BIR Ruling [DA-259-03]

August 8, 2003 BIR RULING [DA-259-03] 27 (C); 7 (b); 388-93; 543-93 34-98 Philippine Tuberculosis Society, Inc. Quezon Institute Compound Eulogio Rodriguez Avenue Quezon City Attention: Mercedita S. Nolledo Treasurer Gentlemen : This refers to your letter dated June 9, 2003 requesting for reconsideration on the denial of the request for exemption from capital gains tax as contained in BIR Ruling No. DA-141-03 dated April 30, 2003. The facts which has been the subject of the request are as follows: Philippine Tuberculosis Society, Inc. (PTSI) is a non-stock, non-profit, private, charitable organization. It operates the Quezon Institute and fifty two (52) TB Centers nationwide. To finance its operation, PTSI depend its funding solely on donations from private donors and some subsidy from the government. For the past three (3) years, PTSI has experienced forty to fifty percent reduction in subsidy from the government and assistance from traditional donors. Due to lack of funds to finance its operation, PTSI had reduced the extent of its services and its admission by 20%, thus resulting in the closure of almost one half of the center under its operation. To augment the deficiency in its operational cost and in furtherance of the purpose to which PTSI was established, it decided to sell the Galas Property under its name with an area of 260 square meters located at Bayani St., Sto. Nio, Galas, Quezon City. On January 6, 2003, PTSI requested for a ruling exempting the foregoing sale from the imposition of the capital gains tax. In reply to said request, the Bureau through BIR Ruling No. DA 141-2003 which was signed by the Deputy Commissioner, Legal & Inspection Group, denied PTSI's request for exemption in the following manner: "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 the capital gains tax on the sale of your organization's real property for lack of legal basis." By virtue of this pronouncement, you now request for reconsideration thereby reiterating your request for an exemption from capital gains tax, this time invoking BIR Ruling No. 034-98 which was issued in favor of PTSI. A perusal of the two BIR rulings mentioned above reveal that both involve the same facts. These cases pertain to the sale of a land owned by PTSI the purpose of which is to augment the deficiency in its operational cost. In BIR Ruling No. 034-98, this Office ruled that "the income to be derived from the sale of its property in Zamboanga City to be used in the furtherance of its services in the prevention, control and treatment of tuberculosis and for charitable and social welfare purposes is not considered income from the productive use of its property because a single transaction of incidental character does not constitute PTSI as engaged in business. Accordingly, said income is not subject to income tax imposed under Section 27(C) of the Tax Code of 1997. The sale of the said property, however, is not subject to documentary stamp tax." Yet, BIR Ruling No. DA-141-2003 as so worded, tends to avoid the existence of BIR Ruling No. 034-98 that resulted to a dual position of the Bureau on a particular set of facts. Due to inconsistencies of the BIR's stand on this issue, this Office finds it appropriate to apply the provision of Section 7(b), to resolve the issue at hand, thus: DAEICc Section 7. Authority of the Commissioner to Delegate Power . The Commissioner may delegate the powers vested in him under the pertinent provisions of this Code to any or such subordinate officials with a rank equivalent to a division chief or higher, subject to such limitations and restrictions as may be imposed under rules and regulations to be promulgated by the Secretary of Finance, upon recommendation of the Commissioner; Provided however , That the following powers of the Commissioner shall not be delegated: xxx xxx xxx (b) The power to issue rulings of first impression or to reverse, revoke or modify any existing ruling of the Bureau. . . Again BIR Ruling No. 034-98 was issued to PTSI by the Bureau as a ruling of first impression because it was signed by the Commissioner of Internal Revenue. Considerably, revocation of this particular ruling can only be done by the Commissioner himself and no other since revocation is one of the powers that cannot be delegated to his subordinates. It can safely be said that BIR Ruling No. DA-141-03 partakes of the nature of a revocation considering that it runs counter to the ruling issued to PTSI on the same transaction. Since, revocation, reversal or modification of rulings can only be done by the Commissioner pursuant to the aforequoted provision of the Tax Code, this Office believes that the same should be considered as not having been issued for want of authority. In addition, the precedent cited in the said ruling is not the case in point which would justify the reversal, revocation or modification of BIR Ruling No. 034-98. Considering that BIR Ruling No. 34-98 has not yet been validly reversed, revoked or modified by the Commissioner, it is the opinion of this Office that the same still stand and remains to be the official pronouncement of the Bureau on the matter. In view of all the foregoing, the request for reconsideration of Philippine Tuberculosis Society, Inc., is hereby granted. Accordingly; the sale of the Galas Property consisting of 260 square meters and covered by TCT No. 18501 is not subject to income tax imposed under Section 27(C) of the Tax Code of 1997. The sale of the said property, however, is subject to documentary stamp tax. ( BIR Ruling No. 388-93 dated September 16, 1993; BIR Ruling No. 543-93 dated September 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. Very truly yours, (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group