7 .10 INC OME TAX . COMPUTATION OF NET INCOME- Contd . Basis for deprecia- tion and depletion . Ante, p . 709. General rule . Discovery value in ease of mines. Ante, p. 689. Depletion allowance withou t refer ence to discovery value . Minerals included . Oil and gas allow- ance . Maximum . Percentage depletion for coal and metal mines and sulphur . Maximum. Taxpayer's election as to com putatio n to govern future years . 73d C ONGRESS . SESS . II. CH. 277 . MAY 10, 1934. SEC. 114. BASIS FOR DEPRECIATION AND DEPLETION . (a) BASIS FOR DEPRECIATION .-The basis upon which exhaustion, wear and tear, and obsolescence are to be allowed in respect of any property shall be the adjusted basis provided in section 113(b) for the purpose of determining the gain upon the sale or other disposi- tion of such property . (b) BASIS FOR DEPLETION .- (1) GENER AL RULE .-The basis upon which depletion is to be allowed in respect of any property shall be the adjusted basis pro- vided in section 113(b) for the purpose of determining the gain upon the sale or othe r dis positi on of such prope rty, excep t as provided in paragraphs (2), (3), and (4) of this subsection . (2) DIS COVE RY VALUE IN CASE OF MINES.-In the ca se of mines (other than metal, coal or sulphur mines) discovered by the tax- payer after February 28, 1913, the basis for depletion shall be the fair market value of the property at the date of discovery or within thirty days thereafter, if such mines were not acqu ired as the result of purchase of a proven tract or lease, and if the fair market value of the property is materially disproportionate to the cost . The depletion allowance under section 23(m) based on discovery val ue provided in th is paragraph shall not exceed 50 per centum of the net income of the taxpayer (computed with- out allowance for depletion) from the property upon which the discov ery w as ma de, ex cept that in no case shall the d eplet ion allowance under section 23 (m) be less than it would be if computed without reference to discovery value . Discoveries shall include minerals in commercial quan tities contained within a v ein or deposit discovered in an existing mine or mining tract by the taxpayer after February 28, 1913, if the ve in Gr deposit thus discovered was not merely the uninterrupted extension of a con- tinuin g com merci al vei n or depos it alr eady known to ex ist, and if the discovered minerals are of sufficient value and quantity that they could be separately mined and marketed at a profit . (3) PERCENTAGE DEPLETION FOR OIL AND GAS WELLS .-In the case of oil and gas wells the allowance for deple tion under secti on 2 3(m) sha ll be 271/2 per cent um of the gr oss inco me f rom the property during the ta xab le year, excluding fr om su ch gross income an amount equal to any rents or royalties paid or incurred by the taxpayer in respect of the property. Suc h allowance sha ll not exceed 50 per centum of the net income of the taxpayer (com- puted without allowance for depletion) from the property, except th at in no case sh all the depletio n allowa nce unde r sectio n 23(m) be less than it would be if compu ted wi thout refe rence to this paragraph . (4) PERCENTAGE DEPLETION FOR COAL AND METAL MINES AND sm rir R .-The allowance for depletion under section 23(m) shall be, in the case of coal mines, 5 per centum, in the case of metal mines, 15 per centum, and, in the case of sulphur mines or deposits, 23 per centum, of the gross income from the property during the taxable year, excluding fr om su ch gr oss income an amount equal to any rents or royalties paid or incurred by the taxpayer in respect of the property. Such allowance shall not exceed 50 per cent um of the net income of the ta xpayer com puted with out allowance for depletion) from the property . taxpayer making his first return under this title in respect of a property shall state whether he elects to have the depletion allowance for such property for the taxable year for which the return is made computed with or without regard to percentage depletion, and the depletion allow-
