Commissioner of Internal Revenue v. Southwest Exploration Company, a Corporation

In this appeal, the only question brought to us from the Tax Court is who is entitled to depletion for oil that is extracted from beneath the ocean. The Tax Court held that upland owners from whose lands the slant wells were drilled into the pool of oil, under the ocean, are not entitled to participate in the depletion for oil thus extracted. The Commissioner of Internal Revenue appeals asserting that the upland owners, comprising the Huntington Beach Co., Pacific Electric Ry. Co., Pacific Electric Land Co., The Bolsa Land Co., the Bol-sa Chica Gun Club, and the Standard Oil Co., upon whose lands the wells were drilled and through whose property the rights of way and easements were granted for the drilling of such wells are entitled to a portion of the depletion for oil extracted under the permit granted by the State to the taxpayer.

We are in accord with the ruling of the Tax Court [ 18 T.C. 961 ] and adopt that part of the Tax Court’s opinion reading as follows:

Judgment of the Tax Court from which the appeal was taken is affirmed.

. “Sec. 23. Deductions from Gross Income. “In computing net income there shall be allowed as deductions: * * ¡s * * “(m) Depletion. — In the case…