BIR Ruling [DA-316-98]

July 16, 1998 BIR RULING [DA-316-98] SGV & Co. 3rd Floor, Insular Life Building Cor. Gorordo and Gen. Maxilom Avenues Cebu City Attention: Mr . Lauris L . dela Pea Tax Division Gentlemen : This refers to your letter dated February 17, 1998 requesting in effect for a ruling to confirm your opinion that any gain to be realized from an isolated sale of real properties by your client, Divine Word University of Tacloban, Inc. (DWU-T), is exempt from income tax under the relevant provisions of the 1987 Philippine Constitution and the Tax Code of 1997. LLjur It is represented that DWU-T is a non-stock, non-profit educational institution duly organized and existing under the laws of the Philippines; that it is duly authorized and recognized by the Department of Education Culture and Sports to operate as such; that it has for its purpose the establishment of a Catholic School or schools in the City of Tacloban; that DWU-T owns and operates a hospital facility as an indispensable requirement in the operation and maintenance of its medical school/sciences college; that DWU-T was granted tax exemption pursuant to paragraph 3, Section 4 of Article XIV of the Constitution, that it is the registered owner of certain parcels of land, including the improvements thereon, enumerated as follows: TCT No. Description T-12874 A parcel of land (Lot No. 5942) situated in the City of Tacloban containing an area of 550 square meters A parcel of land (Lot No. 5943) situated in the City of Tacloban containing an area of 902 square meters. T-10198 A parcel of land (Lot No. 527-E-1) situated in the District of Kapagnian, City of Tacloban containing an area of 1,913 square meters T-12875 A parcel of land (Lot No. 2067) situated in the Barrio of Sawang, Municipality of Tacloban containing an area of 1,640 square meters T-12873 A parcel of land (Lot No. 528) situated in the Barrios of Kapangian and Sawang, Municipality of Tacloban containing an area of 5,137 square meters T-12877 A portion with an area of approximately 2,000 square meters of Lot No. 529 containing an area of 9,111 square meters and Lot No. 4901 containing an area of 36 square meters TD A parcel of land, Lot 2065, situated in Tacloban City with an area of 53 square meters covered with Tax Declaration No. 58541-6 issued by the City Assessor of Tacloban that DWU-T has temporarily stopped the operations of its school due to various labor problems; that DWU-T is experiencing serious financial conditions because of its non-operation; that his condition worsened since it has incurred unexpected expenses relative to the compromise settlement of the labor cases filed against it; that the non-operation of the school resulted to the deterioration of the school buildings and facilities; that at present, these improvements are no longer fit for utilization unless repaired or rehabilitated; and that based on the foregoing, the Board of Trustees has decided to dispose of the above-enumerated parcels of land and the improvements thereon in order to prepare for the financial needs in the rehabilitation of the school building and other facilities. In reply, please be informed that in BIR Ruling dated April 12, 1989, this Office has ruled that DWU-T is exempt from taxes under paragraph 3, Section 4, Article XIV of the 1987 Constitution which provides, viz: "(3) 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. . ." In the case of Xavier School, Inc., CTA Case No. 1682, October 8, 1969, the Tax Court exempted from income tax the gain derived by the School, stating that the isolated sale of its real properties and using the proceeds thereof to purchase lots for a new site and constructing improvement 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. In view of the foregoing, this Office is of the opinion as it hereby holds that since the real properties subject of the sale mentioned-above are used actually, directly, and exclusively for educational purposes for which DWU-T is organized, any gain from the sale of its real properties in Tacloban City cannot be considered income from the productive use of its property. Hence, said income is not subject to income tax and consequently to the 5% expanded withholding tax prescribed by Revenue Regulations No. 1-90 and Revenue Memorandum Circular No. 7-90 pursuant to paragraph 3, Section 4 of Article XIV of the 1987 Constitution. The sale of the said properties, however, are subject to documentary stamp tax. 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. (BIR Ruling No. 388-93 dated September 16, 1993; BIR Ruling No. 543-93 dated December 28, 1993). Very truly yours, (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal and Enforcement Group)