BIR Ruling [UN-011-96]

January 5, 1996 BIR RULING [UN-011-96] Iglesia ni Cristo Corner Central & Commonwealth Avenues Diliman, Quezon City Attention: Mr . Catalino L . Castillo, Jr . Secretary for Legal Affairs and Mr . Lowell Casis Menorca Administrative Secretary Gentlemen : This refers to your letter dated October 23, 1995 in effect requesting a confirmation of your opinion that the income of the Iglesia Ni Cristo (INC) from the sale of its real property is exempted from income tax, if the proceeds of which are used to purchase another larger real property on which to construct a house of worship and appurtenant structures. It is represented that the INC is a corporation solely engaged in the propagation of doctrines based on the teaching of the Bible, the formation of Christian values, and related activities in accordance with the biblical tenets that God requires His servants to build houses of worship for His glory; that INC is devoted in the construction of temples, chapels and appurtenant structures, such as pastoral houses and offices for administrative purposes, everywhere in the world where there are INC locales; and that since its incorporation in 1914, INC has not engaged or conducted any activity for profit, much less devoted any of its properties, real or personal, into any such activity and no part of its income is used to the benefit of any private individual but is devoted solely, exclusively and directly for its religious purposes for which it was organized. It is further represented that INC is selling its two (2) parcels of land situated in Barrio Banlat, Quezon City covered by Transfer Certificates of Title Nos. 356218 (PR-259399) and 356220 (PR-25400) containing an area of 302 square meters and 123.040 square meters, more or less, respectively; and that the proceeds of the foregoing sale will be used for the acquisition of parcels of land situated in Culiat, Diliman, Quezon City, registered in the names of Antonio S. Arambulo and Angel Arambulo, covered by Transfer Certificates of Title Nos. RT-94384 (292245) and RT-947494 (292246), containing a combined area of 1,375 square meters, more or less and for the construction of the chapel thereon that will serve as the place of worship and other related religious activities. In reply, we quote hereunder the pertinent portion of BIR Ruling No. 26-143-59-569-88 as follows: "Notwithstanding the provision 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." In holding that the above-quoted provision does not apply to the instant case, the Secretary of Justice in his opinion, said the following: "Considering the history of the provision in question, it would seem that the statute as now amended has restricted the tax exemption of religious, educational and other organizations therein specified only to the extent of withdrawing the exemption with respect to income realized (a) from the productive use of their real and personal properties e.g. rents, dividends, or interest (b) from profitable business pursuits which properties or businesses are not essential to or necessarily connected with, their religious, charitable or educational purposes, etc., as the case may be. Thus, I am more inclined to subscribe to the view that the projected sale at a profit of the present site and church building of the Union Church of Manila, for the sole purpose of acquiring a new site and of constructing a new church in a place where most of its members now reside, does not come within the reach of the provision of Section 27(e) quoted above, and is therefore not subject to the income tax. I attach a great weight to the fact that the Union Church, which is organized and operated exclusively for religious purposes, owns and holds said property for religious purposes, i.e., the transfer of the church to a new site. The profit or income resulting from the transaction would be merely incidental to said religious purposes. And as the present church site was not acquired for speculation or as an investment to be eventually sold primarily for monetary gain, I think there is reason enough to say that income to be derived from the sale of said property is not within the contemplation of the proviso of said Section 27(e)." The foregoing portion of the opinion of the Secretary of Justice was quoted and applied by the Court of Tax Appeals in its decision in the case of the Manila Polo Club vs. Collector of Internal Revenue (CTA Case No. 293, August 31, 1959) which involves similar facts, i.e. proceeds of sale of real property was used exclusively to acquire and develop another property for purposes for which the club was organized. In the case of Xavier School, Inc. vs. Commissioner of Internal Revenue (CTA Case No. 1682, October 8, 1969), the Tax Court exempted from income tax, the gain derived by the school, stating that taxpayer's isolated sale of 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 thereof, this Office is of the opinion as it hereby holds that having been derived from a single and isolated transaction in furtherance of the purposes for which the INC is organized, the proceeds from the sale of its properties in Quezon City cannot be considered income from the productive use of its properties and, therefore, the same is not subject to income tax and consequently, to the creditable expanded withholding tax. However, the Deed of Sale and/or Conveyance of said properties shall be subject to the documentary stamp tax imposed under Section 196 of the Tax Code as amended by R.A. No. 7660. 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. (BIR Ruling No. 387-93 dated September 16, 1993). Very truly yours, ALICIA P. CLEMENO Assistant Commissioner Legal Service