BIR Ruling [UN-238-95]

June 30, 1995 BIR RULING [UN-238-95] Sycip, Gorres, Velayo & Co. 6760 Ayala Avenue Makati City Attention: Atty . E . C . Alcantara Tax Division Gentlemen : This refers to your letter dated May 5, 1993 requesting confirmation of your opinion that the income of Maryknoll Sisters Parish Work, Inc. from the sale of real property, the proceeds of which shall be used in purchasing another property to be used by the organization in its non-profit activity is exempt from income tax under Section 26(e) of the Tax Code. cdtech It is represented that Maryknoll Sisters Parish Work, Inc. is a non-stock, non-profit religious organized and existing under the laws of the Philippines; that it was organized primarily to engage in religious mission work in parishes throughout the Philippines including the ministering to the temporal and spiritual needs of the people, spreading the gospel and affording spiritual, moral and religious counseling; that no part of the net income of the Maryknoll Sisters Parish Work Inc. inure to the benefit of any private stockholder or individual; that all income is utilized solely for the purposes for which the organization was established; that Maryknoll Sisters Parish Work Inc. sold a parcel of land located at Katipunan Avenue, Loyola Heights, Quezon City to Miriam College Foundation. Inc., a non-stock, non-profit educational institution; that proceeds of the sale are intended for the purchase of another property in Antipolo, Rizal which will serve as a semi-retirement home and mini-hospital for aging Maryknoll Sisters, as well as to repair the organization's retreat house in Baguio. In reply, please be informed that your opinion is hereby confirmed. The last paragraph of Section 26 taxing income derived from properties of exempt corporation and from their activities conducted for profit, finds no application to your client. The Secretary of Justice, interpreting this provision of the Tax Code, stated in Opinion No. 45 dated March 10, 1959: "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 interests (b) from profitable business pursuits which properties or business 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 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 purpose, 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 abovequoted opinion of the Secretary of Justice was quoted and applied by the Court of Tax Appeals in its decision in Manila Polo Club (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. (CTA Case No. 1682, October 8, 1969), the Tax Court exempted the gain derived from income tax by stating that the 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. Income of exempt organization held to be taxable has been defined by the same opinion of the Secretary of Justice as referring only to income realized "from the productive use of their real and personal properties e.g., rents, dividends, or interests." Income, if any, realized by the Maryknoll Sisters Parish Work, Inc., from the sale of their Katipunan property, having been derived from a single and isolated transaction in furtherance of the purposes for which they were organized, cannot be considered as income from the productive use of their property, since the latter connotes regular, continuous and a series of transactions. Since the sale of their Katipunan property by the Maryknoll Sisters is not for the purpose of profiting therefrom, but to enable the organization to purchase another property that will serve as a retirement house and mini-hospital for its aging members, as well as repair its Baguio retreat house, such transaction is hereby considered as exempt from tax in accordance with Section 26(e) of the Tax Code, as amended. (BIR Ruling Nos. 569-88; 115-92 and 387-93) 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. Very truly yours, ALICIA P. CLEMENO Assistant Commissioner (Legal Service)