BIR Ruling [DA-326-00]

August 28, 2000 BIR RULING [DA-326-00] Wingain Corporation 92 E Rodriguez Jr. Avenue, Libis Quezon City Attention: Mr . Edwin L . Tang President Gentlemen : This refers to your letter dated June 27, 2000 stating that Wingain Corporation is a domestic corporation duly registered with the Securities and Exchange Commission (SEC); that it is a trading company whose primary purpose would be to engage in and carry on the business of buying, selling, distributing, marketing at wholesale and retail insofar as may be permitted by law, all kinds of goods, commodities, wares and merchandise of every kind and description and to enter into all kinds of contracts for the export, import, purchase, acquisition, sale at wholesale or retail and other disposition for its own account as principal or in representation capacity as manufacturers representatives, merchandise broker, indentor, commission merchant, factors or agents, upon consignment of all kinds of goods, wares, merchandise or products whether natural or artificial; that on January 9, 1997, Wingain Corporation in anticipation for its full operation purchased on installment basis, four (4) contiguous parcels of land located at San Francisco Street, Plainview, Mandaluyong City; that from the time it was established, no operation was made even up to the present, due to some internal problems that it has encountered, such as, no viable products/merchandise that could be offered exclusively, key officers went abroad seeking for better future and the recent economic crisis which made it decide to temporarily shelve its original business plans, and eventually sell the subject property to liquidate the existing liabilities of the company; and that subject property was treated as capital asset of the corporation since it was never used in the business as well as it (Wingain Corporation) is not engaged in any real estate business, whether as dealer or developer. In connection therewith, you now request for a ruling that the proposed sale by Wingain Corporation of the above-mentioned four (4) contiguous parcels of land is subject to the 6% capital gains tax imposed under Section 27(D)(5) of the Tax Code of 1997. In reply thereto, please be informed that Section 39(A)(1) of the Tax Code of 1997 defines the term "Capital Assets" as 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. Likewise, in Section 27(D)(5), supra provides "Sec. 27. Rates of Income Tax on Domestic Corporations . "(5) Capital Gains Realized from the Sale, Exchange or Disposition of Lands and/or Buildings . 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. Proceeding from the tone of the above-cited sections of the Tax Code, there can be no uncertainty that the aforesaid property owned by Wingain Corporation is indeed a capital asset, since as represented 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. Moreover, considering that there was no substantial improvement made on the said property from the date of its acquisition or actively sold to its customers does not convert the said land into an ordinary asset. Consequently, the afore-quoted real property is considered as capital asset in the hands of Wingain Corporation. (BIR Ruling No. 133-98 dated September 15, 1998) SUCH BEING THE CASE, the proposed sale of the above-mentioned four (4) contiguous parcels of land by Wingain Corporation shall be subject to the six percent (6%) capital gains tax based on the gross selling price or fair market value, whichever is higher. IcHTAa 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. Very truly yours, Commissioner of Internal Revenue By: (SGD.) LILIAN B. HEFTI Deputy Commissioner Legal & Inspection Group