BIR Ruling

August 5, 1968 Mr. Getulio J. Santos 106 P. Lopez Street Cebu City S i r : This refers to your request for tax exemption under the provision of Republic Act No. 3470. Investigation conducted by this Office disclosed that you are the owner-proprietor of G. J. Santos Shoes Factory at 106 P. Lopez St., Cebu City and its branch establishment at San Pedro St., Davao City; that your initial investment in 1955 is P23,000.00; that you are engaged in manufacturing shoes and in wholesale business and have paid the corresponding privilege taxes (C-13, C-14, and C-4); that you sold your products in Davao and Surigao in wide commercial scale aside from your main office and shop at Cebu City; that you employed 2 salesmen, 7 laborers, and 1 branch manager, all not related to you; that the plant facilities consist of 6 sewing machines and produces only men's shoes; that the annual gross receipts for 1964 is P72,724.83; and that your establishment is duly registered with the Nacida. Under section 11 of Republic Act No. 3470, the term "cottage industry" is defined as an economic activity in a small scale which is carried on mainly in the homes or in other places for profit and which is mainly done with the help of the members of the family. It is clear from all the foregoing that your business does not qualify as a cottage industry. The fact that you are duly registered with the NACIDA under the provisions of Republic Act No. 3470 is not conclusive of your exemption under said Act. To be exempt from tax, you must operate strictly in accordance with the provisions of the law. It is well settled rule that "an organization which would otherwise be exempt, but which operates in a non-exempt manner is not entitled to exemption". (Cebu Mutual Bldg. & Loan Association vs. Posadas, 58 Phil. 792) In view of all the foregoing, you are subject to the payment of fixed and percentage taxes prescribed in Section 182(A)(1) and 186 of the National Internal Revenue Code. You are also subject to income and additional residence taxes. BIR Ruling No. 63-0092 is not applicable to your case. lexlib Very truly yours, (SGD.) MISAEL P. VERA Commissioner of Internal Revenue