BIR Ruling No. 100-65

August 28, 1965 BIR RULING NO. 100-65 Mr. Sabino Padilla, Jr. Padilla Law Office 600-604 Shurdut Bldg. Muralla St., Manila S i r : This is in reply to your letter dated January 13, 1965 requesting a ruling on the question of whether or not the difference between the acquisition cost and the proceeds of the proposed sale or exchange of a parcel of land by the Religious of the Virgin Mary is subject to income tax. LLjur It appears that the Religious of the Virgin Mary (hereinafter referred to as the corporation), is a non-stock domestic corporation with main office or Mother-House at No. 214 N. Domingo St., Quezon City, and is organized and operated exclusively for religious, educational and charitable purposes; that no part of its net income inures to the benefit of any private stockholder or individual; that before the outbreak of World War II, the corporation acquired a parcel of land in Tagaytay City, with an area of 39,011 square meters exclusively for religious purposes and has erected thereon a rest house for members of the Congregation of the Religious of the Virgin Mary, especially the aged and the sick; that the land and the rest house are still being used for that purpose up to the present, but because of the bad peace and order situation in that area, which shows no sign of improvement, and also of the impending expropriation of a part of the land in order to make way for a public road or highway dividing the property into two lots, the corporation finds that the property is no longer suitable for the purpose for which it was acquired and a transfer to a more peaceful and suitable place for the religious state has become necessary, hence its plan to sell or exchange the said parcel of land, so that they could use the proceeds of such sale or exchange to acquire a new and suitable site for its rest house; and that should the proceeds of the sale or exchange exceed the cost of acquiring a new site, the balance of the proceeds will be used to defray the cost of erecting improvements or buildings of the proposed rest house. The pertinent provision of the National Internal Revenue Code reads as follows: "SEC. 27. Exemption from tax on corporations . The following organizations shall not be taxed under this Title in respect to income received by them as such xxx xxx xxx "(a) Corporation or association organized and operated exclusively for religious, charitable, scientific, athletic, cultural, or educational purposes, or for the rehabilitation of veterans no part of the net income of which inures to the benefit of any private stockholder or individual; Provided , however , That the income of whatever kind and character from any of its properties , real or personal, or from any activity conducted for profit, regardless of the disposition made of such income , shall be liable to the tax imposed under this Code." (Emphasis supplied) The aforequoted provision of law, as amended by Republic Act No. 82, has restricted the tax exemption of religious, educational and other organizations specified therein only to the extent of withdrawing the exemption with respect to income realized from the productive use of their real and personal properties, e.g., rents, dividends and interests and from profitable business pursuits, which properties or businesses are not essential to, or necessarily connected with their religious, charitable, or educational purposes, etc., as the case may be. (Secretary of Justice' Opinion No. 45, s. 1959); See also Manila Polo Club vs. Collector of Internal Revenue, CTA Case No. 293, prom. August 31, 1959.) Moreover, in the case of the Union Church of Manila, the Honorable Secretary of Justice ruled that where a corporation organized and operated exclusively for religious purposes, owns and holds a property for religious purposes, and is going to part with the same solely for religious purposes, i.e., the transfer of the church to a new site, the profit or income resulting from the transaction would be merely incidental to said religious purposes and is, therefore, not within the contemplation of the proviso of Section 27 of the Tax Code, as amended. (Opinion No. 45, p. 3) As represented, the Religious of the Virgin Mary will dispose the said property for the purpose of using the proceeds thereof in acquiring a more peaceful and suitable site where a new rest house will be constructed for the members of the Congregation, especially the aged and the sick; and that any excess in the proceeds of the sale of the property in question over that of the cost of acquisition of a new site will be used to defray the cost of erecting improvements or buildings or the proposed rest house. In the light of the foregoing, this Office is of the opinion and so holds that the difference between the acquisition cost and the proceeds of the proposed sale or exchange of the parcel of land in question, being neither income derived from the productive use of such property nor from profitable business pursuit, is not subject to income tax. LLphil Very truly yours, (SGD.) BENJAMIN N. TABIOS Acting Commissioner of Internal Revenue