Court Opinion

ID: 9418800
Source: CourtListenerOpinion
Date Created: 2023-08-02 22:39:47.135886+00
Date Added: 2024-06-11T17:22:10.639689
License: Public Domain

Mr. Justice Stone,
dissenting.
I think the judgment should be reversed. ■
By a trust created by the lessor of a mine, the trustees were authorized to collect the stipulated cash royalties *190of 190 per ton on ore mined, and to distribute them to the beneficiaries, who are the taxpayers here, without setting up any reserve for depletion of the lessor’s capital investment in the mine. The beneficiaries were given no other interest in the trust property or its income. It is not denied that the entire amount thus received by them is income which may be taxed. See Burnet v. Harmel, 287 U.S. 103, 107, 108; Bankers Pocahontas Coal Co. v. Burnet, 287 U.S. 308, 310; Stanton v. Baltic Mining Co., 240 U.S. 103, 114; cf. Lynch v. Hornby, 247 U.S. 339. And the tax is imposed on the entire amount received, subject only to such deductions as the statute permits. The sole question to be decided is whether they are entitled to the benefit of the statute authorizing the taxpayer, in computing the tax, to deduct from income “ a reasonable allowance for depletion and for depreciation of improvements according to the peculiar conditions in each case.”
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; Bankers Pocahontas Coal Co. v. Burnet, supra; United States v. Dakota-Montana Oil Co., 288 U.S. 459, 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, 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. *191551, and of a mine in Lynch v. Alworth-Stephens Co., 267 U.S. 364. 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; Gambrinus Brewery Co. v. Anderson, 282 U.S. 638; 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 the 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; Burnet v. Clark, 287 U.S. 410; Burnet v. Commonwealth Improvement Co., 287 U.S. 415, and the petitioners are in no better position to claim the privilege because the lessor, to whóm it was given, has relinquished it.
Mr. Justice Brandeis and Mr. Justice Cardozo concur in this opinion.