Tax Imposed on the Sale of the Cotton Yarns by the NDC

July 29, 1958 BIR RULING NO. 420-58 1st Indorsement Respectfully returned to the Regional Director, Bureau of Internal Revenue Regional District No. 1, Baguio City. cdll The supposed sale of the cotton yarns by the National Development Company, hereinafter referred to as NDC, to the individual weavers is essentially a measure adopted by the NDC to avoid the possible loss thereof in case of breach of contract. We view the contract in its entirety as conveying actually the idea that NDC delivers cotton yarns to the weavers to be woven into blankets according to its specifications for a fee equivalent to the difference of the supposed selling price to it of finished blankets and its supposed selling price of the cotton yarns. This is the logical interpretation because all of the cotton yarns allegedly sold are actually used in its entirety in the manufacture by the weavers of blankets for the NDC which the latter is to deliver to the Armed Forces of the Philippines under a separate contract. Accordingly, this Office is of the opinion and so holds that the weavers are subject to the contractors, tax. Their taxable gross receipts consist only of the difference of the supposed selling price of the blankets and the supposed selling price of the blankets and the supposed selling price of the cotton yarns because it will certainly be unfair to tax the weavers on the cost of the cotton yarns which was actually provided by the NDC and priced by the latter. (SGD.) MELECIO R. DOMINGO Acting Commissioner of Internal Revenue