BIR Ruling [DA-271-96]

July 25, 1996 BIR RULING [DA-271-96] The Roman Catholic Bishop of Malolos, Inc. Malolos, Bulacan Attention: Mr . Ricardo T . Abulencia Gentlemen : This refers to your letter dated May 16, 1996 stating that you are the principal sponsor of the following: (a) Unfinished Gymnasium for Priest Student located at Seminary of Guiguinto, Bulacan; (b) Financial assistance for street children for the Province of Bulacan; and (c) Home for the aged for retired priest and nuns; that in order to support the abovestated religious projects you sold your real property situated at Pandayan, Meycauayan, Bulacan covered by TCT No. T-142870 (M) issued by the Registry of Deeds of Meycauayan, Bulacan in favor of Mr. Chua Hao Kay residing at No. 40 A Rincon St., Malinta, Valenzuela, Metro Manila on November 14, 1995; and that in a Special Power of Attorney you executed in favor of Ricardo T. Abulencia on November 25, 1992, it is represented therein that you are a corporation sole duly registered with the Securities and Exchange Commission, represented by Rev. Cirilio Almario, Jr. D.D. Based on the foregoing facts, you are now requesting in effect for a ruling that your sale of real property covered by TCT No. T-142870 (M) in favor of Mr. Chua Hao Kay on November 14, 1995, the proceeds of which will be use to support your aforesaid religious projects is exempt from the payment of the creditable withholding tax prescribed under Revenue Regulations No. 6-85 as amended by Revenue Regulations No. 1-90 implementing Section 50(b) of the Tax Code, as amended. In reply, please be informed that the proviso in Section 27(e) (now Section 26) of the Tax Code, as amended, provides, viz. "Notwithstanding the provision 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." In holding that the abovequoted provision does not apply to the proceeds of the sale of property of a religious organization, the Union Church of Manila, the Secretary of Justice in his opinion No. 45 dated March 10, 1959, stated the following: "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 interests 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 subscribed 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 of constructing a new church in a place where most of its members now reside, does not come within the reach of the provisions 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, and is going to part with the same solely 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 its 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. 569-88 dated November 29, 1988)" 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 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 the proceeds from the sale of your aforementioned real property situated at Pandayan, Meycauayan, Bulacan covered by TCT No. T-142870(M) issued by the Registry of Deeds of Meycauayan, Bulacan which will be used to support your aforesaid religious projects cannot be considered income from the productive use of your property and therefore, the same is not subject to income tax and consequently to the creditable withholding tax on sale, exchange or transfers of real property imposed under Revenue Regulations No. 6-85 as amended by Revenue Regulations No. 1-90 implementing Section 50(b) of the Tax Code, as amended. (BIR Ruling No. 387-93 dated September 16, 1993) 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. Very truly yours, ALICIA P. CLEMENO Assistant Commissioner (Legal Service) By: ALICIA L. TOMACRUZ Head Revenue Executive Assistant (Legal Service)