*834 These proceedings, duly consolidated for hearing, are for the redetermination of asserted deficiencies in income tax as follows:
| Docket No. | Year | Amount |
| 46385 | 1927 | $3,599.60 |
| 49626 | 1928 | 2,540.66 |
| 63450 | 1929 | 347.59 |
These proceedings having been called for hearing and the parties having stipulated the amount of deficiency in each of the proceedings, final orders were entered in amounts as follows:
| Docket No. | Year | Deficiency |
| 46385 | 1927 | $2,842.10 |
| 49626 | 1928 | 2,120.58 |
| 63450 | 1929 | 272.05 |
Thereafter a motion of the petitioner to set aside and vacate the above orders and to permit the petitioner to file amended petitions was granted on October 15, 1932.
*835 The amended petitions allege that the respondent erred in including in taxable income for the year 1927 the amount of $72,365.17, for the year 1928 the amount of $28,270.34, and for the year 1929 the amount of $6,016.36, which amounts respectively were derived from school lands owned by the State of Minnesota*1468 and leased for development and mining purposes at a royalty to be paid to the state, which income is exempt from taxation by the United States. It claims also that it is entitled to a refund of taxes paid on such income in the amount of $9,769.30 for the year 1927, $3,392.44 for the year 1928, and $331.80 for the year 1929.
The proceedings were submitted upon a stipulation of facts.
FINDINGS OF FACT.
We adopt the stipulation as our findings of fact, setting forth here only those facts necessary to an understanding of the questions presented.
The petitioner is a corporation, organized and existing under the laws of the State of Minnesota and for several years last past had and now has its principal place of business in Duluth, Minnesota.
On May 9, 1899, James Wanless, of Duluth, Minnesota, now president of the petitioner, made applications to the Land Commissioner of the State of Minnesota for mineral leases under the laws of that state then in force, (ch. 105, General Laws of Minnesota, 1895, sec. 1, as amended by ch. 312, Statutes of Minnesota for 1897), one application being for the southeast quarter of section 16, and the other application being for the southwest*1469 quarter of section 16, both in township 58, north of range 19, west of the fourth principal meridian. On the same date, pursuant to such applications, mineral leases for the purpose of prospecting for one year for iron ore were issued to Wanless. On May 4, 1900, Wanless applied to the State of Minnesota for mineral contracts or leases covering the quarter sections above described. On May 5, 1900, pursuant to such applications, there were issued and delivered to Wanless leases or contracts numbered 362 and 363 (Exhibit D) in form prescribed by law, covering the two quarter sections, which were identical as to language, except for the description of the land.
The leases were dated May 5, 1900. They provide, among other things, that the described premises are leased for a term of 50 years for the purpose "of exploring for, mining, taking out and removing therefrom, the merchantable shipping iron ore, which is or which hereafter may be found on, in or under said land * * *"; that Wanless shall have the right at any time to terminate the agreement in so far as it requires him to mine ore on the lands, or to pay a royalty therefor, by giving 60 days written notice; that Wanless *836 *1470 shall have the right to contract with others to work such mine or mines, or any part thereof, or to subcontract the same, and the use of the land, or any part thereof, for the purposes of mining for iron ore, with the same rights and privileges as are granted in the agreement to Wanless; that Wanless pay to the treasurer of the State of Minnesota, for all the iron ore mined and removed from the land, at the rate of 25 cents per ton; that Wanless pay all taxes; that within five years from the completion of a railroad within one mile of the land there shall be mined and removed therefrom at least 1,000 tons of iron ore; that at least 5,000 tons shall be annually thereafter mined and removed therefrom; that in case 5,000 tons shall not annually thereafter be removed from the land, Wanless shall pay into the treasury of the State of Minnesota a royalty of 25 cents per ton on 5,000 tons; that, up to the time when the first 1,000 tons of iron ore are required to be mined and removed, there shall be annually paid into the treasury of the State of Minnesota by Wanless the sum of $100; and that the covenants, terms, and conditions of the lease "shall run with the land and be in all respects*1471 binding and operative upon all sub-lessees and guarantees under" Wanless.
On or about May 6, 1901, James Wanless caused a corporation to be organized under the name of Wanless Iron Co., the petitioner herein.
On August 21, 1901, James Wanless sold, transferred, and assigned to the petitioner all his rights, claim, and interest in and to the leases or contracts numbered 362 and 363 and conveyed and quitclaimed to the petitioner the leasehold estates created by such leases or contracts in consideration of $1 and the transfer to him and his nominees of petitioner's entire authorized capital stock of $50,000 par value. This assignment was, on July 13, 1903, duly approved by the Commissioner of the State Land Office of Minnesota, and ever since the petitioner had been the owner of such mineral contracts or mining leases.
Since the organization of petitioner its operations have consisted in the carrying out of such contracts, and it has engaged in no business activities other than those necessitated by the execution and carrying out of such contracts and of contracts with mine operators hereinafter mentioned. It had no other assets and restricted its activities solely to the owning*1472 and holding of the contracts made with the State of Minnesota and the distribution of receipts derived by it from the operation of the Wanless, Shiras, and Margaret Mines, hereinafter referred to. It maintained its organization solely for such purposes.
After August 21, 1901, but prior to March 1, 1913, the petitioner caused the lands to be explored for minerals and iron ores and discovered and located thereon deposits of iron ore.
*837 On June 13, 1917, the petitioner and Butler Brothers, a Minnesota corporation, executed an agreement (Exhibit G) dated April 2, 1917, by which the petitioner subleased the west half of the southeast quarter of section 16, a part of the land covered by the state lease or contract No. 363, known as the Margaret Mine, to Butler Brothers for a term beginning April 1, 1917, and ending May 3, 1950, for the purpose of "boring, digging, exploring for, mining, taking out and removing (in the manner hereinafter set forth) such merchantable iron ores as are or may be found therein or thereon, * * *." The petitioner covenants in such agreement that it will not during the existence of the sublease do or omit to do or permit to be done any act or thing*1473 whatsoever which shall render the lease from the State of Minnesota to James Wanless subject to forfeiture or other termination, nor will it surrender such lease. It provides for the payment as rent or royalty by Butler Brothers to the petitioner, in addition to the sum of 25 cents per ton of all iron ore taken out which it shall pay to the State of Minnesota as royalty under state lease or contract No. 363, the sum of 50 cents for each and every gross ton of Bessemer iron ore removed from the land, the sum of 40 cents for each gross ton of non-Bessemer iron ore mined and removed, and minimum payments of royalty of $25,000 annually, commencing on January 1, 1918, and ending December 31, 1939, payable in equal quarterly installments, and also all lawful public taxes and assessments whatsoever commencing with 1917. This sublease also provides that the sublease, not being in default, may terminate the agreement on December 31 of any year by giving the petitioner at least four months notice in writing of its election to do so.
As of March 1, 1913, and on April 2, 1917, the unmined reserves of iron ore in the west half of the southeast quarter amounted to 1,006,100 tons. As of April 2, 1917, after*1474 a period of four years, upon the commencement of the extraction of the ore it was estimated that the entire tonnage would be extracted in 15 years. As of March 1, 1913, after the payment of the royalty of 25 cents a ton to the State of Minnesota, the petitioner expected to derive from the extraction of the ore a profit or income of 43.3 cents per ton. As of March 1, 1913, the total then fair market value of the petitioner's interest or equity in the west half of the southeast quarter, being the present worth of its expected royalty receipt after operation, based upon the unmined reserves of 1,006,100 tons and stipulated life of the mine, was $179,186.79, or a per ton value of 17.81 cents.
The petitioner and the Chemung Iron Co., a Minnesota corporation, entered into an agreement (Exhibit H) dated December 31, 1902, under which the petitioner subleased the northeast quarter of the southeast quarter of section 16, a part of the land covered by the state lease or contract No. 363, known as the Wanless Mine, to the *838 Chemung Iron Co. for a term beginning January 1, 1903, and ending May 3, 1950, for the purpose of "exploring for, mining, taking out and removing therefrom*1475 the merchantable shipping iron ore, * * *" upon the condition that such company, among other things, pay to the petitioner, in addition to the royalty of 25 cents per ton and the annual ground rent or minimum royalty payable to the State of Minnesota, as required by state lease or contract No. 363, and all lawful public taxes and assessments whatsoever, the sum of 25 cents for each gross ton of iron ore removed from the premises, and the sum of $12,500 yearly as minimum royalty, payable in equal quarterly installments.
The agreement also provided that it could be terminated at any time by the Chemung Iron Co. upon at least 60 days written notice.
Thereafter, by an instrument in writing (Exhibit I) dated November 4, 1914, the Chemung Iron Co. assigned to the Oliver Iron Mining Co., a Minnesota corporation, its agreement with petitioner dated December 31, 1902, relative to the Wanless Mine. On the 15th day of November 1928 the Oliver Iron Mining Co. executed a deed of release to the petitioner (Exhibit J) of its interest in and to the Wanless Mine, having theretofore elected to terminate, pursuant to its terms, the agreement or lease between the petitioner and the Chemung Iron*1476 Co. assigned to it.
As of March 1, 1913, the unmined reserves of iron ore on the northeast quarter of the southeast quarter amounted to 2,544,282 tons, the extraction of which would be completed within 22 years, the petitioner being entitled to a net royalty thereon of 25 cents per ton, after payment of the state's royalty of 25 cents per ton. The fair market value of petitioner's interest or equity in such property as of March 1, 1913, is $282,713.96, or a per ton value of 11.1117 cents, being the then present worth of its future royalty receipts.
The petitioner executed a contract (Exhibit K) dated January 1, 1923, with the Hanna Ore Mining Co., a Minnesota corporation, under which agreement the petitioner subleased to the Hanna Ore Mining Co. the southwest quarter of section 16, covered by lease or contract No. 362 with the State of Minnesota, known as the Shiras Mine, for a term beginning January 1, 1923, and ending May 3, 1950, for the purpose of "boring, digging, exploring for, mining, taking out and removing * * * merchantable iron ores" upon payment, in addition to a royalty of 25 cents per ton payable to the State of Minnesota, a royalty for open pit ore and a royalty*1477 for underground ore, mined and removed from the premises, the amounts of such latter royalties to be determined as outlined in the agreement.
The contract between petitioner and the Hanna Ore Mining Co. (Exhibit K) was surrendered to the petitioner by an instrument bearing date of December 23, 1927, effective as of that date.
*839 The unmined reserves of iron ore in the Shiras Mine amounted to 1,113,031 tons, and the extraction of such ore was expected to be completed within 10 years from March 1, 1913. The petitioner was entitled to receive 25 cents per ton upon extraction after the payment of a royalty to the State of Minnesota of 25 cents. The fair market value of petitioner's interest or equity as of March 1, 1913, in such mine was $176,077.51, or a per ton value of 15.82 cents. On December 31, 1922, there remained unextracted 662,408 tons of the 1,113,031 tons unmined as of March 1, 1913.
On May 4, 1921, the petitioner discovered, through drilling, an additional body of ore on the southwest quarter of section 16, of 338,365 tons. As of May 4, 1921, the expected profit on this newly discovered ore, in addition to the amount necessary for the payment of the 25*1478 cents per ton royalty to the State of Minnesota, was the sum of 51.3 cents per ton; and after deferring extracting operations for 5 years, it was estimated that the ore would be exhausted within 2 years. As of May 4, 1921, the fair market value of petitioner's interest or equity in such property, based upon the unmined reserve of 338,365 tons of this newly discovered ore, is the sum of $103,828, or a present worth value as of May 4, 1921, of 30.68 cents per ton.
During the years 1913 to 1929 the tonnage of ore on which the petitioner received income from the respective properties was as follows:
| Year | Wanless | Shiras | Margaret |
| Tons | Tons | Tons | |
| 1913 | 37,500 | 37,500 | |
| 1914 | 50,000 | 50,000 | |
| 1915 | 50,000 | 50,000 | |
| 1916 | 50,000 | 50,000 | |
| 1917 | 50,000 | 50,000 | |
| 1918 | 50,000 | 50,000 | 43,302 |
| 1919 | 50,000 | 57,000 | 57,737 |
| 1920 | 50,000 | 56,117 | 57,737 |
| 1921 | 126,153 | 50,000 | 57,737 |
| 1922 | 120,331 | 12,270 | 57,737 |
| 1923 | 145,000 | 57,737 | |
| 1924 | 156,034 | 37,737 | |
| 1925 | 213,648 | 57,737 | |
| 1926 | 243,845 | 99,995 | 57,737 |
| 1927 | 194,786 | 186,458 | 57,737 |
| 1928 | 147,886 | 51,912 | 57,737 |
| 1929 | 12,697 | 57,737 |
The receipts and disbursements of the petitioner for*1479 the years 1927, 1928, and 1929, and allowance for depletion, were as follows:
| 1927 | |||
| Receipts: | |||
| Under provisions of contract of | |||
| April 2, 1917 with Butler Bros. | |||
| (Margaret Mine) | $25,000.00 | ||
| Under provisions of contract of | |||
| December 31, 1902 with Chemung Iron Co. | |||
| (and provisions of the latter's contract | |||
| of Nov. 4, 1914 with Oliver Iron Mining | |||
| Company) (Wanless Mine) | 48,696.49 | ||
| Under provisions of contract of | |||
| January 1, 1923, with M. A. Hanna & Co. | |||
| (Shiras Mine) | 109,101.01 | ||
| Other Income | 5,388.71 | ||
| Total | $188,186.21 | ||
| Disbursements: | |||
| Taxes | $35.44 | ||
| Office & Miscellaneous | 2,644.40 | ||
| Total | $2,679.84 | ||
| Depletion allowable if petitioner is | |||
| taxable on receipts from all above properties | 92,088.66 | ||
| Total Deductions | $94,768.50 | ||
| Net income if taxable | $93,417.71 | ||
| 1928 | |||
| Receipts: | |||
| Margaret Mine | $25,000.00 | ||
| Wanless Mine | 36,971.59 | ||
| Shiras Mine | 33,931.96 | ||
| Other Income | None | ||
| Total | $95,903.55 | ||
| Disbursements: | |||
| Taxes | $972.83 | ||
| Office & Miscellaneous | 2,828.37 | ||
| Total | $3,801.20 | ||
| Depletion allowable if petitioner is | |||
| taxable on receipts from all above properties | 46,160.53 | ||
| 49,961.73 | |||
| Net income if taxable | $45,941.82 | ||
| 1929 | |||
| Receipts: | |||
| Margaret Mine | $25,000.00 | ||
| Wanless Mine | 3,174.22 | $28,174.22 | |
| Shiras Mine | (out 1928) | ||
| Other Income | None | ||
| Total | $28,174.22 | ||
| Disbursements: | |||
| Taxes | $2,402.40 | ||
| Miscellaneous Expenses | 4,040.47 | ||
| Rental paid to State of Minnesota | 1,250.00 | ||
| Total | $7,692.87 | ||
| Depletion allowable if petitioner is taxable | |||
| on receipts from all above properties | 11,991.77 | ||
| 19,684.64 | |||
| Net income if taxable | $8,489.58 |
*1480 *841 In the audit of the tax return, in the computation of the tax liability and the deficiencies in tax heretofore determined by the Board (by its order of October 15, 1932, vacated and set aside) the following deductions for depletion were allowed in respect of the tons of ore on which the petitioner received income (subject to the statutory limitation on discovery depletion):
| Wanless Mine | 11.1117 cents per ton |
| Shiras Mine | 30.68 cents per ton |
| Margaret Mine | 17.81 cents per ton |
Such depletion allowances were in the aggregate as follows:
| 1927 | $92,088.66 |
| 1928 | 46,160.53 |
| 1929 | 11,991.77 |
The State of Minnesota received the lands covered by the contracts or leases between it and James Wanless by virtue of an enabling act of Congress of February 26, 1857 (11 Stat. L., p. 166, ch. LX), its acceptance by the constitutional convention of the State of Minnesota on August 29, 1857, and adoption of a state constitution which was ratified and adopted by the people at an election held October 13, 1857 (art. 2, sec. 3; art. 8, secs. 1 and 2). Thereupon the title to section 16, township 58 north of range 19 west, passed from the United States to*1481 the State of Minnesota under the school land grant made by the enabling act of Congress. The part of section 16 included in the contracts or leases from the State of Minnesota to James Wanless was and still is owned by the State of Minnesota, in trust for the use and benefit of the schools.
Pursuant to section 1, article 8, of the Constitution of the State of Minnesota, the legislature of the state established a general and uniform system of public schools. During the taxable years in question here and for many years prior thereto all payments of rents or royalties under the state mineral contracts or mining leases payable to the state were paid to the treasurer of the state into the permanent school fund. No part of such permanent school fund was diverted to the support of the university or any other institution. As provided in section 2 of article 8 of the Constitution of Minnesota, such fund was distributed to the school districts of the state according to the number of students.
OPINION.
MCMAHON: The petitioner contends that it and the leases involved herein are governmental instrumentalities or agencies of the State of Minnesota for the development and operation of*1482 its school lands, dedicated to the support of its public schools; and that therefore it is immune from Federal taxation.
*842 It has been held that in maintaining its public schools a state is exercising a "function strictly governmental in character." Burnet v. Coronado Oil & Gas Co.,285 U.S. 123">285 U.S. 123. To the same effect is G. Ridgely Sappington,25 B.T.A. 1385">25 B.T.A. 1385.
The Supreme Court of the United States has prescribed tests and imposed limitations which must be applied in dealing with the doctrine of immunity as invoked by the petitioner. To be immune from Federal taxation, the agency or instrumentality of the state must be one through which the state immediately and directly exercises its sovereign powers; and must be intimately connected with the necessary functions of the government of the state. Metcalf & Eddy v. Mitchell,269 U.S. 514">269 U.S. 514. The application of this doctrine must be practical and have regard to the circumstances disclosed. *1483 Burnet v. Jergins Trust,288 U.S. 508">288 U.S. 508. It must be given such a practical construction "as will not unduly impair the taxing power of the one or the appropriate exercise of its functions by the other." Susquehanna Co.v. Tax Comm. (No. 1),283 U.S. 291">283 U.S. 291, 294. The agency or instrumentality of the state is not immune from Federal taxation unless it is shown affirmatively by the party having the burden of proof (in these proceedings the petitioner) that the tax will impose a substantial, direct burden upon the state. If the influence of the tax is remote there is no immunity. This principle of immunity from Federal taxation of the instrumentalities of the state "has its inherent limitations." Fox Film Corp. v. Doyal,286 U.S. 123">286 U.S. 123; Willcuts v. Bunn,282 U.S. 216">282 U.S. 216. In Burnet v. Coronado Oil & Gas Co., supra, relied upon by petitioner, adhering to the rule approved in Gillespie v. Oklahoma,257 U.S. 501">257 U.S. 501, also relied upon by petitioner, the Supreme Court said:
We are disposed to apply the doctrine of Gillespie v.Oklahoma strictly and only in*1484 circumstances closely analogous to those which it disclosed. [Emphasis ours.]
An analysis of all of the facts, and more particularly the circumstances and relationships, disclosed in these proceedings, and a full appreciation of just what happened here, leads to the conclusion that the petitioner has not met any of these tests or brought itself within these limitations.
The State of Minnesota leased to Wanless mineral lands of which the state is still the owner. Wanless assigned the leases to petitioner, and, subject to subsequent subleases, the petitioner ever since has been the owner of these leases. Petitioner subleased to Butler Brothers and others some of the lands. One of these subleases was assigned by the subleasee to another assignee and subsequently was by this assignee released back to the petitioner by deed. Neither Wanless, the lessee and assignor, nor petitioner, the assignee and sublessor, ever extracted or sold ore from the lands. The sublessees are *843 the only ones that produced and sold ore. Neither Wanless nor these sublessees are before us. Presumably, the ore that was produced by the sublessees was sold to others, fifth parties in the sequence*1485 of events which led to the realization of funds from the mined ore with which to pay the state its royalty of 25 cents per ton, which was the most that the state got for its ore and which was what the state was primarily interested in. In any event this 25-cent royalty was paid directly to the state by the sublessees. Petitioner paid no royalty to the state. This 25-cent royalty did not pass through petitioner to the state or appear on petitioner's books of account or enter into its gross income. Petitioner produced and sold no ore. The capital, labor, skill, and other things required to produce and sell the ore and to realize and pay the royalty of 25 cents per ton belonging to the state was supplied by the sublessees; not by petitioner. The sublessees thus produced the income to the petitioner as a result of their operation of the mines and sale of the ore. Petitioner was merely the conduit through which the right or privilege of mining the ore and the resulting obligation of paying this royalty to the state were passed on from Wanless, the lessee and assignor, to sublessees. These could all have gone directly from Wanless to the sublessees without the intervention of the*1486 petitioner. Petitioner was not essential to the realization by the state of its 25-cent royalty.
Without owning the ore deposits which belonged to the state and without doing anything about the actual production and sale of the ore and the actual payment of the royalty to the state, petitioner received from the sublessees, after the payment of the 25 cents per ton royalty to the state by the sublessees and the payment of taxes by them, a liberal overriding royalty or profit, which, as to some tonnage, was not less than 50 cents per ton on each ton of ore for which the state, which owned the ore deposits, received only 25 cents per ton of royalty or not more than half as much. The principal consideration for its 25-cent royalty moving from the state was the ore in place. No such consideration moved from the petitioner for what it received. As detailed in our findings of fact, the subleases proved to be very profitable to the petitioner. This is well illustrated by the following ultimate figures. As of March 1, 1913, the aggregate total fair market value of petitioner's interest or equity in the mineral lands covered by its subleases, being the then present worth of its expected*1487 future royalty receipts after operation, based on the unmined reserves of ore and the lives of the mines, was $627,978.26; and as of May 4, 1921, petitioner's admitted assets were augmented by a similar value in the amount of $103,828, based on additional ore discovered on that date in the land covered by one of the subleases.
*844 From 1913 to 1929, inclusive, there were extracted from not more than 240 acres covered by the subleases, by the sublessees, or by them and the assignee of one of them, a total of $3,227,541 tons of ore, on which the state's royalty of 25 cents per ton tatals $806,885,25. The total tonnage for the one year of 1926 was 401,577 tons and the state's royalty thereon totals $100,393.25. The tonnage for 1927, 1928, and 1929, the only years before us, was 766,950 tons and the state's royalty thereon totals $191,737,50. The petitioner's total receipts for these three years from its sublessees, based on such tonnage, was $306,875.27, or an average of $102,291.76 per year. The Federal income tax for these three years, as shown by the stipulated deficiencies and the alleged refunds sought, cannot exceed $6,242.75 per year, on the average, or less than*1488 6 percent of these receipts. Its total disbursements for these three years were $14,173.91, or an average of $4,724.63 per year. Its other disbursements in those years consisted only of other taxes, office and miscellaneous expenses, and rent paid to the State of Minnesota. This item of rent is small and there is no explanation as to what it covered.
Obviously, the sublessees produced the ore in such volume to sell it at a profit and found the extraction and sale of the ore profitable, after paying the 25 cents per ton to the state, the taxes required of them and the overriding royalties or profits to the petitioner. Otherwise, the sublessees would not have produced such a large volume of ore. Each sublease was either terminated or, at the election of the sublessees, terminable,
It is likewise obvious that those who purchased the ore from the sublessees, adequate provision having been made by lien and otherwise for the payment of the 25 cents per ton royalty to the state out of the proceeds of the sales by the sublessees, made profits resulting from such purchases. Otherwise, they would not have purchased such a large volume of ore from the sublessees. It is unnecessary*1489 for the purposes of this proceeding to trace any further the ore or the source of the 25-cent royalty which accrued to the state, or to pursue further this line of reasoning. We are concerned in these respects only with the question as to whether the receipts of the petitioner derived from the operations of the sublessees after the payments of this royalty and taxes by the sublessees are subject to taxation under Federal law, or, in other words, whether they are immune from such taxation.
All of the large amount of ore tabulated in our findings of fact was produced and the large amount of state royalties thereon accrued to the state upon the assumption, apparently, that the income of the petitioner therefrom was taxable under Federal law. It reported income therefrom for 1927, 1928, and 1929 and paid taxes thereon. *845 The petitioner, at one time, by stipulation before the Board, consented to the determination of deficiencies based on such income. From the record it appears that it was not until after the decision in Burnet v. Coronado Oil & Gas Co., supra, was rendered that the petitioner questioned the imposition of such Federal income tax on the*1490 ground that it was not subject to such taxation.
There is no evidence that the state actually has been or will be unable to realize its royalty of 25 cents per ton on any of its ore covered by the subleases involved in these proceedings as a result of imposing a Federal income tax upon the income derived by the petitioner from the sublessees. No offer of evidence of this character was made.
In the leases from the state to Wanless we find the following provisions:
* * * The party of the second part [Wanless] agrees to pay all taxes, general or specific, upon the land so leased, which may be assessed either against said land and the improvements thereon, or the iron ore produce thereof, or any personal property at said mines, during the continuance of this lease; just the same as though the lands herein leased were owned in fee by the said party of the second part; * * *
The covenants, terms and conditions of this lease shall run with the land and be in all respects binding and operative upon all sub-lessees and guarantees under the party of the second part. * * *
The party of the first part reserves, and shall at all times have, possess and hold a lien upon all *1491 ore mined, * * * for any unpaid balances due on this contract. [Emphasis ours.]
A similar tax provision was before the Supreme Court of Minnesota in Fryberger v. Inland Steel Co.,218 N.W. 553">218 N.W. 553. The court in its opinion states:
* * * As indicated in the Marble case, [Marble v. Oliver Mining Co. (Minn.), 215 N.W. 71">215 N.W. 71] the purpose of the parties to Minnesota mineral leases and assignments thereof ordinarily has been to pass on, from lessor to lessee and from lessee to sublessee, the entire tax burden, whatever form it may take. In solving such a problem of interpretation, the effort must always be to get into and understand the situation of the parties at the time. * * * The possibility of taxes additional in burden and new in variety was plaintly foreseen. Hence we find even in the state lease a general assumption of "all taxes general and specific, which may be assessed against said land."
The purpose of that tax assumption clause was made as far reaching and inclusive as could be. It was to put the lessee in the position, with respect to all [printed in italics] taxes, of an owner in fee. The state did not*1492 purpose to permit its lessee to participate in nor derive any benefit from the immunity of its own property from taxation. Subletting or assignment by the lessee was contemplated and is quite usual. With respect to the incidence of taxes on the leasehold, the lessee was to be dealt with as an owner in fee. So any tax on the resulting interest of Crosby in the demised land was covered by his agreement, in the lease, to pay all taxes, general of specific, the same as though he had been the owner in fee instead of lessee.
* * *
* * * And *846 although the lease from the state may not itself be the source of the lessee's obligation to pay a royalty tax on increased royalties gotten by him through an assignment, it is in a very real sense because of the lease and because he is lessee that he has to pay them; that is, the duty to pay the tax is one which rests upon the lessee as such. That is enough for present purposes because the assignment from Crosby to defendant put upon the latter the duty to pay all taxes imposed upon the "lessee therein," there being nothing to require also that the obligation to pay be imposed by the lease itself rather than some law.*1493 It is enough to make that covenant applicable that the tax is put upon the leasehold or something appurtenant to or carved out of it so that it becomes a duty of the lessee to pay it. [Emphasis ours.]
See also Fraser v. Vermillion Mining Co.,221 N.W. 13">221 N.W. 13; and State ex rel. Oliver Mining Co. v. Armson,232 N.W. 35">232 N.W. 35.
As thus construed by the Supreme Court of Minnesota this is a sweeping tax provision designed to deny immunity from any tax burden, in any form, as if the state did not own the land or the iron ore product thereof. The denial of immunity applies to a "tax put upon the leasehold or something appurtenant to or carved out of it." All "benefit from the immunity of its own property from taxation" is with respect to "all taxes" thus denied by the state; [Emphasis ours.]
The position of the state as manifested by this provision is that immunity for taxation is not necessary to the extraction and sale of its ore and the realization of its 25-cent royalty. In fixing the royalty at the figure of 25 cents per ton the state, no doubt, took into consideration that immunity from all taxation was thus denied. In any event*1494 the state must have been satisfied from its experience, of which it apparently had considerable, that immunity such as that which petitioner is here seeking is not necessary to the realization of its royalty of 25 cents per ton on its ore; and Wanless, the petitioner, the sublessees, and the purchasers of ore from the sublessees did what they did, with the results to the state heretofore pointed out, notwithstanding this denial by the state of immunity from taxation, which is carried through to and binding upon all of them. None of them was deterred by this express sweeping denial of immunity imposed by the state. The provisions of the lease put them on notice as to this denial of immunity by the state.
A sovereign may by its own action voluntarily thus consent to the taxation of its governmental agencies and instrumentalities by another sovereign and thereby waive immunity from such taxation. Mid-Northern Oil Co. v. Walker,268 U.S. 45">268 U.S. 45. The Mid-Northern Oil Co. engaged in producing oil from lands in Montana leased by the United States under the Federal Oil and Gas Leasing Law. Under the laws of Montana every person engaged in producing petroleum or other*1495 mineral or crude oil within the state was required *847 to pay to the state annually a license tax equal to 1 per centum of the gross value of the oil so produced during the year. The Mid-Northern Oil Co. challenged such state taxation. The act of Congress pursuant to which the lease was made contained a provision as follows:
That nothing in this Act shall be construed or held to affect the rights of the States or other local authority to exercise any right which they may have, including the right to levy and collect taxes upon improvements, output of mines, or other rights, property, or assets of any lessee of the United States.
The United States Supreme Court, in holding that the Mid-Northern Oil Co. was not immune from the state taxation which it challenged, stated:
The more natural view, and the one we adopt, is that Congress, having provided for leasing the public lands to private corporations and persons whose property, income, business and occupations ordinarily were subject to state taxation, meant by the proviso to say in effect that, although the act deals with the letting of public lands and the relations of the government to the lessees thereof, nothing*1496 in it shall be so construed as to affect the right of the states, in respect of such private persons and corporations, to levy and collect taxes as though the government were not concerned. In other words, the purpose of Congress was to remove altogether from the field of controversy, among other questions, the very question which is here presented, and to put beyond doubt the authority of the states to impose taxes upon lessees in respect of their property, although arising from, and in respect of their taxable rights, although exercised under, the act, without regard to the origin thereof or to the interest of the United States in the lands or lease.
It seems to us, therefore, that in view of the provision in the state leases to the effect that the lessee shall pay all taxes just the same as though he owned the land leased, which ran with the land, the decisions of the Supreme Court of Minnesota construing the same, and the doctrine of this Mid-Northern Oil Co. case, the state has denied to the petitioner and thereby waived by consent immunity from Federal income taxation in so far as the petitioner, the assignee and sublessor under these school land leases are concerned. *1497 Bass v. Group No. 1 Oil Corp., 41 Fed.(2d) 483, and cases cited. (Affirmed at 283 U.S. 279">283 U.S. 279, on other grounds.)
It is true that the denial of immunity in the Mid-Northern Oil Co. case is embodied in a statutory provision, while in the instant proceeding it is embodied in a lease or contract; but this lease or contract is not only authorized by statute, but, as to this provision, it is prescribed by statute. In other words, it is founded upon a statutory provision. Here, as well as there, the action of the sovereign is competent to accomplish its manifest purpose. We see no sound basis for a distinction on this ground. Too, neither the validity nor full force and effect of this provision of the lease or contract has been challenged in any way.
*848 What was stated by the court as follows in Willcuts v. Bunn, supra, applies with equal force to the instant proceeding:
It must be remembered that we are dealing, not with any express constitutional restriction, but only with an asserted implication. The constitutional provisions authorizing the Congress to lay taxes (article 1, § 8; Sixteenth Amendment) are certainly*1498 broad enough to cover the tax in question and before we can restrict their application upon the ground of a burden cast upon the State's borrowing, where the tax is not laid upon the contracts made by the State in the exercise of that power, or upon the amounts payable thereunder, but is laid upon the result of distinct transactions by private owners, it must clearly appear that a substantial burden upon the borrowing power of the State would actually be imposed. But we have nothing but assertion and conjecture. [Emphasis ours.]
The Sixteenth Amendment is as follows:
The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration. [Emphasis ours.]
This amendment was ratified by the Legislature of the State of Minnesota on June 12, 1912.
In section 22(a) of the Revenue Act of 1928, gross income is defined as follows:
(a) General definition. - "Gross income" includes gains, profits, and income derived from salaries, wages, or compensation for personal service, of whatever kind and in whatever form paid, or from professions, *1499 vocations, trades, businesses, commerce, or sales or dealings in property, whether real or personal, growing out of the ownership or use of or interest in such property; also from interest, rent, dividends, securities, or the transaction of any business carried on for gain or profit, or gains or profits and income derived from any source whatever.
A similar definition is to be found in section 213(a) of the Revenue Act of 1926.
The petitioner's claim of immunity from Federal taxation is not founded upon and express constitutional or statutory provision, but upon the doctrine or principle of implied immunity. Collector v. Day,11 Wall. 133">11 Wall. 133; Pollack v. Farmers' Loan & Trust Co.,157 U.S. 584">157 U.S. 584; South Carolina v. United States,199 U.S. 437">199 U.S. 437; Metcalf & Eddy v. Mitchell, supra;Willcuts v. Bunn, supra;Indian Motocycle Co. v. United States,283 U.S. 570">283 U.S. 570; Burnet v. Coronado Oil & Gas Co. supra;*1500 Burnet v. Jergins Trust, supra;T. P. Wittschen,25 B.T.A. 46">25 B.T.A. 46.
Any doubt that may arise about the application of an implied Federal constitutional provision to a factual situation, such as we have here, as against the application to such factual situation of an express, comprehensive Federal constitutional provision and comprehensive legislation enacted pursuant thereto, must be resolved against the application of the implication. We have no such doubt here however.
*849 The United States Supreme Court has also held that profits on the sale of bonds of municipal corporations, governmental instrumentalities (Pollack v. Farmers, Loan & Trust Co.,157 U.S. 429">157 U.S. 429, 584), constitute "gains, profits and income" from sales or dealings in property within section 213, Revenue Act of 1924, and hence are taxable. Willcuts v. Bunn, supra. In this case the Court said:
But it does not follow because a tax on the interest payable on state and municipal bonds is a tax on the bonds and therefore forbidden, that the Congress cannot impose a nondiscriminatory excise tax upon the profits derived from*1501 the sale of such bonds. The sale of the bonds by their owners, after they have been issued by the States or municipality, is a transaction distinct from the contracts made by the government in the bonds themselves, and the profits on such sales are in a different category of income from that of the interest payable on the bonds. * * * The tax upon interest is levied upon the return which comes to the owner of the security according to the provisions of the obligation and without any further transaction on his part. The tax falls upon the owner by virtue of the mere fact of ownership, regardless of use or disposition of the security. The tax upon profits made upon purchases and sales is an excise upon the result of the combination of several factors, including capital investment and, quite generally, some measure of sagacity; the gain may be regarded as "the creation of capital, industry and skill." Tax Commissioner v. Putnam,227 Mass. 522">227 Mass. 522, 531, 116 N.E. 904">116 N.E. 904, 910, L.R.A. 1917 F. 806.
* * *
* * * If the tax now in question is to be condemned, it must be because of practical consequences and not because purchases and sales by private*1502 owners of state and municipal bonds are a part of the State's action in borrowing money. It would be far-fetched to say that such purchases and sales are instrumentalities of the State. They are not transactions made directly or indirectly in behalf of the State or in the course of the performance of any duty of the State. Sales are merely methods of transferring title to the obligation, that is, the right to receive performance of the promise of the State or municipality. [Emphasis ours.]
A question somewhat similar to that decided in Willcuts v. Bunn, supra, was passed upon by the Court of Claims of the United States in Marland v. United States,3 Fed.Supp. 611, such question being as follows: Whether the profits derived by the plaintiff from the sale of a number of oil and gas leases of certain school lands entered into between him and the State of Oklahoma were immune from Federal income taxation; and the court in holding such profits taxable said:
The immunity from taxation applies only where the tax would be a real and direct burden upon the State's exercise of its governmental functions and it is our opinion that under the*1503 cases cited the burden upon the State of Oklahoma in leasing its public lands on the best possible terms, because of the tax that may be exacted from the lessee upon the sale by him of his leases from the State, is so indirect and remote as to place it outside the principle that one Government may not levy a tax upon the functions or instrumentalities of another. Although it is shown in this case that a lessee *850 of oil lands from the State of Oklahoma would pay more to the State for a lease in the first instance, if he were assured that profits from the sale of a lease would be exempt from Federal income tax, this was doubtless true in Group No. 1 Oil Corp. v. Bass, supra. [283 U.S. 279">283 U.S. 279.]
* * * A gain derived by a taxpayer through a sale of property or interest therein acquired from a state, whether acquired in the form of a lease or by purchase, does not, in our opinion, fall within the implied constitutional prohibition against taxation. "The immunity does not extend to anything lying outside or beyond governmental functions and their exercise * * *." *1504 Indian Motorcycle Co. v. United States, supra. * * * and it is apparent that not everyone who uses his property or derives a profit, as a result of his dealings with the government, may clothe himself with immunity from taxation. Metcalf & Eddy v. Mitchell, supra.[Emphasis ours.]
In Rice Oil Co.v.United States, Fed.Supp. (Sept. 8, 1933), the District Court of the United States for Montana there was presented another somewhat similar question: Whether an assignee of oil and gas leases procured from the State of Montana, lessor, is taxable under Federal income tax law upon income derived in part at least from proceeds of the sale of oil taken from the lands covered by the leases and used in part payment, at least, for the assignment; and in holding such income taxable the court said:
It appears from the complaint that plaintiff sold its interest in the lands on September 10th, 1926, to the Marine Corporation for $3,000,000.00. $1,000,000.00 was paid in cash and $2,000,000.00 were to be paid out of production of oil from the lands included in the lease. By the terms of the contract governing this transaction title was to pass*1505 to the purchaser as of August 11th, 1926. Therefore, can it be said that the income in question was derived by plaintiff as a lessee of the lands or was it in the nature of a profit upon the sale of a capital investment at a price above cost; in view of the facts here, the latter would seem to afford the correct answer under Marland v. United States,53 F.(2d) 907; and Willcuts v. Bunn,282 U.S, 216.
As appears from our findings Wanless assigned both state leases to petitioner for one dollar and all of its capital stock of the par value of $50,000. Under the doctrines of the three cases last discussed, can there be any question about the taxability under the Federal income tax laws of profits, if any, made by Wanless on the sale of this stock? While this issue is not before us, we think not. If Wanless is thus taxable, why should not the petitioner be taxable on the income in question here? In reality Wanless bunched the leases in question and sold them for a consideration to petitioner; and if a profit be made by him on his disposition of that consideration, it is taxable. Instead of bunching these leases and selling them to one buyer, *1506 petitioner carved out of each leasehold which it bought one or more subleaseholds and sold each for a consideration consisting for the most part in each instance of cash for each ton of ore mined - under one sublease for cash in the amount of 50 cents for each ton of ore mined, The effect in principle is the same as if it made but one sublease to one sublessee. The principal thing which *851 passed to each sublessee under its sublease from petitioner was petitioner's interest in the ore as conveyed by the subleases; among other things, its right or privilege of mining each ton of ore. The only consideration which actually passed from the sublessee to petitioner was the stipulated amount per ton which it reserved, subject to the qualifications imposed by the sublease, including, among others, the qualification that the state be first paid its royalty of 25 cents per ton, which was protected by its lien. Why should not the profits made by the petitioner on the considerations which it received on its sales or other dispositions to the sublessees be likewise taxable? We conclude that it should be under the principles of these three cases, without indulging in extended refinements*1507 as to the instruments of conveyance or agreements involved there or here.
The nature of these Minnesota mineral leases is shown by what the supreme court of that state said in Marble v. Oliver Mining Co.,215 N.W. 71">215 N.W. 71, as follows:
Mining leases, as a rule, cover a long term of years. They aim at the exhaustion of the ore, the real value of the land. When that has been accomplished, the premises are left in a shape utterly unfit for the ordinary uses of land. The situation of the parties at the time of this letting was that both contemplated that the mining would wholly deplete the ore; that the only returns to the lessor for the supposed great value of the land because of the mineral deposit therein would be the royalty; that the lessee would assume all the burdens and expenses connected with the mining, and realize all the profits which improved methods in mining and advance in price of the product might give over and above the royalty and taxes. For the lessee, the undertaking was a great speculation. [Emphasis ours.]
In *1508 Fryberger v. Inland Steel Co., supra, the Minnesota Supreme Court also said:
The lease give Crosby the right to assign or sublet; that is, it created the right out of the exercise of which (by the assignment to defendant) has sprung the reserved interest, the right to the additional royalty from defendant, which has become the subject of the royalty tax. The lease put in him an estate upon his ownership of which as lessee has been put his additional royalty. It is not a mere excrescence due to any unnatural or unexpected development, [Emphasis ours.]
The position of Wanless is similar to that of Crosby and that of petitioner similar to that of this defendant. But in the instant proceedings petitioner took another step. It sublet to the sublessees, thereby parting with a portion of what it got from Wanless, reserving to itself certain overriding royalties or profits, which as to some tonnage was 50 cents per ton, as heretofore pointed out, which constitute a consideration moving to it for the subleases and which are the subject of the tax sought by the respondent here.
"The petitioner claims that by the assignment by Wanless it stepped into the shoes*1509 of the assignor and that whatever immunity *852 from taxation, if any, attached to the original lessee must, of course, under the circumstances disclosed, have passed to the petitioner as assignee. It regards itself as the lessee of the lessor state on the assumption that the assignment terminated the relationship between the state and Wanless as lessor and lessee created by the original lease.
After the assignment of the state leases by Wanless to the petitioner, there still remained the privity of contract between the state and Wanless created by the state leases, which was not affected by the assignment. Although made with the assent of the lessor, the lessee still continues liable on his covenants by virtue of this privity of contract. Thompson on Real Property, vol. 2, p. 498; Oswald v. Fratenburgh,36 Minn. 270">36 Minn. 270; 31 N.W. 173">31 N.W. 173.
While the petitioner, subject to the subleases, is the owner by assignment of such leases, it did not become the owner thereof through the action of the state or in the exercise of its sovereign power. The state was not a party to the assignment or subleases. It was stipulated by the parties that:
The school*1510 lands covered by the leases aforesaid from the State of Minnesota have never been sold by the State and the aforesaid leases upon it have ever since their issuance always been and now are in full force and effect.
While the approval of the Land Commissioner of Minnesota is endorsed on the assignment of the state leases to the petitioner, there is no evidence that such approval was other than an approval of form and execution. However, even if such approval may be construed to be a consent of the State of Minnesota to such assignment, it can not be regarded as a new leasing so as to terminate the original leases and to relieve Wanless of his obligations as lessee thereunder. See Keegan v. Heilman Brewing Co.,129 Minn. 496">129 Minn. 496; 152 N.E. 878">152 N.E. 878; and Rees v. Lowry,57 Minn. 381">57 Minn. 381; 59 N.W. 310">59 N.W. 310, wherein it is held that in no sense is an assignment of a lease and assent thereto to be regarded as a new leasing." In Wilcox v. Hedwell,239 N.W. 763">239 N.W. 763, wherein a lessor sued his lessee, who had assigned the lease, for arrears of rent and taxes, the court states:
*1511 The lease contains no restrictions on assignment of the leasehold. Nothing is better settled than that a surrender of a lease, or release of a lessee, is not to be implied from the mere facts that the lessor has assented to an assignment and accepted rent from the assignee. Stern v. Thayer,56 Minn. 93">56 Minn. 93, 57 N.W. 329">57 N.W. 329; Hilzinger Jr. v. Novak,172 Minn. 369">172 Minn. 369, 215 N.W. 515">215 N.W. 515. So it is not enough for defendant that plaintiffs knew of the several assignments and accepted rents from the assignees. * * * The intention is plain that the defendant might assign, and that, if he did, the normal course would be for the assignee to pay rent directly to the lessors. That was to the defendant's interest and what he wanted. Not only is there no evidence of an agreement on the part of plaintiffs to surrender, but every consideration of good business was against it because of defendant's financial responsibility. "
*853 The case of Indian Territory Illumination Oil Co. v. Oklahoma,240 U.S. 522">240 U.S. 522, cited by the petitioner as supporting its contention that as assignee of the state lessee it is immune from Federal taxation, is distinguishable. *1512 The Court states the question before it for determination in the following language:
* * * whether a certain assignment of a lease and rights thereunder made by the Osage Tribe of Indians, * * * are subject to a tax assessed under the Laws of Oklahoma as the property of * * * [the oil company] in its capacity of a public service corporation.
While it appears that the original lease was made by Oklahoma with one Foster, and Foster assigned the lease to the oil company, it also appears, as stated by the Court in its opinion, that:
The Act of 1905 recognized the oil company as the owner by assignment of the lease, which assignment was approved by the Secretary of the Interior, and extended the lease for a period of ten years from March 16, 1906, with all the conditions of the original lease except that from and after that date the royalty to be paid on gas should be $100 per annum on each gas well instead of $50, as provided in the lease, and except that the President of the United States should determine the amount of royalty to be paid at all.
From the above it clearly appears that there was in fact a new leasing, Furthermore, in that case the assessment was made upon the*1513 leases as objects of taxation having no immunity under Federal law.
Condeding that the state leases are governmental agencies, under the doctrine of Gillespie v. Oklahoma, supra, and Burnet v. Coronado Oil & Gas Co., supra, did Wanless execute the assignment as agent of the state in its behalf and for its benefit? Certainly not. He was acting for himself as principal and for his own benefit. A lessee in no way becomes the agent of the lessor by virtue of a lease agreement. When Wanless assigned the leases he did so at his own risk, for he remained liable on his contract with the state and the state could look to him for the performance of his covenants. While Wanless acquired all of the petitioner's capital stock, he and the petitioner are two separate and distinct entities. Eisner v. Macomber,252 U.S. 189">252 U.S. 189; Burnet v. Commonwealth Imp. Co.,287 U.S. 415">287 U.S. 415; and Burnet v. Clark,287 U.S, 410." Nor was the petitioner acting in behalf of the state or for its benefit when it subleased the premises. When it subleased the premises it likewise did so at its own risk and not as the*1514 agent of the state.
The state is not a party to the subleases or the assignments to petitioner, and hence these subleases are not instrumentalities of the state. A state must be a party to its own instrumentalities in a situation of this character. It is a party to the leases and they are its instrumentalities. But assignments followed by subleases, to none of which it is a party, have intervened. The contracts between Wanless and petitioner and between petitioner and the sublessees are *854 different contracts from the one between Wanless and the state, which is the only one to which the state is a party.
From the foregoing discussion it appears that these proceedings do not disclose "circumstances closely analogous to those which" are disclosed in Gillespie v. Oklahoma, supra, or Burnet v. Coronado Oil & Gas Co., supra, the doctrine of which we are required by the latter case to "apply * * * strictly." In the Coronado case the taxpayer was a party with the state to the lease. As lessee the taxpayer supplied the capital, labor, skill, and other things necessary to extract the oil and gas from the land. The*1515 taxpayer and the state shared the oil and gas extracted by the lessee, equally as to some, and in the proportions of one eighth to the state and seven eighths to the taxpayer, as to some. The state received for the lease a consideration in kind from the lessee. (Mid-Northern Oil Co. v. Walker (Mont.), 211 Pac. 353, 356; affirmed in Mid-Northern Oil Co. v. Walker, supra. ) This was in the nature of a profit-sharing arrangement. The state supplied the oil and gas in place. The state derived school funds from the sale of its share of the oil and gas extracted by the lessee. The taxpayer likewise derived the income sought to be taxed from its share of such oil and gas. The United States Supreme Court held that this income of the taxpayer was immune from Federal income taxation solely upon the ground that the lease was the instrumentality of the state through which it immediately and directly exercised its sovereign power, adhering strictly to the doctrine of the Gillespie case. The circumstances disclosed in that case are closely analogous to those of the Coronado case. It is plain from an examination of*1516 those cases and more recent cases of the United States Supreme Court heretofore pointed out (Fox Film Corp. v. Doyal, supra, and Burnet v. Jergins Trust, supra), that to carry this doctrine of implied immunity beyond the requirements of those cases as contended for by petitioner in these proceedings would be contrary to those cases,
It follows, therefore, that since the petitioner is not an agency through which the state immediately and directly exercised its sovereign powers, since petitioner is not intimately connected with the necessary functions of the state, since the subleases and not the state leases are the source of the petitioner's income here involved, since no direct and substantial burden is laid upon the power of the state to lease its school lands, since the effect of the imposition of Federal taxation on the petitioner's income herein on the state or its revenue is remote and at best merely conjectural, and since the granting of the immunity sought would unduly impair the taxing power of the Federal Government, the determination of the respondent that such income is subject to Federal income*1517 tax is approved.
*855 The respondent contends also that the right of the petitioner to the receipts of royalty from its sublessees, or so-called overriding royalties constituting its income involved herein, was valued by the respondent, which value was determined to be the value of petitioner's interest as of March 1, 1913; that in arriving at this value the entire amounts of the expected future receipts from the sublessees under the contracts were discounted to reach the value on the basic date and represent exactly what a willing buyer would have then paid a willing seller for the right to receive the entire future royalties; that this gross value of the petitioner's interest was in fact the gross gain from the contracts; that the statutory depletion deduction spreads this gross value of petitioner's expected future receipts over the number of tons of ore actually mined; and that therefore this deduction for depletion in fact exempts from tax the entire value of the consideration provided in the contracts to be paid to the petitioner by its sublessees. In view of our conclusion as to respondent's first contention, hereinbefore stated, it is not necessary to discuss this*1518 second contention of the respondent.
Reviewed by the Board.
Decision will be entered for the respondent.
STERNHAGEN, MURDOCK, and MATTHEWS concur in the result. LANSDON dissents.