Clarification of Section 83 of the Tax Code as amended by P.D. No. 1705

November 20, 1981 BIR RULING NO. 236-81 35-d 000-00 236-81 Mario U. Quinsat 666-B2 MRR Street Pineda, Pasig Metro Manila Gentlemen: This refers to your letter dated January 13, 1981, requesting clarification of Section 83 of the Tax Code as amended by P.D. No. 1705 (effective August 1, 1980), which reads as follows: "(d). The net income declared by a partnership for a taxable year which is subject to tax under Section 24(a) of this Code, after deducting the income tax imposed therein, shall be deemed to have been actually or constructively received by the partners in the same taxable year and shall be taxed to them in their individual capacity, whether actually distributed or not. In reply, please be informed as follows: 1. Prior to the amendment by P.D. No. 1705, the distributive share of the partners to the profits in a general partnership is regarded as received by them constructively although not actually distributed. (Sec. 53, Revenue Regulations No. 2). To constitute constructive receipt, the share must be credited to the partner without any substantial limitation or restriction as to the time or manner of payment or condition upon which payment is to be made. And the share which is credited to the partner is subject to income tax; hence, it must be declared in the income tax return for the year during which so credited, although not actually reduced to possession (Sec. 52, Ibid .), which means actual distribution. 2. After the amendm ent of P.D. No. 1705, the net income of the partnership after deducting the taxes imposed under Section 24(a) of the Tax Code need not be credited to the partners but shall be deemed to have been actually or constructively received by the partners in the same taxable year and shall be taxed only in their individual capacity, whether actually distributed or not. (Sec. 83(d), Tax Code, as amended). cdt The undistributed profits accumulated prior to the promulgation of P.D. No. 1705 shall be deemed to have been constructively received by the partners on August 1, 1980, the effectivity date of the said Decree; hence, subject to income tax for the said year. Very truly yours, RUBEN B. ANCHETA Acting Commissioner