The opinion
Leech,
dissenting: I dissent on the second point. The majority opinion relies upon Fleming v. Commissioner, 82 Fed. (2d) 324, which affirmed the result but discarded the Board’s reasoning in 31 B. T. A. 623, on the present issue. Both cases involve identical facts on this issue. Both opinions decided that, in the lease transaction., the taxpayer retained an economic interest in the oil in place. That *79 transaction is then segregated, and the deferred payments from the oil production are held to be income from the economic interest retained, and therefore depletable. But the court and the majority opinion of the Board then refused depletion on the bonus or cash payment, on the ground that such payment was consideration for the absolute sale of something.
In my judgment, this is exactly what the Supreme Court refused to do in Palmer v. Bender, 287 U. S. 551 , arising under section 214 (a) (10) of the Revenue Act of 1921, and again in Herring v. Com missioner, 298 U. S. 322 , involving section 214 (a) (9) of the Revenue Act of 1926, which is similar to the depletion provisions in the Revenue Act of 1928. The tax-free recovery, by the taxpayer, of his statutory investment in the property is the basis of all these provisions. The method of computation, only, was changed. United States v. Dakota-Montana Oil Co., 288 U. S. 459 . In the Herring case, the Supreme Court held that, in such a transaction, where the taxpayer retained an economic interest in the oil in place, the bonus or cash consideration was income from that economic interest, and subject to depletion, even though no production at all occurred on the lease during the year when the taxpayer received the bonus.
Certainly, neither the actual source of the funds with which the bonus was paid to the taxpayer, nor the legal relationship existing between the parties, was considered controlling in either the Palmer or Herring cases.
I think the rule in such cases is that when the taxpayer retains an economic interest in the oil in place, the bonus or cash consideration, from whatever the payor’s source, as well as the deferred payments from the oil, are gross income to the owner from that retained economic interest, and are, therefore, subject to the depletion allowance. Palmer v. Bender, supra; Herring v. Commissioner, supra; Burnet v. Harmel, 287 U. S. 103 ; Welch v. Obispo Oil Co., 61 Fed. (2d) 1045; Helvering v. Falk, 291 U. S. 183 ; Signal Gasoline Corporation v. Commissioner, 66 Fed. (2d) 886.
Here the retention of any “economic interest in the oil in place” may be debatable. However, I agree with the Fleming case and the majority opinion of the Board here that the taxpayer did retain such an interest. Commissioner v. Elliott Petroleum Corporation, 82 Fed. (2d) 193; Chester Addison Jones, 31 B. T. A. 55; affd., 82 Fed. (2d) 329; Commissioner v. Williams, 82 Fed. (2d) 328; Alexander v. Continental Petroleum Co., 63 Fed. (2d) 927. But, since he did retain such an economic interest, I think that the bonus, as well as the deferred payments, were income from that economic interest, and both are, therefore, depletable. Palmer v. Bender, supra; Herring v. Commissioner, supra.
Smith, Moebis, Yah Fossah, and TtsoN agree with this dissent.