EDUCATIONAL INSTITUTIONS
or character of the institution. The test requires that the institution
ACTUALLY, DIRECTLY, EXCLUSIVELY
Actually is opposed to seemingly, pretendedly, or feignedly, as
actually engaged in farming means really, truly in fact.
Directly. In a direct way without anything intervening; not by
secondary, but by direct means.
Exclusively. Apart from all others; without admission of others to
participation; in a manner to exclude. (NAPOCOR v. CBAA, GR No.
170532)
Section 28(3), Article VI of the 1987 Philippine Constitution
provides, thus:
 (3) 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 purposes shall be exempt from taxation. What is
exempted is not the institution itself . . .those exempted from real
estate taxes are lands, buildings and improvements actually,
directly and exclusively used for religious, charitable or
educational purposes." (Lung Center v. Quezon City, GR No.
144104, June 29, 2004)
to be exempt from taxation, there must be proof that the property
atr being used for religious. A judge errs in relying on allegations
that lands are devoted solely to religious purposes without holing
a hearing. (Province of Abra v. Hernando, 107 SCRA 104)
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
loss of taxes by the government is compensated by its relief from
doing public works which would have been funded by
appropriations from the Treasury. (CIR v. St. Luke’s Medical
Center, GR No. 195909.)
For real property taxes, the incidental generation of income is
permissible
because the test of exemption is the use of the property. The
Constitution provides that "[c]haritable institutions, churches and
personages or convents appurtenant thereto, mosques, non-profit
cemeteries, and all lands, buildings, and improvements, actually,
directly, and exclusively used for religious, charitable, or
educational purposes shall be exempt from taxation." 48 The test
of exemption is not strictly a requirement on the intrinsic nature
use the property in a certain way, i.e. for a charitable purpose.
Thus, the Court held that the Lung Center of the Philippines did not
lose its charitable character when it used a portion of its lot for
commercial purposes. The effect of failing to meet the use
requirement is simply to remove from the tax exemption that
portion of the property not devoted to charity. (CIR v. St. Luke’s
Medical Center, GR No. 195909.)
CONCEPT OF “ANY ACTIVITY CONDUCTED FOR PROFIT” WHICH
WOULD TAKE AWAY ENJOYMENT OF THE TAX EXEMPTION
UNDER THE NIRC OF 1997, SEC. 30 (E) (G) OR THE
PREFERENTIAL 10% RATE UNDER THE NIRC OF 1997, SEC. 27
(B). There is no official legislative record explaining the phrase
"any activity conducted for profit." However, it quoted a
deposition of Senator Mariano Jesus Cuenco, who was a member
of the Committee of Conference for the Senate, which introduced
the phrase "or from any activity conducted for profit."
The question was whether having a hospital is essential to an
educational institution like the College of Medicine of the
University of Santo Tomas. Senator Cuenco answered that if the
hospital has paid rooms generally occupied by people of good
economic standing, then it should be subject to income tax. He said
that this was one of the reasons Congress inserted the phrase "or
any activity conducted for profit."
The question in Jesus Sacred Heart College involves an educational
institution. 58 However, it is applicable to charitable institutions
because Senator Cuenco's response shows an intent to focus on
the activities of charitable institutions. Activities for profit should
not escape the reach of taxation. Being a non-stock and non-profit
corporation does not, by this reason alone, completely exempt an
institution from tax. An institution cannot use its corporate form
to prevent its profitable activities from being taxed. (CIR v. St.
Luke’s Medical Center, GR No. 195909.)
Exemption not limited to property actually indispensable but
extends to facilities which are incidental to and reasonably
necessary for the accomplishment of the charitable or educational
purposes
 The phrase "exclusively used for educational
purposes" was further clarified by this Court in the cases of
Herrera vs. Quezon City Board of assessment Appeals, 3 SCRA 186
[1961] and Commissioner of Internal Revenue vs. Bishop of the
Missionary District, 14 SCRA 991 [1965], thus —
Moreover, the exemption in favor of property used exclusively for
charitable or educational purposes is 'not limited to property
actually indispensable' therefor (Cooley on Taxation, Vol. 2, p.
1430), but extends to facilities which are incidental to and
reasonably necessary for the accomplishment of said purposes,
such as in the case of hospitals, "a school for training nurses, a
nurses' home, property use to provide housing facilities for
interns, resident doctors, superintendents, and other members of
the hospital staff, and recreational facilities for student nurses,
interns, and residents' (84 CJS 6621), such as "Athletic fields"
including "a firm used for the inmates of the institution. (Cooley on
Taxation, Vol. 2, p. 1430).
The rule that tax exemptions are to be strictly construed has certain
exemptions. What are they? (1966)
SUGGESTED ANSWER: The instances where tax exemptions are to
be strictly construed in favor of the taxpayer and strictly against
the taxing authority are the following:
a. When the statute granting exemption provides for liberal
construction thereof. 

b. In case of special taxes relating to special cases and affecting
only special classes of persons. 
 purposes, irrespective of whether or not they are operated by
c. If exemptions refer to public property, 

d. In cases of exemptions granted to charitable and educational

 institutions or their property. 

e. In cases of exemptions in favor of a government political
subdivision or 
 instrumentality, 
 to education for all.
f. A tax refund based on solution indebiti. 

San Antonio Colleges Foundation, Inc. (SACFI) is a non-stock, non-
profit educational institution. xxx xxx (3) import 30 computers for
use in its computer courses.
xxxxxxxxx
d. Will SACFI be subject to taxes and duties on the importation of 30
computers? Explain. (1990, paraphrasing supplied)
SUGGESTED ANSWER: No, because the computers are assets
which are actually, directly and exclusively used for educational
purposes hence, tax-exempt.
Mr. Pascual’s income from leasing his property reaches the
maximum rate of tax under the law. He donated one-half of his said
property to a non- stock, non-profit educational institution whose
income and assets are actually, directly and exclusively used for
educational purposes and therefore qualified for tax exemption
under Article XIV, Section 4(3) of the Constitution and Section
30(h) of the Tax Code. Having thus transferred a portion of his said
asset, Mr. Pascual succeeded in paying a lesser tax on the rental
income derived from his property. Is there tax avoidance or tax
evasion? Explain. (2000)
There is tax avoidance because it is legally permissible for Mr.
Pascual to make the donation.
Under the new constitution, may the government tax income xxx
xxx of non-profit educational institution operated by religious
orders? What policy considerations are to be taken into account?
(1974)
SUGGESTED ANSWER:
No. the revenue of non-stock, non-profit educational institutions
which are actually, directly and exclusively used for educational
religious orders under the 1987 constitution are exempt from
income taxation.
The policy consideration is to encourage the establishment of
educational institutions which are not profit motivated. The tax
exemption would translate to lower tuition fees providing access
YMCA subject to income taxes.
FACTS: The Young Men’s Christian Association of the Philippines,
Inc. (YMCA) was established as “a welfare, educational and
charitable non-profit corporation.” It conducts various programs
and activities that are beneficial to the public, especially the young
people, pursuant to its religious, educational and charitable
objectives.
YMCA derives its income from leasing out a portion of its premises
to small shop owners, like restaurant and canteen operators, and
from parking fees collected from non- members.
ISSUE: Are the rental and parking fees exempt from income
taxation?
HELD: No, for the following reasons.
1. Sec. 27 (now Sec. 30 of the NIRC) exempts YMCA and its income
received as such, and does not apply to income of whatever kind
and character from any of its properties, real or personal, or from
any of its activities conducted for profit regardless of the
disposition of such income.
2. The constitutional tax exemption granted to non-stock, non-
profit educational institutions does not find application because
YMCA is not an educational institution.
3. The constitutional exemption of “all lands, buildings and
improvements, actually, directly and exclusively used for religious,
charitable and educational purposes” refers only to property
taxes.
What is exempted is not the institution itself, but the lands,
buildings and improvement actually, directly and exclusively used
for religious, charitable and educational purposes.
because the constitution does not distinguish for purposes of
exemption the source of the income, so long as the same is actually,
directly and exclusively used for educational purposes.
c. If the increase in tuition results in a net income from school
operations in 2016, will SACFI be subject to income tax on the said
income? Explain.
SUGGESTED ANSWER: No, so long as the income resulting from
the tuition increase is actually, directly and exclusively used for
educational purposes.
This is so because the constitution does not distinguish for
purposes of exemption the source of income, so long as the same
is actually, directly and exclusively used for educational purposes.
411
The University of Bigaa, a non-stock, non- profit entity, operates a
canteen for its students and a bookstore inside the campus, it also
operates two dormitories for its students, one of which is in campus.
Is the university liable to pay income taxes for the operation of the:

g. canteen? 

What is the rule on the taxability of income that a government
educational institution derives from its school operations? Such
h. bookstore? 

income is: (2011)

i. two dormitories? (1994) 


SUGGESTED ANSWER: Exempt from taxation if it is actually,
directly and exclusively used for educational purposes.
SUGGESTED ANSWER: No, provided that the income is to be

is a non-stock, non-profit educational institution. SACFI owns a 5- actually, directly and exclusively used for educational purposes,

hectare lot one half of which is used as SACFI’s school campus while and there is compliance with the requisites for tax exemption.

the other one-half is vacant. To cope with the increasing operating

412
costs to upgrade its facilities, SACFI plans to do the following
effective 1 January 2016: (1) rent out to Supermarkets, Inc. its
Under Art. XIV, Sec. 4(3) of the 1987 Constitution, all revenues and
vacant proportion of the lot for P1.0 Million a year. (2) increase
assets of non- stock, non-profit educational institutions, used
tuition fees by 6% in accordance with government regulation: xxx
actually, directly and exclusively for educational purposes, are
xxx
exempt from taxes and duties. Are income derived from
dormitories, canteens and bookstore, as well as interest income on
b. Will SACFI be subject to income tax on its rental income from
bank deposits and yields from deposit substitutes automatically
Supermarkets, Inc.? Explain. (1990)
exempt from taxation? Explain. (2000)

SUGESTED ANSWER: No, as long as the rental income is actually,

SUGGESTED ANSWER: No, because there are conditions that are
directly and exclusively used for educational purposes. This is so
required to be complied with. house its free Day and Night Care Center for children of single
parents. In order to subsidize the expenses of the Day and Night
a. Conditions for tax exemption of income generated by a school
Care Center and to support its religious, charitable and social
operated canteen/bookstore.
welfare projects, the foundation leased the 300 square meter area
of the second and third floors of the building for use as a boarding
1. owner-operator must be a non-stock, non- profit private
house. The foundation also operates a canteen and a gift shop
educational institution. 

within the premises, all the income from which is actually, directly
and exclusively used for the purposes for which the foundation was
2. such canteen/bookstore must be located within the premises of
organized.
the school. (there are some who dispute this condition in
the light of the provision of the 1987 constitution that
A. Considering the constitutional provision granting tax exemption
does not make a distinction with regard to the origin of
to non-stock corporations such as those formed exclusively for
the funds, so long as they are actually, directly and
religious, charitable and social welfare purposes, explain the
exclusively used for educational purposes) 

meaning of the last paragraph of said Sec. 30 of the NIRC which
states that “income of whatever kind and character of the foregoing
3. owned and operated by the private educational institution as
organizations from any of their properties, real or personal, or from
an ancillary activity. 

any of their activities conducted for profit regardless of the
disposition made of such income shall be subject to tax imposed
4. the income must be actually, directly and exclusively used for
educational purposes. 
 under this Code.” (2001)

SUGGESTED ANSWER: The constitutional tax exemption refers to

b. Conditions for tax exemption of passive income earned by
real property that are actually, directly and exclusively used for
educational institutions:
among others religious, charitable and social welfare

1. the educational institution must be a non- stock, non-

purposes. The income derived from activities for profit, other than
profit. 

from the principal purposes, of non-stock,non-profit institutions,
shall be subject to income taxation. It is only non-profit, non-stock
2. inclusion in their annual information return and duly
audited financial statements. 
 educational institutions that may be exempt from income tax on
its revenues that actually, directly and exclusively used for

3. certification from depositary banks as to the amount of educational purposes even if the income is derived from non-

interest income earned from passive investments not educational related sources.
subject to 20% final withholding tax. 

B. Is the income derived by XYZ Foundation from the sale of a

4. certification of actual utilization of said income. 
 portion of its lot, rentals from its boarding house and the operation
of its income and gift shop subject to tax? Explain. (2001)

5. board resolution on proposed project to be funded out of

SUGGESTED ANSWER: Yes, because the incomes are derived from
the money deposited in banks or placed in money market
activities conducted for profit and not from its principal purpose,
placements. 

which is for religious, charitable and social welfare. The
disposition of the proceeds from profit taking activities does not
XYZ Foundation is a non-stock, non-profit association duly
matter, such income shall be subject to tax. This is so because
organized for religious, charitable and social welfare purposes. Last
income taxes are taxes imposed on the privilege to earn profits and
January 3, 2012 it sold a portion of its lot used for religious purposes
not on the disposition of profits.
and utilized the entire proceeds for the construction of a building to
NOTE NOT PART OF THE ANSWER: the income would be exempt
if XYZ Foundation is a non- profit, non-stock educational
institution and the revenues are actually, directly and exclusively
used for educational purposes.
415
A. XYZ Colleges is a non-stock, non-profit educational institution
run by the Archdiocese of BP City. Itcollected and received the
following:
A. Tuition fees
B. Dormitory fees
C. Rentals from canteen concessionaires
D. Interest from money-market
E. Placements of the tuition fees
Which of the above cited income would not be exempt from
taxation? Explain briefly. (2004)
TAXATION LAW REVIEW NOTES National Taxation
Page 45 of 106
SUGGESTED ANSWER: All are exempt provided that the incomes
are actually, directly and exclusively used for educational
purposes because XYZ Colleges is a non-stock, non-profit
educational institution.
B. Suppose that XYZ Colleges is a proprietary educational institution
owned by the Archbishop’s family, rather than the Archdiocese,
which of the above cited income would be exempt from taxation?
Explain briefly. (2004)
SUGGESTED ANSWER: None. All of the above cited income shall be
subject to income taxation because XYZ Colleges is a proprietary
educational institution to be exempt from taxation on its income
only in accordance with law, and up to the present there is no law
that grants income tax exemption.
1. Can you name one kind of gift that is exempt from donor’s tax
which is extendible to both residents and non-residents or non-
citizens of the Philippines? Include qualifications, if any. (1992)
Suggested Answer: A gift made in favor of an educational and/or
charitable, religious, cultural, or social welfare organization or
research institution or organization. [NIRC of 1997, Sec. 101
(A)(3) and (B)(2)]
The qualification for said gift to be exempt from donor’s tax is that
not more than thirty per centum (30%) of said gifts shall be used
by the done for administration purposes. (Ibid.)
2. What conditions must concur in order that all grants, donations
and contributions to non- stock, non-profit private educational
institutions may be exempt from the donor’s tax under Sections
101(a) of the Tax Code? (2000)
3. In order that donations to non-stock, non- profit educational
institutions may be exempt from the donor’s gift tax, what
conditions must be met by the done? (2002)
Suggested answer: The following are the requisites before
donations to non-stock, non- profit educational institiutions may
be exempt from the donor’s gift tax:
a. Not more than thirty per centum of said gifts shall be used by the
done for administration purposes.
b. The donee is a
1. school, college or university; 

2. incorporated or a non-stock entity; 

3. paying no dividends; 

4. governed by trustees who receive no 
 compensation;
and 

5. devotes all its income, whether student’s 
 fees, or gifts,
donations, subsidies or other forms of philanthropy to
the accomplishment and promotion of the purposes
enumerated in its articles of incorporation. [NIRC of
1997, Sec. 101 (A) (3), arrangement and numbering
supplied] 

In 2016, Imelda gave xxx xxx a donation of P80,000.00 to her
parish church. She also donated a parcel of land for the
construction
of a building to the PUP Alumni Association, a non-stock, non-
profit organization. Portions of the building shall be leased to
generate income for the association.
b) How about the donation to the parish church? (1994, date
supplied)
Suggested answer: Also not subject to tax if Imelda is a resident
because the parish is a religious institution and there is no
showing in the problem that more than thirty percent (30%) of the
amount donated was used for administration purposes. [Ibid., Sec.
101(A)(3)]
c) How about the donation to the PUP Alumni Association? (1994,
date supplied)
Suggested answer: Subject to tax, because the alumni association
isnot among those to whom gifts are not subject to donor’s taxes.
It is not an educational, charitable, or religious institution.
3. On December 6, 2016, LVN Corporation donated a piece of
vacant lot situated in Mandaluyong City to an accredited and duly
registered non-stock, non-profit educational institution to be used
by the latter in building a sports complex for students. In order
that donations to non-stock, non profit educational institutions
may be exempt from the donor’s tax, what conditions must be met
by the donee? (2002, date supplied and reworded)
Suggested answer: They must be incorporated as a non-stock
entity, paying no dividends, governed by trustees who received no
compensation, and devoting all its income, whether student’s fees
or gifts, donations, subsidies or other forms of philanthropy,
actually, directly and exclusively, to the accomplishment and
promotion of the purposes enumerated in its article of
incorporation.
Furthermore, not more than thirty percent (30%) of said gifts
shall be used by such donee for administration purposes. [NIRC of
1997, Sec. 101(A)]
Ecational institution run by the Archdiocese of BP City. It xxx
received the following:
Donation of a lot and building by school alumni.
Which of these abovecited xxx donation would not be exempt from
taxation? Explain briefly. (2004, rephrasing supplied)
Suggested answer: The donation is exempt provided that the
donated properties are actually, directly and exclusively used for
educational purposes because XYZ Colleges is a non-stock, non-
profit educational institution.
B. Suppose that XYZ Colleges is a proprietary educational institution
owned by the Archbishop’s family, rather than the Archdiocese,
which of the above cited xxx donation would be exempt from
taxation. Explain briefly. (2004, rephrasing supplied)
Suggested answer: No. Only donations made to non-stock
nonprofit educational institution that are actually, directly and
exclusively used for educational purposes are exempt. Since XYZ
Colleges is a proprietary educational institution, it is not exempt.
Alternative answer: Yes. Republic Act No. 7798, which amended
BP Blg 232 provides that, “Taxes shall not be due on donations to
educational institutions.” It is to be noted that there is no
distinction made between proprietary and non- stock, non-profit
educational institutions.
5. The Congregation of the Mary Immaculate donated a land and a
dormitory building located across España St., in favor of the Sisters
of the Holy Cross, a group of nuns operating a free clinic and high
school teaching basic spiritual values. Is the donation subject to
donor’s tax? (2007)
Suggested answer: No, the donation is not subject to tax if the
conditions for exemption are met. To be exempt the donor
Congregation of the Mary Immaculate should show that the donee
Sisters of the Holy Cross is a religious/charitable institution
a) incorporated as a non-stock entity
b) paying no dividends 

c) governed by trustees who received no 
 compensation
and 

d) devoting all its income, whether gifts, 
 donations,
subsidies or other forms of philanthropy, to the
accomplishment and promotion of the purposes

enumerated in its articles of incorporation. [NIRC of
1997, Sec. 101(A) (3), arrangement and numbering
supplied]
e) not more than thirty per centum (30%) of land and
dormitory building donated shall be used by the donee
for administration purposes. [Ibid.]
Page 738
6. A non-stock, non-profit school always had cash flow problems,
resulting in failure to recruit well-trained administrative personnel
to effectively manage the school. In 2012, Don Leon donated P100
million pesos to the school, provided the money shall be used solely
for paying the salaries, wages and benefits of administrative
personnel. The donation represents less than 10% of Don Leon’s
taxable income for the year. Is he subject to donor’s tax?
a. No, since the donation is actually, directly and exclusively used
for educational purposes.
b. Yes, because the donation is to be wholly used for administration
purposes
c. Yes, since he did not obtain the requisite NGO certification before
he made the donation.
d. No, because the donation does not exceed 10% of his taxable
income for 2012. (2011, dates supplied)
Suggested answer: b
OBJECTIVE: Under the New Constitution, may the government tax
xxx real estate property of non-profit educational institution
operated by religious orders? What policy considerations are to be
taken into account? (1974)
SUGGESTED ANSWER:
No. The real property of non-stock, non-profit educational
institutions which is actually, directly and exclusively used for
educational purposes, irrespective of whether or not they are
operated by religious orders under the 1987 Constitution are
exempt from taxation.
The policy Consideration is to encourage the
establishment of educational institutions which are not profit
motivated. In this manner, the State need not devote large sums of
money for education.
The tax exemption would translate to lower tuition fees
providing education for all.
Page 259
FACT BASED PROBLEM: San Antonio Colleges Foundation, Inc.
(SACFI) is a non-stock, non-profit educational institution. SACFI
owns a 5-hectare lot, one half of which is used as SACFI’s school
campus while the other one is vacant. To cope with the increasing
operating costs to upgrade its facilities, SACFI plans to, effective 1
January 2016, rent out to Supermarkets, Inc. the vacant portion of
the lot for P 1 million a year. Is SACFI subject to real estate tax on its
5-hectare lot for calendar years 2015 and 2016? Explain. (1990)
SUGGESTED ANSWER:
SACFI is subject to real estate tax for the calendar year 2015 only
on the one-half portion which is vacant because the same is not
actually, directly and exclusively used for educational purposes.
It is not also subject to real estate tax on the vacant lot,
for the calendar year 2016, which was subsequently rented out to
Supermarkets Inc. The reason being that the basis for real
property taxation is use. It is Supermarkets, Inc. who should pay.
It is not subject to real estate tax on the one-half portion
that is used for the school campus, both for calendar years 2015
and 2016, because the same is actually, directly and exclusively
used for educational purposes.
FACT BASED PROBLEM:
The Roman Catholic Church owns a 2-hectare lot, in a town in Tarlac
province. The southern side and the middle part are occupied by the
Church and a convent, the eastern side by a school run by the church
itself, the southern side by some commercial establishments, while
the rest of the property, in particular the northwestern side, is idle
or unoccupied.
May the church claims tac exemption on the entire land? Decide
with reasons. (2005)
SUGGESTED ANSWER: No. The church cannot claim tax exemption
on the entire land.
The southern side and middle part occupied by the Church and a
convent are exempt from the real property tax because there is
actual, direct and exclusive use for religious purposes. So also the
eastern side which is occupied by a school because it is actually,
directly and exclusively used for educational purposes.
The church may not claim tax exemption on the southeastern side
used by some commercial establishments because it is not
actually, directly and exclusively used for charitable, religious or
educational purposes. “Exclusively” means “solely”, hence it is not
exempted but subject to tax, the commercial establishments being
liable for the same. Real property taxation is based on use and not
ownership.
The northwestern side being idle or unoccupied is not exempt
from tax because it is apparent that there is not actual, direct and
exclusive use for charitable, religious or educational purposes.