BIR Ruling [DA-082-98]

March 18, 1998 BIR RULING [DA-082-98] Ms. Angeles C. Bautista Group head Team 3 Composite Team, B. I. R. M a d a m : This refers to your Memorandum dated January 28, 1998 requesting clarification as to whether or not Benjamin Santos can extend to Bensan Industries, Inc. the tax exemption privilege granted to him by virtue of Republic Act No. 7459, otherwise known as the "Inventors and Invention Incentives Act of the Philippines." cdll It appears that as a registered inventor of an "improved process for re-refining processed used oil", Mr. Santos applied for and was granted by this Office a certificate of exemption from the payment of income tax, VAT and excise tax per BIR Ruling No. M-017-95 dated May 29, 1995; that prior to the issuance of said exemption certificate, Mr. Santos executed on July 12, 1994 an Assignment of Letters Patent assigning an ALIQUOT part of his aforesaid invention which is covered by Letter Patent No. 28342 in favor of Bensan Industries, Inc; that the assignee is a corporation which uses the technology invented by Mr. Santos under the Patent to manufacture and produce various petroleum products; that Mr. Santos owns 30% of the capital stock of Bensan Industries, Inc.; and that as a result of said assignment, Bensan Industries, Inc. has been claiming the tax exemption privilege accorded to Mr. Santos. You contend that the assignment of an Aliquot portion of Letters Patent No. 28342 by Mr. Santos to Bensan Industries, Inc. cannot be construed to include the assignment of the tax exemption privilege granted to the inventor under R.A. No. 7459 on the ground that laws providing for tax exemption are strictly construed against the taxpayer and liberally in favor of the taxing power; and that under the proviso of Section 6 of R.A. No. 7459, the tax exemption privilege is non-transferable during the lifetime of the inventor. Your contention is correct. The phrase "shall be extended to the legal heir or assignee upon the death of the inventor" is clear and unequivocal and leaves no room for interpretation. The language of the law being clear, it should be taken to mean exactly what it says. (Baranda vs. Gustilo, 165 SCRA 757, 758, 759) Simply put, Mr. Santos can not transfer to Bensan Industries, Inc. or to any of his heir the exemption privilege granted to him as an inventor while he lives. Accordingly, the Assignment of Letters Patent executed by Mr. Santos assigning an ALIQUOT part of his invention in favor of Bensan Industries, Inc. has no binding effect upon the BIR for tax purposes. You should, therefore, disregard the Assignment of Letters Patent issued by Mr. Santos to Bensan Industries, Inc. in the audit of its 1995 and 1996 tax liabilities. Very truly yours, (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner Legal and Enforcement Group