The taxpayer promoted the sale of shares in another company ("Farmers Mutual"). In particular, it acted as agent of Farmers Mutual in arranging for Farmers Mutual to acquire the freehold mineral rights and interests as lessor of farmers, who had previously leased their mineral rights, in consideration for Farmers Mutual issuing treasury shares to the farmers. Where the farmers had not already leased their mineral rights, the taxpayer would itself enter into a lease (as lessee) with the farmers of the mineral rights, with the farmers then transferring their interests as lessors to Farmers Mutual in consideration for shares of Farmers Mutual. Approximately one year after the formation of Farmers Mutual, the taxpayer sold its interest as lessee in the latter leases at a gain.
At the time these lease were acquired, the taxpayer was aware that they provided for delay rentals where there was no drilling, and there was no evidence that it intended to work the leases or that it intended to hold the leases as an investment. As the leases were deliberately acquired by the taxpayer as part of its business of operating Farmers Mutual, the gain was a taxable profit.