Income Derived by Joint Venture Partnership from Sale of House and Lot Paid by SSS or Pag-Ibig Not Exempt from Income Tax

March 14, 1984 BIR RULING NO. 062-84 20 (b)-000-00-062-84 Gentlemen : This refers to your letters dated May 3 and 31, 1983 stating that your client, Davao Savings Home, Inc. (DSHI) is a domestic corporation organized primarily to engage in real estate business; that it may buy, sell, deal in, lease, mortgage, hold, improve and otherwise dispose of lands, houses and buildings, or any interest therein, and to construct improvements on lands owned by the corporation, as well as manage and administer lands, buildings or any kind of business and kind of properties, whether real or personal and in general act as agent, real estate broker, attorney-in-fact, purchasing agent and general agent except management of funds or securities portfolio and similar assets of such persons or entities; that DSHI is at present engaged in the development and construction of low-cost houses within subdivisions approved by the Human Settlement Regulatory Commission; that these low-cost housing projects are undertaken through separate joint venture agreements with various land owners; that the joint venture agreements provide that DSHI shall be the developer of the land contributed by the land-owner who is a party to the joint venture agreement; that the land is not compensable and contributed to the joint venture without any assigned cost; that the titles to the land remain in the name of the land-owner and not of DSHI nor the joint venture; that once the land is developed, subdivided and "license to sell" is approved by the appropriate regulatory government agencies, the subdivided lots together with the house constructed therein are sold to qualified buyers which is coursed through SSS/Pag-ibig loans to be applied by the buyers. In this connection, you request information on the following queries: (a) Whether installment sales cover installments paid by buyers to SSS or Pag-ibig which on account of housing loans solicited by buyers paid the total purchase price of the house and lot directly to the joint venture; and (b) Whether the joint venture partnership between DSHI and the landowner falls within the purview of a joint venture exempt from corporate income tax under Section 20(b) of the Tax Code, as amended. In reply, I have the honor to inform you that pursuant to Section 3 of Presidential Decree No. 1217, amending Presidential Decree No. 745, domestic corporations, partnerships, or landowners which invest funds in housing for low-income groups shall enjoy tax exemption on income derived from the installment sales of houses to low-income groups or income derived from rentals thereof. Such being the case, income derived by the joint venture partnership from the sale of the house and lot the total purchase price of which is paid by either the SSS or Pag-ibig for buyers which secured a housing loan from the aforesaid entities is not exempt from income tax. Moreover, the joint venture partnership between DHSI and the land owners which undertakes to develop the land and to sell the subdivided lots with the house constructed thereon to qualified buyers through the SSS/Pag-ibig loans does not fall within the purview of Section 20(b) of the Tax Code, as amended by P.D. Nos. 929 and 1774, which excludes from the term "Corporation", a joint venture formed for the purpose of undertaking construction projects. Accordingly, said joint venture is not exempt from the payment of corporate income tax. aisadc Very truly yours, (SGD.) RUBEN B. ANCHETA Acting Commissioner