ever, unquestionably true that in consequence of what the Stock Exchange had done the Mercantile feared that the bankrupt might not be able to make good any overdrafts upon its account; but that much the Mercantile told the presenting banks when it sent back the checks. It said to

those banks, “We ask you to take the checks off our hands because we have not sufficient funds to meet them," which was, of course, in effect a statement that it was not willing to permit any overdrafts upon the bankrupt's account.

The bankrupt had been in business in Baltimore for some years, and during that time had banked with the Mercantile. It

was well known in the city. It had been believed to be financially sound. Many of the checks which the Mercantile was seeking to return were for comparatively small amounts, averaging about $600 each. The return was made after 1 o'clock. Under such circumstances, what the Mercantile did itself told the other banks all that it then knew. It warned them that something had happened which made the Mercantile suspect that it would lose money if it held the checks and with such information the banks saw fit to do what the Mercantile requested. This conclusion would seem to make the Mercantile pay heavily because it did for its fellow bankers what it would have had them do for it had the circumstances been reversed. In almost all bankruptcies, there are many conflicting equities. Notably, this is true as in the instant case, when disaster overtakes stock brokerage concerns. There are here thousands of creditors, many of whom never intended to become such. Their claims aggregate millions, and they will receive less than 10 cents on the dollar. The adjustment of such equities, as far as they are capable of adjustment at all, is among the most difficult problems which the courts are called upon to solve. One who, with knowledge that the estate is in bankruptcy, attempts their solution, does so at its peril.

In re CUSHMAN.

(District Court, S. D. New York. July, 1924.) 1. Bankruptcy 31-Debt may not be expunged from bankrupt's schedules.

A referee is without power to expunge a debt from the bankrupt's schedules. 2. Bankruptcy 314 (2)-Rent accruing under lease subsequent to bankruptcy not a provable debt.

Rent which may accrue under the terms of a lease for the unexpired term subsequent to 3 F. (2d)-29

In Bankruptcy. In the matter of Arthur E. Cushman, bankrupt. On review of order of referee. Affirmed.

O'Brien, Malevinsky & Driscoll, of New York City (Richard J. Mackey and Joseph Walker Magrauth, both of New York City, of counsel), for bankrupt.

(Melville H. Cane and Alfred G. Steiner, Ernst, Fox & Cane, of New York City both of New York City, of counsel), for creditor.

GODDARD, District Judge. On November 13, 1919, the Michael E. Paterno Realty Company, a creditor, entered into a lease with the bankrupt, wherein the bankrupt leased from the Paterno Company an apartment on the twelfth floor in the apartment house at No. 895 West End avenue, New York City, for a period of 9 years 102 months, commencing November 15, 1919, and expiring September 30, 1929, at an annual rental of $4,000, payable in monthly installments in advance of $333.33. bankrupt entered into possession and remained in possession until about April 15, 1923. On March 9, 1923, he filed a petition in bankruptcy and was adjudicated a bankrupt on March 26, 1923. The lease contained the following clause:

The

"First. The tenant hereby agrees to pay the rent as above stipulated without any deduction, fraud or delay and the tenant also agrees that if said rent is not paid at the time and in the manner provided, or if default shall be made in any covenant or agreement herein contained, or if the said premises or any part thereof shall become vacant during the term hereby demised, or if this lease is terminated by the landlord as provided in article 15 hereof, the landlord may resume possession of said premises by summary proceedings to dispossess or otherwise, without notice to the tenant, which notice is hereby expressly waived. And in the event of the landlord so resuming possession an amount equal to the whole of the term as herein originally demised payable by the tenant to the landlord and shall thereupon become immediately due and the tenant hereby expressly agrees that he will forthwith pay the same to the landlord and that he will also forthwith pay to the landlord any damage and expense which it may suffer in resuming possession and reletting said premises, including the cost of redecorating said premises and putting the

same in rentable condition, the cost of advertising and a reasonable commission for reletting, and the landlord agrees that if it thereafter relets said premises, which in its option it is hereby expressly authorized to do either by written lease or otherwise, and the tenant has made the payments as in this article provided, the landlord will pay to the tenant on the last day of each month during the balance of the term herein originally demised the net amount received by said landlord during said month upon such reletting."

At the time the petition was filed, the March rent was unpaid, so that the unexpired period of the lease, including the month of March, 1923, was six years and seven months, and the rent specified for this entire period would have totaled $26,333.33; this was the amount which the bankrupt has scheduled as his indebtedness to the landlord creditor.

The landlord's contention is that the only indebtedness at the time of the filing of the petition was the unpaid installment of the March rent amounting to $333.33, and it asks to have the item of $26,333.33 "expunged" from the schedules and to insert in lieu thereof the said amount of $333.33.

[1] It is the duty of the referee to examine lists of creditors and schedules of property and to require such as are incomplete or defective to be amended, but the referee has no power to expunge a debt from the schedules.

"The schedules are the bankrupt's statement under oath of his debts and assets; they do not affect the rights of third parties in the assets or liabilities, nor are third parties bound thereby; a striking out of these items interferes with the bankrupt's duty. The right of the referee should be confined to requiring the bankrupt to make the allegations more definite and certainnot to require him to strike out the name of a creditor whom he says, under oath, is a cred

itor, nor to eliminate an item of property which he swears he considers to be property of the estate." Remington on Bankruptcy (3d Ed.) vol. 2, note to section 599.

That a debt may not be expunged from the schedules has been conclusively determined by the Circuit Court of Appeals for this circuit. In re Bernard (C. C. A. 2d Cir.) 280 F. 715, 48 Am. Bankr. Rep. 359, in a per curiam opinion, the court said as follows:

"To expunge a debt or the statement of a debt from a bankrupt's schedules, and to

enjoin him from applying for a discharge in respect of such debt, is a novel procedure, for which no authority has been produced. It is opposed to the theory of the Bankruptcy Act. The lower court evidently thought the debt not dischargeable, and for this reason entered the order above recited. But it is the duty of a bankrupt (section 7[8], being Comp. St. § 9591) to file schedules containing 'a list of his creditors,' and one to whom he owes an undischargeable debt is as much a creditor as is one whose claim may be discharged under the act.

"A bankrupt is lawfully entitled to apply for a discharge under section 14 (Comp. St. § 9598), and by section 17 (Comp. St. § 9601) such discharge shall release him 'from all of his provable debts' with the exceptions there enumerated; and the prescribed form of discharge (No. 59) merely orders that the bankrupt 'be discharged from all debts and claims which are made provable by said acts against his estate,' etc. To strike out from a schedule what the bankrupt swears is a debt is a power nowhere given to the District Court, and by anticipatory order to prevent application for discharge in respect thereof is (1) an implied departure from the statutory procedure which contemplates a discharge in the form laid down by the Supreme Court; and (2) an assumption of power to declare what shall be the effect of a discharge which as pointed out in Re Havens (C. C. A. [2d Cir.]) [46 Am. B. R. 711], 272 F. 975, is a function of the court in which any given claim or debt or demand is advanced, and not of the bankruptcy court. The latter tribunal issues the discharge; the effect thereof is to be passed upon in the court in which it may be pleaded.

"Thus the major and more important portions of the order complained of are erroneous and must be reversed. As to the stay or the lifting thereof, that under section 11

(and see Collier on section 11a) is largely nondischargeable debt cannot be stayed; yet, discretionary. Proceedings on a plainly where the question is debatable, a stay may be granted until the bankrupt shall have had a reasonable time within which to procure that discharge, which he must have in order to present to the proper tribunal the status of the debt in suit.

"It is therefore directed that the order appealed from be reversed, with costs, without prejudice to any further proceedings in the court below in respect of a stay under section 11."

the defendant and others for false arrest and malicious prosecution, which action has been dismissed by Mr. Justice Mahoney on motion of certain defendants. An application for leave to reargue that decision has been made, and has been adjourned pending a decision on the motion now before this court. Receivers in equity (of whom Moffett was one) of defendant Metropolitan By-Products Company, Inc., were appointed on the application of the complainant, American Engineering Company, on November 19, 1917.

[1] The action by Langevin was brought by leave of this court, contained in an order granted July 2, 1918. An answer was interposed, in form by the defendant, but at the instance of the receivers. They were in duty bound to defend the action. The filing of such answer must be held to be their act. It is contended by the moving party herein that this act was that of the defendant, but the court is of the opinion that the receivers have the power to adopt the answer filed as their own, especially in view of the fact that it was filed at their di

rection.

[2] The court sees no reason for attempting to interfere with the New York Supreme Court. To take such action, assuming the court has that power, would be in effect to substitute the discretion of this court for that of the other. Such a course of action would be without precedent, if not actually illegal, and, if followed, would lead to unseemly conflicts between this court and a tribunal which is fully competent to protect the rights of all litigants whose differences are submitted to it for determination. This court does not doubt but that Mr. Justice Mahoney will examine with care the application for leave to reargue, and that, if any matters that should have been taken into account were not brought to the attention of the court, they will have prompt, careful, and conscientious consideration; if injustice has been done, it will be speedily corrected.

It appears that an appeal to the Appellate Division has been taken from the order of dismissal, and it is urged that the appeal precludes any reargument. If this is correct, and the order is affirmed, plaintiff may bring to the notice of the Appellate Division his contentions of omission, in order that he may be given leave to make a motion on additional papers, if the court is satisfied that the application has merit. The application is denied.

SYLVESTER CO. v. NICHOLS, Collector of Internal Revenue.

(District Court, D. Massachusetts. February 11, 1925.)

No. 2123.

Internal revenue 7-Corporation in computing excess profits tax held entitled to retain taxes for previous year as part of its invested capital until 105 days after time for filing return.

Additional income tax and excess profits taxes, imposed under Revenue Act October 3, 1917, §§ 4, 200-214 (Comp. St. 1918, §§ 6336jj, 6336% a-63360) for fiscal year ending June 30, 1917, held due and payable under Act September 8, 1916, § 14a (Comp. St. § 6336n), 105 days after expiration of extensions for filing returns granted by commissioner of internal revenue under section 14c, and corporation in computing excess profits tax for fiscal year ending June 30, 1918 was entitled to retain amount of tax for 1917 as part of its invested capital until time tax was so payable.

BREWSTER, District Judge. The Sylvester Company, a Massachusetts corporation, brings this action to recover $3,411.74 paid the defendant under protest in response to a demand based upon an additional assessment of excess profits tax, which sum the plaintiff alleges was illegally exacted by the defendant.

The plaintiff corporation had designated for the purpose of computing its income tax imposed by the act of September 8, 1916 (39 Stat. 756), its fiscal year ending June 30 in each year. It duly filed its return of income for the fiscal year ending June 30, 1917. Thereafter the Revenue Act of October 3, 1917 (40 Stat. 300), was passed, imposing an additional income tax and an excess profits tax upon corporations, to be measured by income derived subsequent to January 1, 1917. This act required supplemental return of corporations returning incomes for the fiscal year ending prior to December 31, 1917, and the commissioner of internal revenue, by successive orders, extended the time within which such returns might be filed to March 1, 1918. The plain

tiff filed its supplemental return within the extended time, and the war profits tax and excess profits tax were duly assessed and paid. No question is raised regarding this tax. But, when the plaintiff filed its return of net income for its fiscal year ending June 30, 1918, in calculating its average invested capital for the purpose of determining the excess profits tax, it did not deduct from its invested capital the amount of the additional tax and excess profits tax paid until June 14, 1918. Or, to state the case in plaintiff's own language, it claimed the right to retain this amount as part of its invested capital until June 14, 1918.

The commissioner of internal revenue, however, took the position that the sum should have been retained only until December 15, 1917, when it should have been excluded from invested capital. Proceeding on this latter theory, the Department of Internal Revenue arrived at an amount of excess profits tax due for the fiscal year ending June 30, 1918, which, with interest and penalties, amounted to $3,411.74 in excess of the amount due if the plaintiff's course had been adopted. This difference of opinion as to the date when, for the purpose of arriving at the average invested capital, these taxes should have been deducted has led to the present controversy.

In order better to understand the occasion and significance of the controversy, it will be necessary to briefly refer to certain provisions of the Revenue Act of 1916 and the Revenue Act of 1917 with certain pertinent regulations of the department.

The act of 1916 provided, in substance, that a corporation which had designated its fiscal year for the computation of the tax should file a return of its annual net income within sixty days after the close of such fiscal year. Section 14a (Comp. St. §

6336n), provided as follows: . "All assessments shall be made and the several corporations shall be notified of the amount for which they are respectively liable on or before the first day of June of each successive year, and said assessment shall be paid on or before the fifteenth day of June: Provided, That every corporation, joint-stock company or association, and insurance company, computing taxes upon the income of the fiscal year which it may designate in the manner hereinbefore provided, shall pay the taxes due under its assessment within one hundred and five days after the date upon which it is required to file its list or return of income for assessment.

Section 14(c) provides for penalties for failure or refusal to file returns or for false and fraudulent returns, and as a part of this section it was provided:

"That the commissioner of internal revenue shall have authority, in the case of either corporations or individuals, to grant a reasonable extension of time in meritorious cases, as he may deem proper."

The War Revenue Act of 1917 imposed upon corporations two additional taxes. In section 4 of the act (Comp. St. 1918, § 6336jj) a war income Tax was imposed, and sections 200 to 214 (sections 63363a633680) provide for the war excess profits tax.

Relative to the war income tax on corporations, the following provisions of section 4 are pertinent to our present inquiry:

"The tax imposed by this section shall be computed, levied, assessed, collected, and paid upon the same incomes and in the same manner as the tax imposed by subdivision (a) of section ten of such act of September eighth, nineteen hundred and sixteen, as amended by this act, except that for the purpose of the tax imposed by this section the income embraced in a return of a corporation, joint-stock company or association, or insurance company, shall be credited with the amount received as dividends upon the stock or from the net earnings of any other corporation, joint-stock company or association, or insurance company, which is taxable upon its net income as provided in this title."

And as to the war excess profits tax, section 200 of the act (Comp. St. 1918, § 6336a) contains the following provisions:

The

"The term 'taxable year' means the twelve months ending December thirty-first, excepting in the case of a corporation or partnership which has fixed its own fiscal year, in which case it means such fiscal year. first taxable year shall be the year ending December thirty-first, nineteen hundred and seventeen, except that in the case of a corporation or partnership which has fixed its own fiscal year, it shall be the fiscal year ending during the calendar year nineteen hundred and seventeen. If a corporation or partnership, prior to March first, nineteen hundred and eighteen, makes a return covering its own fiscal year, and includes therein the income received during that part of the fiscal year falling within the calendar year nineteen hundred and sixteen, the tax for such taxable year shall be that proportion of the tax computed upon the net income during such full fiscal year which the time