Before KERNER and DUFFY, Circuit Judges, and LINDLEY, District Judge.
In the course of the consolidated proceedings for reorganization of the debtors comprising the corporations owning and operating the surface transportation system in the City of Chicago and commonly known as the Chicago Surface Lines, the State of Illinois filed its timely claim averring that the state tax authorities had duly levied against the tangible personal property of the debtors taxes for 1946 of $2,563,056.47 and that the debtors had paid $1,632,727.29, leaving a balance due of $950,329.20, plus accrued penalties of $76,026.33. The trustee objected, averring that the tax had been based upon assessed valuations totaling $93,205,214.00, consisting of the original assessment by the assessor of $58,619,631, which had then been multiplied by 1.5900, designated by the Revenue Department of Illinois as the proper multiplier under the tax laws of the State, thus increasing the assessment to $93,205,214; that the assessment was so grossly arbitrary and unfair as to be fraudulent, illegal and void and as to deprive the debtors of equal protection under the law as guaranteed by the Fourteenth Amendment of the Constitution; and that when the assessor made the basic assessment of $58,619,631 he failed and neglected to give the Trustee notice of the same as required by Section 104 of the Revenue Act of Illinois, as amended. Ill.Rev.Stat. Chap. 120, § 585. The objections set forth in detail other facts and circumstances under which the trustee asserted that the debtors had paid all taxes legally due and that the claim for the uncollected portion should be denied.
The court, after hearing the evidence, entered an order containing findings and conclusions and, subsequently, adopted additional and supplemental findings and conclusions, finding that the assessment was illegal and void in that it deprived the debtors of property without due process of law; that it was so grossly in excess of the fair cash value of the tangible personal property of the debtors as to be illegal, arbitrary, fraudulent and in violation of the Illinois statutes and Section 1 of Article IX of the State Constitution, Smith-Hurd Stats.; and that the amount previously paid by the debtors was more than was legally due and owing by them for personal property taxes for 1946. From the order denying the claim, the state has perfected this appeal.
Essentially the issues presented to us are, first, whether the bankruptcy court, under the facts and circumstances of the record, was endowed with lawful power to enter the order from which the appeal was taken; and, second, whether, if so, the evidence is sufficient to justify the court's findings, conclusions and order. These two questions, as will be seen from our later discussion, are inextricably interwoven because the answer to each is dependent upon the evidence, for there are, of course, limitations upon the power of the bankruptcy court to interfere with taxes levied by the state and that court is empowered to inquire into the validity of an assessment only if the proof is sufficient to bring the case within well established rules of law.
As required by law, Section 47 et seq. of the Ill.Revenue Act of 1939, Ill.Revised Stats. Chap. 120, § 528 et seq., the debtor filed tangible personal property tax returns for 1946 accompanied by supporting schedules showing full fair cash value of their tangible personal property, before any deduction, of $49,640,138. This return was not only in accord with the statute but also with the direction of the assessor as follows: "Schedules A, B, C and D call for owner's full valuation, and also provide for a column for the Assessor's valuation. This is the equalized assessed value and is to be filled in by the assessor. In returning their property, taxpayers must report full, fair cash values. Taxpayers failing to report a full, fair cash value do not furnish an adequate or uniform basis for determining the equalized amount."
It is undisputed that the assessor actually in the year involved did reduce and for many years previously had reduced the full value of tangible personal property of all other corporate taxpayers, including machinery and equipment, by 30%. In other words, all other corporate taxpayers' returned valuations at full fair cash value were reduced by 30%, yet, upon final assessment, the assessor did not accord to debtors the same treatment but, instead of assessing their property at 70% of its full cash value as he did that of other corporate taxpayers, assessed it at a full 100%. It matters not whether the assessor was justified, under the constitution and statutes of Illinois, in allowing to any corporate taxpayer such a deduction or debasement, for, as the Supreme Court of Illinois in People's Gas Light & Coke Co. v. Stuckart, 286 Ill. 164, 121 N.E. 629, 632, said: "Where assessors have disregarded the injunction of the law and made an assessment of property far below its real cash value, their misconduct must also follow the principle of uniformity, and their assessments of all persons must be at the same proportional value." This, as the court said, is true because "The great central and dominant idea of the [Illinois] Constitution is uniformity of taxation."
Again the same court said, in People v. Commonwealth Edison Co., 376 Ill. 70, 32 N.E.2d 902, 905: "Clearly, such a method of valuation, as compared with the method used as to other like property, violated the constitutional and statutory requirements as to uniformity. Section 24 of the Revenue Act, Ill.Rev.Stat. 1931, chap. 120, par. 24, as in force at the time this assessment was made, requires that the assessor, in valuing property of corporations, shall be governed by the same rule of uniformity that he adopts as to values in assessing other personal property. * * *" It is apparent, therefore, that there can be no legal justification for this discrimination, this inequality, arising from assessing plaintiff's property at its full value when that of other corporate taxpayers was assessed at 70% thereof.
Not only did the assessor thus discriminate against the debtors by failing to extend to them the benefit of the same adjustment allowed other corporate taxpayers, but he also added to the full fair cash value three other items aggregating $8,979,493. The first of these was an arbitrary addition of 5% and 10% to the original purchase price of machinery, material and equipment going into the capital account of debtors purely as an arbitrary addition made in pursuance of an ordinance of the City of Chicago of 1907 which had ceased to have any relevance or effect long prior to the making of the present assessment. That ordinance, originally adopted with the end in view of enabling the city to purchase the assets of the debtor corporations, had provided that, in making such a sale, this arbitrary addition to actual cost might be included in the purchase price, in view of the fact, apparently, that the expense had been incurred by the debtor in procuring the property. Such expense of course, under proper methods of accounting, is purely one of doing business. We are supplied with no authority that any justification exists in the law for the inclusion, years later, of such an item in the assessment of tangible personal property, which, under the constitution and laws of the state of Illinois, is to be assessed at its full fair cash value.
To the returned fair cash value, the assessor added also a sum for "foundation for paving" in the amount of $2,041,764, yet the record contains no justification whatever for the inclusion of this as tangible personal property of the debtor subject to taxation. Indeed, in the case of People v. Chicago Railways Co., 369 Ill. 128, 15 N.E.2d 705, 707, the court held that pavement supplied by the company under the laws of Illinois was not taxable, saying: "Although the companies pay taxes on the component material while in their possession prior to being incorporated into the paving strips, such material does not retain the character of taxable tangibles when laid in the street. It then becomes an integral part of the pavement and belongs to the city. Upon the termination of the contract, by exiration or any other means, the companies would have no right to remove the paving strips." What is true of pavement, as property, of course, must be equally true of its foundation, and if, as the Illinois Supreme Court has said, the company has no title to or right to remove the paving it certainly has no title to and no right to remove the underlying foundation, for to do so would destroy the pavement itself. In other words, pavement includes not only the surface but also the foundation for the surface.
Included in the more than eight million dollars added by the assessor was a decrease in the depreciation allowance of 1 1/4 per cent. The assessor deducted this of his own accord without any evidence; he made no inspection, examined no property, and had the benefit of no check-up of any character upon the depreciated property. He apparently merely concluded in his own mind that the depreciation taken was too large and, arbitrarily taking a figure out of the clear sky, reduced it. It was, as the Supreme Court of Illinois said in People v. Commonwealth Edison Co., supra, "arbitrary guesswork, lacking in required uniformity and amounting to fraud in law." In that case as in this, the assessor had made no inspection but had arbitrarily refused to accept the company's depreciation; in that case, as in this, no evidence was presented as to the fair cash value of the personal property involved other than the fair cash value returned by the taxpayer, yet, in each, the assessor arbitrarily added the item mentioned.
Thus it is undisputed that the debtors filed returns showing the full fair cash value of their tangible personal property in accord with the laws of Illinois; that other corporate defendants were allowed a debasement factor of 30%, resulting in their assessment at 70% of full fair cash value; that, taxpayers' property, receiving no such deduction, was assessed at 100% of its fair cash value; that, not only did the assessor thus discriminate against the debtors by failing to give to them the equality demanded by the constitution and statutes of Illinois, but, in addition thereto, arbitrarily included in the assessment the foundation for pavement, an item for expenses in procuring property under an inapplicable ordinance and an item for depreciation unjustified by any inspection or investigation, all aggregating some eight million dollars. Had the debtors been accorded the same privilege as other taxpayers, the full fair cash value of the property would have been reduced for assessment to approximately $34,500,000 by the deduction of the 30% debasement factor and, if, as we have concluded, the item of over eight million dollars of arbitrary additions unauthorized by law were eliminated, the assessed value, instead of being $58,000,000 as fixed by the assessor, would have been less than $35,000,000. Indeed, the District Court, after hearing evidence as to the value of the property taxed, found that the full fair cash value was approximately $36,000,000 and that in the following year the assessor himself fixed the value at $44,000,000. There is no evidence to impugn these figures. On the basis of debtors' returned full fair cash value, that value was $49,640,138, less the deduction allowed to others, or a net of less than $35,000,000.Under the evidence submitted to the court, the full fair cash value was found to be actually $36,000,000, and yet the assessor, arbitrarily and without justification under the statutes or constitution of Illinois, under the repeated decisions of the Supreme Court of this state, arbitrarily fixed the assessment of $58,619,631. Then, when the Revenue Department of the State supplied a multiplier of 1.59, the assessed value became over $93,000,000.
But, says the state, the bankruptcy court had no jurisdiction, no authority to go back of the assessor's findings; that mere difference of opinion as to valuation is no justification for impeachment of the assessor's figures. With this statement no one can quarrel, for it is elementary that when a taxing authority has, in accord with the law, fixed a value which is not attacked by any subsequent attempt to review the same in authorized administrative or court proceedings which the taxpayer has had opportunity to avail himself of, its findings as to value must be upheld. Such is the law as to findings and orders of administrative bodies quite generally.
The court of bankruptcy has complete power to dispose of all questions arising as to liens upon property within its custody, to allow or disallow claims, to determine "the validity and amount" of all claims and to decide all controversies with regard to the bankruptcy estate. U.S.C.A. Title 11, Sections 1 and 11. In pursuance of these powers, the court is endowed as a court of equity with full authority to dispose of all issues raised in the course of the proceedings upon claims. In Arkansas Corporation Commission v. Thompson, 313 U.S. 132, 61 S. Ct. 888, 85 L. Ed. 1244, the court held that the bankruptcy court was without authority to relitigate, de novo, issues as to property valuation already adjudicated in state judicial or quasijudicial proceedings which afforded ample protection of the debtor's rights. In other words, the conclusion of the Supreme Court was that the amount of the assessment determined by an administrative body in due course of proceedings, after hearing, could not be reviewed by the Bankruptcy Court. This is in strict accord with the ordinary rule in such cases, for even a state court of equity, we think, in the absence of statutory authority, has no power to review the determination of values by the administrative body, if there is such an available remedy. Here, as we have shown, the court found that the assessment fixed was so in excess of real value as to be fraudulent; that upon undisputed evidence the taxpayers have been denied that equality and ...