BIR Ruling [DA-430-98]

September 23, 1998 BIR RULING [DA-430-98] Archdiocese of Tuguegarao Tuguegarao, Cagayan Attention: Fr . Diosdado A . Talamayan Archbishop Gentlemen : This refers to your letter dated September 19, 1998 requesting, in effect, for a ruling that the proceeds from an isolated sale of a parcel of land by the Archdiocese of Tuguegarao is exempt from income tax. cdta It is represented that Archdiocese of Tuguegarao is a non-stock, non-profit domestic corporation sole; that it owns a parcel of land which is being used as a Catholic cemetery for the people of Tuguegarao; that said cemetery is almost filled; that there is still a portion within the said lot that is vacant; that, however, said vacant lot is small for a cemetery in comparison with the growing population of Tuguegarao; that the Archdiocese of Tuguegarao is intending to sell the said vacant lot primarily to buy a much bigger lot to be used for a Catholic cemetery; and that the balance of the proceeds of the said sale will be used to finance another project in furtherance of its objectives. In reply, please be informed that the proviso in Section 27(e) [now Section 30 of the Tax Code of 1997], provides: "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 the said Code." The Secretary of Justice in his Opinion No. 45 dated March 10, 1959 said in part, as follows: "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 interest (b) from profitable business pursuits 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 constructing a new church in a place where most of its members now reside, does not come within the reach of the proviso of Section 27(e) quoted above, and is therefore not subject to 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, i.e., the transfer of the church to a new site. The profit or income resulting from the transaction would be merely incidental to said 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. 387-93 dated September 16, 1993) 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 the 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 having been derived from a single and isolated transaction in furtherance of the purposes for which the Archdiocese of Tuguegarao is organized, the proceeds from the sale of the said property cannot be considered income from the productive use of its property and, therefore, the same is not subject to income tax. However, the said transaction is subject to documentary stamp tax imposed under Sec. 196 of the Tax Code of 1997. (BIR Ruling No. 543-93 dated December 28, 1993) LLpr 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, Commissioner of Internal Revenue By: (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal & Enforcement Group)