These are two appeals from judgments of the Supreme Court of Puerto Rico involving similar questions of law under the Insular Income Tax Act approved August 6,1925, No. 74. The facts are to be gathered from the complaints to which demurrers were filed, on the ground that they did not state a cause of action.
By the statute the taxpayer was required to file a return (sections 37(a), 39(a) (b), and 27(a) and to pay the tax (section 53(a) (b) computed by the Treasurer upon the face of the return (section 54) without formal assessment.
In the complaint of the Fertilizer Company it was . alleged that between June, 1926, and June, 1932, it returned and paid as withholding agent, income taxes on payments of interest made by it to the Virginia-Carolina Chemical Corporation, amounting to $42,300; that the Act required this to be done (section 35) ; that it required all persons making payments of interest to deduct and pay over to the Treasurer a stated percentage of such interest as a tax, not on the person making the payment, but on the person receiving such payment; that such taxes as applied to the Chemical Company were illegal and unauthorized because neither the Chemical Company nor the loans made by it to the plaintiff ever had a taxable situs in Puerto Rico (Domenech v. United Porto Rican Sugar Company, 1 Cir., 62 F.2d 552); that in October, 1933, the plaintiff filed claims for refund of the payments for these years with the Treasurer under the law of 1925; and that, all the claims were denied by the Treasurer. All the taxes, refund of which was claimed by the Fertilizer Company, were of this character. Each payment of interest by the "Fertilizer Company was made the subject of a separate count or *399claim. As to the payments made more than four years before the petition for refund was filed, it was conceded in the argument before the Supreme Court that they were barred by special limitation of the statute (four years after payment of the taxes (Sec. 64 (b), and they are no longer insisted on.
This case stands on the three last payments, which aggregated about $20,000.
After the Treasurer had denied its claims for refund the Fertilizer Company brought the present suit in the District Court for San Juan, without having' appealed from the Treasurer’s denial of the claims to the Board of Review and Equalization, and, as above stated, the court dismissed its complaint.
In Domenech v. United Porto Rican Sugar Co., 1 Cir., 62 F.2d 552, this court held that the provisions of the Puerto Rico statute taxing payments of interest to nonresidents was unconstitutional and, certiorari having been denied, that decision stands. It follows that the taxes on such payments of interest were illegal and constituted over-payments. Of this there can be no question.
In the Yabucoa case, the appellant filed returns showing ordinary income taxes to be due and paid such taxes without protest. Later the Treasurer determined a deficiency tax against that company amounting to $1,-301.51 (Sec. 57(a) (b). From this determination (not assessment) the Sugar Company appealed to the Board of Review and Equalization which disallowed the deficiency and found that there had been an overpayment of general income taxes on its return of $6,803.66. A claim for refund of this amount was thereupon filed with the Treasurer by whom it was disallowed. From this disallowance an appeal was taken to the Board of Review and Equalization (Sec. 76 (b), which again found there had been an overpayment. The Treasurer still refusing to make refund, the present suit was brought by the Yabucoa Company in the District Court of San Juan, which decided against it.
It thus appears that the plaintiff in each case is seeking to recover a refund of taxes paid on its return filed in the normal course with the Treasurer, — the Fertilizer Company on the ground that the tax thus collected was illegal and void in toto, and the Yabucoa Company on the ground that the tax collected was excessive; and that, in the Yabucoa case, the plaintiff appealed from the Treasurer’s denial of its claim for refund before bringing suit, while the Fertilizer Company did not. In no other particular do the rights of the plaintiffs to main,tain their causes of complaint differ. Otherwise stated, the plaintiffs in both cases are seeking a refund of taxes returned in the usual way, not assessed, and paid without protest, the only difference between them being that in the Yabucoa case, after denial of its claims for refund by the Treasurer, that company appealed to the Board of Review and Equalization before bringing suit, while the Fertilizer Company did not.
It is entirely clear that the provisions of Section 76(a), when read in connection with Section 57(a) and (b) relate to deficiency taxes, which have been levied (assessed) against the taxpayer within five years after his return was filed as provided in Section 60(a) (1), and that the provision in Section 76(a) that “the taxpayer shall pay under protest such tax” has to do only with a suit brought to test the validity of an assessed deficiency and to recover the whole or any part of the tax held to be invalid.
In the Yabucoa case, as the taxpayer filed its return in the usual way and paid the tax imposed by the statute and, within four years from the time of payment (Section 64(b), presented its claim for refund tp the Treasurer, who denied it, and appealed therefrom to the Board of Review and Equalization, the sole question is whether it can maintain a suit against the Treasurer under 76(b) to recover what is justly due it, the tax having been paid without protest.
Section 76(b) provides:
“(b) No suit or proceeding shall be maintained in any court for the recovery of any income tax or excess-profits tax alleged to have been erroneously or illegally assessed or collected, or of any pecuniary penalty claimed to have been collected without authority, or of any sum alleged to have been excessive or in any manner wrongfully collected until a claim for refund or credit has been duly filed with the Treasurer and with the Board of Review and Equalization on appeal, according to the provisions of law in that regard, and the regulations established in pursuance thereof.”
The plain meaning of this provision is that a suit may be maintained for the recovery of income taxes erroneously or illegally collected, provided a claim for refund has been duly filed with the Treasurer and with the Board of Review and Equalization on appeal; there is no condition or proviso requiring that the tax in such case shall have *400been paid under protest. ‘Section 76(b) expressly recognizes that regulations interpreting it may be necessary. Section 68 authorizes the Treasurer “to prescribe needful rules and regulations for the enforcement of this Act”; and, on May 17, 1926, the Treasurer promulgated a regulation stating that a suit or proceeding for the recovery of an income tax erroneously or illegally collected could be maintained by the taxpayer (a) by making a voluntary payment; (b) by filing a claim for refund within four years from the time of payment; and (c) if the claim was denied by the Treasurer, the taxpayer could bring an ordinary action before a court of competent jurisdiction to recover the amount so paid. The only trouble with this regulation construing Section 76(b) is that it authorized a suit to be brought upon the mere filing of a claim for refund with the Treasurer rather than after an appeal to the Board of Review and Equalization. The regulation expressly recognizes that in such case payment under protest is not necessary. Its only defect, as we view it, is in failing to give effect to the express language of Section 76(b) which calls not only for the presentation of a claim for refund to the Treasurer but also to the Board of Review and Equalization on appeal.
Section 55 provides, in substance, that if the taxpayer has paid more than the amount of the tax “determined” to be correct (that is, determined by the Treasurer and Board of Review and Equalization on appeal) the excess over the amount so determined “shall be credited or refunded” as provided in Section 64; and Section 64(a) provides that where such an overpayment has been made “the amount of such overpayment shall be credited against any income or excess-profits tax or installment thereo'f then due from the taxpayer, and any balance of such excess shall be refunded immediately to the taxpayer.” Section 75 authorizes the Treasurer “to remit, refund, and pay back all taxes erroneously or illegally assessed or collected, all penalties collected without authority, and all taxes that appear to be unjustly assessed or excessive in amount, or in any manner wrongfully collected.”
It thus appears that Section 76(b) was intended to authorize the maintenance of a suit against the Treasurer, in case he refused to pay back the illegal or excessive tax collected, as he was authorized and directed to do under Sections 75, 55, and 64. It certainly could not have been the intention of the law maker to leave the payment of the taxpayer’s just claim solely to the whim of the Treasurer.
In fact we fail to see how the law-making body could have enacted Section 76(b) with any other purpose in view than as authorizing a suit (conditioned as above stated) in case the Treasurer refused payment.
In these cases the court below did not attempt to give any rational meaning or construction to the provisions of Section 76(b) but treated the cases as though no such provision as Section 76(b) existed; and, having wiped the Section off the statute book, and failed to recognize any distinction between a suit to recover a refund and one to test the validity of a deficiency assessment, it held that the former could not be maintained unless the tax was paid under protest, as required by Section 76(a) in the case of deficiency assessments.
We think this holding is manifestly wrong; that Section 76(a) and (b) relate to distinct matters and that the provision, for payment under protest in Section 76(a)-applies only to suits for the recovery of deficiency assessments to which the provisions, of Section 76(a) relate.
We do, however, think that the prevision in Section 76(b) requiring an appeal to the Board of Review and Equalization is. a condition precedent to the maintenance-of a suit under that section and the Fertilizer Company not having taken such an appeal cannot maintain its suit.
In No. 3274 the judgment of the Supreme Court of Puerto Rico is affirmed.
In No. 3285 the judgment of the Supreme Court of Puerto Rico is vacated and’ the case is remanded to that court, for further proceedings not inconsistent with this, opinion.