Citations
- 232 F.2d 444
Full opinion text
DOBIE, Circuit Judge.
This appeal is by the United States, through T. L. Townsend, Acting District Director of Internal Revenue, from a judgment in favor of The Hitchcock Corporation (hereinafter called the taxpayer), which is engaged in mining talc at Murphy, North Carolina. Taxpayer’s mining activities consist of extracting the talc from its deposit underground, bringing it to the surface, cutting such talc as is suitable for the purpose into crayons, and pulverizing or grinding the remainder of the talc.
The question before us relates to the income tax deduction for depletion for this talc. Specifically, we must decide whether the District Court correctly ruled that the taxpayer properly calculated its gross income from mining under Section 114(b) (4) (B) of the Internal Revenue Code of 1939, to include not only income from the extraction of talc from the ground but also the income from the grinding of talc to powder, the cutting of talc into crayons, and the packing and bagging of the talc for shipment.
For the tax year in question, 1948, taxpayer claimed a deduction for depletion computed under Section 114(b) (4) (A) of the Internal Revenue Code of 1939, 26 U.S.C.A. § 114(b) (4) (A), in the amount of $41,329.36, equal to 15% of the gross income from the sale of talc which it mined, less the royalties paid on the leased land. The Commissioner of Internal Revenue determined that the taxpayer was entitled to no depletion deduction for that year and assessed a deficiency. The taxpayer paid this sum, filed a claim for refund which was not allowed within six months, and then instituted this timely suit for refund in the United States District Court for the Middle District of North Carolina.
The District Court, sitting without a jury, found:
“The processes of the taxpayer were those normally applied by mine operators to obtain commercially marketable products. Since the plaintiff’s products were not marketable except as crayons or powder the steps necessary to produce these marketable products come within the meaning of mining under the Act and the gross income from the sale of powder and crayons should be the basis for arriving at the 15% depletion deduction.” 132 F.Supp. 785, at page 787.
With this we heartily agree. The judgment of the District Court must, therefore, be affirmed.
The taxpayer was entitled for the year 1948 to a deduction for depletion of 15% of its gross income from mining, which the Government admits, should include the income attributable to the extraction of talc from its mine. The Government refused, and still refuses, to agree with taxpayer that “income from mining” includes income from grinding and bagging talc and from cutting talc into crayons and packaging it for shipment. We are told that these processes do not fall within the definition of “mining” within the meaning of Section 114(b) (4) (B) of the Internal Revenue Code and that this case thus falls outside the limits set by Congress. We think such an argument by the Government is clearly contrary to the language used by Congress.
In computing net income, a deduction 'for depletion is allowed by Section 23