BIR Ruling

March 29, 1974 2nd Indorsement Referred to the Revenue Operations Head (Assessment) the entire record bearing on the internal revenue case of Baguio Country Club Corporation involving a proposed assessment of P405,360.37 representing fixed and percentage taxes beginning September 1, 1969 to June 30, 1972. The records disclose that the Baguio Country Club is a duly organized Corporation under Philippine Laws; that it is a non-profit, non-stock Corporation whose aim is the promotion and encouragement of healthy interest in out-of-door activities and sports and to provide opportunities for the same; that it derives most of its income from membership fees and dues from the operations of its golf course, bowling alleys, mess hall, and its rooms and cottages; and that it does not at any time declare and pay dividends to its stockholders it being a non-profit organization. In an investigation conducted by our agent of this Bureau, it was ascertained that the taxpayer corporation is relieved from the filing of an income tax return annually and is exempted from the payment of said tax; that the said taxpayer corporation operated a mess hall, a bar, and rooms and cottages for lodging; and that it had failed to file the corresponding monthly percentage tax, documentary and science stamp taxes and of several dues thereon for the years 1969 to 1972. Hence, this proposed assessment amounting to P405,360.37 was recommended by the examiner against the taxpayer corporation. The taxpayer Corporation, through its auditor, filed a protest against the proposed assessment on the ground that the proposed assessment has no legal and factual basis, considering that the basis of the examiner in making the assessments in Section 191-A of the Tax Code which was allegedly vetoed by the President; and that its client in the operation of the bar and restaurant is not liable to the aforesaid taxes because it is not operated for profit and therefore is not engaged in business as contemplated under the Tax Code. The taxpayer herein through its auditor further alleged that its rooms and cottages are exclusively being rented to its members and not for the general public, thus said taxpayer can not be considered an engaged in business as contemplated under the Tax Code, because "business in restricted to activities or affairs where profit is the purpose or livelihood is the motive". The issue in the case are (1) whether Section 191-A of the Tax Code was entirely vetoed by the President or only a portion of its, and (2) as to whether or not the taxpayer corporation is engaged in business an contemplated in the Tax Code. The original provisions of Section 191-A of the Tax Code as inserted by House Bill No. 17839 which later became Republic Act No. 6110 was not entirely vetoed. Only the proposal to impose a tax of 20% on the gross receipts of operators or proprietors of restaurants, refreshment parlors, bars and other eating places which are maintained within the premises or compound of a hotel, motel or resthouse was vetoed on the ground that it might restrain the development of hotels which are essential to Tourist Industry. The allegation of the taxpayer corporation's auditor, that his client is not liable because it is not engaged in business, considering that the aims and objectives of said corporation is the promotion of sport in untenable, the last paragraph of Section 191-A of the Tax Code provides: "Where the establishments enumerated above are operated or maintained by clubs of any kind or nature (irrespective of the disposition of their net income and whether or not they cater exclusively to members or their guests the keepers of the establishments shall pay the corresponding taxes at the rate above." With respect to its operation of renting its cottages or rooms, the taxpayer corporation is subject to the 3% contractors tax pursuant to Section 191-14 of the Tax Code, to quote: "A contractor's tax of three per cent of gross receipts is hereby imposed on the following: "(14) Proprietors or operators of hotels, motels and lodging houses." The above quoted provisions of law are very explicit in that operators of hotels and lodging houses are subject to the 3% contractors tax. In view of the foregoing, he is instructed to prepare the necessary letter of demand amounting to P405,360.37 representing fixed and percentage taxes, documentary and science stamp taxes against the aforesaid taxpayer. aisa dc (SGD.) MISAEL P. VERA Commissioner of Internal Revenue TAN-1601-593-5 "TAXPAYERS SHOULD INDICATE THEIR TAN IN ALL COMMUNICATIONS TO THE BIR."