11 T.C. 209">*210 This proceeding is for the redetermination of deficiencies in income and excess profits taxes determined by the respondent against petitioner for the taxable years ended December 31, 1942 and 1943, as follows:

The above deficiencies are due to numerous adjustments, three of which were assigned as error by petitioner, as follows:

(a) Respondent has erroneously increased the net income of petitioner for the calendar year 1942 in the amount of $ 17,368.73 by disallowing a deduction for depletion in that amount, as a result of which error deficiency in excess profits tax for 1942 was determined as $ 21,666.85 instead of the correct amount of $ 6,034.99.

(b) Respondent erroneously transferred $ 1,484.54 representing discount earned on purchase of mining1948 U.S. Tax Ct. LEXIS 100">*102 supplies from mining income to other income for the year 1943 thereby reducing excess output credit below the amount properly allowable.

(c) Respondent erroneously reduced invested capital for 1943 by the amount of the deficiency in excess profits tax erroneously determined for 1942.

Assignment of error (b) has been settled by paragraph VIII of the stipulation of facts hereinafter mentioned. The parties also agree that assignment of error (c) depends entirely upon our holding relative to assignment of error (a). Any necessary effect to these agreements will be given in the recomputation to be made under Rule 50.

Assignment of error (a) is the result of an adjustment in net income for the taxable year ended December 31, 1942, which, in a statement attached to the deficiency notice, the respondent labeled "(b) Decrease in percentage depletion $ 17,368.73" and explained as follows:

11 T.C. 209">*211 To limit depletion on coal from certain properties loaded over tipple No. 3 to 50 percent of the net income from these properties in accordance with the1948 U.S. Tax Ct. LEXIS 100">*103 provisions of section 114 (b)- 4 of the Internal Revenue Code.

FINDINGS OF FACT.

Petitioner is a corporation, organized in 1912 under the laws of the State of West Virginia, with its principal office and place of business at Amherstdale, Logan County, West Virginia, and it is engaged in the business of mining and marketing coal from property owned and leased by it in Logan County. Petitioner filed its income and excess profits tax returns for the periods here involved with the collector of internal revenue at Parkersburg, West Virginia. It also had a branch office at Accoville, West Virginia, where pay roll and production records for tipple No. 3 were maintained.

The lands ¹ upon which petitioner conducted its operations during the years in question consisted of the following:

(a) Two tracts (Nos. 6 and 31) situated on the east side of the Right Hand Fork of Buffalo Creek, containing 140.38 and 97.33 acres, respectively, owned by petitioner in fee and acquired from Cornelius Burgess's heirs in 2 separate acquisitions in 1922.

(b) Five tracts (Nos. 11, 13, 14, 18, and 20) situated on the east side of the Right Hand Fork of Buffalo Creek, containing a total of 2,525.08 acres, leased1948 U.S. Tax Ct. LEXIS 100">*104 by petitioner from the Buffalo Creek Coal & Coke Co. by a consolidated lease dated January 1, 1924. These lands were originally leased by petitioner partly in 1912 and partly in 1916.

(c) Five tracts (Nos. 8, 17, 23, 35, and 36) situated on the west side of the Right Hand Fork of Buffalo Creek, containing a total of 1,680.55 acres, leased by petitioner from the Buffalo Creek Coal & Coke Co. by lease dated November 1, 1929.

(d) A small tract (No. 37) containing 37.32 acres situated on the west side of the Right Hand Fork of Buffalo Creek, leased by petitioner from the estate of Millard McDonald by lease dated September 5, 1933.

(e) A tract (No. 38) containing 134 acres situated on the west side of the Right Hand Fork of Buffalo Creek, leased by petitioner from the Buffalo Creek Coal & Coke Co. by lease dated March 1, 1940.

1948 U.S. Tax Ct. LEXIS 100">*105 All of the lands upon which petitioner conducted its operations and from which it mined coal in the years in question are contained within a continuous boundary and lie between main Buffalo Creek on the north, Huff Creek on the south, and the properties of the Buffalo Creek Coal & Coke Co. on the east and west. All of the property upon which petitioner 11 T.C. 209">*212 conducted its operations in the years in question is underlaid in whole or in part by the Eagle, Island Creek, and Chilton Seams of coal. The Eagle Seam is the lowest seam, the Island Creek Seam is the middle seam, and the Chilton Seam is the top seam.

Petitioner acquired the right under each of its leases to mine coal from all three seams, except that the lease from the estate of Millard McDonald gave petitioner the right to mine only from the Island Creek Seam, a supplemental lease having been obtained to mine the Eagle Seam and there being no mineable coal in the Chilton Seam in this tract. During the years in question petitioner mined coal from only the Eagle and Island Creek Seams. Petitioner has never assigned any particular acreage of coal to any particular mine.

Prior to November 1, 1929, petitioner operated lands1948 U.S. Tax Ct. LEXIS 100">*106 (a) and (b) and had no leasehold or other interest in lands (c), (d), or (e). Tipple No. 1, on the east side of the Right Hand Fork of Buffalo Creek, was built in 1919. Under date of November 1, 1929, petitioner acquired a leasehold in lands (c). Section 3 of the lease provided in part:

The said Lessee in consideration of the premises doth covenant and agree to forthwith begin its mining operations upon said premises herein leased and to that end to build a new tipple thereon to cost at least Twenty-five Thousand Dollars ($ 25,000.00) and as soon as such new tipple is built to prosecute its mining operations continuously and with diligence * * *.

Tipple No. 3, on the west side of the Right Hand Fork of Buffalo Creek, was constructed in 1931.

The three mineable seams of coal in the property operated by petitioner are relatively level, but dip at an average grade of approximately 1 1/2 per cent to the northwest. All three seams are bisected by the Right Hand Fork of Buffalo Creek, but such bisection does not materially interfere with the general dip of the seams to the northwest. The chemical characteristics of all three seams of coal are very similar throughout the property 1948 U.S. Tax Ct. LEXIS 100">*107 and the characteristics of the coal in each of the seams is the same on both sides of the Right Hand Fork of Buffalo Creek. The thickness and quality of the coal are virtually the same and the mining conditions are the same in the mines in each seam on both sides of the Right Hand Fork of Buffalo Creek.

The Right Hand Fork of Buffalo Creek not only bisects the tracts on the east side from the west side, but it has also eroded and cut off the coal seams between the lands on each side to the extent that at some places the seams are approximately 600 feet apart. As the valley narrows up the creek the distance between the seams decreases to a point where they are no longer separated. At the places where the seams are separated they were not in 1942, nor have they ever been, connected by tunnel, conveyor, bridge, or tramroad. Petitioner's 11 T.C. 209">*213 engineers and management recognize the feasibility and desirability of connecting the seams by conveyors, and plans for handling the coal in this manner, made prior to 1942, were in the process of being carried out at the time of the hearing.

During the years 1942 and 1943 petitioner operated three mines on the property, the Eagle and Island1948 U.S. Tax Ct. LEXIS 100">*108 Creek Seams on the east side of the Right Hand Fork of Buffalo Creek, being operated through openings facing on main Buffalo Creek at Fanco or the No. 1 location, and the Eagle and Island Creek Seams on the west side of the Right Hand Fork of Buffalo Creek being operated through openings facing the west side of the Right Hand Fork of Buffalo Creek above Accoville, or at the No. 3 location. Petitioner operated two tipples on the property, one at the No. 1 location and one at the No. 3 location. Petitioner has always had and operated only one cleaning plant on the property, that being located at the No. 1 location, on main Buffalo Creek. There is a haulway in the Eagle mine on the east side of the Right Hand Fork of Buffalo Creek that extends from the opening of the mine at the No. 1 location to an opening on the east side of said Right Hand Fork just opposite the opening of the Eagle mine at the No. 3 location, and this haulway has been used by petitioner for a number of years to remove slate from the operations in the Eagle Seam on the east side of the Right Hand Fork. The distance from this opening on the east side of the Right Hand Fork to the tramroad leading from the Eagle1948 U.S. Tax Ct. LEXIS 100">*109 mine to tipple No. 3, on the west side of the fork, is approximately 600 feet. The distance from the No. 3 location to the No. 1 location through this haulway is approximately 9,600 feet. The distance from the No. 3 location to the No. 1 location by the county road is approximately 2 miles.

Petitioner's management has always considered its operations on Buffalo Creek as one economic operation, both from an operational standpoint and from an accounting standpoint. Petitioner has one general office and one superintendent, who is in charge of all operations of the company at Amherstdale. The company owns and maintains over 500 houses which are situated on main Buffalo Creek from above Amherstdale to below the junction of the Right Hand Fork and also along the Right Hand Fork of Buffalo Creek. The company employes one man to supervise the maintenance and renting of all these houses. All houses are available to the men who work at any mine, there being no allocation of particular houses to particular mines. The petitioner maintains one large machine shop, located at Fanco, which is used to service the mechanical equipment, locomotives, cutting machines, loading machines, and tipple1948 U.S. Tax Ct. LEXIS 100">*110 machinery for all mines. Petitioner employs one man who is in charge of the maintenance of all the machinery of the company. It employs one mechanical and electrical inspector for all the equipment on the property 11 T.C. 209">*214 of the company. Power for the entire operation is purchased through one meter from the Appalachian Electric Power Co. Petitioner's operation is classified by the West Virginia Inspection Bureau, an organization supported and maintained by the insurance companies for the purpose of establishing rates, as a single property, and petitioner has always purchased insurance on a blanket rate covering all the property. Petitioner has also always purchased its use and occupancy insurance at a blanket rate on the mining operation as a single unit, has determined the amount of insurance by computing the mining use and occupancy value of the company as a unit, and all adjustments under these policies have been made based on the mining use and occupancy value as a single unit and not on the value of the mine at which the loss occurred. Petitioner has one merit rating for unemployment compensation and one workmen's compensation rate, which is based on the relationship 1948 U.S. Tax Ct. LEXIS 100">*111 of the company's entire pay roll to the total benefits received by its employees, regardless of the mine at which they work. The company operates three stores located conveniently to the living quarters of the miners, the supplies for all of which are purchased by one purchasing agent and at any one of which credit is extended to any employee working at any mine.

Petitioner has a mine foreman for each of its mines, which is required by state law. It has one gang of outside laborers who work all the mines. When its production does not require a full night shift at each tipple, the company uses a tipple crew for one-half a shift at one tipple and then transports the same crew to the other tipple to work the remainder of the shift. Mine equipment has been used interchangeably in the various mines.

Practically all coal produced by petitioner from the west side of the Right Hand Fork of Buffalo Creek from both the Eagle and Island Creek Seams has been loaded over the No. 3 tipple and all the coal produced from the east side of the Right Hand Fork has been loaded over the No. 1 tipple. A small amount of coal cleaned up off the ground around tipple No. 3 has been run through the cleaning1948 U.S. Tax Ct. LEXIS 100">*112 plant and loaded over the tipple at location No. 1. Prior to 1938 petitioner's coal was hand-loaded and did not require cleaning. Since mechanization of petitioner's mines subsequent to 1938, under normal market conditions all the coal produced by petitioner from the Island Creek Seam and from the Eagle Seam, where both benches are being worked, from both sides of the Right Hand Fork of Buffalo Creek, would have to be washed to be acceptable to the market, but, due to the abnormal market conditions during the war years, this was not necessary.

Since 1935 petitioner has had under consideration modernizing and enlarging its cleaning plant at the No. 1 location to handle all coal that needs cleaning from the entire operation. This was considered 11 T.C. 209">*215 more economically feasible than building another cleaning plant on the west side of the Right Hand Fork, because of the expense of building and operating a second cleaning plant, the central location of the No. 1 cleaning plant, the fact that the production from the west side of the fork does not justify a separate cleaning plant, the grades, the water supply at the No. 1 location, and other factors.

In 1939 petitioner employed W. 1948 U.S. Tax Ct. LEXIS 100">*113 W. Beddow, as vice president in charge of operations, to study the operations and make recommendations as to the best method of operating the property. As a result of his study Beddow made recommendations to petitioner which were accepted by the management. His recommendations were that the cleaning plant at the No. 1 tipple be modernized and enlarged sufficiently to handle all the coal produced by petitioner that needed cleaning, that the coal produced from the west side of the Right Hand Fork of Buffalo Creek that needed cleaning be transported from the No. 3 tipple location by means of a belt conveyor across the Fork to a transfer point where it would be loaded in cars and transported through the opening in the Eagle Seam on the east side of the Fork and through the haulways of the mine in the Eagle Seam on the east side of the Fork to the No. 1 tipple and cleaning plant, where it would be washed and loaded; that the coal mined from the bottom bench of the Eagle Seam on both sides of the Fork which did not need cleaning be loaded over the No. 3 tipple; that part of the Eagle coal being mined from the Eagle mine on the east side of the fork be brought out through the opening in1948 U.S. Tax Ct. LEXIS 100">*114 that seam on the east side of the fork and from there transported by trestle across the fork to the tramroad from the Eagle mine on the west side to the No. 3 tipple; and that all of said coal from both sides of the creek be loaded together over the No. 3 tipple.

Due to war conditions petitioner was unable to obtain equipment to put this plan into operation during the years 1942 and 1943. Since the war petitioner has gone ahead with this plan and expects to have it in operation by 1948. In the opinion of petitioner's mining engineers and management, this plan is the most economically feasible method of operating the property, and it is also their opinion that it is more feasible from a practical and economical standpoint to conduct all the operations of the company as one unit rather than as more than one unit.

Petitioner's coal is sold exclusively by the Amherst Fuel Co. The coal is sold under the trade name of Logan Eagle and Logan Chilton Coal, the Logan Eagle being all the Eagle coal produced by petitioner and the Logan Chilton being all the Island Creek and Chilton coal produced by petitioner. On all contracts for Eagle coal it is specified that Eagle coal from either mine1948 U.S. Tax Ct. LEXIS 100">*115 is acceptable, and the same is generally true with regard to the Island Creek coal.

11 T.C. 209">*216 Production records were kept by petitioner for each lease and for the fee lands and were also kept for each mine. The sources of production as to leases and fee lands during the years 1942 and 1943 were recorded on petitioner's records as follows:

The distribution of production according to mines during these years1948 U.S. Tax Ct. LEXIS 100">*116 was as follows:

It was necessary for petitioner to record production from the lease and fee lands separately for the purpose of computing royalties. The leases provided for payment of royalty on the basis of railroad weights, and this was done in each of the taxable years.

For accounting purposes petitioner allocates income and expenses by mines, mostly on a tonnage basis. The wages of mine laborers employed in a particular mine were charged to the respective mine. Wages of laborers doing outside work at the mines were prorated to each mine on a tonnage basis without determining the amount of work they did for a particular mine. Supervisory personnel employed at the mines at the No. 1 location were paid through the Amherstdale pay roll office, and supervisory personnel employed at the mines at the No. 3 location were paid through the Accoville pay roll office for the period January 1 to August 31, 1942. From September1948 U.S. Tax Ct. LEXIS 100">*117 1, 1942, to December 31, 1943, all supervisory personnel were paid through the general office at Amherstdale.

Mine supplies were paid for by voucher from the general office 11 T.C. 209">*217 at Amherstdale and charged according to the purpose for which and the mine at which used. The company did not maintain any inventory records of mine supplies, nor did it maintain records of the actual use and consumption at each mine of mine supplies, and if supplies ordered for a particular mine were not immediately used at that mine, they were available and were used in other mines if needed. Supplies purchased for joint use of all mines were charged on a pro rata tonnage basis. Contributions to the West Virginia Workmen's Compensation Fund were made by voucher issued through the general office at the blanket company rate and charged to the respective mines on an employee's earnings basis. The company had one capital account for mine equipment, electric locomotives, loading machinery, and substations, and depreciation accrued on this equipment was arbitrarily allocated to the mines on a tonnage basis, no record being kept of the particular mine wherein the equipment was used. Electric power was1948 U.S. Tax Ct. LEXIS 100">*118 purchased through one meter and the cost thereof allocated on a tonnage basis, without determination of actual consumption in any particular mine. Cost of the following items was paid through the general office and prorated to the respective mines on a tonnage basis: Management and engineering, pay roll and general office expense, taxes, insurance, dues and subscriptions, telephones and telegraph, donations, legal and professional, bituminous coal producers' board expenses, prospecting, sundry expenses, and interest paid.

The first year in which petitioner claimed depletion on a percentage basis was the year 1942. In its income and excess profits tax returns for that year and for all subsequent years petitioner has consistently computed percentage depletion upon the basis of all income from mining being income from one property. The stipulation of facts is incorporated herein and made a part hereof by reference.

OPINION.

As indicated at the beginning of this report, the sole remaining issue is whether the respondent erred in computing the amount of percentage depletion allowable to petitioner for the year 1942 by treating petitioner's operations as two separate properties within1948 U.S. Tax Ct. LEXIS 100">*119 the meaning of section 114 (b) (4) of the Internal Revenue Code, rather than as one property, as contended for by petitioner. The material part of this section of the code, as amended, and the material part of Regulations 111 are set forth in the margin. ²

1948 U.S. Tax Ct. LEXIS 100">*120 11 T.C. 209">*218 Although the respondent determined that petitioner's depletion should be computed as if it derived income from two properties, he now argues that, under his regulations and rulings, petitioner actually 11 T.C. 209">*219 had 17 different properties. He bases this argument on the contention that each acquisition of an interest in each seam of coal in the lands acquired, either in fee or by lease, constitutes a property. The respondent, therefore, now contends that petitioner had 17 different properties, arrived at as follows:

On the other hand, petitioner contends that it had but one property within the meaning of section 114 (b) (4), supra, but that, if this Court should hold that it had two or more properties, then it should nevertheless be permitted to treat such properties as a single property under section 29.23 (m)-1 (i) of Regulations 111, supra, providing in part:

* * * but, where two or more mineral1948 U.S. Tax Ct. LEXIS 100">*121 properties are included in a single tract or parcel of land, the taxpayer's interest in such mineral properties may be considered to be a single "property," provided such treatment is consistently followed.

Although the respondent now contends there were 17 different properties, he does not contend that for the year 1942 it is necessary to make a separate depletion computation for each of the 17 properties, but is content to abide by his computation of depletion as set out in Exhibit A-1, in the statement attached to the deficiency notice. This is the substance of the supplemental stipulation of facts filed by the parties.

The respondent's contention that petitioner had 17 different properties is based upon the same authorities as advanced by him in the case of Black Mountain Corporation, 5 T.C. 1117. The taxpayer in that case acquired a large coal property in 1909, another even larger one in 1911, a smaller one in 1917, and numerous smaller ones subsequent to that date. The properties were contiguous. The taxpayer 11 T.C. 209">*220 constructed two mines, Nos. 30 and 31, approximately one and one-fourth miles apart. The mine openings were both located on1948 U.S. Tax Ct. LEXIS 100">*122 lands acquired in 1917. Some of the lands acquired in 1909, 1917, and after 1917 were assigned to each mine. Also some of the lands acquired in 1911 were assigned to mine No. 31. Each mine had its own complete facilities such as office, store, and houses for the workmen. All records of each mine were kept separately and the mines were treated as separate units in all ways by the taxpayer. In computing its percentage depletion the taxpayer consistently treated the two mines as two properties. The Commissioner determined that the two mines were a single property. This resulted in a lower depletion allowance, due to the fact that one of the mines had been operating at a loss. In his brief, however, the Commissioner made a different contention. He there contended that each separate acquisition was a separate property; that practically all of the coal mined from the two mines was from lands acquired in 1909; and that only a small percentage was from lands acquired after 1917. After a full consideration of the Commissioner's contentions and the authorities relied upon by him, we held in favor of the taxpayer. Among other things in our opinion, we said:

The petitioner contends1948 U.S. Tax Ct. LEXIS 100">*123 that "the property" as used in section 114 (b) (4) means the economic and practical unit which the taxpayer must use and develop in order to extract a particular block of coal. It includes whatever portion of the mineral deposit can be properly mined as a unit and it includes also the development, plant, and surface land necessary for the extraction of that particular block of coal. Under this theory a large block of coal acquired at one time might constitute more than one property, or smaller blocks of coal acquired at different times might combine to form a single property.

* * * *

We are unable to see the necessity for the Commissioner's contention that every separate acquisition of coal lands must be treated as a separate property for the purpose of computing percentage depletion. Separate acquisitions can, under proper circumstances, be combined to form one property and, likewise, under proper circumstances, one acquisition may become a part of two different properties for this purpose.

In line with our decision in Black Mountain Corporation, supra, we reject the respondent's contention in the instant proceeding that petitioner had 17 different1948 U.S. Tax Ct. LEXIS 100">*124 properties. Petitioner had 3 mines, Nos. 1, 2, and 3, and 2 tipples, Nos. 1 and 3. The coal mined from mines Nos. 1 and 2 was loaded at tipple No. 1 and the coal mined at mine No. 3 was loaded at tipple No. 3. Petitioner contends that it had but one property, and, in view of the evidentiary facts set out in our findings of fact, we incline to that view. But, as will appear later in this opinion, we need not decide the precise question of whether petitioner had one property or more than one. For reasons above stated, we hold that petitioner did not have 17 different properties. 11 T.C. 209">*221 Since petitioner is contending that even if it had more than one property, it would be entitled under section 29.23 (m)-1 (i) of Regulations 111, supra, to treat such properties as a single property, we may assume, as we did in Jewel Mining Co., 43 B. T. A. 1123, that, for the purposes of considering this provision of the regulations, petitioner did have more than one property as the term "property" is used in section 114 (b) (4), supra.

Upon the basis of this assumption, is petitioner entitled to treat such assumed properties as a single property under1948 U.S. Tax Ct. LEXIS 100">*125 the above quoted provisions of section 29.23 (m)-1 (i) of Regulations 111? The respondent in his brief, after referring to this provision of the regulations, says:

* * * This would mean, in the instant case, that the taxpayer would be entitled to treat the three mineral properties in Tract 38 as a single property; or that it might treat the three properties acquired in the single tract or single leasehold in 1929 as one property. It does not mean that the taxpayer may combine the several tracts operating through Tipple No. 3 or through Tipple No. 1, as one property as a matter of right. No objection has been raised to the taxpayer's combining several properties operated through one tipple where the revenue is unaffected. It is not the practice of the Commissioner to raise any question respecting a combination of several properties operated as a unit where the effect on the revenue is nil. But where the revenue is affected, it is the duty of the Commissioner to raise a question respecting such combinations. That is the case here.

It thus appears that, so far as the respondent is concerned, he emphasizes one test in any case where a taxpayer claims the right to have its interests1948 U.S. Tax Ct. LEXIS 100">*126 in two or more mineral properties considered as a single property under this regulation, and that is whether or not it will have any effect on the revenue. We see no basis in law for such a test. The taxpayer's right to consider its interests in two or more mineral properties as a single property or as separate properties should not be made to depend upon which method will produce the most revenue. Such was not the test applied in Jewel Mining Co., supra.

In that proceeding before the United States Board of Tax Appeals, now this Court, the taxpayer contended that its income was from one property and, in the alternative, that, even though the income be held to arise from two separate properties, it was entitled under article 23 (m)-1 (j) of Regulations 86, which is identical with section 29.23 (m)-1 (i) of Regulations 111, supra, to treat such properties as a single property. The Board found it unnecessary to decide the principal question for the reason that, even upon the assumption that the total income was from two separate properties, it was of the opinion, and so held, that the requirements of the regulations were fully satisfied. The Board was reversed by1948 U.S. Tax Ct. LEXIS 100">*127 the United States Circuit 11 T.C. 209">*222 Court of Appeals for the Eighth Circuit, in Helvering v. Jewel Mining Co., 126 Fed. (2d) 1011. The Circuit Court decided both the principal and alternative questions. On the principal question it held that "Each separate coal mine independently operated by its owner constitutes a separate 'property' for all practical purposes in computing depletion." In considering the alternative question the court laid down the following test:

* * * The test prescribed is that

1. The income from both properties must be consistently treated by the taxpayer as arising from a single property in computing depletion allowance;

2. There must be an "interest" "owned by the taxpayer" in both properties; and

3. The two properties must be "included in a single tract or parcel of land."

The Circuit Court then stated that unless all of these conditions coexist the income from the two properties may not be combined for the purpose of computing depletion. It held that the taxpayer met the first element of the test, but not the second, and that it was therefore unnecessary to decide whether or not it met the third. In holding that the 1948 U.S. Tax Ct. LEXIS 100">*128 taxpayer did not meet the second element, the court, among other things, said:

It scarcely requires further analysis to disclose that the taxpayer in the present case is not entitled to combine the income from its own operations with the royalties received from its sublessee for the purpose of computing depletion. At the mine operated by the taxpayer it has a leasehold estate in the mineral deposit and in the necessary surface of the land, and it owns outright the plant, furnishes the capital and manages and controls the business operations connected with extracting and marketing the coal. At the other mine the taxpayer owns a covering leasehold, but it does not own the plant nor furnish the capital to operate it; and it has no control over the management. Its "interest" in the "mineral property" and the mining operations is neither freehold nor leasehold. In granting a sublease to the Blue Ribbon Mining Company, the taxpayer, in so far as it could legally do so, divested itself of its rights in that part of the 800 acre tract included in the sublease, retaining only the right to receive and distribute the royalties provided for in the sublease and the obligation to account according1948 U.S. Tax Ct. LEXIS 100">*129 to the provisions of its own lease with its lessor. The situation does not come within the provisions of subsection (j) of the regulation authorizing the taxpayer's interest in two or more mineral properties to be considered a single property.

In the instant proceeding we think petitioner meets all three elements of the prescribed test. We have found as an ultimate fact, from all the evidentiary facts set out in our findings of fact, that in computing its depletion allowance on the percentage basis petitioner has consistently treated the income from its coal-mining operations as arising from a single property. We hold, therefore, that petitioner has satisfied the first element of the required test.

The second element is that there must be an "interest" "owned by 11 T.C. 209">*223 the taxpayer" in both properties. Assuming that petitioner operates more than one property, its interest in all the properties is within the meaning of the regulation. As to this element the court in Helvering v. Jewel Mining Co., supra, said in part:

* * * The "interest" of the taxpayer, therefore, in the mineral properties, the income from which is sought to be combined as1948 U.S. Tax Ct. LEXIS 100">*130 derived from a single property, must include these three factors, (1) the mineral deposit, (2) the plant for its extraction, and (3) the necessary surface of the land.

Petitioner's interest in each property, assuming there is more than one property, does include all three of the named factors. No other corporation or person is paying petitioner royalties or working interests, as was the case in Helvering v. Jewel Mining Co., supra. Petitioner operates all the lands involved herein as a common enterprise. Cf. J. T. Sneed, Jr., 40 B. T. A. 1136; affd., 119 Fed. (2d) 767. The interest in the properties is all owned by petitioner, either in freehold or leasehold. We hold, therefore, that petitioner meets the second element of the test.

The third element is that the two properties must be included in a single tract or parcel of land. All of petitioner's acquisitions are contained within a single continuous boundary. The land of no one else is contained within petitioner's boundary. The respondent contends, however, that the phrase "a single tract or parcel of land" does not mean several1948 U.S. Tax Ct. LEXIS 100">*131 separately acquired tracts or parcels of land within a continuous boundary. He argues that:

* * * The meaning of the phrase is clear and was written into the Regulations under the principle that each separate purchase or acquisition of an interest in mineral in a tract or parcel of land comprises a "property." Therefore, when such tract or parcel of land is underlaid with two or more deposits or bodies of minerals, each interest in each of such bodies is a separate property under G. C. M. 22,106, supra, but, if so elected, an interest in all of such deposits or bodies of minerals on the same tract or parcel of land may be considered a single "property."

On the basis of the respondent's interpretation of the phrase, the least number of properties that petitioner could have under the lumping provision of the regulations for the purposes of computing percentage depletion would be seven, namely, the number of acquisitions. This we rejected in Black Mountain Corporation, supra, where we held that separate acquisitions can, under proper circumstances, be combined to form one property.

In Berkshire Oil Co., 9 T.C. 903, 910,1948 U.S. Tax Ct. LEXIS 100">*132 we quoted with approval from a case by the Supreme Court of Louisana as follows:" * * * to constitute a single tract of land the lands must be so situated that one may pass from one part to the other without passing over the 11 T.C. 209">*224 lands of another. * * *" To the same effect, see 46 Corpus Juris 1178 and Words and Phrases, vol. 31, p. 58.

We hold that petitioner meets the third and final element of the above mentioned test, and that, assuming that petitioner had an interest in more than one mineral property, it should be permitted, under section 29.23 (m)-1 (i) of Regulations 111, supra, to consider its interest in such properties as a single property for the purposes of computing percentage depletion.

Decision will be entered under Rule 50.