BIR Ruling

April 4, 1997 Balmeo, Baga & Penasales Law Offices 9th Floor, NIDC Building 259-263 Sen. Gil J. Puyat Ave. Makati City Attention: Graciela M . Barleta Gentlemen : This refers to your request filed on behalf of your client, AURORA G. REVILLES, for a reconsideration of her deficiency capital gains tax amounting to P106,251.25 for the year 1990 inclusive of surcharge and interest covered by the ten (10) day preliminary letter dated May 7, 1993. This case stemmed from the disposition/sale of a real property classified by our examiner as an ordinary asset and thus, subject to ordinary income tax and not to 5% capital gains tax. It is your allegation that such classification is without legal basis and that said property should have been classified as a capital asset. After a careful review of the facts of the case as well as the law and jurisprudence applicable thereto, this Office has finally ascertained that you are liable to the above-mentioned deficiency capital gains tax. There is no fix formula to determine whether a piece of property is capital asset or ordinary asset. Although several factors have been recognized as helpful guides, none is decisive. Each case must, in the last analysis, rest upon its own peculiar facts and circumstances. (Calasanz, et al. vs. Commissioner of Internal Revenue, 144 SCRA 664). Under Section 33 (a) (1) of the Tax Code, capital asset is defined as follows: "Section 33. Capital gains and losses (a) Definitions. As used in this Title. (1) Capital assets the term "capital assets" means property held by the taxpayer (whether or not connected with his trade or business), but does not include 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, or property held by the taxpayer primarily for sale to customers in the ordinary course of his trade or business, or property used in the trade or business, of a character which is subject to the allowance for depreciation provided in the subsection (f) of section twenty-nine; or real property used in the trade or business of the taxpayer." LLphil Based on the aforequoted definition of capital assets, we are convinced that our examiner committed no error in the classification of said property since the lease of said property (pp. 18 and 26) to tenants characterized by habituality and regularity constituted "use" of property in trade and business (supra); consequently, said property is deemed an ordinary asset subject to the ordinary income tax and not to the 5% capital gains tax. Moreover, it is basic in taxation that the burden of proof lies on the taxpayer to prove with convincing evidence the legal as well as the factual infirmities attendant in an assessment and failure to do so is fatal considering the prima facie presumption of correctness of the said assessment unless controverted. (CIR vs. Bohol Land Transportation 107 Phil. 965 ) We also note your seeming lack of interest in the resolution of this case grounded on your failure to attend the administrative hearing as set forth in our letter dated May 4, 1995, which gave you, in behalf of your client, an opportunity to submit evidences in support of your request. In view of all the foregoing, your request for reinvestigation/reconsideration is hereby DENIED. Consequently, you are hereby requested to advise your client to pay the amount of P106,251.25 as deficiency capital gains tax for the year 1990, plus interest that may have accrued thereon to the Revenue District Office nearest her place of business/residence, within fifteen (15) days from your receipt of the corresponding assessment notice; otherwise the collection thereof shall be enforced by means of the summary remedies prescribed by law. This constitutes the final decision of this Office on the matter. LLjur Very truly yours, (SGD.) LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue