BIR Ruling No. 183-84

November 29, 1984 BIR RULING NO. 183-84 122-000-00-183-84 M a d a m : This refers to your letter dated July 31, 1984 stating that Mitsu Machine (Phil.), Inc. acquired a parcel of land in April, 1981 for P830,000.00 and later sold the same property to Tricom Development Corporation in December, 1982 for P850,000.00; that the P20,000.00 gain was reported in the income tax return of Mitsu Machine (Phil.), Inc. as ordinary gain; and that the fair market value of the said property per its Tax Declaration was P1,027,600.00. Based on the foregoing representations, you now request a ruling on the tax treatment of the difference between P1,027,600.00 and P850,000.00 or the amount of P177,600.00 (not P197,600.00). In reply, I have the honor to inform you that pursuant to Section 122 of the Tax Code as amended where property is transferred for less than an adequate and full consideration in money or money's worth, then the amount by which the fair market value of the property exceeded the value of the consideration shall, for the purpose of the donor's tax be deemed a gift, and shall be included in computing the amount of gifts made during the calendar year. The fair market value is the appraised value of the land at the time of sale which shall be either (a) the correct and fair market value as shown in the schedule of values fixed by the Provincial or City Assessor or (b) the fair market value as determined by the Commissioner of Internal Revenue whichever is higher. (Section 103 in relation to Section 124, Tax Code) Accordingly, since the aforesaid property was sold to Tricom Development Corporation for less than its fair market value, then the difference (not necessarily P177,600.00) between the fair market value of the property and its purchase price actually received by the vendor shall be deemed a gift subject to the donor's tax prescribed under Section 121 in relation to Section 122, both of the Tax Code, as amended. Very truly yours, (SGD.) RUBEN B. ANCHETA Acting Commissioner