Interests Earned from Bank Deposits are Subject to Income Tax, Regardless of the Disposition Made of Such Income

April 5, 1991 BIR RULING NO. 058-91 26 (c) 78-002 058-91 Gentlemen : This refers to your letter dated September 10, 1990 addressed to the Honorable Secretary of Finance and which was forwarded to us under its 1st Endorsement dated January 15, 1991, wherein you are requesting in behalf of your client, Nicheren Shoshu Of The Philippines, Inc., tax exemption on interest earned on its bank deposits. It is represented that, Nicheren Shoshu Of The Philippines, Inc. is a non-stock, non-profit organization duly registered with the Securities & Exchange Commission; that being a religious corporation, it was granted a certificate of tax exemption by this Office pursuant to Section 26 (e) of the Tax Code on July 28, 1990. cdti You aver that this exemption includes the bank deposits coming or arising from donations, contributions and membership fees of said corporation; that the exemption certificates issued by this Office did not specify whether the interests on your client's bank deposits are exempt also from the payment of income tax; hence, you are now requesting that the interest on your client's bank deposits be exempted stating the principle of law that the accessory must always follow the principal as in this case, your client's organization being the principal which is an exempt organization; and, its bank's deposits, the accessory; and that the bank deposits and corresponding interests are actually, directly and exclusively intended for religious purposes without any profit motive or gain. In reply, please be informed that the last paragraph of Section 26 of the Tax Code, as amended, provides as follows: "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." Hence, it is succinctly stated in our certificate of tax exemption granted to your client being a religious corporation, the phrase which is underlined thus "However, it is subject to the corresponding internal revenue taxes imposed under the National Internal Revenue Code on its income derived from any of its properties, real or personal or any activity conducted for profit regardless of the disposition thereof, which income should be returned for taxation." The bank deposits made by tax-exempt corporations enumerated in Section 26 of the Tax Code are in effect personal property of said corporations. Accordingly, the interests earned from its bank deposits are subject to internal revenue taxes, one of which is income tax, regardless of the disposition made of such income. (BIR Ruling No. 78-002 dated May 11, 1978). In view thereof, it is regretted that your request cannot be granted for lack of legal basis. cdt Very truly yours, (SGD.) JOSE U. ONG Commissioner