CASE DIGEST

Appropriation bills must originate exclusively from the

House of Representatives.

TOLENTINO V SEC. OF FINANCE

Facts:

 House of Rep. filed House Bill 11197 (An Act

Restructuring the VAT System to Widen its Tax
Base and Enhance its Admin., Amending for
these Purposes…)
 Upon receipt of Senate, Senate filed another
bill completely different from that of the House
Bill
 Senate finished debates on the bill and had
the 2nd and 3rd reading of the Bill on the same
day
 Bill was deliberated upon in the Conference
Committee and become enrolled bill which
eventually became the EVAT law.

Procedural Issue:

(1) WoN RA 7716 originated exclusively from the

House of Rep. in accordance with sec 24, art
6 of Consti
(2) WoN the Senate bill violated the “three
readings on separate days” requirement of
the Consti
(3) WoN RA 7716 violated sec 26(1), art 6 - one
subject, one title rule.

NOTE: This case was filed by PAL because before the

EVAT Law, they were exempt from taxes. After the
passage of EVAT, they were already included. PAL
contended that neither the House or Senate bill
provided for the removal of the exemption from taxes
of PAL and that it was only made after the meeting of
the Conference Committee w/c was not expressed in
the title of RA 7166

Held:

(1) YES! Court said that it is not the law which should
originate from the House of Rep, but the revenue
bill which was required to originate from the House of
Rep. The initiative must come from the Lower House
because they are elected in the district level –
meaning they are expected to be more sensitive to
the needs of the locality.

Also, a bill originating from the Lower House may

undergo extensive changes while in the Senate.
Senate can introduce a separate and distinct bill
other than the one the Lower House proposed. The
Constitution does not prohibit the filing in the Senate
of a substitute bill in anticipation of its receipt of the
House bill, so long as action by Senate is withheld
pending the receipt of the House bill.

(2) NO. The Pres. certified that the Senate bill was
urgent. Presidential certification dispensed the
requirement not only of printing but also reading the
bill in 3 separate days. In fact, the Senate accepted
the Pres. certification

(3) No. Court said that the title states that the
purpose of the statute is to expand the VAT system
and one way of doing this is to widen its base by
withdrawing some of the exemptions granted before.
It is also in the power of Congress to amend, alter,
repeal grant of franchises for operation of public
utility when the common good so requires.
One subject rule is intended to prevent surprise upon
Congress members and inform people of pending
legislation. In the case of PAL, they did not know of
their situation not because of any defect in title but
because they might have not noticed its publication
until some event calls attention to its existence.

Taxation shall be uniform and taxable

ASSOCIATION OF CUSTOMS BROKERS, INC and

MANLAPIT v. MUNICIPAL BOARD OF MANILA
Topic: local taxation – fundamental principles

Facts:
- In 1950, the Association of Customs Brokers
(composed of all brokers and public service
operators of motor vehicles in Manila) and
Manlapit, an operator-member of said
association filed a petition for declaratory relief
challenging the validity of Manila City
Ordinance No. 3379:
o While the ordinance levies a so-called
property tax, it is in reality a license tax
beyond the power of the Municipal
Board
o The ordinance is offensive against the
rule of uniformity of taxation
o The levy constitutes double taxation
- City Fiscal
o Ordinance imposes a property tax
within the power of the City of Manila
under its Revised Charter (RA 409, se.
18(p))
 The municipal board has the
power “to tax motor and other
vehicles operating within the City
of Manila, the provisions of any
existing law to the contrary
notwithstanding.”
 o No violation of other 2 grounds
- CFI: petition dismissed; ordinance is valid

Issue(s):

w/n Ordinance No. 3379 is valid

SC Ratio:

No, it is invalid for levying an excise tax which is not

within the scope of the City’s powers and for violating
the rule on uniformity.

Under section 70(b) of the Motor Vehicles Law (Act

No. 3392):

“No further fees than those fixed in this Act shall

be exacted or demanded by any public
highway, bridge or ferry, or for the exercise of
the profession of chauffeur, or for the
operation of any motor vehicle by the owner
thereof: Provided, however, That nothing in this
Act shall be construed to exempt any motor
vehicle from the payment of any lawful and
equitable insular, local or municipal property
tax imposed thereupon. . .”

This provision should be construed as limiting the

broad grant of power conferred upon the City of
Manila by its Charter to impose taxes, such that only
property taxes may be imposed on motor vehicles
operating within its territorial jurisdiction.

Sec. 1 of Ordinance No. 3379 denominates the tax

imposed as ad valorem (meaning tax proportional to
value of the property) and while as a rule an ad
valorem tax is a property tax, such rule is not absolute.
Rather, the character of the tax (property v. excise)
must be determined by its incidents, and from the
natural and legal effect of the language employed in
the act or ordinance, and not by the name by which
it is described, or by the mode adopted in fixing its
amount. Excise taxes are those imposed upon the
performance of an act, enjoyment of a privilege, or
the engaging in an occupation.

The purpose of the ordinance is to raise funds for the

repair, maintenance and improvement of the streets
and bridges in said city, something which the Motor
Vehicles Law already addresses. The prohibition
under sec. 70(b) is meant to prevent municipal
corporations from duplicating the levy since under
sec. 73 of the same act, they already participate in
the distribution of the proceeds collected under the
Motor Vehicles Law. “It is for this reason that we
believe that the ordinance in question merely
imposes a license fee although under the cloak of
an ad valorem tax to circumvent the prohibition
above adverted to.”

Moreover, the ordinance violates the rule of

uniformity since “[i]t does not distinguish between a
motor vehicle hire and one which is purely for private
use. Neither does it distinguish between a motor
vehicle registered in the City of Manila and one
registered in another place but occasionally comes
to Manila and uses its streets and public highways.
The distinction is important if we note that the
ordinance intends to burden with the tax only those
registered in the City of Manila as may be inferred
from the word "operating" used therein. The word
"operating" denotes a connotation which is akin to a
registration, for under the Motor Vehicle Law no
motor vehicle can be operated without previous
payment of the registration fees”.
Charitable institutions, churches and parsonages or
convents appurtenant thereto, mosques, non-profit
cemeteries, and all lands, buildings, and
improvements, actually, directly, and exclusively
used for religious, charitable, or educational purpose
shall be exempt from taxation.

ABRA VALLEY COLLEGE, INC. VS AQUINO

JUNE 15 1988

PARAS, J.

FACTS:

Abra Valley College, an educational

corporation and institution of higher learning duly
incorporated with the SEC filed a complaint to annul
and declare void the “Notice of Seizure” and the
“Notice of Sale” of its lot and building located at
Bangued, Abra, for non-payment of real estate taxes
and penalties. Paterno Millare filed through counsel a
motion to dismiss the complaint. The provincial fiscal
filed a memorandum for the government wherein they
opined hat based on the evidence, the laws
applicable, court decisions and jurisprudence, the
school building and the school lot used for educational
purposes of the Abra Valley College are exempted
from payment of taxes. Nonetheless, the trial court
disagreed because of the use of the second floor by
the Director of the said school for residential purpose.
He thus ruled for the government and rendered the
assailed decision.

ISSUE:
 Whether or not the lot and building in question
are used exclusively for educational purposes?

HELD:

NO. It must be stressed that while the court

allows a more liberal and non-restrictive interpretation
of the phrase “exclusively used for educational
purposes” as provided for in the Article VI, Section 22,
Paragraph 3 of the 1935 Philippine Constitution,
reasonable emphasis has always been made that
exemption extends to facilities which are incidental to
and reasonably necessary for the accomplishment of
the main purpose. Otherwise stated, the use of the
school building or lot for commercial purposes is
neither contemplated by law, nor by jurisprudence.
Thus, while the use of the second floor of the main
building in the case at bar for residential purposes of
the Director and his family, may find justification under
the concept of incidental use, which is complimentary
to the main or primary purpose – educational, the
lease of the first floor thereof to the Northern Marketing
Corporation cannot by any stretch of the imagination
be considered incidental to the purposes of
education.

Under the 1935 Constitution, the rial court

correctly arrived at the conclusion that the school
building as well as the lot where it is built, should be
taxed, not because the second floor of the same is
being used by the director and his family for
residential purposes, but because the first floor
thereof is being used for commercial purposes.
However, since only a portion is used for purposes of
commerce, it is only fair that half of the assessed tax
be return to the school involved

COMMISSIONER OF INTERNAL REVENUE v. YMCA

G.R. No. 124043 October 14, 1998

Doctrine:
– Rental income derived by a tax-exempt
organization from the lease of its properties, real or
personal, is not exempt from income taxation, even if
such income is exclusively used for the
accomplishment of its objectives.

– A claim of statutory exemption from taxation should

be manifest and unmistakable from the language of
the law on which it is based. Thus, it must expressly be
granted in a statute stated in a language too clear to
be mistaken. Verba legis non est recedendum —
where the law does not distinguish, neither should we.

– The bare allegation alone that one is a non-stock,

non-profit educational institution is insufficient to justify
its exemption from the payment of income tax. It must
prove with substantial evidence that (1) it falls under
the classification non-stock, non-profit educational
institution; and (2) the income it seeks to be
exempted from taxation is used actually, directly, and
exclusively for educational purposes.

– The Court cannot change the law or bend it to suit

its sympathies and appreciations. Otherwise, it would
be overspilling its role and invading the realm of
legislation. The Court, given its limited constitutional
authority, cannot rule on the wisdom or propriety of
legislation. That prerogative belongs to the political
departments of government.
Facts:
Private Respondent YMCA is a non-stock, non-profit
institution, which conducts various programs and
activities that are beneficial to the public, especially
the young people, pursuant to its religious,
educational and charitable objectives.

YMCA earned income from leasing out a portion of its

premises to small shop owners, like restaurants and
canteen operators, and from parking fees collected
from non-members. Petitioner issued an assessment to
private respondent for deficiency taxes. Private
respondent formally protested the assessment. In
reply, the CIR denied the claims of YMCA.

Issue:
Whether or not the income derived from rentals of
real property owned by YMCA subject to income tax

Held:
Yes. Income of whatever kind and character of non-
stock non-profit organizations from any of their
properties, real or personal, or from any of their
activities conducted for profit, regardless of the
disposition made of such income, shall be subject to
the tax imposed under the NIRC.

Rental income derived by a tax-exempt organization

from the lease of its properties, real or personal, is not
exempt from income taxation, even if such income is
exclusively used for the accomplishment of its
objectives.

Because taxes are the lifeblood of the nation, the

Court has always applied the doctrine of strict in
interpretation in construing tax exemptions
(Commissioner of Internal Revenue V. Court of
Appeals, 271 SCRA 605, 613, April 18, 1997).
Furthermore, a claim of statutory exemption from
taxation should be manifest and unmistakable from
the language of the law on which it is based. Thus,
the claimed exemption “must expressly be granted in
a statute stated in a language too clear to be
mistaken” (Davao Gulf Lumber Corporation V.
Commissioner of Internal Revenue and Court of
Appeals, G.R. No. 117359, p. 15 July 23, 1998).

Verba legis non est recedendum. The law does not

make a distinction. The rental income is taxable
regardless of whence such income is derived and
how it is used or disposed of. Where the law does not
distinguish, neither should we.

Private respondent also invokes Article XIV, Section 4,

par. 3 of the Constitution, claiming that it “is a non-
stock, non-profit educational institution whose
revenues and assets are used actually, directly and
exclusively for educational purposes so it is exempt
from taxes on its properties and income.” This is
without merit since the exemption provided lies on
the payment of property tax, and not on the income
tax on the rentals of its property. The bare allegation
alone that one is a non-stock, non-profit educational
institution is insufficient to justify its exemption from the
payment of income tax.

For the YMCA to be granted the exemption it claims

under the above provision, it must prove with
substantial evidence that (1) it falls under the
classification non-stock, non-profit educational
institution; and (2) the income it seeks to be
exempted from taxation is used actually, directly, and
exclusively for educational purposes. Unfortunately for
respondent, the Court noted that not a scintilla of
evidence was submitted to prove that it met the said
requisites.

The Court appreciates the nobility of respondent’s

cause. However, the Court’s power and function are
limited merely to applying the law fairly and
objectively. It cannot change the law or bend it to
suit its sympathies and appreciations. Otherwise, it
would be over spilling its role and invading the realm
of legislation. The Court regrets that, given its limited
constitutional authority, it cannot rule on the wisdom
or propriety of legislation. That prerogative belongs to
the political departments of government.

LUNG CENTER OF THE PHILIPPINES VS QUEZON CITY

FACTS:
Petitioner is a non-stock, non-profit entity established
by virtue of PD No. 1823, seeks exemption from real
property taxes when the City Assessor issued Tax
Declarations for the land and the hospital building.
Petitioner predicted on its claim that it is a charitable
institution. The request was denied, and a petition
hereafter filed before the Local Board of Assessment
Appeals of Quezon City (QC-LBAA) for reversal of the
resolution of the City Assessor. Petitioner alleged that
as a charitable institution, is exempted from real
property taxes under Sec 28(3) Art VI of the
Constitution. QC-LBAA dismissed the petition and the
decision was likewise affirmed on appeal by the
Central Board of Assessment Appeals of Quezon City.
The Court of Appeals affirmed the judgment of the
CBAA.

ISSUE:
1. Whether or not petitioner is a charitable institution
within the context of PD 1823 and the 1973 and 1987
Constitution and Section 234(b) of RA 7160.

2. Whether or not petitioner is exempted from real

property taxes.

RULING:
1. Yes. The Court hold that the petitioner is a
charitable institution within the context of the 1973
and 1987 Constitution. Under PD 1823, the petitioner is
a non-profit and non-stock corporation which, subject
to the provisions of the decree, is to be administered
by the Office of the President with the Ministry of
Health and the Ministry of Human Settlements. The
purpose for which it was created was to render
medical services to the public in general including
those who are poor and also the rich, and become a
subject of charity. Under PD 1823, petitioner is entitled
to receive donations, even if the gift or donation is in
the form of subsidies granted by the government.

2. Partly No. Under PD 1823, the lung center does not

enjoy any property tax exemption privileges for its real
properties as well as the building constructed
thereon.
The property tax exemption under Sec. 28(3), Art. VI
of the Constitution of the property taxes only. This
provision was implanted by Sec.243 (b) of RA
7160.which provides that in order to be entitled to the
exemption, the lung center must be able to prove
that: it is a charitable institution and; its real properties
are actually, directly and exclusively used for
charitable purpose. Accordingly, the portions
occupied by the hospital used for its patients are
exempt from real property taxes while those leased to
private entities are not exempt from such taxes.

Commissioner of Internal Revenue vs. St Luke's

Medical Center

Facts:

St. Luke’s Medical Center, Inc. (St. Luke’s) is a hospital

organized as a non-stock and non-profit
corporation. St. Luke’s accepts both paying and non-
paying patients. The BIR assessed St. Luke’s deficiency
taxes for 1998 comprised of deficiency income tax,
value-added tax, and withholding tax. The BIR
claimed that St. Luke’s should be liable for income tax
at a preferential rate of 10% as provided for by
Section 27(B). Further, the BIR claimed that St. Luke’s
was actually operating for profit in 1998 because only
13% of its revenues came from charitable
purposes. Moreover, the hospital’s board of trustees,
officers and employees directly
benefit from its profits and assets.

On the other hand, St. Luke’s maintained that it

is a non-stock and non-profit institution for charitable
and social welfare purposes exempt from income
tax under Section 30(E) and (G) of the NIRC. It argued
that the making of profit per se does not destroy its
income tax exemption.
Issue:
The sole issue is whether St. Luke’s is liable for
deficiency income tax in 1998 under Section 27(B) of
the NIRC, which imposes a preferential tax rate of 10^
on the income of proprietary non-profit hospitals.
Ruling:
Section 27(B) of the NIRC does not remove the
income tax exemption of proprietary non-profit
hospitals under Section 30(E) and (G). Section 27(B)
on one hand, and Section 30(E) and (G) on the
other hand, can be construed together
without the removal of such tax exemption.
Section 27(B) of the NIRC imposes a 10%
preferential tax rate on the
income of (1) proprietary non-
profit educational institutions and (2) proprietary
non-profit hospitals. The only qualifications for
hospitals are that they must be proprietary and non-
profit. “Proprietary” means private, following the
definition of a “proprietary educational institution” as
“any private school maintained and administered
by private individuals or groups” with a government
permit. “Non-profit” means no net income or asset
accrues to or benefits any member or specific person,
with all the net income or asset devoted to the
institution’s purposes and all its activities conducted
not for profit.
“Non-profit” does not necessarily
mean “charitable.” In Collector of Internal Revenue v.
Club Filipino Inc. de Cebu, this Court considered as
non-profit a sports club organized for recreation and
entertainment of its stockholders and members. The
club was primarily funded by membership fees and
dues. If it had profits, they were used for overhead
expenses and improving its golf course. The club was
non-profit because of its purpose
and there was no evidence that it
was engaged in a profit-making enterprise.
The sports club in Club Filipino Inc. de
Cebu may be non-profit, but it was not charitable.
The Court defined “charity” in Lung Center of the
Philippines v.
Quezon City as “a gift, to be applied consistently
with existing laws, for the benefit of an indefinite
number of persons, either by bringing their minds and
hearts under the influence of education or religion, by
assisting them to establish themselves in life or [by]
otherwise lessening the burden of government.”
However, despite its being a tax exempt institution,
any income such institution earns from activities
conducted for profit is taxable, as expressly provided
in the last paragraph of Sec. 30.
To be a charitable institution, however, an
organization must meet the
substantive test of charity in Lung Center. The iss
ue in Lung Center concerns exemption from real
property tax and not income tax. However, it provides
for the test of charity in our jurisdiction. Charity is
essentially a gift to an indefinite number of persons
which lessens the burden of
government. In other words, charitable institutions
provide for free goods and services to the public
which would otherwise fall on the shoulders of
government. Thus, as a matter of efficiency, the
government forgoes taxes
which should have been spent to address public
needs, because certain private entities already
assume a part of the burden. This is the rationale for
the tax exemption of charitable institutions. The lo
ss of taxes by the government is compensated by
its relief from doing public works which would have
been funded by appropriations from the Treasury
The Constitution exempts charitable
institutions only from real property taxes. In the NIRC,
Congress decided to extend the exemption to
income taxes. However, the way Congress crafted
Section 30(E) of the NIRC is materially different from
Section 28(3), Article VI of the Constitution.
Section 30(E) of the NIRC defines the
corporation or association that is exempt from
income tax. On the other hand, Section 28(3), Article
VI of the Constitution does not define a charitable
institution, but requires that the institution “actually,
directly and exclusively” use the property for a
charitable purpose.
To be exempt from real property taxes, Section
28(3), Article VI of the Constitution requires that a
charitable institution use the property “actually,
directly and exclusively” for charitable purposes.
To be exempt from income taxes, Section 30(E)
of the NIRC
requires that a charitable institution must be “org
anized and operated exclusively” for charitable
purposes. Likewise, to be exempt from income taxes,
Section 30(G) of the NIRC requires that the institution
be “operated exclusively” for social welfare.
However, the last paragraph of Section 30 of
the NIRC qualifies the words “organized and
operated exclusively” by providing that:
Notwithstanding the provisions in the
preceding paragraphs, the income of whatever kind
and character of the foregoing organizations from
any of
their properties, real or personal, or from any of t
heir activities
conducted for profit regardless of the disposition
made of such income, shall be subject to tax
imposed under this Code.
In short, the last paragraph of Section 30
provides that if a tax exempt charitable institution
conducts “any” activity for profit, such activity is not
tax exempt even as its not-for-profit
activities remain tax exempt.
Thus, even if the charitable institution must be
“organized and operated exclusively” for charitable
purposes, it is nevertheless allowed to engage in
“activities conducted for profit” without losing its tax
exempt status for its not-for-profit activities. The only
consequence is that the
“income of whatever kind and character”
of a charitable institution
“from any of its activities conducted for profit, re
gardless of the disposition made of such income,
shall be subject to tax.” Prior to the introduction of
Section 27(B), the tax rate on such income from for-
profit activities was the ordinary corporate rate under
Section 27(A). With the introduction of Section 27(B),
the tax rate is now 10%.
The Court finds that St. Luke’s is a corporation
that is not “operated exclusively” for charitable or
social welfare purposes insofar as its revenues from
paying patients are concerned. This ruling is based
not only on a strict interpretation of a provision
granting tax exemption, but also on the clear and
plain text of Section 30(E) and (G). Section 30(E) and
(G) of the NIRC requires that an institution be
“operated exclusively” for charitable or social welfare
purposes to be completely exempt from income
tax. An institution under Section 30(E) or (G) does not
lose its tax exemption if it earns income from its for-
profit activities. Such income from for-profit activities,
under the last paragraph of Section 30, is merely
subject to income tax, previously at the ordinary
corporate rate but now at the preferential 10% rate
pursuant to Section 27(B).
St. Luke’s fails to meet the requirements under
Section 30(E) and (G) of the NIRC to
be completely tax exempt from all its income.
However, it remains a proprietary non-profit hospital
under Section 27(B) of the NIRC as long as it does not
distribute any of its profits to its members and such
profits are reinvested pursuant to its corporate
purposes. St. Luke’s, as a proprietary non-profit
hospital, is entitled to the preferential tax rate of 10%
on its net income from its for-profit activities.
St. Luke’s is therefore liable for deficiency
income tax in 1998 under Section 27(B) of the NIRC.
However, St. Luke’s has good reasons to rely on the
letter dated 6 June 1990 by the BIR, which opined
that St. Luke’s is “a corporation for purely charitable
and social welfare purposes” and thus exempt from
income tax.
In Michael J. Lhuillier, Inc. v. Commissioner of
Internal Revenue, the Court said that “good faith and
honest belief that one is not subject to tax on the
basis of previous interpretation of government
agencies tasked to implement the tax law, are
sufficient justification to delete the imposition of
surcharges and interest.”
WHEREFORE, St. Luke’s Medical Center, Inc. is
ORDERED TO PAY the deficiency income tax in
1998 based on the 10% preferential income tax
rate under Section 27(8) of the National Internal
Revenue Code. However, it is not liable for
surcharges
and interest on such deficiency income tax under
Sections 248 and 249 of
the National Internal Revenue Code. All other parts
of the Decision and Resolution of the Court of Tax
Appeals are AFFIRMED.

COMMISSIONER OF INTERNAL REVENUE, Petitioner VS

ST. LUKE’S MEDICAL CENTER INC., Respondent

G.R. No. 203514

February 13, 2017

FACTS:

The respondent St. Luke’s Medical Center, Inc. (SLMC)

received a tax payment assessment from the Large
Taxpayers Service-Documents Processing and Quality
Assurance Division of the Bureau of Internal Revenue
Audit Result/Assessment Notice on December 14,
2007. Based on the assessment the respondent SLMC
has a deficiency income tax under Section 27 (B) of
the 1997 National Internal Revenue Code (NIRC), as
amended for the taxable year 2005 in the amount of
P78, 617,434.54 and for taxable year 2006 in the
amount of P57, 119,867.33.

In response to the received assessment from NIRC on

January 14, 2008, SLMC filed with the petitioner
Commission on Internal Revenue (CIR) an
administrative protest assailing the assessments. The
SLMC alleged that they are exempted from paying
the income tax since SLMC is a non-stock, non-profit,
charitable and social welfare organization under
Section 30 (E) and (G) of the 1997 NIRC as amended.

However, on April 25, 2008, SLMC received the

petitioner CIR’s Final Decision on the Disputed
Assessment dated April 9, 2008 increasing the
deficiency income from P78, 617, 434.54 to
P82,419,522.21 for taxable year 2005 and from
P57,119,867.33 to P60, 259,885.94 for taxable year
2006.

The aggrieved SLMC elevated the matter to Court of

Tax Appeal (CTA) finding the decision that SLMC is
not liable for the deficiency income tax under Section
27 (B) of the 1997 NIRC, as amended and exempt
from paying the income under Section 30 (E) and (G)
of the same code.

Consequently, the CIR moved for reconsideration but

the CTA Division denied which the CIR prompted to
file a petition for review before the CTA En Banc
which eventually denied and affirmed the first
decision of the CTA Division.

Moreover, the CIR filed an instant petition contending

that the CTA erred in exempting SLMC from payment
of income tax, where the CIR petition is partly
granted. SLMC ordered to pay the deficiency income
tax in 1998 based on the 10% preferential income tax.
The CIR argues that under the doctrine of Stare
Decisis SLMC is subject to 10% income tax under
Section 27 (B) of the 1997 NIRC, and liable to pay the
compromise penalty. SLMC argues that the income
derives from operating a hospital is not income from
activities conducted for profit. And the case should
be dismissed since payment to BIR for the basic taxes
due for taxable years 1998, 2000-2002 and 2004-2007
has been made.

ISSUES:

1. Whether or not SLMC is liable for income tax under

Section 27 (B) of the 1997 NIRC.

2. Whether or not SLMC is not liable for compromise

penalty.

3. Whether or not the petition is rendered moot by

payment made by SLMC on April 30, 2013.

HELD:

1. Yes. Based on Section 27 (B) of the NIRC imposes

10% preferential tax rate on the income of (1)
proprietary non-profit educational institutions and (2)
proprietary non-profit hospitals. The only qualifications
for hospitals are they must be proprietary and non-
profit. Proprietary means private, following the
definition of a proprietary educational institution, as
any other private school maintained and
administered by private individuals or groups with
government permit. While non-profit means no net
income or asset accrues to or benefits any member
or specific person with all the net income or asset
devoted to the institution’s purposes and all its
activities conducted not for profit.

2. Yes. Under Sections 248 and 249 of the 1997 NIRC

the imposition of surcharges and interests were
deleted on the basis of good faith and honest belief
on the part of SLMC that it is not subject to tax so
therefore, SLMC is not liable to pay the compromise
penalty.

3. Yes. The payment of basic taxes made by the

SLMC has become moot even the court agrees with
the CIR that the payment confirmation from the BIR is
not competent proof as presented by SLMC due to
no specific taxable period for payments that it covers.
However, the court finds sufficient proof of payment
based on the Certification of Payment issued by the
Large Taxpayers Service of the BIR since CIR never
question for its documents authenticity. The court
dismissed the petition and lowered the basic taxes for
taxable year 2005 and 2006, in the amounts of P49,
919,496.40 and P41, 525,608.40.

Tax exemption of educational institutions.

School Tax exemption: Use of fund is a controlling

factor.

Taxation of revenues versus the taxation of assets.

Taxation depends on Use of Assets and Use of
Revenues.

COMMISSIONER OF INTERNAL REVENUE, vs. DE LA

SALLE UNIVERSITY, INC.

G.R. No. 196596, November 09, 2016

The Commissioner submits the following arguments:

DLSU's rental income is taxable regardless of how such

income is derived, used or disposed of. DLSU's
operations of canteens and bookstores within its
campus even though exclusively serving the university
community do not negate income tax liability.

Article XIV, Section 4 (3) of the Constitution and Section

30 (H) of the Tax Code

“the income of whatever kind and character

of [a non-stock and non-profit educational
institution] from any of [its] properties, real or
personal, or from any of (its] activities
conducted for profit regardless of the
disposition made of such income, shall be
subject to tax imposed by this Code.”

The Commissioner posits that a tax-exempt

organization like DLSU is exempt only from property
tax but not from income tax on the rentals earned
from property. Thus, DLSU's income from the leases of
its real properties is not exempt from taxation even if
the incomewould be used for educational purposes.41
DLSU stresses that Article XIV, Section 4 (3) of the
Constitution is clear that all assets and revenues of
non-stock, non-profit educational institutions used
actually, directly and exclusively for educational
purposes are exempt from taxes and duties.

ISSUE:

Whether DLSU's income and revenues proved

to have been used actually, directly and exclusively for
educational purposes are exempt from duties and
taxes.

RULING: YES.

The requisites for availing the tax

exemption under Article XIV, Section 4 (3), namely: (1)
the taxpayer falls under the classification non-stock,
non-profit educational institution; and (2) the income it
seeks to be exempted from taxation is used actually,
directly and exclusively for educational purposes.

A plain reading of the Constitution would show

that Article XIV, Section 4 (3) does not require that the
revenues and income must have also been sourced
from educational activities or activities related to the
purposes of an educational institution. The phrase all
revenues is unqualified by any reference to the source
of revenues. Thus, so long as the revenues and income
are used actually, directly and exclusively for
educational purposes, then said revenues and income
shall be exempt from taxes and duties.

Thus, when a non-stock, non-profit educational

institution proves that it uses its revenues actually,
directly, and exclusively for educational purposes, it
shall be exempted from income tax, VAT, and LBT. On
the other hand, when it also shows that it uses its assets
in the form of real property for educational purposes, it
shall be exempted from RPT.

We further declare that the last paragraph of

Section 30 of the Tax Code is without force and effect
for being contrary to the Constitution insofar as it
subjects to tax the income and revenues of non-stock,
non-profit educational institutions used actually,
directly and exclusively for educational purpose. We
make this declaration in the exercise of and consistent
with our duty to uphold the primacy of the
Constitution. We stress that our holding here pertains
only to non-stock, non-profit educational institutions
and does not cover the other exempt organizations
under Section 30 of the Tax Code.

For all these reasons, we hold that the income

and revenues of DLSU proven to have been used
actually, directly and exclusively for educational
purposes are exempt from duties and taxes.