BIR Ruling No. 040-65

May 13, 1965 BIR RULING NO. 040-65 The President Cagayan Teachers College, Inc. Tuguegarao, Cagayan S i r : This refers to your request that the Cagayan Teachers College, Inc. (hereinafter referred to as College), be exempt from the payment of income tax under Section 27(e) of the National Internal Revenue Code. In reply thereto, I have the honor to inform you that a private educational institution organized as a stock corporation is not an exempt organization within the purview of Section 27(e) of the Tax Code, as amended by Republic Act No. 82, because its net income inures to the benefit of its stockholders who share in the profits of the corporation either by way of cash or stock dividends, or thru the corresponding increase in value of their shares due to the accumulation of profits as surplus or as additional capital or the investment thereof in additional assets. In this connection, it is advised that the mere fact that no cash or stock dividend is being declared by the corporation will not sustain the claim that the net income of the corporation does not inure to the benefit of its stockholders. For as heretofore pointed out, the net profits of a corporation inure to the benefit of the stockholders not only by way of cash or stock dividends but also thru the accumulation of profits as surplus or additional capital, or the investment thereof in additional assets, every increase in surplus, capital or assets resulting in the corresponding increase in value of their shares in the corporation. And it is for this reason that under the amendment to section 27(e) of the Tax Code, effected by Republic Act No. 82, a private educational institution organized as a stock corporation is subject to the income tax on its net income for the year although no dividends are declared for said year. (Congressional Record, House of Representatives, Vol. 1, No. 69, p. 1599, September 9, 1946; cited in the case of Collector of Internal Revenue vs. University of the Visayas, G. R. No. L-13554, October 30, 1964). In view thereof, it is our considered opinion that the Cagayan Teachers College, being a private educational institution organized as a stock corporation is subject to the corporate income tax imposed by Section 24 of the Tax Code as amended. cdtech Very truly yours, (SGD.) BENJAMIN N. TABIOS Acting Commissioner of Internal Revenue