The opinion of the court was delivered by: GIBSON
1. The plaintiff is a citizen and resident of the borough of Clearfield, county of Clearfield, and state of Pennsylvania, and of the United States.
2. Defendant is the duly appointed, commissioned, and qualified Collector of Internal Revenue for the Twenty-third District of Pennsylvania, in said Western District, and resides in the borough of Kittanning, in said Western District.
3. In accordance with the provisions of the income tax laws of the United States, the plaintiff duly filed in the office of C. G. Lewellyn, then Collector of Internal Revenue for the Twenty-third District of Pennsylvania, an income tax return for the year 1917, and upon such return was assessed with income taxes amounting to $1,418.49, which he duly paid to the said Collector of Internal Revenue.
5. That within sixty days of the time of the payment of said sum of $6,165.17, the plaintiff filed his claim for refund, which was rejected as indicated by letter of January 29, 1924 (Plaintiff's Exhibit C), and on the 12th day of March, 1924, this action was instituted.
6. That the Commissioner of Internal Revenue disallowed the claim of the plaintiff that the sum of $17,500 should be added to the $11,500 allowed by said Commissioner, making a total of $29,000, in determining the cost of the capital stock of the Hale Coal Company and the Lady Smith Coal Mining Company.
7. That by reason of said disallowance, the plaintiff was assessed with and paid additional income tax for the year 1917 in the amount of $3,138.59, of which sum, $2,989.08 is an overassessment and the sum of $149.51 is the excess penalty collected; which sum of $3,138.59, with interest from May 11, 1923, the plaintiff seeks to recover in this action.
8. By stipulation entered into between both parties, the plaintiff waived all exemption to items of additions made by the Commissioner of Internal Revenue except the additional assessment of alleged profit made on the sale of the stock of the Hale Coal Company and the Lady Smith Coal Mining Company and the additional penalty collected by reason thereof.
9.That in the year 1912, and for many years prior thereto, Caroline H. Steinman was the owner in fee of certain lands in Rush township, Centre county, Pa.
10. That Caroline H. Steinman and her husband, A. J. Steinman, for several years prior to 1912 had spent considerable money and labor in prospecting the location, the extent, and value of the coal seams underlying said land. The cost of said investigation and prospecting amounting to approximately $25,000.
11. That Caroline H. Steinman, prior to 1912, had had offers to lease or otherwise dispose of said property.
12. That in the year 1911, diamond drilling and other prospecting works were carried on on said property by John F. ...