BIR Ruling No. 301-14

July 24, 2014 BIR RULING NO. 301 -1 4 Mother Rosario, Inc. 1243 AH Lacson Ave. Sampaloc, Manila Attention: Rev. Mo. Ma. Celestine Bancal, OP President Gentlemen : This refers to your letter dated February 2014 requesting for confirmation of Mother Rosario, Inc. as an exempt organization under Section 30 (E) and (G) of the National Internal Revenue Code of 1997, as amended (NIRC). It is represented that Mother Rosario, Inc. is a nonstock nonprofit association organized, among others, to create an atmosphere conducive to study and fellowship among the residents towards their self actualization and to create among boarders, bedspacers and co-workers a community where an atmosphere of love, trust and understanding towards one another. "Donations" from boarders is its primary source of income. Section 30 (E) exempts nonstock corporations or associations organized and operated exclusively for religious, charitable, scientific, athletic, or cultural purposes, or for the rehabilitation of veterans, no part of its net income or asset shall belong to or inure to the benefit of any member, organizer, officer or any specific person. DTcACa Section 30 (G) provides for exemption of civic leagues or organizations not organized for profit but operated exclusively for the promotion of social welfare. An organization is operated exclusively for the promotion of social welfare if it is primarily engaged in promoting in some way the common good and general welfare of the people of the community. An organization embraced within this section is one which is operated primarily for the purpose of bringing about civic betterments and social improvements. A common characteristic of the organizations or associations exempt under Section 30 (E), and (G) is that they must not be organized and operated principally for profit. Moreover the last paragraph of Section 30 clearly states that the income of whatever kind and character of these organizations from any of their properties, real or personal, or from any of their activities conducted for profit regardless of the disposition made of such income, shall be subject to tax. 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) EHSAaD A perusal of the documents submitted by Mother Rosario, Inc. shows that it is primarily engaged in the operations of a dormitory. The bulk of its revenues come from payments of boarders. Such proceeds were used almost exclusively for its perpetuation. It appears that this activity is being carried on by Mother Rosario, Inc. in a manner similar to organizations operated for profit. Thus, it is organized and operated principally for profit. Organizations that are charitable or promote social welfare should primarily promote the common good and general welfare of the people of the community as a whole. An organization is not operated exclusively for the charitable or social welfare purposes if its primary activity is carrying on a business with the general public. An organization that is engaged in the operation of a dormitory cannot be presumed to be a charitable or social welfare organization under Section 30 (E) or (G) of the NIRC because it is a business activity conducted by organizations operated for profit. Furthermore, there is no evidence to show that it offers its services only to the disadvantaged and that the payments made by boarders are not in exchange for the services rendered by Mother Rosario, Inc. IN VIEW OF THE FOREGOING, this Office is of the opinion that Mother Rosario, Inc. does not qualify for exemption under Section 30 (G) of the NIRC. It is therefore liable for income taxes imposed under Title II of the NIRC and other applicable taxes such as VAT or percentage tax. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner Bureau of Internal Revenue