dissenting: The petitioner was not engaged in the business of selling sand or gravel or in the business of selling sand and gravel deposits. Counsel for the respondent refers to this contract of sale as a lease, regards it as similar to an oil and gas lease, and claims that the payments received were royalty payments under a lease rather than amounts realized from the sale of a capital asset. His basis for calling the instrument a lease instead of a contract of sale, as it purported to be, is based primarily upon the method of payment and the limitation of 5 years allowed for the removal of the material.
The cases cited by the Commissioner are all part of a line of decisions of which Burnet v. Harmel, 287 U. S. 103, and Palmer v. Bender, 287 U. S. 551, are early examples. The rules established by that line of cases are that any one who was entitled to receive a portion of the mineral extracted or produced from a property, a portion of the income from the operation of the mineral property, or an amount based upon the income or the value of the mineral produced from the property, had an “economic interest” in the mineral in place and as that interest was depleted by the production operation the person was entitled to recovery through depletion, particularly percentage2 depletion based upon the gross income from the property, and the amount he received for his retained share of production or as his share of the profit from or value of the production was taxable as ordinary income rather than gain from the sale of a capital asset.3 The Harmel and Palmer cases involved oil and gas leases and most of the cases following them also involved mineral leases under which the taxpayers became parties to the extracting operations so that a part of the gross income from the properties was their income.
The present case presents a different situation. The petitioner sold the material here in question for a fixed price, 15 cents per cubic yard removed. Nothing was to vary that price or the vendee’s obligation to pay it. The entire purchase price would be paid in less than 5 years if the material was all removed sooner. The 5 years was not a rental period. The petitioner was not entitled to receive or to be credited with any part of the material as removed. It was not to share in any profit or income derived by the vendee from the removal of the material. The amount the petitioner was to receive did not depend in any way upon the vendee’s income from the removal of the sand and gravel or upon the unit or other value of the material removed. The total amount received by the vendee from the sale by it of material removed belonged to it and no part thereof belonged to the petitioner. Cf. Thomas v. Perkins, 301 U. S. 655; Anderson v. Helvering, 310 U. S. 404. The contract of sale here was substantially different from the mineral leases involved in the cases cited by the petitioner and the facts that the method of payment here was based of necessity upon the amount of material removed, a time limit for removal was set and the vendee was permitted to come upon the property to remove the purchased material are insufficient to twist this contract of sale into a lease similar to the mineral leases in the cases cited by the Commissioner.
The petitioner argues that the contract was in all respects a contract of sale rather than a lease, the 5 years was regarded as ample time by the parties to permit the removal of all of the material and the method of payment was made necessary by their inability to determine in advance just how much material was there. The Commissioner does not advance any sound reason for regarding this instrument as a lease instead of a contract of sale, and he cites no authority which really supports his argument. The stipulation shows that the gravel deposit was a capital asset of the petitioner which it had held for more than 6 months prior to sale, and the gain should be treated for income tax purposes as a long-term capital gain. This is a stronger case for capital gain treatment than cases involving sales of standing timber where payment was from profits. See John W. Blodgett, 13 B. T. A. 1388; J. J. Carroll, 27 B. T. A. 65, affd. 70 F. 2d 806; Estate of M. M. Stark, 45 B. T. A. 882; Camp Manufacturing Co., 3 T. C. 467; Isaac S. Peebles, Jr., 5 T. C. 14; Warner Mountains Lumber Co., 9 T. C. 1171; United States v. Robinson, 129 F. 2d 297.
Johnson and Fisher, JJ., agree with this dissent.The natural deposit here involved was not subject to percentage depletion in 1949, the petitioner claims no depreciation under this sale contention, and both parties recognize that no mining is involved herein. See section 114 (b) (4) ; Parker Gravel Co., 21 B. T. A. 51.
However, Helvering v. Elbe Oil Land Development Co., 303 U. S. 372, held that there was a sale of a capital asset eyen though the ¡seller was to share in the net profits of production.