BIR Ruling [DA-200-98]

May 21, 1998 BIR RULING [DA-200-98] Catindig & Tiongco Law Office Suite 1504 PSE Centre Tower 1 Exchange Road Ortigas Center Pasig City Attention: Atty . Virgelio T . Nibungco Gentlemen : This refers to your letter dated July 25, 1997, requesting on behalf of your client, Chairman of Radha Soami Satsang Beas Philippines, Inc., for exemption (a) from the payment of income tax and the filing of the corresponding income tax return under Section 26 of the Tax Code, as amended [now Section 30 of the Tax Code of 1997]; (b) qualification as devisee and legatee under Section 80 of the same Code [now Section 87 of the Tax Code of 1997); (c) and at the same time applying for registration as a Donee Institution under Batas Pambansa Blg. 45, as implemented by BIR-NEDA Regulations No. 1-81, as amended. cdpr Documents submitted to this Office disclosed that Chairman of Radha Soami Satsang Beas Philippines, Inc. is a corporation sole duly registered with the Securities and Exchange Commission under SEC Registration No. AN093-004542 dated October 25, 1993; that the objective for which the corporation is incorporated is to establish and act as the national coordinating center in the Philippines for the dissemination of knowledge to all initiates and sincere seekers, regardless of nationality, status, education, sect, religion, creed, color and race, of Sant Mat as propounded by the Sant Gurus of Radha Soami Satsang Beas, Dera Baba Jaimal Singh, Beas, District Amritsar (Punjab), India, which essentially is the system or method of self-realization or soul liberation achieved by adherence to the four principles or standards of life: 1) Daily meditation; 2) Vegetarianism; 3) Abstention from alcoholic drinks, narcotic and "mind expanding" drugs; and 4) Strict moral life. In reply please be informed as follows: (a) This Office is of the opinion that Chairman of Radha Soami Satsang Beas Philippines, Inc. falls within the purview of a corporation organized for religious purposes as contemplated under Section 26(e) of the Tax Code as amended [now Section 30(E) of the Tax Code of 1997]. Accordingly, it is exempt from the payment of income tax on income received by it as such organization, and therefore, need not file an income tax return concerning such income. However, it is subject to the corresponding internal revenue taxes imposed under the National Internal Revenue Code, as amended, on its income derived from any of its properties, real or personal, or any activity conducted for profit regardless of the disposition thereof, which income should be returned for taxation . Accordingly, interest income from currency bank deposits and yield or any other monetary benefit from deposit substitutes and from trust funds and similar arrangements received by domestic corporations, and royalties derived from sources within the Philippines are subject to the 20% final withholding tax pursuant to Section 24(e)(1) in relation to Section 50(a) both of the Tax Code, as amended [now Section 27(D)(1), in relations to Section 57(A), both of the Tax Code of 1997]. Furthermore, as a corporation organized and operated for religious purposes, donations made in its favor are exempt from the payment of donor's tax pursuant to Section 94(a) and (b) of the Tax Code, as amended [now Section 101(A)(3) and 101(B)(2), both of the Tax Code of 1997], subject to the condition that not more than 30% of the said gifts shall be used by it for administration purposes. (b) Pursuant to Section 80(d) of the Tax Code, as amended [now Section 87(D) of the Tax Code of 1997], "all bequests, devises, legacies or transfers to social welfare, cultural and charitable institutions, no part of the net income of which inures to the benefit of any individual, provided, however, that not more than 30% of the said bequests, devises, legacies or transfers shall be used by such institutions for administration purposes," shall not be taxed. Considering, therefore that Chairman of Radha Soami Satsang Beas Philippines Inc. is not one of the organizations mentioned in said section, bequests, devises and legacies made thereto shall be subject to tax. prcd (c) On the other hand, Section 29(h)(1) of the Tax Code as amended [now Section 34(H)(1) of the Tax Code of 1997] by Batas Pambansa Blg. 45, as implemented by BIR-NEDA Regulations No. 1-81, as amended by BIR-NEDA Regulations No. 1-82 and Revenue Regulations No. 10-82, provides that donations/contributions to a non-stock, non-profit domestic corporation or association organized and operated exclusively for religious, charitable, scientific, youth and sports development, cultural or educational purposes or for the rehabilitation of veterans, or to social welfare institutions, no part of the net income of which inures to the benefit of any private individual shall be deductible from the gross income in an amount not in excess of 3% [now 5% of Sec. 34(H)(1) of the Tax Code of 1997] of a corporate donor's taxable income derived from business. Such being the case, this Office is of the opinion as it hereby holds that for income tax purposes, contributions and donations in favor of the corporation sole by individual donors/contributors shall not be deductible in full from their gross income; and that since the subject corporation sole is a private organization organized and operated for religious purposes, contributions and donations in its favor made by corporations shall be deductible in the amount not in excess of 3% [now 5% of Sec. 34(H)(1) of the Tax Code of 1997] of the corporate donor's taxable income. (BIR Ruling No. 517-A-93 dated December 23, 1993). It should be understood that the said exempt corporation sole shall be constituted as withholding agent for the government if it acts as an employer and any of its employees receives compensation income subject to the withholding tax under Section 72 (a) Chapter X, Title II of the Tax Code, as amended [now Section 79(A), Chapter XIII, Title II of the Tax Code of 1997], as implemented by Revenue Regulations No. 6-82, as amended, or if it makes income payments to individuals or corporations subject to the expanded withholding tax pursuant to Section 50(b) of the Tax Code, as amended [now Section 57(B) of the Tax Code of 1997], and as implemented by Revenue Regulations No. 6-85, as amended. Moreover, it is required to file on or before April 15 of each year a profit and loss statement and balance sheet with the annual information return under oath, stating its gross income and expenses incurred during the year and a certificate showing that there has not been any change in its By-laws, Articles of Incorporation, manner of operation and activities as well as sources and disposition of income. It is requested that a copy of this letter of exemption should be attached to the annual information return which you will file on or before April 15 of each year. Under Section 235 of the Tax Code, as amended [the same of the Tax Code of 1997], any provision of existing general and special law to the contrary notwithstanding, the books of accounts, and other pertinent records of tax-exempt organizations or grantees of tax incentives shall be subject to examination by the BIR for purposes of ascertaining compliance with the conditions under which they have been granted tax exemptions or tax incentives, and their liabilities, if any. This certificate of exemption from income tax is valid only for one year and may be renewed every year thereafter depending upon the result of investigation. 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. Very truly yours, (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal & Enforcement Group)