Republic of the Philippines SUPREME COURT Manila FIRST DIVISION

&ontestin$ the denial of its protest, the #M&' filed a petition for revie" at the &ourt of Ta. 'ppeals (&T') on March 3=, 3424. In due course, the &T' issued this rulin$ in favor of the #M&'? . . . @TAhe leasin$ of @private respondent%sA facilities to s all shop o"ners, to restaurant and canteen operators and the operation of the par<in$ lot are reasonabl! incidental to and reasonabl! necessar! for the acco plish ent of the ob-ectives of the @private respondentsA. It appears fro the testi onies of the "itnesses for the @private respondentA particularl! Mr. >a es &. Delote, for er accountant of #M&', that these facilities "ere leased to e bers and that the! have to service the needs of its e bers and their $uests. The rentals "ere ini al as for e.a ple, the barbershop "as onl! char$ed P899 per onth. Be also testified that there "as actuall! no lot devoted for par<in$ space but the par<in$ "as done at the sides of the buildin$. The par<in$ "as pri aril! for e bers "ith stic<ers on the "indshields of their cars and the! char$ed P.59 for non, e bers. The rentals and par<in$ fees "ere -ust enou$h to cover the costs of operation and aintenance onl!. The earnin$@sA fro these rentals and par<in$ char$es includin$ those fro lod$in$ and other char$es for the use of the recreational facilities constitute @theA bul< of its inco e "hich @isA channeled to support its an! activities and attain ent of its ob-ectives. 's pointed out earlier, the e bership dues are ver! insufficient to support its pro$ra . Ce find it reasonabl! necessar! therefore for @private respondentA to a<e @theA ost out @ofA its e.istin$ facilities to earn so e inco e. It "ould have been different if under the circu stances, @private respondentA "ill purchase a lot and convert it to a par<in$ lot to cater to the needs of the $eneral public for a fee, or construct a buildin$ and lease it out to the hi$hest bidder or at the ar<et rate for co ercial purposes, or should it invest its funds in the bu! and sell of properties, real or personal. Dnder these circu stances, "e could conclude that the activities are alread! profit oriented, not incidental and reasonabl! necessar! to the pursuit of the ob-ectives of the association and therefore, "ill fall under the last para$raph of Section 1: of the Ta. &ode and an! inco e derived therefro shall be ta.able. &onsiderin$ our findin$s that @private respondentA "as not en$a$ed in the business of operatin$ or contractin$ @aA par<in$ lot, "e find no le$al basis also for the i position of @aA deficienc! fi.ed ta. and @aA contractor%s ta. in the a ount@sA of P858.35 and P8,314.:8, respectivel!. ... ... ... CBEREFORE, in vie" of all the fore$oin$, the follo"in$ assess ents are hereb! dis issed for lac< of erit? 3429 Deficienc! Fi.ed Ta. * P858,35F 3429 Deficienc! &ontractor%s Ta. * P8,314.18F 3429 Deficienc! Inco e Ta. * P8:1,5:2.19.

G.R. No. 124043 October 14, 1998 COMMISSIONER OF INTERNAL RE ENUE, petitioner, vs. COURT OF APPEALS, COURT OF TA! APPEALS "#$ %OUNG MEN&S C'RISTIAN ASSOCIATION OF T'E P'ILIPPINES, INC., respondents.

PANGANI(AN, J.: Is the inco e derived fro rentals of real propert! o"ned b! the #oun$ Men%s &hristian 'ssociation of the Philippines, Inc. (#M&') * established as +a "elfare, educational and charitable non,profit corporation+ * sub-ect to inco e ta. under the National Internal Revenue &ode (NIR&) and the &onstitution/ The Case This is the ain 0uestion raised before us in this petition for revie" on certiorari challen$in$ t"o Resolutions issued b! the &ourt of 'ppeals 1 on Septe ber 12, 3445 2 and Februar! 14, 3446 3 in &',7R SP No. 8199:. ;oth Resolutions affir ed the Decision of the &ourt of Ta. 'ppeals (&T') allo"in$ the #M&' to clai ta. e.e ption on the latter%s inco e fro the lease of its real propert!. The Facts The facts are undisputed. 4 Private Respondent #M&' is a non,stoc<, non,profit institution, "hich conducts various pro$ra s and activities that are beneficial to the public, especiall! the !oun$ people, pursuant to its reli$ious, educational and charitable ob-ectives. In 3429, private respondent earned, a on$ others, an inco e of P6:6,214.29 fro leasin$ out a portion of its pre ises to s all shop o"ners, li<e restaurants and canteen operators, and P==,154.99 fro par<in$ fees collected fro non, e bers. On >ul! 1, 342=, the co issioner of internal revenue (&IR) issued an assess ent to private respondent, in the total a ount of P=35,635.93 includin$ surchar$e and interest, for deficienc! inco e ta., deficienc! e.panded "ithholdin$ ta.es on rentals and professional fees and deficienc! "ithholdin$ ta. on "a$es. Private respondent for all! protested the assess ent and, as a supple ent to its basic protest, filed a letter dated October 2, 3425. In repl!, the &IR denied the clai s of #M&'.

Chile the follo"in$ assess ents are hereb! sustained? 3429 Deficienc! E.panded Cithholdin$ Ta. * P3,:42.48F 3429 Deficienc! Cithholdin$ Ta. on Ca$es * P88,952.21 plus 39G surchar$e and 19G interest per annu fro >ul! 1, 342= until full! paid but not to e.ceed three (8) !ears pursuant to Section 53(e)(1) H (8) of the National Internal Revenue &ode effective as of 342=. ) Dissatisfied "ith the &T' rulin$, the &IR elevated the case to the &ourt of 'ppeals (&'). In its Decision of Februar! 36, 344=, the &' * initiall! decided in favor of the &IR and disposed of the appeal in the follo"in$ anner? Follo"in$ the rulin$ in the afore,cited cases of Province of Abra vs. Hernando and Abra Valley College Inc. vs. Aquino, the rulin$ of the respondent &ourt of Ta. 'ppeals that +the leasin$ of petitioner%s (herein respondent%s) facilities to s all shop o"ners, to restaurant and canteen operators and the operation of the par<in$ lot are reasonabl! incidental to and reasonabl! necessar! for the acco plish ent of the ob-ectives of the petitioners, and the inco e derived therefro are ta. e.e pt, ust be reversed. CBEREFORE, the appealed decision is hereb! REVERSED in so far as it dis issed the assess ent for? 3429 Deficienc! Inco e Ta. P 858.35

Findin$ erit in the Motion for Reconsideration filed b! the #M&', the &' reversed itself and pro ul$ated on Septe ber 12, 3445 its first assailed Resolution "hich, in part, reads? The &ourt cannot depart fro the &T'%s findin$s of fact, as the! are supported b! evidence be!ond "hat is considered as substantial. ... ... ... The second $round raised is that the respondent &T' did not err in sa!in$ that the rental fro s all shops and par<in$ fees do not result in the loss of the e.e ption. Not even the petitioner "ould haIard the su$$estion that #M&' is desi$ned for profit. &onse0uentl!, the little inco e fro s all shops and par<in$ fees help@sA to <eep its head above the "ater, so to spea<, and allo" it to continue "ith its laudable "or<. The &ourt, therefore, finds the second $round of the otion to be eritorious and in accord "ith la" and -urisprudence. CBEREFORE, the otion for reconsideration is 7R'NTEDF the respondent &T'%s decision is 'FFIRMED in toto. 9 The internal revenue co issioner%s o"n Motion for Reconsideration "as denied b! Respondent &ourt in its second assailed Resolution of Februar! 14, 3446. Bence, this petition for revie" under Rule =5 of the Rules of &ourt. 10 The Issues ;efore us, petitioner i putes to the &ourt of 'ppeals the follo"in$ errors?

3429 Deficienc! &ontractor%s Ta. P 8,314.18, H I 3429 Deficienc! Inco e Ta. P 8:1,5:2.19 but the sa e is 'FFIRMED in all other respect. + '$$rieved, the #M&' as<ed for reconsideration based on the follo"in$ $rounds? I The findin$s of facts of the Public Respondent &ourt of Ta. 'ppeals bein$ supported b! substantial evidence @areA final and conclusive. II The petition is eritorious. The conclusions of la" of @pAublic @rAespondent e.e ptin$ @pArivate @rAespondent fro the inco e on rentals of s all shops and par<in$ fees @areA in accord "ith the applicable la" and -urisprudence. 8 First Issue Factual Findings of the CTA In holdin$ that it had departed fro the findin$s of fact of Respondent &ourt of Ta. 'ppeals "hen it rendered its Decision dated Februar! 36, 344=F and II In affir in$ the conclusion of Respondent &ourt of Ta. 'ppeals that the inco e of private respondent fro rentals of s all shops and par<in$ fees @isA e.e pt fro ta.ation. 11 This Court's Ruling

Private respondent contends that the Februar! 36, 344= &' Decision reversed the factual findin$s of the &T'. On the other hand, petitioner ar$ues that the &' erel! reversed the +ruling of the &T' that the leasin$ of private respondent%s facilities to s all shop o"ners, to restaurant and canteen operators and the operation of par<in$ lots are reasonabl! incidental to and reasonabl! necessar! for the acco plish ent of the ob-ectives of the private respondent and that the inco e derived therefro are ta. e.e pt.+ 12 Petitioner insists that "hat the appellate court reversed "as the le$al conclusion, not the factual finding, of the &T'. 13 The co issioner has a point. Indeed, it is a basic rule in ta.ation that the factual findin$s of the &T', "hen supported b! substantial evidence, "ill be disturbed on appeal unless it is sho"n that the said court co itted $ross error in the appreciation of facts.14 In the present case, this &ourt finds that the Februar! 36, 344= Decision of the &' did not deviate fro this rule. The latter erel! applied the la" to the facts as found b! the &T' and ruled on the issue raised b! the &IR? +Chether or not the collection or earnin$s of rental inco e fro the lease of certain pre ises and inco e earned fro par<in$ fees shall fall under the last para$raph of Section 1: of the National Internal Revenue &ode of 34::, as a ended.+ 1) &learl!, the &' did not alter an! fact or evidence. It erel! resolved the afore entioned issue, as indeed it "as e.pected to. That it did so in a anner different fro that of the &T' did not necessaril! i pl! a reversal of factual findin$s. The distinction bet"een a 0uestion of la" and a 0uestion of fact is clear,cut. It has been held that +@tAhere is a 0uestion of la" in a $iven case "hen the doubt or difference arises as to "hat the la" is on a certain state of factsF there is a 0uestion of fact "hen the doubt or difference arises as to the truth or falsehood of alle$ed facts.+ 1* In the present case, the &' did not doubt, uch less chan$e, the facts narrated b! the &T'. It erel! applied the la" to the facts. That its interpretation or conclusion is different fro that of the &T' is not irre$ular or abnor al. !econd Issue Is the Rental Inco"e of the #$CA Ta%able& Ce no" co e to the crucial issue? Is the rental inco e of the #M&' fro its real estate sub-ect to ta./ 't the outset, "e set forth the relevant provision of the NIR&? Sec. 1:. '%e"(tions fro" ta% on cor(orations. * The follo"in$ or$aniIations shall not be ta.ed under this Title in respect to inco e received b! the as such * ... ... ... ($) &ivic lea$ue or or$aniIation not or$aniIed for profit but operated e.clusivel! for the pro otion of social "elfareF (h) &lub or$aniIed and operated e.clusivel! for pleasure, recreation, and other non,profitable purposes, no part of the net inco e of "hich inures to the benefit of an! private stoc<holder or e berF ... ... ...

Not"ithstandin$ the provisions in the precedin$ para$raphs, the inco e of "hatever <ind and character of the fore$oin$ or$aniIations fro an! of their properties, real or personal, or fro an! of their activities conducted for profit, re$ardless of the disposition ade of such inco e, shall be sub-ect to the ta. i posed under this &ode. (as a ended b! Pres. Decree No. 3=5:) Petitioner ar$ues that "hile the inco e received b! the or$aniIations enu erated in Section 1: (no" Section 16) of the NIR& is, as a rule, e.e pted fro the pa! ent of ta. +in respect to inco e received b! the as such,+ the e.e ption does not appl! to inco e derived +. . . fro an! of their properties, real or personal, or fro an! of their activities conducted for profit, re$ardless of the disposition ade of such inco e . . . .+ Petitioner adds that +rental inco e derived b! a ta.,e.e pt or$aniIation fro the lease of its properties, real or personal, @isA not, therefore, e.e pt fro inco e ta.ation, even if such inco e @isA e.clusivel! used for the acco plish ent of its ob-ectives.+ 1+ Ce a$ree "ith the co issioner. ;ecause ta.es are the lifeblood of the nation, the &ourt has al"a!s applied the doctrine of strict in interpretation in construin$ ta. e.e ptions. 18 Further ore, a clai of statutor! e.e ption fro ta.ation should be anifest. and un ista<able fro the lan$ua$e of the la" on "hich it is based. Thus, the clai ed e.e ption + ust e.pressl! be $ranted in a statute stated in a lan$ua$e too clear to be ista<en.+ 19 In the instant case, the e.e ption clai ed b! the #M&' is e.pressl! disallo"ed b! the ver! "ordin$ of the last para$raph of then Section 1: of the NIR& "hich andates that the inco e of e.e pt or$aniIations (such as the #M&') fro an! of their properties, real or personal, be sub-ect to the ta. i posed b! the sa e &ode. ;ecause the last para$raph of said section une0uivocall! sub-ects to ta. the rent inco e of the #M&' fro its real propert!, 20 the &ourt is dut!,bound to abide strictl! b! its literal eanin$ and to refrain fro resortin$ to an! convoluted atte pt at construction. It is a.io atic that "here the lan$ua$e of the la" is clear and una bi$uous, its e.press ter s ust be applied. 21Parentheticall!, a consideration of the 0uestion of construction ust not even be$in, particularl! "hen such 0uestion is on "hether to appl! a strict construction or a liberal one on statutes that $rant ta. e.e ptions to +reli$ious, charitable and educational propert@iesA or institutions.+ 22 The last para$raph of Section 1:, the #M&' ar$ues, should be +sub-ect to the 0ualification that the inco e fro the properties ust arise fro activities %conducted for profit% before it a! be considered ta.able.+ 23 This ar$u ent is erroneous. 's previousl! stated, a readin$ of said para$raph ineludibl! sho"s that the inco e fro an! propert! of e.e pt or$aniIations, as "ell as that arisin$ fro an! activit! it conducts for profit, is ta.able. The phrase +an! of their activities conducted for profit+ does not 0ualif! the "ord +properties.+ This a<es fro the propert! of the or$aniIation ta.able, re$ardless of ho" that inco e is used * "hether for profit or for loft! non, profit purposes. Verba legis non est recedendu". Bence, Respondent &ourt of 'ppeals co itted reversible error "hen it allo"ed, on reconsideration, the ta. e.e ption clai ed b! #M&' on inco e it derived fro rentin$ out its real propert!, on the solitar! but unconvincin$ $round that the said inco e is not collected for profit but is erel! incidental to its operation. The la" does not a<e a

distinction. The rental inco e is ta.able re$ardless of "hence such inco e is derived and ho" it is used or disposed of. Chere the la" does not distin$uish, neither should "e. Constitutional Provisions )n Ta%ation Invo<in$ not onl! the NIR& but also the funda ental la", private respondent sub its that 'rticle VI, Section 12 of par. 8 of the 342: &onstitution, 24 e.e pts +charitable institutions+ fro the pa! ent not onl! of propert! ta.es but also of inco e ta. fro an! source. 2) In support of its novel theor!, it co pares the use of the "ords +charitable institutions,+ +actuall!+ and +directl!+ in the 34:8 and the 342: &onstitutions, on the one handF and in 'rticle VI, Section 11, par. 8 of the 3485 &onstitution, on the other hand. 2* Private respondent enunciates three points. First, the present provision is divisible into t"o cate$ories? (3) +@cAharitable institutions, churches and parsona$es or convents appurtenant thereto, os0ues and non,profit ce eteries,+ the inco es of "hich are, fro "hatever source, all ta.,e.e ptF 2+ and (1) +@aAll lands, buildin$s and i prove ents actuall! and directl! used for reli$ious, charitable or educational purposes,+ "hich are e.e pt onl! fro propert! ta.es. 28 !econd* +ladoc v. Co""issioner of Internal Revenue , 29 "hich li ited the e.e ption onl! to the pa! ent of propert! ta.es, referred to the provision of the 3485 &onstitution and not to its counterparts in the 34:8 and the 342: &onstitutions. 30 Third, the phrase +actuall!, directl! and e.clusivel! used for reli$ious, charitable or educational purposes+ refers not onl! to +all lands, buildin$s and i prove ents,+ but also to the above,0uoted first cate$or! "hich includes charitable institutions li<e the private respondent. 31 The &ourt is not persuaded. The debates, interpellations and e.pressions of opinion of the fra ers of the &onstitution reveal their intent "hich, in turn, a! have $uided the people in ratif!in$ the &harter. 32 Such intent ust be effectuated. 'ccordin$l!, >ustice Bilario 7. Davide, >r., a for er constitutional co issioner, "ho is no" a e ber of this &ourt, stressed durin$ the &onco debates that +. . . "hat is e.e pted is not the institution itself . . .F those e.e pted fro real estate ta.es are lands, buildin$s and i prove ents actuall!, directl! and e.clusivel! used for reli$ious, charitable or educational purposes.+ 33 Father >oa0uin 7. ;ernas, an e inent authorit! on the &onstitution and also a e ber of the &onco , adhered to the sa e vie" that the e.e ption created b! said provision pertained onl! to propert! ta.es.34 In his treatise on ta.ation, Mr. >ustice >ose &. Vitu$ concurs, statin$ that +@tAhe ta. e.e ption covers (ro(erty ta.es onl!.+ 3) Indeed, the inco e ta. e.e ption clai ed b! private respondent finds no basis in 'rticle VI, Section 16, par. 8 of the &onstitution. Private respondent also invo<es 'rticle JIV, Section =, par. 8 of the &haracter, 3* clai in$ that the #M&' +is a non,stoc<, non,profit educational institution "hose revenues and assets are used actuall!, directl! and e.clusivel! for educational purposes so it is e.e pt fro ta.es on its properties and inco e.+ 3+ Ce reiterate that private respondent is e.e pt fro the pa! ent of propert! ta., but not inco e ta. on the rentals fro its propert!. The bare alle$ation alone that it is a non,stoc<, non,profit educational institution is insufficient to -ustif! its e.e ption fro the pa! ent of inco e ta..

's previousl! discussed, la"s allo"in$ ta. e.e ption are construed strictissi"i ,uris. Bence, for the #M&' to be $ranted the e.e ption it clai s under the aforecited provision, it ust prove "ith substantial evidence that (3) it falls under the classification non-stoc.* non-(rofit educational institutionF and (1) the inco e it see<s to be e.e pted fro ta.ation is used actually* directly* and e%clusively for educational (ur(oses. Bo"ever, the &ourt notes that not a scintilla of evidence "as sub itted b! private respondent to prove that it et the said re0uisites. Is the #M&' an educational institution "ithin the purvie" of 'rticle JIV, Section =, par. 8 of the &onstitution/ Ce rule that it is not. The ter +educational institution+ or +institution of learnin$+ has ac0uired a "ell,<no"n technical eanin$, of "hich the e bers of the &onstitutional &o ission are dee ed co$niIant. 38 Dnder the Education 'ct of 3421, such ter refers to schools. 39 The school s!ste is s!non! ous "ith for al education, 40 "hich +refers to the hierarchicall! structured and chronolo$icall! $raded learnin$s or$aniIed and provided b! the for al school s!ste and for "hich certification is re0uired in order for the learner to pro$ress throu$h the $rades or ove to the hi$her levels.+ 41 The &ourt has e.a ined the +' ended 'rticles of Incorporation+ and +;!,Ka"s+ 43of the #M&', but found nothin$ in the that even hints that it is a school or an educational institution. 44 Further ore, under the Education 'ct of 3421, even non,for al education is understood to be school,based and +private auspices such as foundations and civic,spirited or$aniIations+ are ruled out. 4) It is settled that the ter +educational institution,+ "hen used in la"s $rantin$ ta. e.e ptions, refers to a +. . . school se inar!, colle$e or educational establish ent . . . .+ 4* Therefore, the private respondent cannot be dee ed one of the educational institutions covered b! the constitutional provision under consideration. . . . Cords used in the &onstitution are to be ta<en in their ordinar! acceptation. Chile in its broadest and best sense education e braces all for s and phases of instruction, i prove ent and develop ent of ind and bod!, and as "ell of reli$ious and oral senti ents, !et in the co on understandin$ and application it eans a place "here s!ste atic instruction in an! or all of the useful branches of learnin$ is $iven b! ethods co on to schools and institutions of learnin$. That "e conceive to be the true intent and scope of the ter @educational institutions,A as used in the &onstitution. 4+ Moreover, "ithout concedin$ that Private Respondent #M&' is an educational institution, the &ourt also notes that the for er did not sub it proof of the proportionate a ount of the sub-ect inco e that "as actuall!, directl! and e.clusivel! used for educational purposes. 'rticle JIII, Section 5 of the #M&' b!,la"s, "hich for ed part of the evidence sub itted, is patentl! insufficient, since the sa e erel! si$nified that +@tAhe net inco e derived fro the rentals of the co ercial buildin$s shall be apportioned to the Federation and Me ber 'ssociations as the National ;oard a! decide.+ 48 In su , "e find no basis for $rantin$ the #M&' e.e ption fro inco e ta. under the constitutional provision invo<ed. Cases Cited by Private Res(ondent Ina((licable

The cases 49 relied on b! private respondent do not support its cause. #$CA of $anila v. Collector of Internal Revenue )0 and Abra Valley College* Inc. v. Aquino )1 are not applicable, because the controvers! in both cases involved e.e ption fro the pa! ent of propert! ta., not inco e ta.. Hos(ital de !an /uan de 0ios* Inc. v. Pasay City )2 is not in point either, because it involves a clai for e.e ption fro the pa! ent of re$ulator! fees, specificall! electrical inspection fees, i posed b! an ordinance of Pasa! &it! * an issue not at all related to that involved in a clai ed e.e ption fro the pa! ent of inco e ta.es i posed on propert! leases. In /esus !acred Heart College v. Co". of Internal Revenue , )3 the part! therein, "hich clai ed an e.e ption fro the pa! ent of inco e ta., "as an educational institution "hich sub itted substantial evidence that the inco e sub-ect of the controvers! had been devoted or used solel! for educational purposes. On the other hand, the private respondent in the present case has not $iven an! proof that it is an educational institution, or that part of its rent inco e is actuall!, directl! and e.clusivel! used for educational purposes. '(ilogue In deliberatin$ on this petition, the &ourt e.presses its s! path! "ith private respondent. It appreciates the nobilit! of its cause. Bo"ever, the &ourt%s po"er and function are li ited erel! to appl!in$ the la" fairl! and ob-ectivel!. It cannot chan$e the la" or bend it to suit its s! pathies and appreciations. Other"ise, it "ould be overspillin$ its role and invadin$ the real of le$islation. Ce concede that private respondent deserves the help and the encoura$e ent of the $overn ent. It needs la"s that can facilitate, and not frustrate, its hu anitarian tas<s. ;ut the &ourt re$rets that, $iven its li ited constitutional authorit!, it cannot rule on the "isdo or propriet! of le$islation. That prero$ative belon$s to the political depart ents of $overn ent. Indeed, so e of the e bers of the &ourt a! even believe in the "isdo and prudence of $rantin$ ore ta. e.e ptions to private respondent. ;ut such belief, ho"ever "ell, eanin$ and sincere, cannot besto" upon the &ourt the po"er to chan$e or a end the la". CBEREFORE, the petition is 7R'NTED. The Resolutions of the &ourt of 'ppeals dated Septe ber 12, 3445 and Februar! 14, 3446 are hereb! REVERSED and SET 'SIDE. The Decision of the &ourt of 'ppeals dated Februar! 36, 3445 is REINST'TED, insofar as it ruled that the inco e derived b! petitioner fro rentals of its real propert! is sub-ect to inco e ta.. No pronounce ent as to costs. SO ORDERED. 0avide* /r.* Vitug and 1uisu"bing* //.* concur. 2ellosillo* /.* Please see 0issenting )(inion.