Court of Tax Appeals
0CTA Case No. 1988
~I"Ul'IUC OF THE PBILIPPIN~
COURT OF TAX APPE.A.LII
QUEZON CITY
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179
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DRCISIGN
CTA CASE HO, 1988
2
late ©. T. Kang, 50° of the residve
of his Estate was bequeathe! to 0, T,.
ang Geholarship foundation, the said
erensethes being keldé in trust by the
petitioner te be invested in such
wusiness or projeete to be determined
say the > anatiide oF the — that
the ea s © @ proper~
ties efter deducting the expenses of
a¢uinistering the foundation are to
be used for scholarship of whatever
kind as may be determined by the said
Board of Trustees;
3. Theat in compliance with these
a petitioner invested its
in verious companies and sorpo-
retions from which it a ineome
and 4 the corresponding ineome
tax for the years 1969 “1965, ig oA
and 1967 as shown by the inceme tax
returns attached as cee “c", “D",
"TR" and "F* and BIR Officiel Rebel pts
seis teinaeeh juste’ at le Seiah
made ra 2 3
stipvletion ef facts, in the follow
ing emountar
196% o §37,00 OR. Be. 3797890
Asril 19, 1
1965 + 999.00 O.R. No. §400636
30
April th ae
1966 = 1,561.90 0.8. Ba. 087260)
1967 2,615.00 9,R =. . 167
Pa oes * peril 3, 68
&, That @aring the peried fren
196% to 1967, various grants were
given to Sirterent universities,
colleges an¢ gehools threugheut the
Phili 8 whieh provided scholar-
ships to certain deserving students
as shown in the ee “te tenents
of Cash Receipts, Disbursements and
Other Aasets marked ag Annexes “K",
"EL", “H" and “N" ond sade integral’
oe of this joint stipuistion ef
facts;
PRECISION .
CTA CASE BO. 1989
3
5. That in e letter of the
petitioner dated August 20, 1968
ané received by the respantent on
September 3, 1968, petitioner clained
for a refund : gh eons — of .
90 as its income tax paynen
for the years 196% to 1967. ‘40
of the letter dated August 2°, 1
ia hereto attached aa Annex "9" ant
made an saeagees part hereof.
(Mp. 30=31, CRA ree.)
The issues presented te us by the parties
are the following: .
4. Whether or not petitioner's
claim for refuné of income taxes paid
for the years 196% @nd 1965 in the
anounts of °534.0° and 9999.00 ree
spectively, hed prestribed,; and A
2. Whether or not petitioner is
an organisation —— frem income
tax unier “Section 27(k) ef the Tax
Code or ia a trust under ‘eetion 56
of tne same “cde,
f On the first tsave of preseription, ree ’
spendent's contention thet petitioner's elain
for refund ef ineome texes paid for the froers
196% ané 1969 had already preseribed fn accordanee
with Section 395 of the Tax Code ia well teken,.
Petitioner paid its ineome taxzen for the years
196% and 1965 on fpril 19, 1965 and April 1%,
1966 respectively. The instant aetion for refund
was filed with thig Court enly om Yebrusry 26,
196, }
Tt 18 obvious that from the date oc? rayment
of the 195% income tax to the time of the ft ling
DRCICION «
OTA CASE No, 196°
&
of the petition for review with this Court,
three (3) years, ten (10) months and seven (7)
ésys had elapsed, and with regerd to the year
1965, twe (2) years, ten (10) months and twelve
(412) days had elapsed. ‘The rule on this point
is stated by the Supreme Court in this lengvage:
« « « #e@ have repestedly held
that the claim for refund with the
Bureau of Internsl Sevenue ani the
subsequent sppesl te the Court of
Tax Appeals must be filed within
the two-year period, “If, however,
kes time in @e-
ciding the claim, and the period of
= years is about to end, the suit
or proceeding suet be started in the
Court of Tax Appeals before the end
of the two-year period without
ewaiting the decision of the Col-
lector.” «. « « (Comm, of Int. “ev.
Se bie ~ gg or villine COo, Mes et ale,
GR, Mo e Le Qe, Janusry 3 1968.)
Conseqvently, petitioner's claim for refund
of the toxes paid for the years 1964 and 1965
head already preseribed. owever, with regard to
the years 1966 end 1967, petitioner's claim for
refund of the taxes peid for said years is still
within the reglenentary period.
Anent the second issue, petitioner's claim
for refund hinges on ite interpretation that it -
is an exempt orgenizetion under Seetion 27(*)
of the Tax Code which provides:
SMCTION 27.
Suemgpiogetiee.
nfaaiaetions hel oot ‘be taxed
ee See Ee Sap es ee A
DECI£ION «
CTA CAST HO, 198f
come received by them as such -
x x x x x
(x) Corporetion or association
organized for the exclusive purpose
of holding title to property, col-
leeting income therefrom, and turn
ing over the entire smount thereof,
Less ses, to an setion
which itself 3s exempt from the tax
imposed by this Title. (As amended
by sec. 5, Republic Act Mo, #2.)
Responfent, on the other hand, disputes peti-
tioner’s pretension, steting that petitioner is
not a “corporation or association” within the
contemplation of Section 27, but a trust falling
under Section 56 of the Tax Code. Hespondent
_ further urges that even if petitioner vere to
be considered as an orgenization falling under
Section 27 of the Tax Code, still it fails to
meet the essential requisites for tax exemption
under said Seetion 27(k).
In Bok et al vs. NoCaughan, 42 F 2d 618,
Savelving @ similar factoal beckground as the
case at ber, the Court said:
« « » The statute defines the
ineludes sssociations,” and, taking
the dictionary definition an
association es a “union of persons
in 8 company © * * for some perti-
cular 9" we are of the opin-
ion that Congress by thie courrehen-~
sive end inclusive word seant to
ineinde unincorporated bodies con-
stituted by the association of men
— oe
DECISION -
CTA CASE NO. 1988 to carry on some common, charitable or educational por) cot ‘ pressed;
trustees constitute an angostation within the meaning of the as but this trust is a “foundation* in the sceepted sense of that tern. o « © (Underscoring supplied.)
In James Sprunt Benevolent Trust, et al v. Comm. of Internal Revenue, 20 BTA 19, we find the following excerpt The respondent, relying uron yo 2 agen Pe that ee petitioner is nalther a cor poration, community chest, fund or | foundation, but that it is a “trust” and wt Pan. ad ag entitied te exemption under the abovequoted see- tien of the statute. “e are of the opinion thet there is = merit in this contention. dl ind Mertens’ Law of Federal Income Taxation also says the following:
184
DPCISION «
- CTA CASE NO. 1968 Although “trusts” are not ‘specifically referred to, a trust whieh can qualify es a community Federal Ineowe Texetion, Vel. 6, See. 34.16, De 270) We gather from the foregoing suthorities that the comprehensive and all inclusive tern “association” includes trusts when the latter takes the form of an association of men to carry on some common charitable or edueational purpose. ve further gather that a trust sey be exempt frou taxes if its purpose and activities are of the exeupt category. The petitioner is so organised that, although 1t is in the form of « trust, it ia nevertheless an asseeiation of men to carry @8 some Gommon charitable surpose. If its pure pose and activities qualify at for exemption under the terus of Section 27(k) of the Sevenue Code 4t should be entitled toe enjoy the exemption.
Its purpose and .ctivities will shield petitioner from the operation of Section 56 of the Revenue Code governing trust and place it within the pro- teetive confines of Seetion 27(k). It remains then to inquire whether petitioner's purpose and activities are within the orbit of Section 27(k).
185
DECISION «
CTA CASE 80. 1985 8 The purpose end sotivities of petitioner is stated in the W411 in this wiser "3 direct that the ancunt taining to the Foundation abeve- mentioned shell be invested in sueh and/or in such businesses s my Board of Fa pone a shall deter- nine and eernings of the after deducti es of Lea after, mg the , éation; shall be used for seholar- ships of whetever kind as may be deternined by Board of Trustees.
The of ® proviso is te dation in perpetuity, af possible.” ation y e (Page twe. F The same eetivities are — in peti- tioner's memorandum as follows:
Will, the petitiuner was required to invest the funds in such ny and in such besiness as deternine and thet only the earrings of the said properties after ing the expenses of administering the Foundation shall be used for scholarships. This is aetually being Gone by the Soard of Trustees in this ease. In the course of the sduinis- tration ef the preperties of the es- tate as di by the testater they invest eaid estate in several business concerns a8 8 consequence of which the estate cerned income, the perti- euler of which for the in ques- tien ere indicated in the ineone tax ; — (Annexes "C", "DY, "R* end "F").
The Board of Trustees &e * shown in om nexes “£", “L", “N" and "0" whieh is @ recerd of statement of cash receirts and disbursenents of the funis of the Foundation. All that the Board does, 186
DACISION «
CTA CASE MO, 198% ippines and estholic educational inst! ons, 211 of whieh were wen- tioned in Annexes "KK", “L"*, “h" and """ in the form of scholarships to ourt consider the netare of these institutions of » wey take judicisl notice of the fact that they themselves are exempt from income tax.
(Pp. 3=%3 underscoring supplied.)
Petitioner war obviously created not for the exelusive purpose of holding title to property, collecting income therefron, and turning over the entire emount thereof, less expenses, to an organ= izgstion which itself is exempt from the tax imposed by law. The authority of the Trustees {n the Will is to invest in such business or projects as may ve determined by the trustees, bread and varied activities, and to spend for scholarships only the profits thereof. Note that the authority does not prohibit the subsequent sale of eequired assets and their re-investnent, an’ neither does it prohibit the iovertment of profits and income. Wheat it prohibits is the use of the originel assets for scholarship, limi ting the amounts that be used for this purpose to the profits only. | Thus, pursuant to this authority, the
DECTSION
CTA CASF NO, 1988 sh Board of Trustees did » facet invest the eoney of the estate in stocks in several business con- cerns, to wit, Lepanto Consolidated Mining Con- cany, “Nereleo Securities, Philex Mining Corpere- tion, "hiliprine Tobaceo flue Curing and hedry- ing Corporation, San “igvel Corporation, Pook- mart, Ine. ant others. ‘nd it did not use el) the income or erefits from these irnvestmerts for seholarshipes but used only a part thereof, re- investing the rest to increase the assets of the Foundation, es stated in petitioner's “emoranduy,. Under these fuects, it cannot be said that peti- tioner was erested exelusively to held title te property, collecting income thereon, ard turning over the entire amount thereof, lets exnenses, to an organization woich itself is exempt fro texes af orovided in Section 27(%) of the Revenue Code. | In the cease of Nnehe‘s. feach, Inc. Vv. Com, Of Intes Bava, 96 F.(2d) 776, the Court satd:
cored Fine Teseit stadt assets Ls Shag 26 0.9. Osds g 19361%) and es & cor tion “organized Ser ths eombentee of holding title to ito property, ‘collecting ~<a cone and turning over mane on arcant pony Rw oh gg wi lest expenses,“ te an exempt organization. Assuming thet the charitable purpose for which {t was organized may be found from evidence outsi¢e the corporate cher~ ter, the purpose of cresting ‘' «= 188
DECTSION «
1 the petitioner was broader than merely to have it hold title to groperty ané collect income there~ from. it was te operate the tes- tetor's bething beach business, es well as to collect rentals from the houses and garage. "ven if the v letter was within subdivision 14, we 6@ not think the operation of the bathing beach can be so held. this business wes quite extensive. There were 3,000 beth houses to be let to transient bathers; 3+ employees were encaped during the summer; as canny as 6,000 persons sight petronize the besoh om plesarent days: snits and towels were rented; caps, belts and shoes were #old, and restsvrant, soda and candy concessions were given out. In 1931 income from the beach property, exelesive of rentals from the other real estate, was more than 185,000, and exrensec, omitting taxes, ran te near baw ue title” aud “collec ie ret Toy is STrcec Loren truetion of the language of th . egre v. Nanover er worrs Cow, 1 Cire, 92 F.2d 659, Is dn point as to the non- direct availability of the exenption of sectior 103114). That case involved @ water comrany, whose capital stoc) was owred by a college and a village, both of which were exenpt fron ineme tex. In cooving exemption to the he cou water compeny, rt said (92 F, 2d 699), at pare 661): “The powers ranted’ by its charter ané the acts done umier them diselose that it was authorized to encage an! en- gered in business sctivities like any domertic business ps tee — a water works p for * eel J.
maraoge. ne supp] EO Ll [ee SS DECTSIO"! - CTA CAGE NL. 1902 12 92 ¥.2d 659, the Court said:
furthermore the te poration —~ not fall within ae provisions ah at xemption statute (seetion 193/14%/) for it was not . or for the purpose “a ecol- leeting and paying over ite entire income, less expenses, to an organ- lzetion exempt from naying an inconse inftnst did oot uey over Again, in the ease of Devenpert Foundation, TC Merc. On. Bet. 10427 (Dee. 2%, 1947), it was held thats e « « 8 BOM-profit corporation to ect as trustee under charitable trusts, was held not to qualify as exempt under Sec. 101 (14) the Code where out of its total ineome of $36,404, only $20,000 was ectually distributed t» corporations or individwals properly clessified as exempt from tax. (Mertens, Law of Federal Income joxation, Vol. 6, Sec. 34.16, pe 274) WISAPPORT, petitioner's claim for refund is hereby denied for lack of nerit. With costs against netitioner.
S30 Wepre.
mezon City, Mey 39, 1979. J Phin HaMOe L. AVANCEDA
Associate Judge
mm CONCURs NOFAR . DALI eee ee od Teton