Helvering v. Elbe Oil Land Development Co
| Decision Date | 07 March 1938 |
| Docket Number | No. 446,446 |
| Citation | 82 L.Ed. 904,303 U.S. 372,58 S.Ct. 621 |
| Parties | HELVERING, Commissioner of Internal Revenue, v. ELBE OIL LAND DEVELOPMENT CO |
| Court | U.S. Supreme Court |
Messrs. Homer S. Cummings, Atty. Gen., and Golden W. Bell, Asst. Sol. Gen., of Washington, D.C., for petitioner.
Mr. George T. Altman, of Los Angeles, Cal., for respondent.
The question is whether certain payments received by respondent in the years 1928 and 1929 constituted 'gross income from the property,' within the meaning of that phrase as used in relation to oil and gas wells in section 114(b)(3) of the Revenue Act of 1928, 45 Stat. 821, 26 U.S.C.A. § 114 note, so as to entitle respondent to the prescribed depletion allowance. The Cir- cuit Court of Appeals, reversing the decision of the Board of Tax Appeals (34 B.T.A. 333), sustained respondent's claim. Elbe Oil Land Development Co. v. Com'r of Internal Revenue, 9 Cir., 91 F.2d 127. Certiorari was granted (302 U.S. 677, 58 S.Ct. 142, 82 L.Ed. -) because of an asserted conflict with the decision of the Circuit Court of Appeals for the Fifth Circuit in Commissioner v. Fleming, 82 F.2d 324.
Respondent is a California corporation which acquired certain properties consisting of oil and gas prospecting permits, drilling agreements, leases and equipment. Development work resulted in the discovery of oil. On October 3, 1927, respondent conveyed all its right, title and interest in the described properties to the Honolulu Consolidated Oil Company. The latter agreed to pay to respondent $350,000 upon the execution of the agreement and, if the Honolulu Company should not elect to abandon the purchase (in accordance with one of the stipulations), the additional sums of $400,000 in each of the years 1928, 1929 and 1930, and the further sum of $450,000 in 1931. After the time when the Honolulu Company had been fully reimbursed as provided in the agreement for all its expenditures in the acquisition, development and operation of the properties, respondent was to receive monthly one-third of the net profits resulting from the production and operation. After careful stipulations with respect to such reimbursement and the computation of net profits, the agreement provided:
'Anything in this agreement contained to the contrary notwithstanding, it is the intention of the parties to this agreement that the full ownership, possession and control of all the properties, the subject of this agreement, and of all of the personal property acquired and/or used on and in connection with the operation and development of the properties, the subject of this agreement, shall be vested in Honolulu, and Elbe shall have no interest in or to said properties or in or to any personal property used on or in connection with the operation or development of the said properties or in or to the salvage value of any thereof except as provided by paragraph 9' (relating to abandonment of the purchase and reconveyance).
The first payment of $350,000 was received by respondent in 1927 and, being greater than the cost of all the properties transferred, respondent reported as taxable income the difference between that cost basis and the amount received. In its income tax returns for the years 1928 and 1929, respondent reported the payments of $400,000 received in each of the years and claimed 27 1/2 per cent. thereof as an allowance for depletion. This is the claim which has been sustained below.
We agree with the conclusion of the Board of Tax Appeals that the contract between the respondent and the Honolulu Company provided for an absolute...
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