Gains Derived from Sale of Subdivision Lots Not Subject to Capital Gains Tax but to Ordinary Corporate Income Tax

December 5, 1986 BIR RULING NO. 266-86 21 (c) 048-83 266-86 Gentlemen : This refers to your letter dated September 17, 1986 requesting a certification to the effect that you are exempt from the capital gains tax under Section 21(e) of the Tax Code, as amended by Executive Order No. 37. In reply, I have the honor to inform you that the gains that you derive from the sale of subdivision lots are considered ordinary gains, the same being profits derived from the sale of property held primarily for sale to customers in the ordinary course of trade or business under Section 34(a)(1) of the Tax Code, as amended. Such being the case, said gains are not subject to the capital gains tax under Section 21(e) of the Tax Code, as amended by Executive Order No. 37, but to the ordinary corporate income tax prescribed under Section 24 of the Tax Code as amended. Moreover, Section 21(e) of the Tax Code, as amended by Executive Order No. 37, is explicit that only individuals, estates and trusts shall be embraced by the final capital gains tax on the sales, exchange or disposition of real property classified as capital asset. However, pursuant to Section 209 of the Tax Code and Revenue Memorandum Circular No. 41-86 dated November 18, 1986 you are required to pay the corresponding documentary stamp tax on the deed of sale through our Revenue District Office having jurisdiction over the place where the real property sold is located. For purposes of computing the stamp tax due, you should present for verification authentic copy of the deed of sale and latest tax declaration of the real property sold. Very truly yours, (SGD.) BIENVENIDO A. TAN, JR. Commissioner of Internal Revenue