BIR Ruling [DA-141-03]

April 30, 2003 BIR RULING [DA-141-03] 27 (D) (5); 129-99 Philippine Tuberculosis Society, Inc. Quezon Institute Compound Eulogio Rodriguez Avenue Quezon City Attention: Dr. Camilo C. Roa, Jr. Acting President Gentlemen : This refers to your letter dated January 6, 2003 requesting for exemption from the payment of capital gains tax on the sale of a lot situated in Bayani Street, Sto. Nio/Galas, Quezon City registered in the name of Philippine Tuberculosis Society, Inc. with an area of 260 sq.m. and covered by TCT No. 18501. It is represented that Philippine Tuberculosis Society, Inc. is a non-profit, non-stock, private, charitable organization, which operated the Quezon Institute and fifty-two (52) TB Centers nationwide; that the Society is exempt from paying real estate and income taxes from its revenues; that being a non-profit service organization, the Society depends on donations from private donors and some subsidy from the government to finance its operation nationwide; that for the past three (3) years, the Society has experienced forty to fifty percent (40-50%) reduction in subsidy and assistance from traditional donors; that as a consequence you have no recourse but to reduce the extent of your services; that the Quezon Institute has to reduce its admission by 20% and beginning February 1, 2003, you are forced to close down twenty-four (24) of your fifty-two (52) branches due to lack of funds for their continuous operations; that by closing down the clinics, sixty (60) personnel will be laid off and the poor patients in those areas will be deprived of basic health care; that as provided in Article IV, Section 6.11 of the PTSI Constitution, the Officers and Directors of the Society do not receive any compensation, honorarium or per diem for services rendered to the Society; that in its meeting dated September 20, 2002, it approved the sale of the above-described property precisely to partially cover the short fall from the subsidy due to the government's cost-cutting measures; that if you have to close some branches, you hope you shall not have to turn away the poor patients who would come to your hospital and clinics that are still operational in spite of limited resources; and that the proceeds from the sale of the above-described property will go to the maintenance of these services. In reply, please be informed that the last paragraph of Section 30 of the 1997 Tax Code provides, viz. : "Notwithstanding the provisions in the preceding paragraphs, the income of whatever kind and character of the foregoing organizations from any of their properties, real or personal, or from any of their activities conducted for profit regardless of the disposition made of such income, shall be subject to tax imposed under this Code." Moreover, Section 27(D)(5) of the 1997 Tax Code provides that capital gains presumed to have been realized from the sale, exchange or other disposition of lands and/or buildings which are not actually used in the business of a corporation and are treated as capital assets, shall be taxed at the rate of 6% based on the gross selling price or fair market value prevailing at the time of the sale, exchange or disposition, whichever is higher. For this reason, we are, therefore, constrained to deny your request for exemption from the payment of capital gains tax on the sale of your organization's real property for lack of legal basis. This constitute our final stand on the matter. cIHCST Very truly yours, Commissioner of Internal Revenue By: (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group