Novaliches Baptist Church, Inc.

April 2, 2009 BIR RULING [DA-(C-051) 184-09] Novaliches Baptist Church, Inc. 10 Rosal Street, Buenamar Subdivision Novaliches, Quezon City Attention: Pastor Alfredo B. Malabag Gentlemen : This refers to your letter dated March 9, 2009 requesting for a ruling exempting the sale by Baptist International Mission, Inc. in favor of Novaliches Baptist Church of a real property. Documentary evidence submitted disclosed that Novaliches Baptist Church, Inc. is a religious corporation registered with the Securities and Exchange Commission (SEC) under SEC Registration No. 152156. Likewise, Baptist International Mission of the Philippines, Inc. is a religious corporation registered with the SEC under SEC Registration No. 45459 dated September 28, 1971. In reply, please be informed that paragraph 3, Section 28, Article VI of the 1987 Constitution provides, viz. : "(3) Charitable institutions, churches and parsonages or convents appurtenant thereto, non-profit cemeteries, and all lands, buildings, and improvements actually, directly, and exclusively used for religious, charitable, or educational purposes shall be exempt from taxation." EDCcaS The phrase "exempt from taxation" as employed in the Constitution should not be interpreted to mean exemption from all kinds of taxes. The exemption of the church is only from the payment of taxes assessed on such properties as property taxes (Lladoc vs. CIR, 14 SCRA 293, June 16, 1965) However, Section 30 of the Tax Code of 1997 provides as follows: "SEC. 30. Exemptions from Tax on Corporations. The following organizations shall not be taxed under this Title in respect to income received by them as such: xxx xxx xxx (E) Nonstock corporation or association organized and operated exclusively for religious, charitable, scientific, athletic, or cultural purposes, or for the rehabilitation of veterans, no part of its net income or asset shall belong to or inure to the benefit of any member, organizer, officer or any specific person; xxx xxx xxx 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." SaIACT Although under the above-quoted provision, a non-stock corporation or association organized and operated exclusively for religious purposes, no part of its net income or asset shall belong to or inure to the benefit of any member, organizer, officer or any specific person, is exempt from income taxation, it is, however, subject to the corresponding taxes imposed under the Tax Code of 1997, as amended, on its income derived from any of its properties, real or personal, regardless of the disposition thereof, which income should be returned for taxation. Relative to this, Section 30 of Revenue Regulations No. 2, as amended, provides, among others, that the income of such tax-exempt corporation which is considered as income from its properties, real or personal, includes profits from the sale of property. This Office had occasion to rule in BIR Ruling No. 121-91 dated June 25, 1991 that the excess of the selling price over the acquisition cost of the property ( i.e. , the profit/income) to be sold by the Society of Divine Word and used exclusively for religious purposes shall be subject to income tax/capital gains tax. BIR Ruling No. 121-91 expressly revoked BIR Ruling No. 569-88 dated November 29, 1988 which expressly revoked BIR Ruling Nos. 65-80, 66-80, 67-80 and 165-84. Other BIR Rulings, DOJ Opinion, and the Manila Polo Club (CTA Case No. 298 decided on August 31, 1959) and Xavier School, Inc. (CTA Case No. 1682 decided on October 8, 1969) cases which exempted from income tax the gain derived from the sale of property based on "isolated transaction" and using the proceeds thereof to purchase another property for a new site in furtherance of the purposes for which the respective organizations in the said cases were established, are subordinate to the Supreme Court case of Lladoc vs. Commissioner of Internal Revenue (L-19201) decided on June 16, 1965. In view of the foregoing, this Office hereby rules that the sale by Baptist International Mission of the Philippines, Inc. in favor of Novaliches Baptist Church, Inc. of its real property is subject to capital gains tax based on the gross selling price or current fair market value as determined in accordance with Section 6 (E) of the Tax Code of 1997, whichever is higher, of such land and/or buildings pursuant to Section 27 (D) (5) of the same Code (Section 4 (c) (i), Revenue Regulations No. 7-2003). 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. ACTaDH Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service