Contributions and Donations to Priestsem Foundation, Inc by an Individual Who is Not Self-Employed or Who Does Not Practice a Profession are Deductible in Full from Gross Income other than "Compensation Income Arising from Personal Services Rendered under an Employer-Employee Relationship"

July 3, 1996 BIR RULING NO. 071-96 21 000-00 071-96 Priestsem Foundation, Inc. Pura Building 55 Scout Santiago Street 1103 Quezon City Attention: Msgr . Jesus Y . Varela Bishop of Sorsogon President Gentlemen : This refers to your letter dated September 12, 1995 quoting certain portions of BIR Ruling No. S-26-030-96 dated February 14, 1996, as follows: LLpr "On the other hand, Section 29(h) (2) (C) of the Tax Code, as amended by Batas Pambansa Blg. 45, as implemented by BIR-NEDA Regulations No. 1-81, as amended by Revenue Regulations Nos. 1-82 and 10-82 provides that donations to a private foundation which means a non-profit domestic corporation or association organized and operated exclusively for scientific, research, educational character building and youth and sports development, health, social welfare, cultural or charitable purposes or a combination thereof, no part of the net income of which inures to the benefit of any private individual, shall be deductible in full from the taxable business income of the donor." xxx xxx xxx "In view thereof, this Office is of the opinion as it hereby holds that for income tax purposes, contributions and donations in favor of Priestsem Foundation, Inc. by individual donors/contributors shall not be deductible from the gross income; and that since Priestsem Foundation, INC, is a private foundation organized and operated for charitable and cultural purposes, contributions and donations in its favor shall be deductible in full from the gross income of corporate donors/contributors." In this connection, it is pointed out that "Sec. 29 of the NIRC provides that "In computing taxable income subject to tax under Sections 21(a), . . ., there shall be allowed as deductions the items specified in paragraph (a) to (i) of this section" . . .", of which paragraph (h) (2) (C) specifies donations to certain private foundations as among the contributions deductible in full."; that "Sec. 21(a) refers to "taxable compensation income as defined in Sec. 27" of individuals, citizens or residents; that "Chapter 4. Computation of Taxable Compensation Income and Net Income", Sec. 27, defines taxable income to mean "the pertinent items of gross income specified in this Code less the deductions, if any, authorized by such types of income by this Code or other special laws; . . ."; and that Sec. 28 specifies gross income to include (but not limited to) the following items; cdta "(1) Compensation for services, including fees, commissions, and similar items; (2) Gross income derived for business; (3) Gains derived from dealings in property; (4) Interest; (5) Rents; (6) Royalties; (7) Dividends; (8) Annuities; (9) Prizes and winnings; (10) Pensions; and (11) Partner's distributive share of the gross income of general professional partnership." Based on the foregoing, you now in effect, request for a ruling confirming your opinion contributions and donations in favor of Priestsem Foundation, Inc, by an individual who is not self-employed or who does not practice a profession, to whom Section 21(f) of the Tax Code, as amended by Republic Act No. 7496 (SNITS law) refers, are deductible in full from his gross income other than "compensation income arising from personal services rendered under an employer-employee relationship", in accordance with Section 29 of the Tax Code, as amended. In reply, please be informed that it is an established rule in statutory construction that all the provisions of the law, even if apparently contradicting, should be allowed to stand and given effect by reconciling them if necessary. (Araneta vs. Concepcion, 99 Phil. 709 cited in Martin's Statutory Construction, 6th Edition) Such being the case, contrary to your opinion, an individual who is not self-employed or who does not practice a profession, but derives any of the items of gross income other than compensation income arising from personal services rendered under an employer-employee relationship (Sec. 28, Tax Code) is not entitled to deduct his contribution or donation to Priestsem Foundation, Inc. from his gross income consisting of items (2) to (5) and (11) because they are taxable business income and income from practice of profession, respectively, which are covered by the SNITS law and, therefore, can only deduct from his gross income the direct costs enumerated under Section 29 of the Tax Code, as amended which do not include his contribution to a private cultural and charitable foundation like Priestsem Foundation, Inc. The other items of gross income like royalties, dividends, prizes and winnings are subject to a final income tax at the rates and the tax base prescribed under Section 21(c) of the Tax Code while items (8) and (10) may either be treated as compensation income or covered by SNITS law. Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue