The opinion
Train, J., concurring: I agree with the result reached in the majority opinion because, under the terms of the agreement involved in this case, the petitioner clearly retained the economic interest in the oil and gas.
It is true that Weinert did not assume personal liability for the loan in question. However, the terms of the loan agreement provided that Lehman was to look for the recovery of the loan to the net profits arising from oil and gas production and to the net profits from the recycling and processing plant. In my opinion, such a right of recovery is not limited to and is substantially broader than a right of recovery only out of mineral production. Therefore, since Lehman’s right of recovery did not depend solely on the oil and gas production, Lehman did not possess the economic interest in the minerals in place. Anderson v. Helvering, 310 U.S. 404 (1940).
The majority opinion refers to our recent decision in Myrtle J. Wood, 31 T.C. 528 (1958), with the comment “that a statement in that opinion might suggest a different conclusion” than that reached in the instant case “where the creditor must look solely to the oil production for recovery of his advances.” The majority opinion then continues: “That statement was not necessary to the conclusion of that case, and we will not apply to the facts here.” The statement in Myrtle J. Wood, supra, referred to by the majority is apparently the following:
If tlie right of recovery had extended solely to the oil production, the Withez-s estate would have held the economic interest in the 45 per cent interest of the community estate, and would receive ordinary income from that interest as long as the receipts were applied to its advances. Thomas v. Perkins, 801 U.S. 655 (1937).
Granting that the above statement may not have been essential to our decision of the Wood case, I am disturbed by the clear inference in the instant opinion that the quoted language may be an incorrect statement of the law and, thus, is not to be followed here. I would have thought it well settled that, where an individual’s right of recovery extends only to the mineral production, he is the owner of an economic interest in the minerals in place and is taxable on the income allocable to that interest and is likewise entitled to an allowance for percentage depletion.
I understand the allowance for percentage depletion to be a provision, arbitrary in measure, for the recovery of capital where the capital is at the risk of mineral production. See Palmer v. Bender, 287 U.S. 551 (1933) and Thomas v. Perkins, 301 U.S. 655 (1937). It is upon this fundamental principle that the rule stated above is based, namely, that, if the advancer of moneys can look only to mineral production for his recovery of those moneys then his capital is at the risk of that mineral production and he is entitled to percentage depletion. Moreover, while it is true that the “economic interest” question arises with regard to the allocation of the right to percentage depletion rather than to the allocation of income proper, certainly the two issues are inseparable in the field of oil and gas taxation and the one must follow the other.
The majority’s difficulty with the language quoted from the Wood case is due apparently to its conclusion that Lehman’s right of recovery was limited solely to oil production. If that conclusion were correct under the facts of this case, then the rule stated in the earlier case, if accepted as valid, would require a different result than that reached here. However, as I have pointed out, I believe that that conclusion is erroneous and that Lehman’s right of recovery was not so limited. This being the case, the petitioner cannot shift to Lehman the income involved. This approach reaches the identical result as does the majority opinion and does so without casting doubt on a fundamental principle of long standing.
MulkoNet and Forrester, JJ., agree with this concurring opinion.