But perhaps not too much emphasis should be put on the mere characterization of this assignment as a sublease vel non. The cases West v. Commissioner (5 Cir., 1945), 150 F.2d 723, and Campbell v. Fasken (5 Cir., 1959), 267 F.2d 792, cited by the government, while different on the facts, are not irrelevant. In Fasken, the landowner conveyed to each of three oil companies, by ordinary mineral deeds, 45% of the oil, gas and other minerals "in and under and that may be produced from" various different tracts of land, down to a depth of 5500 feet, subject to contracts whereby the oil companies were to drill wells and Fasken was to pay stipulated amounts for his share of development and operation.
So much is profoundly wrong with the majority opinion that it is difficult to know where to begin. But one must start somewhere, so I will first turn to the facts, those "stubborn things," Campbell v. Fasken , 267 F.2d 792, 796 (5th Cir. 1959), which though proven at trial and unchallenged on appeal, are generally relegated to the dustbin in the majority opinion. I
309 U.S. at pages 335-336, 60 S.Ct. at page 557. See also Estate of Weinert, etc. v. Commissioner of Internal Revenue, 5 Cir., 1961, 294 F.2d 750; Liston Zander Credit Co. v. U.S., 5 Cir., 1960, 276 F.2d 417; Campbell v. Fasken, 5 Cir., 1959, 267 F.2d 792; Rupe Investment Corp. v. Commissioner of Internal Revenue, 5 Cir., 1959, 266 F.2d 624; Georgia-Pacific Corp. v. U.S., 5 Cir., 1959, 264 F.2d 161. Each case must be decided on its own merits by examining the form and substance of the transactions and the purpose of the relevant tax provisions to determine whether recognition of the form of the transaction would defeat the statutory purpose. The case at bar presents an unusual tax question created by the conjunction of two parts of the tax code not frequently brought together by a single transaction: the provisions governing basis and capital gains, and the rule that no gain is recognized by a corporation when it distributes property with respect to its stock.
In many areas of oil and gas tax law this Court, agreeing with the Commissioner, has recognized the predominant importance of substance. Taking one recent case for example, Campbell v. Fasken, 5 Cir., 1959, 267 F.2d 792, 796, while we conceded that the "form of the instruments cannot be wholly ignored in seeking to ascertain their realities and substance even though it is not controlling," we agreed with the Commissioner that the transactions purporting to be sales were in the nature of leases and that initial payments should be treated as lease bonuses or advance royalty payments. Resort to substance is not a right reserved for the Commissioner's exclusive benefit, to use or not to use — depending on the amount of the tax to be realized.
If the deferred bonus payments were the equivalent of cash and as such taxable as ordinary income during the year of receipt, the income so taxable would be subject to depletion. Burnet v. Harmel, 287 U.S. 103, 53 S.Ct. 74, 77 L.Ed. 199; Campbell v. Fasken, 5 Cir., 1959, 267 F.2d 792; Commissioner of Internal Revenue v. Fleming, 5 Cir., 1936, 82 F.2d 324. Frank Cowden, Sr., and Gladys Cowden, his wife, purchased and affixed to the Stanolind lease internal revenue documentary tax stamps in the amount of $562.50.
" To this statement the Government in its brief cites "See Commissioner v. Court Holding Co., 324 U.S. 331, 334 [ 65 S.Ct. 707, 89 L.Ed. 981]; Helvering v. [F. R.] Lazarus Co., 308 U.S. 252, 255 [ 60 S.Ct. 209, 84 L.Ed. 226]; Commissioner v. P.G. Lake, Inc., 356 U.S. 260, 266-267 [ 78 S.Ct. 691, 2 L.Ed.2d 743]; Haley v. Commissioner, 203 F.2d 815, 818 (C.A.5th); Campbell v. Fasken, 267 F.2d 792, 795-796 (C.A. 5th); Factor v. Commissioner (C.A.9th [ 281 F.2d 100]), decided June 20, 1960 (60-2 U.S.T.C. par. 9551)." We think that there will be few records in which "the substance of the things hoped for" was established with such positiveness or in which, if defects exist, they are entirely from the form chosen, not the real acts done.