*1674 Petitioner, a full-blood Creek Indian, acquired an allotment of 160 acres of land, of which 40 acres were "homestead" and 120 acres were "surplus" lands. During the taxable year 1922, she leased said lands for a one-eighth royalty and received cash bonuses of $21,500 on the leases pertaining to the homestead and $111,000 on the leases pertaining to the surplus lands. Held, that for reasons stated in the opinion both bonuses were subject to taxation. Held, further, that under our decision in Murphy Oil Co.,15 B.T.A. 1195">15 B.T.A. 1195, the entire amount of the bonuses totaling $132,500 was taxable income in 1922. Held, further, since the respondent has moved for an increased deficiency under section 274(e) of the 1926 Act to the extent of including in taxable income only half of the $21,500 bonus in addition to all of the $111,000 bonus, that the deficiency be redetermined by including in taxable income only $121,750 of the $132,500 bonuses received.
*244 This proceeding is for the redetermination of a deficiency in income tax for the year*1675 1922, in the amount of $9,184.71.
*245 Petitioner's return for 1922 was filed for her by two guardians, who had been duly appointed by the County Court in and for Muskogee County, Okla. Thereafter, on December 15, 1924, the same court declared petitioner to be a competent person, whereupon her estate was delivered to her. The deficiency letter was addressed to "Mr. J. A. Barbre, Guardian, Lucinda Pitman, (incompetent)," but, due to her change of status in 1924, she filed the petitioner herein on her own behalf. As will later appear in our opinion, nothing in this case turns on her status in Oklahoma as to competency or incompetency.
During the year 1922, petitioner received a cash bonus of $132,500 as part consideration for the execution during that year of three oil and gas leases, and the question at issue i what part, if any, of the said cash bonus was taxable income to her.
Petitioner reported no income from this source and contends that no part of the $132,500 is taxable. The respondent determined in his deficiency notice that $36,370 of the $132,500 was taxable, but now contends that $121,750 of the cash bonus is taxable and has moved for an increased deficiency*1676 for the year 1922, alleging that the correct deficiency is approximately $57,000.
FINDINGS OF FACT.
Petitioner is a full-blood member of the Muskogee (Creek) Nation of Indians, residing in Muskogee, Okla., and enrolled opposite roll number 1833. She and her former husband, Robert L. Pitman, Sr., a white man, were divorced in the year 1911.
Robert Pitman, Jr., was a son of petitioner and Robert L. Pitman, Sr., and was duly enrolled as a half-blood member of the same tribe as his mother, opposite roll number 794. After the divorce of his mother and father he lived with his father in the State of Colorado until his (Robert Pitman, Jr.'s) death in Delta County, Colorado, which occurred on October 14, 1919. He died a minor, intestate, unmarried and without issue. Upon his death, he was seized and possessed, in addition to certain other property, both in Oklahoma and Colorado, of an allotment of 160.25 acres of land (hereinafter referred to as 160 acres) in section 7, township 17 north, range 12 east of the Indian Base and Meridian in Oklahoma, to which he had two separate deeds, a "homestead" deed for 38.79 acres (hereinafter referred to as 40 acres) and an "allotment" deed*1677 for 121.46 acres (hereinafter referred to as 120 acres). Both deeds were executed on May 24, 1907, by the principal chief of the Muskogee (Creek) Nation, by virtue of the power and authority vested in him by Act of Congress approved March 1, 1901 (31 Stat. 861). Both deeds were approved by the Department of the Interior on July 5, 1907, and filed *246 for record on July 26, 1907. The homestead deed recited that it was subject, however:
* * * to the conditions provided by said Act of Congress [31 Stat. 861] and which conditions are that said land shall be non-taxable and inalienable and free from any incumbrance whatever for twenty-one years; and subject, also, to the provisions of said Act of Congress relating to the use, devise and descent of said land after the death of the said Robert Pitman, Jr.; and subject, also, to all provisions of said Act of Congress relating to appraisement and valuation and to the provisions of the Act of Congress approved Jule 30, 1902, (Public No. 200).
The allotment deed recited that it was subject, however, "to all provisions of said Act of Congress (31 Stat. 861) relating to appraisement and valuation and to the provisions of the Act*1678 of Congress approved June 30, 1902 (Public No. 200)."
At the time Robert Pitman, Jr., died, the 160 acres of land covered by the above mentioned allotment were under lease for oil and gas. The leases had been executed in 1907 for a term of 15 years, and expired in the spring of 1922, when the leases now in question, and which will be referred to later, were negotiated. During 1907 and 1908 about 42 producing oil wells were completed by the then lessees of the 160 acres, and in 1922 these wells were producing in all about 100 barrels of oil a day.
At the time Robert Pitman, Jr., died, his parents were in disagreement as to who would inherit his estate. His mother, through her duly appointed guardians, claimed that she was entitled to all of the above mentioned allotment of 160 acres and to one-half of the estate outside of the allotted land. On the other hand, his father claimed one-half of the allotted land and all of the remaining estate. In November, 1919, negotiations were started between counsel for both parents of the deceased to see if the matters in controversy could be settled and adjusted and the property divided between the heirs without recourse to the courts. *1679 The negotiations resulted in an agreement whereby Lucinda Pitman was to pay Robert L. Pitman, Sr., the amount of $30,000 and the latter was to release all claim whatever to the above mentioned allotment of 160 acres and to one-half of the remaining estate. As a result of this agreement, Robert L. Pitman, Sr., and his then wife, Anges E. Pitman, on March 8, 1920, executed a quit-claim deed whereby in consideration of one dollar "and other valuable consideration" they quit-claimed, granted, bargained, sold and conveyed unto Lucinda Pitman, her heirs and assigns, forever, all their right, title interest and estate, both at law and in equity of, in and to the said allotment of 160 acres granted to Robert Pitman, Jr., on May 24, 1907. This deed was duly filed and recorded with the County Clerk of Creek County, Oklahoma, on March 30, 1920.
*247 Before the above mentioned agreement was executed, the guardians of Lucinda Pitman first obtained an order from the County Court of Muskogee County, authorizing and directing the guardians "to enter into said agreement and take the necessary steps to consummate the same and to make the payment to the said Robert Pitman, and his said assigns, *1680 and to take the waiver, relinquishment and disclaimer to be made by the said Robert Pitman and his assignees, and to enter into the stipulations above set forth." The court in this order also found that Lucinda Pitman and Robert L. Pitman, Sr., had had another child, whose name was Rowie Elizabeth Pitman; that Rowie died February 10, 1909, seized and possessed of a Creek allotment; that on February 23, 1910, the County Court of Creek County, Oklahoma, entered a decree finding Robert L. Pitman, Sr., to be the sole heir of his deceased daughter's allotment; that the guardians of Lucinda Pitman commenced a suit in the United States Court at Muskogee on the ground that Lucinda was the heir of her deceased daughter, and that Robert L. Pitman, Sr., owned no interest in said land; that upon demurrer filed by the defendant the suit was dismissed with prejudice; and that each party to the suit executed and delivered to each other quit-claim deeds purporting to convey to each, respectively, an undivided one-half interest in the allotment of this deceased daughter, Rowie Elizabeth Pitman.
On November 20, 1920, J. F. Darby, having previously been duly appointed by the County Court of Tulsa*1681 County, Oklahoma, as appraiser for the estate of Robert Pitman, Jr., deceased, submitted his report to the court of Tulsa County in which he appraised the entire estate of Robert Pitman, Jr., as of October 14, 1919 (the date of the latter's death), to be the amount of $294,844.94, summarized as follows:
| Surplus lands of above-mentioned allotment (120 acres) | $119,090.27 |
| Homestead lands of above-mentioned allotment (40 acres) | 40,030.08 |
| 159,120.35 | |
| Other real estate in Oklahoma | 45,900.00 |
| Personal property | 89,824.59 |
| Total estate | 294,844.94 |
On March 30, 1921 (referred to in subsequent documents as March 31, 1921), the judge for the County Court of Tulsa County, Oklahoma, signed a "decree of Heirship and for Partial Distribution" in the matter of the estate of Robert Pitman, Jr., deceased, which followed exactly the previous agreement that had been reached between the parents of the deceased and the quit-claim deed given by Robert L. Pitman, Sr., and his then wife on March 8, 1920, referred to above. The decree was the court's disposition of a petition filed February *248 15, 1921, by Robert L. Pitman, Sr., and the guardians of Lucinda Pitman "for a*1682 determination of the heirs at law of Robert Pitman, Jr., deceased, and upon the petition of said heirs for distribution to them of the share of said estate to which they are entitled." The material part of the decree, from which no appeal was taken, is as follows:
* * * That upon his death the said Robert Pitman, Jr., deceased, was survived by his father, a white man, and non-citizen of the Creek Tribe of Indians, and by his mother, Lucinda Pitman, a full-blood member of the Creek Tribe of Indians, enrolled opposite roll number 1833. That by reason of the premises and of the law applicable thereto upon the death of the said Robert Pitman, Jr., all of his right, title and interest in and to the lands hereinafter described as the allotment of the said Robert Pitman, Jr., [the 160 acres here in question] * * * descended to and vested in his mother, Lucinda Pitman, as the sole heir thereto. [Italics supplied.]
On or about March 7, 1922, petitioner, with the approval of the Secretary of the Interior, which was given on April 24, 1922, entered into three separate oil and gas leases with the three separate companies that had been operating the 160-acre allotment here in question*1683 since 1907, under the 15-year leases, respectively. Petitioner, in consideration for the new leases, was to receive a royalty of oneeighth of all the oil and gas produced and in addition thereto, received cash bonuses paid to petitioner during the taxable year 1922, as follows:
| Lessee | Acres | Cash bonus |
| Texas Company | 47.5 | $60,000 |
| Pulaski Oil Company | 72.5 | 37,500 |
| Prairie Oil and Gas Company | 40.0 | 35,000 |
| Total | 160.0 | 132,500 |
The homestead of 40 acres was a part of the 72.5 acres leased to the Pulaski Oil Company, and $21,500 of the cash bonus of $37,500 was attributable to the homestead.
On March 9, 1925, petitioner filed with the County Court in and for Tulsa County, Oklahoma, a "Petition for Approval of Deed By Full Blood Heir," in which she recited that the court on March 31, 1921, had decreed her to be "the sole heir at law of the said Robert Pitman, Jr.," in and to the allotment of 160 acres here in question, and:
Petitioner would further show that she has sold and conveyed all of her right, title and interest in and to the above described land to the First National Bank of Muskogee, Oklahoma, as trustee in accordance with the terms of a certain*1684 trust agreement dated the 16th day of December, 1924, that she desires the approval of such conveyance and herewith tenders same for the approval of this *249 Honorable Court under the provisions of Section 9, of the Act of Congress of May 27th, 1908.
On April 7, 1925, the judge for the County Court in and for Tulsa County, Oklahoma, signed an "order" in the matter of the "Approval of Deed of Lucinda Pitman" which is quoted in part as follows:
That the said Robert Pitman, Jr. was a duly enrolled half-blood citizen of the Creek Tribe of Indians; that he died intestate in Delta County, Colorado, in October, 1919, seized and possessed of the above described land [the 160 acres here in question] which was his allotment as a citizen by blood of the Creek Nation; that the petitioner herein, Lucinda Pitman, is a duly enrolled full-blood citizen of the Creek Tribe of Indians; that after the death of the said Robert Pitman, Jr., letters of administration were granted upon the estate of the said Robert Pitman, Jr., by the County Court in and for Tulsa County, Oklahoma, that on March 31, 1921, the County Court of Tulsa County, Oklahoma, made and entered its decree of distribution*1685 wherein and whereby the entire estate in fee simple in and to the above described property was vested in the said petitioner. The Court finds that it has jurisdiction to entertain this petition and approve this deed under the provisions of the Act of Congress of May 27th, 1908, providing for the approval of deeds by Full-blood Indian heirs to inherited land.
The court further finds that the prayer of such petition should be granted, and it is, therefore, by the court.
ORDERED, ADJUDGED AND DECREED That the petition of the said Lucinda Pitman for the approval of the deed executed by her conveying all of her right, title and interest in the above described land to the First National Bank of Muskogee, Oklahoma, as trustee, should be, and the same is hereby approved. [Italics supplied.]
The fair market value of the allotment to Robert Pitman, Jr., of the 160 acres of land in question on October 14, 1919, was $159,120.35. Upon this value, petitioner paid an inheritance tax to the State of Oklahoma and an estate tax to the Federal Government.
OPINION.
LOVE: The ultimate question involved in this proceeding is what portion, if any, of the cash bonus of $132,500 is taxable*1686 income to petitioner in 1922. The respondent determined that $36,370 was taxable, but now contends that $121,750 is taxable and has moved for an increased deficiency.
We do not have before us the respondent's computation showing how he arrived at the amount of $36,370, but that fact is not now material to the present disposition of the case, since the respondent now contends that $121,750 of the cash bonus is taxable instead of $36,370. The respondent bases his contention for the larger amount on our decision in Murphy Oil Co.,15 B.T.A. 1195">15 B.T.A. 1195, wherein we held that a cash bonus payment by the lessee for an oil and gas lease represents taxable income and, having no relation to exhaustion of resources, does not reduce the depletable base of the lessor, which *250 holding is contrary to article 215 of the respondent's Regulations 62, as amended by T.D. 3938.
As set out in our findings, the $132,500 was a cash bonus paid to petitioner in 1922 by three lessees as part consideration for certain oil and gas leases covering the 160 acres of which her son was seized and possessed on the date of his death. In the original allotment deeds given under*1687 Act of Congress approved March 1, 1901 (31 Stat. 861), 40 acres of the 160 acres were designated as a "homestead" and the balance of 120 acres was known as "surplus lands." The cash bonus of $132,500 was paid to petitioner by lessees of the two respective classes of lands, as follows:
| Homestead (40 acres) | $21,500 |
| Surplus lands (120 acres) | 111,000 |
| Total | 132,500 |
The respondent concedes that petitioner inherited from her son, Robert Pitman, Jr., one-half of the above allotment of 160 acres, and that by reason of such inheritance, one-half of the cash bonus of $21,500 applicable to the homestead, or $10,750, is exempt from taxation under the laws applicable thereto, leaving $121,750 ($132,500 minus $10,750) subject to tax under our decision in Murphy Oil Co., supra. The respondent contends that the remaining one-half of the 160-acre allotment was acquired by petitioner by purchase from her divorced husband; that all restrictions had been removed from the surplus lands prior to the death of Robert Pitman, Jr.; that where an allotment once becomes nonrestricted, it forever afterwards remains nonrestricted; that the one-half of the homestead which*1688 respondent contends petitioner purchased, became nonrestricted when it was inherited, as respondent contends, by a white person, namely, Robert L. Pitman, Sr.; and that, under section 4 of the Act approved May 27, 1908 (35 Stat. 312), "* * * all land from which restrictions have been or shall be removed shall be subject to taxation * * *."
On the other hand, the petitioner has assumed without contending that the leases executed on or about March 7, 1922, were sales of property and that the gain or loss resulting therefrom should be determined in accordance with section 202 of the Revenue Act of 1921, and article 1563 of Regulations 62. She contends that she inherited the entire allotment of 160 acres from her deceased son, Robert Pitman, Jr.; that the basis for determination of gain or loss is the value of the property when inherited; that this value was $159,120.35; and that comparing that amount with the $132,500 received, there was no taxable income. As an alternative, she again contends that she inherited the entire allotment of 160 acres, and, *251 being a full-blood Indian, the entire inheritance is restricted in her hands and is free from tax.
We, however, do not*1689 regard it necessary for a proper disposition of this proceeding to determine the questions whether petitioner inherited or purchased the one-half of the allotment which respondent contends she purchased, or whether the said allotment was or was not restricted in her hands. We think the cash bonuses received from the leases in connection with both the homestead and surplus lands are subject to the Federal income tax, but for reasons different from those given by the respondent.
Sections 210 and 211 of the Revenue Act of 1921, levy a tax upon the "net income of every individual." Section 212 defines net income as gross income less the deductions. Section 213(a) includes within the term gross income "gains or profits and income derived from any source whatever." The bonus money was in the nature of royalties and hence income. Work v. Mosier,261 U.S. 352">261 U.S. 352, 357. We know of no Federal statute exempting such income from Federal taxation. The following remarks by the United States Supreme Court in the recent case of *1690 Choteau v. Burnet,283 U.S. 691">283 U.S. 691, are apposite here:
The language of Sections 210 and 211(a) (Note No. 9) subjects the income of "every individual" to tax. Section 213(a) (Note No. 10) includes income "from any source whatever." The intent of Congress was to levy the tax with respect to all residents of the United States and upon all sorts of income. The act does not expressly exempt the sort of income here involved, nor a person having petitioner's status respecting such income, and we are not referred to any other statute which does.
We are not unaware of the decisions of the Circuit Court of Appeals for the Tenth Circuit in Mary Blackbird v. Commissioner, 38 Fed.(2d) 976, and the Federal District Court for the Western District of Oklahoma in United States v. Homeratha, 40 Fed.(2d) 305. The latter case was decided upon the authority of the former.
The Blackbird case involved "a restricted full-blood member of the Osage Tribe of Indians." The Circuit Court, in reversing this Board's opinion, reported at *1691 14 B.T.A. 1247">14 B.T.A. 1247 based its decision upon three principal grounds, namely, (1) that to tax a ward of the Government "would be contrary to the almost unbroken policy of Congress in dealing with its Indian wards and their affairs"; (2) that general acts of Congress are not applicable to Indians unless expressly made so; and (3) that whatever value the Cherokee Tobacco Case,11 Wall. 616">11 Wall. 616, had as a precedent in support of upholding the tax "seems to have been nullified by what is said in United States v. Forty-three Gallons of Whiskey,108 U.S. 491">108 U.S. 491." The second proposition was developed by the court mainly in support of the first. Yet on the same day, the same court in Choteau v. Commissioner, 38 Fed.(2d) 976, *252 recognized what must at least be regarded as an exception to the proposition that general acts of Congress are not applicable to "Indians" unless expressly made so, by holding that where an Osage Indian had received his certificate of competency issued under the authority of paragraph 7 of section 2 of the Act of June 28, 1906 (34 Stat. 539, 542), he was then subject to the Federal income tax. The *1692 Choteau decision was affirmed by the United States Supreme Court (already referred to herein) and we again quote therefrom as follows:
But it is said that as to the income here taxed petitioner is exempt because of his status as an Indian. This assertion requires a reference to the policy of the government with respect to the Indians. No provision in any of the treaties referred to by counsel has any bearing upon the question of the liability of an individual Indian to pay tax upon income derived by him from his own property. The course of legislation discloses that the plan of the government has been gradually to emancipate the Indian from his former status as a ward; to prepare him for complete independence by education and the gradual release of his property to his own individual management. This plan has included imposing upon him both the responsibilities and the privileges of the owner of property, including the duty to pay taxes.
We recognize, of course, that the facts in the Choteau case differ from the facts in the instant case in so far that Henry Choteau had received a certificate of competency and was nonrestricted as to his surplus lands, whereas petitioner*1693 contends she was restricted as to her surplus lands by section 9 of the 1908 Act (35 Stat. 312) in that she had to have any conveyance of any interest in her land approved by the proper court. But Choteau was a restricted Indian as to his homestead. We have searched the United States Statutes at Large pertaining to the Five Civilized Tribes (of which petitioner was a member) and have been unable to find any provision similar to paragraph 7, section 2, of the Act of June 28, 1906 (34 Stat. 539, 542), relating to the granting of certificates of competency to the Osages.
Petitioner was "declared to be a citizen of the United States" by section 6 of the Act of February 8, 1887 (24 Stat. 388, 391), as amended by Act of March 3, 1901 (31 Stat. 1447). The Osages were not declared to be citizens until 1921. See sec. 3, ch. 120, Act of March 3, 1921 (41 Stat. 1249, 1250). But, as was said in Tiger v. Western Investment Co.,221 U.S. 286">221 U.S. 286, "there is nothing in citizenship incompatible with this guardianship over the Indian's lands inherited from allottees," So the only material difference between petitioner and Choteau is that Choteau was not restricted as to his*1694 surplus lands and petitioner contends she was restricted as provided in section 9, supra.We do not think that this difference alone should exclude petitioner from tax. "The intent to exclude must be definitely expressed, where, as here, the general language of the act *253 laying the tax is broad enough to include the subject matter. Heiner v. Colonial Trust Co.,275 U.S. 232">275 U.S. 232; Show v. Oil Corporation, supra." (Choteau v. Burnet, supra.)
In Heiner v. Colonial Trust Co.,275 U.S. 232">275 U.S. 232, the Supreme Court held that a non-Indian lessee of restricted Indian lands was taxable on the income derived from such leases. The argument was made by counsel for the lessee in that case that to tax the lessee would have an adverse economic effect upon the Government's wards; that general acts of Congress are not applicable to the Indians where to apply them would affect the Indians adversely; and that Congress can not be held to have intended by the general provisions of the revenue acts to tax the incomes of the Indians themselves, nor by taxing that of their lessees to do itself what the States are forbidden to do. *1695 In deciding in favor of the tax, the Supreme Court said:
The power of the United States to tax the income is undoubted. * * * The disposition of Congress has been to extend the income tax as far as it can to all species of income, despite immunity from state taxation. * * *
Assuming that the Indians are not subject to the income tax, as contended, the fact that they are wards of the government is not a persuasive reason for inferring a purpose to exempt from taxation the income of others derived from their dealing with the Indians. Tax exemptions are never lightly to be inferred (Vicksbury, etc. R.R. v. Dennis,116 U.S. 665">116 U.S. 665, 668, 6 S. Ct. 625">6 S.Ct. 625, 29 L. Ed. 770">29 L.Ed. 770; Philadelphia & Wilmington R.R. v. Maryland,10 How. 376">10 How. 376, 393, 13 L. Ed. 461">13 L.Ed. 461), and we think any implication of an exemption of the income of the Indians themselves, if made, must rest on too narrow a basis to justify the inclusion of the income of other persons merely because the statute, if applied as written, may have some perceptible economic effect on the Indians. [Italics supplied.]
Referring to the third principal ground of the Circuit Court's decision in the case of*1696 Mary Blackbird v. Commissioner, supra, the only reference to the Tobacco case by the Supreme Court in the Whiskey case was in the last paragraph of its opinion, which reads of follows:
The case of the Cherokee Tobacco Tax,11 Wall. 616">11 Wall. 616, cannot be treated as authority against the conclusion we have reached. The decision only disposed of that case, as three of the judges of the court did not sit in it and two dissented from the judgment pronounced by the other four.
See also Leah Brunt, Administratrix,5 B.T.A. 134">5 B.T.A. 134, 145, and Mary Blackbird,14 B.T.A. 1247">14 B.T.A. 1247, 1251.
A further comparison of the facts in the instant case with those in the Choteau case discloses that they are alike in that no Federal restriction was placed upon the income of either petitioner or Choteau after it was paid to them. Although petitioner may have been restricted by section 9 as to her conveyance of any interest in her land, we know of no Federal statute and have been referred to *254 none which restricts her in any manner whatsoever as to her ownership in and enjoyment of the $132,500 cash bonus received. *1697 In the Choteau case the Supreme Court said:
His share of the royalties from oil and gas leases was payable to him, without restriction upon his use of the funds so paid. * * * In the process of gradually changing the relation between the Indian and the government he has been, with respect to the income in question, fully emancipated. (Compare United States v. Waller, supra. ) It is true, as petitioner asserts, that as to his homestead he still remains a restricted Indian. But this fact is only significant as evidencing the contrast between his qualified power of disposition of that property and his untrammeled ownership of the income in controversy. The latter was clearly beyond the control of the United States. The duty to pay it into petitioner's hands, and his power to use it after it was so paid, were absolute. Work v. Mosier,261 U.S. 352">261 U.S. 352; Work v. Lynn,266 U.S. 161">266 U.S. 161. The claim that with respect to this income the petitioner was restricted, and therefore exempt from tax laid by sections 210 and 211(a) must fail. [Italics supplied.]
It may be pointed out that there is no Federal statute that exempts*1698 any Indian, of any class, from taxation. The exemptions that are made pertain to and run with certain allotments of land under certain circumstances and conditions. In so far as the statutes are concerned, an Indian may own land that is exempt from taxation, and yet if he own cattle or other personal property, or even land that is not exempt, he may be taxed in the same way as other citizens are taxed.
Since oil royalties, and especially bonuses, are held to be income, and not a part of the realty (as we will later point out below), no authority may be found in the statutes for holding such income exempt.
It may be true that the State of Oklahoma is prohibited from levying a tax upon either petitioner's homestead or surplus lands. See section 16, Act approved Juen 30, 1902 (32 Stat. 500); and Marcy v. Seminole County,45 Okla. 1">45 Okla. 1; 144 Pac. 611. But it does not follow that by reason of that fact the Federal Government can not tax the income received from such lands. Once more we quote from *1699 Choteau v. Burnet, supra, as follows:
It is further insisted that since the royalties are not taxable, so long as they remain in the hands of the government in trust for the tribe and undistributed to members, income derived by the individual member from this fund comes from an exempt source and must therefore also be held to be exempt. (See Pollock v. Farmers' Loan & Trust Co.,157 U.S. 429">157 U.S. 429; 158 U.S. 601">158 U.S. 601.) Royalties received by the government from mineral leases of Indian lands have been held to be beyond a state's taxing power, (Gillespie v. Oklahoma,257 U.S. 501">257 U.S. 501; Shaw v. Oil Corporation, supra ) on the ground that, while in the possession of the United States they are a federal instrumentality, to be used to carry out a governmental purpose. It does not follow, however, that they can not be subjected to a federal tax. [Italics supplied.]
*255 It may also be true that expressions may be found in some of the decisions of some of the courts indicating that it is not the policy of the Government to tax its own wards, but certainly it may not reasonably be contended that the Government*1700 is under any obligation, morally or legally, to refrain from collecting a tax on such income, simply because the recipient of that income is its ward - its ward by reason of a voluntary assumption of the duties and responsibilities of a guardianship for the purpose of protecting such ward from exploitation by designing and avaricious persons.
In reaching the conclusion that the $132,500 bonus received from the leases in connection with both the homestead and surplus lands is subject to the Federal income tax, we appreciate, as previously indicated herein, that there are expressions in Blackbird v. Commissioner, supra, that might incline to support an opposite holding, yet in view of our references to the Choteau decision, of which decision the Circuit Court of Appeals did not have the advantage, we believe that the mere fact that petitioner may have been restricted in her conveyance of any interest in her lands should not have the effect of exempting from the income tax either petitioner as an individual or the oil and gas royalties she derived from the leasing of such lands, which income was subject to no Federal restrictions in her hands whatsoever. *1701 While it is true that the United States Supreme Court has never specifically passed upon the exact question here presented, we think its expressions in Heiner v. Colonial Trust Co., supra, and Choteau v. Burnet, supra, lead almost inevitably to support the conclusion here reached.
Having decided that the bonuses received from the leases in connection with both the homestead and surplus lands are subject to the Federal income tax, we shall now consider the remaining contentions of the parties as set out at the beginning of this opinion.
Petitioner's contention that the taxable amount, if any, of the cash bonus of $132,500 should be determined in accordance with section 202 of the Revenue Act of 1921, is based upon the assumed premise that the instruments executed on or about March 7, 1922, were "sales" of property. The courts and the Board hold such instruments to be oil and gas leases and not sales of property. See Henry L. Berg et al.,6 B.T.A. 1287">6 B.T.A. 1287; affd., 33 Fed.(2d) 641; certiorari denied, *1702 280 U.S. 598">280 U.S. 598; John T. Burkett,7 B.T.A. 560">7 B.T.A. 560; affd., 31 Fed.(2d) 667; certiorari denied, 280 U.S. 565">280 U.S. 565; Bankers Pocahontas Coal Co.,18 B.T.A. 901">18 B.T.A. 901, and cases therein cited; Henry Harmel19 B.T.A. 376">19 B.T.A. 376; Hirschi v. United States,67 Ct.Cls. 637; W. P. Ferguson,20 B.T.A. 130">20 B.T.A. 130; and Alexander v. King, 46 Fed.(2d) 235; certiorari denied, 283 U.S. 845">283 U.S. 845. Petitioner's assumed *256 premise was, therefore, erroneous. The instruments were leases and not sales of capital assets. See contra, however, Ferguson v. Commissioner, 45 Fed.(2d) 573. It follows that petitioner's contention that no portion of the cash bonus is taxable because it was less than the value of the allotment when inherited by petitioner, must be denied.
The cash bonus, being subject to taxation as set forth above, we hold that in accordance with Murphy Oil Co., supra, pages 1202 and 1203, the entire amount of the $132,500 received by petitioner from leases in connection with the surplus lands in 1922 is taxable income for*1703 that year. See also Mary Alphin et al.,21 B.T.A. 1101">21 B.T.A. 1101. But since the respondent, in his motion for an increased deficiency made under the authority of section 274(e) of the Revenue Act of 1926, moved "that the Board in its final decision and order determine that the petitioner's taxable income from the bonus of the 160-acre tract for 1922 was $121,750.00," we hold that in redetermining the deficiency under Rule 50, only $121,750 of the cash bonus of $132,500 be included in petitioner's taxable income. We do not have jurisdiction to determine a greater deficiency than that for which a claim is asserted by the respondent. Section 274(e), supra.
The deficiency should be redetermined by including, in petitioner's taxable income, $121,750 of the cash bonus of $132,500, instead of the $36,370 included by the respondent in his deficiency notice.
Reviewed by the Board.
Judgment will be entered under Rule 50.