BIR Ruling No. 128-14

May 15, 2014 BIR RULING NO. 128-14 Emmanuel Computer Learning Institute, Inc. Manansala Bldg., McArthur Hi-way, Sulipan Apalit, Pampanga Attention: Linda Reyes Manansala Treasurer Gentlemen : This refers to your letter dated August 22, 2013, requesting for confirmation of the tax exemption of Emmanuel Computer Learning Institute, Inc. as a nonstock, nonprofit educational institution under Section 30 (H) of the National Internal Revenue Code of 1997, as amended (NIRC). It is represented that Emmanuel Computer Learning Institute, Inc. is a nonstock, nonprofit educational institution duly registered with the Securities and Exchange Commission with SEC Registration No. CN200404501; that it was incorporated to establish and operate an educational institution or learning center. Section 30 (H) provides for exemption of nonstock, nonprofit educational institutions. To qualify under the said provision, it is essential that the assets of the organization must be dedicated to an educational purpose. An organization's assets will be considered properly dedicated, if on dissolution, they would, by reason of a provision in the organization's articles, be distributed: TcEaDS a. for educational purposes; b. to the government; or c. to another organization with purposes similar to the dissolved organization. An organization's assets are not properly dedicated if its articles does not prohibit the distribution of its assets upon dissolution to its members or shareholders. Moreover, to qualify for exemption under Section 30 (H) the organization must have no net earnings or assets inuring to the benefit of any member, organizer, officer or any specific person. The records show that Emmanuel Computer Learning Institute, Inc. entered into a 10-year franchise agreement with another computer school AMA Computer Learning Center, Inc. whereby the latter allows the former to use the AMA Computer Learning System and that various fees were paid by Emmanuel Computer Learning Institute, Inc. to AMA Computer Learning Center, Inc. IDcAHT Along with police power and eminent domain, taxation is one of the three basic and necessary attributes of sovereignty. Thus, the State cannot be deprived of this most essential power and attribute of sovereignty by vague implications of law. Rather, being derogatory of sovereignty, the governing principle is that tax exemptions are to be construed in strictissimi juris against the taxpayer and liberally in favor of the taxing authority; and he who claims an exemption must be able to justify his claim by the clearest grant of statute. The burden of proof rests upon the party claiming exemption to prove that it is in fact covered by the exemption so claimed. In case of doubt, non-exemption must be favored. Taxes being the lifeblood of the government that should be collected without unnecessary hindrance, every precaution must be taken not to unduly suppress it. (BIR Ruling No. 310-2011 dated August 22, 2011) A perusal of the Article of Incorporation of Emmanuel Computer Learning Institute, Inc. shows that the distribution of its assets upon dissolution to its members or shareholders is not prohibited. Thus, the assets of the organization are not dedicated to an educational purpose as earlier discussed. Lastly, the payment by Emmanuel Computer Learning Institute, Inc. of franchise fees to AMA Computer Learning Center, Inc. constitutes prohibited inurement because the transaction allows a private person to benefit from the earnings of the educational institution. IN VIEW OF THE FOREGOING, this Office is of the opinion that Emmanuel Computer Learning Institute, Inc. does not qualify for exemption under Section 30 (H) of the NIRC. It is therefore liable for income taxes imposed under Title II of the NIRC. cCAIDS Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner Bureau of Internal Revenue