BIR Ruling No. 335-13

August 30, 2013 BIR RULING NO. 335-13 Sections 27 (D) (5) and 30 (H) of the Tax Code of 1997, as amended Juan Sumulong Memorial Schools System, Inc. (Formerly: Juan Sumulong Memorial School Systems, Inc.) D. Espiritu Street, Taytay, Rizal Attention: Mrs. Lilian I. Carreon President Madame : This refers to your letter dated August 3, 2012 requesting on behalf of Juan Sumulong Memorial Schools System, Inc. doing business under the name and style of "Juan Sumulong Memorial Junior College, Angono Private High School and Sumulong Memorial High School" (Formerly Juan Sumulong Memorial School Systems, Inc.) for exemption from Capital Gains Tax. It is represented that Juan Sumulong Memorial Schools System, Inc. with Taxpayer's Identification No. 000-467-886-000 , is a non-stock, non-profit corporation duly organized under the laws of the Philippines; that it is registered with the Securities and Exchange Commission (SEC) under Registration No. 3653 ; that Juan Sumulong Memorial Schools System, Inc. is selling the lot where an old school build which was devastated by fire once stood. The proceeds of the sale will be used in the construction of additional classrooms for the school. In reply, please be informed that Section 27 (D) (5) of the Tax Code of 1997, as amended, provides, viz. : "Sec. 27. Rates of Income Tax on Domestic Corporations. xxx xxx xxx (D) Rates of Tax on Certain Passive Incomes. xxx xxx xxx (5) Capital Gains Realized from the Sale, Exchange or Disposition of Lands and/or Buildings. A final tax of six percent (6%) is hereby imposed on the gain presumed to have been realized on the sale, exchange or disposition of lands and/or buildings which are not actually used in the business of a corporation and are treated as capital assets, based on the gross selling price or fair market value as determined in accordance with Section 6(E) of this code, whichever is higher, of such lands and/or buildings." EACIcH In connection with the foregoing, Section 30 (H) of the Tax Code of 1997, as amended provides: "Sec. 30. Exemptions from Tax on Corporations. The following organizations shall not be taxed under this Title in respect to income received by them as such: (A) . . . xxx xxx xxx (H) A nonstock and nonprofit educational institution; xxx xxx xxx Notwithstanding the provisions in the preceding paragraphs, the income of whatever kind and character of the foregoing 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 imposed under this Code." It is clear from the above cited provisions of the Tax Code of 1997, as amended, that sale of real property by a corporation like herein taxpayer, Juan Sumulong Memorial Schools Systems, Inc., is subject to Capital Gains Tax of six percent (6%). The sale of real property is not covered by the exemption as the same Tax Code clearly provides that "the income of whatever kind and character of the foregoing organizations from any of their properties, real or personal, or from any of their activities conducted for profit regardless of disposition made of such income, shall be subject to tax imposed under this Code". In recent BIR Rulings, this Office has consistently ruled that a non-stock, non-profit educational institution is exempt from tax on all revenues derived in pursuance of its purpose as an educational institution and used actually, directly and exclusively for educational purposes. In view of the foregoing law, your request for exemption from Capital Gains Tax is denied for lack of legal basis. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue