delivered the opinion of the court.
This action was brought in the District Court of the United States by Stratton’s Independence, Limited, a British corporation carrying on mining operations in the State of Colorado upon mining lands owned by itself, to recover certain moneys paid under protest for taxes assessed and levied for the years 1909 and 1910 under the provisions of the Corporation Tax Act, being § 38 of the act of August 5, 1909 (36 Stat. 11, 112, c. 6). The case was tried upon an agreed statement of facts, from which it appears, as to the year 1909, that the company extracted from its lands during the year certain ores bearing gold and other precious metals, which were sold by it for sums largely in excess of the cost of mining, extracting, and marketing the same, that the gross sales amounted to $284,682.85, the cost of extracting, mining, and marketing amounted to $190,939.42, and “the value of said ores so extracted in the year 1909, when in place in said mine and before extraction thereof, was $93,743.43.” With respect to the operations of the company for the year 1910, the agreed facts were practically the same, except as to dates and amounts. It does not appear that the so-called “value of the ore in place,” or any other sum, was actually charged off upon the books of the company as depreciation. Upon this state of facts each party moved the court for a directed verdict, at the same time presenting for consideration certain questions of law, and among them the following:
“1. Is the value of the ore in place that was extracted
“2. Is the right to such credit affected by the fact that the plaintiff does not carry such items on its books in a depreciation account.”
The court directed a verdict in favor of the. plaintiff with respect to certain amounts that were undisputed and concerning which no question is now raised; but directed a verdict in favor of the defendant with respect to so much of the taxes paid as represented the value in place of the ore that was extracted during the years in question, overruling the contention that such value was properly allowable as depreciation in estimating the net income of the plaintiff. To this ruling proper exceptions were taken. The resulting judgment having been removed by writ of error to the Circuit Court of Appeals, that court certifies that the following questions of law are presented to it, the decision of which is indispensable to a determination of the cause, and upon which it therefore desires the instruction of this court:
“I. Does Section 38 of the Act of Congress, entitled ‘An Act to provide revenue, equalize duties, and encourage the industries of the United States, and for other purposes/ approved August 5, 1909 (36 Stat., p. 11), apply to mining corporations?
“II. Are the proceeds of ores mined by a corporation from its own premises income within the meaning of the aforementioned Act of Congress?
“III. If the proceeds from ore sales are to be treated as income, is such a corporation entitled to deduct the value of such ore in place and before it is mined as depreciation within the meaning of Section 38 of said Act. of Congress?”
The principal grounds upon which it is contended that the questions ought to receive answers favorable to the company are expressed in various forms, viz., that mining corporations are
sui generis,
because the
We do not think it necessary to follow the argument through all its refinements. The pith of it is that mining corporations engaged solely in mining upon their own premises have but one kind of assets, and that in the ordinary use of them the enjoyment of the assets and the wasting thereof are in direct proportion, and proceed
pari passu;
and hence that a mining corporation is not engaged in business, properly speaking, blit is merely occupied in converting its capital assets from one form into another, and that a tax upon the doing of such a business, where the tax is measured by the value of the property owned by the corporation, would be in excess of the constitutional limitations that existed at the time of the passage of the act of 1909, as laid down in
Pollock
v.
Farmers’ Loan & Trust Co.,
The peculiar character of mining property is sufficiently obvious. Prior to development it may present to the naked eye a mere, tract of land with barren surface, and of no practical value except for what'may be found beneath. Then follow excavation, discovery, development, extraction of ores, resulting eventually, if the process be thorough, in the complete exhaustion of the mineral contents so far as they aré worth removing. Theoretically, and according to the argument, the éntire value of the mine, as -ultimately developed, existed from the beginning.. Practically, however, and from the commercial standpoint, the value — that is, the exchangeable or market value — depends upon different considerations. Beginning from little, when the existence, character and extent of
As has been repeatedly remarked, the Corporation Tax Act of 1909 was not intended to be and is not in any proper sense an income tax law. This court had decided in the
Pollock Case
that the income tax law of 1894 amounted in effect to a direct tax upon property, and was invalid because not apportioned according to population as prescribed by the' Constitution. The act of 1909 avoided this difficulty by imposing not an income tax, but an excise tax upon the conduct of business in a corporate capacity, measuring, however, the amount of -tax by the income of the corporation, with certain qualifications prescribed by the Act itself.
Flint
v.
Stone-Tracy Co.,
For this and other obvious reasons we are little aided by a discussion of theoretical distinctions between capital and income. Such refinements can hardly be deemed to have entered into the legislative purpose. ’ Of course, if it were demonstrable that to read the Act according to its letter would render it unconstitutional, or glaringly unequal, or palpably unjust, a reasonable ground would exist for construing it according to its spirit rather than its letter. But in our opinion the Act is not fairly open to this criticism. It is not correct, from either the theoretical or the practical standpoint, to say that a mining corporation is not engaged in business, but is merely occupied in converting its capital assets from one form into another: The sale outright of a mining property might be fairly described as a mere conversion of the capital from land
It seems to us that the first two questions certified must be answered in the affirmative principally for two reasons. First, because mining corporations are within the general description of § 38, which comprises “
every corporation,
joint stock company or. association
organized for profit and having a capital stock represented by shares,
. . . and
engaged in business
in any state or territory of the' United'
As to what should be deemed “income” within the meaning of § 38, it of course need not be such an income as would, have been taxable as such, for at that time (the Sixteenth Amendment not having been as yet ratified), income was not taxable as such by Congress without apportionment according to population, and this tax was not so apportioned. Evidently Congress adopted the income as the measure of the tax to be imposed with respect to the doing of business in corporate form because it desired that'the excise should be imposed, approximately at least, with regard to the amount of benefit presumably derived by such corporations from the current operations of the Government. In
Flint
v.
Stone-Tracy Co.,
Moreover, Congress evidently intended to adopt a measure of the tax that should be easy of ascertainment and simply and readily applied in practice. The Act prescribed that the tax should be “equivalent to one per centum upon the entire net income over and above $5,000 received by it from all sources during such year, exclusive of amounts received by it as dividends upon stock of other corporations,” etc., or, with respect to foreign corporations, “upon the amount of net income over and above $5,000 received by it from business transacted and capital invested within the United States,” etc. And the net income was to be ascertained by taking, first, the “gross amount of the income of such corporation ... received within the year from all sources,” or, in the case of .foreign corporations, “from, business transacted and capital invested within,” etc., and deducting therefrom losses sustained, interest paid, etc. And the return was to be made under oath by the president and treasurer, or other officers having like duties, indicating in the clearest manner that it was to set forth
data
that with proper accounting would appear upon the books of the corporation. We have no difficulty, therefore, in concluding that the proceeds of ores mined by a corporation from its own premises are to be taken as a part of the gross income of such corporation. Congress no doubt contemplated that siich corporations, amongst others, were doing business
This brings us to the third question, which is whether such a mining corporation is entitled to deduct the value of ore in place and before it is mined, as depreciation within the meaning of § 38. This question, however, is to be read in the light of the issue that is presented to the Circuit Court of Appeals for determination, as recited in the certificate. From that certificate it appears that the case was submitted to the trial court and a verdict directed upon an agreed statement of facts, and in that statement the gross proceeds of the sale of the ores during the year were diminished by the moneys expended in extracting, mining, and marketing the ores, and the precise difference was taken to be the value of the ores when in place in the mine.
That we do not misconstrue the certificate, and that, on the contrary, the parties advisedly adopted this definition of “value of the ore in place,” is apparent not only from the form of the agreed statement of facts, but from the arguments presented here in behalf of the plaintiff. The contention is that if the proceeds of ore sales are to be . treated as income, the value of the ore in place and before it is mined is to be deducted as depreciation, and that such value is to be arrived at by the process indicated. Briefs submitted in behalf of
amici curios
have suggested other modes for determining depreciation; but plaintiff stands squarely upon the ground indicated by the certificate, as the following excerpts from the brief will show: “Assuming, then, that the proceeds of ore are' to be treated as income within the meaning of the Act, we submit that
such proceeds result solely from depletion of capital,
and are therefore deductible as depreciation under the
Reading these extracts in connection with what is contended respecting the first and second questions — to the effect that mining corporations are not “doing business,” but are merely converting their capital assets from one form into another — it is clear that a definition of the “value of the ore in place” has been intentionally adopted that excludes all allowance of profit upon the process of mining, and attributes the entire profit upon the mining
It is at the same time obvious that any method of stating the account that excludes all element of gain from the process of mining must, through one process or another, exempt mining companies from liability to tax under the act of 1909 with respect to their mining operations. And so, an affirmative answer to the third question as propounded would be the same in effect as an affirmative answer to the first or the second. For it is a matter of little or no moment whether it is to be said (a) that mining corporations are not “engaged in business” at all, or (b) that they are engaged in business but the proceeds of ore mined are not income, or (c) that such proceeds are income, but that there must be allowed as depreciation all that part of the proceeds which remains after paying the bare outlays of the business. In either case mining corporations would be exempt from the tax.
In our opinion, there are at least two insuperable obstacles in the way of returning an affirmative answer to the third question as certified.
In the first place, it is fallacious to.say that, whatever may have been the original cost of a mining property cr the cost of developing it, if in fact it afterwards yield ores aggregating many times its original cost or market value, this result merely proves and at the same time measures the intrinsic value that existed from the beginning. We are here seeking the correct interpretation and construction of an act of legislation that was, at least, designed to furnish a practicable mode of raising revenue for the support of the Government, and to do this in part by imposing annual táxes upon corporations organized for profit and by measuring the amount of the contribution
And, secondly, assuming the depletion of the mineral stock is an element to be considered in determining the reasonable depreciation that is to be treated as a loss in the ascertainment of the net income of a mining company under the Act, we deem it quite inadmissible to estimate such depletion as if it had been done by a trespasser, to whom all profit is denied.
With respect to the proper measure of damages where ore has been unlawfully mined by one person upon the land of another, there is much conflict of authority. Different modes of determining the damages have been resorted to, dependent sometimes upon the form of the action, whether trespass or trover; sometimes upon whether the case arose at law or in equity; and often upon whether the trespass was willful or inadvertent. See
Woodenware Co.
v.
United States,
What has been said necessitates a negative answer to the third question as certified. -And we shall not go further into the question of depreciation. The case comes here under § 239, Judicial Code (derived from § 6 of the Evarts Act, March 3, 1891, 26 Stat. 826, 828, c. 517). It is established that in the exercise of this jurisdiction this court, unless it see occasion to require the whole record to be sent up for consideration, is to make answer
1
respecting the several propositions of law that are certified, and is not to go into questions of fact, or of mixed law and fact. Our- Rule 37 requires that the certificate shall contain a proper statement, of the facts upon which the questions of law arise,- and we deal with the facts as thus certified, and not otherwise.
Graver
v.
Faurot,
It would therefore be improper for us at this time to enter into the question whether the clause, “a reasonable allowance for depreciation of property, if any” calls for an allowance on that account in making up the tax, where
The first and second questions certified will he answered in the affirmative; and the third question will he answered in the negative.
Notes
Sec. 38. That every corporation, joint stock company or association, organized for profit and having a capital stock represented by shares, and ' every insurance company, now or hereafter organized under the laws of the United States or of any State or Territory of the United States or under the acts of Congress applicable to Alaska or the District of Columbia, or now or hereafter organized under thé laws of any foreign country and engaged in business in anyState or Territory of the United States or in Alaska or in the District of Columbia, shall be subject to pay annually a special excise tax with respect to the carrying on or doing business by such corporation, joint stock company or association, or insurance company, equivalent to one per centum upon the entire net income over and above five thousand dollars received by it from all sources during such year, exclusive of amounts received by it as dividends upon stock of other corporations, joint stock companies or associations,'or insurance companies, subject to the tax hereby imposed; or if organized under the laws of any foreign country, upon the amount of net income over and above five thousand dollars received by it from business transacted and capital invested vrithin the United States, and its Territories, Alaska, and the District of Columbia during such year, exclusive of amounts so received by it as dividends upon stock of other corporations, joint stock companies or associations, or insurance companies, subject to the tax hereby imposed; provided, however, that nothing in this section contained shall apply to labor, agricultural or horticultural organizations, or to fraternal beneficiary societies, orders, or associations operating under the lodge system, and providing for the payment of life, sick, accident, and other benefits to the. members of such societies, orders or associations, and dependents of such members, nor to domestic building and loan associations, organized and operated exclusively for the mutual benefit of their members, nor to any corporation or association organized and operated exclusively for religious, charitable, or educational purposes, no part of the.net income of which inures to the benefit of any private stockholder or individual.
Second.
Such net income shall be ascertained by deducting from the gross amount of the income of such corporation,
joint stock company or association, or insurance company,
received icithin the year from all
Third. There shall be deducted from the amount of the net income of each of such corporations, joint stock companies or associations, or insurance companies, ascertained as provided in the foregoing paragraphs of this section, the sum of five thousand dollars, knd said tax shall be computed upon the remainder of said net income of such corporation, joint stock company or association, or insurance company, for' the year ending December 31, 1909, and for each calendar year thereafter; and
on or before the first day of March, 1910, and the first day of March in each year thereafter, a true and accurate return under, oath or affirmation of its president, vice-president, or other principal officer, and its treasurer or assistant treasurer, shall be made by each of the corporations,
joint stock companies or associations, and insurance companies,
subject.