BIR Ruling [DA-163-96]

May 7, 1996 BIR RULING [DA-163-96] Sycip Gorres Velayo & Co. 6760 Ayala Avenue Makati City Attention: Atty. C. C. Gison Head, Tax Division Gentlemen : This refers to your letter dated November 23, 1993 representing that Brent School, Inc. is a non-stock, non-profit educational institution, operated exclusively for educational purposes, no part of the net income of which inures to the benefit of any private stockholder or individual; that its income from operations are used actually, directly, and exclusively for educational purposes as mandated by its Articles of Incorporation; that Brent School, Inc. owns a parcel of land located at Sumulong Highway; that it bought the subject property in 1992 with the intention of establishing its campus thereon, since it is only leasing its present campus at the University of Life; that upon further evaluation, however, factors indicated that the location of the property is not conducive for a campus, and thus, Brent School, Inc. abandoned its original plan; that the subject property has been left idle, and except for the perimeter fence, Brent School, Inc. has not introduced any improvements thereon; and that Brent School, Inc. has decided to sell the subject property and use the proceeds thereof in buying another parcel of land and constructing a new campus thereon. You now request for a ruling to confirm your opinion that the proceeds from the sale of the subject property by Brent School, Inc. which will be used to purchase another property on which its own campus will be constructed are exempt from income tax and the expanded withholding tax. In reply, please be informed that in the case of Xavier School, Inc., CTA Case No. 1682, promulgated October 8, 1969, the Tax Court exempted from income tax the gain derived by the School, stating that the isolated sale of its real property and using the proceeds thereof to purchase lots for a new site and constructing improvements thereon in furtherance of its educational purposes cannot be considered as an activity conducted solely for profit, because a single transaction of incidental character does not constitute engaging in business. In view of the foregoing, this Office hereby confirms your opinion that the proceeds to be derived by Brent School, Inc. from the sale of its real property located in Sumulong Highway as a single and isolated transaction in furtherance of its educational purposes, i.e., to use the proceeds of the said sale to purchase another parcel of land and to construct a new campus, cannot be considered income from the productive use of its property. Hence, said income is not subject to income tax and consequently to the 7.5% expanded withholding tax prescribed by Revenue Regulations No. 1-90 as amended by Revenue Regulations No. 12-94. (BIR Ruling No. 388-93; see also par. 3, Sec. 4, Art. XIV, 1987 Philippine Constitution) ETHaDC However, since the documentary stamp tax is a tax on documents executed to evidence a transaction, not a tax on revenues and assets, the aforesaid sale or conveyance of real property by Brent School, Inc. shall be subject to documentary stamp tax imposed under Section 196 of the Tax Code, as amended by R.A. No. 7660. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void. (BIR Ruling No. 543-93 dated December 28, 1993) Very truly yours, (SGD.) ALICIA P. CLEMENO Assistant Commissioner (Legal Service)