FIRST DIVISION March 14, 1989.

In due course, the CTA issued this

ruling in favor of the YMCA:
[G.R. No. 124043. October 14, 1998]
xxx [T]he leasing of private respondents facilities to
COMMISSIONER OF INTERNAL REVENUE, petitioner, small shop owners, to restaurant and canteen
vs. COURT OF APPEALS, COURT OF TAX APPEALS and operators and the operation of the parking lot are
YOUNG MENS CHRISTIAN ASSOCIATION OF THE reasonably incidental to and reasonably necessary for
PHILIPPINES, INC., respondents. the accomplishment of the objectives of the [private
DECISION respondents]. It appears from the testimonies of the
witnesses for the [private respondent] particularly Mr.
PANGANIBAN, J.: James C. Delote, former accountant of YMCA, that
these facilities were leased to members and that they
Is the income derived from rentals of real property
have to service the needs of its members and their
owned by the Young Mens Christian Association of
guests. The Rentals were minimal as for example, the
the Philippines, Inc. (YMCA) established as a
barbershop was only charged P300 per month. He
welfare, educational and charitable non-profit
also testified that there was actually no lot devoted
corporation -- subject to income tax under the
for parking space but the parking was done at the
National Internal Revenue Code (NIRC) and the
sides of the building. The parking was primarily for
Constitution?
members with stickers on the windshields of their cars
The Case and they charged P.50 for non-members. The rentals
and parking fees were just enough to cover the costs
This is the main question raised before us in this of operation and maintenance only. The earning[s]
petition for review on certiorari challenging two from these rentals and parking charges including
Resolutions issued by the Court of Appeals[1] on those from lodging and other charges for the use of
September 28, 1995[2] and February 29, 1996[3] in CA- the recreational facilities constitute [the] bulk of its
GR SP No. 32007. Both Resolutions affirmed the income which [is] channeled to support its many
Decision of the Court of Tax Appeals (CTA) allowing activities and attainment of its objectives. As pointed
the YMCA to claim tax exemption on the latters out earlier, the membership dues are very insufficient
income from the lease of its real property. to support its program. We find it reasonably
necessary therefore for [private respondent] to make
The Facts
[the] most out [of] its existing facilities to earn some
The Facts are undisputed.[4] Private Respondent YMCA income. It would have been different if under the
is a non-stock, non-profit institution, which conducts circumstances, [private respondent] will purchase a
various programs and activities that are beneficial to lot and convert it to a parking lot to cater to the needs
the public, especially the young people, pursuant to its of the general public for a fee, or construct a building
religious, educational and charitable objectives. and lease it out to the highest bidder or at the market
rate for commercial purposes, or should it invest its
In 1980, private respondent earned, among others, an funds in the buy and sell of properties, real or
income of P676,829.80 from leasing out a portion of personal. Under these circumstances, we could
its premises to small shop owners, like restaurants and conclude that the activities are already profit oriented,
canteen operators, and P44,259.00 from parking fees not incidental and reasonably necessary to the pursuit
collected from non-members. On July 2, 1984, the of the objectives of the association and therefore, will
commissioner of internal revenue (CIR) issued an fall under the last paragraph of section 27 of the Tax
assessment to private respondent, in the total amount Code and any income derived therefrom shall be
of P415,615.01 including surcharge and interest, for taxable.
deficiency income tax, deficiency expanded
withholding taxes on rentals and professional fees and Considering our findings that [private respondent]
deficiency withholding tax on wages. Private was not engaged in the business of operating or
respondent formally protested the assessment and, as contracting [a] parking lot, we find no legal basis also
a supplement to its basic protest, filed a letter dated for the imposition of [a] deficiency fixed tax and [a]
October 8, 1985. In reply, the CIR denied the claims of contractors tax in the amount[s] of P353.15
YMCA. and P3,129.73, respectively.

Contesting the denial of its protest, the YMCA filed a x x x x x

petition for review at the Court if Tax Appeals (CTA) on x xxx
WHEREFORE, in view of all the foregoing, the The findings of facts of the Public Respondent Court
following assessments are hereby dismissed for lack of of Tax Appeals being supported by substantial
merit: evidence [are] final and conclusive.

1980 Deficiency Fixed Tax P353,15; II

1980 Deficiency Contractors Tax P3,129.23; The conclusions of law of [p]ublic [r]espondent
exempting [p]rivate [r]espondent from the income on
1980 Deficiency Income Tax P372,578.20. rentals of small shops and parking fees [are] in accord
While the following assessments are hereby with the applicable law and jurisprudence.[8]
sustained: Finding merit in the Motion for Reconsideration filed
1980 Deficiency Expanded Withholding Tax by the YMCA, the CA reversed itself and promulgated
P1,798.93; on September 28, 1995 its first assailed Resolution
which, in part, reads:
1980 Deficiency Withholding Tax on Wages
P33,058.82 The Court cannot depart from the CTAs findings of
fact, as they are supported by evidence beyond what
plus 10% surcharge and 20% interest per annum from is considered as substantial.
July 2, 1984 until fully paid but not to exceed three (3)
years pursuant to Section 51 (e)(2) & (3) of the x x x x x
National Internal Revenue Code effective as of x xxx
1984.[5] The second ground raised is that the respondent CTA
Dissatisfied with the CTA ruling, the CIR elevated the did not err in saying that the rental from small shops
case to the Court of Appeals (CA). In its Decision of and parking fees do not result in the loss of the
February 16, 1994, the CA[6] initially decided in favor exemption. Not even the petitioner would hazard the
of the CIR and disposed of the appeal in the following suggestion that YMCA is designed for
manner: profit. Consequently, the little income from small
shops and parking fees help[s] to keep its head above
Following the ruling in the afore-cited cases of the water, so to speak, and allow it to continue with
Province of Abra vs. Hernando and Abra Valley College its laudable work.
Inc. vs. Aquino, the ruling of the respondent Court of
Tax Appeals that the leasing of petitioners (herein The Court, therefore, finds the second ground of the
respondent) facilities to small shop owners, to motion to be meritorious and in accord with law and
restaurant and canteen operators and the operation jurisprudence.
of the parking lot are reasonably incidental to and WHEREFORE, the motion for reconsideration is
reasonably necessary for the accomplishment of the GRANTED; the respondent CTAs decision is
objectives of the petitioners,' and the income derived
AFFIRMED in toto.[9]
therefrom are tax exempt, must be reversed.
The internal revenue commissioners own Motion for
WHEREFORE, the appealed decision is hereby Reconsideration was denied by Respondent Court in
REVERSED in so far as it dismissed the assessment for: its second assailed Resolution of February 29,
1980 Deficiency Income Tax P 353.15 1996. Hence, this petition for review under Rule 45 of
the Rules of Court.[10]
1980 Deficiency Contractors
Tax P 3,129.23, & The Issues

1980 Deficiency Income Before us, petitioner imputes to the Court of Appeals
Tax P372,578.20, the following errors:

but the same is AFFIRMED in all other respect.[7] I

Aggrieved, the YMCA asked for reconsideration based In holding that it had departed from the findings of
on the following grounds: fact of Respondent Court of Tax Appeals when it
rendered its Decision dated February 16, 1994; and
I
II
In affirming the conclusion of Respondent Court of facts. That its interpretation or conclusion is different
Tax Appeals that the income of private respondent from that of the CTA is not irregular or abnormal.
from rentals of small shops and parking fees [is]
exempt from taxation.[11] Second Issue:

This Courts Ruling Is the Rental Income of the YMCA Taxable?

The Petition is meritorious. We now come to the crucial issue: Is the rental
income of the YMCA from its real estate subject to
First Issue: tax? At the outset, we set forth the relevant provision
of the NIRC:
Factual Findings of the CTA
SEC. 27. Exemptions from tax on corporations. -- The
Private respondent contends that the February 16, following organizations shall not be taxed under this
1994 CA Decision reversed the factual findings of the Title in respect to income received by them as such --
CTA. On the other hand, petitioner argues that the CA
merely reversed the ruling of the CTA that the leasing x x x x x
of private respondents facilities to small shop owners, x xxx
to restaurant and canteen operators and the
operation of parking lots are reasonably incidental to (g) Civic league or organization not organized for
and reasonably necessary for the accomplishment of profit but operated exclusively for the promotion of
the objectives of the private respondent and that the social welfare;
income derived therefrom are tax (h) Club organized and operated exclusively for
[12]
exempt. Petitioner insists that what the appellate pleasure, recreation, and other non-profitable
court reversed was the legal conclusion, not the purposes, no part of the net income of which inures to
factual finding, of the CTA.[13] The commissioner has a the benefit of any private stockholder or member;
point.
x x x x x
Indeed, it is a basic rule in taxation that the factual x xxx
findings of the CTA, when supported by substantial
evidence, will not be disturbed on appeal unless it is Notwithstanding the provision in the preceding
shown that the said court committed gross error in paragraphs, the income of whatever kind and
the appreciation of facts.[14] In the present case, this character of the foregoing organization from any of
Court finds that the February 16, 1994 Decision of the their properties, real or personal, or from any of their
CA did not deviate from this rule. The latter merely activities conducted for profit, regardless of the
applied the law to the facts as found by the CTA and disposition made of such income, shall be subject to
ruled on the issue raised by the CIR: Whether or not the tax imposed under this Code. (as amended by
the collection or earnings of rental income from the Pres. Decree No. 1457)
lease of certain premises and income earned from
Petitioners argues that while the income received by
parking fees shall fall under the last paragraph of
the organizations enumerated in Section 27 (now
Section 27 of the National Internal Revenue Code of
Section 26) of the NIRC is, as a rule, exempted from
1977, as amended.[15]
the payment of tax in respect to income received by
Clearly, the CA did not alter any fact or evidence. It them as such, the exemption does not apply to
merely resolved the aforementioned issue, as indeed income derived xxx from any if their properties, real
it was expected to. That it did so in a manner or personal, or from any of their activities conducted
different from that of the CTA did not necessarily for profit, regardless, of the disposition made of such
imply a reversal of factual findings. income xxx.

The distinction between a question of law and a Petitioner adds that rented income derived by a tax-
question of fact is clear-cut. It has been held that exempt organization from the lease of its properties,
[t]here is a question of law in a given case when the real or personal, [is] not, therefore, exempt from
doubt or difference arises as to what the law is on a income taxation, even if such income [is] exclusively
certain state of facts; there is a question of fact when used for the accomplishment of its objectives.[17] We
the doubt or difference arises as to the truth or agree with the commissioner.
falsehood of alleged facts.[16] In the present case, the
Because taxes are the lifeblood of the nation, the
CA did not doubt, much less change, the facts
Court has always applied the doctrine of strict
narrated by the CTA. It merely applied the law to the
interpretation in construing tax Constitutional Provisions
[18]
exemptions. Furthermore, a claim of statutory
exemption from taxation should be manifest and on Taxation
unmistakable from the language of the law on which it Invoking not only the NIRC but also the fundamental
is based. Thus, the claimed exemption must law, private respondent submits that Article VI,
expressly be granted in a statute stated in a language Section 28 of par. 3 of the 1987
too clear to be mistaken.[19] Constitution,[24] exempts charitable institutions from
In the instant case, the exemption claimed by the the payment not only of property taxes but also of
YMCA is expressly disallowed by the very wording of income tax from any source.[25] In support of its novel
the last paragraph of then Section 27 of the NIRC theory, it compares the use of the words charitable
which mandates that the income of exempt institutions, actually and directly in the 1973 and
organizations (such as the YMCA) from any of their the 1987 Constitutions, on the hand; and in Article VI
properties, real or personal, be subject to the imposed Section 22, par. 3 of the 1935 Constitution, on the
by the same Code. Because the last paragraph of said other hand.[26]
section unequivocally subjects to tax the rent income f Private respondent enunciates three points. First, the
the YMCA from its rental property,[20] the Court is present provision is divisible into two categories: (1)
duty-bound to abide strictly by its literal meaning and [c]haritable institutions, churches and parsonages or
to refrain from resorting to any convoluted attempt at convents appurtenant thereto, mosques and non-
construction. profit cemeteries, the incomes of which are, from
It is axiomatic that where the language of the law is whatever source, all tax-exempt;[27] and (2) [a]ll
clear and unambiguous, its express terms must be lands, buildings and improvements actually and
applied.[21] Parenthetically, a consideration of the directly used for religious, charitable or educational
question of construction must not even begin, purposes, which are exempt only from property
particularly when such question is on whether to taxes.[28] Second, Lladoc v. Commissioner of Internal
apply a strict construction or a literal one on statutes Revenue,[29] which limited the exemption only to the
that grant tax exemptions to religious, charitable and payment of property taxes, referred to the provision
educational propert[ies] or institutions.[22] of the 1935 Constitution and not to its counterparts in
the 1973 and the 1987 Constitutions.[30] Third, the
The last paragraph of Section 27, the YMCA argues, phrase actually, directly and exclusively used for
should be subject to the qualification that the income religious, charitable or educational purposes refers
from the properties must arise from activities not only to all lands, buildings and improvements,
conducted for profit before it may be considered but also to the above-quoted first category which
taxable.[23]This argument is erroneous. As previously includes charitable institutions like the private
stated, a reading of said paragraph ineludibly shows respondent.[31]
that the income from any property of exempt
organizations, as well as that arising from any activity The Court is not persuaded. The debates,
it conducts for profit, is taxable. The phrase any of interpellations and expressions of opinion of the
their activities conducted for profit does not qualify framers of the Constitution reveal their intent which,
the word properties. This makes income from the in turn, may have guided the people in ratifying the
property of the organization taxable, regardless of Charter.[32] Such intent must be effectuated.
how that income is used -- whether for profit or for Accordingly, Justice Hilario G. Davide, Jr., a former
lofty non-profit purposes. constitutional commissioner, who is now a member of
Verba legis non est recedendum. Hence, Respondent this Court, stressed during the Concom debates that
Court of Appeals committed reversible error when it xxx what is exempted is not the institution itself xxx;
allowed, on reconsideration, the tax exemption those exempted from real estate taxes are lands,
claimed by YMCA on income it derived from renting buildings and improvements actually, directly and
out its real property, on the solitary but unconvincing exclusively used for religious, charitable or
ground that the said income is not collected for profit educational purposes.[33] Father Joaquin G. Bernas,
but is merely incidental to its operation. The law does an eminent authority on the Constitution and also a
not make a distinction. The rental income is taxable member of the Concom, adhered to the same view
regardless of whence such income is derived and how that the exemption created by said provision
it used or disposed of. Where the law does not pertained only to property taxes.[34]
distinguish, neither should we.
In his treatise on taxation, Mr. Justice Jose C. Vitug used in laws granting tax exemptions, refers to a xxx
concurs, stating that [t]he tax exemption school seminary, college or educational establishment
covers property taxes only."[35] Indeed, the income tax xxx.[46] Therefore, the private respondent cannot be
exemption claimed by private respondent finds no deemed one of the educational institutions covered
basis in Article VI, Section 28, par. 3 of the by the constitutional provision under consideration.
Constitution.
xxx Words used in the Constitution are to be taken in
Private respondent also invokes Article XIV, Section 4, their ordinary acceptation. While in its broadest and
par. 3 of the Charter,[36] claiming that the YMCA is a best sense education embraces all forms and phrases
non-stock, non-profit educational institution whose of instruction, improvement and development of mind
revenues and assets are used actually, directly and and body, and as well of religious and moral
exclusively for educational purposes so it is exempt sentiments, yet in the common understanding and
from taxes on its properties and income.[37] We application it means a place where systematic
reiterate that private respondent is exempt from the instruction in any or all of the useful branches of
payment of property tax, but not income tax on the learning is given by methods common to schools and
rentals from its property. The bare allegation alone institutions of learning. That we conceive to be the
that it is a non-stock, non-profit educational true intent and scope of the term [educational
institution is insufficient to justify its exemption from institutions,] as used in the Constitution.[47]
the payment of income tax.
Moreover, without conceding that Private Respondent
As previously discussed, laws allowing tax exemption YMCA is an educational institution, the Court also
are construed strictissimi juris. Hence, for the YMCA notes that the former did not submit proof of the
to be granted the exemption it claims under the proportionate amount of the subject income that was
aforecited provision, it must prove with substantial actually, directly and exclusively used for educational
evidence that (1) it falls under the classification non- purposes. Article XIII, Section 5 of the YMCA by-laws,
stock, non-profit educational institution; and (2) the which formed part of the evidence submitted, is
income it seeks to be exempted from taxation is used patently insufficient, since the same merely signified
actually, directly, and exclusively for educational that [t]he net income derived from the rentals of the
purposes. However, the Court notes that not a commercial buildings shall be apportioned to the
scintilla of evidence was submitted by private Federation and Member Associations as the National
respondent to prove that it met the said requisites. Board may decide.[48] In sum, we find no basis for
granting the YMCA exemption from income tax under
Is the YMCA an educational institution within the the constitutional provision invoked
purview of Article XIV, Section 4, par.3 of the
Constitution? We rule that it is not. The term Cases Cited by Private
educational institution or institution of learning
has acquired a well-known technical meaning, Respondent Inapplicable
of which the members of the Constitutional The cases[49] relied on by private respondent do not
Commission are deemed cognizant.[38] Under the support its cause. YMCA of Manila v. Collector of
Education Act of 1982, such term refers to Internal Revenue[50] and Abra Valley College, Inc. v.
schools.[39] The school system is synonymous with Aquino[51] are not applicable, because the controversy
formal education,[40] which refers to the in both cases involved exemption from the payment of
hierarchically structured and chronological graded property tax, not income tax. Hospital de San Juan de
learnings organized and provided by the formal school Dios, Inc. v. Pasay City[52] is not in point either,
system and for which certification is required in order because it involves a claim for exemption from the
for the learner to progress through the grades or payment of regulatory fees, specifically electrical
move to the higher levels.[41] The Court has examined inspection fees, imposed by an ordinance of Pasay City
the Amended Articles of Incorporation[42] and By- -- an issue not at all related to that involved in a
Laws[43] of the YMCA, but found nothing in them that claimed exemption from the payment if income taxes
even hints that it is a school or an educational imposed on property leases. In Jesus Sacred Heart
institution.[44] College v. Com. Of Internal Revenue,[53] the party
Furthermore, under the Education Act of 1982, even therein, which claimed an exemption from the
non-formal education is understood to be school- payment of income tax, was an educational institution
based and private auspices such as foundations and which submitted substantial evidence that the income
civic-spirited organizations are ruled out.[45] It is subject of the controversy had been devoted or used
solely for educational purposes. On the other hand,
settled that the term educational institution, when
the private respondent in the present case had not
given any proof that it is an educational institution, or
that of its rent income is actually, directly and
exclusively used for educational purposes.

Epilogue

In deliberating on this petition, the Court expresses its

sympathy with private respondent. It appreciates the
nobility its cause. However, the Courts 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 overspilling its role and invading the realm
of legislation.

We concede that private respondent deserves the

help and the encouragement of the government. It
needs laws that can facilitate, and not frustrate, its
humanitarian tasks. But 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. Indeed, some of the member of the
Court may even believe in the wisdom and prudence
of granting more tax exemptions to private
respondent. But such belief, however well-meaning
and sincere, cannot bestow upon the Court the power
to change or amend the law.

WHEREFORE, the petition is GRANTED. The

Resolutions of the Court of Appeals dated September
28, 1995 and February 29, 1996 are hereby dated
February 16, 1995 is REVERSED and SET ASIDE. The
Decision of the Court of Appeals dated February 16,
1995 is REINSTATED, insofar as it ruled that the
income tax. No pronouncement as to costs.

SO ORDERED.

Davide, Jr. (Chairman), Vitug and Quisumbing,

JJ., concur.

Bellosillo, J., see Dissenting Opinion.