Computation of the Income Tax Payable by a Corporation Engaged in Both Taxable and Tax-exempt Industries

December 29, 1959 BIR RULING NO. 638-59 Sycip, Gorres, Velayo & Co. Certified Public Accountants 490 San Luis, Manila Gentlemen : With reference to your letter dated December 21, 1959, I have the honor to inform you as follows: In our ruling dated August 5, 1959, we allowed, in computing the income tax payable by a corporation engaged in both taxable and tax-exempt industries, the consolidation of the net income of the taxpayer from its taxable, partly taxable, and fully exempt operations. From the total consolidated net income, the fully exempt income is deducted. On the remainder, the corporate tax is computed as if it is fully taxable. The amount of tax on the partly taxable income or the fully taxable income shall then consist of that portion of the corporate tax thus arrived at which bears the same ratio of such tax as such income bears to the taxable consolidated net income. In your instant query, however, you presented a situation where the fully exempt and taxable operations suffered losses. You now posed the question of whether or not the losses derived from the fully and taxable operations are deductible from the net taxable income. In reply thereto, I have the honor to inform you that the computation allowed in our letter of August 5, 1959 stands. But the loss derived from the fully exempt operation cannot be deducted from the taxable net income. However any loss incurred in the partly and fully taxable operations may be deducted from such taxable net income. Very truly yours, (SGD.) MELECIO R. DOMINGO Commissioner of Internal Revenue