BIR Ruling

February 5, 1970 1st Indorsement Referred to the Director, Revenue Region No. 5, Valenzuela, Bulacan, for his information and appropriate action, the attached papers relative to the claim of Broiler Raisers Cooperative Marketing Association, Inc. (hereinafter referred to as Broiler) of Karuhatan, Valenzuela, Bulacan for tax exemption under Act No. 3425 and Republic Act No. 901, both as amended. It appears that Broiler is a corporation duly organized and registered with the Securities and Exchange Commission; that it was organized for the following purposes: to acquire, handle and market broilers and eggs produced by its members or any of the products derived therefrom; to minimize the lack of credit as a limiting factor in the expansion of Philippine agriculture and to free the farmers from the economic and social domination caused by the unreasonable conditions and excessive charges imposed by money lenders for the use of capital; to encourage diversified agriculture and improve rural community living; and to promote education in the principles and practices of cooperative production, marketing, credit and financing; that upon investigation of its tax liabilities, our investigating examiner found out that Broiler was granted exemption as a new and necessary industry under Republic Act 901 from the payment of: (1) Fixed and privilege tax on business; (2) Percentage tax on sales of the manufactured products in respect to which exemption is granted, and on raw materials and supplies to be used exclusively in the new and necessary industry; (3) Documentary stamp tax; (4) All other local taxes, directly payable by and pertaining to the industry, by the Secretary of Finance in his letter dated September 10, 1959 in respect to the manufacture of poultry feeds; that Broiler also claims exemption from the payment of income tax contending that it had been organized under Act No. 3425 as amended, otherwise known as "The Cooperative Marketing Law". To substantiate its claim for tax exemption under the said Act, Broiler presented a true copy of the articles of incorporation of the Broiler Raisers Cooperative Marketing Association, Inc., a photostat copy of the Certificate of Registration of said articles of incorporation with the Securities and Exchange Commission, and a photostat copy of the Certificate of Affiliation with the Agricultural Credit and Cooperative Financing Administration (now ACA). In his letter to the Commissioner dated February 17, 1965, the Acting Regional Director, then Regional District No. 4, Quezon City, opined that the exemption granted to Broiler by the Secretary of Finance under Republic Act No. 901 supplements the tax exemption granted under Act No. 3425. The question to be resolved in this case is whether or not Broiler is entitled to any tax-exemption; and in the affirmative case, under what law? It is exempt under Republic Act No. 901 or Act No. 3425? The records of this case show that Broiler was granted by the Secretary of Finance a diminishing tax-exemption up to December 31, 1962 in accordance with Republic Act No. 901; and that it has affiliated with ACA on July 17, 1959 in compliance with the provisions of Act No. 3425. The exemption granted under Republic Act No. 901 refers only to the manufacture of poultry feeds. This exemption has been granted to Broiler only up to December 31, 1962 in accordance with the terms and conditions of the Department's Certificate of Exemption. It has thereafter ceased to be so exempt. Hence, starting January 1, 1963, Broiler is subject to tax on its manufacture of poultry feeds as an ordinary corporation. However, the scope of Broiler's exemption under Act No. 3425 is entirely different from that of Republic Act No. 901. Act No. 3425 does not include manufacture of poultry feeds. It is entitled to exemption under that law only in so far as it operates in accordance with the provisions thereof. (See Sec. 6, Act No. 3425). cdti Section 48 of Act 3425 as amended by Republic Act No. 702 provides as follows: "Section 48. Exemption . Any association organized under this act shall not be subject to the payment of the merchant's sales tax, the income tax, and all other percentage taxes of whatever nature and description". In accordance with the provisions of the same Act no person, firm or association shall be entitled to use the word "Cooperative" as part of its corporate or other business name, or title for growers' or producers' cooperative marketing activities, unless such person, firm or association has been organized as a cooperative association in accordance with law. Broiler has substantially complied with the provisions of Act No. 3425 by its affiliation with ACA on July 17, 1959. So, from then on it is entitled to exemption under this Act. By and large, Broiler is subject to tax on its manufacture of poultry feeds after December 31, 1962 but will remain exempt under Act No. 3425 with respect to its operations thereunder, such as the sales tax on its sales of broilers; the advance sales tax on its importation of farm equipments and fertilizers for its members; and the income tax. cd Be guided accordingly. MISAEL P. VERA Commissioner of Internal Revenue