Income Derived from Canteens/Cafeterias Owned and Operated as Ancillary Activities by Educational Institutions are Exempt from Taxation

August 21, 1991 BIR RULING NO. 161-91 24 & 204 000-00 161-91 S i r : This refers to your letter dated June 19, 1991 requesting in effect a ruling on your following queries: "1. Are Canteens/Cafeterias owned and operated by and located within the school premises of non-stock, non-profit educational institutions subject to tax? "2. Under Section 204 of the National Internal Revenue Code, as amended, all criminal violations may be compromised except: (a) Those already filed in Court; and (b) involving fraud, while under Revenue Memorandum Order No. 1-88 as amended by RMO No. 29-90 and RMO No. 3-91, all delinquent accounts for all taxable years on assessments issued on or before December 31, 1986 which have become final and executory are eligible for compromise settlement. "The following delinquent account are not eligible for compromise settlement: xxx xxx xxx "2.5 The Criminal aspect of tax cases involving fraud is already filed in court. "Are tax cases, not involving fraud, already filed in court subject to the provisions of RMO No. 1-88 as amended by RMO No. 29-90 and RMO No. 3-91? It is represented that the resolution of pending tax cases before your Office depends upon the answers to the above-quoted queries. In reply, please be informed that under Section 2.2 of Finance Department Order No. 137-87, as amended, implementing Section 4(3), Article XIV of the New Constitution, revenues derived from and assets used in the operation of cafeterias/canteens, dormitories, bookstores are exempt from taxation provided they are owned and operated by the educational institution as ancillary activities and the same are located within the school premises. The term "Educational Institution" means a non-stock, non-profit corporation/association duly registered under Philippine law, and operated exclusively for educational purposes, maintained and administered by private individuals or groups, and offering formal education, issued a permit to operate by the Department of Education, Culture and Sports (DECS) in accordance with existing laws and regulations, while the term "Revenues" refer to income derived in pursuance of its purpose as an educational institution, and, the term "Assets" refer to any owned physical object (tangible) or right (intangible) having a money value; an item or source of wealth, expressed in terms of its cost, depreciated cost, or less frequently, some other value, hence, any cost benefitting a future period. Such being the case, this Office is of the opinion as it hereby holds that income derived from canteens/cafeterias owned and operated as ancillary activities by educational institutions as defined in Finance Department Order No. 137-87, as amended, and located within the school premises and used actually directly and exclusively for educational purposes are exempt from taxation. As regards your second query, please be informed that although it is provided under Section 204 of the Tax Code, as amended, that, all criminal violations may be compromised except: (a) those already filed in court, and (b) those involving fraud, this Office, however, in practice, after leave of court has been obtained, allows the compromise of internal revenue tax cases already filed in court involving criminal violations that do not involve fraud under the provisions of RMO No. 1-88, as amended by RMO No. 29-90 and RMO No. 3-91. cdtech Very truly yours, (SGD.) EUFRACIO D. SANTOS Deputy Commissioner Officer-in-Charge