BIR Ruling No. 029-82

February 5, 1982 BIR RULING NO. 029-82 034 000-00 029-82 Messrs. Tulio, Evangelista, Lim & Co. 869 Quezon Avenue, Quezon City Attention: Mr . Prisco N . Evangelista Gentlemen : This refers to your letters dated July 10 and 24, 1981 requesting a ruling as to whether or not the properties sold by the Heirs of Concepcion S. Cruz to Taxco Inns and Resorts, Inc. are capital or ordinary assets. cdt It is represented that the spouses Artemio Cruz and the late Concepcion Salcedo were the owners of two (2) parcels of land located in Malibay, Pasay City; that on June 24, 1966, the spouses leased the said properties to Chan Kee & Co., Ltd. for a term of 15 years; that under the lease agreement the lessee, Chan Kee & Co., Ltd. was to construct and did construct 3 buildings containing 28 unit rooms which was used as a motel, under the condition that, at the end of the term of the lease, the buildings and improvements were to become the properties of the lessor; that the wife, Concepcion Salcedo Cruz died on September 13, 1974 and the said properties were extra-judicially partitioned by the heirs; that the lease expired last June 24, 1981 and that on July 2, 1981 the heirs sold the properties in favor of Taxco Inns and Resorts, Inc. for P1,7000.00.00. In reply thereto, I have the honor to inform you that Section 34 of the Tax Code, as amended defines capital assets thus: "Section 34. Capital gains losses . Definitions . As used in this Title (1) Capital assets . The term "capital assets 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 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 thirty; or real property used in the trade or business of the taxpayer ." It will be observed that at the time the properties were inherited by the heirs the same were used in business, in which case, they are not capital but ordinary assets. The nature of the properties as ordinary assets was not changed upon the death of Concepcion Salcedo Cruz, since the heirs continued to have the said properties leased up to and until June 24, 1981 when the leased agreement expired. At the time of sale, the properties were still ordinary assets. Very truly yours, RUBEN B. ANCHETA Acting Commissioner