Court Opinion

ID: 9639592
Source: CourtListenerOpinion
Date Created: 2023-08-22 16:40:59.240076+00
Date Added: 2024-06-11T17:21:41.500383
License: Public Domain

AUGUSTUS N. HAND, Circuit Judge
(concurring).
While I agree that the beneficiaries in the Kate Fowler Merle-Smith and in the Margaret B. Eowler cases are entitled to a depletion allowance, I do not base my conclusion on the ground that they are vested with a future expectant estate in the corpus of the trust that is likely soon to fall in. I reach this result because the beneficiary in each case is receiving current distributions of capital from the trustees to the extent of the depletion sought to be allowed. Under the terms of the will the trustees were required to pay the full royalties after deduction only of the expenses of administration without regard to depletion of the corpus. Thus there was no opportunity for setting up a depletion account, and the trustees to the extent of the depletion were mere distributing agents of current realizations of capital.
It may be said that cases like Stratton’s Independence v. Howbert, 231 U. S, 399, 34 S. Ct. 136, 58 L. Ed. 285, and Van Baumbach v. Sargent Land Co., 242 U. S. 503, 37 S. Ct. 201, 61 L. Ed. 460, where it was held that the full amount of royalties received from a mining lease represented taxable' income, preclude an allowance for depletion here. But those decisions were under the Corporation Excise Tax Law of 1909 (36 Stat. 112, § 38). That law created a franchise tax which might be laid on the privilege of receiving gross payments, whereas the present tax is imposed upon income under statutes which specifically included an allowance for depletion, as the Excise Tax Law did not. Indeed under the recent Act of 1928 (45 Stat. 800 [26 USCA § 2023]), depreciation as well as depletion may be allowed to á beneficiary, and we may regard the latter act at least in so far as it covers depletion as declaratory of existing law.
While the beneficiary of a trust could not deduct capital losses from his income for the purpose of arriving at the net taxable amount [Baltzell v. Mitchell (C. C. A.) 3 F.(2d) 428], there seems to be no sufficient reason why depletion of the corpus should not be allowed, for, to that extent, there is no receipt of income.
The distribution in the cases before us-was to the extent of an allowance for depletion, not a payment of income, but a transfer of capital which ought not to be taxed under income tax statutes, because the amendment to the Constitution only provides for the taxation of income and the statutes themselves purport to go no further.
The question whether deductions from income may be claimed depends on legislative grace, whereas taxation of capital may be regarded as. outside both the constitutional amendment and the intendment of the statutes. All the Income Tax Acts provide for an allowance for depletion and appear to treat such an allowance as a capital item. The petitioners here are the only persons who ean logically claim the allowance, and through their trustees they directly receive the royalties to which it relates.