BIR Ruling No. 335-11

September 7, 2011 BIR RULING NO. 335-11 109 (1) (P) of the Tax Code of 1997; BIR Ruling No. UN-414-95; Digital Telecommunications, Inc. v. City Government of Batangas, et al., G.R. No. 156040 Monark Equipment Corporation No. 13 Economia St., Bagumbayan 1110 Quezon City Attention: Mr. Rogelio C. Conel, Jr. Finance Director Gentlemen : This refers to your letter dated July 8, 2010 and supplemental letter dated January 10, 2011 requesting for opinion on whether DDC Land, Inc. is exempt from value-added tax (VAT) on its purchases of parts for its heavy equipment units. Documents submitted show that DDC Land, Inc. is a domestic corporation engaged in the business of developing low cost housing projects since year 2001; that it has been granted exemption from VAT by this Office in BIR Ruling No. [DA-(VAT-001) 018-08] dated July 9, 2008, on its sales of low-cost housing units pursuant to Republic Act No. 7279, otherwise known as the Urban Development and Housing Act of 1992; and that Monark Equipment Corporation, on the other hand, is the supplier of parts for the Caterpillar heavy equipment units of DDC Land, Inc. In reply, please be informed that Section 109 (1) (P) of the Tax Code of 1997, as amended, provides: "(1) . . . the following transactions shall be exempt from the value-added tax: (P) Sale of real properties not primarily held for sale to customers or held for lease in the ordinary course of trade or business, or real property utilized for low-cost and socialized housing as defined by Republic Act No. 7279, otherwise known as the Urban Development and Housing Act of 1992, and other related laws , residential lot valued at One million five hundred thousand pesos (P1,500,000) and below, house and lot, and other residential dwellings valued at Two million five hundred thousand pesos (P2,500,000) and below: Provided, That not later than January 31, 2009 and every three (3) years thereafter, the amounts herein stated shall be adjusted to their present values using the Consumer Price Index, as published by the National Statistics Office (NSO);" (emphasis supplied) Based on the aforequoted provision, it is clear that the transaction covered by the exemption from VAT refers only to the sale by DDC Land, Inc. of real property utilized for low-cost and socialized housing as defined by RA No. 7279. The above provision is very clear and needs no interpretation. Hence, the exemption does not extend to DDC Land, Inc.'s purchases of equipment parts even if the said purchases are to be used for the socialized housing project. ( BIR Ruling No. UN-414-95 dated November 11, 1995) In the case of Digital Telecommunications, Inc. v. City Government of Batangas, et al., G.R. No. 156040 dated December 11, 2008, the Supreme Court ruled in this wise: "A tax exemption cannot arise from vague inference. . . Tax exemptions must be clear and unequivocal. A taxpayer claiming a tax exemption must point to a specific provision of law conferring on the taxpayer, in clear and plain terms, exemption from a common burden. Any doubt whether a tax exemption exists is resolved against the taxpayer." In view of the foregoing, this Office is of the opinion as it hereby holds that the purchases by DDC Land, Inc. of equipment parts from Monark Equipment Corporation for its heavy equipment units are not exempt from VAT. Please be guided accordingly. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue