BIR Ruling

October 3, 1977 Mr. Gregorio R. Ferriols 135 Lope K. Santos San Juan, Metro Manila S i r : This refers to your letter dated September 22, 1977 inquiring whether certain assets used by a private electric utility company in the conduct of its business of providing and rendering electric service are capital or ordinary assets. In reply, please be informed that under Section 34 of the Tax Code, all pieces of property held by the taxpayer (whether or not connected with his trade or business), but not including (a) stock in trade of the taxpayer or other property of a kind which would properly be included in the inventory of the taxpayer if on hand at the close of the taxable year; (b) property held by the taxpayer primarily for sale to customers in the ordinary course of his trade or business; (c) property used in the trade or business of a character which is subject to the allowance for depreciation and (d) real property used in the trade or business of the taxpayer, are capital assets . Conversely put, Section 34 could denote therefor that the items specifically excluded from the coverage of the meaning of the term "capital assets" must be classified as ordinary assets. Accordingly, since the diesel generator sets and associated accessories, the power plan building, and the electric transmission and distribution facilities (i.e., poles, wires, cables, insulators, transformers, watt-hour meters and similar electrical equipment) are used in the conduct of its business by the electric company adduced to in your query and are of a nature which are subject to the allowance for depreciation provided in sub-section (f) of Section 30 of the Tax Code, they must be categorized as ordinary assets. Likewise, the land on which the power plant building is erected is an ordinary asset, since it is being used in business. Very truly yours, CONRADO P. DIAZ Acting Commissioner of Internal Revenue TAN-D2567-D1025-A-2