San Isidro-Tacul Communal Irrigators Association, Inc.

January 16, 2020 BIR RULING NO. S30J-013-2020 Section 30 (J) of the NIRC of 1997, as amended; RMO No. 20-2013; RMC No. 051-14; BIR Ruling No. 466-2014 San Isidro-Tacul Communal Irrigators Association, Inc. San Isidro, Magsaysay, 8004 Davao del Sur Attention: Darwin D. Nasilla AI President Gentlemen : This refers to your letter dated February 07, 2014, applying on behalf of SAN ISIDRO-TACUL COMMUNAL IRRIGATORS ASSOCIATION, INC. for tax exemption certificate being enjoyed by non-stock, non-profit corporation or association under Section 30 (J) of the National Internal Revenue Code (NIRC) of 1997, as amended, which was forwarded to this Office by Revenue Region No. 19, Davao City, through 1st Indorsement, dated April 24, 2018. HEITAD It is represented that SAN ISIDRO-TACUL COMMUNAL IRRIGATORS ASSOCIATION, INC. with BIR Taxpayer's Identification No. (TIN) _______________, is a non-stock, non-profit association duly organized and existing under the laws of the Republic of the Philippines; that it is registered with the Securities and Exchange Commission (SEC) under Company Registration No. _______________; and that the purposes for which the association was incorporated are: 1. To cooperate in the operation and maintenance of the irrigation system or a portion thereof with National Irrigation Administration in preparation for the eventual turn-over of the same under such terms and conditions that the National Irrigation Administration Board may impose. 2. To serve as a channel for government and private agencies in providing technical and financial assistance to farmer-members. 3. To manage and establish, maintain and operate economic livelihood activities and services for its members. 4. To acquire loans from the government through any of its lending institutions for productive agricultural purposes. 5. To do and perform any other acts which may be necessary, convenient and appropriate to accomplish the objectives for which the association is organized. aDSIHc In reply, please be informed that Section 30 of the National Internal Revenue Code of 1997, as amended, enumerates the non-stock and/or non-profit corporations/associations/organizations that are exempt from income tax in respect to income received by them as such. Section 30 (J) of the National Internal Revenue Code of 1997, as amended, provides, viz. : "Sec. 30. Exempt from Tax on Corporations. The following organizations shall not be taxed under this Title in respect to income received by them as such: xxx xxx xxx (J) Farmers' or other mutual typhoon or fire insurance company, mutual ditch or irrigation company, mutual or cooperative telephone company, or like organization of a purely local character, the income of which consists solely of assessments, dues, and fees collected from members for the sole purpose of meeting its expenses; and;" xxx xxx xxx" "Non-stock" means "no part of its income is distributable as dividends to its members, trustees, or officers" and that any profit "obtained as an incident to its operations shall, whenever necessary or proper, be used for the furtherance of the purpose or purposes for which the corporation was organized." 1 "Non-profit" means that "no net income or asset accrues to or benefits any member or specific person, with all the net income or asset devoted to the institution's purposes and all its activities conducted not for profit." 2 Revenue Memorandum Circular (RMC) No. 51-2014 has clarified that in order for an entity to qualify as a non-stock and/or non-profit corporation/association/organization exempt from income tax under Section 30 of the National Internal Revenue Code of 1997, as amended, its earnings or assets shall not inure to the benefit of any of its trustees, organizers, officers, members or any specific person. The following are considered "inurements" of such nature: 1. The payment of compensation, salaries, or honorarium to its trustees or organizers; x x x. In the submitted documents of SAN ISIDRO-TACUL COMMUNAL IRRIGATORS ASSOCIATION, INC. , it was disclosed that members of Board of Trustees are receiving fees for every monthly meeting. The Certification executed by AI Treasurer Amando A. Coscos of SAN ISIDRO-TACUL COMMUNAL IRRIGATORS ASSOCIATION, INC. on March 04, 2014 states that: "The Board of Trustees receive a minimal fee of _______ per meeting at least once a month, the Treasurer receive _______ per month, the Secretary receive P2,500 per month and the bookkeeper receive P1,000 per month and the lateral chairmen receive P300 each per meeting at least once a month" ATICcS The payment of minimal fee to the Board of Trustees is considered a distribution of the equity (including the net income) of SAN ISIDRO-TACUL COMMUNAL IRRIGATORS ASSOCIATION, INC. This is a form of private inurement which the law prohibits in the organization and operation of a non-stock, non-profit corporation. This act violates the requirement that no part of the net income or assets of the corporation shall inure to the benefit of any individual or specific person. Thus, SAN ISIDRO-TACUL COMMUNAL IRRIGATORS ASSOCIATION, INC. cannot be qualified as a non-stock, non-profit corporation under Section 30 (J) of the National Internal Revenue Code of 1997, as amended. Please bear in mind that, "being a non-stock and/or non-profit corporation does not, by this reason alone, completely exempt an institution from tax." 3 Thus, "statutes granting tax exemptions are construed strictissimi juris against the taxpayer and liberally in favor of the taxing authority. A claim of tax exemption must be clearly shown and based on language in law too plain to be mistaken. Otherwise stated, taxation is the rule, exemption is the exception. The burden of proof rests upon the party claiming the exemption to prove that it is in fact covered by the exemption so claimed." 4 (BIR Ruling No. 466-2014 dated November 19, 2014) In view of the foregoing, the request of SAN ISIDRO-TACUL COMMUNAL IRRIGATORS ASSOCIATION, INC. to be exempted from income tax on its income as a Section 30 (J) corporation is hereby denied as it failed to prove that it is a non-profit corporation. Therefore, SAN ISIDRO-TACUL COMMUNAL IRRIGATORS ASSOCIATION, INC. shall be treated as an ordinary corporation subject to thirty percent (30%) income tax rate pursuant to Section 27 (A) and other internal revenue taxes imposed by the National Internal Revenue Code of 1997, as amended. Please be guided accordingly. Very truly yours, (SGD.) CAESAR R. DULAY Commissioner of Internal Revenue Footnotes 1. Section 87, Corporation Code. 2. CIR vs. St. Luke's Medical Center, Inc. , G.R. Nos. 195909 and 195960 dated 26 September 2012. 3. Ibid. 4. Quezon City and The City Treasurer of Quezon City vs. ABS-CBN Broadcasting Corporation [G.R. No. 166408, 6 October 2008].