BIR Ruling No. 035-61

February 9, 1961 BIR RULING NO. 035-61 Mr. Angel M. Vecino Attorney-at-Law R-208 Martinez Bldg. Dasmarias, Manila S i r : Reference is made to your letter dated February 8, 1961 requesting information as to the taxable gross receipts of your client, The Mindanao Contractors Corporation, under its logging contract with the Aguinaldo Development Corporation. It appears that Aguinaldo Development Corporation (hereafter referred to as the contractee) is a timber concessionaire and it engaged the services of your client (hereafter referred to as the contractor) to fell and buck the trees in designated areas in its concession and to deliver the same to its log ponds. For the services rendered by your client, it is paid compensation equivalent to 10% of the monthly cost of production defined in paragraph 3 of their contract. You verbally manifested that the items of cost provided in this paragraph corresponding to wages and salaries refers only to employees and laborers of the contractee, the contractor being responsible to its own employees as regards both salaries and liability under the Workmen's Compensation Act. All items that enter into the cost of production are shouldered by the contractee and directly disbursed by it. It appears also in paragraph 4 of their contract that the contractee provides the logging equipments, gas, fuel, and lubricants, engineering and shop services and facilities, survey and investigation facilities, and log pond equipment and facilities. From the foregoing, it is quite clear that your client, under the logging contract, provides solely its physical services. As such contractor, its taxable gross receipts consists of the 10% of the cost of production paid to it by the contractee. LexLib It is observed, however, under paragraph 9 of the contract, that your client is paid a bonus whenever its annual production exceeds 12,000.000 board feet. Inasmuch as this bonus is paid on account of the physical services rendered to the contractee, it shall constitute part of the contractor's taxable gross receipts. Very truly yours, (SGD.) MELECIO R. DOMINGO Commissioner of Internal Revenue