BIR Ruling

October 8, 1975 U. P. Vanguard Inc. UP DMST, Diliman, Quezon City Attention: Maj . Gen . Fabian O . Ver National Commander Gentlemen : This refers to your letter dated August 16, 1975 informing this Office that recently, your Association has constructed a pelota court in the sports complex of the U.P. Department of Military Science & Tactics at the U.P. Campus in Diliman, Quezon City; that the pelota court will be used primarily for the physical fitness and sports program of the said Department as well as for recreational purposes; that you have also accordingly organized the U.P. Vanguard Pelota Club composed of pelota-playing members of the corporation; that the said members pay monthly dues and use the court free of charge; that due to widespread demand, the U.P. Vanguard Pelota Club is planning to allow U.P. personnel, students and residents to use the pelota court for a fee which, together with the membership dues, will be used for the maintenance and improvement of the court as well as for the Club projects and activities; and that whatever excess if any, will not be distributed to the Club members nor to the Vanguard members. On the basis of the aforestated facts, you request a ruling on the following: "1. Will the above activity affect the income tax exemption of the U.P. Vanguard, Inc.? "2. In the event collections from members and non-members exceed related expenses, will said excess be subject to income tax? "3. Is the above activity subject to any tax?" In reply, I have the honor to inform you that in our letter of June 17, 1974, you were granted exemption from the payment of income tax and the filing of the corresponding income tax return, as a corporation or association organized and operated exclusively as a fraternal beneficiary association, pursuant to Section 27(c) of the Tax Code. However, for organizing a pelota club composed of pelota playing members of that Club whereby said members pay monthly dues and use the court free of charge, that Corporation is considered a social club within the purview of Section 27(h) of the Tax Code. Hence, for operating the club, that Corporation is also exempt from the payment of income tax and the filing of the corresponding income tax return. The tax exemption is not affected, even if non-members are allowed the used of the pelota court provided that the fee of said non-members is fixed by the cost of maintenance and is not more than the amount members pay for the use of the facility. However, if the Club will permit such use to the general public on a "large enough scale" the exemption may be lost. (34 Am. Jur 2d. pp. 659-660). cdta Very truly yours, (SGD.) EFREN I. PLANA Acting Commissioner of Internal Revenue TAN 1456-040-3