BIR Ruling No. 008-62

January 10, 1962 BIR RULING NO. 008-62 The Regional Director Regional District No. 7 Cebu City S i r : There are returned to you the enclosed papers bearing on the internal revenue case of the Sacred Heart Mission Seminary, Inc., that city. LLphil It appears from the representations of counsel for said corporation that it is a non-stock corporation devoted exclusively to religious and educational purposes; that no part of its net income, if any, inures to the benefit of any private stockholder or individual; and that it has no "income of whatever kind and character from any of its properties, real or personal, or from any activity conducted for profit". Accordingly, counsel claims that the corporation is exempt from the income tax pursuant to section 27(e) of the Tax Code. And being so exempt, it is further claimed that the corporation is also exempt from filing income tax returns and from keeping books of accounts, all notwithstanding the fact that it failed to comply with the requirements prescribed in section 24 of the Revenue Regulations No. 2. It also appears that the corporation had filed corporate returns for the period in question. On the other hand, the provincial revenue officer, that city, maintains that compliance with the requirements of said section 24 is a condition precedent before the corporation can take advantage of the exemption provisions of section 27(e) of the Tax Code and, having admittedly failed to comply with those requirements, it must be considered as subject to the income tax, the requirement of filing returns and the profit and loss statements and balance sheets; in short, it should be treated like any other corporations for internal revenue purposes. It is indubitable that under section 46(a) of the Tax Code, corporations subject to the income tax are the only ones required to file income tax returns. Likewise, corporations subject to internal revenue taxes only are among others, duty bound to keep and use the books of accounts required by section 34 of said Code. Such being the case, and on the fair assumption that the only tax that the Sacred Heart Mission Seminary, Inc. may be liable in the income tax, the questions to be resolved in the present case boil down to two, namely: (1) Whether or not it is subject to the income tax; and (2) In the negative case, whether or not non-compliance with section 24 of Revenue Regulations No. 2 is fatal to its exemption. If the case be that, as represented by its counsel, the Sacred Heart Mission Seminary, Inc. is a non-stock corporations devoted exclusively to religious and educational purposes; that no part of its net income, if any inures to the benefit of any private stockholder or individual; and of its properties, real or personal, or from any activity conducted for profit, then the first question must be decided in favor of the corporation; otherwise, it must be decided against it. Proper investigation should, therefor, be conducted on the matter. The second, question must be resolved in favor of the corporation. For if in fact it qualifies under section 27(e) of the Tax Code, such tax status cannot be altered merely because it failed to comply with section 24 of the Income Tax Regulations. Obviously, section 27(e) of the Tax Code is the law that grants the exemption and section 24 of the Regulations merely prescribed the procedure by which to establish such exemption. However, having failed to establish its right to the exemption in accordance with said procedure, the corporation must be deemed subject to the general rule on the filing of returns (See sec. 184, Revenue Regulations No. 2) That being the case, it was duty bound to file corporated returns during the period in question and attach thereto the corresponding financial statements. Accordingly, and it appearing that while the corporation filed the necessary returns it, however, did not attach to those returns said financial statements, corresponding penalty should be imposed for such failure. In this connection, it may be stated that should the Sacred Heart Mission Seminary subsequently attempt to establish its exemption in accordance with section 24 of the Regulations, the revenue examiner concerned, for the purpose of investigating and verifying the contents of the affidavit and other documents submitted by it to determine whether or not it is exempt from the income tax, has the right to demand the production of the corporation's books of accounts, or other accounting records and other relevant matters. aisadc Be guided accordingly. Very truly yours, MELECIO R. DOMINGO Commissioner of Internal Revenue