BIR Ruling

March 6, 1970 Messrs. Atienza, Tabora & del Rosario 12th Floor, G.E. Antonino Bldg. 540 T. M. Kalaw Street Ermita, Manila Attention: Atty . Bellaflor Angara-Castillo Gentlemen : This is in reply to your letter dated January 3, 1970 requesting a ruling on the question of whether or not the difference between the acquisition cost and the proceeds of the proposed sale or exchange of a parcel of land owned by the College of the Holy Spirit is subject to income tax. It appears that the College of the Holy Spirit (hereinafter referred to as the School), formerly known as Holy Ghost College, is a non-stock domestic corporation with main office at Mendiola St., Manila and is organized and operated exclusively for educational purposes; that no part of its net income inures to the benefit of any private stockholder or individual; that sometime in 1958, the school acquired 2 adjacent parcels of land situated at Marikina, Rizal, with a total area of 51,824 square meters, exclusively for the purpose of establishing an educational institution for girls in the area as soon as it would be financially able to do so; that in 1966, a religious congregation for women opened an educational institution for girls near the School's property thus rendering it unnecessary for the School to open the proposed educational institution as the population of the area will not warrant the establishment of a second school for girls; that the land has been lying idle since it was purchased; that the property is no longer suited for the purpose for which it was acquired for the reason that jeeps and other vehicles are now passing through it virtually dividing the property; that the School has finally decided to sell or exchange the said parcel of land; and that should the proceeds of the sale or exchange exceed the cost of acquiring a new site, the balance of the proceeds shall be used to defray the cost of constructing improvements on the building owned by the School at Mendiola Street. The pertinent provision of the National Internal Revenue Code reads as follows: "Sec. 27. Exemption from tax on corporation . The following organization shall not be taxed under this Title in respect to income received by them as such xxx xxx xxx "(e) Corporation or association organized and operated exclusively for religious, charitable, scientific, athletics, 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 profits, 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 of religious, educational and other organizations specified therein only to the extend 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 pursuit, 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. 46, s. 1959; See also Manila Polo Club vs. Coll. of Int. Revenue, CTA Case No. 293, promulgated August 31, 1959) cdti Where a corporation organized and operated exclusively for educational purposes, owns and holds a property for educational purposes, and is going to part with the same solely for educational purposes, i.e., the construction of a school building in a more suitable site, the profit or income resulting from the transaction would be merely incidental to said educational purposes and is, therefore, not within the contemplation of the proviso of Sec. 27 of the Tax Code, as amended. (See BIR Ruling No. 65-100, dated August 28, 1965 citing Secretary of Justice' Opinion No. 44, p. 2). As represented, the College of the Holy Spirit will dispose the said property for the purpose of using the proceeds thereof in acquiring a more suitable site for the proposed school for girls; 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 creating improvements on the School's building at Mendiola Street, which is in need of repair. In the light of the foregoing, this Office is of the opinion and so holds that the difference between the acquisition cost and the proceeds of the proposed sale or exchange of the parcel of land in question, being neither income derived from the productive use of such property or from a profitable business pursuit, is not subject to income tax. cd Very truly yours, MISAEL P. VERA Commissioner of Internal Revenue