29 T.C. 1071">*1072 The Commissioner determined a deficiency of $ 23,607.51 in the income tax of the petitioner for 1952. He disallowed $ 32,619.21 of the depletion deduction claimed by the petitioner and explained:

(a) It is held that charitable1958 U.S. Tax Ct. LEXIS 244">*245 contributions in the amount of $ 103,842.00 are proper deductions in determining "net income from the property" for purposes of computing percentage depletion allowable under Section 114 (b) (4) (A) (iii) of the 1939 Code. Accordingly, claimed depletion in the amount of $ 32,619.21 has been disallowed, reducing the amount of depletion allowable from $ 2,067,157.91 to $ 2,034,538.70. See Exhibit "A" for details.

The only issue for decision is whether the charitable contributions in the amount of $ 103,842, or any part thereof, are proper deductions in determining "net income from the property" for the purpose of computing percentage depletion allowable under section 114 (b) (4) (A) (iii) of the 1939 Code.

FINDINGS OF FACT.

The petitioner filed its corporate income tax return for 1952 with the district director of internal revenue for the Upper Manhattan district of New York. It was engaged in mining, refining, and selling potash and sodium chloride. Its potash mine was about 22 miles from Carlsbad, New Mexico, and the refinery was nearer Carlsbad. Its gross sales of potash for 1952 were a little over $ 15,000,000 and its gross sales of sodium chloride were less than $ 11,000.

1958 U.S. Tax Ct. LEXIS 244">*246 The petitioner mines potash at a depth of 1,000 feet. The ore is brought to the surface, crushed, sized, and shipped 16 miles to the refinery where it is refined into high-grade muriate of potash. The product is then shipped to markets all over the world.

The petitioner regarded its mining operations as nonhazardous because there is no gas or fire hazard in a potash mine and because of the extraordinary precautions taken in building the mine and the plan of operations for extracting the ore. It has had a fine record in respect to injuries. The only accidents have been minor ones.

A committee was formed to study the question of how the hospital needs of the increasing population of the Carlsbad area could be met, and as a result the Carlsbad Hospital Association Fund made the drive for funds. There were 3 large and 2 smaller potash mining companies operating in the Carlsbad area. The 3 larger companies agreed to put up $ 100,000 apiece and the 2 smaller ones $ 50,000 apiece.

The petitioner, in its return for 1952, claimed a deduction for contributions in the total amount of $ 103,842. The amounts making up that total were paid by the petitioner during the year 1952 to the 561958 U.S. Tax Ct. LEXIS 244">*247 organizations named, all of which were "charitable organizations" within the meaning of section 23 (q), I. R. C. 1939.

A permanent account, entitled "Contributions," was maintained on the petitioner's books of account during 1952. It was a subsidiary account to another entitled "Operating, General and Miscellaneous 29 T.C. 1071">*1073 Expenses." All of the contributions above mentioned were charged to the contributions account.

The largest contribution was one of $ 65,000 made to the Carlsbad Hospital Association Fund. There were 2 hospitals located in Carlsbad, New Mexico, in 1952, St. Francis Hospital, with a 66-bed capacity, and Carlsbad Memorial Hospital, with a 28-bed capacity. The 2 hospitals served a population of about 25,850. The population of Carlsbad proper increased about 150 per cent between 1940 and 1952 without any increase in hospital bed capacity.

The Carlsbad Hospital Association Fund was initiated in 1952 to increase the capacity of St. Francis Hospital to 97 beds and to replace the other hospital with a new structure having a 57-bed capacity. Both hospitals needed extensive improvements in 1952. The St. Francis Hospital was operated by Catholic nuns. The estimated1958 U.S. Tax Ct. LEXIS 244">*248 cost of the additional hospital facilities was $ 1,000,000. About $ 400,000 in pledges was obtained in 1952, largely from the potash-mining companies of the Carlsbad region. The petitioner pledged $ 100,000. A campaign was then started to obtain the remaining $ 600,000 from business and professional men and the general public. The new structures were completed in 1956 and 1957 by using the money raised in the drive, a Hill-Burton grant, and Ford Foundation funds.

The petitioner had between 1,000 and 1,100 employees in the Carlsbad area. These people had about 3,000 dependents. There were 6,273 admissions to the 2 hospitals in 1952, including 32 employees of the petitioner admitted for injuries occurring while on the job, and 679 admissions of employees of the petitioner and their dependents for reasons not connected with the employees' work.

The petitioner had a policy to support worthy causes that were good for the community. No contribution made in 1952 was made because it was necessary in the mining operations.

The hospital facilities of Carlsbad in 1952 were adequate for the needs of the petitioner. Its employees had not experienced any difficulty in being admitted to 1958 U.S. Tax Ct. LEXIS 244">*249 the hospitals prior to the contribution. The company would not have built any facilities of its own if the hospital capacity of the 2 Carlsbad hospitals had not been increased.

The sole motive of the petitioner in contributing to the Hospital Fund was to do its share in providing adequate facilities for the community. The contribution was purely voluntary without any obligation to contribute. There was no agreement of any kind that the petitioner or its employees would receive any special attention, rates, or other benefits as a result of its contribution.

The petitioner never provided any medical facilities except from first aid kits at its mine. It paid a doctor in Carlsbad a small retainer and he was engaged mainly in examining prospective employees as 29 T.C. 1071">*1074 to blood pressure, heart condition, etc., to see whether they could do the work of a miner or refinery worker.

The other 55 contributions were made to hospitals, health and welfare organizations, churches, and civic organizations, some being national organizations but most of them being local either in the New York or Carlsbad areas.

All stipulated facts are incorporated herein by this reference.

OPINION.

The petitioner1958 U.S. Tax Ct. LEXIS 244">*250 is entitled to deduction for percentage depletion under sections 23 (m) and 114 (b). The only question here relates to the computation of "the net income of the taxpayer * * * from the property" for the purpose of the limitation on the deduction under section 114 (b) (4). The Commissioner concedes that 55 of the contributions made by the petitioner in 1952 are deductible under section 23 (q) but contends that the $ 65,000 paid to the Carlsbad Hospital Association Fund was a business expense deductible under section 23 (a) and not a charitable gift deductible under section 23 (q). He also contends that all of these amounts must be deducted in computing "the net income * * * from the property" for the purpose of section 114 (b) (4), whether they are deductible under section 23 (a) or (q).

Corporations were not allowed deductions for charitable contributions prior to the Revenue Act of 1935, but could claim deductions for amounts paid to charities only if they qualified as ordinary and necessary expenses of the business. The Commissioner has adhered to the position that the payment, to be deductible as a business expense, would have to be made in consideration of "a binding obligation" 1958 U.S. Tax Ct. LEXIS 244">*251 on the part of the charity to do something for the corporation. Cf. I. T. 1980, III-1 C. B. 293 (1924), and Regs. 118, sec. 39.23 (a)-13. A corporation was allowed to deduct a contribution to a hospital as a business expense where its employees were to receive reduced rates, Franklin Mills, 7 B. T. A. 1290; where its employees were to receive free services up to the amount of the payment, Clark Thread Co., 28 B. T. A. 1128; where the money was to build a hospital in a "company town" predominately for the benefit of improving labor conditions for the donor, Sugarland Industries, 15 B. T. A. 1265; where the donor directly and predominately benefited and made the payment as an alternative to supplying substitute facilities itself, Missouri-Pacific Railroad Co., 22 B. T. A. 267, Corning Glass Works v. Commissioner, 37 F.2d 798, certiorari denied 281 U.S. 742">281 U.S. 742, reversing on this issue 9 B. T. A. 771. The deductions were allowed in the above cases over the protest of the Commissioner1958 U.S. Tax Ct. LEXIS 244">*252 who urged that a more stringent rule should be met. The taxpayers were not allowed the deductions as 29 T.C. 1071">*1075 business expenses in Fire Companies Building Corporation, 18 B. T. A. 1258, since the donor had no moral or legal duty to furnish hospital facilities, and in American Rolling Mill Co., 14 B. T. A. 529, 536-537, where it was said:

The benefits which petitioner derived were of the same character as those which flowed to every other corporation and citizen of the community. While we have no doubt that petitioner did derive benefit from these civic improvements, we are of opinion that the benefit was indirect rather than direct. * * *

The contribution in the latter case was $ 360,000 to a $ 1,000,000 civic fund to build, inter alia, "necessary additions to" a hospital and "a new Y. M. C. A. building" as part of a civic program in a growing community, population then about 23,000, of which the donor's employees formed about one-half. That case was reversed, see 41 F.2d 314. Cf. Carso Paper Co., 3 B. T. A. 28.

The $ 65,000 contribution of the petitioner1958 U.S. Tax Ct. LEXIS 244">*253 would not be deductible as an ordinary and necessary business expense under the above cases. The petitioner neither asked nor received any kind of a promise or agreement as to charges, services, or facilities, it did not contribute as a necessary alternative to some other use of its money, and the facilities were not to benefit its employees any more than all others in the community. This contribution was solely in consideration of the other similar gifts made to the fund as a community effort. It was not required and had no strings attached.

Section 23 (a) (1) (B) provides that no deduction shall be allowed to a corporation under section 23 (a) (1) (A) "for any contribution or gift" allowable under subsection (q) but for the 5 per cent limitation. The $ 65,000 contribution was just like the other 55, a purely voluntary act, a gift. It was in a true sense a charitable contribution deductible under section 23 (q) and not under section 23 (a) (1) (A) as an ordinary and necessary expense of the petitioner's business.

This Court has held that charitable contributions deductible under section 23 (q) are not "attributable to the mineral property" and are not to be deducted in computing1958 U.S. Tax Ct. LEXIS 244">*254 "net income * * * from the property" for the purpose of section 114 (b) (4). F. H. E. Oil Co., 3 T.C. 13, affirmed on other issues 147 F.2d 1002, and it follows that authority here. The Commissioner contends that the holding in that case is wrong and should be overruled, but the cases he cites are not in point since they all involve deductions of real business expenses or other items which were deductible because essential to the mining operation. Charitable deductions are gifts, voluntarily made, and not expenses of or essential to the mining operation. All of the 56 contributions made by the petitioner during 1952 were deductible under section 23 (q).

Decision will be entered under Rule 50.