Sale of Real Property by St. Scholastica's College Exempt from Income Tax and EWT

September 16, 1993 BIR RULING NO. 388-93 SALE OF REAL PROPERTY BY ST. SCHOLASTICA'S COLLEGE EXEMPT FROM INCOME TAX AND EWT 24 (a) Sec. 4 (3) Art. XIV 115-92 388-93 Carlos J. Valdes & Co., CJVC Bldg., Aguirre St. Legaspi Village, Makati Metro Manila Attention: Mr . Romeo C . Alba Managing Partner This refers to your letter dated 29 April 1993 requesting, in effect, for a ruling that the sale of real property by your client, ST. SCHOLASTICA's COLLEGE Manila is exempt from income tax, the 5% expanded withholding tax and the documentary stamp tax under paragraph 3, Section 4, Article XIV of the 1987 Constitution, which provides as follows: "(3) All revenues and assets of non-stock, non-profit educational institutions used actually, directly and exclusively for educational purposes shall be exempt from taxes and duties . . ."; The aforementioned Constitution was ratified at a plebiscite held for the purpose on February 2, 1987, and accordingly, the tax exemption privileges of non-stock, non-profit educational institution took effect as of said date. Verification of documents submitted show that St. Scholastica's College Inc. is a non-stock, non-profit educational institution duly registered with the Securities and Exchange Commission; that the purposes for which it was formed are the instruction and education of young girls and also to maintain a kindergarten school; that it was granted tax exemption pursuant to paragraph 3, Section 4 of Article XIV of the 1987 Constitution of the Philippines; that it is the true and absolute owner of real properties situated at Barrio Paliparan, Dasmarias, Cavite, covered by the following Transfer Certificate of Title, to wit: TCT No. 278327 consisting of 151,877 square meters TCT No. 278328 consisting of 80,877 square meters; that pursuant to a Deed of Absolute Sale executed by and between St. Scholastica's College (Vendor) and Adelfa Properties, Inc., (Vendee), the Vendor sold to the Vendee 78,359 square meters of the property covered by TCT No. 278328, net of that portion that has already been sold by the Vendor to another party as a right of way, for and in consideration of P15,671,800; that by virtue of another Deed of Absolute Sale, St. Scholastica's College sold to the U.I.J.P Development Phils. Corporation, the other portion of its said property covered by TCT 278328 consisting of 2,518 square meters more or less, for and in consideration of P503,600; that the property covered by TCT No. 278327 consisting of 151,877 square meters was sold by St. Scholastica's College to Adelfa Property, Inc. for and in consideration of P30,375,400; and that the total proceeds derived by the College from the said transactions amounted to P46,550,800. Documents submitted also show that in a Resolution, adopted by the Board of Directors in its meeting held on August 7, 1991, it was resolved that the school administration be authorized to explore all possible means to secure Funds for the construction of new school buildings and facilities, including but not limited to the negotiation of loans from financial institutions and the sale of the College's real properties in Dasmarias, Cavite, and that the proceeds of the sale thereof shall be allocated for the said construction. Moreover, in a letter dated March 15, 1992 to Sister M. Dorothy Consunji, O.S.B. of the College, the C.C. Puno Jr. Construction stated that the grand total estimated cost of construction for the school building and various facilities in the campus located at Leon Guinto, Malate, Manila and at Barangay Iruhin, Tagaytay City, including labor and materials amounted to P47,082,697.44; that per Certification by Architect/Manager Conrado E. Puno of the construction company, the total expenses already incurred as of May 10, 1993 for the construction of new school buildings and facilities amounted to P32,845,623.72, and that the projected completion of the new buildings and facilities is in October, 1993. In reply, please be informed that St. Scholastica's College is not subject to income tax on the proceeds from the sale of its Dasmarias, Cavite property. In the case of Xavier School, Inc., CTA Case No. 1682, October 8, 1969, the Tax Court exempted from income tax the gain derived by the School, stating that the isolated sale of its real property and using the proceeds thereof to purchase lots for a new site and constructing improvements thereon in furtherance of its educational purposes cannot be considered as an activity conducted solely for profit, because a single transaction of incidental character does not constitute engaging in business. In view of the foregoing, this Office is of the opinion as it hereby holds that, having been derived from a single and isolated transaction in furtherance of its educational purposes for which the St. Scholastica College Manila is organized, the proceeds from the sale of its real properties in Dasmarias, Cavite cannot be considered income from the productive use of its property. Hence, said income is not subject to income tax and consequently to the 5% expanded withholding tax prescribed by Revenue Regulations No. 1-90 and Revenue Memorandum Circular No. 7-90. Moreover, since the revenues derived from the sales are used actually, directly and exclusively for the construction of new School buildings in furtherance of its educational purposes, under the aforequoted provisions of paragraph 3, Section 4, Article XIV of the 1987 Philippine Constitution, your client, St. Scholastica's College of Manila is exempt from all taxes, including the documentary stamp tax arising from the said sales transactions. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void. LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue