Bookwalter v. Centropolis Crusher Company, 16214.

• Decision Date: 15 December 1959
• Docket Number: No. 16214.,16214.
• Citation: 272 F.2d 391
• Parties: E. O. BOOKWALTER, District Director of Internal Revenue, Appellant, v. CENTROPOLIS CRUSHER COMPANY, Appellee.
• Court: U.S. Court of Appeals — Eighth Circuit

272 F.2d 391 (1959)

E. O. BOOKWALTER, District Director of Internal Revenue, Appellant, v. CENTROPOLIS CRUSHER COMPANY, Appellee.

No. 16214.

United States Court of Appeals Eighth Circuit.

December 15, 1959.

James P. Turner, Atty., Tax Division, Dept. of Justice, Washington, D. C., for appellant.

John A. Biersmith, Jr., of Madden & Burke, Kansas City, Mo., for appellee.

Before GARDNER, VOGEL, and MATTHES, Circuit Judges.

GARDNER, Circuit Judge.

Appellee, a Missouri corporation engaged in the business of mining, processing and selling chemical and metallurgical grade limestone, on December 15, 1955 filed with appellant, District Director of Internal Revenue, claims for refund of certain income taxes paid to appellant for the taxable years 1950, 1951, 1952, and 1953. The claimed refunds were based on the taxpayer's contentions that (1) its mineral deposit was a chemical and metallurgical grade limestone entitled to a 15 per cent depletion allowance under Section 114(b) (4) (A) of the Internal Revenue Code of 1939, 26 U.S.C.A. § 114(b) (4) (A); and (2) all of the taxpayer's operations, including fine grinding and bagging, were "ordinary treatment processes normally applied by mine owners and operators in order to obtain the commercially marketable mineral product or products." These claims being denied, the present refund suit was brought. The parties hereinafter will be referred to as Taxpayer and Director.

In its refund action Taxpayer based its right to recover upon the same contentions asserted in its claim for refund. These contentions were put in issue by the Director's answer. The action was tried to the court without a jury.

The fact that Taxpayer mined, processed and sold chemical and metallurgical grade limestone is not contested by the Director. There is no substantial conflict in the pertinent evidence. The evidence showed that the Taxpayer sold approximately 80 per cent of its limestone without fine grinding, and that the sales price received by Taxpayer for its finely ground limestone was approximately $5 per ton. The sales price received for the limestone which was not in finely ground form was $1.48 to $1.50 per ton. The process employed by Taxpayer, so far as here material, is reflected in the court's findings as follows:

"For most chemical uses the market requires that limestone be reduced to the finely ground form.

"The commercially marketable mineral product (or products) from Plaintiff\'s deposit is limestone ground to eight distinct and uniformly graded sizes known as 2", 1¼", ¾", ½", 3/8", buckshot, dust, and finely ground.

"The market demands for ground limestone are such as to require a tight and uniform gradation of the product into each of these sizes, including the finely ground.

"The processes used by Plaintiff to obtain the foregoing are and were at all times:

(a) blasting;

(b) transportation to primary crusher;

(c) grinding in primary crusher;

(d) grinding in secondary crusher or hammer mill;

(e) automatic screening;

(f) grinding in roller mill.

"This entire crushing process, from the time the stone is dumped into the primary crusher until the finely ground material emerges from the roller mill, is automatic, resulting in the eight uniform and tightly graded sizes required by the industry.

"All of the above processes, including the grinding in the roller mill, are the ordinary processes normally applied by crushed limestone producers to obtain their commercially marketable product (or products).

"After emerging from the roller mill, a small percentage of Plaintiff\'s finely ground limestone is bagged to meet the special demand of a customer, the greater portion of this size being sold in bulk.

"Under these circumstances bagging is not an `ordinary treatment process,\' and any additional charge to the customer for the special bagging service and bags is to be eliminated from Plaintiff\'s `gross income from the property.\'"

Based on these findings the court concluded that Taxpayer was entitled to recover the depletion allowances calculated upon the basis of gross income derived from its finished product, except the income attributable to the bagging, which should be excluded from Taxpayer's "gross income from the property" in figuring depletion allowances. Pursuant to these findings the court entered judgment in favor of Taxpayer.

In seeking reversal the Director contends that the court erred in allowing the Taxpayer to include in its "gross income from mining" under Section 14(b) (4) of the Internal Revenue Code of 1939 the income attributable to the fine grinding of limestone in a roller mill.

This same contention was urged on behalf of the Government in Commissioner of Internal Revenue v. Iowa Limestone Co., 8 Cir., 269 F.2d 398, 401, wherein Judge Van Oosterhout, speaking for this Court in an exhaustive opinion citing and reviewing many authorities, answers to our satisfaction every argument advanced on behalf of the Director in the instant case. In the course of that opinion it is said, inter alia:

"The scope of the depletion deduction is governed solely by the statutes authorizing the deduction. Our problem is largely one of statutory interpretation. We now look to the controlling statutes.

"Section 23(m), 26 U.S.C.A. § 23 (m), authorizes the deduction from gross income from mining of `a reasonable allowance for depletion * * * according to the peculiar

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