The opinion
SKELTON, Judge
(dissenting):
I respectfully dissent from the opinion of the majority in this case. The identical facts involved here have been before this court in two other cases in the past, namely, CBN Corp. v. United States, 328 *344 F.2d 316 , 164 Ct.Cl. 540 (1964) and CBN Corp. v. United States, 364 F.2d 393 , 176 Ct.Cl. 861 (1966), cert, denied, 386 U.S. 981 , 87 S.Ct. 1284 , 18 L.Ed.2d 228 (1967). In the first CBN case, this court held in a well-reasoned opinion that the taxpayer had an economic interest in the gas in place by reason of the agreement of November 19, 1952, between Shamrock Oil and Gas Corporation, hereinafter called Shamrock, and the taxpayer, and, accordingly, the taxpayer was entitled to take a deduction for percentage depletion with respect to the amounts received from Shamrock from the production and sale of gas under the agreement during the taxable year in question. I think that opinion was correct for all of the reasons stated in the opinion, and I adopt such reasons along with the discussion in the following paragraphs as the basis for my dissent in this case.
In the second CBN case, this court reversed its position and held that the taxpayer did not have an economic interest in the gas in place and was not entitled to the depletion allowance. The opinion of the commissioner in the instant case, which is adopted by this court as a per curiam opinion, is based entirely on the assumption that the second CBN opinion is correct as to the depletion aspect of the case for all of the reasons stated in that opinion. Therefore, the second CBN opinion is, for all practical purposes, the opinion of this court on the depletion allowance question in the case at bar, as no additional reasons are given in its per curiam opinion for denying the taxpayer the depletion allowance.
In my opinion, the second CBN decision was wrong for a number of reasons. The court fell into error in holding that the 1952 agreement did not change the status of the parties because it merely rearranged their respective interests. The facts indicate that the contrary is true. The 1952 contract completely terminates the old agreement and creates an entirely new and different relationship between the parties. In this regard, paragraph 1 of the 1952 agreement specifically provides:
1. Effective September 1, 1953, the aforesaid agreements and contracts (i. e., those of 1935 as amended) * * shall be terminated and be and become of no further force and effect, except as to final accounting * * * prior to September 1, 1953, and thereafter this contract and the provisions hereof shall fully control the rights, duties and obligations of the parties hereto * * *. [Emphasis supplied.]
The court also erred in holding that the 1952 agreement remained basically one of sale (with the taxpayer having only the right to purchase the gas). The opposite is shown by the contract itself. Under the 1952 agreement, the taxpayer had no right to purchase, could not purchase, and did not purchase a single cubic foot of gas from Shamrock. It released all rights of purchase it had under the 1935 contracts to Shamrock. In return, Shamrock agreed to pay the taxpayer six cents per one thousand cubic feet on 6,000/62,625ths of the volumes of residue gas it produced and sold from the lands specifically described in Schedule A attached to the 1952 agreement, during the life of its gas leases on such property. This payment was to be made to the taxpayer whether the gas was produced and sold at the well or wells as raw gas or processed through Shamrock’s plant. Paragraph 5 of the agreement provides that Shamrock warrants the title to all gas it may produce and sell and agrees to indemnify the taxpayer with respect to the gas so produced and sold.
This agreement shows clearly it was not a purchase and sale agreement of produced gas as between Shamrock and the taxpayer. The taxpayer had no right to buy any gas produced by Shamrock from its wells and Shamrock had no obligation to sell any of such gas to the taxpayer. This is a complete reversal of the 1935 contract, and establishes an entirely new relationship between the parties.
The court held that the new contract did not give the taxpayer a leasehold or fee in the land. While I do not think this is necessary in order for the taxpayer to have an economic interest in the gas in *345 place, I am of the opinion that the 1952 agreement amounted to an assignment of a portion of the mineral interest of Shamrock. It at least transferred an equitable title to the taxpayer of the interest assigned to it. Shamrock could not sell the gas nor the % working interest which it acquired from the owner of the land by its leases without accounting to the taxpayer for its share of the mineral interest. In other words, Shamrock’s title to the % mineral interest in the lands was clouded to the extent of the assignment to the taxpayer of an interest in 6,000/62,625ths of the % interest of Shamrock in the volumes of residue gas in and under the land covered by its leases.
The basic question here is whether the taxpayer had an economic interest in the gas in place. The Supreme Court said in Palmer v. Bender, 287 U.S. 551, 556 , 53 S.Ct. 225, 226 , 77 L.Ed. 489 (1933), that:
* * * The allowance to the taxpayer is not restricted by the words of the statute to eases of any particular class or to any special form of legal interest in the oil well. * * *
The court in that case laid down the test or requirement as follows:
* * * The language of the statute is broad enough to provide, at least, for every ease in which the taxpayer has acquired, by investment, any interest in the oil in place, and secures, by any form of legal relationship, income derived from the extraction of the oil, to which he must look for the return of his capital. Id. at 557 , 53 S.Ct. at 226 .
These requirements were again approved by the Supreme Court in Commissioner of Internal Revenue v. Southwest Exploration Co., 350 U.S. 308 , 76 S.Ct. 395 , 100 L.Ed. 347 (1956).
In my opinion, the taxpayer has met all of these requirements in this case. Whether it owned the leasehold or royalty is beside the point. As stated in Burton-Sutton Oil Co. v. Commissioner, 328 U.S. 25, 32 , 66 S.Ct. 861 , 90 L.Ed. 1062 (1946):
* * * We do not agree * * * that ownership of a royalty or other economic interest in addition to the right to net profits is essential to make the possessor of a right to a share of the net profit the owner of an economic interest in the oil in place.
* * * Whether the instrument creating the rights is a lease, a sublease or an assignment has not been deemed significant from the federal tax viewpoint in determining whether or not the taxpayer had an economic interest in the oil in place.
* * * It is not material whether the payment * * * is in oil or in cash which is the proceeds of the oil, Helvering v. Twin Bell Syndicate, 293 U.S. 312, 321 , [ 55 S.Ct. 174 , 79 L.Ed. 383 ,] nor that some of the payments were in the form of a bonus for the contract. Id. at 33, 66 S.Ct. at 866 .
* * * Depletion depends only upon production. It is the lessor’s, lessee’s or transferee’s “possibility of profit” from the use of his rights over production, “dependent solely upon the extraction and sale of the oil” which marks an economic interest in the oil. Id., at 34-35 , 66 S.Ct. at 866-867 .
The interest of the taxpayer in the gas in place here meets all these requirements.
An economic interest in minerals in place exists when one or more of the following situations exist, as is pointed out by Professor Sneed in The Economic Interest — An Expanding Concept in 35 Texas Law Review 307, 335 (1957):
(1) When the taxpayer has legal or equitable ownership of the minerals in place.
(2) When his control and beneficial enjoyment of the income from the mineral deposit are such as to warrant considering him the substantial owner, in the tax sense, of a part or the whole thereof. The duration of this enjoyment is relevant.
*346 (3) When permitting depletion on the income from the interest would serve the purposes for which the allowance was created. The taxpayer’s contribution to discovery, development or operation is relevant.
In my opinion, the taxpayer qualifies in the instant case for the depletion allowance under the first two of these situations, and perhaps under the third, as well. This court based its second CBN decision, and now its decision here, on a phase or tangential refinement of the third situation, namely, the court-created doctrine of “essentiality” of the efforts or acts of the taxpayer as a contribution to the extraction of the mineral. It is by this doctrine that the courts can grant or deny the allowance according to the will of the court rather than according to the will of Congress. It is unfortunate that the court, and perhaps the parties as well, appeared to lose sight of the main issues and principles in this case by becoming enmeshed in the arguments and discussions of “essentiality.” After all, this is only one small part of the case and is not the only way a taxpayer can have an economic interest in the minerals in place.
It is my view that the taxpayer in this case met the requirements of Palmer v. Bender, supra, and Commissioner of Internal Revenue v. Southwest Exploration Co., supra, by acquiring by investment an interest in the gas in place, and by securing by legal relationship income derived from the extraction of the gas, to which it must look for a return of its capital. The tax refund sought here is based entirely on revenues derived from the interest of the taxpayer in gas produced and sold by Shamrock to third parties. None of the gas was purchased by the taxpayer.
I would enter judgment for the plaintiff by allowing it the depletion allowance claimed.
I do not reach the capital assets — long term capital gain claim of the plaintiff.
COLLINS, Judge, took no part in the decision of this case.