TAX EXEMPTION OF NON-STOCK, NON-PROFIT EDUCATIONAL INSTITUTION

ANGELES UNIVERSITY vs. CITY OF ANGELES

G.R. No. 189999, June 27, 2012. VILLARAMA, JR., J.:

FACTS:

Angeles University Foundation (AUF) is an educational institution established

on May 25, 1962 and was converted into a non-stock, non-profit education
foundation under the provisions of Republic Act (R.A.) No. 6055.

In August 2005, AUF filed with the Office of the City Building Official an
application for a building permit for the construction of an 11-storey building of the
Angeles University Foundation Medical Center in its main campus located at
MacArthur Highway, Angeles City, Pampanga. Said office issued a Building Permit
Fee Assessment in the amount of P126,839.20. An order of payment was also issued
by the City Planning and Development Office, Zoning Administration Unit requiring it
to pay the sum of P238,741.64 as locational clearance fee.

However, Angeles University Foundation claimed that it is exempt from the

payment of the building permit and locational clearance fees. It cited legal opinions
rendered by the Department of Justice (DOJ). It also reminded the respondents (City
of Angeles) that they have previously issued building permits acknowledging such
exemption from payment of building permit fees on the construction of petitioners
4-storey AUF Information Technology Center building and the AUF Professional
Schools building on July 27, 2000 and March 15, 2004, respectively.

Consequently, the City Treasurer referred the matter to the Bureau of Local
Government Finance (BLGF) of the Department of Finance, which in turn endorsed
the query to the DOJ. Then Justice Secretary Raul M. Gonzalez cited previous
issuances of his office declaring petitioner to be exempt from the payment of
building permit fees.

Despite the favorable ruling, the Angeles City Building Official still refused to
issue them a building permit; hence, they were forced to pay under protest the
amount demanded by the said Building Official. Only after payments under protest
that AUF was granted building permits and locational clearance.

Because of this, AUF filed a complaint with the RTC for refund of the amount
paid by it, as well as damages and attorneys fees. In their answer, the City Officials
asserted that AUFs claim cannot be granted because its structures were not among
those exempted from the payment of building permit fees under the provision of
Section 209 of the National Building Code. RA 6055 (the law which converted AUF
into a non-stock, non-profit education foundation) should be considered repealed by
provision of Sec. 2104 of the National Building Code. It further affirmed that building
permits are regulatory in nature and not taxes which will exempt AUF from payment
thereof.

AUF on the other hand countered that the fees are being collected on the
basis of the Local Government Code provision on Local Taxation; further, fees may
be taxes depending on the purpose of collection; and that the Local Government
Code expressly retained the exemption of non-stock, non-profit educational
foundations from taxation, hence the fees are not imposable on them.

The Regional Trial Court ruled in favour of AUF, holding that it is exempt from
the payment of building fees, and ordered the city to refund AUFs payments.

On appeal to the Court of Appeals by the City of Angeles, it reversed the

RTCs decision. It held that while AUF is tax free, it is not exempt from the payment
of regulatory fees. Building permits are not included in the definition of charges
mentioned in Sec. 8 of RA 6055 which refers to impositions in the nature of tax,
import duties, assessments and other collections for revenue purposes, following
the ejus dem generis rule. The Court of Appeals further stated that AUF has not
shown that the fees collected were excessive and more than the cost of
surveillance, inspection and regulation. Thus, the Court of Appeals concluded that
petitioner is not entitled to the refund of building permit and related fees, as well as
real property tax it paid under protest.

Hence, AUF filed before the Supreme Court a petition for review on certiorari under
Rule 45 to reverse the ruling of the Court of Appeals.

ISSUE:

Whether or not Angeles University Foundation (AUF) is exempted from paying

building permit and locational clearance fees.

HELD:

NO. Angeles University Foundation (AUF) is not exempted from paying

building permit and locational clearance fees.

The Supreme Court affirmed the ruling of the Court of Appeals (CA) that
Angeles University Foundation is not entitled to a refund for the payment of its
building permit and locational clearance fees as well as real property taxes.

CONTENTION OF AUF: Angeles University Foundation is entitled for a refund

on the ground that the building permit and other fees are really taxes considering
they are used to generate revenue; and Sec. 193 of the Local Government Code of
1991 which provides that non-stock and non-profit educational institutions, such as
itself, are exempt from payment of these types of taxes.
 Such contention is untenable. The Court of Appeals committed no reversible
error in finding Angeles University Foundation liable to pay the protested permit and
fees, since the exemption from payment of regulatory fees was not among the
incentives granted it under RA 6055 (An Act To Provide For The Conversion Of
Educational Institutions From Stock Corporations To Non-Profit Foundations,
Directing The Government Service Insurance System, The Social Security System
And The Development Bank Of The Philippines To Assist In Such Conversion, And For
Other Purposes) when it was promulgated in August 4, 1969 and the Local
Government Code of 1991.

The Court stressed that exemption of other charges to include the payment of
building permits and locational clearance fees as claimed by the Angeles University
Foundation is improper because Sec. 8 of RA 6055 is qualified by the words
imposed by the Government on all property used exclusively for the educational
activities of the foundation. In effect, building fees are not impositions on property
but instead are regulatory impositions on the activity the government
regulates. A charge of a fixed sum is an exercise of police power if the
purpose is primarily to regulate, even though revenue is generated
incidentally. The Court used the case of Chevron Philippines, Inc. vs. Bases
Conversion Development Authority to further explain such. It says: In
distinguishing tax and regulation as a form of police power, the determining factor
is the purpose of the implemented measure. If the purpose is primarily to raise
revenue, then it will be deemed a tax even though the measure results in some
form of regulation. On the other hand, if the purpose is primarily to regulate, then it
is deemed a regulation and an exercise of the police power of the state, even
though incidentally, revenue is generated. Building permit fees are therefore
REGULATORY IMPOSITIONS IN THE EXERCISE OF POLICE POWER AND NOT
TAXES.

The Court also ruled that for exemption from real property tax under Sec.
234(b) of the Local Government Code of 1991 to apply, the real property must
actually, directly, and exclusively used for... educational purposes.

As clarified in Lung Center of the Philippines v. Quezon City, what

is meant by actual, direct, and exclusive use of the property is direct and immediate
and actual application of the property itself to the purpose of which the charitable
institution is organized. The use of the income from the real property is not
determinative for tax exempt purposes. The Court found out that Angeles University
Foundation was not entitled to a refund for its payment of real property tax because
it was not able to prove that its real property is actually, directly, and exclusively
used for educational purposes. It held that the land of Angeles University
Foundation was correctly assessed for real property taxes for the taxable period
during which the land is not being devoted solely for the latter's educational
activities.