BIR Ruling

December 12, 1972 Mr. Nicolas S. Paylado Rizal Street Ormoc City S i r : This refers to your query stating the following: "I humbly request your good office for an advice regarding the provisions of Section 178 of the National Internal Revenue Code. Recently a certain client of mine with seven (7) stalls inside Ormoc Public Market was required to get seven (7) privilege taxes (That is one for each stall). My client's seven stalls are connected, in the same location and is under one roof on Ormoc Public Market. As such, there is only one licensee, moreso, he paid only one privilege tax for one establishment. For your perusal, attached please find the sketch showing the location of the aforesaid seven stalls. cdti If we are really required to get seven Privilege Taxes now, we would like to know how much is the penalty, the surcharge, if any, and the compromise. Will there be any interest? Please further advise us of the Provisions of Section 34 regarding Capital Gains and Losses. Another client of mine now under examination by your BIR Field Examiner, a practicing physician, reported only 50% as capital gain for 1970 for an agricultural land acquired on April 1, 1968 but later sold on December 1, 1970 covering a period of thirty two (32) months. The BIR examiner insisted that 100% capital gain should be reported. The BIR examiner said that he based this in the BIR memorandum. Who is correct? If just in case the BIR examiner is correct, we would like to know how much is the penalty, the surcharge, the compromise, and the interest, if any. If a taxpayer in Ormoc City had already been examined and given a letter of Confirmation by BIR field examiner assigned in Ormoc City, can the same taxpayer be examined again by BIR personnel from Tacloban City?" In reply, I have the honor to inform you that under the foregoing circumstances, your client is conducting his business in only one place and not in seven (7) separate or distinct establishment or places. Accordingly, he is liable to pay only one privilege tax. As regards the question as to whether the gains derived by your client from the sale of an agricultural land is a capital gain or ordinary gain, the issue to be resolved is whether the land is capital asset or ordinary asset. This Office has already ruled that agricultural land is considered an ordinary or capital asset depending on whether the land is used in agriculture as a business. Where farming or agriculture is not carried on for gain or profit, as when the produce are destined exclusively for consumption of the farmer and his family, the land used therefor or devoted thereto is not used in agriculture as a business and, therefore, remains a capital asset. (BIR Rulings Nos. 223 and 404, S. 1960). Accordingly, if your client has used the agricultural land in question in agriculture as a business for gain or profit, said land is an ordinary asset, in which case, the profits realized from the sale thereof shall be 100% taxable as ordinary gain; otherwise, the said agricultural land shall be considered a capital asset and the gains derived from its sale shall be taxable only to the extent of 50% thereof. As regards a taxpayer who has already been examined in Ormoc City, the same taxpayer can no longer be examined by BIR examiners from Tacloban City with respect to the same taxable year subject of the previous examination. Under Section 337 of the Tax Code, as amended by Republic Act No. 6110, the books of accounts of a taxpayer shall be subject to examination and inspection only once in a taxable year during a five-year period by internal revenue officers, except in case of fraud, irregularity or mistake as determined by the revenue regional director, or unless the taxpayer requests otherwise, in which case another examination and inspection may be made. Very truly yours, MISAEL P. VERA Commissioner of Internal Revenue