BIR Ruling [DA-221-00]

April 27, 2000 BIR RULING [DA-221-00] Jacinto & Jacinto 3rd Floor, Lauremar Building Barangay San Isidro Makati City Attention: Mr . Wilfredo B . Jacinto Managing Partner Gentlemen : This refers to your letter dated March 31, 2000 stating that your client, Luchel Realty Corporation, is a domestic corporation duly registered with the Securities and Exchange Commission (SEC) with office address at 201 Campos Rueda Building, Urban Avenue, Makati City; that it is the absolute and registered owner of a parcel of land located at Lot 17, Block 8, Makiling Street, Ayala Alabang Village, Phase V-A, Alabang, Muntinlupa City with an of 770 square meters covered by TCT No. 120867 issued by the Registry of Deeds Makati City; that the above-mentioned parcel of land was acquired on May 3, 1983 and has no improvements thereon and has never been actually used in business; and that inasmuch as Luchel Realty Corporation had always held the Makiling Property as a capital asset, it now intends to sell the aforesaid property pursuant to Section 27(D)(5) of the Tax Code of 1997. Based on the foregoing, you now request for a ruling that the Makiling Property was indeed a capital asset in the hands of Luchel Realty Corporation and therefore the sale of the said Makiling Property, being a capital asset, is subject to the 6% final capital gains tax, based on the gross selling price or fair market value thereof, whichever is higher, pursuant to Section 27(D)(5) of the Tax Code of 1997. In reply, please be informed that Section 27(D)(5) of the Tax Code of 1997 provides that a final tax of six percent (6%) is hereby imposed on the gains presumed to have been realized on the sale, exchange or disposition of lands and/or buildings which are not actually used in the business of a corporation and are treated as capital assets, based on the gross selling price or fair market value as determined in accordance with Section 6(E) of the said Code, whichever is higher, of such lands and/or buildings. In relation thereto, Section 39(A(1) of the said Code defines the term "Capital Assets" which 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 Subsection (F) of Section 34; or real property used in trade or business of the taxpayer. From the foregoing provisions of the Tax Code, there can be no uncertainty that the Makiling Property owned by Luchel Realty Corporation is indeed a capital asset, since the same was never part of the latter's stock in trade nor included in its inventory at the close of the taxable year. Neither was it primarily held for sale or lease to its customers in the ordinary course of its business nor ever subjected to depreciation. Consequently, the Makiling Property which had remained vacant or idle since the time of its acquisition in 1983 and its subsequent sale to a prospective buyer will be subject to capital gains tax pursuant to Section 27(D)(5) of the Tax Code of 1997. (BIR Ruling No. 133-98 dated September 15, 1998) 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. llcd Very truly yours, Commissioner of Internal Revenue By: (SGD.) MILAGROS V. REGALADO Acting Assistant Commissioner (Legal Service)