BIR Ruling [DA-165-96]

May 9, 1996 BIR RULING [DA-165-96] The Foundation for Professional Training, Inc. (An Organization for Women-in-Development Education) 67 11th Street, New Manila Quezon City Attention: Ms. Josephine Q. Javelona General Manager Finance and Administration Gentlemen : This refers to your letter dated April 25, 1996 requesting, in effect, for a ruling that the proceeds from the sale by The Foundation for Professional Training, Inc. For Women-in-Development Education (FPTI), (formerly The Foundation for Professional Training, Inc.) of its property which was previously donated to it, are exempt from income tax. It is represented that FPTI is a private non-stock, non-profit corporation which has been in existence since 1981; that it is also a tax-exempt organization under Section 26 of the Tax Code, and has been issued a Certificate of Registration as a donee institution with Registration No. 0956 dated August 20, 1982; that FPTI is organized primarily to establish and operate "FPTI Entities", i.e., educational institutions, schools and training centers for the vocational and technical education and training primarily of underprivileged young women, and where applicable to provide appropriate residences for trainors and trainees involved in its programs; that its income is derived mainly from donations and grants which is used exclusively for acquiring, setting up and maintaining FPTI Entities aimed at uplifting a quality of life consistent with human dignity of women; that FPTI owns a property located at Diliman, Quezon City, covered by TCT No. 39993 of the Registry of Deeds of Quezon City; that said property was sold to TP Equities, Inc.; and that FPTI will use the proceeds of the said sale exclusively to finance another project in furtherance of the Foundation's objectives. IEcaHS In reply, please be informed that the proviso in Section 27 (e) (now Section 26) of the Tax Code, as amended, provides: "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." The Secretary of Justice in his Opinion No. 45 dated March 10, 1959 said in part, as follows: "Considering the history of the provision in question, it would seem that the statute as now amended has restricted the tax exemption of religious, educational and other organizations therein specified only to the extent of withdrawing the exemption with respect to income realized (a) from the productive use of their real and personal properties e.g. rents, dividends, or interest (b) from profitable business pursuits which properties or businesses are not essential to or necessarily connected with, their religious, charitable or educational purposes, etc., as the case may be. Thus, I am more inclined to subscribe to the view that the projected sale at a profit of the present site and church building of the Union Church of Manila, for the sole purpose of acquiring a new site and constructing a new church in a place where most of its members now reside, does not come within the reach of the proviso of Section 27 (e) quoted above, and is therefore not subject to the income tax. I attach a great weight to the fact that the Union Church, which is organized and operated exclusively for religious purposes, owns and holds said property for religious purposes, i.e., the transfer of the church to a new site. The profit or income resulting from the transaction would be merely incidental to said religious purposes. And as the present church site was not acquired for speculation or as an investment to be eventually sold primarily for monetary gain, I think there is reason enough to say that income to be derived from the sale of said property is not within the contemplation of the proviso of said Section 27 (e)" (cited in BIR Ruling No. 387-93 dated September 16, 1993). cAEDTa The foregoing portion of the opinion of the Secretary of Justice was quoted and applied by the Court of Tax Appeals in its decision in Manila Polo Club (CTA Case No. 293, August 31, 1959) which involves similar facts, i.e., proceeds of the sale of real property was used exclusively to acquire and develop another property for purposes for which the club was organized. In the case of Xavier School, Inc. (CTA Case No. 1682, October 8, 1969), the Tax Court exempted the gain derived from income tax by stating that the taxpayer's isolated sale of 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. Such being the case, this Office is of the opinion as it hereby holds that having been derived from a single and isolated transaction in furtherance of the purposes for which the FPTI is organized, the proceeds from the sale of the property in Quezon City cannot be considered income from the productive use of its property and, therefore, the same is not subject to income tax. However, the said transaction is subject to documentary stamp tax. (BIR Ruling No. 543-93 dated December 28, 1993). 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. AIaSTE Very truly yours, (SGD.) ALICIA P. CLEMENO Assistant Commissioner (Legal Service)