BIR Ruling [DA-569-06]

September 20, 2006 BIR RULING [DA-569-06] BIR Ruling No. DA-649-99 Makati Hope Christian School, Inc . 2312 Pasong Tamo Extension Makati City Attention: Mr. Rolando P. Domingo Senior Vice President Gentlemen : This refers to your letter dated September 4, 2006 requesting for confirmation of your opinion that the proceeds that will be derived from a concert that Makati Hope Christian School, Inc. (MHCSI) will be sponsoring is exempt from income tax and value-added tax (VAT). As represented, MHCSI is a non-stock, non-profit educational institution duly recognized by the Department of Education in accordance with Government Recognition Nos. S-013 series of 1993, E-0001 series of 1989 and P-0066 series 1986. It is authorized to operate First to Fourth Years of the General Secondary Course effective school year 1993-1994, Complete Elementary Course effective school year 1989-1990 and Nursery and Kindergarten effective school year 1986-1987. As a non-stock, non-profit educational institution, MHCSI is exempt from corporate income tax and VAT under Section 30(H) and 109(H), both of the Tax Code of 1997, as amended by Republic Act No. 9337. Sometime this year, MHCSI will be sponsoring a concert. The net proceeds that will be derived from the concert, if any, will be used by the school for its educational purposes. In reply, please be informed that in a similar case, a non-stock, non-profit corporation, in cooperation with the school's student council would be holding a benefit concert. The proceeds of the concert would go to the bar review program, the update of the library, scholarship program and an educational program for conceiving mothers. This Office held in BIR Ruling No. DA-649-99 dated December 16, 1999, as follows: ". . . there is no need for the Kislap-Diwa Inc. to secure a permit from this office in connection with the holding of the aforementioned band concert. Moreover, the proceeds to be derived therefrom are not subject to income and business taxes. Such income, however, should be declared in the annual information return to be filed by Kislap-Diwa, Inc. on or before April 15, 2000 (BIR Ruling No. DA-026-98 dated January 29, 1998)." IDScTE You stated that MHCSI is exempt from income tax on income received by it as a non-stock, non-profit educational institution under Section 30(H) of the Tax Code of 1997. Accordingly, it need not file an income tax return concerning such income. Moreover, an important requirement for the imposition of the VAT is that a sale or transaction which is sought to be taxed must be entered into by a person in the course of any business carried on by such person. Thus, Section 105 of the Tax Code of 1997 provides that any person who, in the course of trade or business, sells, barters, exchanges, leases goods or properties, renders services, and any person who imports goods shall be subject to the VAT imposed in Sections 106 to 108 of the same Code. The phrase "in the course of trade or business" means the regular conduct or pursuit of a commercial or an economic activity, including transactions incidental thereto, by any person regardless of whether or not the person engaged therein is a non-stock, non-profit private organization (irrespective of the disposition of its net income and whether or not it sells exclusively to members or their guests), or government entity. A transaction will be characterized as having been entered into by a person in the course of trade or business if it is (1) regularly conducted and (2) undertaken in pursuit of a commercial or economic activity. Taken as a barometer in considering a transaction as subject to VAT, it is clear that the above requisites are absent in this case. In view of all the foregoing, this Office confirms your opinion that the proceeds that will be derived from the concert that MHCSI will be sponsoring is exempt from income tax and VAT. However, such income should be declared in the annual information return to be filed by MHCSI on or before April 15, 2007. 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 as null and void. Very truly yours, (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service