BIR Ruling No. 166-83

September 25, 1983 BIR RULING NO. 166-83 Sir/Madam : This refers to your letter dated December 10, 1982 requesting reconsideration of the ruling issued by this Office dated November 17, 1982 subjecting interest income of your savings deposit to withholding tax. In reply, please be informed that since you are a non-stock, non-profit civic organization for scientific, cultural, educational, charitable and social purposes, you are exempt from income tax under Section 27(e) of the Tax Code. However, pursuant to the last paragraph of said section as amended by P.D. No. 1457, income of whether kind and character of all the organizations enumerated therein derived from any of their properties, real or personal or from any of their activities conducted for profit is subject to income tax, regardless of the disposition made of such income. Accordingly, your Foundation's interest income from savings deposits is subject to income tax. It has been held that interest income earned by a religious corporation [also exempt from income tax under Section 27(e)] on its bank deposit is subject to income tax, regardless of the disposition made of such income. (The Lutheran Church Missouri Synod, the Lutheran Philippine mission, subsidiary, vs. Commissioner of Internal Revenue, CTA Case No. 2000, Nov. 17, 1972). However, in your request for reconsideration, you alleged that this Office failed to consider Section 53(d) (2) of the Tax Code, as amended by Batas Pambansa Blg. 135, which reads as follows: "(2) Depositors or placers/investors enjoying tax exemption privileges or preferential tax treatment . In all cases where the depositor or placer/investor is tax exempt or is enjoying preferential income tax treatment under existing laws, the withholding tax imposed in this paragraph shall be refunded or credited as the case may be upon submission to the Commissioner of Internal Revenue of proof that the said depositor, or placer/investor is a tax exempt entity or enjoys a preferential income tax treatment." You contend that under the above-quoted provision, tax exempt depositors are exempt from the final withholding tax on interest income of savings deposit. This is true with respect to those specifically exempted under existing laws, e.g., the Cultural Center of the Philippines. Your contention is untenable with respect to organizations or associations enumerated under Section 27(e) of the Tax Code which, then and now, are subject to tax on income derived from any of their properties. It should be noted that the interest income on bank deposit was subjected to the withholding tax scheme under P.D. No. 1156 which took effect on June 3, 1977. Said Decree also contained the abovequoted provision. On the same date, Section 27(e) of the Tax Code already contained the proviso that income of whatever kind and character of all the organization enumerated therein derived from any of their properties, regardless of the disposition made of such income, is subject to income tax. Thereafter, this proviso became the last paragraph of Section 27 of the Tax Code under P.D. No. 1457 effective June 11, 1978, in order that the same could apply to all the organizations enumerated in said Section. Thus, there is a clear indication that the organizations enumerated in Section 27(e) shall continue to be subject to income tax with respect to the income derived from their properties. Said income includes interest income on bank deposits. In view thereof, your request for reconsideration has to be, as it is hereby denied. Very truly yours, (SGD.) RUBEN B. ANCHETA Acting Commissioner Bureau of Internal Revenue