BIR Ruling

December 1, 1971 V. E. del Rosario & Associates Third Floor, Ermita Building Arquiza cor, Alhambra St., Ermita, Manila Attention: Atty . D . B . Gadioma Tax Consultant Gentlemen : This is in reply to your letter dated September 9, 1971 requesting confirmation of your opinion to the effect that the entire proceeds of the sale of a parcel of land owned by your client, the Society of the Divine Word, are exempt from income tax. It is represented that the Society of the Divine Word (herein-after referred to as the corporation) is a non-stock, non-profit domestic corporation organized and operated exclusively for religious and educational purposes; that sometime in 1929, the corporation acquired a parcel of land consisting of approximately 31,146 square meters, located at the corner of Broadway and E. Rodriguez Sr. Streets, Quezon City, intended solely for the construction of a major Seminary and other improvements necessary to carry out the corporation's religious and educational work; that said property has become impracticable and unsuitable for the purpose for which it was originally intended by the corporation; that the corporation sold the aforementioned Quezon City property, the proceeds thereof to be used exclusively to defray the cost of another parcel of land in Tagaytay City and in the construction of a Major Seminary and other improvements solely for religious, educational and missionary work purposes; and that no part of the profit derived from the said sale shall inure to the benefit of any private individual. cdt The pertinent provision of the National Internal Revenue Code read as follows: "SEC. 27. Exemption from tax on corporation . The following organizations shall not be taxed under this Title in respect to income received by them as such xxx xxx xxx "(e) Corporation or association organizes and operated exclusively for religious, charitable scientific, athletic, cultural, or educational purposes, or for the rehabilitation of veterans no part of the net income of which inures to the benefit of private stockholder or individual; Provided, however, That the income of whatever kind and character from any of its properties real or personal regardless of the disposition made of such income , shall be liable to the tax imposed under this Code." (Emphasis supplied) The aforequoted provision of law, as amended by Republic Act No. 82, has restricted the tax exemption or religious, educational and other organizations specified therein only to the extent of withdrawing the exemption with respect to income realized from the productive use of their real and personal properties, e.g., rents, dividends and interests and from profitable business pursuits, which properties or businesses are not essential to, or necessarily connected with their religious, charitable, or educational purposes, etc., as the case may be. (Secretary of Justice Opinion No. 45, s. 1959; See also Manila Polo club vs. Coll. of Int. Revenue, CTA Case No. 293, prom. August 31, 1959) However, as ruled by the Secretary of Justice in the case of the Union Church of Manila, where a corporation organized and operated exclusively for religious purposes, owns and holds a property for religious purposes, and sells the same solely for the purpose of acquiring a new site to be used for religious purposes, and sells the same solely for the purpose of acquiring a new site to be used for religious purposes i. e., the transfer of the church to a new site, the profit or income resulting from the transaction would be merely incidental to said religious purposes and therefore, not within the contemplation of the proviso of Section 27 of the Tax Code, as amended. (Opinion No. 44, p. 3) In the light of the foregoing, and considering that the corporation will dispose of said property for the purpose of using the proceeds thereof in acquiring a more peaceful and suitable site, and in the construction of a Major Seminary and other diocesan seminaries and congregational houses; and that any excess in the proceeds of the sale of the property in question over that of the cost of acquisition of a new site will be used to defray the cost of erecting the necessary improvements and all other facilities intended to be erected therein, this Office is of the opinion and so holds that the entire proceeds of the sale of the aforementioned property by the Society of the Divine Word are not subject to income tax. Any difference, therefore, between the acquisition cost and the proceeds of the said sale, being neither income derived from the productive use of such property nor from a profitable business pursuit, is not subject to income tax. (See also BIR Ruling No. 65-100 dated August 28, 1965) Very truly yours, MISAEL P. VERA Commissioner of Internal Revenue