Donation of Land by Aim Foundation Exempt from Donor's & Doc. Stamp Tax

December 28, 1993 BIR RULING NO. 543-93 DONATION OF LAND BY AIM FOUNDATION EXEMPT FROM DONOR'S & DOC. STAMP TAX 24 (b) Sec. 4 (3) Art. XIV Const. 388-93 543-93 Sycip, Gorres, Velayo & Co. 6760 Ayala Avenue Makati, Metro Manila Attention: Atty . C . C . Gison This refers to your letter dated August 12, 1993 in behalf of your client, Asian Institute of Management (AIM), in effect, requesting for a ruling on the tax consequences in the transfer of real property presently used for educational purposes firstly, by way of donation by AIM-Scientific Research Foundation, Inc. (AIM-SRFI), registered owner, to AIM, a non-stock, non- profit institution, operated exclusively for educational purposes; and secondly, by way of sale by the latter to a third person. llcd It appears that AIM presently operates a government-accredited school for graduate courses within the premises owned by AIM-SRFI consisting of 12,815 square meters and located in Makati, Metro Manila; that the first transaction involved the conveyance of said real property by AIM-SRFI to AIM by way of donation; and subsequently, in the second transaction, AIM, the donee will sell the same property to a third person; and that the proceeds thereof will be used to upgrade the existing facilities of AIM or to acquire addition sites to establish other teaching facilities. Based on the foregoing facts, you now seek a confirmation of your opinion, viz: 1. the donation of the land by AIM-SRFI to AIM is exempt from donor's tax under Section 94(a) (3) of the Tax Code; 2. the same donation is also exempt from the documentary stamp tax under Section 161 of BIR Regulations No. 26, as amended; and 3. the gain which AIM will realize from the sale of the land is exempt from income tax and documentary stamp tax. In reply, please be informed that pursuant to Section 94(a)(3) of the Tax Code, stating: "Sec. 94. Exemption of certain gifts . the following gifts or donations shall be exempt from the tax provided for in this Chapter: acd "(a) In the case of gifts made by a resident: xxx xxx xxx "(3) Gifts in favor of an education and/or charitable, religious, cultural or social welfare corporation, institution, foundation, trust or philanthropic organization or research institution or organization; Provided, however, that not more than 30% per centum of said gifts shall be used by such donee for administration purposes ." (emphasis supplied) AIM-SRFI shall be exempt from donor's tax because AIM, the donee, is an accredited educational institution, provided, that not more than 30% of the value of the gift shall be used by the latter for administrative purposes. If this condition is violated, the donor is liable for unpaid donor's tax based on fair market value/zonal value of the property donated. The same transaction is also not subject to documentary stamp tax because an instrument of conveyance evidencing a gratuitous transfer of real property is exempt pursuant to Section 161 of Revenue Regulations No. 26, implementing (now) Section 196 of the Tax Code. With respect to the second transaction involving sale of the same property by AIM to a third person, since the property is used actually, directly, and exclusively for educational purposes as contemplated under Section 2 of Finance Department Order No. 137-87, the proceeds generated by and to be used by AIM for the same educational purpose shall be exempt from ordinary corporate income tax pursuant to Par. 3, Sec. 4, Article XIV of the 1987 Constitution which states: "(3) All revenues and assets of non-stock, non-profit educational institution used actually, directly and exclusively for educational purposes shall be exempt from taxes and duties. . . ." (emphasis supplied) Understood in its ordinary sense, revenue includes income from property or investment ( Webster's Contemporary Dictionary ). Since the documentary stamp tax is a tax on documents executed to evidence a transaction, not a tax on revenue and assets, the tax exemption clause under the 1987 Constitution shall not apply. Based on the foregoing, your request are answered as follows: 1. Pursuant to Section 94(a)(3) of the Tax Code, since AIM, the donee, is a duly accredited educational institution, AIM-SRFI is exempt from donor's tax. 2. The same donation is also exempt from documentary stamp tax pursuant to Section 161 of Revenue Regulations No. 26, as amended, implementing (now) Section 196 of the Tax Code. 3. Pursuant to par. 3, Sec. 4, Article XIV of the 1987 Constitution, the seller (AIM) in the second transaction shall be exempt only from ordinary corporate income tax, but not from documentary stamp tax. This modifies BIR Ruling No. 388-93 insofar as said ruling stated that the sale of real property by St. Scholastica's College wherein the revenues derived therefrom are used actually, directly and exclusively for educational purposes are also exempt from documentary stamp tax. cdtech LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue