BIR Ruling [DA-419-98]

September 14, 1998 BIR RULING [DA-419-98] Iglesia ni Cristo No. 1 Central Avenue New Era, Diliman Quezon City Attention: Atty . Restituto S . Lazaro Head, Legal Department Gentlemen : This refers to your letter dated June 24, 1998 requesting for the exchange of property by and between the Iglesia Ni Cristo (INC) and the Caloocan City Government be exempt from the capital gains tax. aisadc Documents submitted show that the INC is the owner of a parcel of land situated in Camarin, Caloocan City covered by TCT No. T-131909 containing an area of 3,400 sq. meters while Caloocan City Government is the owner of a certain parcel of land acquired from the National Housing Authority, also situated at Camarin, Caloocan City covered by TCT No. T-17439 containing an area of 1,181 sq. meters; that on November 24, 1997, a Deed of Exchange was executed by and between the INC and Caloocan City Government whereby a portion of the INC's property with an area of 680 sq. meters was exchanged with that portion of the adjacent city road lot with an area of 531 sq. meters; and that the exchange was brought about by the INC's plan to construct a bigger chapel to accommodate the growing number of its members in the said locality. In reply, please be informed that the income, if any, which the Iglesia Ni Cristo will derive from the aforesaid exchange of property is not subject to income tax for being a single and isolated transaction and in furtherance of the religious purposes for which it was created. (BIR Ruling No. 041-96 dated March 15, 1996) On the other hand, the City Government of Caloocan City shall be subject to the capital gains tax of 6% imposed under Section 27(D)(5) of the Tax Code of 1997 on the capital gains presumed to have been realized from the said exchange transaction of real property considered as capital assets. This is because only the income derived by the local government unit from the exercise of its essential governmental function shall be excluded from its gross income pursuant to Sec. 32(B)(7)(b) of the Tax Code of 1997. Finally, the Iglesia Ni Cristo and the City Government of Caloocan City are each liable to their respective documentary stamp taxes on the Deed of Exchange based on the fair market value of the respective properties exchanged therefor pursuant to Sec. 196 of the Tax Code of 1997. (BIR Ruling No. 543-93 dated December 3, 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. cdta Very truly yours, (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal & Enforcement Group)