BIR Ruling [DA-248-04]

May 12, 2004 BIR RULING [DA-248-04] RR 6-2001; Sec. 196; 000-00 Mr. Jaime T. Torres Proprietor St. James College System 22 Jackson Street West Greenhills, San Juan, Metro Manila S i r : This refers to your letter dated July 5, 2001 requesting, in effect, for this Office to provide you with a tax exemption certificate with respect to capital gains and documentary stamp taxes that would be deducted from your future collections from the Department of Public Works and Highways (DPWH). It is represented that St. James College System is a single proprietorship. It operates a number of schools/educational institutions which were all named after the renowned patron saint, James. One of these schools is St. James College of Quezon City, located at Tandang Sora Avenue corner Mindanao Avenue, Quezon City. A portion of the aforementioned school was the subject of an expropriation proceedings initiated by the DPWH due to the road widening of said avenues, to which the amount of over P7 Million is being offered to you by the DPWH as just compensation for the property. By reason of this transaction, the Revenue District Officer of Revenue District Office No. 39, North Quezon City, requires you to pay the capital gains and documentary stamp taxes, which amount will be deducted/withheld by the DPWH prior to the release of the so-called "just compensation". SAHIaD It is now your contention that since the amount that will be paid for the property expropriated by the DPWH will be used in the construction of new college buildings and putting up additional facilities and upgrading/improvement of existing ones, then you should not be required to pay said taxes because educational institutions are exempt from tax pursuant to Section 4 (3) Article XIV of the 1987 Constitution. In reply thereto, please be informed that Paragraph 3, Section 4, Article XIV of the 1987 Constitution provides: "All revenues and assets of non-stock, non-profit educational institutions used actually, directly and exclusively for educational purposes shall be exempt from taxes and duties. Upon the dissolution or cessation of the corporate existence of such institutions, their assets shall be disposed of in the manner provided by law. Proprietary educational institutions including those cooperatively owned, may likewise be entitled to such exemptions subject to the limitations provided by law including restrictions on dividends and provisions for reinvestment." DAESTI The non-taxability of all income and properties of non-stock, non-profit educational institutions finds support in the provisions of the Constitution, and does not need an enabling law because the constitutional provision declaring the tax exemption is already self-executing. However, the entitlement of proprietary educational institutions like St. James to the tax exemption under the said constitutional provision is different. Their exemption from taxes requires legislative implementation because of the use of the permissive term "may" in the provision of the Constitution. Therefore, Congress shall first determine whether or not the assets and revenues of proprietary educational institutions should enjoy exemption from taxes similar to what is granted to non-stock, non-profit educational institutions by enacting a law providing for such exemption. Since St. James is a proprietary educational institution and considering that there is no law yet that has been passed by Congress implementing this constitutional provision on the coverage of tax exemptions of proprietary educational institutions, it is the opinion of this Office that the revenue derived from the expropriation of a portion of land of St. James is subject to capital gains and documentary stamp taxes. CSHcDT An exemption from taxation may be defined as a grant of immunity, express or implied, to particular persons or corporations from the obligation to pay taxes (51 Am. Jur. 503). Consequently, it is a well-settled rule that he who claims exemption should prove by convincing proofs that he is exempted (Visayan Cebu Terminal Co., Inc. vs. Commissioner of Internal Revenue, February 27, 1965). In view of all the foregoing, your request for exemption from the payment of capital gains and documentary stamp taxes on the sale of your land through expropriation proceedings is hereby denied for lack of legal basis. However, since the expropriated property is part of your school premises, therefore forming part of your ordinary assets, its transfer to DPWH shall be subject to the six percent (6%) creditable withholding tax imposed under Section 3 of Revenue Regulations No. 6-2001, amending Section 2.57.2 of Revenue Regulations No. 2-98, and shall be based on the "just compensation" you will received from the DPWH. On the other hand, the documentary stamp tax imposed on the said transaction shall be based on the amount you will receive as "just compensation", the same being considered as the actual consideration or the consideration contracted to be paid in accordance with Section 196 of the Tax Code of 1997. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal and Inspection Group