Central Taxicab Corporation

November 18, 2009 BIR RULING [DA-(C-271) 679-09] Secs. 27 (D) (5); 39 (A); RR 7-2003; UN-276-95; DA-397-2000; DA-219-05; DA-654-06; DA-567-07; DA (C-232) 599-09 Central Taxicab Corporation 8th Avenue, 4th Street, Caloocan City Attention: Ms. Herminia M. Dela Cruz General Manager Gentlemen : This refers to your letter dated November 6, 2009 requesting confirmation of the tax consequence of the sale by Central Taxicab Corporation ("CTC") of its real properties. CTC is a domestic corporation established under the laws of the Republic of the Philippines on February 27, 1947 primarily to engage in the business of transportation of passengers and freight by means of taxicabs, garage cars and other motor vehicles. CTC acquired real properties on various dates from the year 1956 to 1963 as part of its investments. The said real properties are covered by Transfer Certificate of Title (TCT) Nos. RT-90728 (59933) PR-28194, RT-62717 (59936) PR-28198, RT-90730 (59937) PR-28196, RT-91814 (59934) PR-28195, RT-90729 (59935) PR-25842, RT-90733 (195379), RT-62716 (59938) PR-25843, RT-90727 (59932) PR-28197, RT-90731 (68255), and RT-69419 (68254), all of the Registry of Quezon City, and TCT No. (46615)-13909, of the Registry of Deeds of Caloocan City. CTC, however, had ceased operation since 1997 due to the cancellation of its registration with the Securities & Exchange Commission (SEC), resulting from the expiration of its corporate term of fifty (50) years. As a result thereof, its above acquired real properties were left idle, unproductive and unimproved. Due to the dissolution of CTC, it has been decided by its incorporators to dispose the above idle properties of the corporation converting the same to cash assets for convenience in the distribution of dividends in case of liquidation. TCHEDA It is your position that the above properties of CTC should be classified as capital assets and the sale thereof subject to the 6% capital gains tax, based on the following grounds, to wit: 1) CTC, engaged in the business of operating taxicab, had ceased operation of its business since 1997 due to the expiration of its corporate existence, thereby leaving the subject real properties idle, unimproved and unproductive as most of these properties have always been since time of acquisition; 2) The properties covered by TCT Nos. RT-90730 (59937) PR-28196, RT-62717 (59936) PR-28198 and (46615)-13909, with existing improvements thereon which are already old and dilapidated, are occupied by settlers, however, CTC is not deriving rental income therefrom as their occupancy is merely tolerated by the incorporators of CTC; and 3) The above subject real properties of CTC have never formed part of its inventory of properties as CTC has never ventured in the realty business. From the foregoing, it is your view that the sale by CTC of its idle real properties, classified as capital assets, is subject to the 6% capital gains tax and the 1.5% documentary stamp tax only. As such, said sale is not subject to the value-added tax. 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 real properties of CTC are idle, unimproved and unproductive and that CTC has never ventured in the realty business, the said real properties, therefore, are properly considered as capital assets. Consequently, the sale of said real properties is subject to the 6% capital gains tax under Section 27 (D) (5) of the Tax Code of 1997, as amended. Likewise, the said sale is subject to the documentary stamp tax imposed under Section 196 of the same Tax Code. (BIR Ruling Nos. DA (C-232) 599-09 dated October 14, 2009, DA-567-05 dated October 25, 2007 & DA-397-2000 dated November 20, 2000 citing UN-276-95 dated July 26, 1995; Rev. Regs. No. 7-2003) aETASc Moreover, the sale of the above real properties by CTC, treated as its capital assets, is not subject to the 12% value-added tax imposed under Section 106 of the 1997 Tax Code, as amended, in accordance with Sec. 4.109-1 (B) (p) of Revenue Regulations No. 16-2005, implementing Republic Act No. 9337. (BIR Ruling No. DA (C-232) 599-09, supra , DA-219-2005 dated May 5, 2005 cited in BIR Ruling Nos. DA-653 & 654-2006, both dated November 7, 2006 & DA-567-05 dated October 25, 2007) 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.) JAMES H. ROLDAN Assistant Commissioner Legal Service