. “Transfer” and “shipment” I would suppose mean transfer and shipment before withdrawal from Government control. After withdrawal and the payment of the tax thereon, the Government’s interest in the alcohol ceases. What happens to it thereafter is no concern of the Government.

I can conceive of no reason why the Congress should have intended to direct a refund of the tax, if the alcohol was destroyed after it had passed out of the hands of the Government and into the uncontrolled possession of the owner.

I think section 3113 (a) should be construed to refer to events happening before withdrawal from bond and payment of the tax.

I respectfully dissent.

EINDINGS OE EACT

The court, having considered the evidence, the report of ' Commissioner Eichard H. Akers, and the briefs and arguments of counsel, makes findings of fact as follows:

1. Plaintiff, Aetna Insurance Company, is a corporation organized and existing under the laws of the State of Connecticut; plaintiff, Glens Falls Insurance Company, is a corporation organized and existing under the laws of the State of New York; plaintiff, Home Insurance Company, is a corporation organized and existing under the laws of the State of New York; plaintiff, Institute of London Underwriters, is an unincorporated association organized and existing under tbe United Kingdom of Great Britain and Northern Ireland; plaintiff, Mutual Fire Marine & Inland Insurance Company, is a corporation organized and existing under the laws of the State of Pennsylvania; plaintiff, Pearl Assurance Company, Limited, is a corporation organized and existing under the laws of the United Kingdom of Great Britain and Northern Ireland; plaintiff, Sun Insurance Office, Limited, is a corporation organized and existing under the laws of the United Kingdom of Great Britain and Northern Ireland; and plaintiff, The Pennsylvania Kailroad Company, is a corporation organized and existing under the laws of the State of Pennsylvania.

2. On June 1, 1945, Claud L. Cray, Arthur P. Nauman, and Joseph J. McFawn, a partnership doing business as Midwest Solvents Company, entered into an agreement with The Calvert Distilling Company relating to the purchase and sale of certain quantities of alcohol. On September 6,1945, The Calvert Distilling Company assigned its interest to Joseph E. Seagram & Sons, Inc., referred to in the contract as buyer, which company assmned the obligations of The Calvert Distilling Company, the purchaser under the original agreement. On May 1, 1946, the partnership, Midwest Solvents Company, seller, assigned to Midwest Solvents Company, Inc., a corporation organized and incorporated under the laws of the State of Kansas, all of its rights under the terms of the purchase and sale agreement, and the Midwest Solvents Company, Inc., assumed the obligations of the seller under the terms of that agreement.

3. On or about July 21, 1949, and in accordance with the terms of the purchase and sale agreement referred to above, the Distillers Distributing Corporation, purchasing agent of Joseph E. Seagram & Sons, Inc., ordered one tank car of ethyl alcohol shipped to Hunter-Wilson Distilling Company of Bristol, Pennsylvania, a subsidiary of Joseph E. Seagram & Sons, Inc. The purchase order was filled by the seller, Midwest Solvents Company, Inc. Under the terms and conditions of the sales agreement, the purchaser was to advance with each order an amount equal to the value of the liquor stamp tax on the alcohol to be shipped.

4. On July 21,1949, the Midwest Solvents Company, Inc., a manufacturer of alcohol, withdrew from its Industrial Alcohol Bonded Warehouse No. 217, 15,280.6 proof gallons of grain alcohol with a net weight of 54,225 pounds. At the time of the withdrawal of the alcohol from its warehouse, the Midwest Solvents Company, Inc., paid the United States excise taxes thereon at the rate of $9 per proof gallon in the amount of $187,525.40 to the collector of internal revenue for the District of Kansas and invoiced the alcohol to the purchaser in the total amount of $144,089.74, less the internal revenue tax of $187,525.40 which had been advanced by the purchaser, that is, a net amount of $6,514.34.

5. Thereafter, on July 21, 1949, the alcohol was loaded into tank car GATX 18818 at Atchison, Kansas, consigned to Hunter-Wilson Distilling Company, Rectifying Plant No. 55, Bristol, Pennsylvania. A uniform straight bill of lading covering the shipment was issued by the Missouri Pacific Railroad Company which provided, among other things, that the carrier should not make delivery of the shipment without the payment of the freight and all other lawful charges.

6. On July 25, 1949, at or near East Haven, Indiana, the tank car of alcohol described above, while being transported in one of the trains of The Pennsylvania Railroad Company and on the lines of that company, was derailed and overturned. The derailment was not caused by the negligence of Midwest Solvents Company, Inc., Hunter-Wilson Distilling Company, or Joseph E. Seagram & Sons, Inc.

7. At the time of the accident referred to in the preceding finding, the train, YU-2, of which the tank car was a part, was traveling between Indianapolis, Indiana, and Columbus, Ohio. East Haven, where the accident occurred, is approximately 65 to 67 miles from Indianapolis and the ordinary running time for that train for that distance is approximately one hour and a half. It was traveling in accordance with the speed regulations in effect in the East Haven area at that time.

The cause of the accident was that the retainer key of a car coupling came out, thus allowing the coupler to be pulled out which in turn let the drawbar drop. The train had been inspected in Indianapolis, in the usual manner, on the day of the accident prior to leaving that place on this trip. The inspection included an examination of the coupler and draw-bar, both of which were found to be in good order. The retainer hole for the retainer key was found on examination after the accident occurred to be bright and shiny which indicated that the retainer key had not been out of the hole any appreciable length of time when the accident occurred. There were no defects found to the coupler after the accident.

8. As a result of the accident, 11,549.57 proof gallons of alcohol leaked from the tank car and were lost. As a result of the loss, on or about December 27,1949, The Pennsylvania Railroad Company, in accordance with and as required by the uniform straight bill of lading and its legal liability, paid the consignee, Hunter-Wilson Distilling Company (subsidiary of Joseph E. Seagram & Sons, Inc.), $109,046.73 for the alcohol which was lost.

9. On or about June 19,1950, Midwest Solvents Company, Inc., filed a claim for refund of United States excise taxes in the amount of $103,945.50 on the lost alcohol. That claim for refund was filed by the Midwest Solvents Company, Inc., upon request made to it by The Pennsylvania Railroad Company by letter dated December 27, 1949. The Midwest Solvents Company, Inc., replied to that request of The Pennsylvania Railroad Company on January 4, 1950', as follows:

We are pleased to enclose herewith your letter of December 27,1949 which we have accepted subject to the following interpretations:
1. That our company is giving assurance that they will use all reasonable effort to cooperate in establishing any claim with or against the Federal government for the return of excise taxes on the portion of distilled spirits in car GATX-13818 destroyed while en route from Atchison, Kansas to Hunter-Wilson Distilling Company, Bristol, Pennsylvania, providing that the same is without additional expense to Midwest Solvents Company, Inc.
2. In making any assignment it should be understood that we do not consider that our company has any claim (inasmuch as we did not pay the tax) but that we are willing to lend the name of our company for the purpose of making such claim upon assurance that the same will be without cost or risk of any counter-claim and that same will be subject to the approval of the purchaser and the parties who paid the tax.
We realize that you might feel that some of these points are already covered in your letter of December 27, 1949; however, because of our relationship to the case, we would rather they be more specifically outlined as above.

10. The claim for refund was rejected by the Commissioner of Internal Bevenue on August 4, 1950, in the following language:

Consideration has been given your claim filed June 19, 1950, for refund of $108,945.50, representing tax on 11,549.57 proof gallons of alcohol lost from Tank Car No. GATS 13818, due to casualty, while in transit from Atchison, Kansas, to Bristol, Pennsylvania.
It appears that the alcohol in question was taxpaid on July 21,1949, at the time of removal from Industrial Alcohol Bonded Warehouse No. 217, Midwest Solvents Company, Inc., Atchison, Kansas, and that the alcohol was lost due to a wreck on the Pennsylvania Bailroad on July 25,1949.
There is no provision of law for'the refunding of tax where the spirits have been lost by casualty after the tax ascertained to be due has been paid. Your claim is accordingly rejected.

11. Between July 25, 1950, and September 15, 1950, The Pennsylvania Bailroad Company was partially indemnified by collection from insurance companies under contracts in the amount of $53,945.50 as follows: July 25, 1950, Aetna Insurance Company $13,486.38; July 27, 1950, Pearl Assurance Company $4,045.92; August 10, 1950, Mutual Fire Marine & Inland Insurance Company $8,091.82; August 14, 1950, London Underwriters $6,743.19; August 28,1950, Glens Falls Insurance Company $8,091.82; September 1, 1950, Home Insurance Company $8,091.82; and September 14, 1950, Sun Insurance Company $5,394.55, which insurance companies, in consideration of such payments, were assigned the same rights of recovery as The Pennsylvania Bailroad Company. These adjustments leave an amount of $50,000 outstanding in the accounts of The Pennsylvania Bailroad Company.

12. On or about May 19,1953, The Pennsylvania Bailroad Company requested an assignment from the Midwest Solvents Company, Inc., and thereafter the Midwest Solvents Company and Hunter-Wilson Distilling Company executed an assignment which stated in part that in consideration of the payment of $1.00 and other valuable consideration they—

* * * have sold, assigned, transferred and set over, and do by these presents sell, assign, transfer and set over unto the said The Pennsylvania Kailroad Company, its successors and assigns, to its and their own proper use, benefit and behoof forever, all their right, title and interest in and to a shipment of Ethyl Alcohol, shipped by the said Midwest Solvents Company, Inc., from Atchison, Kansas, on or about July 21,1949, in tank car GATX No. 13818, consigned to Hunter-Wilson Distilling Company, Inc., at Bristol, Pennsylvania, including any and all taxes paid thereon, and any claim against the United States Government for a refund thereof which the undersigned may have, and which shipment while in transit was involved in a wreck on or about July 25, 1949, at or near East Haven, Indiana;
Togethee with any and all sums of money now . due or owing to them and arising out of said shipment or in connection therewith; and any and all claims, demands and cause or causes of action of whatsoever kind and nature which they, the said Midwest Solvents Company, Inc., and Hunter-Wilson Distilling Company, Inc., have had, now have or may have against whomsoever the said claims, demands or cause or causes of action may be, and arising out of or in connection with said shipment; or for any loss, damage or injury by them sustained because of said shipment or any matter connected therewith;
AND the said Midwest Solvents Company, Inc., and Hunter-Wilson Distilling Company, Inc., hereby constitute and appoint the said The Pennsylvania Kailroad Company, its successors or assigns, their true and lawful attorney or attorneys, irrevocable, with full power of substitution and revocation, for and in their names, or otherwise, but for the sole use and benefit of the said The Pennsylvania Kailroad Company, its successors or assigns, at its cost, to ask, demand, sue for, collect, compound and give acquittance for said claim and demand or any part thereof;
And Further, the said Midwest Solvents Company, Inc., and Hunter-Wilson Distilling Company, Inc., for the considerations as aforesaid, have remised, released and forever discharged, and by these presents do for themselves, remise, release and forever discharge the said The Pennsylvania Railroad Company, its connecting carriers and each of them, and all of their assigns and successors from any and all manner of action or actions, cause or causes of action,-and all claims and demands whatsoever, against the said The Pennsylvania Railroad Company or its connecting carriers or any of them, participating in the transportation of the shipment covered herein, which they ever had, now have, shall or may have by reason of any matter arising out of or relating to the shipment of Ethyl Alcohol aforesaid, and the said Midwest Solvents Company, Inc., and Hunter-Wilson Distilling Company, Inc., hereby ratify, approve and affirm all acts or proceedings heretofore done or made in connection with the said claim for refund from the United States Government of the said taxes on the lost alcohol by The Pennsylvania Railroad Company and/or its agents, assigns, or successors, of the whole or part of the claim.

13. By the terms of the insurance policies and by special subrogation receipts, each of the insurance companies was subrogated to the rights of The Pennsylvania Railroad Company to the extent of the payment which each company made to the railroad company.

14. The Midwest Solvents Company, Inc., shipper, was not insured against loss of the alcohol in question during the course of transportation.

15. Joseph E. Seagram & Sons, Inc., consignee, was the holder of Insurance Transportation Policy No. 1788310 issued to it by Insurance Company of North America, which policy was in effect during the entire year 1949 and contained the following provision:

Benefit of (8) It is agreed by the Assured that this Insurance insurance shall not enure directly or indirectly to the benefit of any carrier, bailee or other party, by stipulation in bill of lading or otherwise, and any breach of this agreement shall render this policy of insurance null and void.

16. The consignee made no claim against the insurer under the policy, referred to in the preceding finding, for the loss of the alcohol and received no payment from the insurer for the loss.

Upon the foregoing findings of fact, which are made a part of the judgment herein, the court concludes as a matter of law that plaintiff The Pennsylvania Railroad Company is entitled to recover, and judgment will be entered to that effect. The amount of recovery will be determined pursuant to Rule 38 (c).

It is further concluded that plaintiff Aetna Insurance Company and the other plaintiff insurance companies are not entitled to recover. The petition as to them will be dismissed.

On plaintiff’s and defendant’s motions for rehearing the following per curiam, opinion was rendered June 4, 1958:

The insurance companies seek a rehearing on the ground that the money referred to in the opinion of March 5, 1958, in this .case, as received from its own insurers was received by the Pennsylvania “as a loan and repayable only to the extent of any net recovery we may make from any person or persons, corporation or corporations, on account of loss by derailment to our property on or about July 25th, 1849, or from any insurance effected by such person or persons, corporation or corporations.” They rely in their petition upon Luckenbach v. McCahan Sugar Co., 248 U. S. 139, as holding “that the Pennsylvania Railroad was not ‘indemnified’ against the loss herein ‘by a valid claim of insurance’ within the meaning of section 3113.” (I. R. C., 1939, now 26 U. S. C. § 5011.)

It seems clear that the Pennsylvania Railroad Company was indemnified within the meaning of the sections by the terms of its policies against loss of the alcohol by valid claims of insurance up to the amount of the $53,945.50, set out in the original petition as the amount for which the railroad company was indemnified by the insurance companies.

The way in which the insurers and the insured handled that liability did not alter the bar of the statute.

The defendant’s grounds for rehearing have been examined and are not found to justify a rehearing.

The motions for rehearing are denied.

It is so ordered.

Pursuant to the commissioner’s report of September 8, 1958, m/m, the court entered the following order:

On March 5, 1958, the court rendered an opinion, together with findings of fact, dismissing the petition in this case with respect to all plaintiffs except The Pennsylvania Railroad Company (8). As to this latter plaintiff the court held that it was entitled to recover, with interest thereon as provided by law, with the amount of recovery to be determined pursuant to Pule 38(c).
During the proceedings before the trial commissioner, it was determined, and agreed to by; the .parties, that the amount due The Pennsylvania Railroad Company under the decision by the court was $50,000, but a dispute arose between the parties as to whether, as a matter of law, interest was allowable on the amount of recovery.
After consideration of briefs filed by the parties, the trial commissioner, Richard H. Akers, filed on September 8, 1958, with the court his recommendation as to the amount of recovery, which report is attached and made a part hereof [see below], wherein he concludes that no interest is allowable. Upon the basis of his recommendation, which is hereby adopted by the court, and the briefs submitted by the parties on the issue, the court concludes that no interest is to be allowed on the judgment.
Now, THEREFORE, it is ordered this eighth day of October, 1958, that judgment be and the same is entered for the plaintiff, The Pennsylvania Railroad Company, in the sum of fifty thousand dollars ($50,000).
By the court.

RECOMMENDATION IN RE DETERMINATION OF AMOUNT OF RECOVERY PURSUANT TO RULE 38 (C)

In this suit for the recovery of tax paid on industrial alcohol which was lost as a result of a rail accident during shipment from the bonded warehouse, the court, on March 5,1958, allowed recovery by the plaintiff carrier, The Pennsylvania Eailroad Company, but denied recovery to the plaintiff insurance companies which had been required to respond in damages on account of the loss. The amount of recovery was left for determination pursuant to Eule 38 (c).

Shortly before the accident, a manufacturer withdrew 15,280.6 proof gallons of industrial alcohol from its warehouse on which it paid an excise tax of $137,525.40. In the accident 11,549.57 gallons of alcohol were lost on which the manufacturer had paid $103,945.50 of excise taxes. Pursuant to the bill of lading under which the shipment was made, The Pennsylvania Eailroad Company paid to the consignee $109,046.73 on account of the alcohol lost during shipment of which amount $103,945.50 represented taxes paid on the lost alcohol. The Pennsylvania Eailroad Company was indemnified by the plaintiff insurance companies (who are parties to this suit) under insurance contracts in the amount of $53,945.50. In their petition The Pennsylvania Eailroad Company and the insurance companies sought a refund of the entire amount of excise tax paid on the alcohol lost in the accident, their statutory reliance being on section 3113 (a) of the Internal Eevenue Code of 1939, which reads as follows:

Whenever any alcohol is lost by evaporation or other shrinkage, leakage, casualty, or unavoidable cause during distillation, redistillation, denaturation, withdrawal, piping, shipment, warehousing, storage, packing, transfer, or recovery, of any such alcohol the Commissioner may remit or refund any tax incurred under existing law upon such alcohol, provided he is satisfied that the alcohol has not been diverted to any illegal use: Provided, also, That such allowance shall not be granted if the person claiming same is indemnified against such loss by a valid claim of insurance.

The court denied recovery to the insurance companies but allowed recovery to The Pennsylvania Eailroad Company for the difference between the total amount of excise taxes paid on the lost alcohol ($103,945.50) and the amount by which The Pennsylvania Eailroad Company was indemnified by the insurance companies ($53,945.50), that is, a net difference of $50,000. The parties are agreed that the principal amount which The Pennsylvania Railroad Company is entitled to recover is $50,000. They differ on the question of interest, the plaintiff contending that it is entitled to interest on its judgment at six percent whereas the defendant takes the position that no interest is allowable. I agree with the defendant.

At the outset it should be observed that interest on a claim against the United States in a judgment of the Court of Claims is allowable only as provided by section 2516 (a) of 28 U. S. C. which reads:

Interest on a claim against the United States shall be allowed in a judgment of the Court of Claims only under a contract or Act of Congress expressly providing for payment thereof.

Admittedly this suit did not arise under any contract with the Government. What the plaintiff contends is that it is entitled to interest by reason of section 2411 (a) of 28 U. S. C. which reads in part as follows:

In any judgment of any court rendered * * * for any overpayment in respect of any internal-revenue tax, interest shall be allowed at the rate of 6 percentum per annum upon the amount of the overpayment, from the date of the payment or collection thereof * * *.

This contention overlooks the fact that the refund with which we are concerned is not for an overpayment of tax but rather a recovery of taxes paid in order to extinguish or mitigate a loss sustained by reason of the accident. The right to recover such a tax obtains by reason of section 3113 which allows the Commissioner to refund a tax so paid but makes no provision for the payment of interest. In this case there was no erroneous or illegal collection of tax and therefore no overpayment but, on the contrary, the collection was at all times legal and in accordance with the statute.

The situation is similar to that prevailing in the case of Sunny Brook Distillery Co. v. United States, 72 C. Cls. 157, certiorari denied 284 U. S. 637, where this court had before it the interest question under a special statute providing for the refund of taxes paid on distilled spirits in 1919 which, by reason of the National Prohibition Act, could not be sold for beverage purposes. There, as here, the taxes had been legally collected, tbe special act providing for tbe refund of the tax but making no provision for the payment of interest. In denying interest on the amount of the refund, this court said :

It is plain that the original payment of the taxes included no “overpayment”, as required by the act of 1928, nor were the taxes so paid “erroneously or illegally assessed or collected, * * * or in any manner wrongfully collected,” * * *.

The case of Carter v. Liquid Carbonic Pacific Corp., 97 F. 2d 1, relied on by the plaintiff, involved a situation where the taxes which were refunded had been illegally collected and in the case of General Motors Corp., Frigidaire Division v. United States, decided November 7, 1956, post, p. 890, this court, in allowing recovery by the plaintiff, relied on section 3443 which provides for the payment of interest.

In view of the foregoing, it is recommended that judgment be entered in favor of The Pennsylvania Bailroad Company in the amount of $50,000, without interest. 
      
       under the terms of the purchase agreement between Midwest and Seagram, the purchaser advanced an amount equal to the excise tax on the alcohol removed from bond. Seagram had consigned this shipment to Hunter-Wilson Distilling Company and it was to them that the Pennsylvania Railroad made payment for the loss caused by the accident.
     
      
       A corresponding provision now appears In the Internal Revenue Code of 1954, 26 U. S. C. § 5011(c). See footnote 5, infra.
      
     
      
       Internal Revenue Code, 5 2901 (c) of 1939 and § 5011 (a) (3) of 1954.
     
      
       26 U. S. C. § 5011:
      “ (a) Distilled spirits lost or destroyed in bond.
      a * * * *
      “(3) Refund, of tase. — In any ease where the tax would not be collectible by virtue of subsection (a) (1), but such tax has been paid, the Secretary or his delegate shall refund such tax. No tax shall be remitted or refunded under this subsection where the loss occurred after the tax was determined (as provided in section 5006(a)), and the spirits withdrawn from bond.”
     
      
       26 U. S. C. § 5011:
      “(c) Loss or destruction of alcohol. — Whenever any alcohol (produced at an Industrial alcohol plant or imported under section 5311), Is lost by evaporation or other shrinkage, leakage, casualty, or unavoidable cause during distillation, redistillation, denaturation, withdrawal, piping, shipment, warehousing, storage, packing, transfer, or recovery of any such alcohol, the Secretary or his delegate may remit or refund any tax incurred on such alcohol: Provided, That he is satisfied that the alcohol has not been diverted to any illegal use: Provided further, That such allowance shall not be granted if the person claiming same is indemnified against such loss by a valid claim of insurance.”
     
      
       Rev. Stat. § 3221:
      “The Secretary of the Treasury, upon the production to him of satisfactory proof of the actual destruction by accidental fire or other casualty, and without any fraud, collusion, or negligence of the owner thereof, of any distilled spirits, while the same remained in the custody of any officer of internal revenue in any distillery warehouse, or bonded warehouse of the United States and before the tax thereon has been paid, may abate the amount of internal taxes accruing thereon, and may cancel any warehouse bond, or enter satisfaction thereon, in whole or in part, as the case may be. And if such taxes have been collected since the destruction of said spirits, the said Secretary shall refund the same to the owners thereof out of any moneys in the Treasury not otherwise appropriated.”
      The basic law is in Rev. Stat. (1878), Title XXXV, Internal Revenue, Ch. 4, Distilled Spirits. It is sufficient to add that right up to the adoption of the National Prohibition Act there was no relaxation of the rigor of the control of the production of distilled spirits or of the adoption of amendments to carry out the legislative purposes. E. g., 40 Stat. 308.
     
      
      
        Phoenix Insurance Co v. Erie and Western Transportation Co., 117 U. S. 312; 118 U. S. 210.
     
      
       There Is, of course, no bar to the claim against the Government by the anti-assignment statute, 31 U. S. C. § 203. It was an assignment by operation of law which Is valid. United States v. Aetna Casualty & Surety Co., 338 U. S. 366, 373.
     
      
       See finding 15 herein. Cf. Phoenix Insurance Co. v. Erie and Western Transportation Co., supra. See Philip Morris & Co. v. United States, 149 F. Supp. 166; 128 C. Cls. 153; Stephano Brothers v. United States, 116 C. Cls. 503, decided under stamp refund sections for tobacco.
     
      
       Congressional Globe, 42d Cong., 2d sess., pp. 2359 and 2385.
     
      
      See commissioner’s report dated September 8, 1958, post, p. 791.
     