BIR Ruling

February 13, 1970 Mr. Jose T. Abellar Rural Bank of Pura, Inc. Pura, Tarlac S i r : This refers to your letter dated October 28, 1969 requesting refund of the amount of P6,419.22 allegedly paid by you as income taxes under Official Receipt No. A-0691589 dated April 15, 1969, on the ground that, notwithstanding the passage of Republic Act No. 5431 you are still exempt from income tax, pursuant to Republic Act No. 702, as amended. In reply, I have the honor to inform you that Section 24 of the Tax Code, as amended by Republic Act No. 5431, subjects all corporate taxpayers other than those exempted under subsection (c)(1) of Section 24 and Section 27 of the said Code to the corporate income tax, the provisions of the existing special or general laws of the contrary notwithstanding. By virtue of the aforesaid amendments, the only corporation, associations, and organizations exempt from corporate income tax under the National Internal Revenue Code are purely cooperative companies or associations as provided under Section 24(c)(1) and the organizations specifically exempt under Section 27. All other corporations, including those which under special laws are exempt from income tax are now subject to tax. Since Rural Banks are not among those corporations or organizations expressly exempted under Republic Act No. 5431, they are subject to income tax on income received or earned by them starting July 1, 1968 pursuant to Section 10 thereof. In fact, this liability to tax Rural Banks as a consequence of the passage of Republic Act No. 5431 had been upheld by the Secretary of Justice, in his 3rd Indorsement dated March 28, 1968 to the Secretary of Finance. aisa dc It is therefore, regretted that your request for refund cannot be granted by this office. In this connection, please be informed that effective June 12, 1969, the tax exemption of Rural Banks had been restored by the subsequent enactment of Republic Act No. 5939 amending Republic Act No. 720 otherwise known as the Rural Banks Act. Section 14 of Republic Act No. 5939 read as follows: SEC. 14. All Rural Banks created and organized under the provisions of this Act with net assets not exceeding one million pesos, excluding the counterpart capital subscribed and paid in by the Government under Section seven and eight of this act, shall be exempt from the payment of all taxes, charges and fees of whatever nature and description; Provided, however, That when the net assets of a rural bank exceed one million pesos, the taxes, charges and fees shall be levied in the proportion that such excess bears to the net assets: Provided, finally, when the net assets of a rural bank exceed three million pesos, it shall pay all taxes, fees and charges like any other bank." (Emphasis supplied) In other words, Rural Bank of Pura, is subject to income tax on income received or earned by it until June 11, 1969, the tax will be computed at the increase rates prescribed by Section 24 of the Tax Code, as amended by Republic Act No. 5431. Thereafter, its liability to income tax shall be determined in accordance with the aforequoted provision of Section 14, Republic Act No. 720, as amended by Republic Act No. 5939. cd Very truly yours, MISAEL P. VERA Commissioner of Internal Revenue