Accordingly, the tax payable by the domestic corporation referred to in your letter is computed...

No date supplied BIR RULING NO. 037-60 Mr. Jose C. de Guzman R-303 M. David Bldg. 1551 Azcarraga Cor. Rizal Avenue M a n i l a S i r : This is in reply to your letter dated December 7, 1959 containing the following query: aisadc "A corporation, organized under Philippine laws and filing its income tax return on the calendar year basis, is engaged in the manufacture of several products. Some of these products are tax-exempt under Rep. Act 901, and the rest are not tax-exempt. Suppose, for the first six months ended June 30, 1959, the tax-exempt products realized a net taxable income of P110,000.00. Now, under Rep. Act 2351 all tax-exempt industries are subject to the full income tax on income received from July 1, 1959. Supposing further, that the net income realized by the tax-exempt products from July 1, 1959 to Dec. 31, 1959 amounted to P100,000.00 and the net income realized by the non-tax-exempt products from January 1st to December 31st, 1959 amounted to P250,000.00, what will be the total income tax payable by the corporation for the year 1959?" Republic Act No. 2351 amending Republic Act No. 901 provides that income received by tax-exempt industries from July 1, 1959 shall be subject to full income tax. So that, income received by a tax-exempt industry from January 1 to June 30, 1959 shall be subject to the diminishing exemption of 90% or such industry shall only be liable to the extent of 10% of the income tax assessed against it. Likewise, by virtue of Republic Act No. 2343, rates of tax on domestic corporations have been increased from 20% and 28% to 22% and 30% and these increased rates shall apply to income received by domestic corporations operating on the calendar year basis from January 1, 1959. In the determination of the income tax payable by a taxpayer engaged in both tax-exempt and non-tax-exempt industries, his net income from both industries must first be established. His net income from his tax-exempt industry shall be apportioned to the period when he is partly exempt and when he is fully taxable. Since the corporation referred to in your letter is operating on the basis of the calendar year, he is partly taxable for exactly one-half of the calendar year 1959 and fully taxable for the other half. Properly apportioned, therefore, the corporation's net income should be P105,000 from January 1 to June 30, 1959 and P105,000 from July 1, 1959 to December 31, 1959. The net incomes from both industries shall then be consolidated and on the basis of this consolidated net income the corporate tax shall be computed as if there is no exemption. The amount of tax on the partly taxable income or the fully taxable income shall then consist of that portion of the corporate tax thus arrived at which bears the same ratio to such tax as such income bears to the taxable consolidated net income. Accordingly, the tax payable by the domestic corporation referred to in your letter is computed approximately as follows: Income Received: (1959) I Tax-exempt products P210,000.00 (a) 1-1-6/30/59 (partly taxable) P105,000.00 7/1-12/31/59 (fully taxable) 105,000.00 II Non-tax-exempt products 1/1-12/31/59 250,000.00 TOTAL NET INCOME (1959) P460,000.00 P460,000.00 100,000.00 x 22% = P22,000.00 360,000.00 x 30% = 108,000.00 P130,000.00 (1) P105,000.00 x P130,000.00 = P29,673.00 x 10% = P 2,967.30 P460,000.00 1 (2) P105,000.00 x P130,000.00 = 29,673.00 P460,000.00 1 (3) P250,000.00 x P130,000.00 = 70,652.17 P460,000.00 1 TOTAL INCOME TAX DUE (1959) P103,293.47 Very truly yours, MELECIO R. DOMINGO Commissioner of Internal Revenue