Deductibility from School's Gross Income of the Cost of Land Purchased for School Expansion

May 21, 1985 BIR RULING NO. 074-85 30 (a) 046-84 074-85 Gentlemen : This refers to your letter dated February 5, 1985, requesting a ruling as to whether or not the cost of land purchased for the expansion of a school where a building will be erected thereon are deductible from the gross income of the school. In reply, please be informed that pursuant to Section 30(a) (3) of the Tax Code as amplified by BIR-MECS Regulations No. 6-84 in addition to the business expenses allowable as deductions, a private educational institution, whether stock or non-stock, shall also be allowed to deduct from its gross income, expenses incurred during the taxable year relating to the expansion of school facilities. The Regulations define the terms "school facilities" as land, buildings and other civil work or improvements, library facilities, machineries, equipment and instruments including their cost of installations provided that such facilities shall be used solely to pursue the expansion activities of the school; and "Expansion of school facilities" as the acquisition, development or improvement of school facilities. Accordingly, the cost of the land purchased for the expansion of a school together with the building to be erected thereon are deductible from the gross income of the school. It should be emphasized, however, that where the expansion expense has been claimed as deductions, no further claim for yearly depreciation of the said school facilities will be allowed. Batas Pambansa Blg. 399 abolished the additional 10% corporate development tax on taxable net income of closely-held corporations, repealing for this purpose paragraph (e) of Section 24 of the Tax Code as amended effective May 19, 1983, the date of its approval. Under Section 24(e) of the Tax Code (before B.P. Blg. 399), the term "closely-held corporation" means any corporation, (a) at least 50% in value of the outstanding stock or (b) at least 50% of the total combined voting power of all classes of stock entitled to vote, at any time during the taxable year, is owned directly or indirectly by or for not more than five persons, natural or juridical. Such being the case, before the repeal of Section 24(e) of the Tax Code by B.P. Blg. 399, a non-stock corporation, e.g. non-stock educational institution does not qualify as a closely-held corporation and is, therefore, not subject to the 10% corporate development tax. Very truly yours, (SGD.) RUBEN B. ANCHETA Acting Commissioner