Gains Derived from the Sale of Shares of Stock Not Considered Personal Holding Company Income

February 16, 1984 BIR RULING NO. 038-84 65-b-000-00-038-84 Gentlemen : This refers to your letter dated January 11, 1984 requesting opinion as to whether capital gains realized from the sale of shares of stock which had been subjected to the final capital gains tax pursuant to Section 34(g) of the Tax Code, as amended by Presidential Decree No. 1739, are considered personal holding company income for purposes of the gross income requirement under Section 64(a)(1) in relation to Section 63 of the Tax Code. In reply, I have the honor to inform you that under Section 65(b) of the Tax Code as implemented by Section 222(5) of the Income Tax Regulations, all gains (including gains from liquidation dividends and other distributions from capital) realized from sale or exchange of shares or securities includible in gross income is personal holding company income for purposes of the gross income requirement under Section 64(a)(1) of the same Code. Gains derived from the sale of stocks on which the final capital gains tax of 10% prescribed by Section 34(g) of the Tax Code as amended by Presidential Decree No. 1739 has been imposed are, for income tax purposes, not includible in the gross income of the seller. Thus, Section 9 of Revenue Regulations No. 14-80, implementing said Section 34(g) specifically provides: "SEC. 9. Nature and treatment of net capital gains and taxes imposed. The net capital gains realized on stock transactions, shall not be included in the gross income of the seller in computing his income tax liability. "xxx xxx xxx" (Emphasis supplied) In other words, under Section 65(b) of the Income Tax Code as implemented by Section 222(5) of the Income Regulations, gains from the sale or exchange of stocks are not considered personal holding company income if the same are no longer includible as part of the gross income, e.g., when the final capital gains tax has been imposed thereon. This conclusion is bolstered by the enactment of Section 34(g) of the Tax Code as amended by Presidential Decree No. 1739 and Batas Pambansa Blg. 221 which now imposes special income tax rates on net capital gains derived from the sale or exchange of stocks. Under these amendments, said gains are no longer subject to the normal rates of income tax, in which case, the same should not be included as part of the gross income. In view thereof, this Office is of the opinion, as it hereby holds, that gains derived from the sale of shares of stock are not considered personal holding company income because they are not includible in gross income, the final capital gains tax imposed by Section 34(g) of the Tax Code, as amended, having been previously paid thereon. cdta Very truly yours, (SGD.) RUBEN B. ANCHETA Acting Commissioner