1. Savings banks which receive deposits and lend the same for
the benefit of their depositors, although they may have no capital
stock and neither make discounts nor issue any money for
circulation, are "engaged in the business of banking" within the
meaning of the first clause of the 110th section of the Revenue Act
of 30 June, 1864, which enacts that
"There shall be levied, collected, and paid a duty of 1/24 of 1
percent each month upon the average amount of the
deposits
of money . . . . . with any person, bank, association, corporation,
or company
engaged in the business of banking."
2. On the repeal of the proviso to that section which declared
that the section should not apply
"to any savings bank having no capital stock, and whose business
is confined to receiving deposits and loaning the same on interest
for the benefit of the depositors only, and which do no other
business of banking,"
such savings banks became subject to the duty imposed by the
principal enactment.
3. Moneys received by such banks from depositors become
"deposits" within the meaning of the act as soon as they are
received, and as such are immediately subject to taxation.
4. In interpreting a section of a statute which remains in
force, resort may be had to a proviso to it, although the proviso
be repealed.
The 110th section of the Internal Revenue Act of June 30, 1864,
enacted as follows:
"There shall be levied, collected, and paid a duty of 1/24th of
one percent each month upon the average amount of the
deposits of money subject to payment by check or draft, or
represented by certificates of deposit, or
otherwise,
whether payable on demand or
at some future day, with any
person,
bank, association, company, or corporation, engaged in
the business of banking. . . ."
"And a duty of 1/24th of one percent each month, as aforesaid,
upon the average amount of the capital of any bank, association,
company, or corporation, or person engaged in the business of
banking beyond the amount invested in United States bonds."
"And a duty of 1/12th of one percent each month upon the average
amount of circulation issued by any bank, association, corporation,
company, or person, including as circulation all certified checks,
and all notes and other obligations calculated or intended to
circulate or be used as money. "
Page 70 U. S. 496
"PROVIDED, that this section shall not apply to associations
which are taxed under and by virtue of the act 'to provide a
national currency,' &c. . . . [Nor to any savings bank having
no capital stock, and whose business is confined to receiving
deposits and loaning the same on interest for the benefit of the
depositors only, and which do no other business of banking.]"
By an Act of March 3, 1865 -- an act itself of numerous pages --
amendatory of the former one, and inserting or striking out
passages all through it, this 110th section was amended by
"striking out" that part of the proviso relating to savings banks,
and above enclosed in brackets.
In this state of the revenue statutes, "The Bank for
Savings in the City of New York," a respectable
institution, incorporated by the State of New York, A.D. 1819, was
existing in the city just named. The features which, under its
charter and bylaws, distinguished, as was conceived by its
managers, this corporation from those which exercise to some extent
the same functions, and especially from ordinary
banking
corporations and
associations, were apparently
these:
1. It was incorporated, not for private gain, but upon the
application of the Society for the Prevention of Pauperism in the
City of New York.
2. It had no capital stock.
3. It had no shareholders, and no corporators interested in or
entitled to participate in the profits of the institution.
4. The corporators were the "trustees" for the time being, who
constituted the "Board of Managers." These were prohibited from
directly or indirectly receiving any pay or emolument for their
services; neither could they have any interest in the deposits or
the profits arising therefrom.
5. It was prohibited from issuing notes, making discounts, or
transacting any business which belongs to or is transacted by
incorporated banks other than is specified in the act, and from
lending money "upon notes, bills of exchange, drafts, or any other
personal securities whatever."
6. It was enjoined and required to use the funds entrusted to
it, and exercise the powers conferred for the promotion of the
objects stated in the preamble to its charter,
viz.,
Page 70 U. S. 497
"encouraging in the community habits of industry and economy by
securing and investing in government securities or stock created
and issued under and by virtue of any law of the United States, or
of this state,
and in no other way, such small sums of money as
may BE SAVED from the earnings of tradesmen, mechanics, laborers,
minors, servants, and others, thereby affording the twofold
advantage of security and interest."
Its object, as declared in the preamble, was "to ameliorate the
condition of the poor and laboring classes of the community."
[Power was subsequently given to invest in the debt of the City
of New York and to lend upon bond secured by mortgage upon
unencumbered real property in the City of New York, and the
institution was subjected to a closer scrutiny by the officers of
the state.]
7.
All the profits derived from the business were
divisible
ratably semi-annually among the depositors,
except that a small percentage was permitted to be retained for
accumulation, to prevent or to make good any loss to the depositors
by reason of a reduction in the market price of securities or
stocks held below the par value.
8. Money, when received by it from its depositors, was to be
entered in a
pass book, which, when presented, was a
voucher or warrant for payments made by the bank and entered in the
book, and the corporation -- which by its charter had power to pay
cash to depositors when required, and at such times and with such
interest and under such regulations as the trustees should from
time to time prescribe -- could by its bylaws only be called upon
to make payments either of principal or profits on
four stated
days in the year, and then only
upon a week's notice
of the intended call. It was at liberty, however, to return all or
any part of any deposit whenever it thought proper, and moneys
might "be voluntarily paid by the bank daily and without such
notice, and without thereby waiving the right of the bank to such
notice and time of payment."
One of its bylaws was that "all
drafts must be made
personally,
Page 70 U. S. 498
or by order in writing, . . . and must be accompanied
by the pass book."
9. All the money received by it under the charter was, and at
all times had been, either actually invested in stocks or lent on
bond and mortgage except some small sum which was kept on deposit
in a bank of deposit in the city for current expenses, or waiting
an opportunity to invest.
10. Deposits of $1 or of any number of dollars were receivable,
but no person, "except in rare and special cases," and with the
special direction of the attending committee, was allowed to have
with the corporation moneys amounting in the aggregate to more than
$1,000, and in no case could the amount exceed $5,000. Those having
less than $500 with the corporation were, by law, entitled to
receive one percent more of the profits than the others.
11. A large proportion of the depositors, it appeared, had
incomes less in amount than $600 per annum, and were not liable to
pay an income tax.
12. Courts were enjoined by the charter of the institution to
construe the act of incorporation favorably and benignly for every
beneficial purpose therein intended.
It was not asserted that the corporation had in any way exceeded
its powers or violated the laws of its creation.
The character of its "depositors" appeared from a return of the
new ones in 1865. These numbered 13,071, of whom 5,905 were married
women, minors &c.; 300 washers, 571 seamstresses, 798 laborers,
1,534 domestics. About four-fifths of the deposits were in sums of
less than $100.
It may be here well to add that the statute of 1864, already
spoken of, enacts by its 79th section thus:
"Every person, firm, or company, and every incorporated or other
bank having a place of business where credits are opened by the
deposit or collection of money or currency, subject to be paid or
remitted upon draft, check, or order; or where money is advanced or
loaned on stocks, bonds, bullion, bills of exchange, or promissory
notes; or where stocks, bonds, bullion, bills of exchange, or
promissory notes, are received for discount or sale shall be
regarded a
banker under this act. "
Page 70 U. S. 499
"PROVIDED that any savings bank, having no capital stock and
whose business is confined to receiving deposits and loaning the
same for the benefit of its depositors, and which does no
other
business of banking, shall not be liable to pay for a license
as a banker."
In the amendatory act of 1865, the above given proviso to this
79th section, a proviso which, the reader will have observed, much
resembles that to the 110th section, was not stricken out.
The directors of the institution, conceiving that this was not a
corporation "engaged in the business of banking" nor otherwise
within the sections of the act already quoted, made no returns for
several months to the assessor of the United States of the average
amount of the deposits out on loan or invested for individuals in
pursuance of its charter, as every corporation engaged in the
business of banking is required to do. Hereupon the assessor
estimated the amount as the statute provides in cases of
delinquency, and these being returned to and adopted by the
commissioner, the last-named officer gave a warrant to the
collector of the district, to collect the amount as estimated and
assessed, with penalties. The collector being about to proceed
accordingly, the corporation filed a bill in the supreme court of
New York to enjoin him. A preliminary injunction having been
granted there, the case was removed by certiorari into the Circuit
Court of the United States for the Southern District of that
state.
The case coming on to be tried, the judges there were divided on
the following questions:
1. Whether the circuit court could restrain the collection of
the tax and penalties by injunction?
2. Whether an injunction could properly issue in this case?
3. Whether under the 110th section of the act of June 30, 1864,
as amended by the act of March 3, 1865, the corporation was liable
to pay a duty of 1/24th of one percent per month on the average
amount of money so received and invested or lent as aforesaid, and
represented and entered in the pass book as aforesaid,
Page 70 U. S. 500
and payable to the parties entitled under the laws of the
corporation already sufficiently set forth.
4. Whether moneys so received and invested were deposits within
the meaning of the acts of Congress.
5. Whether moneys received on deposit in any one month and
invested as aforesaid during the same month were "deposits" within
the meaning of the said acts, so as to render the plaintiff liable
to pay a tax thereon for such month.
And on a certificate of division these questions were now before
this Court.
Page 70 U. S. 507
MR. JUSTICE CLIFFORD delivered the opinion of the Court.
[
Footnote 1]
Immediate purpose of the suit in this case was to restrain the
respondent, as the Collector of Internal Revenue for the Sixth
Collection District of the state of New York, from collecting
certain internal duties or taxes assessed against the corporation
complainants, by the Commissioner of Internal Revenue. Charter of
the complainants was granted by a special act of the Legislature of
the State of New York, passed on the twenty-sixth day of March,
1819, and entitled an act to incorporate an association by the name
of a Bank for Savings in the City of New York.
Statement of facts as proved or admitted shows that the
complainants did business in the City of New York under that act of
incorporation and certain other acts of the legislature of the
state, as detailed in the record from the date of their charter to
the time of the filing of the bill of complaint. Complainants
denied that they were subject to the payment of any internal duties
or taxes as a savings bank, and they accordingly neglected and
refused to make any returns either to the Commissioner of Internal
Revenue or to the assessor of the district. Failing to receive such
returns, the assessor of the district estimated the average amount
of their deposits for the periods specified in the record, and
certified the same to the Commissioner of Internal Revenue as
required by law in case of delinquency.
Assessor's estimates as certified were adopted by the
commissioner as correct, and he thereupon proceeded to assess the
duties or taxes in controversy, adding thereto certain penalties
for the neglect and refusal to make the returns as
Page 70 U. S. 508
required by the act of Congress, and directed the respondent as
the collector of that collection district to collect the amount so
estimated and assessed.
1. Exemption from liability to taxation in the case is claimed
by the complainants upon the ground that the corporation is not a
bank, either in the ordinary and popular sense or in the legal
sense of that word, and they allege that they have never transacted
any business of banking within the meaning of the acts of Congress
under which the duties or taxes were estimated and levied.
Respondent in his answer alleged that the complainants were an
incorporated savings bank within the usual and proper meaning of
that term, and that as such they have been and were engaged in the
business of banking as assumed by the revenue officers. Wholly
unable to agree in opinion, the judges of the circuit court
certified five questions to this Court for decision, but in the
view taken of the case, it will not be necessary to examine the
first two, as the answers to be certified to the other three will
enable the circuit court to dispose of the cause.
2. Substantial import of the third question is whether the
complainants are liable under the internal revenue acts to pay a
duty of one-twenty-fourth of one percent per month on the average
amount of money which they receive and invest or loan, as described
in the statement of facts exhibited in the record.
Their powers are set forth in their charter and the other acts
of the legislature to which reference has been made. Purpose of the
charter as described in the preamble is to encourage in the
community habits of industry and economy by receiving and investing
in government securities or in federal or state stocks such small
sums of money as may be saved from the earnings of tradesmen,
mechanics, laborers, minors, servants, and others. They are
constituted by the first section of the charter a body corporate
and politic by the name of the Bank for Savings in the City of New
York, and the provision is that by that name they shall have
perpetual succession, and that they shall be capable of suing
Page 70 U. S. 509
and being sued, pleading and being impleaded, and defending and
being defended in all courts and places whatsoever. Power to hold
real and personal estate to such an amount as may be necessary for
the purposes of the incorporation is also conferred, provided that
the clear annual value thereof, exclusive of profit arising from
interest or from the sale of any stock in which the deposits made
in the bank may be invested, shall not exceed the sum of five
thousand dollars.
Trustees or managers are appointed by the act of incorporation,
but they are forbidden to receive any pay or emolument for their
services, and it is provided that they shall not "issue any notes,
make any discounts, or transact any business which belongs to or is
transacted by incorporated banks, other than is herein specified."
Funds of the corporation are required to be used and appropriated
for the promotion of the objects stated in the preamble, and the
second section of the charter provides in effect that the
association shall receive as deposits, from persons of the
description mentioned in the recital to the act, all sums of money
which may on the terms specified be offered for that purpose, and
that the same shall be invested accordingly, and shall be repaid to
the respective depositors when required and at such times and with
such interest and under such regulations as the trustees shall from
time to time prescribe.
3. Such trustees may make bylaws and regulations, and they are
expressly required by the charter to regulate the rate of interest
to be allowed to depositors so that they shall receive a ratable
proportion of all the profits of the bank after deducting all
necessary expenses. Authority is conferred upon the trustees to
manage the affairs of the bank, and for that purpose to appoint
clerks and fix their salaries, but they are required to make an
annual report of their funds to the legislature and to common
council of the city. Subsequent enactments very much enlarged the
powers of the trustees and subjected the bank to a much closer
scrutiny by the proper authorities of the state. Investment of the
funds under those additional provisions may be made in any state
stocks where the faith of the state is pledged for
Page 70 U. S. 510
their redemption, or the moneys received on deposit may be
loaned on bonds secured by mortgage of real estate in the city
where the bank is located. They are also authorized to accumulate
and "hold invested" a surplus fund, not exceeding ten percent on
the amount of deposits, as a protection to depositors against loss
in case of the reduction in the market price of their securities.
Bank commissioners have the power to visit and inspect the bank
under existing laws whenever they deem it necessary, or whenever
thereto required by the comptroller of the state, and they are
required to report the general condition of the bank to the
legislature once at least in every three years.
4. Intention of Congress undoubtedly was to impose a duty of
one-twenty-fourth of one percentum each month upon the average
amount of deposits of money, subject to payment by check or draft,
or represented by certificates of deposit or otherwise, whether
payable on demand or at some future day, if made with any person,
bank, association, company, or corporation engaged in the business
of banking except deposits with associations which were taxed under
and by virtue of the act "to provide a national currency," and with
savings bank having no capital stock, and whose business was
confined to receiving deposits and loaning the same on interest,
for the benefit of the depositors only, and which were doing no
other business of banking. [
Footnote 2] Confirmation of that view is derived from the
language of the next clause, which imposes the same duty upon the
average amount of the capital of any bank, association, company, or
corporation, or person engaged in the business of banking, beyond
the amount invested in United States bonds.
Savings banks having no capital are not included in that
provision, nor are they included in the next succeeding clause,
which imposes a duty of one-twelfth of one percent each month upon
the average amount of circulation issued by any bank, association,
corporation, company, or person, including as circulation, all
certified checks, and all notes
Page 70 U. S. 511
and other obligations calculated or intended to circulate or to
be used as money. Such savings banks having neither capital nor
circulation, did not fall within the words of either of those
clauses, and consequently it did not require any proviso to exclude
them from the operation of those provisions. But those banks, as
banks of deposit, did fall directly within the words of the first
clause of the section, and therefore it became necessary to insert
the proviso near the close of the section, to exclude them from the
otherwise plain meaning and operation of the clause.
Precise language of the proviso is that the section shall not
apply
"to any savings bank having no capital stock, and whose business
is confined to receiving deposits, and loaning the same on
interest, for the benefit of the depositors only, and which do no
other business of banking."
More exact description of the corporation complainants than is
expressed in the language of that proviso could not be conceived,
and it amounts to a legislative enactment that the receiving of
deposits and loaning the same on interest for the benefit of the
depositors is a business of banking. Throughout the section, the
distinction between deposits, capital, and circulation as separate
objects of taxation is clearly maintained and enforced both in
respect to the monthly returns and the monthly payment of the
duties.
Same remarks apply to the seventy-ninth section of the act,
which requires bankers to pay a certain sum for a license, and
defines the meaning of the word as used in the section. Doubt
cannot be entertained that the definition as there given would have
included savings banks having no capital stock but for the proviso
annexed to the clause, which is in the very words of the proviso
under consideration.
5. Argument for the complainants is that the proviso was only
inserted out of abundant caution, and that it was unnecessary,
inasmuch as such an association was not included in the substantive
words of the section, but it is not possible to sustain that
proposition for the reasons already given, as well as others which
will be briefly stated.
1. Unquestionably
Page 70 U. S. 512
the complainants receive deposits as one of the primary purposes
of the charter, and the second bylaw of the bank provides that
"Deposits of one dollar or any number of dollars may be
received, but are not, in the whole, to exceed one thousand dollars
from any depositor without the special direction of the attending
committee."
General rule is that no depositor is allowed to have deposits
beyond one thousand dollars, but he may have that amount, and, in
special cases, when it is made to appear that he can find no other
investment, he may exceed that amount.
2. By the terms of their charter, they are obliged to pay each
depositor, when required, "and at such times, and with such
interest, and under such regulations as the trustees shall from
time to time prescribe."
Obligation of repayment exists throughout, and it cannot make
any difference as to the liability of the complainants in this case
that the entries are made in a pass book, and that the depositors
can only obtain their deposits at certain stated periods. Deposits
are made to be invested for the benefit of the depositors, and the
bank is under obligations to repay the amount when demanded,
agreeably to the bylaws and charter.
3. Only remaining condition to bring the case within the words
of the body of the act is that the deposits should be made with a
person, bank, association, company, or corporation engaged in the
business of banking. Agreed case shows that the corporation
complainants were engaged in receiving deposits and loaning the
same on interest for the benefit of the depositors. Irrespective of
the definition given to that phrase in the language of the proviso,
that same conclusion must be adopted from the facts exhibited in
the statement of the case unless it can be established that the
receiving of deposits by a chartered company, and loaning or
investing the same for the benefit of the depositors, is not a
business of banking.
Banks, in the commercial sense, are of three kinds, to-wit: 1,
of deposit; 2, of discount; 3, of circulation. All or any two of
these functions may and frequently are exercised by the same
association, but there are still banks of deposit,
Page 70 U. S. 513
without authority to make discounts or issue a circulating
medium. [
Footnote 3]
"Banks for savings," says McCulloch, "are banks established for
the receipt of small sums deposited by the poorer class of persons
for accumulation at interest." [
Footnote 4] Definition given by Grant is more extended,
but it amounts to the same thing. [
Footnote 5] Courts of justice also, as well as text
writers, recognize the well known distinction between banks of
deposit and banks of discount or circulation. [
Footnote 6]
6. Beyond all controversy, the proviso, while it continued in
force, had the effect to exclude the corporation complainants from
the operation of the substantive words of the section. Since the
passage of the act, however, the proviso has been stricken out, and
the palpable effect of the repeal is to leave the body of the act
in full force and operation, without any such qualification as was
imposed by the proviso. [
Footnote
7] Although the proviso is repealed, still it is proper to
resort to it as well as to the proviso in the seventy-ninth section
of the same act, as affording a legislative exposition of what is
meant by the phrase, engaged in the business of banking, as
employed in the first clause of the section under consideration.
Looking at the case, therefore, in any point of view, it is clear
that the answer to the third question must be in the
affirmative.
7. Fourth question presented for decision is whether the moneys
so received on deposit and invested are "deposits" within the
meaning of the act of Congress. Obviously the question as presented
is substantially answered by the remarks already made in disposing
of the preceding question. All the moneys received by the bank,
whether for safekeeping or for investment, are "deposits" within
the meaning of their bylaws and within the very words of their
charter. Answer to this question also must be in the
affirmative.
Page 70 U. S. 514
8. Fifth question is whether moneys received on deposit in any
one month and invested during the same month are "deposits" within
the meaning of said acts so as to render the complainants liable to
pay a tax thereon for such month. Moneys received, as already
explained, whether invested or not, are "deposits" within the
meaning of the acts of Congress, and if so, then it is clear that
the amount, whatever it may be, is liable to taxation as soon as it
is received by the bank, because when received by the bank, it
becomes deposits, and continues to be such till it is repaid to the
depositor. An affirmative answer must also be certified to this
question.
No answers will be certified to the first two questions, because
the Court is of the opinion that those given to the others are
sufficient to dispose of the cause.
Answers accordingly.
GRIER and NELSON, JJ., dissented; FIELD, J., who, as already
said, had not sat in the case, took no part in the judgment.
[
Footnote 1]
FIELD, J., not having sat.
[
Footnote 2]
§ 110, 3 Stat. at Large 277.
[
Footnote 3]
Angel & Ames on Corporations § 55; McCulloch's
Commercial Dictionary 73.
[
Footnote 4]
Ibid., 146.
[
Footnote 5]
Grant on Banking 614.
[
Footnote 6]
Duncan v. Savings Institution, 10 Gill & Johnson
309;
People v. Utica Insurance Co., 15 Johnson 390; Grant
on Banking, 1, 6, 381, 614.
[
Footnote 7]
13 Stat. at Large 479.
