Corporation Organized to Provide the Church Legal, Medical, Health and Other Services Not Exempt from Income Tax

May 29, 1992 BIR RULING NO. 175-92 26 (e) 000-00 175-92 Quasha Asperilla Ancheta Pea & Nolasco Lawyers Don Pablo Building, 114 Amorsolo St. Makati, Metro Manila Attention: Atty . Dennis G . Dimagiba Gentlemen : This refers to your letter dated March 13, 1991 requesting in behalf of your client, Far Eastern Division Adventist Corporation (FEDAC) exemption from the payment of income tax and the filing of the corresponding income tax return under Section 26 of the National Internal Revenue Code, as amended. cdta The documents submitted disclosed that Far Eastern Division Adventist Corporation is a religious society or organization; that the purpose for which the corporation is formed is to administer and manage the temporalities and properties of the Far Eastern Division of the Seventh-Day Adventist Church in the Philippines; and operate Sunday religious school; to manage its churches and chapels and to provide medical and health services for its members. In reply, I regret to inform you that your request has to be as it is hereby denied for lack of legal basis. While it is true that the Seventh Day Adventist Church in the Philippines is a religious corporation, yet a corporation that works for it to manage and administer the church temporalities and properties; to provide it with legal know-how for its operation and management of Sunday schools and to provide medical and health services for its members cannot come within the ambit of the tax exempt status of the religious corporation it is working for. Moreover, if such services were really necessary to help the church in its management and operation then the church or the religious corporation could avail of the above services from its members and does not necessitate the creation of another corporation for the said purposes. If at all a corporation is necessary for the above-mentioned purposes/services then said corporation cannot assume the exempt status of the religious organization it work for because both have different functions. The church is organized and operated exclusively for religious purposes while FEDAC was organized to provide the church or its members with legal, medical, health and other services such as managerial and administration of the church properties and according to Mertens, Law of Federal Income Taxation, Vol. VI, Par. 34.13, "Earnings may inure to the benefit of a member or members in a manner other than through the distribution of dividends. Thus, where valuable services are rendered to members, it may be said that part of the net earnings inure to the benefit of the members within the meaning of the Code." Moreover, the general rule is that one claiming the benefit of tax exemption must bring himself substantially within the terms of the statute or justify his claim by the clearest grant of the organic or state law. (Asiatic Petroleum Co. v. Llanes, 49 Phil. 466) An exemption claimed merely on the ground that another person situated in the same circumstances has not been required to pay or has not paid similar taxes is unjustifiable. (Bank of P.I. vs. Trinidad, 45 Phil. 384) In cases of doubt, the exemption provision are to be strictly construed and to be resolved in favor of the taxing power. In view thereof, FEDAC cannot be considered a corporation organized and operated exclusively for religious purposes as contemplated under Section 26(e) of the Tax Code as amended. Consequently, it should file an income tax return and pay income tax on its net income. aisadc Very truly yours, EUFRACIO D. SANTOS Deputy Commissioner