CASE 3.

4
CIR vs CA, CTA and ATENEO
FACTS:
Ateneos Institute of Philippine Culture (IPC)
- Non-stock, non-profit educational
institution with auxiliary units and
branches all over the Philippines
- Engaged in social science studies of
Philippine society and culture
- Accepts sponsorships for its research
activities from international organizations,
private foundations and government agencies
In 1983, IPC received from CIR a demand letter
assessing it for alleged deficiency contractors
tax and alleged deficiency income tax
- IPC denied said liabilities in a letterprotest and contested the validity of the
assessment with a memorandum sent to the
petitioner.
CIR rendered a letter-decision cancelling the
assessment for deficiency income tax but
modifying the assessment for deficiency
contractors tax by increasing the amount due.
- IPC then requested for a reconsideration or
reinvestigation of the modified assessment.
- But at the same time, filed a petition for
review of the said letter-decision in CTA.
- While the petition was pending, CIR issued a
final decision reducing the assessment for
deficiency contractors tax exclusive of
surcharge and interest.
Five years thereafter, CTA rendered its decision
setting aside CIRs decision, thereby cancelling
the deficiency contractors tax assessment.
CIR then filed with CA, petition for review
- CA affirmed the decision of CTA.

- Hence, CIR sought SC to reverse the

appellate courts decision through a
petition for review filed therewith.
ISSUE:
Whether or not IPC falls under the purview of
independent contractor subject to 3%
contractors tax under Section 205 of the Tax
Code.
RULING:
The SC found the petition unmeritorious.
- SC denied the petition and affirmed in full
the assailed decision
- SC considered the following premises:
1. SC interpreted parts of Section 205 of
the Tax Code germane to the case:
The term independent contractors
include persons not enumerated
therein whose activity consists
essentially of the sale of all kinds
of services for a fee.
The term gross receipts mean all
amounts received by the prime or
principal contractor as the total
contract price.
CIR erred in applying the principles
of tax exemption without first
applying the well-settled doctrine of
strictissimi juris in the imposition
of taxes.
The Commissioner should have
determined first if IPC was covered
by Section 205. Verba legis non est
recedendum because burdens are not to
be imposed beyond what statutes
expressly import.
The hornbook doctrine that tax
exemptions are to be strictly
construed against the taxpayer shall
only come into play after identifying

if the subject falls under Section

205.
The pertinent provision requires that
the independent contractor be engaged
in the business of selling its
services.
The Court found no evidence that
Ateneos IPC ever sold its services
for a fee to anyone or was ever
engaged in a business apart from and
independently of the academic
purposes of the university.
The CTA accurately declared that the
funds received by the IPC are
technically not a fee but donation
which is tax-exempt.
The amounts given to IPC may not be
deemed gross receipts that can be
subjected to the 3% contractors tax
because IPCs transactions cannot be
deemed either as a contract of sale
or a contract of a piece of work.
By the very nature of these
contracts, they require a transfer of
ownership.
Which cannot be found in this case
because Ateneo retained ownership of
the research projects.