Tax Liabilities of the Trappist Monastery for its Production and Sale of Guava Jelly and Roasted Cashew Nuts

July 9, 1986 BIR RULING NO. 103-86 165 039-86 103-86 His Eminence : This refers to your letter dated June 18, 1986 requesting for and in behalf of the Monastery of Our Lady of the Philippines Trappist Cisterian Monastery, Inc., a monastery of Catholic Contemplative Monks, located at Jordan, Guimaras Island, Iloilo City, exemption from the payment of taxes on their production/manufacture and sale of guava jelly and roasted cashew nuts on the ground that the proceeds thereof are used only for the purpose of sustaining their way of life, that is, the support of the religious community in its daily needs and expenses, so that they may no longer be asking donations and alms from others. In reply, please be informed that since, as represented, the Trappist Monastery is a community or congregation organized and operated exclusively for religious purposes, it is exempt from the payment of income tax with respect to income received by it as such organization, and therefore, need not file an income tax return concerning such income. [(Sec. 27(e), Tax Code] However, with respect to the production/manufacture and sale of guava jelly and roasted cashew nuts, since the same are being conducted for profit, the Monastery is subject to the corresponding internal revenue taxes imposed under the National Internal Revenue Code on its income derived from said activities, regardless of the disposition thereof , pursuant to the last paragraph of Section 27 of the Tax Code, as amended by P.D. No. 1457. Such being the case, the Monastery is subject to the 10% sales tax on the gross selling price of the guava jelly which is considered processed fruit within the contemplation of Section 165(A)(3)(a) of the Tax Code as amended by P.D. No. 2031. Moreover, since cashew nuts are considered agricultural products and inasmuch as roasting of the same does not constitute manufacturing, the sale of roasted cashew nuts, when said cashew nuts are produced by the Monastery , is considered an original sale of agricultural products in their original state subject to 0% sales tax pursuant to Section 165(A)(4) of the Tax Code as amended by P.D. No. 2006. In other words, such roasted cashew nuts are not subject to sales tax on the original sales thereof. On the other hand, the sale of roasted cashew nuts, when said cashew nuts are obtained or purchased by the Monastery from other local producers and traders, is considered a subsequent sale of agricultural products in their original state and therefore, not subject to the 1.5% sales tax. (Sec. 165(b), Tax Code as amended by P.D. No. 2006) In the latter case, the Monastery is nevertheless subject to the C-13 graduated annual fixed tax imposed by Section 161(2) of the Tax Code. (Rev. Memorandum Circular No. 2-86) Finally, the Monastery is subject to income tax on its income derived from the sale of guava jelly and roasted cashew nuts. Very truly yours, (SGD.) BIENVENIDO A. TAN, JR. Commissioner