BIR Ruling No. 139-61

March 28, 1961 BIR RULING NO. 139-61 Mrs. Rosario T. Du Enojado Certified Public Accountant Dadiangas, Cotabato Madam : Reference is made to your letter dated March 3, 1961, requesting information as follows: cdta "Mr. A, my client is engaged buying farm products like tagan-tagan seeds, cotton, etc. In order to encourage the farmers to plant especially those who lack capital and to be assured that he can purchase the products, Mr. A. made a contract with the farmers, that he will pay for the farm preparation as advances and will pay the farmers at certain rate per kilo of the products upon harvest. Some farm of the farmers were already cultivated and planted, and in this process, the farmers and Mr. A have a hard time hiring tractors for rental, because then the tractor's owners will first cultivate their own area before the tractors could be hired. "To be assured of better and prompt service the farmers and Mr. A came to an agreement, that Mr. A will buy a tractor and will charge the farmers at cost, taken into consideration the fuel used, tractor driver's salary and the depreciation of the tractor, which the total cost is less than the rental of the tractor prevailing on the locality. Now the tax problem is, will Mr. A be required to pay the contractor's tax of 3% of the advances to the farmers? The tractor operation will be at cost and will be used solely for the farmer's farm which has contract to plant with Mr. A. cdti In answer thereto, I have the honor to inform you that, based on the aforequoted facts, your client is not, by making the advances in question, constituted a contractor under Section 191 of the Tax Code. On the other hand, for leasing the tractor to the farmers under the circumstances mentioned above where your client provides the driver thereof and supplies the fuel used by the tractor, your said client in effect cultivates the fields of the farmers for a fee or compensation. Accordingly, he is an independent contractor subject to the fixed annual tax of P20.00 and to the 3% contractor's tax prescribed in Sections 182(A)(1) and 191 of the same Code. Very truly yours, (SGD.) MELECIO R. DOMINGO Commissioner of Internal Revenue