Internal Revenue Tax Case of Mr. Eduardo A. Barretto

October 26, 1959 BIR RULING NO. 579-59 The Regional Director Regional District No. 3 M a n i l a S i r : This is in connection with the internal revenue tax case of Mr. Eduardo A. Barretto which was referred to this Office for a ruling on the question of whether or not the proceeds from the sale of 1,000 piculs sugar quota in the amount of P9,000.00 is a capital gain. To resolve this question, it is necessary to ascertain whether or not sugar quota is a capital asset. cdt Section 34 of the National Internal Revenue Code defines capital assets as follows: "SEC. 34. Capital gains and losses . (a) Definitions . As used in this Title " Capital assets . The term 'capital assets' means property held by the taxpayer (whether or not connected with his trade or business), but does not include stock in trade of the taxpayer or other property of a kind which would properly be included in the inventory of the taxpayer if on hand at the close of the taxable year, or property held by the taxpayer primarily for sale to customer in the ordinary course of his trade or business, or property, used in trade or business, of a character which is subject to the allowance for depreciation provided in sub-section (f) of section thirty; or real property used in the trade or business of the taxpayer. . . ." Under the abovequoted provision of the Tax Code, sugar quota is a capital asset inasmuch as it does not fall under any of the exceptions. The fact that it was held by the taxpayer in connection with its business does not make it a capital asset because the law specifically provides that property held by the taxpayer whether or not connected with his business is a capital asset provided it does not fall under those property specifically excepted. In view thereof, and considering that the said property was held by the taxpayer for more than twelve (12) months, he was right in declaring 50% of the proceeds from the sale thereof as taxable gain. The docket of this case is, therefore, returned to that office for appropriate action in accordance with the above ruling. Very truly yours, (SGD.) MELECIO R. DOMINGO Commissioner of Internal Revenue