BIR Ruling

March 26, 1973 Messrs. Quasha, Asperilla, Zafra Tayag & Ancheta Don Pedro Building 5177 Amorsolo Street Makati, Rizal Gentlemen : In reply to your letter dated March 22, 1973, please be informed that the proviso in Section 195-B of the Tax Code reading "Provided, That in case of gain not arising from but realized out of the said stock transaction, the pertinent provisions of this Code shall apply." means that the gain derived from the sale or disposition of stock acquired after November 5, 1970 already arose in a previous transaction but such gain is considered realized and recognized for income tax purposes only upon the sale or disposition of the stock which was previously acquired in said previous transaction. This may be illustrated as follows: A, owner of property with acquisition cost of P1000 transferred the property to X corporation in exchange for the latter's shares of stock at the same acquisition cost and, after the transfer, A acquired control of the corporation. At the time of transfer the property had already a fair market value of P10,000. A derived a gain of P9000 but not recognized for income tax purposes pursuant to Section 35(c)(2) of the Tax Code, as amended by Republic Act No. 4522; but when A disposes of the shares subsequent to the exchange, he shall then be considered to have realized a gain which is recognized for income taxation. cdt Very truly yours, (SGD.) MISAEL P. VERA Commissioner of Internal Revenue