Computation of the Company's Income Tax

December 13, 1960 BIR RULING NO. 518-60 The Treasurer Lepanto Consolidated Mining Co. M a n i l a S i r : Reference is made to your letter dated November 11, 1960, requesting information as to the correctness of your proposed computation of the company's income tax for the period January 1 to September 30, 1960 considering Republic Act No. 2698 which amended Section 30(g) of the Tax Code by providing for percentage depletion in the case of oil and gas wells and mines. cdtech In reply thereto, please be informed as follows: The gross income from mining consists of the proceeds from the sales of ores or minerals extracted from the mining property. The term "mining" includes not merely the extraction of the ores from the ground but also the ordinary treatment process applied by mine operators in order to obtain the commercially marketable mineral products or products, and so much of the transportation of ores or minerals (whether or not by common carrier) from the point of extraction from the ground to the plants or mills in which the ordinary treatment processes are applied thereto as it is not in excess of 50 miles unless the commissioner of Internal Revenue finds that the physical and other requirements are such that the ore or mineral must be transported a greater distance to such plants or mills. Even if there are as yet no smelting or refinery plants in this country, the actual cost of ocean freight, as well as insurance, of the ores to the United States where the ordinary treatment processes are applied or where they are refined and where they are sold should be deducted from the actual selling price for gross income purposes. Also, where the minerals or mineral products are sold or consigned abroad by the lessee or owner of the mine under C.I.F. terms, by actual cost of ocean freight and insurance should be deducted. Accordingly, if the gross income from the property as appearing in your computation was arrived at in accordance with the foregoing, then your computation is correct. For purposes of the percentage depletion, net income or net profit means the taxable income from the property. Net income (computed without allowance for depletion) means the "gross income from the property" less the allowable deductions attributable to the mineral property upon which the depletion is claimed and the allowable deductions attributable to the treatment processes insofar as they relate to the product of such property, including overhead and operating expenses, development costs properly charged to expense, depreciation, taxes, losses sustained, etc. Deductions not directly attributable to particular properties or processes shall be fairly allocated. Accordingly, if the deductions represented in your computation is in accordance with the foregoing, then your computation is correct. casia Very truly yours, MELECIO R. DOMINGO Commissioner of Internal Revenue