CA 466 CHAPTER IV - Computation of Net Income

Meaning of net income.

Section 28

SEC. 28. Meaning of net income. — "Net income" means the gross income computed under section 29 less the deductions allowed by section 30.

Gross income.

Section 29

SEC. 29. Gross income. — (a) General Definition. — "Gross income" includes gains, profits, and unicorn derived from salaries, wages, or compensation for personal service of whatever kind and in whatever form paid, or from professions, vocations, trades, business, commerce, sales, or dealings in property, whether real or personal, growing out of the ownership or use of or interest in such property; also from interests, rents, dividends, securities, or the transactions of any business carried on for gain or profit, or gains, profits, and income derived from any source whatever. (b) Exclusions from gross income. — The following items shall not be included in gross income and shall be exempt from taxation under this Title: (1) Life insurance. — The proceeds of life insurance policies paid to beneficiaries upon the death of the insured whether in a single sum or otherwise, but if such amounts are held by the insurer under an agreement to pay interest thereon, the interest payments shall be included in gross income. (2) Amount received by insured as return of premium. — The amount received by the insured, as a return of premium or premiums paid by him under life insurance, endowment, or annuity contracts, either during the term at the maturity of the term mentioned in the contract or upon surrender of the contract. (3) Gifts, bequests, and devises. — The value of property acquired by gift, bequest, devise, or descent; but the income from such property shall be included in gross income. (4) Interest on Government securities. — Interest upon the obligations of the United States to the extent provided in the act authorizing the issue thereof; interest upon the obligations of the Government of the Philippines or any political subdivision thereof, but in the case of such obligations issued after the approval of this Code, only to the extent provided in the Act authorizing the issue thereof. (5) Compensation for injuries or sickness. — Amounts received, through Accident or Health Insurance or under Workmen's Compensation Acts, as compensation for personal injuries or sickness, plus the amount of any damages received whether by suit or agreement on account of such injuries or sickness. (6) Income exempt under treaty. — Income of any kind, to the extent required by any treaty obligation binding upon the Government of the Philippines. (7) Miscellaneous items. — (A) Income of foreign governments received from their investments in the Philippines in stock, bonds, or other domestic securities, or from interest on their deposits in banks in the Philippines. (B) Income derived from any public utility or from the exercise of any essential governmental function accruing to the Government of the Philippines or to any political subdivision thereof.

Deductions from gross income.

Section 30

SEC. 30. Deductions from gross income. — In computing net income there shall be allowed as deduction — (a) Expenses — (1) In General. — All the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business, including a reasonable allowance for salaries or other. Compensation for personal services actually rendered; traveling expenses while away from home in the pursuit of a trade or business; and rentals or other payments required to be made as a condition to the continued use or possession, for the purposes of the trade or business, of property to which the taxpayer has not taken or is not taking title or in which he has no equity. (2) Expenses allowable to non-resident alien individuals and foreign corporations. — In the case of a non-resident alien individual or a foreign corporation, the expenses deductible are the necessary expenses paid or incurred in carrying on any business or trade conducted within the Philippines exclusively. (b) Interest — (1) In General. — The amount of interest paid within the taxable year on indebtedness, except on indebtedness incurred or continued to purchase or carry obligations the interest upon which is exempt from taxation as income under this Title. (2) Interest allowable to non-resident aliens. — In the case of a non-resident alien Individual or a foreign corporation, the amount of interest allowable is the proportion of the amount of interest paid within the year on indebtedness, except on indebtedness incurred or continued to purchase or carry obligations, the interest upon which is wholly exempt from taxation as income under this Title, which the gross amount of income for the year derived from sources within the Philippines bears to the gross amount of income derived all sources within and without the Philippines; but this deduction shall be allowed only if such non-resident alien individual or foreign corporation includes in the return required by this Title all the information necessary for its calculation. (c) Taxes — (1) In General. — Taxes paid or accrued within the taxable year, except- (A) The income tax provided for under this Title; (B) Income, war-profits, and excess-profits taxes imposed by the authority of the United States, a possession of the United States, or any foreign country; but this deduction shall be allowed in the case of a taxpayer who does not signify in his return his desire to have to any extent the benefits of paragraph (3) of this subsection relating to credit for taxes of foreign countries); (C) Estate, inheritance and gift taxes; and (D) Taxes assessed against local benefits of a kind tending to increase the value of the property assessed. (2) Limitations and deductions. — (A) In the case of a non-resident alien individual and a foreign corporation, the deductions for taxes provided in paragraph (1) of this subsection (c) shall be allowed only if and to the extent that they are connected with income from sources within the Philippines, and (B) In the case of a citizen of a foreign country residing in the Philippines whose income from sources within such foreign country is not taxable under this Title, only that portion of the taxes paid to such foreign country which corresponds to his net income taxable under this Title shall be allowed as deduction. (3) Credits against tax for taxes of foreign countries. — If the taxpayer signifies in his return his desire to have the benefits of this paragraph, the tax imposed by this Title shall be credited with — (A) Citizen and domestic corporation. — In the case of a citizen of the Philippines and of a domestic corporation, the amount of any income, war-profits, and excess profits taxes paid or accrued during the taxable year to any foreign country; (B) Alien resident of the Philippines. — In the case of an alien resident of the Philippines, the amount of any such taxes paid or accrued during the taxable year to any foreign country, if the foreign country of which such alien resident is a citizen or subject, in imposing such taxes, allows a similar credit to citizens of the Philippines residing in such country; and (C) Partnership and estates. — In the case of any such individual who is a member of a partnership or a beneficiary of an estate or trust, his proportionate share of such taxes of the partnership or the estate or trust paid or accrued during the taxable year to a foreign country, if his distributive share of the income of such partnership or trust is reported for taxation under this Title. (D) Non-resident aliens and foreign corporations. — Non-resident alien individuals and foreign corporations shall not be allowed the credits against the tax for taxes of foreign countries allowed under this paragraph. (4) Limitations on credit. — The amount of the credit taken under this section shall be subject to each of the following limitations: (A) The amount of the credit in respect of the tax paid or accrued to any country shall not exceed the same proportion of the tax against which such credit is taken, which the taxpayer's net income from sources within such country taxable under this Title bears to his entire net income for the same taxable year; and (B) The total amount of the credit shall not exceed the same proportion of the tax against which such credit is taken, which the taxpayer's net income from sources without the Philippines taxable under this Title bears to his entire net income for the same taxable year. (5) Adjustments on payment of accrued taxes. — If accrued taxes when paid differ from the amounts claimed as credits by the taxpayer, or if any tax paid is refunded in whole or in part, the taxpayer shall notify the Collector of Internal Revenue, who shall predetermine the amount of the tax for the year or years affected, and the amount of tax due upon such re-determination, if any, shall be paid by the taxpayer upon notice and demand by the Collector, or the amount of tax overpaid, if any, shall be credited or refunded to the taxpayer. In the case of such a tax accrued but not paid, the Collector as a condition precedent to the allowance of this credit may require the taxpayer to give a bond with sureties satisfactory to and to be approved by the Collector in such sum as he may require, conditioned upon the payment by the taxpayer of any amount of tax found due upon any such re-determination. The bond herein prescribed shall contain such further conditions as the Collector may require. (6) Year in which credit taken. — The credits provided for in paragraph (3) of this subsection may, at the option of the taxpayer and irrespective of the method of accounting employed in keeping his books, be taken in the year in which the taxes of the foreign country accrued, subject, however, to the conditions prescribed in paragraph 5 of this subsection. If the taxpayer elects to take such credits in the year in which the taxes of the foreign country accrued, the credits for all subsequent years shall be taken upon the same basis, and no portion of any such taxes shall be allowed as a deduction in the same or any succeeding year (7) Proof of credits. — The credits provided in paragraph (3) of this subsection shall be allowed only if the taxpayer establishes to the satisfaction of the Collector (1) the total amount of income derived from sources without the Philippines, (2) the amount of income derived from each country, the tax paid or accrued to which is claimed as a credit under said paragraph, such amount to be determined under rules and regulations prescribed by the Secretary of Finance, and (3) all other information necessary for the verification and computation of such credits. (8) Taxes of foreign subsidiary. — For the purposes of this subsection a domestic corporation which owns a majority of the voting stock of a foreign corporation from which it receives dividends in any taxable year shall be deemed to have paid the same proportion of any income, war-profits, or excess-profits taxes paid by such foreign corporation to any foreign country, upon or with respect to the accumulated profits of such foreign corporation from which such dividends bears to the amount of such accumulated profits: Provided, That the amount of tax deemed to have been paid under this subsection shall in no case exceed the same proportion of the tax against which credit is taken which the amount of such dividends bears to the amount of the entire net income of the domestic corporation in which such dividends are included. The term "accumulated profits" when used in this subsection in reference to a foreign corporation, means the amount of its gains, profits, or income in excess of the income. war-profits, and excess-profits taxes imposed upon or with respect to such profits or income; and the Collector of Internal Revenue shall have full power to determine from the accumulated profits of what year or years such dividends were paid; treating dividends were paid; treating dividends paid in the first sixty days of any year as having been paid from the accumulated profits of the preceding year or years (unless to his satisfaction shown otherwise), and in other respects treating dividends as having been paid from the most recently accumulated gains, profits, or earnings. In the case of a foreign corporation. the income, war-profits, and excess-profits taxes of which are determined on the basis of an accounting period of less than one year, the word "year" as used in this subsection shall be construed to mean such accounting period. (9) Taxes of shareholder paid by corporation. — The deduction for taxes allowed by subsection (c) shall be allowed to a corporation in the case of taxes imposed upon a shareholder of the corporation upon his interest as shareholder, for the amount of such taxes. (d) Losses — (1) By individuals. — In the case of an individual, losses actually sustained during the taxable year and not compensated for by insurance or otherwise — (A) If incurred in trade or business; or (B) If incurred in any transaction entered into for profit, though not connected with the trade or business; or (C) Of property not connected with the trade or business, if the loss arises from fires, storms, shipwreck, or other casualty, or from robbery, theft, or embezzlement no loss shall be allowed as a deduction under this paragraph if at the time of the filing of the return such loss has been claimed as a deduction for estate or inheritance tax proposes in the estate or inheritance tax return (2) By corporations. — In the case of a corporation, all losses actually sustained and charged off within the taxable year and not compensated for by insurance or otherwise (3) By non-resident aliens or foreign corporations. — In the case of. a non-resident alien individual or a foreign corporation, the losses deductible are those actually sustained during the year incurred in business or trade conducted within the Philippines, and losses of property within the Philippines arising from fires, storms, shipwreck, or other casualty, and from robbery, theft, or embezzlement, and losses actually sustained during the year in transactions entered into for profit in the Philippines although not connected with their business or trade, when such losses are not compensated for by insurance or otherwise. (4) Capital losses. — (A) Limitation. — Losses from sales or exchanges of capital assets shall be allowed only to the extent provided in section 34. (B) Securities becoming worthless. — If any securities as defined in section 84 become worthless during the taxable year and are capital assets, the loss resulting therefrom shall, for the purposes of this Title, be considered as a loss from the sale or exchange, on the last day of such taxable year, of capital assets. (5) Losses on wash sales of stock or securities. — Losses on "wash sales" of stock or securities as provided in section 33. (6) Wagering losses. — Losses from wagering transactions shall be allowed only to the extent of the gains from such transactions. (e) Bad debts — (1) In general. — Debts due to the taxpayer actually ascertained to be worthless and charged off within the taxable year. (2) Bad debts deductible by non-resident aliens or foreign corporations. — In the case of a non-resident alien individual or a foreign corporation, bad debts are deductible if any have arisen in the course of business or trade conducted within the Philippines and actually ascertained to be worthless and charged off within the year. (3) Securities becoming worthless. — If any securities as defined in section 84 are ascertained to be worthless and charged off within the taxable year and are capital assets, the loss resulting therefrom shall, in the case of a taxpayer other than a bank or trust company incorporated under the laws of the Philippines or the United States a substantial part of whose business is the receipt of deposits, for the purposes of this Title, be considered as a loss from the sale or exchange, on the last day of such taxable year, of capital assets. (f) Depreciation — (1) In general. — A reasonable allowance for deterioration of property arising out of its use or employment in the business or trade, or out of its not being used: Provided, That when the allowance authorized under this subsection shall equal the capital invested by the taxpayer or, in the case of purchase made prior to March first, nineteen hundred and thirteen, the fair market value as of that date, no further allowance shall be made. In the case of property held by one person for life with remainder to another person, the deduction shall be computed as if the life tenant were the absolute owner of the property and shall be allowed to the life tenant. In the case of property held in trust, the allowable deduction shall be apportioned between the income beneficiaries and the trustee in accordance with the pertinent provisions of the instrument creating the trust, or, in the absence of such provisions, on the basis of the trust income allowable to each. (2) Depreciation deductible by non-resident aliens or foreign corporations. — In the case of a non-resident alien individual or a foreign corporation, a reasonable allowance for the deterioration of property arising out of the use or employment or its non-use in the business or trade shall be permitted only when such property is located within the Philippines. (g) Depletion of oil and gas wells and mines: (1) In general. — (A) In the case of oil and gas wells, a reasonable allowance for actual reduction in flow and production to be ascertained not by the flush flow, but by the settled production or regular flow; (B) in the case of mines, a reasonable allowance for depletion thereof not to exceed the market value in the mine of the product thereof, which has been mined and sold during the year for which the return and computation are made. The allowances shall be made under rules and regulations to be prescribed by the Secretary of Finance: Provided, That when the allowances shall equal the capital invested, or in case of purchase made prior to March first, nineteen hundred and thirteen, the fair market value as of that date, no further allowance shall be made. (2) Depletion of oil and gas wells and mines deductible by non-resident aliens or foreign corporations. — In the case of a non-resident alien individual or a foreign corporation, allowance for depletion of oil and gas wells or mines under paragraph (1) shall be authorized only in respect to oil and gas wells origins located within the Philippines. (h) Charitable and other contributions. — Contributions or gifts actually paid or made within the taxable year or for use of the Government of the Philippines or any political subdivision thereof for exclusively public purposes, or to domestic corporations or associations organized and operated exclusively for religious, charitable, scientific, athletic, cultural or educational purposes, or to societies for the prevention of cruelty to children or animals, no part of the net income of which is distributed to any private stockholder or individual to an amount not in excess of six per centum in the case of an individual, and three per centum in the case of a corporation, of the taxpayer's taxable net income as computed without the benefit of this paragraph. Such contributions or gifts shall be allowable as deductions only if verified under rules and regulations prescribed by the Secretary of Finance. (i) Conditions under which a non-resident alien individual may receive benefit of deductions. — A non-resident alien individual shall receive the benefit of the deductions provided for in this section only by filing or causing to be filed with the Collector of Internal Revenue a true and accurate return of his total income, received from all sources, corporate or otherwise, in the Philippines, in the manner prescribed by this Code; and in case of his failure to file such return the Collector of Internal Revenue shall collect the tax on such income. (j) Pension trusts. — General rule. — An employer establishing or maintaining a pension trust to provide for the payment of reasonable pensions to his employees shall be allowed as a deduction (in addition to the contributions to such trusts during the taxable year to cover the pension liability accruing during the year, allowed as a deduction under subsection (a) of this section) a reasonable amount transferred or paid into such trust during the taxable year in excess of such contributions, but only if such amount (1) has not heretofore been allowable as a deduction, and (2) is apportioned in equal parts over a period of ten consecutive years beginning with the year in which the transfer or payment is made.

Items not deductible.

Section 31

SEC. 31. Items not deductible. — (a) General rule. — In computing net income no deduction shall in any case be allowed in respect of — (1) Personal, living, or family expenses; (2) Any amount paid out for new buildings or for permanent improvements, or betterments made to increase the value of any property or estate; (3) Any amount expended in restoring property or in making good the exhaustion thereof for which an allowance is or has been made; or (4) Premiums paid on any life insurance policy covering the life of any officer or employee, or of any person financially interested in any trade or business carried on by the taxpayer, individual or corporate, when the taxpayer is directly or indirectly a beneficiary under such policy. (b) Losses from sales or exchanges of property. In computing net income no deduction shall in any case be allowed in respect of losses from sales or exchanges of property, directly or indirectly — (1) Between members of a family. For the purposes of this paragraph, the family of an individual shall include only his brothers and sisters (whether by the whole or half blood), spouse, ancestors, and lineal descendants; (2) Except in the case of distributions in liquidation, between an individual and a corporation more than fifty per centum in value of the outstanding stock of which is owned, directly or indirectly, by or for such liquidation, between two corporations more than fifty per centum in value of the outstanding stock of each of which is owned, directly or indirectly, by or for the same individual, if either one of such corporations, with respect to the taxable year of the corporation preceding the date of the sale or exchange was, under the law applicable to such taxable year, a personal holding company or a foreign personal holding company; (4) Between a grantor and a fiduciary of any trust; (5) Between the fiduciary of a trust and the fiduciary of another trust, if the same person is a grantor with respect to each trust; or (6) Between a fiduciary of a trust and a beneficiary of such trust.

Section 32

SEC. 32. Special provisions regarding income and dedications of insurance companies, whether domestic or foreign. — (a) Special deductions allowed to insurance companies. — In the case of insurance companies, whether domestic or foreign, the net additions, if any, required by law to be made within the year to reserve funds and the -sums other than dividends paid within the year on policy and annuity contracts may be deducted from their gross income. (b) Mutual insurance companies. — In the case of mutual fire and mutual employers' liability and mutual workmen's compensation and mutual casualty insurance companies requiring their members to make premium deposits to provide for losses and expenses, said companies shall not return as income any portion of the premium deposits returned to the policyholders, but shall return as taxable income all income received by them from all other sources plus such portion of premium deposits as are retained by the companies for purposes other than payment of losses and expenses and re-insurance reserves. (c) Mutual marine insurance companies. — Mutual marine insurance companies shall include in their return of gross income gross premiums collected and received by them less amounts paid for re-insurance, but shall be entitled to include in deductions from gross income amounts repaid to policyholders on account of premiums previously paid by them, and interest paid upon such amounts between the ascertainment thereof and the payment thereof. (d) Life insurance companies. — Life insurance companies shall not include as income in any year such portion of any actual premium received from any individual policyholder as shall have been paid back or credited to such individual policyholder, or treated as an abatement of premium of such individual policyholder within the taxable year. (e) Assessment insurance companies. — In the case of assessment insurance companies, whether domestic or foreign, the actual deposit of sums with the officers of the Government of the Philippines pursuant to law, as additions to guarantee or reserve funds, shall be treated as payments required by law to reserve funds.

Losses from wash sales of stock or securities.

Section 33

SEC. 33. Losses from wash sales of stock or securities. — (a) In the case of any loss claimed to have been sustained from any sale or other disposition of shares of stock or securities where it appears that, within a period beginning thirty days before after such date, the taxpayer has acquired (by purchase or by exchange upon which the entire amount of gain or loss was recognized by law), or has entered into a contract or option so to acquire, substantially identical stock or securities, then no deduction for the loss shall be allowed under section 30 unless the claim is made by a dealer in stocks or securities, and with respect to a transaction made in the ordinary course of the business of such dealer. (b) If the amount of stock or securities acquired (or covered by the contract or option to acquire) is less than the amount of stock or securities sold or otherwise disposed of, then the particular shares of stock or securities the loss from the sale or other disposition of which is not deductible shall be determined under rules and regulations prescribed by the Secretary of Finance. (c) If the amount of stock or securities acquired or covered by the contract or option to acquire) is not less than the amount of stock or securities sold or otherwise disposed of, then the particular shares of stock or securities the acquisition of which (or the contract or option to acquire which) resulted in the non-deductibility of the loss shall be determined under rules and regulations prescribed by the Secretary of Finance.

Capital gains and losses.

Section 34

SEC. 34. Capital gains and losses. — (a) Definition. — As used in this Title- 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 customers in the ordinary course of his trade or business, or property, used in the trade or business, of a character which is subject to the allowance for depreciation provided in subsection (a) of section 30; (b) Percentage taken into account. — In computing net income, only fifty per centum of the gain or loss recognized upon the sale or exchange of a capital asset shall be taken into account. (c) Limitation on capital losses. — Losses from sale or exchanges of capital assets shall be allowed only to the extent of the gains from such sales or exchanges. If a bank or trust company incorporated under the laws of the Philippines or of the United States, a substantial part of whose business in the receipt of deposits, sells any bond, debenture, note, or certificate or other evidence of indebtedness issued by any corporation (including one issued by a government or political subdivision thereof), with interest coupons or in registered form, any loss resulting from such sale shall not be subject to the foregoing limitation and shall not be included in determining the applicability of such limitation to other losses. (d) Retirement of bonds, etc. — For the purposes of this Title amounts received by the holder upon the retirement of bonds, debentures, notes, or certificates or other evidences of indebtedness issued by any corporation (including those issued by a government or political subdivision thereof), with interest coupons or in registered form, shall be considered as amounts received in exchange therefor (e) Gains and losses from short sales, etc. — For the purpose of this Title.- (1) Gains or losses from short sales of property shall be considered as gains or losses from sales or exchanges of capital assets; and (2) Gains or losses attributable to the failure to exercise privileges or options to buy or sell property shall be considered as capital gains or losses.

Determination of gain or loss from the sale or other disposition of property.

Section 35

SEC. 35. Determination of gain or loss from the sale or other disposition of property. — The gain derived or loss sustained from the sale or other disposition of property, real, personal, or mixed, shall be determined in accordance with the following schedule. (a) In the case of property acquired before March first, nineteen hundred and thirteen, the fair market price or value of such property as of March first, nineteen hundred and thirteen. (b) In the case of property acquired on or after March first, nineteen hundred and thirteen, the cost thereof if such property was acquired by purchase or the fair market price or value as of the date of the acquisition if the same was acquired by gratuitous title. (c) In the case of the exchange of one piece of property for another, the property received in exchange shall be considered as the equivalent of money in a sum equal to its fair market value on the date on which the exchange was made.

Inventories.

Section 36

SEC. 36. Inventories. — Whenever in the judgment of the Collector of Internal Revenue, the use of inventories is necessary in order to determine clearly the income of any taxpayer, inventories shall be taken by such taxpayer upon such basis as the Secretary of Finance may, by regulations, prescribe, as conforming as nearly as may be to the best accounting practice in the trade or business and as most clearly reflecting the income.

Income from sources within the Philippines.

Section 37

SEC. 37. Income from sources within the Philippines. — (a) Gross income from sources within the Philippines. — The following items of gross income shall be treated as gross income from sources within the Philippines: (1) Interest. — Interest derived from sources within the Philippines, and interest on bonds, notes, or other interest bearing obligations of residents, corporate or otherwise; (2) Dividends. — The amount received as dividends — (A) From a domestic corporation; (B) From a foreign corporation unless less than fifty per centum of the gross income of such foreign corporation for the three-year period ending with the close of its taxable year preceding the declaration of such dividends (or for such part of such period as the corporation has been in existence) was derived from sources with. in the Philippines as determined under the provisions of this section; but only in an amount which bears the same ratio to such dividends as the gross income of the corporation for such period derived from sources within the Philippines bears to its gross income from all sources; (3) Services. — Compensation for labor or personal services performed in the Philippines: (4) Rentals and royalties. — Rentals and royalties from property located in the Philippines or from any interest in such property, including rentals or royalties for the use of or for the privilege of using in the Philippines patents, copyrights, secret processes and formulas, goodwill, trademarks, trade brands, franchise, and other like property; (5) Sale of real property. — Gains, profits, and income from the sale of real property located in the Philippines; and (6) Sale of personal property. — Gains, profits, and income from the sale of personal property, as determined in subsection (e) of this section. (b) Net income from sources in the Philippines. — From the items of gross income specified in subsection (a) of this section there shall be deducted the expenses, losses, and other education properly apportioned or allocated thereto and a ratable part of any expenses, losses, or other deductions which can not definitely be allocated to some item or class of gross income. The remainder, if any, shall be included in full as net income from sources within the Philippines. (c) Gross income from sources without the Philippines. — The following items of gross income shall be treated as income from sources without the Philippines: (1) Interest other than that derived from sources within the Philippines as provided in paragraph (1) of subsection (a) of this section; (2) Dividends other than those derived from sources within the Philippines as provided in paragraph (2) of subsection (a) of this section; (3) Compensation for labor or personal services performed without the Philippines; (4) Rentals or royalties from property located without the Philippines or from any interest in such property, including rentals or royalties for the use of or for the privilege of using without the Philippines, patents, copyrights, secret processes and formulas, good will, trademarks, trade brands, franchises, and other like properties; and (5) Gains, profits, and income from the sale of real property located without the Philippines. (d) Net income from Sources without the Philippines. — From the items of gross income specified in subsection (c) of this section there shall be deducted the expenses, losses, and other deductions properly apportioned or allocated thereto, and a ratable part of any expenses, losses or other deductions which cannot definitely be allocated to some item or class of gross income. The remainder, if any, shall be treated in full as net income from sources without the Philippines. (e) Income from sources partly within and partly without the Philippines. — Items of gross income, expenses, losses and deductions, other than those specified in subsection (a) and (c) of this section shall be allocated or apportioned to sources within or without the Philippines under rules and regulations prescribed by the Secretary of Finance. Where items of gross income are separately allocated to sources within the Philippines, there shall be deducted (for the purpose of computing the net income therefrom) the expenses, losses, and other deductions properly apportioned or allocated thereto and a ratable part of other expenses, losses or other deduction which can not definitely be allocated to some item or class of gross income. The remainder, if any, shall be included in full as net income from sources within the Philippines. In the case of gross income derived from sources partly within and partly without the Philippines, the net income may first be computed by deducting the expenses, losses, or other deductions apportioned or allocated thereto and a ratable part of any expenses, losses, or other deductions which can not definitely be allocated to some items or class of gross income; and the portion of such net income attributable to sources within the Philippines may be determined by processes or formulas of general apportionment prescribed by the Secretary of Finance. Gains, profits, and income from (1) transportation or other services rendered partly within and partly without the Philippines, or (2) from the sale of personal property produced (in whole or part) by the taxpayer within and sold without the Philippines, or produced (in whole or in part) by the taxpayer without and sold within the Philippines, shall be treated as derived partly from sources without the Philippines. Gains, profits, and income derived from the purchase of personal property within and its sale without the Philippines or from the purchase of personal property without and its sale within the Philippines, shall be treated as derived entirely from sources within the country in which sold. (f) Definitions. — As used in this section the words "sale" or "sold" include "exchange" or "exchanged", and the word "produced" includes "created", "fabricated", "manufactured", "extracted", "processed," "cured", or