79 Opinion of the Court. the country is now in bankruptcy.18 The petitioners ask us to say that district judges in twenty-nine states have effective power, in view of the weight which often attaches to findings at nisi prius, to set aside the regulatory systems of these twenty-nine states with all the consequences implied for those communities. Congress gave no such power. Arguments of convenience against denial of the existence of this power have been strongly pressed upon us. Continuance of state control over these local passenger services will, it is urged, impair the bankruptcy court's power to formulate a reorganization plan for the approval of the Interstate Commerce Commission. Such embarrassments, due either to the time required for exhaustion of the orderly state procedure or to the financial losses that may be involved in the continuance of local services until duly terminated by the state, may easily be exaggerated. It is not without significance that after four years no reorganization plan for the New Haven has yet been evolved. Perhaps it is no less true that amenability to state laws will serve as incentive to the formulation of reorganization plans which, on approval by the Commission, do supplant state authority. But, in any event, against possible inconveniences due to observance of state law we must balance the feelings of local communities, the dislocation of their habits and the over-riding of expert state agencies by a single judge sitting, as in this case, in another state, removed from familiarity with local problems, and not necessarily gifted with statesman-like imagination, that transcends the wisdom of local attachments. 10 On October 23, 1939, there were 61,292.69 miles of railroad in bankruptcy proceedings under § 77. This mileage includes lines in 29 states. Other arguments, drawn from the legislative history of § 77 and from the general equity powers conferred by § 77(a) and § (77) (c) (2), were urged but we deem it unnecessary to say more. The decree below is 17 Affirmed. MR. JUSTICE BUTLER took no part in the consideration and decision of this cause. HELVERING, COMMISSIONER OF INTERNAL REVENUE, v. WILSHIRE OIL CO., INC.* CERTIORARI TO THE CIRCUIT COURT OF APPEALS FOR THE NINTH CIRCUIT. No. 1. Argued October 9, 1939.-Decided November 6, 1939. 1. An oil company which pursuant to a Treasury Regulation elected irrevocably to deduct development expenses from gross income in computing its taxable net income rather than charge them to capital account, and which made this election at a time when Treasury practice under the Revenue Acts of 1921, § 234 (a) (9), and 1924, § 204 (c), required that "operative expenses" but not expenses of development be deducted from gross income in computing "the net income from the property" which limits the depletion allowance, has no ground to attack as retroactive a later regulation made under the Revenue Act of 1928, § 114 (b) (3), and looking to the future, which requires that development, as well as operative, expenses be deducted in the computation. P. 97. "In re Tyler, 149 U. S. 164, and other decisions of this Court cited by petitioners deal with attempts at "physical invasion" of the prop¬ erties held in the custody of a federal court. See 149 U. S. at 182. Section 65 of the Judicial Code (36 Stat. 1104, 28 U. S. C. § 124) decisively indicates that Congress did not intend that those who operate a business under the control of a federal court should be immune from the regulatory authority of the several states any more than they are from their taxing power. * See No. 2, Helvering v. Bandini Petroleum Co. and No. 3, Helvering v. Wilshire Annex Oil Co., post, p. 512. Tax statutes and regulations are subject to change. The taxpayer in making its election took the risk that the method of treating depletion might be altered by statute or authorized regulation. 2. The claim that it was inequitable in the present case to alter the regulations in the manner above described after the taxpayer had made its irrevocable election in its return for the year 1925, can not be allowed in view of the fact that in 1927, after the basis of depletion had been changed by the Act of 1926 from a "discovery value" to a percentage basis, an opportunity to make a new election as to the treatment of development expenses for taxable periods ending on or after January 1, 1925, was offered by Treasury decision, of which the taxpayer failed to take advantage. P. 97. An opinion of the General Counsel of the Treasury is considered in this case, in connection with a Treasury decision, as affording notice that a change might be made in the practice touching the treatment of development expenses in determining depletion allowances for oil wells. 3. The term "net income from the property," used in the Revenue Acts of 1921, 1924, 1926 and 1928 as a limitation upon allowance for depletion of mines, including oil wells, was construed by the Treasury, under the two earlier statutes, as meaning gross income from the property less "operating expenses," not including development expenses. Under the Act of 1926, however, (which adopted an arbitrary percentage of gross receipts, instead of "discovery value," as the basis of depletion allowances for oil and gas wells) the Treasury changed its policy in respect of such deductions and altered its regulation; and under the Act of 1928, it promulgated a regulation which required that development expenses as well as operating expenses be deducted in computing the net income limitation on depletion where the taxpayer had elected to deduct development expenses in computation of taxable net income. Held: (1) That the legislative approval of the earlier administrative construction of the term "net income from the property," implied from the reënactment in 1924 of the statutory provision of 1921, can not be attributed also to the reënactment of 1928, in view of the intervening change of Treasury construction of the same statutory language in the Act of 1926. P. 99. (2) The statement that administrative construction receives legislative approval by reenactment of a statutory provision without material change, applies where the validity of administrative action standing by itself may be dubious or where ambiguities in a statute or rules are resolved by reference to administrative practice Opinion of the Court. 308 U.S. prior to reenactment of a statute; and where it does not appear that the rule or practice has been changed by the administrative agency through exercise of its continuing rule-making power. It does not mean that a regulation interpreting a provision of one Act becomes frozen into another Act merely by reënactment of that provision, so that that administrative interpretation can not be changed prospectively through exercise of appropriate rule-making powers. P. 100. 4. The power conferred by § 23 (1) of the Revenue Act of 1928 to make rules and regulations for the computation of depletion allowances, extends to the percentage depletion allowance under § 114 (b) (3), and includes administrative construction of the ambiguous phrase "net income from the property." P. 101. Restrictions on that power should not be lightly imposed where the incidence of such rules as are promulgated is prospective only. 95 F. 21 971, reversed. CERTIORARI, 306 U. S. 628, to review an affirmance by the court below of a decision of the Board of Tax Appeals (35 B. T. A. 450) reducing a deficiency assessment. Mr. Arnold Raum, with whom Solicitor General Jackson, Assistant Attorney General Clark, and Messrs. Sewall Key and Ellis N. Slack were on the brief, for petitioner. Mr. Joseph D. Brady for respondent. MR. JUSTICE DOUGLAS delivered the opinion of the Court. This case presents the question whether respondent, Wilshire Oil Company, Inc., in computing its net income for the years 1929 and 1930 for the purpose of applying the 50 per cent limitation on depletion allowance under § 114 (b) (3) of the Revenue Act of 1928 (45 Stat. 791), may refuse to take as deductions certain development expenditures,1 where it has deducted those development 1 These expenditures consisted of such items as labor, fuel and power, materials and supplies, tool rental, truck and auto hire, repairs to drilling equipment and depreciation upon equipment used in drilling. 90 Opinion of the Court. expenditures in computing its taxable net income for those years. The Board of Tax Appeals held for the respondent (35 B. T. A. 450) and that decision was affirmed by the Circuit Court of Appeals, one judge dissenting (95 F. 2d 971). Because of the importance of the problem of the scope of the Commissioner's rulemaking power and because of an asserted conflict of the decision below with the decision of the Circuit Court of Appeals for the Fifth Circuit in Commissioner v. F. H. E. Oil Co., 102 F. 2d 596, we granted certiorari. Respondent is engaged in the business of producing oil and gas from its various properties. In computing taxable net income in its returns for 1929 and 1930 respondent, pursuant to the regulations, deducted development expenditures in the respective amounts of $606,051.66 and $279,927.04. But it refused to make those deductions in determining its "net income from the property" for the same years, when computing allowable depletion under § 114 (b) (3) of the Revenue Act of 1928.2 'For the year 1929 the Commissioner's computations were as follows: Gross Income from the properties... Development ex pense.... Total expenses... $1,001,375. 17 606, 051.66 777, 450. 69 Net income from property (computed without allowance for depletion)..... 50 per cent of that income..... $223, 924. 48 $111,962. 24 The Commissioner limited the depletion allowance to the last mentioned figure since 50 per cent of the net income from the property as thus computed was less than 272 per cent of the gross income. Under the taxpayers computation, the net income for depletion purposes would be $1,001,375.17 less $171,399.03 or $829,976.14 and 50 |