text:
    GRIFFIN v. CALIFORNIA.
    No. 202.
    Argued March 9, 1965.
    Decided April 28, 1965.

      Morris Lavine argued the cause and filed briefs for petitioner.

      Albert W. Harris, Jr., Deputy Attorney General of California, argued the cause for respondent. With him on the brief were Thomas C. Lynch, Attorney General, Arlo E. Smith, Chief Assistant Attorney General, and Deraid E. Granberg, Deputy Attorney General.
   Mr. Justice Douglas

delivered the opinion of the Court.

Petitioner was convicted of murder in the first degree after a jury trial in a California court. He did not testify at the trial on the issue of guilt, though he did testify at the separate trial on the issue of penalty. The trial court instructed the jury on the issue of guilt, stating that a defendant has a constitutional right not to testify. But it told the jury:

“As to any evidence or facts against him which the defendant can reasonably be expected to deny or explain because of facts within his knowledge, if he does not testify or if, though he does testify, he fails to deny or explain such evidence, the jury may take that failure into consideration as tending to indicate the truth of such evidence and as indicating that among the inferences that may be reasonably drawn therefrom those unfavorable to the defendant are the more probable.”

It added, however, that no such inference could be drawn as to evidence respecting which he had no knowledge. It stated that failure of a defendant to deny or explain the evidence of which he had knowledge does not create a presumption of guilt nor by itself warrant an inference of guilt nor relieve the prosecution of any of its burden of proof.

Petitioner had been seen with the deceased the evening of her death, the evidence placing him with her in the alley where her body was found. The prosecutor made much of the failure of petitioner to testify:

“The defendant certainly knows whether Essie Mae had this beat up appearance at the time he left her apartment and went down the alley with her.
“What kind of a man is it that would want to have sex with a woman that beat up if she was beat up at the time he left?
“He would know that. He would know how she got down the alley. He would know how the blood got on the bottom of the concrete steps. He would know how long he was with her in that box. He would know how her wig got off. He would know whether he beat her or mistreated her. He would know whether he walked away from that place cool as a cucumber when he saw Mr. Villasenor because he was conscious of his own guilt and wanted to get away from that damaged or injured woman.
“These things he has not seen fit to take the stand and deny or explain.
“And in the whole world, if anybody would know, this defendant would know.
“Essie Mae is dead, she can’t tell you her side of the story. The defendant won’t.”

The death penalty was imposed and the California Supreme Court affirmed. 60 Cal. 2d 182, 383 P. 2d 432. The case is here on a writ of certiorari which we granted, 377 U. S. 989, to consider whether comment on the failure to testify violated the Self-Incrimination Clause of the Fifth Amendment which we made applicable to the States by the Fourteenth in Malloy v. Hogan, 378 U. S. 1, decided after the Supreme Court of California had affirmed the present conviction.

If this were a federal trial, reversible error would have been committed. Wilson v. United States, 149 U. S. 60, so holds. It is said, however, that the Wilson decision rested not on the Fifth Amendment, but on an Act of Congress, now 18 U. S. C. § 3481. That indeed is the fact, as the opinion of the Court in the Wilson case states. And see Adamson v. California, 332 U. S. 46, 60, n. 6; Bruno v. United States, 308 U. S. 287, 294. But that is the beginning, not the end, of our inquiry. The question remains whether, statute or not, the comment rule, approved by California, violates the Fifth Amendment.

We think it does. It is in substance a rule of evidence that allows the State the privilege of tendering to the jury for its consideration the failure of the accused to testify. No formal offer of proof is made as in other situations; but the prosecutor’s comment and the court’s acquiescence are the equivalent of an offer of evidence and its acceptance. The Court in the Wilson case stated:

. . the act was framed with a due regard also to those who might prefer to rely upon the presumption of innocence which the law gives to every one, and not wish to be witnesses. It is not every one who can safely venture on the witness stand though entirely innocent of the charge against him. Excessive timidity, nervousness when facing others and attempting to explain transactions of a suspicious character, and offences charged against him, will often confuse and embarrass him to such a degree as to increase rather than remove prejudices against him. It is not every one, however honest, who would, therefore, willingly be placed on the witness stand. The statute, in tenderness to the weakness of those who from the causes mentioned might refuse to ask to be a witness, particularly when they may have been in some degree compromised by their association with others, declares that the failure of the defendant in a criminal action to request to be a witness shall not create any presumption against him.” 149 U. S., p. 66.

If the words “Fifth Amendment” are substituted for “act” and for “statute,” the spirit of the Self-Incrimination Clause is reflected. For comment on the refusal to testify is a remnant of the “inquisitorial system of criminal justice,” Murphy v. Waterfront Comm’n, 378 U. S. 52, 55, which the Fifth Amendment outlaws. It is a penalty imposed by courts for exercising a constitutional privilege. It cuts down on the privilege by making its assertion costly. It is said, however, that the inference of guilt for failure to testify as to facts peculiarly within the accused’s knowledge is in any event natural and irresistible, and .that comment on the failure does not magnify that inference into a penalty for asserting a constitutional privilege. People v. Modesto, 62 Cal. 2d 436, 452-453, 398 P. 2d 753, 762-763. What the jury may infer, given no help from the court, is one thing. What it may infer when the court solemnizes the silence of the accused into evidence against him is quite another. That the inference of guilt is not always so natural or irresistible is brought out in the Modesto opinion itself:

“Defendant contends that the reason a defendant refuses to testify is that his prior convictions will be introduced in evidence to impeach him ([Cal.] Code Civ. Proc. § 2051) and not that he is unable to deny the accusations. It is true that the defendant might fear that his prior convictions will prejudice the jury, and therefore another possible inference can be drawn from his refusal to take the stand.” Id., p. 453, 398 P. 2d, p. 763.

We said in Malloy v. Hogan, supra, p. 11, that “the same standards must determine whether an accused’s silence in either a federal or state proceeding is justified.” We take that in its literal sense and hold that the Fifth Amendment, in its direct application to the Federal Government, and in its bearing on the States by reason of the Fourteenth Amendment, forbids either comment by the prosecution on the accused’s silence or instructions by the court that such silence is evidence of guilt.

Reversed.

The Chief Justice took no part in the decision of this case.

Mr. Justice Harlan,

concurring.

I agree with the Court that within the federal judicial system the Fifth Amendment bars adverse comment by federal prosecutors and judges on a defendant’s failure to take the stand in a criminal trial, a right accorded him by that amendment. And given last Term’s decision in Halloy v. Hogan, 378 U. S. 1, that the Fifth Amendment applies to the States in all its refinements, I see no legitimate escape from today’s decision and therefore concur in it. I do so, however, with great reluctance, since for me the decision exemplifies the creeping paralysis with which this Court’s recent adoption of the “incorporation” doctrine is infecting the operation of the federal system. See my opinion concurring in the result in Pointer v. Texas, ante, p. 400, at 408.

While I would agree that the accusatorial rather than inquisitorial process is a fundamental part of the “liberty” guaranteed by the Fourteenth Amendment, my Brother Stewart in dissent, post, p. 617, fully demonstrates that the no-comment rule “might be lost, and justice still be done,” Palko v. Connecticut, 302 U. S. 319, 325. As a “non-fundamental” part of the Fifth Amendment (cf. my opinion concurring in the result in Pointer, at 409), I would not, but for Malloy, apply the no-comment rule to the States.

Malloy put forward a single argument for applying the Fifth Amendment, as such, to the States:

“It would be incongruous to have different standards determine the validity of a claim of privilege . . . , depending on whether the claim was asserted in a state or federal court. Therefore, the same standards must determine whether an accused’s silence in either a federal or state proceeding is justified.” Malloy v. Hogan, supra, at 11. (Emphasis added.)

My answer then (378 U. S., at 27) and now is that “incongruity,” within the limits of fundamental fairness, is at the heart of our federal system. The powers and responsibilities of the State and Federal Governments are not congruent, and under the Constitution they are not intended to be.

It has also recently been suggested that measuring state procedures against standards of fundamental fairness as reflected in such landmark decisions as Twining v. New Jersey, 211 U. S. 78, and Palko v. Connecticut, supra, “would require this Court to intervene in the state judicial process with considerable lack of predictability and with a consequent likelihood of considerable friction,” Pointer v. Texas, supra, at 413-414 (concurring opinion of Goldberg, J.). This approach to the requirements of federalism, not unlike that evinced by the Court in Henry v. Mississippi, 379 U. S. 443, apparently leads, in cases like this, to the conclusion that the way to eliminate friction with state judicial systems is not to attempt a working harmony, but to override them altogether.

Although compelled to concur in this decision, I am free to express the hope that the Court will eventually return to constitutional paths which, until recently, it has followed throughout its history.

Mr. Justice Stewart,

with whom Mr. Justice White joins,

dissenting.

The petitioner chose not to take the witness stand at his trial upon a charge of first-degree murder in a California court. Article I, § 13, of the California Constitution establishes a defendant’s privilege against self-incrimination and further provides:

“[I]n any criminal case, whether the defendant testifies or not, his failure to explain or to deny by his testimony any evidence or facts in the case against him may be commented upon by the court and by counsel, and may be considered by the court or the jury.”

In conformity with this provision, the prosecutor in his argument to the jury emphasized that a person accused of crime in a public forum would ordinarily deny or explain the evidence against him if he truthfully could do so. Also in conformity with this California constitutional provision, the judge instructed the jury in the following terms:

“It is a constitutional right of a defendant in a criminal trial that he may not be compelled to testify. Thus, whether or not he does testify rests entirely in his own decision. As to any evidence or facts against him which the defendant can reasonably be expected to deny or explain because of facts within his knowledge, if he does not testify, or if, though he does testify, he fails to deny or explain such evidence, the jury may take that failure into consideration as tending to indicate the truth of such evidence and as indicating that among the inferences that may be reasonably drawn therefrom those unfavorable to the defendant are the more probable. In this connection, however, it should be noted that if a defendant does not have the knowledge that he would need to deny or to explain any certain evidence against him, it would be unreasonable to draw an inference unfavorable to him because of his failure to deny or explain such evidence. The failure of a defendant to deny or explain evidence against him does not create a presumption of guilt or by itself warrant an inference of guilt, nor does it relieve the prosecution of its burden of proving every essential element of the crime and the guilt of the defendant beyond a reasonable doubt.”

The jury found the petitioner guilty as charged, and his conviction was affirmed by the Supreme Court of California.

No claim is made that the prosecutor’s argument or the trial judge’s instructions to the jury in this case deprived the petitioner of due process of law as such. This Court long ago decided that the Due Process Clause of the Fourteenth Amendment does not of its own force forbid this kind of comment on a defendant’s failure to testify. Twining v. New Jersey, 211 U. S. 78; Adamson v. California, 332 U. S. 46. The Court holds, however, that the California constitutional provision violates the Fifth Amendment’s injunction that no person “shall be, compelled in any criminal case to be a witness against himself,” an injunction which the Court less than a year ago for the first time found was applicable to trials in the courts of the several States.

With both candor and accuracy, the Court concedes that the question before us is one of first impression here. It is a question which has not arisen before, because until last year the self-incrimination provision of the Fifth Amendment had been held to apply only to federal proceedings, and in the federal judicial system the matter has been covered by a specific Act of Congress which has been in effect ever since defendants have been permitted to testify at all in federal criminal trials. See Bruno v. United States, 308 U. S. 287; Wilson v. United States, 149 U. S. 60; Adamson v. California, supra.

We must determine whether the petitioner has been “compelled ... to be a witness against himself.” Compulsion is the focus of the inquiry. Certainly, if any compulsion be detected in the California procedure, it is of a dramatically different and less palpable nature than that involved in the procedures which historically gave rise to the Fifth Amendment guarantee. When a suspect was brought before the Court of High Commission or the Star Chamber, he was commanded to answer whatever was asked of him, and sfibjected to a far-reaching and deeply probing inquiry in an effort to ferret out some unknown and frequently unsuspected crime. He declined to answer on pain of incarceration, banishment, or mutilation. And if he spoke falsely, he was subject to further punishment. Faced with this formidable array of alternatives, his decision to speak was unquestionably coerced.

Those were the lurid realities which, lay behind enactment of the Fifth Amendment, a far cry from the subject matter of the case before us. I think that the Court in this case stretches the concept of compulsion beyond all reasonable bounds, and that whatever compulsion may exist derives from the defendant’s choice not to testify, not from any comment by court or counsel. In support of its conclusion that the California procedure does compel the accused to testify, the Court has only this to say: “It is a penalty imposed by courts for exercising a constitutional privilege. It cuts down on the privilege by making its assertion costly.” Exactly what the penalty imposed consists of is not clear. It is not, as I understand the problem, that the jury becomes aware that the defendant has chosen not to testify in his own defense, for the jury will, of course, realize this quite evident fact, even though the choice goes unmentioned. Since comment by counsel and the court does not compel testimony by creating such an awareness, the Court must be saying that the California constitutional provision places some other compulsion upon the defendant to incriminate himself, some compulsion which the Court does not describe and which I cannot readily perceive.

It is not at all apparent to me, on any realistic view of the trial process, that a defendant will be at more of a disadvantage under the California practice than he would be in a court which permitted no comment at all on his failure to take the witness stand. How can it be said that the inferences drawn by a jury will be more detrimental to a defendant under the limiting and carefully controlling language of the instruction here involved than would result if the jury were left to roam at large with only its untutored instincts to guide it, to draw from the defendant’s silence broad inferences of guilt? The instructions in this case expressly cautioned the jury that the defendant’s failure to testify “does not create a presumption of guilt or by itself warrant an inference of guilt”; it was further admonished that such failure does not “relieve the prosecution of its burden of proving every essential element of the crime,” and finally the trial judge warned that the prosecution’s burden remained that of proof “beyond a reasonable doubt.” Whether the same limitations would be observed by a jury without the benefit of protective instructions shielding the defendant is certainly open to real doubt.

Moreover, no one can say where the balance of advantage might lie as a result of the attorneys’ discussion of the matter. No doubt the prosecution’s argument will seek to encourage the drawing of inferences unfavorable to the defendant. However, the defendant’s counsel equally has an opportunity to explain the various other reasons why a defendant may not wish to take the stand, and thus rebut the natural if uneducated assumption that it is because the defendant cannot truthfully deny the accusations made.

I think the California comment rule is not a coercive device which impairs the right against self-incrimination, but rather a means of articulating and bringing into the light of rational discussion a fact inescapably impressed on the jury’s consciousness. The California procedure is not only designed to protect the defendant against unwarranted inferences which might be drawn by an uninformed jury; it is also an attempt by the State to recognize and articulate what it believes to be the natural probative force of certain facts. Surely no one would deny that the State has an important interest in throwing the light of rational discussion on that which transpires in the course of a trial, both to protect the defendant from the very real dangers of silence and to shape a legal process designed to ascertain the truth.

The California rule allowing comment by counsel and instruction by the judge on the defendant’s failure to take the stand is hardly an idiosyncratic aberration. The Model Code of Evidence, and the Uniform Rules of Evidence both sanction the use of such procedures. The practice has been endorsed by resolution of the American Bar Association and the American Law Institute, and has the support of the weight of scholarly opinion.

The formulation of procedural rules to govern the administration of criminal justice in the various States is properly a matter of local concern. We are charged with no general supervisory power over such matters; our only legitimate function is to prevent violations of the Constitution’s commands. California has honored the constitutional command that no person shall “be compelled in any criminal case to be a witness against himself.” The petitioner was not compelled to testify, and he did not do so. But whenever in a jury trial a defendant exercises this constitutional right, the members of the jury are bound to draw inferences from his silence. No constitution can prevent the operation of the human mind. Without limiting instructions, the danger exists that the inferences drawn by the jury may be unfairly broad. Some States have permitted this danger to go unchecked, by forbidding any comment at all upon the defendant’s failure to take the witness stand. Other States have dealt with this danger in a variety of ways, as the Court’s opinion indicates. Ante, note 3, at pp. 611-612. Some might differ, as a matter of policy, with the way California has chosen to deal with the problem, or even disapprove of the judge’s specific instructions in this case. But, so long as the constitutional command is obeyed, such matters of state policy are not for this Court to decide.

I would affirm the judgment.

       See Penal Code § 190.1, providing for separate trials on the two issues.

       Article I, § 13, of the California Constitution provides in part:
      “. . . in any criminal case, whether the defendant testifies or not, his failure to explain or to deny by his testimony any evidence or facts in the case against him may be commented upon by the court and by counsel, and may be considered by the court or the jury.”

       The California Supreme Court later held in People v. Modesto, 62 Cal. 2d 436, 398 P. 2d 753, that its ‘‘comment” rule squared with Malloy v. Hogan, 378 U. S. 1. The overwhelming consensus of the States, however, is opposed to allowing comment on the defendant’s failure to testify. The legislatures or courts of 44 States have recognized that such comment is, in light of the privilege against self-incrimination, “an unwarrantable line of argument.” State v. Howard, 35 S. C. 197, 203, 14 S. E. 481, 483. See 8 Wigmore, Evidence § 2272, n. 2 (McNaughton rev. ed. 1961 and 1964 Supp.). Of the six States which permit comment, two, California and Ohio, give this permission by means of an explicit constitutional qualification of the privilege against self-incrimination. Cal. Const., Art. I, § 13; Ohio Const., Art. I, § 10. New Jersey permits comment, State v. Corby, 28 N. J. 106, 145 A. 2d 289; cf. State v. Garvin, 44 N. J. 268, 208 A. 2d 402; but its constitution contains no provision embodying the privilege against self-incrimination (see Laba v. Newark Bd. of Educ., 23 N. J. 364, 389, 129 A. 2d 273, 287; State v. White, 27 N. J. 158, 168-169, 142 A. 2d 65, 70). The absence of an express constitutional privilege against self-incrimination also puts Iowa among the six. See State v. Ferguson, 226 Iowa 361, 372-373, 283 N. W. 917, 923. Connecticut permits comment by the judge but not by the prosecutor. State v. Heno, 119 Conn. 29, 174 A. 181. New Mexico permits comment by the prosecutor but holds that the accused is then entitled to an instruction that “the jury shall indulge no presumption against the accused because of his failure to testify.” N. M. Stat. Ann. § 41-12-19; State v. Sandoval, 59 N. M. 85, 279 P. 2d 850.

       Section 3481 reads as follows:
      “In trial of all persons charged with the commission of offenses against the United States and in all proceedings in courts martial and courts of inquiry in any State, District, Possession or Territory, the person charged shall, at his own request, be a competent witness. His failure to make such request shall not create any presumption against him.” June 25, 1948, c. 645, 62 Stat. 833.
      The legislative history shows that 18 U. S. C. § 3481 was designed, inter alia, to bar counsel for the prosecution from commenting on the defendant’s refusal to testify. Mr. Frye of Maine, spokesman for the bill, said, “That is the law of Massachusetts, and we propose to adopt it as a law of the United States.” 7 Cong. Pee. 385. The reference was to Mass. Stat. 1866, c. 260, now Mass. Gen. Laws Ann., e. 233, §20, cl. Third (1959), which is almost identical with 18 U. S. C. § 3481. See also Commonwealth v. Harlow, 110 Mass. 411; Commonwealth v. Scott, 123 Mass. 239; Opinion of the Justices, 300 Mass. 620, 15 N. E. 2d 662.

       Our decision today that the Fifth Amendment prohibits comment on the defendant’s silence is no innovation, for on a previous occasion a majority of this Court indicated their acceptance of this proposition. In Adamson v. California, 332 U. S. 46, the question was, as here, whether the Fifth Amendment proscribed California’s comment practice. The four dissenters (Black, Douglas, Murphy and Rutledge, JJ.) would have answered this question in the affirmative. A fifth member of the Court, Justice Frankfurter, stated in a separate opinion: “For historical reasons a limited imniunity from the common duty to testify was written into the Federal Bill of Rights, and I am prepared to agree that, as part of that immunity, comment on the failure of an accused to take the witness stand is forbidden in federal prosecutions.” Id., p. 61. But, though he agreed with the dissenters on this point, he also agreed with Justices Vinson, Reed, Jackson, and Burton that the Fourteenth Amendment did not make the Self-Incrimination Clause of the Fifth Amendment applicable to the States; thus he joined the opinion of the Court which so held (the Court’s opinion assumed that the Fifth Amendment barred comment, but it expressly disclaimed any intention to decide the point. Id., p.50).

       We reserve decision on whether an accused can require, as in Bruno v. United States, 308 U. S. 287, that the jury be instructed that his silence must be disregarded.

       See the excerpt from the prosecutor’s argument quoted in the Court’s opinion, ante, pp. 610-611.

       60 Cal. 2d 182, 383 P. 2d 432. As this case was decided before Malloy v. Hogan, 378 U. S. 1, the California Supreme Court did not give plenary consideration to the question now before us; however, that court has since upheld the federal constitutionality of the California comment rule in a thoroughly reasoned opinion by Chief Justice Traynor. People v. Modesto, 62 Cal. 2d 436, 398 P. 2d 753.

       In the Adamson case, the present question was not reached because the majority ruled that the Fifth Amendment is not applicable to the States. Mr. Justice Reed’s opinion made clear that the California rule was only assumed to contravene the Fifth Amendment, “without any intention ... of ruling upon the issue.” The dissenting opinion of Mr. Justice Black and Mr. Justice Douglas read the majority opinion as “strongly imply [ing] that the Fifth Amendment does not, of itself, bar comment upon failure to testify,” but they considered the case on the majority’s assumption, thereby giving no approval to that assumption, even in dictum. That no such approval was given by this dissenting opinion is further made evident by the .fact that Mr. Justice Murphy and Mr. Justice Rutledge, also in dissent, felt it necessary to make what they characterized as an “addition,” an expression of their view that the guarantee against self-incrimination had been violated in the case. Mr. Justice Frankfurter, in concurring, also indicated that he was prepared to agree that the Fifth Amendment barred comment, thus bringing to three the members of the Court who, in dicta, took the view embraced by the Court today.

       20 Stat. 30, as amended, now 18 U. S. C. § 3481.

       See generally 8 Wigmore, Evidence § 2250 (McNaughton rev. ed. 1961).

       Model Code of Evidence, Rule 201 (1942); Uniform Rules of Evidence, Rule 23 (4) (1953).

       56 A. B. A. Rep. 137-159 (1931) ; 59 A. B. A. Rep. 130-141 (1934); 9 Proceedings A. L. I. 202, 203 (1931).

       See Bruce, The Right to Comment on the Failure of the Defendant to Testify, 31 Mich. L. Rev. 226; Dunmore, Comment on Failure of Accused to Testify, 26 Yale L. J. 464; Hadley, Criminal Justice in America, 11 A. B. A. J. 674, 677; Hiscock, Criminal Law and Procedure in New York, 26 Col. L. Rev. 253, 258-262; Note, Comment on Defendant’s Failure to Take the Stand, 57 Yale L. J. 145.

       See, e. g., State v. Pearce, 56 Minn. 226, 57 N. W. 652; Tines v. Commonwealth, 25 Ky. L. Rep. 1233, 77 S. W. 363; Hanks v. Commonwealth, 248 Ky. 203, 58 S. W. 2d 394.

       It should be noted that the defendant’s counsel did not request any additions to the instructions which would have brought out other possible reasons which might have influenced the defendant’s decision not to become a witness. The California Constitution does not in terms prescribe what form of instruction should be given and the petitioner has not argued that another form would have been denied.


source: Caselaw Access Project

author:
Mr. Justice Clark
      Mr. Justice Goldberg,

license: Public Domain

text:
    PARAGON JEWEL COAL CO., INC. v. COMMISSIONER OF INTERNAL REVENUE.
    No. 134.
    Argued March 8, 1965.
    Decided April 28, 1965

      Frederick Bernays Wiener argued the cause for petitioner in No. 134. With him on the brief were LeRoy Katz and Carl C. Gillespie.

      Philip B. Heymann argued the cause for respondent in No. 134 and petitioner in No. 237. With him on the brief were Solicitor General Cox, Assistant Attorney General Oberdorfer and Melva M. Graney.

      John Y. Merrell argued the cause for respondents in No. 237. With him on the brief was Paul P. Senio,.

      Seymour S. Mints and Robert K. Eifier filed a brief for Jewell Ridge Coal Corp., as amicus curiae, urging reversal in No. 134.

      John Y. Merrell and Paul P. Senio filed a brief for Raymond E. Cooper et al., as amici curiae, urging affirmance in No. 237.

       Together with No. 237, Commissioner of Internal Revenue v. Merritt et al., also on certiorari to the same court.

   Mr. Justice Clark

delivered the opinion of the Court.

The issue in these consolidated tax cases is whether the lessee of coal lands is entitled to percentage depletion on all the gross income derived from the sale of the coal mined from its leases, or whether contract miners who do the actual mining acquired a depletable interest within the meaning of §§ 611 and 613 (b) (4) of the Internal Revenue Code of 1954 to the extent they were paid by the lessee for mining and delivering coal to it.

The mining contractors, respondents in No. 237, claimed an allocable portion of the allowance for the years 1954 through 1956, while the lessee, petitioner in No. 134, claimed the right to the entire depletion deduction for 1955 through 1957. In each case the deduction was denied the taxpayer. However, the Commissioner now takes the position that the lessee is entitled to the entire allowance; the Tax Court so held, 39 T. C. 257, but the Court of Appeals agreed with the contractors. 330 F. 2d 161. We granted certiorari in No. 134, 379 U. S. 812, and in No. 237, 379 U. S. 886, and consolidated them for argument. We have concluded that the Tax Court was correct and reverse the judgment of the Court of Appeals.

The parties agree that the principles of our opinion in Parsons v. Smith, 359 U. S. 215 (1959), are controlling here. There we held that the deduction is allowed in recognition of the fact that mineral deposits are wasting assets and that the deduction is intended as compensation to the owner for the part used in production ; that there may be more than one depletable interest in the same coal deposit, but that the right to an allocable portion of the allowance depends on the ownership of an economic interest in the coal in place since the statute makes the deduction available only to the owner of a capital interest in such deposit; and, finally, that the legal form of such capital interest is unimportant so long as it constitutes a right with regard to the coal in place.

The problem arises in applying those principles “according to the peculiar conditions in each case.” The mining contractors contend that they made a capital investment in the coal in place because of the nature and extent of their expenditures in preparation for and in the performance of oral agreements which they claim granted them the right to mine certain designated areas to exhaustion. They contend that they could only look to the extraction and sale of coal for a return of their investment, and thus that the test of Parsons v. Smith, supra, is satisfied.

Paragon, on the other hand, says that Congress never intended for contractors mining coal to have a depletable interest as evidenced by statutory enactments adopted subsequent to the tax years involved in Parsons v. Smith, supra; that in the case of a lease the lessor of coal lands is no longer granted a deduction for depletion but is relegated to capital gains treatment only. And, finally, that the expenditures made by the contractors were only for equipment which they depreciated and could not constitute an investment in the coal in place as required under Parsons v. Smith, supra.

The Commissioner of Internal Revenue takes the position that only a taxpayer with a legally enforceable right to share in the value of a mineral deposit has a depletable capital or economic interest in that deposit and the contract miners in this case had no such interest in the unmined coal.

The Facts.

Paragon took an assignment of written leases on the coal in and under certain lands which obligated it to pay annual minimum cash royalties, tonnage royalties, land taxes, and to mine all or 85% of the minable coal in the tracts. It made substantial investments in preparation for processing and marketing the coal, including construction of a tipple, a power line, a railroad siding with four spurs and the purchase of processing equipment. It also built a road from the tipple which circled the mountain close to the outcrop line of coal. This road was used to truck the coal from the contractors’ mines to Paragon’s tipple.

Paragon made oral agreements with various individuals and firms to mine the coal in allocated areas under its leases. They were to mine the coal at their own expense and deliver it to Paragon’s tipple at a fixed fee per ton for mining, less 2%% for rejects. It was understood that this fee might vary from time to time — and it did so— depending somewhat on the general trend of the market price for the coal over extended periods and to some extent on labor costs. However, any changes in the fixed fee were always prospective, the contractors being notified several days in advance of any change so that they always knew the amount they would get for the mining of the coal upon delivery. After delivery to Paragon’s tipple the contractor had no further control over the coal, and no responsibility for its sale or in fixing its price. The fixed fee was earned and payable upon delivery and the contractors did not even know the price at which Paragon sold.

The contractors agreed to buy power at a fixed rate per ton from Paragon’s line or put in their own diesel engine generator and compressors. A certain amount per ton was also paid by the contractors for engineering services inside the mine. An engineer provided by Paragon was used to map out or show each of the contractors the particular direction his mine was to take, the locations of adjacent mines, etc. The single engineer was utilized for all of the mines to ensure that they would not run into each other and also so that no minable coal would be rendered unrecoverable by haphazard mining methods. Periodically, the engineer would extend his projections of the mine in order to keep it within the contractor’s original location.

Because of the nature of the coal deposits, it was necessary to use the drift-mining method which requires the opening of two parallel tunnels, one for ventilation and the other for working space and removal of coal. In this type operation the roof is supported by leaving pillars of coal in place and erecting wooden supports about every 18 inches. However, as the miners withdraw from a mine where the coal seam has been exhausted, they take out the wooden supports and also remove the coal pillars, thus recovering the last bit of minable coal. Because of the method used it often takes six to eight weeks to develop a mine to the point where it can be operated profitably.

The nature of the coal deposits here involved was such that the miners often encountered “a sandstone roll” which is an outcrop of rock which “squeezes” out the coal. When one of these situations is encountered the miners must move large amounts of rock to reach the coal seam. During this period, of course, they are receiving no money because they are not delivering merchantable coal to Paragon’s tipple. At other times, water might accumulate which would have to be pumped out before work could resume. Again, the contract miners received nothing for this clearing operation.

After the coal was removed it was placed in the contractor’s bins at the entrance to the mine and was later trucked over a connecting roadway built by the contractor to the adjacent road of Paragon and then taken to the latter’s tipple. Paragon took all of the merchantable coal mined. If its facilities were full at the moment the contractor would fill his own bins and then shut down his mine. The record shows no deliveries by the contractors to anyone other than Paragon.

Although there was nothing said at the time of the oral contracts regarding who was to receive the depletion, the Tax Court found that Paragon expected to receive that deduction and had fixed its per-ton fee for mining with this in mind. The contracts were also silent regarding termination and were apparently for an indefinite period. However, numerous contractors quit mining, and some sold their equipment, buildings, tracks, etc., to others. Under the agreements, those ceasing to operate could not remove the buildings, but could remove all other equipment. It was anticipated that the contractors would continue mining in their allocated areas as long as it was profitable and so long as proper mining methods were used and the coal met Paragon’s standards. However, the contractors were under no obligation to mine any specific amount of coal and were not specifically given the right to mine any particular area to exhaustion.

The contractors paid nothing for the privilege of mining the coal; they acquired no title to the coal either in place or after it was mined; they paid none of the royalty or land taxes required by Paragon’s leases; they claim no sublease, no co-adventure, no partnership. Their sole claim to any interest in the coal in place is based on their investment in equipment, connecting roadways, buildings and the costs of opening the mine, and, in some instances, on their installation of track inside the mine to remove the coal. They admit, however, that all of this was removable, save the buildings and the connecting roadways, neither of which represented any appreciable expenditure. All of their expenditures were deducted either as direct costs, development costs, depreciation of equipment or capital assets.

On the basis of these facts the Tax Court concluded as a matter of law that the contractors did not have a de-pletable interest under their contracts. The Court of Appeals accepted all of the Tax Court’s findings but held that the latter erred in its conclusions. It reversed on the basis that the contractors were “performing Paragon’s obligation under its leases and this constituted ample consideration” together with their “continuing right to produce the coal and to be paid therefor at a price which was closely related to the market price” to give them “an economic interest in the mineral [bringing] them within the rationale of Parsons v. Smith . . . .” At 163. We believe that the Court of Appeals was in error in so doing.

Statutory Provisions for Coal Depletion.

This Court has often said that the purpose of the allowance for depletion is to compensate the owner of wasting mineral assets for the part exhausted in production, so that when the minerals are gone, the owner’s capital and his capital assets remain unimpaired. United States v. Cannelton Sewer Pipe Co., 364 U. S. 76, 81 (1960). Percentage depletion first came into the tax structure in 1926 and has been consistently regarded as a matter of legislative grace. We, therefore, must look to the Code provisions and regulations in effect during the years involved to determine whether these contract coal miners acquired a depletable interest in the coal in place.

Section 611 (a) provides for “a reasonable allowance for depletion . . . according to the peculiar conditions in each case; such reasonable allowance in all cases to be made under regulations prescribed by the Secretary . . . The pertinent regulation states:

“(1) Annual depletion deductions are allowed only to the owner of an economic interest in mineral deposits or standing timber. An economic interest is possessed in every case in which the taxpayer has acquired by investment any interest in mineral in place or standing timber and secures, by any form of legal relationship, income derived from the extraction of the mineral or severance of the timber, to which he must look for a return of his capital. But a person who has no capital investment in the mineral deposit or standing timber does not possess an economic interest merely because through a contractual relation he possess [es] a mere economic or pecuniary advantage derived from production. For example, an agreement between the owner of an economic interest and another entitling the latter to purchase or process the product upon production or entitling the latter to compensation for extraction or cutting does not convey a depletable economic interest. . . .” Treas. Reg. § 1.611-1 (b)(1).

Section 611 (b) establishes an equitable apportionment of such allowance between the lessor and the lessee in the case of a lease. However, § 611 (b) must now be read in light of § 631 (c) which provides that an owner who disposes of coal under any form of contract in which he retains an economic interest shall not receive percentage depletion, but instead must take capital gains treatment for the royalties received under that contract. The result of this in the typical lessor-lessee situation is that the lessee is entitled to the entire depletion allowance on the gross income from the property. Respondent contract miners make no contention that they are lessees or the sublessees of Paragon.

However, they claim that they are entitled to a portion of the percentage depletion because they have somehow acquired an economic interest in the coal in place. This test was first enunciated in Palmer v. Bender, 287 U. S. 551, 557 (1933), and has since become the touchstone of decisions determining the eligibility of a party to share in the depletion allowance. The contract miners contend that their investments of time and money in developing these mines bring them within the meaning of our cases. We believe that Parsons v. Smith, supra, completely settles this question against them.

In Parsons, the Court enumerated seven factors to be considered in determining whether the coal-mining contracts there involved gave the contract miners any capital investment or economic interest in the coal in place. They were:

“(1) that [the contract miners’] investments were in their equipment, all of which was movable — not in the coal in place; (2) that their investments in equipment were recoverable through depreciation— not depletion; (3) that the contracts were completely terminable without cause on short notice; (4) that the landowners did not agree to surrender and did not actually surrender to [the contract miners] any capital interest in the coal in place; (5) that the coal at all times, even after it was mined, belonged entirely to the landowners, and that [the contract miners] could not sell or keep any of it but were required to deliver all that they mined to the landowners; (6) that [the contract miners] wer'e not to have any part of the proceeds of the sale of the coal, but, on the contrary, they were to be paid a fixed sum for each ton mined and delivered . . . ; and (7) that [the contract miners], thus, agreed to look only to the landowners for all sums to become due them under their contracts.” At 225.

The Tax Court found all of these factors present in this case and ruled therefore that Parsons controlled.

The Court of Appeals agreed with the contractors’ position and held, contrary to the Tax Court, that the contracts under which they mined the coal were not terminable at the will of Paragon but gave the contractors “a continuing right to produce the coal and to be paid therefor at a price which was closely related to the market price.” It based its decision on the fact that the operators made “large expenditures of time and money in preparing their respective sites for mining” and that “[i]t would be inequitable indeed to hold that Paragon might . . . then take the benefit of tfie operators’ efforts at will and without cause.” At 163. We regret that we are unable to agree.

In Parsons the contract was expressly terminable on short notice; here no specific right to terminate was mentioned in the agreement between the parties. However, as the Court of Appeals noted, “the contracts did not fix upon the operators an obligation to mine to exhaustion.” In fact, many of them quit at any time they chose. We are unable to say that it is any more inequitable to allow Paragon to terminate the contracts at will than it is to allow the contractors to terminate work and thereby impose upon Paragon the obligation to get other people to work the mine or forfeit its right under the leases.

In any event, the right to mine even to exhaustion, without more, does not constitute an economic interest under Parsons, but is “a mere economic advantage derived from production, through a contractual relation to the owner, by one who has no- capital investment in the mineral deposit.” Helvering v. Bankline Oil Co., 303 U. S. 362, 367 (1938).

The court below also indicated that it disagreed with the conclusion of the Tax Court that Paragon could set the price at any level it chose under the agreements. It stated that the contractors were “to be paid therefor at a price which was closely related to the market price.” The conclusion of the Tax Court was that while the fee varied somewhat with labor costs, “there [was] no evidence that the amount paid by Paragon was directly related either to the price it was getting for the coal or to the sales price of a particular contractor’s coal, and the amount was apparently changeable at the will of Paragon.” (Emphasis supplied.) 39 T. C., at 282. After an examination of the entire record, we can only conclude that Paragon at all times retained the right to change its fixed fee at will, and after delivery to the tipple, the contractors could only rely on Paragon’s personal covenant to pay the posted price. This is insufficient. As we said in Palmer v. Bender, 287 U. S. 551, 557 (1933), the deduction is allowed only to one who “has acquired, by investment, any interest in the oil in place, and secures, by any form of legal relationship, income derived from the extraction of the oil, to which he must look for a return of his capital.” (Emphasis supplied.) Here, Paragon was bound to pay the posted fee regardless of the condition of the market at the time of the particular delivery and thus the contract miners did not look to the sale of the coal for a return of their investment, but looked solely to Paragon to abide by its covenant.

This construction of the Act as to coal depletion is buttressed by the language of the Treasury Regulations which, by example, specifically provide that “an agreement between the owner of an economic interest and another entitling the latter to . . . compensation for extraction . . . does not convey a depletable economic interest.” This language was taken almost verbatim from Helvering v. Bankline Oil Co., 303 U. S. 362, 367 (1938), and incorporated in the first regulations under the Internal Revenue Code of 1939, and since that time there have been no major changes in the economic-interest-versus-economic-advantage paragraph. Compare Treas. Reg. 103, §19.23(m)-1; Treas. Reg. 111, §29.23(m)-1; and Treas. Reg. 118, § 39.23 (m)-1 (a)-(b), with Treas. Reg. § 1.611-1 (b)(1). This Regulation has survived through successive amendments of the Internal Revenue Code and therefore is entitled to great weight.

Further, we believe that additional support is given to our construction by subsequent statutory enactments. As noted above, an owner who by contract disposes of the coal in place while retaining an economic interest is relegated to capital gains treatment of the royalties received. However, exemptive language in § 631 (c) excludes an owner who is also a co-adventurer, partner or principal in the mining of coal, thus permitting such an owner to secure percentage depletion. “Owner” is defined for purposes of this subsection as “any person who owns an economic interest in coal in place, including a sublessor.” (Emphasis supplied.) While Paragon is certainly an owner of an economic interest in the coal, it is also a principal in the mining of coal and thus comes within the exemption and is expressly allowed depletion. The contract miners do not claim, nor will the record support a contention, that they are a “co-adventurer, partner, or principal.” In contrast to the language of § 631 (c), it is noted that in treating with timber in § 631 (b) an “owner” is allowed capital gains instead of depletion. In this instance “owner” is defined to be “any person who owns an interest in such timber, including a sublessor and a holder of a contract to cut timber.” (Emphasis supplied.) This last phrase as to contractors is not included in § 631 (c) thus indicating that as to coal, “owner” does not include contract coal miners. Clearly the Congress knew what language to use when it wished to give a contractor a tax allowance. It gave holders of contracts to cut timber capital gains treatment in § 631 (b) but did not so provide for contract coal miners in § 631 (c).

Nor does the opinion in Commissioner v. Southwest Exploration Co., 350 U. S. 308 (1956), undercut our conclusion. There the State of California required that the State’s offshore oil might be extracted only from wells drilled on filled lands or slant drilled from upland drill sites to the submerged oil deposits. Pursuant to that statute Southwest entered into an agreement with upland owners whereby in the event it was awarded a lease by the State it was given the right to use the surface of the upland as a base for its derrick and drilling operation in reaching the leased oil premises. In consideration of this use Southwest assigned to the upland owners, 24%% of the net profits derived from the oil recovered. This agreement was the sine qua non of Southwest’s securing a lease to drill the submerged land from the State. We held that Southwest’s right to drill being expressly conditioned by law upon the agreements with the upland owners made the latter essential parties to the lease from the State and was a sufficient investment by them in the obtaining of the lease to give them an economic interest in the oil in place, which investment was recoverable solely through the extraction of the oil to which they had to look for the return of their investment. Here we have no such statute; the contractors had no part whatever in the lease but were wholly disassociated from it; no fixed percentage of the net income from Paragon’s lease was assigned to the contractors; and the latter did not look to the coal but to Paragon for their payment.

For these reasons the judgment is reversed.

It is so ordered.

Mr. Justice Goldberg,

with whom Mr. Justice Black joins,

dissenting.

I respectfully dissent. I cannot accept the Court’s formalistic view of the depletion provisions of the Internal Revenue Code of 1954, §§611, 613, and 614, which, as applied to this case, would give the entire depletion allowance to Paragon, the lessee of the coal-bearing land. I cannot agree with the Court’s decision that a lessee of mineral lands, whose total investment may consist merely of a promise to pay a small royalty for minerals produced, is entitled to the full allowance for depletion and that no share of this allowance is to be apportioned to a mining company with substantial investment in digging and maintaining a particular coal mine. I believe that the issue in this case is basically a simple one: For purposes of the depletion allowance under the Internal Revenue Code, should the mine operators here be viewed as independent contractors selling their services to Paragon, the lessee, or should they be viewed as entrepreneurs participating in a type of joint venture to which Paragon contributes its lease of the land and certain necessary equipment and for which the mine operators provide the other investment necessary to open and run the mines? A look through the formal legal arrangements to the underlying economic realities makes clear that the position of the miners is far closer to that of the entrepreneur participating in a joint venture than to that of a seller of services. For this reason I would hold that the miners have “an economic interest in the . . . [mineral], in place, which is depleted by production,” Palmer v. Bender, 287 U. S. 551, 557, and they are therefore entitled to a fairly proportioned share of the depletion allowance.

The factual situation presented by this case is far different from that considered by the Court in Parsons v. Smith, 359 U. S. 215. Parsons held that persons contracting with the owners of coal-bearing land to strip-mine the land were not entitled to an allowance for depletion. Parsons involved comparatively little investment in any particular mines. The coal was obtained through a strip-mining process which consists of removing the earth which lies over the coal, and then removing the coal uncovered. The entire investment of petitioners in Parsons took the form of equipment, such as mechanical shovels, trucks and bulldozers, which “was movable and usable elsewhere in strip mining and ... for other purposes.” Parsons v. Smith, supra, at 219. In fact, one of petitioners in Parsons was primarily a road-building firm. It insisted upon a contract terminable by either party on 10 days’ notice since, “'. . . if an opportunity opened up, [it] wanted to go back to road building,’ ” id., at 216, for which its shovels and bulldozers were primarily designed. The contracts of both petitioners in Parsons were made terminable on very short notice. Thus the strippers in Parsons were clearly independent contractors hired to do the stripping, not entrepreneurs with a fixed investment in a particular mine.

On the other hand, the mines here involved were not strip mines but deep underground mines. The mine operators in the instant case had to use a drift, rather than a strip, method of mining. Unlike a strip-mine contractor, who can begin full production immediately upon removal of the overburden with one employee and a mechanical shovel, the drift-mine operators here had to employ a number of miners and spend many months opening the underground mines. The operations of the miners here included cutting shafts, building a railroad spur, opening ventilation tunnels, shoring the roof of the mine, removing rock and unmarketable coal, and developing entries, cross sections, rooms and air courses, etc. Normally six to eight weeks was required before any marketable coal was reached and several months before the mine reached the production stage. Moreover, even after the production stage was reached, the miners had to face and prepare pillars of coal for support, and frequently they spent many weeks excavating worthless “rolls” of nonmarketable rock or removing excess water from the mines. All this activity required considerable capital investment.

Kyva and Standard, the two partnerships of mine operators involved here, state without challenge that as of the end of 1956, they had invested in machinery, $33,263.81 and $26,901.30, respectively. Their expenses during their first year of operation were, respectively, $76,036.64 and $73,214.02. This expense was primarily capital expense representing investment in the mine, making it ready for exploitation of the coal in place. Unlike Parsons where the bulldozers, trucks and shovels were movable and primarily designed for road building and other work, the major part of the mine operators’ capital investment here consisted of labor costs and was usable only in this particular underground mine operation. The mine operators could look for a return of their investment only to sales of the coal which they were to mine. Moreover, the Court of Appeals held that Paragon’s contracts with the operators were not terminable at will or upon short notice, and that “the operators had a continuing right to produce the coal and to be paid therefor at a price which was closely related to the market price.” 330 F. 2d 161, 163. Under these circumstances I believe it undeniable that the operators invested considerable time, labor, and equipment in the coal in place. In order to extract the mineral, they pooled their resources, funds, and energies with Paragon, which supplied its base interest and made other investment necessary for processing and marketing the coal. I would hold, with the Court of Appeals, that the operators as well as Paragon fit within the rule enunciated in Palmer v. Bender, supra, and followed in other cases, and that they had an economic interest in the mineral in place which entitled them to an allowance for depletion.

The Court tries to assimilate this case to Parsons by stating that Paragon could have terminated the interest of the operators in the coal at any time and that the operators had no right to mine their coal veins to exhaustion. The actual facts, however, reveal that Paragon has never taken steps, nor given the slightest intimation that it might take steps, to terminate anyone’s contract. As a matter of practical fact the operators could count on mining the coal vein so long as coal remained and selling that coal to Paragon at a rate which varied slightly with the market price of coal. Additionally, the Court of Appeals found that the operators had “a right to mine to exhaustion,” and a “continuing right to produce the coal and to be paid therefor at a price which was closely related to the market price.” 330 F. 2d, at 163. Whether or not the actions of the parties would produce these legal results is, of course, a question of state law. And, it is a clear rule of long standing that this Court, in the absence of exceptional circumstances, accepts the determinations of the Court of Appeals, the members of which are closer to the local scene than we, on questions of local law. General Box Co. v. United States, 351 U. S. 159, 165; Allegheny County v. Frank Mashuda Co., 360 U. S. 185, 191; Ragan v. Merchants Transfer Co., 337 U. S. 530, 534. Moreover, in view of the operators’ considerable investment in the mines and their substantial reliance on being able to work those mines, I should be most surprised were state courts, contrary to the view of the Court of Appeals, to allow Paragon to terminate the contracts at will or to lower drastically the price it paid for the coal deliberately in order to drive particular operators out of business. Thus this case differs from Parsons not only because here the operators had a substantial fixed and unmovable investment in each particular mine, but also because here the operators had a right to mine the coal until it was exhausted in order to attempt to recover their investment and make a profit. In Parsons, as I have noted, it was the strip operator itself which insisted upon terminability so that it would be free to move its equipment to more profitable and unrelated opportunities.

The Court, in reaching its result, relies upon Treasury Regulations § 1.611-1 (b)(1) and Helvering v. Bankline Oil Co., 303 U. S. 362. With all deference I do not believe that either the regulation or Bankline Oil bears significantly upon the issue here presented. The regulation in its entirety makes clear that “[a]n economic interest is possessed in every case in which the taxpayer has acquired by investment any interest in mineral in place ... and secures, by any form of legal relationship, income derived from the extraction of the mineral .... But a person who has no capital investment in the mineral deposit . . . does not possess an economic interest merely because through a contractual relation he possess [es] a mere economic or pecuniary advantage derived from production.” The regulation thus indicates that the question to be asked is whether the mine operators have a significant investment in the coal in place. I think it clear from the facts I have recited that their investment has given them an economic interest in the coal. Bankline Oil held that a processor of natural gas who received the gas at the mouth of the well and “ . had no enforceable rights whatsoever under its contracts prior to the time the wet gas was actually placed in its pipe line/ ” “had no capital investment in the mineral deposit/’ for he “had no interest in the gas in place.” 303 U. S., at 368. The facts that “the taxpayer’s capital investment was in equipment facilitating delivery of the gas produced rather than in equipment for production of gas, . . . that its function’was not production of gas but the processing of gas,” G. C. M. 22730, 1941-1 Cum. Bull. 214, 220, and that the taxpayer had no enforcible right to receive any gas from the well, all adequately distinguish Bankline Oil from the case here before us.

“Annual depletion deductions are allowed only to the owner of an economic interest in mineral deposits or standing timber. An economic interest is possessed in every case in which the taxpayer has acquired by investment any interest in mineral in place or standing timber and secures, by any form of legal relationship, income derived from the extraction of the mineral or severance of the timber, to which he must look for a return of his capital. But a person who has n<? capital investment in the mineral deposit or standing timber does not possess an economic interest merely because through a contractual relation he possess [es] a mere economic or pecuniary advantage derived from production. For example, an agreement between the owner of an economic interest and another entitling the latter to purchase or process the product upon production or entitling the latter to compensation for extraction or cutting does not convey a depletable economic interest. Further, depletion deductions with respect to an economic interest of a corporation are allowed to the corporation and not to its shareholders.”

Further, I find this case virtually indistinguishable from Commissioner v. Southwest Exploration Co., 350 U. S. 308. In Southwest Exploration, owners of uplands next to offshore oil drilling sites allowed drillers to use their land as a base for offshore drilling operations in return for 24%% of the net profits derived from the oil recovered. Though no oil lay under the owners’ land, under California law offshore oil could be extracted only from filled lands or by slant drilling from upland drill sites. The Court held, because the owners of the upland sites had contributed the use of their land, necessary for the extraction of the oil, in return for a share in the net profits from the production of oil, that they had “an economic interest which entitle [d] . . . [them] to depletion on the income thus received.” 350 U. S., at 317. The coal mine operators in this case made as significant an investment in the mine as did the upland owners in Southwest Exploration. Their contribution was as necessary for the extraction of the coal as was the land for the extraction of the oil. They were as dependent upon the coal for the re-coupment of their investment as were the landowners upon the oil. Though the mine operators had little control over who bought the coal, there is no indication that the landowners had any control over who bought the oil. And the mine operators made a substantial investment in the mine — not an investment in machinery which could be moved from place to place or mine to mine, but a fixed investment of time and labor in opening and developing the mine. The coal mine operators could look only to a sale of the coal for the return of their investment.

The Court also attempts to draw support from §§ 631 (b) and (c) of the Internal Revenue Code of 1954 as showing a congressional intent not to allow mine operators to share in the depletion allowance. These sections, however, have nothing to do with the issue of apportioning the depletion allowance here under consideration. They state only that the holders of certain passive kinds of income interest, such as royalty interests in coal like that of the lessor in this case — interests quite unlike those owned either by Paragon or the mine operators here— will not receive any allowance for depletion but instead will receive capital gains treatment for their income. See S. Rep. No. 781, 82d Cong., 1st Sess., 43. Section 631 (b), a rather lengthy subsection, provides capital gains treatment for the income of certain passive owners of timber interests and states in part that “[f]or purposes of this subsection, the term 'owner’ means any person who owns an interest in such timber, including a sublessor and a holder of a contract to cut timber.” This definition, by its very terms, applies only to § 631 (b), a section with no bearing on the question at issue here. Section 631 (c), also a lengthy subsection, provides for capital gains treatment for income arising from coal royalties. To make certain that only passive holders of royalties received capital gains treatment and that holders of working interests did not receive capital gains treatment but instead received a depletion allowance, Congress specifically excluded holders of working interests from the coverage of § 631 (c). Congress stated that certain owners of royalty interests would receive capital gains treatment, but stated that “[t]his subsection shall not apply to income realized by any owner as a co-adventurer, partner, or principal in the mining of such coal, and the word ‘owner’ means any person who owns an economic interest in coal in place, including a sublessor.” This definition is meant to exclude from the coverage of § 631 (c) not only mine operators, but also lessees such as Paragon, whose income does not arise from passive royalties. In my view, this sentence adequately does the job Congress intended for it to do, for the income of both mine operators and lessees falls within the scope of “income realized by any owner as a co-adventurer, partner, or principal in the mining of such coal.” See S. Rep. No. 781, supra, at 43.

Even were I to assume that the definitions of “owner” in §§ 631 (b) and (c) have a more direct bearing upon §§ 611, 613, and 614, the sections dealing with the depletion allowance, §§ 631 (b) and (c) would not show that Congress did not intend to grant contract miners for coal any depletion allowance. “[A] holder of a contract to cut timber” may well have been included specifically in § 631 (b)’s definition because Congress wished to make crystal clear that all holders of contracts to cut timber were to receive capital gains treatment for their income. See H. R. Rep. No. 1337, 83d Cong., 2d Sess., 59. Congress may not have included a similar provision in § 631 (c) because it did not believe that the strip miner, whose function is similar to that of the holder of a contract to cut timber, should be brought within the coverage of § 631 (c); or Congress may have felt that since lessees such as Paragon were not included within the coverage of § 631 (c), holders of contracts to mine coal should similarly not have their income treated as a capital gain; or the issue of according capital gains treatment to the income of contract mine -operators might not have been before the Committee when § 631 was being drafted. If §§ 631 (b) and (c) have any relevance to this case, it must be in the fact that § 631 (c) defines an owner as a person “who owns an economic interest in coal in place” (emphasis added), thus indicating a specific congressional intent that formal legal ownership of the mineral should not be controlling.

Finally, it is argued that the operators were able to recover their investments through depreciation and to allow them depletion as well would be to permit a double recovery of their costs. This argument overlooks the fact that Paragon too is able to recover every cent of its investment through depreciation and amortization allowances in addition to depletion. The only investment made by Paragon which might be considered different in kind from that of the mine operators is Paragon’s promise to pay a royalty to its lessors of between 30 and 40 cents per ton of coal. This royalty was fully deductible from Paragon’s income. Despite the fact that to allow a lessee to share in the depletion allowance is to allow a double deduction, Congress affirmatively stated its intent to allow lessees of land to share in this allowance. See Internal Revenue Code of 1954, § 611 (b) (1). Perhaps allowing both a depletion allowance and depreciation is inequitable, but this is a congressional decision which is not for us to question.

I conclude that the depletion allowance should be properly apportioned between the lessee and the coal mine operators. The operators were not employees or independent contractors hired to perform services. Unlike a man hired to mow a lawn, or shovel snow, or strip-mine coal, they made a substantial investment in opening and developing .each individual mine and could look only to proceeds of the sale of coal extracted for a return of that investment. Under these circumstances I believe that the operators meet the test of Palmer v. Bender, swpra, which undisjputedly applies here, for they have “an economic interest in the , . . [coal], in place, which is depleted by production.” 287 U. S., at 557. While, clearly, the “phrase 'economic interest’ is not to be taken as embracing a mere economic advantage derived from production,” Helvering v. Bankline Oil Co., 303 U. S. 362, 367, the operators here, unlike the strip miners in Parsons, do not merely derive an economic advantage through production; they also have a substantial capital investment in the mineral in place. To refuse to recognize this merely because the operators do not hold legal title to the coal is, in my view, a blind following of form, which I cannot accept. To hold that the operators here are, in fact, like sellers of services is equally unrealistic. I would accept the sound view of the Court of Appeals — the members of which come from local mining areas — that the operators are substantial investors in the coal, and, in accordance with what I believe to be the intent of Congress, I would require that they be permitted a share of the allowance for depletion.

       Paragon Jewel Coal Co. was actually an assignee or sublessee of the coal lands in this particular case. However, this is a factual matter without significance here, and for purposes of convenience it will be referred to as the lessee throughout the opinion.

       The Commissioner took a neutral position in the Tax Court, but contended before the Court of Appeals, as he does here, that the lessee is entitled to the depletion deduction on all the gross income derived from the sale of coal mined from its leases.

       I. R. C. 1954, § 611, 26 U. S. C. § 611 (1958 ed.).

       I. R. C. 1954, §631 (c), 26 U. S. C. §631 (c) (1958 ed.).

       Drift mining is an underground mining operation in which a horizontal coal seam is reached by clearing away a part of the mountainside with a bulldozer. Two openings are made into the coal seam. One is an entry and the other is an air course used to ventilate the mine. Coal is removed as the drift mine is driven into the mountain following the seam of coal.

       This shoring up prevents cave-ins and like all safety requirements, both state and federal, was done at the miners’ expense.

       Paragon on at least one occasion shared in the cost incident to going through a sandstone roll of unusual proportions, but that was apparently not the practice.

        Parsons v. Smith, 359 U. S. 215, and cases cited in n. 5, at 219.

       For the text of § 631 (c) see n. 10, infra.

       Section 631 (c) for the pertinent period read:
      “In the case of the disposal of coal (including lignite), held for more than 6 months before such disposal, by the owner thereof under any form of contract by virtue of which such owner retains an economic interest in such coal, the difference between the amount realized from the disposal of such coal and the adjusted depletion basis thereof plus the deductions disallowed for the taxable year under section 272 shall be considered as though it were a gain or loss, as the case may be, on the sale of such coal. Such owner shall not be entitled to the allowance for percentage depletion provided in section 613 with respect to such coal. This subsection shall not apply to income realized by any owner as a co-adventurer, partner, or principal in the mining of such coal, and the word ‘owner’ means any person who owns an economic interest in coal in place, including a sublessor. The date of disposal of such coal shall be deemed to be the date such coal is mined. In determining the gross income, the adjusted gross income, or the taxable income of the lessee, the deductions allowable with respect to rents and royalties shall be determined without regard to the provisions of this subsection. This subsection shall have no application, for purposes of applying subchapter G, relating to corporations used to avoid income tax on shareholders (including the determinations of the amount of the deductions under section 535 (b)(6) or section 545 (b)(5)).” (Emphasis supplied.) It is interesting to note that when § 631 (c) was amended in 1964 to include domestic iron ore Congress did not change the language of this section to also include those mining such ore or coal under a contract since it had made provision for such contractors in § 631 (b) dealing with timber.

       We said in Commissioner v. Southwest Exploration Co., supra, at 317:
      “We decide only that where, in the circumstances of this case, a party essential to the drilling for and extraction of oil has made an indispensable contribution of the use of real property adjacent to the oil deposits in return for a share in the net profits from the production of oil, that party has an economic interest which entitles him to depletion on the income thus received.”

       For the applicable definition of production stage, see Treas. Reg. 1.616-2 (b).

       See, e. g., Burton-Sutton Oil Co. v. Commissioner, 328 U. S. 25, 32; Kirby Petroleum Co. v. Commissioner, 326 U. S. 599, 603; Helvering v. O’Donnell, 303 U. S. 370, 371; Thomas v. Perkins, 301 U. S. 655, 661.

       Treas. Reg. §1.611-1 (b)(1) reads as follows:

       The Court of Appeals found that the mine operators here had an enforcible right to mine the coal to exhaustion. See discussion, supra, at 642.

       The Court points out that the mine operators do not claim to be a “co-adventurer, partner, or principal” in the mining of the coal. Ante, at 637. The mine operators, however, do claim to be engaged in a type of joint venture with Paragon in mining the coal. It is understandable that they do not use the exact language of § 631 (c), for that section has no bearing upon the question here at issue: whether they own an economic interest in the coal in place.

       Paragon paid the mine operators between $4 and $5 per ton for the coal.

       Compare this Court’s rejection of the argument that only a legal interest can constitute a “substantial interest” in a corporation in United States v. Boston & M. R. Co., 380 U. S. 157.