BIR Ruling [DA-134-98]

April 1, 1998 BIR RULING [DA-134-98] Vicar Worldwide, Inc. Suite 14F Ocean Tower Building 2060 Roxas Boulevard Malate, Manila Attention: Mr . Jose C . Rubio Treasurer Gentlemen : This refers to your letter dated March 3, 1997 stating that you are the registered owner of two (2) parcels of land, together with improvements, situated in 1480 Quezon Blvd., Quezon City containing a total area of Three Thousand (3,000) square meters covered by Transfer Certificate of Title Nos. 113724 and 113725 issued by the Registry of Deeds of Quezon City; that allegedly in June 1994, Eight Hundred (800) square meters of the said land was legally transferred to Vicar Worldwide, Inc. and was primarily used for residential purposes and mailing address of the said corporation; that no rental income has been derived from this portion of the land; that the remaining One Thousand Two Hundred (1,200) square meters of the land was leased to Caltex and used for business; and that in January 1997, 2,000 square meters of the said two (2) parcels of land was disposed of and the corresponding capital gains and documentary stamp taxes were paid. cdpr Based on the foregoing representations and documents submitted, you are requesting for a ruling classifying the Eight Hundred (800) square meters portion of your aforesaid property as a capital asset, the sale of which shall be subject to the 5% final capital gains tax under then Section 21 (e) of the Tax Code, as amended. In reply thereto, please be informed that the term "capital assets" as negatively defined in then Section 33 of the Tax Code, as amended (now Section 39 of the Tax Code of 1997), means property held by the taxpayer (whether or not connected with his trade or business), but does not include (1) 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 band at the close of the taxable year, or (2) property held by the taxpayer primarily for sale to customers in the ordinary course of his trade or business, or (3) property used in the trade or business, of a character which is subject to the allowance for depreciation provided in Subsection (F) of Section 34, or (4) real property used in trade or business of the taxpayer. Such being the case, the 800 square meters cannot be considered as capital asset but as ordinary asset because it is actually being used in the trade or business of the taxpayer. Thus, that portion of said property shall, upon its sale, shall also be subject to the creditable expanded withholding tax of 7.5% (not final 5% capital gains tax) prescribed by Revenue Regulations No. 12-94, implementing then Section 50(b) of the Tax Code, as amended (now Sec. 57(B) of the Tax Code of 1997), and shall consequently be credited from the normal tax rate of 35% imposed on the income derived by domestic corporation. (BIR Ruling dated November 17, 1972, BIR Ruling dated December 3, 1974, BIR Ruling No. 68-81) This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void. cdtech Very truly yours, (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal and Enforcement Group)