BIR Ruling

November 24, 1966 Mr. V. E. Lednicky Mercury Building 430 T.M. Kalaw, Ermita, Manila S i r : This refers to your letter dated October 19, 1966 stating the following: "This is with reference to the sale of my Lepanto shares made during the year 1966. The total consideration was TEN MILLION PESOS (P10,000,000.00) payable on a deferred payment plan as follows: LLpr 1966 P6,100,000.00 1967 2,900,000.00 1971 1,000.000.00 Total P10,000,000.00 ============ In this connection, may I have the honor to inform you that I have consistently filed by returns on the basis of actual receipts, and would therefore request that I be allowed to report the income of this transaction in the year of receipt abovementioned." In reply, I have the honor to inform you that, pursuant to Section 43(b) of the National Internal Revenue Code, in relation to Section 174 of the Income Tax Regulations, income from casual sale or other disposition of personal property be included in inventory) may be reported on the installment basis only if (1) the sales price exceeds P1,000 and (2) the initial payment do not exceed 25 per cent of the selling price. Consequently, when the payments received in cash or property during the taxable year in which the sale is made, exceed 1/4 of the selling price, a sale is deemed a deferred payment sale not on the installment plan, the entire profit of which is taxable in the year of sale. prll "Initial payments" as defined in Section 43 of the Tax Code means the payments received in cash or property other than evidence of indebtedness of the purchaser during the taxable period in which the sale or other disposition is made. Inasmuch as the total payments you received from the sale of your Lepanto shares during the year 1966 exceed 1/4 of the selling price, the transaction in question in considered a cash sale for income tax purposes, and the entire profit is taxable in the year of sale. In view thereof, your request has to be, as it is, hereby denied. cdta Very truly yours, (SGD.) MISAEL P. VERA Commissioner of Internal Revenue