The petitioner next took the instruments to the office of the Clerk of the Superior Court for Richmond County, Georgia, where they were filed on December 8, 1941, at 2:35 p. m., and duly recorded.

When Mrs. Peebles received the deeds from the petitioner on December 5 T.C. 14">*18 8, 1945 U.S. Tax Ct. LEXIS 169">*179 1941, she was aware of the limit on the time within which the timber might be cut and removed from the property.

On the morning of December 9, 1941, Linder went to the office of petitioner in Augusta, and a tentative agreement as to the price for the timber was reached. Certain restrictive provisions with respect to the cutting of the timber and its removal were demanded by the petitioner, however, and no sale of the timber was consummated at that time. Previously the petitioner had asked $ 30,000 for the timber, while the Leigh Banana Case Co. had offered $ 22,500 or $ 25,000. Linder was advised of the grants made by petitioner to Mrs. Peebles individually and to her as trustee for her son, and that payment for their interests covered by those grants would be required in cash. He carried on no negotiations with Mrs. Peebles, but conducted all negotiations with the petitioner.

After his conference with petitioner on the morning of December 9, 1941, Linder returned to the office of his company, and during the afternoon a directors' meeting was held, at which the following resolution was adopted:

Resolved: That any two of the officers of this corporation named below, or their duly1945 U.S. Tax Ct. LEXIS 169">*180 appointed or elected successors in office, be and they are hereby authorized and empowered in the name and on behalf of this corporation and under its corporate seal, to execute and deliver to Isaac S. Peebles, Jr., Augusta, Georgia, in any form agreed on between any two of the below named officers and Isaac S. Peebles, Jr., a timber contract or contracts together with any promissory note or notes pledged to the fulfillment of said contract or contracts, and the same shall be binding on this corporation, its heirs and assigns.

Further Resolved: That the officers referred to in the foregoing resolutions are as follows:

The petitioner was anxious to make the sale of the timber in 1941, being of the opinion that higher income tax rates would result from the outbreak of the war on December 7, 1941. For that reason, he had advised Linder that purchase of the timber would have to be made by December 15, 1941, or he would not sell. After the conference on December 9, 1941, at which the price for the timber was tentatively agreed upon, 1945 U.S. Tax Ct. LEXIS 169">*181 discussions continued with reference to the agreements and restrictions covering the cutting and removal of the timber until December 15, 1941, when all matters had been agreed upon, and the agreements of sale were executed.

Catharine Hall Peebles, for herself individually and as trustee for her son, made a grant of a 28/100, or a 28 percent, undivided interest in the said timber to the Leigh Banana Case Co. for and in consideration 5 T.C. 14">*19 of $ 4,000 in cash paid to her individually and $ 4,000 in cash paid to her as trustee for her son. The grant to the Leigh Banana Case Co. was in the same words as were the grants made by the petitioner to her individually and to her as trustee for their son, under date of December 8, 1941. The instrument also carried the same limitation as to the time within which the timber might be cut and removed.

The petitioner executed a contract of sale covering a 72/100 undivided interest in and to the timber suitable for sawmill purposes, and of the dimensions previously described. The consideration therefor was $ 19,500; $ 7,000 in cash and the promissory note of the Leigh Banana Case Co. for $ 12,500, due and payable on December 31, 1942, and bearing1945 U.S. Tax Ct. LEXIS 169">*182 interest at the rate of 6 percent. As security for payment of the note, the instrument provided that title to the timber should remain in the petitioner and that as logs were cut and removed from the land $ 4 per thousand feet should be paid to the petitioner to be applied on the note. As further security for the note, the Leigh Banana Case Co. conveyed to the petitioner a 28/100 interest in the timber which had that day been conveyed to that company by Catharine Hall Peebles individually and as trustee for her son. It was further provided that upon payment of the note by the purchaser and compliance with the terms and conditions of the contract, the vendor should then give to the purchaser a warranty deed covering the timber sold. The contract contained various provisions covering the manner and method of cutting and removing the timber from the premises. The agreement of sale between the petitioner and the Leigh Banana Case Co. and the instrument of conveyance executed by Mrs. Peebles on December 15, 1941, were filed in the office of the clerk of the Superior Court for Richmond County, Georgia, at 5:10 p. m. on December 15, 1941.

Pursuant to the terms of the sales made, the1945 U.S. Tax Ct. LEXIS 169">*183 Leigh Banana Case Co. paid $ 8,000 to Mrs. Peebles and $ 7,000 to the petitioner. Mrs. Peebles deposited $ 4,000 in the Citizens & Southern National Bank, in Augusta, Georgia, to her individual credit, and $ 4,000 to her credit as trustee for her son. The petitioner decided to invest some of his money in the stock of Georgia Railroad & Banking Co. of Augusta, and suggested to his wife that the stock would be a good investment for her. She purchased 31 shares of the said stock for the account of her son and a similar number of shares for herself individually, at $ 128.75 per share. The stock purchased was evidenced by two certificates, one issued in the name of Catharine H. Peebles and one in the name of Catharine H. Peebles as trustee for Isaac Hall Peebles. The dividends thereafter paid on the stock were paid in the names in which the shares stood. The dividends received on the stock issued to Mrs. 5 T.C. 14">*20 Peebles as trustee for her son were used regularly in the purchase of war bonds, and no other expenditures have been made therefrom other than for the payment of taxes attributable to the trust estate. The dividends received by Mrs. Peebles on the stock standing in her 1945 U.S. Tax Ct. LEXIS 169">*184 name have not been used for household expenses or other obligations of the petitioner.

On December 29, 1942, upon payment by the Leigh Banana Case Co. of all amounts due petitioner under their agreement of December 15, 1941, and on the note given pursuant thereto, the petitioner executed a deed to the Leigh Banana Case Co. covering a 72/100 undivided interest in the above timber, and at the same time quitclaimed his rights, title, and interest in and to the 28 percent interest which had been conveyed to him on December 15, 1941, by the Leigh Banana Case Co. as further security for the payment of its promissory note.

In determining the deficiency herein, the respondent determined that the gain realized upon the entire 100 percent of the timber sold to the Leigh Banana Case Co. on December 15, 1941, was the income of the petitioner, and increased petitioner's capital gain by the portions thereof which had been reported by his wife individually and by her as trustee for their son.

OPINION.

The first question is whether or not the petitioner properly reported the profits realized on the sale of timber under the Krepps contract as capital gain, and the answer to that question is to be found1945 U.S. Tax Ct. LEXIS 169">*185 by determining whether or not the timber sold was property held by the petitioner "primarily for sale to customers in the ordinary course of his trade or business," and not therefore a capital asset within the meaning of section 117 (a) of the Internal Revenue Code. In addition to the claim that the timber was a capital asset within the meaning of section 117 (a), the petitioner argues that subsection (k) (2) of section 117, ¹ added and given retroactive effect by the Revenue Act of 1943, is also applicable and that under its provisions the said gain was also properly reported as capital gain.

1945 U.S. Tax Ct. LEXIS 169">*186 That the timber was held primarily for sale appears from petitioner's own testimony, but the evidence refutes, we think, any conclusion that it was held for sale, or sold, to customers in the course of any trade or business conducted or carried on by the petitioner. He made one transaction, and that with Krepps. Thereafter his only right or 5 T.C. 14">*21 interest was the collection of the selling price of the timber. The operation was that of Krepps, who was an independent contractor, and not an employee, agent, partner, or coadventurer of petitioner. Cf. Boeing v. Commissioner, 106 Fed. (2d) 305, relied on by the respondent, wherein the logger was an employee of the taxpayer and not a purchaser of the timber. In the instant case Krepps was the purchaser of all timber cut by him in his own operation, and he was required to pay to petitioner, as the purchase price of such timber, one third of the price for which he sold the logs, or according to the scale of minimum prices specified in the contract, whichever should be the higher. The fact that Krepps, in order to make more secure the payment of the purchase price of the timber, agreed to limit his1945 U.S. Tax Ct. LEXIS 169">*187 sales to a group of four concerns and to arrange with such of those concerns as did become his customers to transmit to petitioner so much of the price at which he sold the timber as was necessary to pay the petitioner, does not make of the transaction the operation of a business by petitioner, nor does it make the companies which purchased the timber from Krepps the petitioner's customers. As to the petitioner, the timber was a capital asset and the gain realized therefrom upon its sale was properly reported by him as capital gain. Estate of M. M. Stark, 45 B. T. A. 882, and John W. Blodgett, 13 B. T. A. 1388. See and compare United States v. Robinson, 129 Fed. (2d) 297. In view of the conclusion reached, it becomes unnecessary to determine whether section 117 (k) (2), supra, is applicable.

The second question is whether the $ 4,000 received by petitioner's wife individually and the $ 4,000 received by her as trustee for her son upon the sale of the timber herein to the Leigh Banana Case Co. were received by her as the selling price of two 14/100 undivided interests in timber previously1945 U.S. Tax Ct. LEXIS 169">*188 acquired by her individually and as trustee by gift from the petitioner, or whether the said amounts were received as a gift or distribution of the proceeds which petitioner had realized from the sale of timber belonging to him. If we have the former of these two situations, the gain realized upon the sale of the two interests was properly reported by her individually and as trustee, and the gain realized by reason of such sale was not the income of the petitioner. But if we have the latter of the two situations, the respondent's determination is correct.

We do not understand that the respondent now argues that the sale of the timber to the Leigh Banana Case Co. had been made or agreed to on or prior to December 8, 1941, the date of the claimed gifts of undivided interests therein to Mrs. Peebles and her son. Furthermore, if such claim were made, it would definitely be in conflict with the evidence, and particularly the testimony of H. J. Linder, vice president of the purchasing company and respondent's own witness. And, since 5 T.C. 14">*22 we know of no rule of law to the effect that a husband and father may not make, or does not have the power to make, valid and completed gifts of1945 U.S. Tax Ct. LEXIS 169">*189 property or interests therein to his wife and child, the conclusion on the issue here must follow the answer to the question whether the things done by petitioner on December 8, 1941, effected a gift of the described interests in the timber later sold and, if they did effect gifts of the described interests, whether the proceeds here in question constituted the selling price of such interests by Mrs. Peebles for herself and for her son. We think they did.

In the first place, the words of the instruments delivered to Mrs. Peebles on December 8, 1941, were words of grant and conveyance of undivided interests in timber of specified sizes standing on certain described lands, and, since the timber in question was then standing on and attached to land owned and retained by petitioner, it is difficult to see how he might more effectively have made delivery of the subject matter of the gifts unless he should have taken it upon himself to cut and remove the timber and make physical delivery of the sawlogs and blocks themselves. It is true that the donees were given only a limited time within which to cut and remove the timber covered by the conveyances made, but such a limitation does not1945 U.S. Tax Ct. LEXIS 169">*190 change the nature, character, or effect of the grant. In McLendon Bros. v. Finch, 2 Ga. App. 421">2 Ga. App. 421; 58 S.E. 690, the Court of Appeals of Georgia said: "The time limit within which the timber must be removed is not a limitation directly upon the estate owned in the timber, but upon the concurrent license of ingress and egress necessary to the use of the timber." It was also stated that such a time limit on the removal of timber conveyed did not make a timber deed a lease. That such was the practical effect as well as the legal effect of the December 8 conveyances is demonstrated by what actually occurred thereafter. With respect to the interests covered by those conveyances, the Leigh Banana Case Co. acquired nothing from anyone other than Mrs. Peebles individually and as trustee, and, further, the interests which it did acquire from her and for which it paid $ 8,000 in cash were the identical interests, no more or less, which she had received from the petitioner on December 8, and no one, not even the respondent himself, questions the proposition that by such grant and conveyance the Leigh Banana Case Co. did on December1945 U.S. Tax Ct. LEXIS 169">*191 15, 1941, acquire those undivided interests in the said timber, as well as the 72/100 undivided interest admittedly acquired from petitioner. The proceeds from the sale of the two interests were received by Mrs. Peebles and retained by her individually and as trustee for her son. The gain realized on the said sale was properly reported by her, and the respondent was in error when in determining the deficiency herein he treated the said gain as capital gain realized by the petitioner. See and compare Chisholm v. Commissioner, 79 Fed. (2d) 14; certiorari denied, 296 U.S. 641">296 U.S. 641; Commissioner v. Court 5 T.C. 14">*23 ., 324 U.S. 331">324 U.S. 331; Harrison v. Schaffner, 312 U.S. 579">312 U.S. 579; Adolph Weil, 31 B. T. A. 899; affd., 82 Fed. (2d) 561; certiorari denied, 299 U.S. 552">299 U.S. 552; Preston R. Bassett, 33 B. T. A. 182; affd., 90 Fed. (2d) 1004; Edson v. Lucas, 40 Fed. (2d) 398.

Decision will be entered1945 U.S. Tax Ct. LEXIS 169">*192 under Rule 50.