BIR Ruling No. 086-65

August 12, 1965 BIR RULING NO. 086-65 Mr. Crispin Llamado 393 Barraca Street Binondo, Manila S i r : This refers to your request for reconsideration of our ruling dated August 16, 1963, holding that the property leased by your client, Mr. Mei Sheng Su, is an ordinary asset and that therefore, the gain derived from the sale thereof is an ordinary gain, taxable in full. cdi In support of your claim that the property in question is not an ordinary asset, you point to the fact that your client is not a real estate within the purview of Section 194(s) of the Tax Code and argue that under the circumstances, the property in question cannot be considered an ordinary asset. The records of this case show that Mr. Mei Sheng Su bought a parcel of land in Manila for P25,000.00 on April 29, 1952. That immediately after purchase, that is on May 1, 1952, he leased the property to Sy Chi Siong and Co. for a period of ten years at a monthly rental of P150.00 or a total of P1,800 a year. During the period of the lease, the lessee constructed a building on said lot and on March 20, 1959, upon agreement of the parties, the lot and building were sold for P50,000.00 and P15,000.00, respectively. Section 194(s) of the Tax Code, as amended, provides that a "'real estate dealer' includes any person engaged in the business of buying, selling, exchanging, leasing, or renting property as principal and holding himself out as a full or part-time dealer in real estate or as an owner of rental property or properties rented or offered to rent for an aggregate amount of four thousand pesos or more a year. Any person shall be considered as engaged in business as real estate dealer by the mere fact that he is the owner or sublessor of property rented or offered to rent for an aggregate amount of four thousand pesos or more a year : . . .." (Emphasis supplied) It is, therefore, clear that, for leasing the property in question for the aggregate annual rental of only P1,800.00, Mr. Mei Sheng Su cannot be considered engaged in business as real estate dealer and not being engaged in business, the property is not deemed used in trade or business. Besides, Mr. Mei Sheng Su has always been a salaried employee and had never engaged in any taxable business. His leasing of the property in question may be looked upon in no other light than as an incident of his ownership thereof. This Office is, therefore, of the opinion as it nearby holds that the gain derived from the sale of the property in question is a capital gain taxable to the extent of only 50% thereof. This ruling supersedes our previous ruling dated August 16, 1963. Very truly yours, (SGD.) BENJAMIN N. TABIOS Acting Commissioner of Internal Revenue