Contractor's Tax on Corporation's Transaction

September 26, 1960 BIR RULING NO. 417-60 Mr. Florentino I. Lim Bank of PI Bldg. Third Floor, Rm. 301 Plaza Cervantes, Manila S i r : This is in answer to your letter of September 20, 1960 inquiring whether "B" corporation is subject to the contractor's tax on the transaction you described as follows: cdi "A" corporation which was organized in 1956 leased its logging machinery to a contractor. It is also engaged in the exportation of logs abroad. Late in 1957, the said corporation was able to obtain a timber concession in Agusan." "B" corporation has an adjacent concession to "A" corporation which cannot be operated economically without passing thru the concession of "A" in view of the presence of a very high and impassable mountain ranges which separate the bulk of the area of its concession from the main road leading to the port. Inasmuch as "A" corporation was not yet operating its concession, it leased its logging machinery to "B" and also permitted "B" corporation to have a right of way thru its concession. "B" corporation in turn, agreed to fell the trees of "A" corporation in the area of the right of way and transport the logs to the port of debarkation. In the transaction, "A" corporation will have to reimburse "B" corporation for all the actual expenses incurred." Under the transaction described above, "B" corporation is not subject to the 3% contractor's tax because it is not a contractor within the meaning of section 191 of the Tax Code. Besides, the reimbursement to "B" of its actual expenses incurred in cutting and transporting the logs cannot be considered gross receipts within the meaning of said section. It is of course understood that the logs cut and transported by "B" for "A" are only those found in the area where the way or road is to be constructed. Very truly yours, (SGD.) MELECIO R. DOMINGO Commissioner of Internal Revenue