Charles Evans Hughes

“ The words 'gross income from the property,' as used in the statute governing the allowance for depletion, mean gross income received from the operation of the oil and gas wells by one who has a capital investment therein,-not income from the sale of the oil and gas properties themselves. See Darby-Lynde Company v. Alexander, 10 Cir., 51 F.2d 56, 59. We conclude that, as respondent disposed of the properties, retaining no investment therein, it was not entitled to make the deduction claimed for depletion. ”

“ Respondent is a California corporation which acquired certain properties consisting of oil and gas prospecting permits, drilling agreements, leases and equipment. Development work resulted in the discovery of oil. On October 3, 1927, respondent conveyed all its right, title and interest in the described properties to the Honolulu Consolidated Oil Company. ”

“ The aggregate sum of $2,000,000 was paid as an agreed purchase price to which was to be added the one-third of the net profits payable on the conditions specified. We are unable to conclude that the provision for this additional payment qualified in any way the effect of the transaction as an absolute sale or was other than a personal covenant of the Honolulu Company. ”