Copyright 1994-2006 CD Technologies Asia, Inc. Taxation 2005 1

September 20, 1990

BIR RULING NO. 184-90

30 169-84 184-90

Gentlemen:

This refers to your letter dated August 20, 1990 requesting in effect a rulingconfirming your opinion that liquidated damages to be paid to you by IntelPhilippines Mfg., Inc. for breach of contract is exempt from income tax. cdasia

It is represented that on May 20, 1983, Intel Phils. Mfg., Inc., entered into acontract of lease with you (lessor) whereby it was agreed, among others, that thelessee will construct a 3 to 4-storey building on your land; that the lessee failed tocomply with the said undertaking; and that you and the aforenamed lessee agreed to aproposed amended contract of lease whereby it was agreed that you will be paidliquidated damages for actual and compensating damages you suffered as a result ofthe aforementioned breach of contract.

In reply, please be informed that damages from a breach of contract constitutetaxable income to the recipient thereof in the year received only to the extent thatsuch damages constitute a loss of anticipated profits and non-taxable to the extent thatthe same represent a return of capital or investment. (BIR Ruling dated September 8,1954)

Such being the case, and since the liquidated damages to be paid to you byIntel Philippines Mfg., Inc. for the breach of your contract of lease do not represent areturn of capital or investment but constitute a loss of anticipated profits, they aretherefore, considered taxable income in the year received. Accordingly, your requestfor exemption has to be, as it is hereby denied for lack of legal basis. cdtai

Very truly yours,

(SGD.) JOSE U. ONG

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Copyright 1994-2006 CD Technologies Asia, Inc. Taxation 2005 2

Commissioner