Source: https://caselaw.findlaw.com/us-supreme-court/291/183.html
Timestamp: 2019-04-21 15:25:02+00:00

Document:
[291 U.S. 183, 184] The Attorney General andMr. Erwin N. Griswold, of Washington, D.C., for petitioner.
The argument for the Commissioner is this-The entire proceeds from the working of a mine constitute income within the constitutional provision and may be subjected to taxation without regard to depletion. Here the beneficiary claims deduction for an item subject to taxation as gross income; but no provision in the statute allows him to subtract anything because of depletion.
Whatever may be said concerning the power of Congress to treat the entire proceeds of a mine as income, ob- [291 U.S. 183, 187] viously this statute has not undertaken so to do. The plain purpose, we think, was to tax only that portion of the proceeds remaining after proper allowance for depletion. This allowance represents property consumed, is treated as if capital assets, and no tax is laid upon it. The statute must be so applied in practice as to carry out this purpose. The intention was that owners of beneficial interests should not be unduly burdened.
True it is that section 219(b) directs that in cases of 'income which is to be distributed to the beneficiaries periodically, ... [291 U.S. 183, 189] the tax shall not be paid by the fiduciary, but there shall be included in computing the net income of each beneficiary that part of the income of the estate or trust for its taxable year which, pursuant to the instrument or order governing the distribution, is distributable to such beneficiary.' But we cannot accept the view that this was intended to impose a tax upon that part of the proceeds which represents the return of capital assets, whenever this has been paid over to the beneficiary. In cases like the one before us so to hold would in practice result in taxing allowances for depletion, contrary to what we regard as the plain intent of the statute.
As the statute permits the deduction only because the allowance represents a return to the taxpayer, in the form of income, for some part of his capital worn away or exhausted in the process of producing the income, see Murphy Oil Co. v. Burnet, 287 U.S. 299 , 53 S.Ct. 161; Bankers Pocahontas Coal Co. v. Burnet, supra; United States v. Dakota- Montana Oil Co., 288 U.S. 459 , 53 S.Ct. 435, it would seem plain that there is no occasion for a depletion allowance, and that the statute authorizes none where as here the taxpayer, a donee of the income, has made no capital investment in the property which has produced it. This was not doubted where the deduction claimed, but denied, was for depreciation, Weiss v. Wiener, 279 U.S. 333 , 49 S.Ct. 337, and it was only because the court concluded that the taxpayer had made a capital investment, represented by the minerals in place, that he was permitted to deduct an allowance for depletion from royalties received from the production of an oil well in Palmer v. Bender, 287 U.S. [291 U.S. 183, 191] 551, 53 S.Ct. 225, and of a mine in Lynch v. Alworth- Stephens Co., 267 U.S. 364 , 45 S.Ct. 274. The function of the allowance for depletion as a means of securing to the taxpayer a credit against gross income for so much of his capital investment as is restored from the income does not differ from that for depreciation or obsolescence when allowed as a deduction. See United States v. Ludey, 274 U.S. 295 , 47 S.Ct. 608; Gambrinus Brewery Co. v. Anderson, 282 U.S. 638 , 51 S.Ct. 260; United States v. Dakota-Montana Oil Co., supra. Legally and economically the statutory allowances for depletion and depreciation stand on the same footing. Both are means of restoring capital invested, the one, in ore, the other, in structures and improvements. Both are allowed by same language in a single statute. Neither has any function to perform if the taxpayer has made no investment to be restored from income received. The incongruity of allowing the deduction for depletion where the taxpayer has made no capital investment but denying it for depreciation is apparent.
The income here, derived from mining royalties, cannot be said to be a return of the taxpayer's capital because if paid to the lessor it would have restored to him some part of his capital investment. The lessor, by directing that the royalties be distributed to the beneficiaries, cut himself off from the enjoyment of the privilege which the statute gives to restore his capital investment from royalties, and he has denied that privilege to the trustees. The taxpayer may not claim the benefit of a deduction which the statute grants to another, Dalton v. Bowers, 287 U.S. 404 , 53 S.Ct. 205; Burnet v. Clark, 287 U.S. 410 , 53 S.Ct. 207; Burnet v. Commonwealth Improvement Co., 287 U.S. 415 , 53 S.Ct. 198, and the petitioners are in no better position to claim the privilege because the lessor, to whom it was given, has relinquished it.
[ Footnote 1 ] Revenue Act, 1921, c. 136, 42 Stat. 227, 247.

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