BIR Ruling No. 210-61

May 31, 1961 BIR RULING NO. 210-61 Messrs. Gamo, Santos, De Jesus & Associates Attorneys-at-Law Quezon City Gentlemen : Reference is made to your letter dated May 2, 1961 stating the following: Your client Magdalena Estate, Inc. is reporting the income of its steel manufacturing business, the Ysmael Steel Manufacturing Company, a tax-exempt industry, on the accrual basis prior to the fiscal year 1960 and on the installment basis beginning said fiscal year. However, your client filed the income tax return of the Ysmael Steel Manufacturing Company for the fiscal year ended October 31, 1960 on the accrual basis. You now request permission to amend the income tax return of Ysmael, obviously in order to conform it with the method of reporting income on the installment basis which it adopted beginning the aforesaid fiscal year. You also request clarification on the following: cdti 1. Whether or not collections on installment sales made prior to July 1, 1959 should be excluded in the amended return; and 2. A distinction between income from installment accounts and open or charge accounts for purposes of Section 43(c) of the Tax Code. In reply thereto, I have the honor to inform that permission is hereby granted your client to amend the income tax return of Ysmael for the fiscal year ended October 31, 1960. Prior to January 1, 1959, Ysmael was entitled to full exemption, but as of that date to June 30, 1959 it was entitled to only 90% exemption and beginning July 1, 1955 it became liable to the income tax in full. The taxable period covered by the amended return is from November 1, 1959 to October 31, 1960. For purposes of Section 43(c) of the Tax Code, installment payments received in the fiscal year of change on account of sales made prior to January 1, 1959 shall be excluded. Payments received on account of sales made from January 1, 1959 to June 30, 1959 shall be included but to the extent of only 10% thereof; whereas those received on account of sales made from July 1, 1959 and thereafter shall be returned in full. This should be the case because the tax-exemption enjoyed by Ysmael under the provisions of R.A. No. 901 must have to be recognized. aisadc Sales under an open or charge account are not installment sales. The term "open account" means, ordinarily, an account based upon running or concurrent dealings between the parties which has not been closed, settled, or stated, and in which the inclusion of further dealings between the parties is contemplated. (1 Am. Jur., Sec. 3, p. 265). For purposes of Section 43(c), collections in the year of change or subsequent years of amounts under an open account sales made prior to January 1, 1959 shall be excluded, but those made from January 1, 1959 to June 30, 1959 shall be included but only to the extent of only 10% thereof. Collections in the year of change under open account sales made from July 1, 1959 and thereafter shall be returned in full. Very truly yours, (SGD.) MELECIO R. DOMINGO Commissioner of Internal Revenue