BIR Ruling [DA-397-00]

November 20, 2000 BIR RULING [DA-397-00] Secs. 27 (D) (5) & 39 (A) (1) UN-276-95 Atty. Eladio S. Pasamba, CPA 4/F CDC Bldg., 1195 Ma. Orosa St. Ermita, Manila S i r : This refers to your letter dated July 7, 2000 stating that your client, JACKBILT CONCRETE BLOCK CO., INC. (Jackbilt), is the registered owner of four (4) parcels of land situated in Calle Industria, Bagumbayan, Quezon City and covered by Transfer Certificate of Title Nos. N-212360, N-212361, N-212362 and N-212363 of the Registry of Deeds of Quezon City; that these four parcels of land used to be the plant site in the manufacture of hollow blocks and T-joists; that as a result of the financial and currency crisis of 1996, Jackbilt has decided to stop manufacturing operations to avoid further losses; that the building and other structures constructed on said site were demolished and the machineries and equipments, which are very old and obsolete, were dismantled and transferred to Pampanga; that since 1996, Jackbilt has no operations and the land which had been cleared has remained idle; that it was not leased to any entity and no income, whatsoever, was derived from it; and that Jackbilt is planning to sell a portion of said land to pay for its loan obligations with the banks. Based on the foregoing representations, you now request for a ruling that the four (4) parcels of land owned by Jackbilt Concrete Block Co., Inc., which are no longer used in its business, be considered as capital assets and the sale thereof, subject to the 6% capital gains tax under Section 27 (D)(5) of the Tax Code of 1997. In reply. please be informed that the term "capital assets" as negatively defined in Section 39 (A)(1) 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 stock in trade of the taxpayer or other property of a kind which would properly be included in the inventory 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 allowances for depreciation provided in Subsection (F) of Section 34, or real property used in trade or business of the taxpayer. In view of the foregoing, and inasmuch as the aforementioned parcels of land of your client are no longer used in its business since 1996 and that it lie idle from then on, the said realties, accordingly, are considered as capital assets. Consequently, the sale of said parcels of land is subject to the 6% capital gains tax under Section 27 (D)(5) of the Tax Code of 1997. 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. (BIR Ruling No. UN-276-95 dated July 26, 1995) ACTISE Very truly yours, Commissioner of Internal Revenue By: (SGD.) LILIAN B. HEFTI Deputy Commissioner Legal & Inspection Group