The Party of the Second Part hereby covenants and agrees, in consideration of the covenants and agreements herein contained * * * to pay to the party of the first part, the sum of $ 4.00 per ton of 2,000 lbs, for all coal so mined and delivered, * * * but said amount shall be subject to change, by mutual agreement of the parties hereto, as the coal market fluctuates, from time to time hereafter; * * * It is expressly understood that the foregoing compensation shall1956 U.S. Tax Ct. LEXIS 45">*48 be * * * the full and complete payment * * * to the party of the first part for performing and doing all the work hereunder, for providing all the necessary materials, apparatus (including tipples, chutes, docks, outbuildings and/or other similar necessary structures), machinery, tools, and supplies, and for furnishing all the necessary labor, under this Contract; * * *

* * * *

(B) The period for the duration of this contract is co-extensive with the term of the aforesaid Lease from the Youngstown Mines Corporation, et als., to Norma Mining Corporation, but either party hereto may terminate this Contract, without cause, after thirty (30) days notice, in writing, to the other party, of his or its intention so to do.

* * * *

(E) That, whenever during the tenure of this Contract, by reason of economic conditions or otherwise, the party of the second part is unable to sell or otherwise dispose of, at a reasonable profit, the coal produced hereunder by the party of the first part, the party of the second part shall have the right to require 27 T.C. 133">*135 the suspension of further mining of coal by the party of the first part by giving at least 24 hours' notice, in writing, thereof to the party1956 U.S. Tax Ct. LEXIS 45">*49 of the first part, whereupon the party of the first part shall suspend the mining of, and shall produce no more coal until authorized so to do by the party of the second part.

(F) That the party of the second part hereby expressly reserves the right to mine, by strip mining methods, such of the Upper Seaboard Seam of coal underlying the above designated parcel of land which cannot properly be mined, by deep mining, by the party of the first part, so long as such strip mining operations by the party of the second part, its agents or independent contractors, shall not interfere with the deep mining operations by the party of the first part hereunder.

In addition, the partnership was to provide all necessary material, including tipples, chutes, docks, outbuildings, and machinery; to lay and construct all necessary mining tracks; to furnish all necessary labor; to provide adequate and complete workmen's compensation insurance; to pay all taxes and assessments upon the privilege of mining the coal or upon the property from which the coal was mined; and to indemnify Norma against all claims and damages of any kind arising out of the carrying on of work under the contract.

During the year1956 U.S. Tax Ct. LEXIS 45">*50 1952, Rebecca Coal Company received gross income in the amount of $ 162,562.31 under its contract with Norma. In the partnership information income tax return filed for that year it claimed percentage depletion in the amount of $ 16,256.23, of which amount $ 5,418.74 was allocable to the interest of Sam and a like amount to the interest of Walter. The remainder was allocable to the third partner. In their income tax returns for 1952, both Sam and Walter reported their distributive shares of partnership income from Rebecca after deducting their allocable parts of the claimed percentage depletion. In determining the deficiencies herein, the respondent disallowed such deductions for depletion.

Rebecca Coal Company possessed an economic interest in the coal which it mined under the contract with Norma Mining Corporation.

OPINION.

The petitioners herein argue that by virtue of the contract under which they mined coal for Norma, they possessed an economic interest therein and are, therefore, entitled to a deduction for depletion, as provided in sections 23 (m) ¹ and 114 (b) ² of the 27 T.C. 133">*136 1939 Code. The respondent, on the other hand, contends that the partnership derived only1956 U.S. Tax Ct. LEXIS 45">*51 an economic advantage from its mining operations and that it, therefore, possessed no depletable economic interest in the coal which it mined.

1956 U.S. Tax Ct. LEXIS 45">*52 Upon a careful review of the entire record in this case, we are satisfied that the partnership, and, through it, the petitioners, possessed an economic interest in the coal which they mined under the contract with Norma.

Among the most important criteria in determining whether an independent contractor possesses a true economic interest or only an economic advantage in the coal which he mines are whether or not he has an exclusive right to mine all of the coal within a given area and whether he must look to a sale thereof for his profit -- the price which he receives being dependent upon the market price of the coal when sold. (C. A. 9, 1955), affirming a Memorandum Opinion of this Court filed June 30, 1954. The contract here gave the partnership the exclusive right to deep mine all of the coal within a given area. It also provided that the partnership's compensation for the coal which it mined was to be $ 4 per ton. That price, however, was subject to adjustment by mutual agreement of the parties depending upon fluctuations in the coal market. We therefore conclude that under the terms of the contract, 1956 U.S. Tax Ct. LEXIS 45">*53 the partnership acquired an economic interest in the coal and was entitled to recover its investment by way of a percentage depletion deduction on the authority of ; ; and .

We note that one of the provisions of the contract was to the effect that if Norma was unable to sell or otherwise dispose of, at a reasonable profit, the coal produced by Rebecca, Norma should have the right to suspend further mining operations and Rebecca could not mine any more coal until authorized to do so by Norma. Despite the fact that that particular provision of the contract gave Norma control over the amount of coal mined, Rebecca, nevertheless, possessed the exclusive right to mine coal when mining operations were conducted. If Rebecca could not mine the area, no one else was able to do so. We therefore conclude that such control of coal production as Norma retained was not sufficient to destroy Rebecca's economic interest in the coal which it did, in fact, mine during the year in issue.

Decisions1956 U.S. Tax Ct. LEXIS 45">*54 will be entered for the petitioners.