BIR Ruling No. 104-65

September 14, 1965 BIR RULING NO. 104-65 Mr. Luis Ma. Guerrero Attorney-at-Law 414 Roxas Blvd. M a n i l a S i r : This refers to your letter dated April 19, 1965 requesting opinion on the question of whether or not the amount of ten thousand dollars given to Miss Gemma Cruz as prize for winning the International Beauty Contest at Long Beach, California in August, 1964, but which was subsequently donated by her to the 'Boy's Town', is subject to gift tax or any other tax; and in the affirmative, whether or not said amount may be claimed as deduction in her income tax return. LLjur In reply thereto, I have the honor to inform you as follows: As a rule, prizes such as the prize received by Miss Cruz, come within the definition of income under section 29(a) of the Tax Code, and are, therefore, subject to income tax, unless otherwise exempted by law. For ready reference, we quote below Section 29(a) of the Tax Code, viz: "Sec. 29. Gross income . (a) General definition. 'Gross income' includes gains, profits, and income derived from salaries, wages, or compensation for personal service of whatever kind and in whatever form paid, or from professions, vocations, trades, businesses, commerce, sales, or dealings in property, whether real or personal, growing out of the ownership or use of or interest in such property; also from interests, rents, dividends, securities, or the transactions of any business carried on for gain or profit, or gains, profits, and income derived from any source whatever." As there is no law exempting from income tax prizes, such as that received by Miss Cruz, the ten thousand dollars prize awarded to Miss Cruz is necessarily subject to income tax. With respect to the question of whether or not the donation by Miss Cruz of her prize to Boy's Town could be deducted from her gross income, we quote below Section 30(h) of the Tax Code, viz: "Sec. 30. Deductions from gross income . In computing net income there shall be allowed as deductions xxx xxx xxx (h) Charitable and other contributions . Contributions or gifts actually paid or made within the taxable year to or for the use of the Government of the Philippines or any political subdivision thereof for exclusively public purposes, or to domestic corporations or associations organized and operated exclusively for religious, charitable, scientific, athletic, cultural or educational purposes or for the rehabilitation of veterans, or to societies for the prevention of cruelty to children or animals, no part of the net income of which inures to the benefit of any private stockholder or individual to an amount not in excess of six per centum in the case of an individual, and three per centum in the case of a corporation, of the taxpayer's taxable net income as computed without the benefit of this paragraph. Such contributions or gift shall be allowable as deductions only if verified under rules and regulations prescribed by the Secretary of Finance." In accordance with the abovequoted provision of law, only so much of the said donation as does not exceed 6% of the net income of Miss Cruz can be allowed as deduction from her gross income for 1964. However, the donation in question is exempt from the payment of both donor's and donee's gift taxes pursuant to Section 112(a)(3) of the Tax Code which is quoted hereunder for ready reference, viz: "Sec. 112. Exemption of certain gifts . The following gifts or donations shall be exempt from the tax provided for in this Chapter: (a) In the case of gifts made by a resident: xxx xxx xxx (3) Gifts made to or for the use of the National Government or any entity created by any of its agencies which is not conducted for profit, or to any political subdivision of the said Government." Very truly yours, (SGD.) MISAEL P. VERA Acting Commissioner of Internal Revenue