From November 27, 1942, to August 7, 1944, petitioner completed two gas wells and a dry hole on the south tract. Both gas wells have been capped for lack of a market.

In its 1941 income tax return petitioner deducted the amount expended for the geophysical survey. This deduction was disallowed by the respondent.

Issue 4.-In 1936 petitioner had acquired a number of oil and gas leases on land situated in Iberia Parish, State of Louisiana, and had attempted to acquire such a lease on a 575-acre tract situated in the same area and known and hereinafter referred to as Rosedale Plantation. The owners of Rosedale Plantation having refused to grant petitioner an oil and gas lease thereon, petitioner purchased the land in fee in 1936, primarily for the purpose of acquiring the mineral rights thereto. The land is located approximately 21⁄2 miles south of the New Iberia Oil Field.

Petitioner paid $30,000 for Rosedale Plantation, $18,000 of which was assigned on petitioner's books to the mineral rights in the land and $12,000 to the surface thereof. At the time petitioner purchased the land the surface had a value of $15,000 and the mineral rights had a value of $15,000.

From the time petitioner acquired the property to the end of 1942 it received the following amounts as rent for the use of the land for agricultural purposes and paid the following taxes thereon:

*This amount represents a compromise settlement made for 1942 and reported as 1943 income.

Prior to or during 1942 petitioner leased the mineral rights to Rosedale Plantation to one Paul G. Benedum, an oil producer who also owned about 39 oil and gas leases covering approximately 4,000 acres of land adjacent to Rosedale. In 1942 Benedum drilled a hole on Rosedale Plantation to a depth of 9,017 feet. Four geologists examined the mud and cuttings from the hole and no shows of oil or gas were found. The Schlumberger test, commonly used in the oil and gas industry as an aid in determining whether a well contains oil or gast shows, was also negative. No cores were taken from the well for examination, since nothing was found which in the opinion of one Buford Miller, an experienced geologist employed by Benedum, justified taking them. The sand from the well was not correlated with

the sand producing in the New Iberia Field, for the reason that Miller had concluded that the difference in underlying structures rendered correlation impossible. On February 22, 1942, the well was abandoned by Benedum and all his leases in that area were forfeited by nonpayment of rental. This abandonment and forfeiture were on the recommendation and advice of Miller. This advice was to the effect that the hole had tested the Miocene sands in that area, which were producing in the New Iberia Oil Field to the north at 7,700 feet on one flank and 5,800 feet on the other, and to the effect that the low structure of the Miocene in the hole indicated that the structure of the Oligocene sands, found at about 14,000 feet and productive in the New Iberia Oil Field, were also low and would also be unlikely to produce shows of oil or gas.

Previous to the commencement of the Benedum well a dry hole known as Hamil Smith Baez had been drilled three or four miles northwest of the Benedum well to a depth of 7,948 feet, and about the same distance southeast of the Benedum well a dry hole known as Hamil Smith Burleigh had been drilled to a depth of 3,031 feet. Both of these holes had been abandoned. As a consequence of the unsuccessful drilling by Benedum in 1942 on petitioner's land, it determined the land had no value for oil production purposes and made no further exploration for oil thereon. In 1943 or 1944 one Phillips drilled a 12,000-foot dry hole in the vicinity of the Baez well.

Petitioner took no deduction for loss in its return for 1942 in respect of its determination that the land was valueless for oil production, but it claims in the petition that such a deduction is allowable in the amount of $18,000. On brief, petitioner states that $15,000 rather than $18,000 is the correct amount of the deduction.

The land in question had a substantial market value during the taxable years, regardless of whether or not it was valueless for oil production.

OPINION.

HILL, Judge: Issue 1.-As is conceded by respondent on brief, the depletion issue involves the same type of payment to this petitioner under the same contract as was considered with respect to the years 1939 and 1940 in Louisiana Land & Exploration Co., 6 T. C. 172. In that proceeding, the opinion in which was promulgated after this case was submitted, we sustained this petitioner's deduction of percentage depletion on such payment on the authority of Kirby Petroleum Co. v. Commissioner, 326 U. S. 599. We accordingly hold here that petitioner properly deducted as depletion in 1941 and 1942 2712 per cent of the amounts received from Texas in those years as 813 per cent of the net profits from the lease operations.

Issue 2.-While petitioner concedes on brief that the $6,000 paid in 1941 for attorneys' fees in connection with the McEnery litigation must be capitalized as an additional investment in the land which was the subject of the litigation, it contends that the $25,000 cash payment to Texas was properly capitalized as the cost of acquisition from Texas of the McEnery heirs' lease. It is then argued that the recognition by the McEnery heirs in 1941 of petitioner's title to the land in dispute rendered the lease valueless, with the result that petitioner then sustained a deductible loss in the amount of the undepleted cost thereof. Respondent's position is that the $25,000 was expended in defense of petitioner's title to the disputed lands and is therefore properly capitalized to that interest and brings petitioner no tax benefit except through depletion deductions or as a loss deduction when the land is disposed of.

We think a realistic view of the various transactions resulting from the claim of title by the McEnery heirs compels the conclusion that the $25,000 represents an additional investment by petitioner in the land. Prior to and during the assertion of title by the McEnery heirs petitioner insisted that it was the title owner. Petitioner paid, among other amounts, the $25,000 here in question to rid itself of the difficulties created by the disputants. The McEnery heirs received, among other amounts, a $25,000 cash payment. It is stipulated here that "the basis for the [compromise] settlement was that the 'McEnery heirs' were to retain the $25,000 cash payment *" Although the agreement of compromise contains no provision with respect to this cash. payment, the history of the controversy between the parties establishes it as part of the value received by the heirs as a result of their assertion of title. In our view the $25,000 must be regarded as part of the consideration paid by petitioner to quiet the claim of the heirs by securing from them a recognition of its ownership of the land, and it must therefore be capitalized to the land. Murphy Oil Co. v. Burnet, 55 Fed. (2d) 17, 25.

Petitioner urges on brief that the $25,000 payment is in an entirely different category from the amounts paid directly in the conduct and settlement of the litigation. We have not overlooked the fact that petitioner actually made the payment in question to Texas as reimbursement to it of the amount paid the McEnery heirs and that Texas conditionally agreed to assign the McEnery lease to petitioner. It is also true that the payment and the agreement predated the final settlement of the controversy and that the McEnery heirs were not parties to the former. As indicated above, however, we are of the opinion that the acts and motives of petitioner, Texas, and the McEnery heirs with respect to this land must be viewed in their relation to the title dispute and their effect upon its outcome. Cf. Hoboken Land &

Improvement Co., 46 B, T. A. 495, 511; affirmed on other issues, 138 Fed. (2d) 104; Ravlin Corporation, 19 B. T. A. 1112, 1115; Ed Foster, 19 B. T. A. 958, 961. The success of petitioner's overall effort to protect its investment in the land was undoubtedly due in part to the $25,000 cash payment. We are not called upon to consider the tax consequence of the payment under circumstances other than those which actually occurred and, even aside from the fact that petitioner never acquired the McEnery lease, we are not persuaded that the immediate circumstances surrounding the outlay of the $25,000 afford a sound basis for treating it differently from the expenditures which petitioner concedes must be capitalized to the land as the cost of perfecting title thereto. Cf. Burton-Sutton Oil Co. v. Commissioner, 150 Fed. (2d) 621; certiorari denied on this issue, 326 U. S. 755, and cases there cited.

We accordingly hold that respondent correctly disallowed the deduction of $25,000 as a loss sustained in 1941. As is conceded by petitioner, the disallowance of the deduction of $6,000 attorneys' fees was also proper and we so hold.

Issue 3. This issue involves the deductibility of an amount spent by petitioner in 1941 for a geophysical survey of property under lease to it at the time the survey was made. Petitioner contends that the total amount is deductible under section 23 (a) (1) (A) of the Internal Revenue Code as an ordinary and necessary business expense. In the alternative, petitioner argues that all of such amount is so deductible except that attributable to the 2,080-acre lease acquired after the survey was made. Respondent's position is that the entire expenditure is "in the nature of an addition to lease cost" and, under section 24 (a) (2) of the Internal Revenue Code and section 19.24-2 of Regulations 103, must be capitalized.

Section 24 (a) (2) prohibits the deduction of amounts paid "for permanent improvements or betterments made to increase the value of any property or estate." Section 19.24-2 of Regulations 103 provides that "amounts paid for increasing the capital value of property are not deductible from gross income." Petitioner contends that section 24 (a) (2) does not prohibit the deduction claimed. It is argued that the geophysical survey was not an improvement or betterment of its property, because it added nothing tangible thereto, and that it did not and could not increase the value of the property for oil-producing purposes because there was just as much oil and gas on the land prior to the survey as there was afterwards.

We deem it unnecessary to discuss either the arguments of petitioner with respect to the scope of section 24 (a) (2) or those as to the "ordinary and necessary" character of the expenditure in question, for in our view the geophysical expense here involved is capital in

nature and is for that reason not deductible under section 23 (a) (1) (A). The distinction between capital expenditures and business expenses is generally made by looking to the extent and permanency of the benefit derived from the outlay. The benefit from business expenses is generally realized and exhausted within a year and the expense is therefore said to be of a recurring nature. See W. B. Harbeson Lumber Co., 24 B. T. A. 542, 550. On the other hand, an item of expense is of a capital nature where it results in the taxpayer's acquisition or retention of a capital asset, or in the improvement or development of a capital asset in such a way that the benefit of the expenditure is enjoyed over a comparatively lengthy period of business operation. See Commissioner v. Boylston Market Assn., 131 Fed. (2d) 966; Clark Thread Co. v. Commissioner, 100 Fed. (2d) 257; Parkersburg Iron & Steel Co. v. Burnet, 48 Fed. (2d) 163; James M. Osborn, 3 T. C. 603. A capital expenditure is thus nonrecurring, even though many similar expenditures are made by the taxpayer. The one-year period referred to above is not, of course, a touchstone to be arbitrarily applied, but is resorted to in definition as an aid in expressing the distinction. It should also be observed that in exceptional cases certain expenses which might never recur have been held to be deductible business expenses. See, e. g., Kornhauser v. United States, 276 U. S. 145. The theory of those decisions, however, suggests no conflict with the basic nature of a capital expense as stated above, and the item here involved is not similar to the items considered in those cases.

As to the function and frequency of geophysical surveys in the oilproducing business, we can only rely here upon such inferences as may be drawn from the portion of the stipulation which sets forth the technical procedure by which such a survey is made. On this issue, the record contains no evidence other than the stipulation. We think, however, that the agreed facts do justify a conclusion in accord with petitioner's statement on brief that the purpose of this geophysical survey was to determine whether the land contained subsurface structures sufficiently high so as to make drilling for oil economically feasible.

It thus appears that the results of this survey were to guide petitioner in determining generally whether and to what extent these large areas of land should be explored by drilling wells. Whether or not the scientific knowledge gained from the survey indicated that drilling would be successful or unsuccessful, it was undoubtedly the information upon which would be based further tests and potential drilling operations during the entire period of petitioner's exploitation of the land for oil and gas. Cf. Parkersburg Iron & Steel Co. v. Burnet, supra, at page 165. This survey was not connected with the drilling of any particular well or wells and was not confined to any restricted area