US SUPREME COURT DECISIONS

The Internal Revenue Code of 1939 permitted taxpayers to deduct as a depletion allowance a percentage of "gross income from mining," and defined "mining" as including the

"ordinary treatment processes normally applied by mine owners . . . to obtain the commercially marketable mineral product or products."

Respondent mines fire clay and shale for which there is a market, but which it utilizes to manufacture sewer pipe and other vitrified articles. It claims that it could not profitably market its raw fire clay and shale without processing them into finished products.

Held: Respondent's depletion allowance must be based, not upon the value of the sewer pipe and other vitrified products which it manufactures, but upon the value of its raw fire clay and shale after application of ordinary treatment processes normally applied in the recovery of those materials by miners not engaged in the manufacture of finished products. Pp. 364 U. S. 77-90.

(a) Congress intended to grant miners a depletion allowance based on the constructive income from the raw mineral product, if marketable in that form, and not on the value of finished articles. Pp. 364 U. S. 81-86.

(b) A depletion allowance is an allowance for the exhaustion of capital assets -- not a subsidy to manufacturers or to high-cost mine operators. P. 364 U. S. 86.

(c) That respondent is both a miner and a manufacturer does not entitle it to treatment different from that accorded miners of the same raw materials who are not manufacturers. Pp. 364 U. S. 86-88.

(d) That respondent's underground method of mining prevents it from selling its raw fire clay and shale does not entitle it to treatment different from that accorded to the other miners of the same raw materials. Pp. 364 U. S. 88-89.

268 F.2d 334 reversed. chanrobles.com-red

Page 364 U. S. 77