Thomas v. Perkins 1937
| Decision Date | 01 June 1937 |
| Docket Number | No. 824,824 |
| Citation | 57 S.Ct. 911,81 L.Ed. 1324,301 U.S. 655 |
| Parties | THOMAS v. PERKINS et ux. Argued May 4-5, 1937 |
| Court | U.S. Supreme Court |
Messrs. Homer S. Cummings, Atty. Gen., and
J. Louis Monarch, of Washington, D.C., for petitioner.
Mr. Harry C. Weeks, of Wichita Falls, Tex., for respondents.
Respondents, husband and wife, sued in the District Court for Northern Texas to recover a portion of the tax they paid for 1933 on their community income. In respect of the amount now in controversy, that court gave judgment for defendant (15 F.Supp. 356); the Circuit Court of Appeals reversed (86 F.(2d) 954) and, its decision being in apparent conflict with that of the Circuit Court of Appeals for the Eighth Circuit in Comar Oil Co. v. Burnet, 64 F.(2d) 965, this court granted the collector's petition for a writ of certiorari. 300 U.S. 653, 57 S.Ct. 754, 81 L.Ed. —-.
Hammonds and Branson owned oil and gas leases on undeveloped lands in Texas which provided for a royalty of one-eighth. They assigned to the Faith Oil Company which was principally owned by Green and Perkins. In taking the assignment, the company acted for itself to the extent of one-fourth and for Green and Perkins to the extent of three-eighths each. Later it transferred its interest to Perkins. So far as concerns the question here presented, Perkins may be treated as sole assignee of Hammonds and Branson. The assignment recites that they are owners of all rights under or incident to the leases and declares that 'in consideration of the sum of Ten Dollars ($10.00) cash1 * * * and of the further sum of Three Hundred Ninety Five Thousand Dollars ($395,000.00) to be paid out of the oil produced and saved from the * * * lands, and to be one-fourth of all the oil produced and saved * * * until the full sum * * * is paid, we * * * do hereby bargain, sell, transfer, assign, and convey all our rights, title, and interest in and to said leases and rights thereunder.'
After description of the lands and leaseholds the assignment provides that the oil payment shall be made to the assignors, Hammonds and Branson, each to receive one-half thereof, 'out of the oil produced and saved from' the leased premises, 'which payments shall be made by the pipe line company or other purchaser of said oil, and shall be one-fourth (1/4) of all the oil produced and saved from the above described land, until the full sum * * * is fully paid.' It is understood and agreed that the $395,000 The instrument does not purport to reserve a lien.
Perkins drilled wells on the leased lands and in 1933 produced oil; the assignors received substantial amounts, to apply on the payment to be made them; the oil was run from the wells into tanks on the leased premises from which it was taken by pipeline companies purchasing the oil. Each purchaser required and was furnished a division order executed by all the interested parties. By such orders assignors authorized purchasers to receive from the wells one-fourth of the oil and declared that the oil run should become the property of the purchasers as soon as received by them. In accordance with the orders, purchasers made payments directly and proportionately to the owner of the royalty reserved in the lease, to assignors, and to assignee. The last could not collect for any portion of the oil applicable to the oil payment to be made assignors.
In their tax return for 1933 respondents, Perkins and wife, did not include in income any part of the proceeds that went to assignors. But the Commissioner charged the amounts received by the assignors to the respondents and allowed the latter depletion in respect of the same. At the trial it was proved that the long-established practice of the bureau was not to require the operator of an oil and gas lease to include as a part of his income the royalties payable in kind to the lessors. But where they were payable in cash the operator included the proceeds of all the oil and took as an offsetting deduction the amount of royalties paid. It was admitted that, if the assignors' payments are excluded, the depletion allowed respondents should be correspondingly reduced.
The question is whether respondents' gross income should include moneys paid to assignors by purchasers of the oil.
We need not decide whether technical title to the oil while in the ground was in assignors, or in assignee. The federal income tax act is to be given a uniform construction of nation-wide application except in so far as Congress has made it dependent on state law.2 The granting clause in the assignment would be sufficient, if standing alone, to transfer all the oil to the assignee. It does not specifically except or exclude any part of the oil. But it is qualified by other parts of the instrument. The provisions for payment to assignors in oil only, the absence of any obligation of the assignee to pay in oil or in money, and the failure of assignors to take any security by way of lien or otherwise unmistakably show that they intended to withhold from the operation of the grant one-fourth of the oil to be produced and saved up to an amount sufficient when sold to yield $395,000.3
The construction that the parties put upon the assignment makes for the same conclusion. There is no suggestion that, having taken title, the assignee transferred any of the oil back to assignors. The division orders designated, and so served to indicate ownership of, the quantities belonging to each of the interested parties. And, in the circumstances, the orders given and proceeds received by assignors necessarily covered and were derived from oil not transferred by the assignment.
Our decision in Palmer v. Bender, 287 U.S. 551, 53 S.Ct. 225, 77 L.Ed. 489, supports the view that the assignment did not transfer the oil in question. We there construed section 214(a)(10), Revenue Act of 1921, 42 Stat. 241, which directed a reasonable allowance for depletion in the case of oil and gas wells 'according to the peculiar conditions in each case' and
The taxpayer, Palmer, was a member of a partnership that acquired oil and gas leases, discovered oil, executed a writing conferring on a company the right to take over a part of the leased property in consideration of a present payment of a cash bonus, and future payments to be made 'out of one-half of the first oil produced and saved' to the extent of $1,000,000, and an additional 'excess royalty' of one-eighth of all the oil produced and saved. The writing declared that the partnership 'does sell, assign, set over, transfer and deliver * * * unto the' oil company the described leased premises.
In his tax return, Palmer reported his share of the income derived by the partnership from the bonus payment and oil received under its contract with the oil company and, relying on section 214(a)(10), made a deduction for depletion based on value of oil in place on the date of discovery. The Commissioner refused to allow the deduction on the theory that the transaction was a sale of the leases by the partnership, and that the only allowable deduction was one based upon the cost of the property. As cost was less than the discovery value, the Commissioner's allowance of depletion was less than that claimed by Palmer and the tax was correspondingly greater. He paid it, and sued the collector to recover the amount by which the Commissioner's ruling operated to...
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