Obra Pia De Pasig-Sadyang Hari v. Commissioner of Internal Revenue

NINTH DIVISION [CA-G.R. SP No. 31046. September 5, 1997.] OBRA PIA DE PASIG-SADYANG HARI, represented by the Roman Catholic Archbishop of Manila, Trustee , petitioner , vs . COMMISSIONER OF INTERNAL REVENUE and COURT OF TAX APPEALS , respondent . D E C I S I O N ELBINIAS , J p : PETITION for Review of the Resolution of the Court of Tax Appeals in C.T.A. Case No. 3818 between the parties herein. The resolution was issued after respondent Court had rendered its Decision dismissing the petition for review of herein petitioner Obra Pia. In the resolution respondent Court, setting aside its ruling that the petition was filed out of time, reconsidered its dismissal of the petition on that ground, only to dismiss it again on the merit. The dispositive portion of the resolution reads as follows: "WHEREFORE, the petition for review is hereby dismissed for lack of merit. Petitioner, Obra Pia de Pasig-Sadyang Hari represented by the Roman Catholic Archbishop of Manila, Trustee is hereby ordered to immediately pay respondent Commissioner of Internal Revenue its deficiency tax for taxable year 1976 in the amount of P19,841.66. SO ORDERED." (Rollo, p. 61). The main issue stated by petitioner is whether for income tax purposes the gains resulting from sale of the lots in question were realized from "ordinary assets" which are 100% taxable as "ordinary gains" or from "capital assets" which are only 50% taxable as "capital gains." Raised also as a related issue is whether petitioner was allegedly denied due process for (a) the court having completely ignored the testimonial evidence it had presented on the nature of the lots sold, (b) considered as evidence, over the objections of herein petitioner, the report of the examiner who was never presented for cross-examination on his report, and (c) indulged merely in speculations and surmises in arriving at its conclusions. The facts as stated in the Petition here are undisputed. They read thus: "Petitioner is an "obra pia" or trust of the Roman Catholic Church and under sec. 53 of the National Internal Revenue Code, a trust is a separate tax personality, subject to income taxation like an individual. Way back during Spanish times, the Roman Catholic Archbishop of Manila received in trust some ricelands in Pasig subject to the condition that the income from these ricelands would be used to maintain a chapel in Barrio San Miguel, Pasig and its religious activities and to pay the salary of a catechist. This trust since Spanish times was called that Obra Pia de Pasig-Sadyang Hari, because the lands were given by the family known as Sadyang Hari. Since these properties were given in trust to the Archbishop of Manila, the Archbishop of Manila continues to fulfill and comply with the trust up to the present, by maintaining the chapel in Barrio San Miguel, Pasig, and defraying the salary of a catechist therein, even if the lands have all been either sold as in the present case, or expropriated under Land Reform. Where the corpus of the trust consisted of ricelands before, the proceeds from the sale and expropriation of these ricelands have now become the corpus of the trust (see tsn, October 23, 1985, pp. 1011, Annex "F" of Petition). The trustee, the Roman Catholic Archbishop of Manila, is a corporation sole organized and existing under the laws of the Philippines. At the time of the transactions subject of this case, the incumbent of the corporation sole was Rufino J. Cardinal Santos; after his death on September 3, 1974, he was succeeded by Jaime L. Cardinal Sin." (Rollo, p. 9). In answer to the main issue, we rule that the parcels of land sold including the parcel acquired by Caruncho Construction Corp. and of the other lots in the "subdivision," are "capital assets" and not "ordinary assets." In Calasanz vs . Commissioner of Internal Revenue (No. L-26284, 144 SCRA 664 [1986]) the Supreme Court observed that there is no rigid rule or fixed formula by which it can be determined with finality whether property sold by a taxpayer was held primarily for sale to customers in the ordinary course of his trade or business or whether it was sold as a capital asset. It also stated that a property initially classified as a capital asset may thereafter be treated as an ordinary asset if a combination of the factors indubitably tend to show that the activity was in furtherance of or in the course of the taxpayer's trade or business. Clearly, those pronouncements are predicated on the fact that the taxpayer is primarily engaged in selling properties to customers. In that capacity, the taxpayer holds assets that may either be considered as capital assets or ordinary assets for purposes of taxation depending on whether or not properties sold are part of those included among the assets involved in the main business of taxpayer in which case those properties are "ordinary assets," otherwise they are "capital assets." It is for this reason that no fixed rule or formula can be set down to classify them. In petitioner's case, it is a trust which was received by the Roman Catholic Archbishop of Manila over some ricelands in Pasig on the condition that the income from these ricelands would be used to maintain a chapel and other religious activities and to pay the salary of a catechist, for which purposes it had to, as it did, develop, lease or sell its landholdings to generate income in compliance with the aforesaid undertaking stipulated in the deed of donation. The petitioner, in short, was not constituted or created to hold those lands primarily for sale to customers in the ordinary course of its trade or business. We rule therefore that the parcels of land sold by petitioner are capital assets and only 50% of the gains realized therefrom are subject to tax. WHEREFORE, the Resolution appealed from is hereby SET ASIDE and petitioner Obra Pia de Pasig-Sadyang Hari represented by the Roman Catholic Archbishop of Manila is hereby ordered to immediately pay respondent Commissioner of Internal Revenue its deficiency tax for 1976 in the amount based on the capital gains said petitioner realized in that taxable year. SO ORDERED. Barcelona and Tuquero, JJ . , concur.