BIR Ruling No. 634-2017

BUREAU OF INTERNAL REVENUE REPUBLIC OF THE PHILIPPINES DEPARTMENT OF FINANCE

LIPPY Quezon City

Revenuc Regulations No. 7-2003 h 6b4-20177 Person to Contact: Chief. Law Division Tel Nos. 926-55-36 / 927-09-63

Date: December 19, 2017

No. 3. Escarpment Rd.. Bagong Ilog MIDAS INDUSTRIES CORPORATION Pasig City

Attention: Anna Francesca L. Lim Director

Gentlemen:

Industries Corporation (the Company), for confirmatory ruling that the sale by the Company of parcels of land which have not been used in business for more than two (2) years is considered sale of capital assets pursuant to the Revenue Regulations (RR) No. 7- 2003 This refers to your letter dated December 5. 2016 requesting, on behalf of Midas

in 1975. 25. 2017, that the subject lots, now registered in the name of Alaska Land, Inc.," have no existing improvements declared for taxation as of September 25, 2017; and that the Corporate Secretary of Midas Industries Corporation has executed an affidavit stating that the Company has never engaged in real estate business from the time of its incorporation and all kinds of varieties of mechanical, electrical machines. parts. supplies, accessories and materials entered into or used in the manufacture, processing and operation of the same. among other things; that the Company had acauired'four (4) parcels'of land, covered by Company has also filed its Audited Financial Statements and Annual Income Tax Return for taxable year 2009 indicating therein that it has no business operations during the said Company had ceased its business operations in 1987 until said lots were sold in 2014: that the Office of the City Assessor of Pasig City has issued Certifications, all dated September (SEC) under Company Registration No. organized is to produce, manufacture, contract. process, assemble, organize, devetop, sell. tease, dispose of any and all hardware and handling equipment. for industrial, commercial Transfer Certificates of Title (TCT) Nos. used to house its business operations: that due to financial difficulty. the Company has already stopped its commercial operations since 1987. as evidenced by the Certification issued by the Office of the Barangay Captain of Brgy. Bagong Ilog. Pasig City; that the year: that said lots have not been used in business and remained idle from the time the Documents submitted show that the Company, with Tax Identification No. is a corporation duly registered with Securities and Exchange Commission : that the primary purpose for which it was and , which the Company.

In reply, please be informed that Section 3 (a) of RR No. 7-2003 provides:

Real Property is a Capital Asset or Ordinary Asset. "SEC. 3. Guidelines in Determining Whether a Particular

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Midas Industries Corporation Page 2 of 2 tuxpayer engaged in the real estate business, or formerly being used in the trade or business of a taxpayer engaged or not engaged in the real estate business. which were later on abandoned and became idle, shall continue to be treated as ordinury assets. Real property initially acquired by a taxpayer engaged in the real esiate husiness shall not result in its properties formerly forming part of the stock in trade of a abandoned or becomes idle. conversion into a capital asset even if the same is subsequently Treatment of abandoned and idle real properties. -- Real

other than real estate business as defined in Section 2(g) hereof proof that the same have not been used in business for more than two (?).years prior...to..the.consummationof the..taxable Tor being used in business by a taxpaver engaged in business are automatically converted into capital assets upon showing of Provided however._that properties classified as ordinary assets transactions involving said properties." (Emphasis supplied)

business by a taxpayer "engaged in business other than real estate business" from ordinary assets into capital assets upon showing of proof that the same have not been used in business a taxpayer not engaged in real estate business; and 2) there must be a showing that the same have not been used in business for more than two (2) years, are both present in this case. It not engaged in the real estate business. Moreover, based on the Certification issued by the for more than two (2) years. The foregoing provision finds application in this case. The two (2) important conditions set forth by RR' No. 7-2003 for the automatic conversion of ordinary assets into capital assets, to wit: 1) the assets were previousty used in business by can be gieaned from the Articles of Incorporation of Midas Industries Corporation that it is Office of the Barangay Captain of Brgy. Bagong Ilog, Pasig City. and the Company's Company has already ceased its business operation in 1987, leaving the above properties idle since then and up to 2014 when said lots were sold. Audited Financial Statements and Annuat Income Tax Return for taxable year 2009. the The above provision provides for the autonatic conversion of real property used in

it sold said properties in 2014. properties covered by TCT Nos. under RR No. 7-2003, are considered capital assets of Midas industries Corporation when In vicw of the foregoing, this Office is of the opinion, as it hereby rules that the real and . having met the conditions

However. if upon investigation. it will be disclosed that the facts are different, then this ruling shall be considered as null and void 'T`his ruling is being issued on the basis of the foregoing facts as represented

Very truly yours.

AL omv

K - Commissioner of Internal Revenue CAESAR R. DULAY 011951