BIR Ruling No. 136-14

May 20, 2014 BIR RULING NO. 136-14 Section 27 (A), 1997 Tax Code; City of Iloilo, et al. vs. Smart Communications, Inc. G.R. No. 167260 Jacob's Well Rural Waterworks and Sanitation Assn., Inc. Blk. 10 Purok 15, Barangay Fatima General Santos City Attention: Rodrigo Perez, Jr. Chairman Gentlemen : This refers to your undated letter requesting on behalf of Jacob's Well Rural Waterworks and Sanitation Assn., Inc. ("Jacob's Well") the issuance of a Certificate of Tax Exemption enjoyed by non-stock, non-profit corporation organized exclusively for purposes under Section 30 (C) of the Tax Code of 1997, as amended. It is represented that Jacob's Well, with Tax Identification Number (TIN) 005-734-525-000, is a non-stock corporation duly organized under the laws of the Philippines; that it is registered with the Securities and Exchange Commission (SEC) under SEC Registration No. D199800854; and that the purposes, among others, for which it was incorporated are the following: a. To promote love, respect, brotherhood/sisterhood, unity, cooperation, awareness, humility and understanding and mutual assistance in pursuing, promoting the welfare and interest of its members; b. To engage in water service and other requirements of the members; c. To serve as channel for the government and private agencies in providing technical assistance in the proper implementation of water usage and system in the Barangay; d. To promote and conduct continuing education and training program as part in the development process; e. To promote the association as a way of life for improving the social and economic well-being of the members; HASDcC f. To encourage thrift and savings mobilization among the members for capital formation; and g. To promote livelihood projects for the benefit of the members. In support of its request, Jacob's Well has completely submitted on September 18, 2012 the following documents: 1. Letter application for tax exemption; 2. Certified True Copy of the Certificate of Registration with the Securities and Exchange Commission (SEC); 3. Certified True Copy of the By-laws; 4. Certified True Copy of the Articles of Incorporation which include the following provisions: a. That the corporation is non-stock, non-profit; b. That the primary purpose for which it was created is one of those enumerated under Sec. 30 of the Tax Code of 1997; c. That no part of the net income shall inure to the benefit of any of its members; d. That the trustees do not receive any compensation; and e. In case of dissolution, assets of the corporation shall be transferred to similar institution or to the government. 5. Certified True Copy of the 2009 Annual Income Tax Return and Financial Statements for the last three (3) years of operation; and TADIHE 6. BIR Certificate of Registration. In reply, please be informed that Section 30 (C) of the Tax Code of 1997, as amended, provides, viz. : "Sec. 30. Exemptions 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 (C) A beneficiary society, order or association, operating for the exclusive benefit of the members such as a fraternal organization operating under the lodge system, or a mutual aid association or a non-stock corporation organized by employees providing for the payment of life, sickness, accident, or other benefits exclusively to the members of such society, order, or association, or non-stock corporation or their dependents; . . . ." Based on the above provision, an organization or association which is otherwise subject to income tax under Section 27 (A) of the 1997 Tax Code, as amended, may be exempt therefrom if such organization or association is operating for the exclusive benefit of its members. In this case, Jacob's Well failed to meet the said requirement in order to be exempt from income tax. Per Memorandum dated February 28, 2011 of Revenue Officer I Aia Vid R. Bago, RDO 110, General Santos City, it is shown that Jacob's Well transacts business with members and non-member consumers. Furthermore, the Articles of Incorporation of Jacob's Well does not expressly state that it is a non-profit association. It is a governing principle in taxation that tax exemptions must be construed in strictissimi juris against the taxpayer and liberally in favor of the taxing authority. The basic principle in the construction of laws granting tax exemptions has been very stable. He who claims an exemption from his share of the common burden of taxation must justify his claim by showing that the Legislature intended to exempt him by words too plain to be beyond doubt or mistake (City of Iloilo, et al. vs. Smart Communications, Inc. G.R. No. 167260, dated February 27, 2009). SEcADa Accordingly, your request for exemption from income tax is hereby denied for lack of legal basis. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner Bureau of Internal Revenue