BIR Ruling

October 10, 1972 Mr. Benigno Zialcita, Jr. 677 Lee, Mandaluyong Rizal S i r : This refers to your letter dated October 4, 1972 and in answer thereto I have the honor to inform you as follows: For purposes of R.A. No. 5186, capital gains are deemed realized upon receipt of payment. (Par. (a), Sec. 2, Rule VII, Board of Investments Rules implementing R.A. 5186) Accordingly, the six (6) month period within which investment should be made shall be counted from receipt of payment of capital assets disposed of. It appears that you disposed of your capital asset in 1971 and received in same year P3,000 as initial payment. In order that the gain corresponding to this proceed shall be exempt from tax, you should have applied it in payment of your subscription within 6 months from receipt thereof; otherwise, it shall be subject to tax. It appears further that you received as partial payments this year P10,000 in July; P10,000 in August and P10,000 in September. In order that the gain corresponding to these partial payments shall be exempt of your subscription within 6 months from your receipt thereof. It may be stated in this connection that investment is deemed made upon actual payment of stock subscription. (Par. (d), Sec. 2, Rules of the Board of Investments) Therefore, unless the partial payments of P10,000 each you received in July, August and September this year are actually applied in payment of your subscription within 6 months from July, August and September, the gains corresponding to said payment shall be subject to income tax. You, therefore, have such time until January, February and March, 1973 within which to apply the whole of each of the three installments you received this year in payment of your subscription in order that the gain corresponding thereto shall be from tax. It appears, however, that you have already applied P16,991.00 in payment of your subscription. The gain corresponding to this amount has, therefore, already qualified for exemption. It may be stated further that the gain corresponding to each installment payment you received consist of a portion thereof which bears the same ratio to the amount thereof as the gross profit realized or to be realized when payment is completed bears to the total contract price. (Sec. 43 (b), Tax Code.) You may, therefore, apply this formula in determining your taxable and non-taxable gain. aisadc Very truly yours, MISAEL P. VERA Commissioner of Internal Revenue