BIR Ruling

May 5, 1975 Commissioner Jaime Mejia Oil Industry Commission Philsugin Building Quezon City S i r : This is in reply to your request for a ruling on the question of whether or not the principal stockholders of the Overseas Bank of Manila (hereinafter referred to as OBM) are exempt from the payment of income tax on the proceeds of the sale of their properties which will be utilized in the rehabilitation of OBM. The records show that for and/or in the interest and benefit of the depositors, creditors and stockholders of OBM, a voting trust agreement was executed on November 20, 1967 by and among the principal stockholders of OBM (as cestuis que trust) and the Central Bank (CB for short as trustee) whereby subject to certain conditions, the former assigned to the latter for the rehabilitation, normalization and stabilization of OBM, the voting rights to all their shares of stock in OBM as well as the management of the affairs, accounts and properties of OBM, and that for the same purpose, a "Program of Rehabilitation of the Overseas Bank of Manila" as agreed upon by among the same stockholders and CB was approved by the Supreme Court on October 23, 1974. In pursuance of the aforementioned objective, the stockholders of OBM sold some of their properties and the proceeds thereof were turned over to OBM or disposed of in accordance with the Rehabilitation Plan. cdt While the said sale is well-meant and for a laudable purpose, such a purpose, however, is not sufficient basis for tax-exemption. The weight of authorities is to the effect that he who claims an exemption must be able to justify his claim by clearest grant of organic or statute law. An exemption from the common burden cannot be permitted upon vague implication. (Asiatic Petroleum Co. v. Llanes, 49 Phil. 466, 467) A close perusal of the voting trust agreement as well as the Program for the Rehabilitation of OBM disclosed no citation of any statutory grant of tax-exemption or any Presidential Decree granting tax-exemption in favor of the Bank's principal stockholders in connection with the Rehabilitation Plan for OBM. Such being the case, the stockholders are subject to income tax on the proceeds of properties sold by them for the rehabilitation of OBM. Contrary to the stockholders' allegation, no ruling has been issued by this office granting tax-exemption under similar circumstances. On August 15, 1966, this Office issued a ruling not on the question of tax-exemption but on the deductibility of the dividends on preferred convertible shares issued under the DBP Program for Rehabilitation of Distressed Industries. Very truly yours, (SGD.) MISAEL P. VERA Commissioner of Internal Revenue TAN-1601-593-5 "TAXPAYERS SHOULD INDICATE THEIR TAN IN ALL COMMUNICATIONS TO THE BIR."