BIR Ruling

March 31, 1970 The Revenue Director Revenue Region No. 1 Baguio City S i r : This refers to your letter dated February 5, 1970 requesting information as to whether or not the profit realized by the Madres Siervas del Espiritu Santo de la Adoracion Perpetua, Brent Road, Baguio City, from its sale of subdivided lots located in that City, is subject to income tax. It appears that on September 14, 1948, the Madres Siervas del Espiritu Santo de la Adoracion Perpetua (hereinafter referred to as the Corporation), bought for and in consideration of P200,000.00 five (5) lots with an aggregate area of 26,350.34 square meters located within Residential Section "F", Baguio City; that in a petition filed with the Land Registration Commission, the corporation requested the consolidation and sub-division of the aforementioned five (5) lots into eleven (11) lots; that on July 24, 1964, the Land Registration Commission approved the said petition; that on July 30, 1964, the corporation filed another petition before the Register of Deeds of Baguio City for the issuance of the consolidation and subdivision titles; that in this latter petition, the corporation categorically stated that all these lots are intended solely and exclusively for religious purposes; that subsequently, new Certificates of Title Nos. 8165 to 8175 were issued to replace the five previous ones, that beginning October 5, 1964 through 1967, the corporation sold the subdivided lots along the road at an average price of P55.00 per square meter, or P47.40 over the acquisition cost of approximately P7.60; that expenses included, the corporation realized a net profit of P339,474.33 by selling about 29% of the total area of its property; and that on July 4, 1969 when the attention of the corporation was called to this matter, it answered through its counsel, Prisco N. Evangelista, that it need not file a return nor pay any income tax, by citing the decision of the Court of Tax Appeals in CTA Case No. 293 entitled "Manila Polo Club vs. Collector of Internal Revenue", promulgated on August 31, 1959. acd You also pointed but that, the intent of the corporation "to make profit is clearly indicated by the fact that it filed a petition for consolidation and subdivision, after approval of which, the corporation started selling the said subdivided lots at a big profit, instead of using the same solely and exclusively for religious purposes." In reply, please be informed that under the foregoing facts, the activities of the corporation were conducted for profit. Hence, the income derived therefrom are subject to income tax pursuant to Section 27(e) of the Tax Code which provides: "Sec. 27. Exemption from tax on corporations . The following organizations shall not be taxed under this Title in respect to income received by then as such xxx xxx xxx (e) Corporation or association organized 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 any private stockholder or individual: Provided , however , That the income of whatever kind and character from any of its properties, real or personal, or from any activity conducted for profit, regardless of the disposition made of such income, shall be liable to the tax imposed under this Code." The case of the Manila Polo Club which was invoked by the taxpayer's counsel is not on all fours with the instant case considering the profit motive of the taxpayer. In the cited case, the Manila Polo Club was granted exemption from the payment of income tax on the profits it derived from the sale of its real property with the condition that the proceeds of such sale were to be used exclusively to acquire and develop another property essential for the purposes for which the club was organized. In the instant case, there is no showing that the proceeds of the sale of taxpayer's properties were used to purchase other properties in furtherance of its religious purposes. (Xavier School, Inc. vs. Commissioner of Internal Revenue, CTA Case No. 1682. October 8, 1969) In view thereof, and considering that the corporation has, as stated in your letter realized a net profit of P339,374.33 by selling about 29% of the total area of its property at an average price of P55.00 per square meter or P47.40 over the acquisition cost of Approximately P7.60, from the year 1964 to 1967, this Office is of the opinion and so holds that the net profit of P339,374.33 is taxable in full as ordinary income. You are therefore instructed to cause to be conducted a formal investigation in this case with the end in view of assessing and collecting the corresponding taxes due from the corporation. casia Early report of your action taken hereon is desired. Very truly yours, MISAEL P. VERA Commissioner of Internal Revenue