LUNG CENTER OF THE PHILIPPINES vs.

QUEZON CITY
(Case digested by: Jeremy M. Tuburan)
FACTS:
The Lung Center of the Philippines is a non-stock and non-profit entity that owns a parcel of land located at Quezon
City in the middle of which a hospital is erected. The ground floor of the said hospital is being leased to private individuals for
small business purposes and to medical or professional practitioners for the establishment of private clinics. A large portion of
the entire area is also being leased to a private enterprise for commercial purposes.
On June 7, 1993, both its land and the hospital building were assessed for real property taxes in the amount
of P4,554,860 by the City Assessor of Quezon City. Hence, tax declarations were respectively issued for the land and the
hospital building. On August 25, 1993, the petitioner filed a claim for exemption from real property taxes with the City
Assessor, predicated on its claim that it is a charitable institution, but the same was denied.
Hence, it filed a petition before the Local Board of Assessment Appeals of Quezon City (QC-LBAA) for the reversal of
the City Assessors resolution averring that a minimum of 60% of its hospital beds are exclusively used for charity patients and
that the major thrust of its hospital operation is to serve charity patients. The QC-LBAA, however, dismissed the petition that
was later affirmed on appeal by the Central Board of Assessment Appeals of Quezon City (CBAA). The decision ruled that the
petitioner was not a charitable institution and that its real properties were not actually, directly and exclusively used for
charitable purposes; hence, it was not entitled to real property tax exemption under the constitution and the law.
The petitioner sought relief from the Court of Appeals but did not get a reversal of decision. Hence, it filed petition to
the Supreme Court via petition for review on certiorari under Rule 45 of the Rules of Court averring that it is a charitable
institution whose character is not altered by the fact that it admits paying patients and renders medical services to them,
leases portions of the land to private parties, and rents out portions of the hospital to private medical practitioners from which it
derives income to be used for operational expenses.
ISSUES:

Whether or not the petitioner is a charitable institution within the context of the Constitution

Whether or not the real properties of the petitioner are exempt from real property taxes

RULING:
On the first issue, the Supreme Court held that the petitioner is a charitable institution under the Constitution. To
determine whether an enterprise is a charitable entity or not, the elements which should be considered include the statute
creating the enterprise, its corporate purposes, its constitution and by-laws, the methods of administration, the nature of the
actual work performed, the character of the services rendered, the indefiniteness of the beneficiaries, and the use and
occupation of the properties.
Under P.D. No. 1823, the petitioner is declared to be a non-profit and non-stock corporation which was organized for
the welfare and benefit of the Filipino people principally to help combat the high incidence of lung and pulmonary diseases in
the Philippines.

As a general principle, a charitable institution does not lose its character as such and its exemption from taxes simply
because it derives income from paying patients, whether out-patient, or confined in the hospital, or receives subsidies from the
government, so long as the money received is devoted or used altogether to the charitable object which it is intended to
achieve; and no money inures to the private benefit of the persons managing or operating the institution.
Anent the second issue, even as the Court found that the petitioner is a charitable institution, those portions of its real
property that are leased to private entities are not exempt from real property taxes as these are not actually, directly and
exclusively used for charitable purposes.
The settled rule is that laws granting exemption from tax are construed strictissimi juris against the taxpayer and
liberally in favor of the taxing power. Taxation is the rule and exemption is the exception. The effect of an exemption is
equivalent to an appropriation. Hence, a claim for exemption from tax payments must be clearly shown and based on
language in the law too plain to be mistaken.
Hence, the petition was partially granted.
COMMISSIONER OF INTERNAL REVENUE vs. SOLIDBANK CORPORATION
(Case digested by: Jeremy M. Tuburan)
FACTS:
For the year 1995, Solidbank Corporation filed its Quarterly Percentage Tax Returns reflecting gross receipts in the
total amount of P1,474,691,693.44 with corresponding gross receipts tax payments in the sum of P73,734,584.60. It alleged
that the total gross receipts included the sum of P350,807,875.15 representing gross receipts from passive income which was
already subjected to 20% final withholding tax.
On January 30, 1996, the Court of Tax Appeals rendered a decision in a case entitled Asian Bank Corporation vs.
Commissioner of Internal Revenue wherein it was held that the 20% final withholding tax on banks interest income should not
form part of its taxable gross receipts for purposes of computing the gross receipts tax. On the strength of this decision,
respondent subsequently filed with the BIR a letter-request for the refund or issuance of a tax credit certificate in the
aggregate amount of P3,508,078.75, representing allegedly overpaid gross receipts tax for the year 1995.
The petitioner, on the same day the letter request was presented to the BIR, filed a petition for review with the Court
of Tax Appeals in order to toll the running of the two-year prescriptive period to judicially claim for the refund of any overpaid
internal revenue tax.
After trial on the merits, the Court of Tax Appeals rendered its decision ordering the petitioner to refund in favor of the
respondent the reduced amount of P1,555,749.65 as overpaid gross receipts tax for the year 1995. This decision was based
on its earlier pronouncement in holding that the 20% final withholding tax on banks interest income should not form part of its
taxable gross receipts for purposes of computing the gross receipts tax.
The CA held that the 20% FWT on banks interest income did not form part of the taxable gross receipts in computing
the 5% GRT, because the FWT was not actually received by the bank but was directly remitted to the government.
ISSUE:
Whether or not the 20% final withholding tax on banks interest income forms part of the taxable gross receipts in
computing the 5% gross receipts tax
RULING:
The petition was granted. Like in China Banking Corporation v. CA, the Court held that the amount of interest income
withheld in payment of the 20% FWT forms part of gross receipts in computing for the GRT on banks.
Although the 20% FWT on respondents interest income was not actually received by the respondent because it was
remitted directly to the government, the fact that the amount redounded to the banks benefit makes it part of the taxable gross
receipts in computing the 5% GRT. Article 531 of the Civil Code clearly provides that the acquisition of the right of possession
is through the proper acts and legal formalities established therefor. The withholding process is one such act. There may not
be actual receipt of the income withheld; however, as provided for in Article 532, possession by any person without any power
whatsoever shall be considered as acquired when ratified by the person in whose name the act of possession is executed.

On the defendants contention that even if there is constructive receipt, it is Section 4(e) of Revenue Regulations 1280 that nevertheless governs the situation, the Court resolved against its application as the same was impliedly repealed by
the later Revenue Regulation 17-84. While Section 4(e) of Revenue Regulations 12-80 provided that the tax rates to be
imposed on the gross receipts of banks, non-bank financial intermediaries, financing companies, and other non-bank financial
intermediaries not performing quasi-banking activities shall be based on all items of income actually received, RR 17 84 no
longer restated such. Clearly therefore, this particular provision was impliedly repealed when the latter regulations took effect.
On the double taxation issue, the Court explained that the existence of the same requires that two taxes must be
imposed on the same subject matter, for the same purpose, by the same taxing authority, within the same jurisdiction, during the
same taxing period; and they must be of the same kind or character. In the present case, the taxes imposed were on two different
subject matters. The subject matter of the FWT is the passive income generated in the form of interest on deposits and yield
on deposit substitutes, while the subject matter of the GRT is the privilege of engaging in the business of banking. S econd,
although both taxes are imposed by the same taxing authority, the taxing periods they affect are different. The FWT is
deducted and withheld as soon as the income is earned, and is paid after every calendar quarter in which it is earned. On the
other hand, the GRT is neither deducted nor withheld, but is paid only after every taxable quarter in which it is earned. Third,
these two taxes are of different kinds or characters. The FWT is an income tax subject to withholding, while the GRT is a
percentage tax not subject to withholding.
Hence, there is no double taxation, because there is no taxing twice, by the same taxing authority, within the same
jurisdiction, for the same purpose, in different taxing periods, some of the property in the territory.