Tax Liability of Smith Sound Studios Laboratories

June 16, 1959 BIR RULING NO. 307-59 MEMORANDUM FOR The Chief, Miscellaneous Specific Taxes Section (Thru the Chief, Tobacco & Miscellaneous Taxes Division) B.I.R., Manila This refers to the question of whether or not, in view of the decision in the case of Philippine Manufacturing Company vs. Collector (C.T.A Case No. 309, Nov. 29, 1957), Smith Sound Studios Laboratories, which is engaged in the manufacturer of microfile films and 16 mm. films, is subject to the specific tax prescribed in section 146 of the Tax Code, as amended. It appears that, by a letter dated December 19, 1956, the Secretary of Finance approved the application for tax-exemption of the aforenamed firm under the provisions of Republic Act No. 901 and that, in another letter dated January 23, 1957, which clarified the former, said official informed Smith Sound Studios Laboratories that the latter is exempt from all taxes directly payable by it in connection with the operation of its tax-exempt industry, which is the manufacture of the films in question. In the penultimate paragraph of the earlier letter, it is stated that the exemption shall commence on October 1, 1956 and terminate on December 31, 1958. It does not clearly appear, however, whether the microfile and 16 mm. films are ordinarily subject to the specific tax under section 146 of the Tax Code or to the sales tax under section 185(j) of said Code, the nature or kind of said films not having been stated. At any rate, Smith Sound Studios Laboratories is not liable for any tax, whether it be the specific or sales tax, otherwise due on the films it had removed from October 1, 1956, the date of commencement of its tax-exemption, the same having been expressly exempted from all taxes directly payable by it in connection with the operation of the aforesaid industry. The decision in the case of the Philippine Manufacturing Company is no in point, because the issue therein, which was decided against the petitioner-company, is whether or not the controversial films are "educational films, or cinematographic films used for visual education" within the purview of the exemption contemplated by the aforesaid section 146. Moreover, the films involved in that case had been removed prior to October 1, 1956. cdll (SGD.) JOSE ARAAS Commissioner of Internal Revenue