Farming or Agriculture Not Carried on for Gain or Profit

May 5, 1960 BIR RULING NO. 223-60 The Regional Director Regional District No. 5 San Pablo City S i r : Reference is made to your letter dated December 14, 1959, recommending modification of B.I.R. Ruling No. 236, s. 1958, holding that farming cannot in any case be considered a business. At the same time, you stated that this Office has not expressed a definite and unequivocal stand on the question of whether or not farming is a business, for purposes of ascertaining the liability to income tax of proceeds from the sales of lands used in farming under section 29(a), in relation to section 34(a)(1) and (b) of the Tax Code. Consequently, you now request that this Office issue a categorical ruling on the matter. cdt The principle enunciated by the Supreme Court in the case of Domingo Imperial vs. the Collector of Internal Revenue (G.R. No. 7924, September 30, 1955) on the question of whether or not the plaintiff-appellee therein is engaged in business as real estate dealer in very enlightening, and should be applied in determining cases involving the question of whether a particular farm land should be considered a capital or ordinary asset. Said the Court in that case: "It is apparent that as the plaintiff was, from 1946 to 1950, Senator-at-large and later Minister in a foreign country, the exercise of duties of which offices required the greater part of his time and his absence from the Philippines, there is no weight in the argument, in the absence of proof, that during that period of time he was 'engaged in leasing real estate', especially if it be taken into account that the camarin which he had been leasing to the merchant-tenants appears to be the only property of his for lease, and the annual rental received therefrom being much less than the annual income he received from the office or offices which he had been holding. "To engage' is to embark in a business or to employ oneself therein . . . The word 'engage' connotes more than a single act or a single transaction; it involves some continuity of action . . . 'To engage in business' is uniformly construed as signifying to follow the employment or occupation which occupies the time, attention, and labor for the purpose of a livelihood or profit . . . . Under the circumstances, we cannot hold that the plaintiff was engaged in leasing real estate, so the act of his in leasing his only camarin was an isolated transaction, and as he was at the time occupied in holding an office under the Philippine Government which required the greater part of his time and attention." Accordingly, the question of whether or not a person is engaged in farming or agriculture as a business, and, therefore, the land devoted thereto is an ordinary or capital asset the gains derived or losses sustained from the sale of which are ordinary or capital gains or losses, depends upon the facts and circumstances surrounding a particular case. Needless to state, where farming or agriculture is not carried on for gain or profit, as when the produce are destined exclusively for consumption of the farmer and his family, the land used therefor or devoted thereto remains a capital asset and the gain or loss a capital gain or loss. All previous rulings inconsistent with this ruling are hereby revoked or amended accordingly. LLjur Very truly yours, (SGD.) MELECIO R. DOMINGO Commissioner of Internal Revenue