*321OPINION.
Marquette: The sole issue presented by this appeal is whether or .not the amount of $19,879 received by this taxpayer in 1919 from the Carter Oil Co., as a bonus for the leases granted to that company by the taxpayer, constitutes taxable income, or a return of capital and not subject to taxation. As pointed out in our findings of fact, the amount in question was added to the taxpayer’s net income by the Commissioner for lack of sufficient information upon which to determine to what extent, if any, this item was subject to taxation. But the issue comes before us on its merits, the parties to the issue entertaining diametrically opposed views.
The taxpayer contends that the five leases granted to the Carter Oil Co. under date of May 13, 1919, together with the agreement of ■ even date, constituted, in substance as well as in fact, sales of the oil and gas in place; that mineral leases are in effect conveyances of mineral properties, because by operation under lease the subject . matter of the lease is vacated, and, accordingly, the owner’s right, *322title, and interest in such properties acquired by deed for a definite-consideration becomes exhausted; that the consideration under the-lease becomes the purchase price of the subject matter of the lease; and that, before gain is determined by the disposition of property, there must be a return of capital outlay in the acquisition of such property. The taxpayer calls our attention to what it believes to be an apparent inconsistency on the part of the Commissioner in this matter with his view as otherwise expressed in article 215 of Regulations 45, which, so far as it is pertinent to the issue under consideration, reads as follows:
Art. 215. Depletion. — Adjustments of accounts based on bonus or advanced royalty. — (a) Where a lessor receives a bonus or other sum in addition to royalties, such bonus or other sum shall be regarded as a return of capital to the lessor, but only to the extent of the capital remaining to be recovered through depletion by the lessor at the date of lease. * * * (Italics ours.)
On the other hand, the Commissioner contends that the five leases and the supplemental agreement of May 13, 1919, conveyed no title to the oil and gas in place to the Carter Oil Co.; that the instruments in question merely conveyed to the Carter Oil Co. the right to enter upon the lands and explore for oil and gas; and that the taxpayer, so far as its capital was concerned, had divested itself of nothing, but, on the contrary, was in the same position immediately after granting the leases as it was before; hence, the amount of the bonus received from the Carter Oil Co. was taxable in full and can not be regarded as a return of capital.
The Commissioner further contends that article 215 of Regulations 45 is not applicable to the facts in this case, pointing out that the provisions of that article are limited to advance royalties and bonuses paid on oil and gas wells that are actually producing at the time of the granting of the leases.
We are unable to adopt the view vigorously pressed upon us in. argument by counsel for the taxpayer that the instruments executed by it to the Carter Oil Co. are conveyances of the fee simple title-to the oil and gas in place, and therefore that the transaction, of which these instruments are evidence, constituted, in fact and in substance, a sale of minerals. The instances in which absolute-conveyances of oil and gas are made upon conditions requiring development for the mutual benefit of grantor and grantee are-extremely rare, and it is to be presumed that the parties did not intend such a conveyance, unless the terms of the instruments so clearly indicate it that a contrary intention can not reasonably be-deduced therefrom. Toothman v. Courtney, 62 W. Va. 167; 58 S. E. 915.
As is generally the custom in the drafting of oil and gas leases,, the instruments we are considering here, in the granting part. *323thereof, contain language generally regarded as appropriate and sufficient to accomplish the very thing which the taxpayer would have us regard as the substance of the transaction of which these instruments are the evidence. The leases set forth that the grantor “ warrants specifically the title to all the oil and gas in and under, and grants, demises and leases, with covenants of quiet possession, and of sole right to convey * * But we find in these instruments other language which clearly discloses the limitations upon the grants. The language “ to have and to hold unto and for the use of the lessee for the term of five years from the date hereof and as much longer as oil, gas or gasoline is produced in paying quantities,” together with other provisions found in the instruments, reveals their real nature. The great weight to which this time limitation is entitled is augmented by that clause of the agreement ■of May 13,1919, which by express provision is made part and parcel of the leases, which imposes upon the grantee, as a condition to the continuance of the estate, the payment of a yearly rental for delay in drilling a well; and the further clause in the leases yielding to the grantor the one-eighth part of the oil produced, delivered into tanks or pipe lines for the benefit of the grantor. These provisions are strongly indicative of a lease.
Though the words “ demise ” and “ grant ” embrace a fee, where they appear in instruments of the character of those here under consideration, their general significations are reduced and limited and they are used only to import to the agreements implied covenants on the part of the lessor of good right and title to make the leases, and an implied covenant of quiet enjoyment.- In the case of Toothman v. Courtney, supra, the court had under consideration the contention that an instrument executed by Toothman was not a lease but a conveyance of the fee simple title to the oil and gas. The instrument there under consideration is strikingly similar to those in the case at bar, and, after reviewing carefully the language used, the court held:
In the granting part thereof it uses terms technically efficacious and appropriate for the accomplishment of such a result, and, if they were not limited and restrained by other language and provisions, the instrument could not be held to be a lease. Though words of absolute conveyance are used, the habendum limits them. * * * However long the term, an estate for years is not a freehold.
In the case of Smith v. Root, 66 W. Va. 633; 66 S. E. 1005, it appeared that one Hall and wife executed an oil and gas lease to Goff and Heck, bearing date of February 29, 1904, and the defendants claimed under a contract made by said Halls to one Thornily, dated June 27, 1905. The lease to Goff and Heck was to remain in force for 10 years, and as much longer as either oil or gas should be pro*324duced. Through various assignments this lease came into the possession of one Smith on February 6, 1906. Before this date, however, five quarterly rentals were past due and the Halls had refused an extension of time. In the meantime, and before the lease had come into the possession of Smith, the Halls had executed a second lease to Thornily. Smith brought suit to enjoin the defendants from operating on said land and from removing and disposing of the oil, and to have the second lease canceled as constituting a cloud upon his title. The lease, except for some unimportant variations in language, was practically identical with the leases here under consideration, and in the course of its opinion sustaining the decree of the lower court, which was adverse to the plaintiff, the court stated as follows:
This contract, commonly called an oil and gas lease, did not invest Goff and Hecli with any estate in the oil and gas in place; it simply gave them the exclusive right to make exploration upon this land for oil and gas. Their right was simply an inchoate right, not a vested estate in land. The lease is an exec-utory contract in the nature of a license to enter upon the land and make exploration for oil and gas for a period of ten years, and longer if oil or gas should be discovered, and to extract them from the earth. No estate could vest until discovery.
Again, in the case of Lowther Oil Co. v. Miller-Sibley Oil Co., 53 W. Va. 501; 44 S. E. 433, the same court held:
An ordinary oil lease, making the lessee pay a consideration, binding him te-sóme obligation, vests only an inchoate right — that is, right to explore for oil — but no actual other estate than right to develop; and, if he gets no oil, he still has no vested estate, but if he does get oil, he has a vested estate. Such a lease calls for the right, not to oil in place, but to extract it. Steelsmith v. Gartlan, 45 W. Va. 27, 29 S. E. 978; Lowther Oil Co. v. Guffey, 52 W. Va. 88, 43 S. E. 101; Bryan on Petro. & Gas, 174, citing Venture Oil Co. v. Fretts, 152 Pa. 451, 25 Atl. 732; Colgan v. Oil Co., 194 Pa. 234, 45 Atl. 119.
That oil and gas in place may be made the subject matter of conveyance, so as to pass fee simple title thereto, seems fairly well established by all of the West Virginia cases cited above. See also State v. Low, 46 W. Va. 451; 33 S. E. 271; Ohio Oil Co. v. Indiana, 177 U. S. 190. But the intention of the parties to so convey title to oil and gas in place must be so clearly indicated by the terms of the instruments that a contrary intention can not reasonably be deduced therefrom. In the exposition of deeds the construction must be upon the view and comparison of the whole instrument, and with an endeavor to give every part of it meaning and effect. See Devlin on Deeds, section 837, and the long list of cases cited there.
Our conclusion is that the instruments under consideration are leases, vesting in the Carter Oil Co. only a right of exploration and production on the usual royalty terms, and that no estate was granted in the oil and gas in place.
*325Counsel for taxpayer in bis brief devotes considerable argument to the proposition that the grants made under the leases constitute such a -sale of rights as to bring the transaction, evidenced by the leases and agreement, within the scope of section 202 (a) of the Revenue Act of 1918, as a sale or other disposition of property, and that only the excess of the consideration received over the cost of the rights disposed of can be subjected to taxation. With this proposition we can not agree. So far as it relates to the sale or disposition of the rights pertaining to the oil and gas underlying the lands with respect to which the taxpayer acquired the fee simple title, we believe the proposition is disposed of by the decision of this Board in the Appeal of William Robert Farmer, 1 B. T. A 711. Nor do we believe any different rule should be applied to the proposition as it relates to the rights to the oil and gas in place acquired by the taxpayer from the Boone Coal Land Co.
Taxpayer calls our attention to what it believes to be an apparent inconsistency in the Commissioner’s action in the issue before us with his attitude as otherwise expressed in article 215 of Regulations 45, which provides that a bonus received by a lessor in addition to royalties, as a consideration for granting the lease, shall be regarded as a return of capital to the extent of the capital remaining to be recovered through depletion by the lessor. The inconsistency appears to us to be quite real. But, answers counsel for the Commissioner, “The article is applicable only to royalties and bonuses on oil and gas wells that are producing. Thus the ‘ bonus ’ referred to in the article can have no application to rentals paid under leases to explore for oil and gas.” Why the distinction, we are unable to comprehend; and that such distinction has not been the policy of the Commissioner in the past is apparent from examination of memorandum 3399 of the Solicitor of Internal Revenue, IV-1 C. B. 167, wherein the solicitor, after quoting article 215 of Regulations 62, identical with the same article of Regulations 45, stated: “The ‘bonus or other sum in addition to royalties’ mentioned in the above-quoted article is considered to be the price paid for the right to explore for and extract oil or mineral.” (Italics ours.)
However, after a searching examination of the statutes, we are unable to find any statutory warrant which affords a sound basis for such distinction. Why a “bonus or other sum in addition to royalties” forming a part of the consideration for the lease should be regarded as a return of capital any more than the royalties is beyond our comprehension. It would be just as logical to hold that the royalties, to the extent of the capital remaining to be recovered by the lessor, constitute a return of capital. The method prescribed by the statute of returning to a corporate taxpayer its *326capital investment, free from taxation, is through the depletion allowance provided for by section 234 (a) (9) of the Revenue Acts of 1918 and 1921. A bonus paid under such circumstances is as much a part of the consideration as the royalties. It is in fact and in substance a part of the royalties. Of particular interest in this connection is the decision of the United States Supreme Court in the case of Work v. United States ex rel. Mosier, 261 U. S. 352. This case reached the Supreme Court on a writ of error bringing up for review a judgment of the Court of Appeals of the District of Columbia, affirming a judgment of mandamus against the Secretary of the Interior commanding him to pay to the relators all the moneys due their minor children, members of the tribe of Osage Indians of Oklahoma, including their respective shares of bonus moneys paid the Secretary for oil leases made by the tribal council. Mr. Chief Justice Taft, in delivering the opinion ■of the court, said in part as follows:
Tho bonus which was the result of bidding for desirable and profitable oil and gas leases secured for the members of the Osage Tribe the just value ■of the use of their property which the fixing of royalties in advance by the President was not adapted to give them. It was in effect a supplement to the royalties already determined. It was really part of the royalty or rental in a lump sum or down payment. We do not see how it can be classified as anything else. It was income from the use of the mineral resources of the land. Of course, it involved a consumption and reduction of the mineral value of the land, but so does a royalty. This is an inevitable characteristic •of income from the product of the mine.
True, the question before the court in the above case involved a construction of the Act of June 28, 1906, entitled, “An Act For the division of the lands and funds of the Osage Indians in Oklahoma Territory, and for other purposes,” and the taxing statutes were not involved. But can there be any distinction in principle between the question there before the court and the question confronting us % On what possible theory could it be held that a bonus, forming a part of the consideration for a lease, is anything else than a part of the royalties ? None suggests itself to our minds. In the case of the United States v. Biwabik Mining Co., 247 U. S. 116, involving the question as to the right of the lessee, in computing its taxable net income, to take a deduction for depletion under the Act of August 5, 1909, the Supreme Court, in the course of its opinion, held that the sum paid by the defendant for the lease in addition to the royalties stipulated for therein “ may properly and justly be considered a payment in advance of an increased royalty on ore to be mined •* *
In view of the foregoing, we are of the opinion that sums in •addition to royalties, paid by a lessee to a lessor as a bonus for the granting of a lease, constitute taxable income.