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Mr. Solicitor General Davis, of Washington, D. C., for the United states.
Mr. A. C. Dustin, of Cleveland, Ohio, for respondent.[ U S v. Biwabik Min Co 247 U.S. 116 (1918) ]
Mr. Justice DAY delivered the opinion of the Court.
This case is here upon a writ of certiorari to the United States Circuit Court of Appeals for the Sixth Circuit. It was instituted by the United States in the District Court of the United States for the Northern District of Ohio to recover the sum of $2,653.72, being 1 per cent. upon $ 265,372.08, which, it was claimed, the mining company had wrongfully omitted from the return of its net income for the year 1910 under the Corporation Tax Act of 1909
The case was tried upon an agreed statement of facts which, omitting unnecessary details, were epitomized by the District Court as follows:
Upon these facts the District Court reached the con- [247 U.S. 116, 121] clusion that the leases in question were not conveyances of ore in place, but were grants of the privilege of entering upon the premises and mining and removing the ore, and, consequently, that the deduction claimed as being one from capital investment could not be allowed. In reaching this conclusion the court cited the opinion of this court in Stratton's Independence, Ltd., v. Howbert, Collector, 231 U.S. 399 , 34 Sup. Ct. 136, and the judgment of the Circuit Court of Appeals for the Eighth Circuit (211 Fed. 1023, 127 C. C. A. 667), affirming the judgment of the District Court (207 Fed. 419), which decision of the Circuit Court of Appeals was made after the return of the answer to the questions propounded by that court to this court in the Stratton's Independence Case.
Coming to the question as to what allowance should be made to the mining company by way of deduction from its income in making return the District Judge said:
The District Court thereupon entered judgment:
The company took the case to the Circuit Court of Appeals upon writ of error, that court reversed the judgment of the District Court, holding that the company was entitled to the deduction of 48.75 cents per ton upon each ton of ore mined, as so much depletion of capital assets. [247 U.S. 116, 123] 242 Fed. 9, 154 C. C. A. 601. This conclusion was reached upon a construction of the lease in view of the character of the mining property involved, and largely because of the fact that the quantity of the ore in place could be estimated with substantial accuracy. The court held that the selling price of the ore in any one year so far as it represented the actual value to the mining company of the ore in the ground on January 1, 1909, was not income within the meaning of the Corporation Tax Act of 1909. In the course of its opinion the Circuit Court of Appeals announced the decisive question of law to be:
And after dealing with the character of this lease and the property covered by it, said:
This view of the character of these instruments and their legal effect differs from that taken by this court in the Sargent Land Company Case, 242 U.S. 503 , 37 Sup. Ct. 201, wherein precisely similar iron ore leases were under consideration. In that case this court reached the conclusion that such leases were not conveyances of the ore in place, but were grants of the privilege of entering upon, discovering, and developing and removing the minerals from the land, and that the lessor's income from such operations was obtained by a corporation shown to be carrying on business, and upon principles laid down in previous cases in this court (Stratton's Independence v. Howbert, supra; Stanton [247 U.S. 116, 124] v. Baltic Mining Company, 240 U.S. 103 , 36 Sup. Ct. 278) that such income was subject to taxation under the Corporation Tax Act of 1909.
In the Sargent Land Company Case it was pointed out that the courts of Minnesota, certainly familiar with the physical characteristics of the ore deposits involved, had in a series of cases held these instruments to be leases, and that the royalties agreed to be paid ere rentals in compensation for the privileges granted the lessee. We held the conclusion of the Minnesota courts to be warranted by reason and authority. 242 U.S. 503 , and cases cited in margin, page 518, 37 Sup. Ct. 201.
The Circuit Court of Appeals distinguished the Sargent Land Company Case, and of it said:
We are unable to concur in this view expressed in the opinion of the Circuit Court of Appeals as to the effect of the Sargent Land Company Case. Certainly this court had not in mind the distinction suggested. In the Sargent Land Company Case the Circuit Court of Appeals for the Eighth Circuit found that the land including the ore in it was worth hundreds of thousands of dollars, and without the right to the ore the land was worth practically nothing. 219 Fed. 38, 134 C. C. A. 649. This finding, as well as facts of general knowledge leave little room to suppose that this court made its decision concerning the rights of the lessor influenced by the fact that the land itself was the chief thing, and the ownership of it after the exhaustion of the minerals one of the controlling reasons in reaching the conclusion announced in that case. The lessee takes from the property the ore mined, paying for the privilege so much per ton for each ton removed. He has this right or privilege under the form of lease here involved so long [247 U.S. 116, 126] as he sees fit to hold the same without exercising the privilege of cancellation therein contained. He is, as we held in the Sargent Land Company Case, in no legal sense a purchaser of ore in place.
In this case the government took no writ of error as to the partial deduction allowed by the District Court, it follows that the correctness of that ruling is not op n here. The Circuit Court of Appeals erred in making the additional allowance for capital depletion. It follows that the judgment of the Circuit Court of Appeals must be reversed, and that of the District Court affirmed, and it is so ordered.
REVERSED.
Mr. Justice CLARKE took no part in the consideration or decision of this case.
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Citation: 247 U.S. 116
Docket No: No. 594
Decided: May 20, 1918
Court: United States Supreme Court
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