BIR Ruling No. 399-61

No date supplied BIR RULING NO. 399-61 MEMORANDUM FOR: The Chief, Business Tax Division This refers to the case of the Rural Bank . . . , Inc., requesting release of one (1) Mercedes-Benz car free from tax under Republic Act No. 720, as amended by Republic Act No. 1097. Section 14 of the aforesaid Act reads as follows: llcd "Section 14. All Rural Banks created and organized under the provisions of this Act, with net assets not exceeding seven hundred thousand pesos (P700,000.00), shall be exempt from the payment of all taxes, charges, and fees or whatever nature and description." (As amended by Sec. 4, R.A. No. 1097). This case was referred to the Law Division for a ruling on the correct meaning of the term "net assets" as used in the aforesaid Act in view of the conflicting opinions already issued by our Office. In BIR Ruling No. 396, series of 1959, embodied in a letter of the Commissioner of Internal Revenue to the Regional Director of San Pablo City dated August 11, 1959, it was held that the term "net assets" as used in Section 14 of Republic Act No. 720 as amended by Republic Act No. 1097 means gross assets less liabilities . Subsequently, in a letter dated October 20, 1960 of this Office, denying the claim for refund of the U.S.T. Cooperative, it was in effect held that the term "net assets" as used in Republic Act No. 2023 means "gross assets less reserves for depreciation". There can only be one meaning of the term "net assets" as used in both Republic Act 2023 and Republic Act 720, as amended. As used in both Acts, the term refers to the financial structure or condition of the corporation. Glenn G. Hunn in his Encyclopedia of Banking and Finance defines "net assets" as synonymous to "net worth". LLjur "From a legal standpoint, net worth represents the equity of the owners in the business, i.e., the net assets determined by subtracting all liabilities from the going value of the assets." Other authorities on this matter give the following definitions: "In determining tax on shares of a trust company, when there is deducted from the gross assets of a company the amount owed to depositors and the 'net assets' are thereby ascertained, which is a bookkeeping balance obtained by subtracting the company's liabilities from its gross assets, it is only the latter and not the investments of deposited moneys which constitute the tax base. 72 P.S. 1991, 2001, 2002, 2011 . . ." (Net Assets (Words and Phrases). "Employed as an adjective, the word 'net' is defined as meaning clear of all charges and deductions; clear of anything extraneous with all deductions, such as charges, expenses, discounts, commissions, taxes, etc., made free from charges or deductions; not subject to any discount or deduction; obtained after deducting all expenses; lowest; that which remains after the deduction of all charges or outlay. 'Net' has been held synonymous to the phrase 'clear of all charges and deductions' See 14 C.J.S. p. 1199 note 65, and has bee distinguished from, or said to be opposed to, 'gross' see 38 C.J.S. p. 1081 note 46. (Ibid) (Net Assets (Words and Phrases). LLpr The abovequoted authorities all agree that the term "net assets" is synonymous to "net worth". Moreover, inasmuch as the Rural Banks Acts is administered by the Central Bank, its interpretation of the terms used in this Act should be given great weight. In the instant case, the Central Bank certified that the net assets of the Rural Bank of . . ., Inc. as of September 28, 1961 does not exceed P700,000.00. This certification was based on a financial statement of the Rural Bank which shows a total resources of P832,770.57, a total liability of P568,476.59 and a net worth of P264,293.98. Obviously, the Central Bank considered the "net worth" of the corporation which is only P264,293.98 as its "net assets". In view of all the foregoing, this Office is of the opinion that the term "net assets" as used in Republic Acts Nos. 2023 and 720, as amended, is synonymous to "net worth". Accordingly, the Authority to Release Imported Goods No. 00477-61 dated October 4, 1961 may be given due course. This ruling affirms BIR Ruling No. 396, series of 1939 and revokes the ruling embodied in our letter dated October 20, 1960 to the U.S.T. Cooperative.