C.I.C.M. Mission Seminaries, Inc.

October 17, 2007 BIR RULING [DA-540-07] DA 255-96 C.I.C.M. Mission Seminaries, Inc. 14th Street, Gilmore Avenue Quezon City Attention: Mr. Leonardo T. Mendoza Gentlemen : This refers to your letter dated September 10, 2007 stating that CICM Mission Seminaries, Inc. (CICM) is a non-stock, non-profit religious corporation duly organized and existing under the laws of the Philippines with principal office address at No. 60, 14th Street, New Manila, Quezon City; that CICM is the absolute and registered owner of three (3) parcels of land located in Baguio City covered by TCT Nos. T-16294, T-31445 and T-31446 issued by the Registry of Deeds for Baguio City; that on the other hand, Saint Louis University, Inc., (SLU) is a non-stock, non-profit educational institution organized and existing under the laws of the Philippines with office address at Bonifacio Street, Baguio City; that on May 10, 2006, a Deed of Absolute Sale was executed by and between CICM and SLU whereby the former transferred to the latter the above-mentioned properties; and that the proceeds from such sale will be used in furtherance of its purpose as a religious corporation. ACcTDS Based on the foregoing, you would like to request for an opinion that the sale of the above-mentioned properties by CICM to SLU is not subject to capital gains tax. In reply thereto, please be informed that Section 30 of the Tax Code of 1997 provides that "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." DAETHc In holding that the above-quoted provision does not apply to the instant case, 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 subscribe 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. cDEHIC IN VIEW OF THE FOREGOING, this Office holds that having been derived from a single and isolated transaction in furtherance of the purposes for which the CICM was organized, the proceed derived from the sale of the above-mentioned properties, cannot be considered income from the productive use of its properties and, therefore, the same is not subject to income tax and consequently, to the capital gains tax. (BIR Ruling No. DA255-96 dated June 25, 1996; DA560-98 dated December 9, 1998 and DA005-99 dated January 7, 1999) However, the Deed of Absolute Sale of said real properties shall be subject to the documentary stamp tax imposed under Section 196 of the Tax Code of 1997. 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. EcATDH Very truly yours, (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service