BIR Ruling

October 14, 1976 Association Benevola de Cebu, Inc. c/o Chong Hua Hospital Cebu City Attention: Mr . Go Sing King President Gentlemen : This refers to your request for exemption from the payment of income tax and the filing of the corresponding income tax returns under Section 27(e) of the Tax Code. In reply thereto, I have the honor to inform you that as regards the operation of your School of Nursing, as admitted in your letter dated January 2, 1976, pursuant to Section 24(a) of the Tax Code, as amended by Presidential Decree No. 305, beginning the calendar year 1974, you are subject to a tax of 10% on its taxable net income derived from said operation related school activities, and passive investment income consisting of interest, dividends, royalties and the like. However, prior to Presidential Decree No. 305, your School of Nursing qualified for exemption from income tax under Section 27(e) of the Tax Code, as disclosed by the report of investigation conducted by this Office that your school is engaged exclusively in educational activity and that as part of its net income inures to the benefit of any individual. Therefore, pursuant to Section 24 of the Income Tax Regulations, your school was, prior to the promulgation of Presidential Decree No. 305, exempt from the filing of an income tax return but required to file an information return. However, if the School derived income from any of its properties, real or personal, or for any activity conducted for profit, it was required to file a return therefor and pay tax thereon, such incomes being subject to tax under Section 27(e) of the Tax Code. As regards the operation of your hospital, your Articles of Incorporation states the following: "To maintain, operate, conduct and manage a hospital or medical institution in order to help promote, encourage and foster health consciousness in the community; subject to the condition that purely professional medical or surgical services in connection therewith shall be performed by duly qualified physicians or surgeons who may or may not be connected with the corporation and who shall be freely and individually contracted by patients." The above-quoted provision of your Articles of Incorporation does not indicate that your hospital is being operated for charitable purposes. Accordingly, said hospital cannot be exempt from income tax, in accordance with Section 27(e) of the Tax Code. It appears also that another purpose of your Association according to your Articles of Incorporation is "to establish and maintain a cemetery for the interment and burial of the departed loved ones of the people of the community". In other words, your cemetery is open to the public. Under Section 27(d) of the Tax Code, a cemetery company, to be exempt from income tax, must be owned and operated exclusively for the benefit of its members. Accordingly, the operation of your cemetery is subject to income tax. It has been ruled that the main evidence of the purpose of a corporation are its Articles of Incorporation and By-Laws. (Jesus Sacred Heart College vs. Collector of Internal Revenue G.R. No. L-6807, May 24, 1974) In view thereof, your request for exemption from income tax has to be, as it is hereby denied. aisadc Very truly yours, EFREN I. PLANA Acting Commissioner of Internal Revenue TAN-1456-040-3