Manila Polo Club vs. W Case No, et al.

DECISION

On January 12, 1955, the respondent assessed against the petitioner the sums of 262,635.42 and #70 ,547.82 as income tex for the years 1947 and 1948, respectively, on the income realized by the isetter from the sales of its real property situeted in Pesay City, computed as followss 4247 Petitioner sought a reconsideration of the assessment alleging that it is s social“club which is exempt from income tax under Section 27(h) of the Nau tional Internal Revenue Codes thet it was forced to sell a portion of its real property to the U.S. Azmy, 210 3 oe EEE oO ee ee ay Si

DECISION «

CeTeAs CASE NO. 293 = 2e« which hed previously occupied it incident to its operetions in the Philippines; thet e portion consist. ing of 20,000 square meters wes donated te the Phil. ippine Govezmment; that the rest consisting of 2),f0 square meters was sold to the Monile Yellow Taxicab Coe, the same not being sufficient for its club activie ties$ and thet no pert of the proceeds cf the seles of said property inured te the benefit of any of its members, the same having been used exclusively te ac-~ quire end develop another property in Meketi (Forbes Park) for the pumboses for which the club was organe ized. Petitioner also alleged thet the computetioan of the tax is erroneous becesuse the value of certain improvements and expenses incident to the sales were not taken inte account in determining the profit real- ized from the trensactions. The request for reconsid- eration wes denied on the following groundss "(1) Thet the Menila Polo Club, Inc. is an ¢ club within the p of of because in the trust the comeonre- tion and the trensferors of the lots in ques- tion;

"(3) Thet even if we were to concede ee ee eee oo gene at ized for puzpeses stated in Section ) and is therefore both en athietic and a s0- Ciel club, the income in question should osest in other words, the income oct tic p CeTeoAe CASE NO. 293

DECISION «

is ibs i ce if Tea aft “¢ ail afl Ht s8t*egietees ude aphngh iE

DECISION

CoTeAe CASE NO, 293 4

* ExhBe and

S. podiges 168~1 ree ie tinedae’) .

Meving failed te secure a reconsideration of the decision of respondent, petitioner has appealed to this Court The follovdng issues heve heen raised in this appealt enue Stebhe Ghae antes ocean by peti pC apace aia ONC, aS 2 So- ciel club or an athletic club, is to the income tex on the gain derived by it from the sales of its Pasay property:

<9) Vauthew on net the onal penalty of 50% has been properly imposed; and

(4) Wothes co net the inom tex in sums of 262,695.42 and 970,547.02, es Soapaaad by suiplodinh, 40 Gnuntahs After the filing of respondent's enswer, but before trial, petitioner filed an urgent motion prey- ing thet judgment be rendered “holding that ne income tex is due from the petitioner for the yeers 1947 and and 1946 on the ground thet the right of the teapond- ent to assess ond collect the 4lleged income texes from the petitioner for the seid yeers hes already prescribed under the previsions of Section S1(d) of the National Internel Revenue Code." The motion was denied in our resolution of Aoril 1, 1957, this Court holding « "4 « » that Section S1(d) is a linit-

of the Colles-

Hetional Inte Rev. Code) and net the ' power te collect seid taxes cial -abtion, Tr thie case, ret has not

DBCISICN »

CeToAe CATE MO. 293 made attemt to enforce collection of the tan essessed against peti- Ivy Section Sita) of the Nevenue Code doce ot applye* The motion for reconsideration filed by petitioner was denied on May 10, 1957.

We will now consider the case on the merits. The first issue relates to the classification of peti- tioner es on exempt organdzation under Section 27 of the Revenue Code ~ whether it is oan ethletic club, as contended by respondent, er e secial club, es alleged by petitioner, The pertinent provisions of Section 27 of the Revenue Code read es follewss "SE. 27.

thelfeltoring eemoadsetiens,shelt het be toned under this tle in respect te received by them as such x * x {e) Comperation or asseciation orgen~ ized end operated exclusively for religious, Parograph (e) of Section 27 exempts from income tax orgenizetions or clubs organized and operated exclu~ sively for othletic puzposes, along with religious, 214 aly DECISION o CeoTeAe CASE NO. 298 6.

cheritable, scientific, cultural, and educational orgenizations, no part of the net income of which inures to the benefit of any privete stockholder or individuel, Peragrach (h) also exempts from income tax clubs orgenized end opereted exclusively for pleas- ure, recreation, ond other nonprofiteble purposes, ne pert of the net income of which inures to the benefit of any privete steckholder or member, more commonly denomineted as social clubs.

Under the Pederal Income Tex Law of the United States, there is n@ provision specifically exempting athletic clubs fra» income taxe However, clubs organe ized for the promotion of athletics ond sports of oli kinds solely to provide recrestion ond entertainment of their members are classified es seciel clubs and ‘ @&e exempt from income texe cise asst Setenian'Sart'of arinitie end promete its euhovence and advencement , it is @ *sociel club' within Revenue Act. SSF tal Sal Saks (ene Xho” 5G. ) ® ° Gur lew, however, hos provided for the exemption of athletic clubs es « distinct class apart from social Clube. Is petitioner in this case an athletic club or @ sociel club?

It appears thet petitioner is « non-stock cor poration organized on August 18, 1909 for the purpose of “the maintenence of o club to promote social inter~ course smong men, and to provide a plece for them to meet ond have sociel getherings, recrestion end entere 215

DBOISION «

CeTeAs CASE NO. 293 o 7 « tairment." (Pare Second, A,ticles of Incomporation, Exh. A.) Section 2 of its By-Laws provides: "Sete 2, The object of this Club shali The Siand Shore ial" eaye'Ds seuesinet™” @ polo field and « club house. Club build.

He teciaanteroad haste of tntteatvoant

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of @ Club."

Te enable it to carry cut its objectives, it sequired a percel of land in Pesay under « trust ogreement pro- viding thet “seid land should be used for the puzpose cf encouraging, promoting and developing the game of pole and/or eny and oll other outdoor, amateur ethle- tic sports, games, exercises 8nd pursuits, and the con. ducting, playing and enjoyment thereof, end for any pure peses or uses incidental or convenient thereto, includ. ing a polo end country club, ond/for other ethletic club er clube.”

While the name adopted by petitioner ie "Menils Polo Ciub*®, its ectivities are not limited to the game of polo. Of the 75) members cf the club, only 15 are pele playing members. It has provided facilities for other gemes end sports for the entertsinment ond recrege tion of its members, such as, bowling, badminton, swin- ming, tennis, besebell, volleybell, softbell end parior gomee. It hes also a dancing pavilion for its members.

216 —eEeEOoeo,stC a hrmhlh;, lh

TAs CASE NOs 292

o Be From the evidence of record, it appears to us that the facilities provided by the club to enable its mem bers to participete in ethletic games and sports are designed selely to provide recreation end entertains t to all its members ond not toe develop athictes. / asta vlansdilnce dellrdniailond lie encanta ‘amma sively “for pleasure, recreation, and other non-profit- able puzposes" within the meaning of paregraph (h) of Section 27, and hence 2 social elub. | Dut whether petitioner is an ethletic club or a seciol club is ef little or no significance in the resolution of the question whether it is exempt frem er lishle te the income tex on the gain realized from the sele of its Pasay propertye Let us first consid- er the case from the viewpoint of respondent thet pe- titioner is an sthletic club end thet its exemption is governed by paragraph (e) of Section 27.

As already stated, petitioner was corpelled to seli o substantial portion of ite Pesey property to the U. S&S. Gevezmment because £t was needed by the U.5, Azmyse The remainder become inadequete for its club activities so that it wos deemed necessary to sell or diepose of it at a reasoneble price. A portion was in fect sold to the Manile Yellow Taxicab Ga, and another portion, consisting of about 2 hecteres, wes donated to the Government for use as pork and playgrounds Respondent considers the gain realized by petitioner from the seles es texeble income by virtue of the pro- viso conteined in peregraph (e) of Section 27 “That 217 ub

DECISION «

GeToAe CASE NO. 293 ~9-« the income of whatever kind end character from any of its properties, real or personal, or from ony activi- ty conducted for profit, regardless of the disposition mede of such income, shell be liable to the tax imposed under this Code.* In the case of the Union Ghurch of Monila, a corporetion or essociation orgenized and operated exclusively for religious purposes, « similar ques- tion wes presented, The fects of the case are as fol lowst “(1) The Union Church of Menila is a co on or association organized and exclusi for religious pure poses; it is the of a let situated building and improvements thereon.

2) The immediote vicinity of the church, it is steted, hes ceesed to be a residential district and is fast developing into an area for commerciel establi S ond amusement for a ruling on whether or not the amount which the selling price shall the original coat of anid ea —_——-_ hd SS.

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sede sd WEE, 59% a ~ suits TULLE tal *e9%¢ Se | Hi 33 i rE 2 SaSy88 stb ag Pca ee 300 2 .Hjadindee badige Hei tis . % SHAK j & 2 i r Sear 5 : el val § iti: EB :

3 piss HUE £ ; 3 : Py ; Hei $ CN | 3 alti! TH EE 1 AL ices onal that on ble and ~ li oe come of the plaintiff, it appes the same was used for ca e tiff's religious charit.

DECISION «

CeTshe CASE HO. 293 Tet Z ge s ckeddg dulsecdd ahibhlig eRe ae cele aR ee Pras Teer, LE avi Tafesdeaui ae eG Ec al RUE RRTHES PAW ES a ita — 220 — —— ‘ - ol 2= "Considering the his tory of the personel or in-~ table business pur- vidends, es or businesses ere necessaril Ss ai rofi teom p ¥"Feon,p oe A 7 (2%

DECISION «

C.TeAe CASE NO, 293

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of the correctness of said opinion of the Secretary of Justice es evidenced by his letter deted March 2%, 1% 14 24

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DECISTM! « C.T.Ae CASE ®. 293 e }4 « cordance with the ruling of the ‘Secre- tary of Justice dated Merch 10, 1959."

We cannot perceive ony material difference be~ tween the instant case end that of the Union Church of Manils, the two orgenizations being exempt from incone tax under the seme pexegraph (e) of Section 27, considering petitioner as on athletic club as held by respondent. | Would the result be different /if petitioner is ® sociel club, os insisted by it? @ socie] club sells any of its properties, the toxability of the gain dezived from the sale depends, as 4 rule, upon whether the sele was made es an ineident of its regu- ler setivities or whether it wes mede solely for pro- fit in disregard of its pumposes.

It has been held, sisantiins thet where:a social club © sold « portion of its land which hed become value- less for its purposes and the proceeds used for ine provements ef other parts of the club's property, © the paa@it realized from the sale was exenpt from tax. (Santee Club v. White, supra.) In another case, a golf club was forced to buy « golf course trect, end, + 293

CaTeAs CASE 105 293

15 - | unable to sell the unused portion as a single unit, sold it off gradually in emall percels. The profit derived from the sales of the unused portion of the lend was held exempt from income tax. (Anderson Country Glub, 2 TC 1228.) The exemption is not lost even if the proceeds of the sale were invested and cerned interest pending acquisition of new property, although such interest constituted substentis] part of the club's income. (IT 3302, CB 1939-2, p. 1S, cited in Par. 4396,PM Ped. Texes, 1955, ) In this case, petitioner wes forced to sell a substantial portion of its Passy property becouse it wes needed by the U3. Azmmye As the remaining por- tion was not enough for its puzposes, it had te dis- pose Of the same, ond it was generous enough to de~ nete a portion to the Government for use as paxk and pleyground, The entire proceeds of the sale were used to scquire another property in Meketi and for neces- sory improvements, sil of which ere essential for the accomplishment ef the club’s puxpeses. The digposi- tion of the Pasay property and the ecquisition of the new property in Meketi are undoubtedly not only in- cidentdl but ere necessary te accormplish the puzposes for which the petitioner wes organized. We are, there- fore, of the opinion that the profit derived by peti- tioner ss a social club from the sale of its Pasay property is not subject to income taxe \ Having arrived at the conclusion thet the ine come realized by petitioner from the sale of its Pasay 224 i

DECISION «

C.TeAe CASE MO. 293 = 16 - property, whether it is considered as an athletic club or es a social club, is exempt from income tax, we find it unnecessery to pass upen the other issues raised by the parties.

WHEREPORE, the decision appealed from is ree versed, withovt pronouncement as to coste.

Associate Judge

WE OMCURs .

<<,

Presiding Judge

ate Judge 225 08