Exemption on the Manufacture of Tin Cans

December 21, 1959 BIR RULING NO. 652-59 Mr. Romeo M. Escareal R-407 Roman M. Santos Building Plaza Goiti, Manila S i r : This is in connection with your letter dated August 11, 1959, requesting for an opinion on the following questions: cdt 1. The above corporation is the holder of C-14 as manufacturer of tin cans. Being a new and necessary industry, it is tax exempt. On some occassions, it accepts work from other firms under which contract, it supplied almost all of the tin plates to be made into cans. Under such circumstances, may we know if the above corporation's operation is separated and distinct from its tax exempt operations such that its profits thereunder would be taxable? 2. The above corporation deposits part of its cash in banks under a savings account. May we know, if the cash interest earned thereunder is taxable inspite of the fact that said money plus interest earned belong to and is used by the corporation is its tax-exempt operations? The money so deposited are used solely in the operation of the corporation which manufactures tin cans. In the event that said interest on the aforementioned savings account is taxable, is the corporation liable to pay any surcharge or interest on the basis of a technicality? In reply thereto, I have the honor to inform you as follows: There is no doubt that your client is a tax-exempt corporation, but its exemption is limited to the manufacture of tin cans. When it accepts work from other firms for the manufacture of tin cans with raw materials furnished by them or partly furnished by it and for which it is paid for labor and cost of raw materials furnished by it, it is engaged in another line of business as independent contractor which is distinct and separate from its tax exempt industry. As independent contractor, it is subject to the fixed and percentage taxes prescribed by section 182 and 191 of the Tax Code. As regards your second query, please be informed that, upon investigation, it was discovered that the assessment of the sum of P1,638.00 against your client constitutes a deficiency income tax based on the interest income earned from its deposit of P8,190.85. As the exemption granted your client refers, among others, only to the income tax in respect of the net income derived from its exempt industry, the exemption cannot include interest income from deposits. cdll Very truly yours, (SGD.) MELECIO R. DOMINGO Commissioner of Internal Revenue