BIR Ruling No. 016-62

January 15, 1962 BIR RULING NO. 016-62 Messrs. J. A. Sison & Associates Certified Public Accountants 203 El Hogar Filipino Bldg. M a n i l a Gentlemen : Reference is made to your letter dated August 17, 1960, protesting in effect to the proposed assessment against your clients, Mr. & Mrs. Pedro Vasquez, in the amount of P7,030.00 as dealer in securities' fixed tax, additional residence tax, surcharges and compromise penalties covering the period from 1956 to 1959. It appears that during the period in question, your clients purchased and sold securities; that they did not pay any fixed tax as dealer in securities; that they did not return their receipts for additional residence tax purposes nor paid any residence tax thereon; and that no books of accounts were kept and used in connection with their transactions in securities. These facts were practically admitted in your letter. However, you contended that Mr. & Mrs. Vasquez were not dealers in securities. They having "traded only for their own account". Neither did they have an established place of business nor regularly engaged in the purchase and sale of securities. In support thereof, you cited the definition of "dealer in securities" under section 84(t) of the Tax Code, as well as our letter to you dated February 8, 1957 in connection with the income tax case of Richard Baldwin. On the failure of your clients to return their receipts for purposes of the additional residence tax and to keep books of accounts for recording their transactions in securities, you contended that those alleged violations proceed from the erroneous promise that your clients are dealers in securities. We agree that under section 1(b) of the Residence Tax Law, which is the law applicable to the instant case, only gross receipts or earnings derived from one's "business" are subject to the additional residence tax. However, we do not share the view that, if your clients are not engaged in the business in question, they are not embraced within the provisions of said law, as well as of section 334 of the Tax Code and, therefore, need not return their receipts nor keep books of accounts as far as their transactions in securities are concerned. The question of whether or not Mr. & Mrs. Vasquez were during the period in question, dealers in securities will be referred for further investigation to the Regional Director, Regional District No. 3, the facts appearing in the records being insufficient to be made the bases of deciding the same. On the other hand, this Office is of the opinion and so holds that under section 1(b) of the Residence Tax Law, for one to be liable to the additional residence tax, it is not necessary that he be engaged in a kind in a business. Accordingly, even assuming, arguendo, that your clients were not dealers in securities and, therefore, not engaged in a business subject to the business tax, such fact would not militate against their liability to the additional residence tax, they being engaged in a business. Likewise, section 334 of the Tax Code is clear on the matter of keeping books of accounts. "All . . . persons required by law to pay internal revenue taxes shall keep in journal and ledger, or their equivalents . . .". It was alleged in your letter that your clients, having included their income from the purchase and sale of securities in their income tax returns, paid the corresponding tax thereon. Income tax is undoubtedly internal revenue and, therefore, your clients are subject to the requirements of section 334. In view of all the foregoing, this Office hereby sustains the stand taken by the Regional Director, Regional District No. 3, insofar as concerns the liabilities of Mr. & Mrs. Vasquez for failure to pay the additional residence tax and to keep and use the books of accounts in question. The decision on the question on whether or not they were dealers in securities is held in abeyance, pending receipt of the report of investigation. A copy hereof has been furnished on even date the Regional Director for his information and corresponding action. cdtech Very truly yours, MELECIO R. DOMINGO Commissioner of Internal Revenue