Gross Income for Purposes of Computing the 23% Depletion Allowance on Mines

May 11, 1971 BIR RULING NO. 005-71 Gross income for purposes of computing the 23% depletion allowance on mines . Facts: "X Co., Inc. a domestic corporation, ships its ore concentrates to A. Co., Inc. non-resident foreign corporation, for smelting processes. A Co., Inc. charges X Co., Inc. $40 per ton for smelting services. The refined copper are then forwarded to B Co., Inc. another non-resident corporation, the buyer thereof. "X Co., Inc. bills the buyer say $340 per ton of ore concentrates specifying therein that B Co., Inc. pay directly the $40 to the smelter (A Co., Inc.) and remit the balance of $300 to X Co., Inc." Ruling: Smelter charges under the foregoing illustration will not form part of gross income. For purposes of computing the 23% depletion allowance in the case of mines, the term gross income means the "gross income from property." "Gross income from property" means, in the case of mines, the gross income from mining. The gross income from mining consists of the proceeds from the sales of ores or minerals extracted from the mining property. Where ores are sent abroad where the ordinary treatment processes are applied or where they are refined and where they are sold, the actual cost of ocean freight as well as insurance, should be deducted from the actual selling price for gross income purposes. Also where minerals or mineral products are sold or consigned abroad by the lessee or owner of the mine under C.I.F. terms, be deducted. The term "mining" includes not merely the extraction of the ores or minerals from the ground but also the ordinary treatment process normally applied by mine owners or operators in order to obtain the commercial marketable mineral product or products. The term "ordinary treatment process" includes in the case of land, zinc, copper, gold, silver, or flourspar ores, potash, and ores which are not customarily sold in the form of the crude mineral product crushing, grinding, and beneficiation by concentration (gravity, flotation, amalgamation, electrostatic, or magnetic), cyanidation, leaching, crystallization, precipitation (but not including as an ordinary treatment process electrolytic deposition, roasting, thermal or electric smelting, or refining), or by substantially equivalent process or combination of processes used in the separation or extraction of the product or products from the ore, including the furnacing or quicksilver ore. (See General Circular No. V-332, dated January 6, 1961) In view thereof, and considering further that the buyer will pay directly to the smelter the smelter's charges of $40 per ton, the gross income for purposes of computing the 23% depletion allowance in this case is $300. cdasia