Sampsell

This appeal involves a claim of the United States to priority for withholding taxes (income and social security) which had arisen in the course of a corporate bankrupt’s operations, as debtor in possession, under an arrangement proceeding pursuant to Chapter XI of the Bankruptcy Act, 11 U.S.C.A. § 701 et seq.

The debtor’s petition, filed April 6, 1948, had court approval, and in July following the referee made an order confirming the proposed plan. The order provided that the debtor remain in possession of the business and operate it, subject to supervision and control of the court, the latter retaining jurisdiction over the assets to make further orders as necessary. In December 1948 an order was entered terminating the proceedings under Chapter XI and adjudicating the debtor a bankrupt; whereupon appellee was appointed trustee and proceeded to liquidate the estate.

In its operations under the arrangement proceeding the debtor deducted withholding taxes from wages and salaries paid by it to its employees, but accounted to the Collector for none of the amounts deducted. In due course the Collector filed his claim therefor in the total sum of $1,757.82. The referee, after a…