LUNG CENTER v.

QUEZON CITY

G.R. No. 144104 June 29, 2004

LUNG CENTER OF THE PHILIPPINES, petitioner,

vs.
QUEZON CITY and CONSTANTINO P. ROSAS, in his capacity as City
Assessor of Quezon City, respondents.

Facts:

The petitioner Lung Center of the Philippines is a non-stock and non-profit

entity established by virtue of P.D. 1823. It owns a parcel of land in Quezon
City with a hospital built at its center. Other parts of the lot were used for
private and commercial purposes, while others were vacant and idle.

The petitioner accepts paying and non-paying patients. It also renders

medical services to out-patients, both paying and non-paying. Aside from
its income from paying patients, the petitioner receives annual subsidies
from the government.

After the land and the building were assessed for real property taxes,
petitioner filed a Claim of Exemption from real property taxes with the
City Assessor, stating that it is a charitable institution.
The petition was denied. Hence, this case.

Petitioner argues that it is a charitable institution within the context of

Section 28(3), Article VI of the 1987 Constitution.1 The petitioner further
contends that even if P.D. No. 1823 does not exempt it from the payment of
real estate taxes, it is not precluded from seeking tax exemption under the
1987 Constitution.

Respondents aver that petitioner’s real property is not exempt from the
payment of real estate taxes under P.D. No. 1823 and even under the 1987
Constitution because it failed to prove that it is a charitable institution and
that the said property is actually, directly and exclusively used for
charitable purposes.

Issue:
1. Whether the petitioner is a charitable institution within the context of
Presidential Decree No. 1823 and the 1973 and 1987 Constitutions

1
Section 28
x x x 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.
 2. Whether the real properties of the petitioner are exempt from real
property taxes.

Ruling:

1. Yes, petitioner is a charitable institution. For an institution to be

considered charitable, the following elements must be present:
(1) the statute creating the enterprise;
(2) its corporate purposes;
(3) its constitution and by-laws;
(4) the methods of administration;
(5) the nature of the actual work performed;
(6) the character of the services rendered;
(7) the indefiniteness of the beneficiaries; and
(8) the use and occupation of the properties.

2. Yes, the property is exempted from real property tax BUT ONLY
PARTIALLY. Those portions of its real property that are leased to
private entities are not exempt from real property taxes as these are
not actually, directly and exclusively used for charitable purposes.

The settled rule in this jurisdiction is that laws granting exemption

from tax are construed strictissimi juris against the taxpayer and
liberally in favor of the taxing power. The effect of an exemption is
equivalent to an appropriation. Hence, a claim for exemption from
tax payments must be expressly stated in its charter. Moreover, the
tax exemption under Sec. 28 (3) covers property taxes only, which
means that 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.

In this case, under PD 1823, the petitioner does not enjoy any tax
exemption privileges for its real properties as well as the building
constructed thereon. If the intention were to include such tax
privileges, the decree would have expressly stated so. Moreover, the
petitioner failed to prove that the entirety of its real property is
actually, directly and exclusively used for charitable purposes. While
portions of the hospital are used for the treatment of patients and the
dispensation of medical services to them, whether paying or non-
paying, other portions thereof are being leased to private individuals
for their clinics and a canteen.
Dispositive:

The petition is PARTIALLY GRANTED. The respondent Quezon

City Assessor is hereby DIRECTED to determine, after due hearing,
the precise portions of the land and the area thereof which are leased
to private persons, and to compute the real property taxes due
thereon as provided for by law.
CIR vs DE LA SALLE

G.R. No. 196596 - COMMISSIONER OF INTERNAL REVENUE v. DE LA

SALLE UNIVERSITY, INC.
G.R. No. 198841 - DE LA SALLE UNIVERSITY INC v. COMMISSIONER
OF INTERNAL REVENUE
G.R. No. 198941 - COMMISSIONER OF INTERNAL REVENUE v. DE LA
SALLE UNIVERSITY, INC.
DATE: November 09, 2016
PONENTE: Brion, J.
TOPIC: Exemption of non-stock, non-profit educational institutions; and
Defective Letter of Authority

FACTS:
• BIR issued to DLSU Letter of Authority (LOA) No. 2794 authorizing its
revenue officers to examine the latter's books of accounts and other
accounting records for all internal revenue taxes for the period Fiscal
Year Ending 2003 and Unverified Prior Years
• May 19, 2004, BIR issued a Preliminary Assessment Notice (PAN) to
DLSU.
• August 18, 2004, the BIR through a Formal Letter of Demand assessed
DLSU the following deficiency taxes: (1) income tax on rental earnings
from restaurants/canteens and bookstores operating within the
campus;
(2) value-added tax (VAT) on business income; and
(3) documentary stamp tax (DST) on loans and lease contracts.
• The BIR demanded the payment of P17,303,001.12, inclusive of
surcharge, interest and penalty for taxable years 2001, 2002 and 2003.
• DLSU protested the assessment. The Commissioner failed to act on the
protest; thus, DLSU filed petition for review with the CTA Division

CTA Division and CTA En Banc: DST assessment on the loan transactions
but retained other deficiency taxes. CTA En Banc ruled the ff:

Tax on rental income

DLSU was able to prove that a portion of the assessed rental income was
used actually, directly and exclusively for educational purposes; hence,
exempt from tax. Rental income had indeed been used to pay the loan it
obtained to build the university's Physical Education - Sports Complex.
However, other unsubstantiated claim for exemption must be subjected to
income tax and VAT.

DST on loan and mortgage transactions

Contrary to the Commissioner's contention, DLSU proved its remittance of
the DST due on its loan and mortgage documents, evidenced by the stamp
on the documents made by a DST imprinting machine.

Admissibility of DLSU's supplemental evidence

Supplemental pieces of documentary evidence were admissible even if
DLSU formally offered them upon MR. Law creating the CTA provides
that proceedings before it shall not be governed strictly by the technical
rules of evidence. (Affirmed by SC)

On the validity of the Letter of Authority

LOA should cover only one taxable period and that the practice of issuing a
LOA covering audit of unverified prior years is prohibited. If the audit
includes more than one taxable period, the other periods or years shall be
specifically indicated in the LOA.
In the present case, the LOA issued to DLSU is for Fiscal Year Ending 2003
and Unverified Prior Years. Hence, the assessments for deficiency income
tax, VAT and DST for taxable years 2001 and 2002 are void, but the
assessment for taxable year 2003 is valid.

On the CTA Division's appreciation of the evidence

The CTA En Banc affirmed the CTA Division's appreciation of DLSU's
evidence. It held that while DLSU successfully proved that a portion of its
rental income was transmitted and used to pay the loan obtained to fund
the construction of the Sports Complex, the rental income from other
sources were not shown to have been actually, directly and exclusively
used for educational purposes. (Affirmed by SC)

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

CIR’s Arguments:
DLSU's rental income is taxable regardless of how such income is derived,
used or disposed of. Section 30 (H) of the Tax Code, which states among
others, that 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. 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.
DLSU’s Arguments:
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.

HELD: Article XIV, Section 4 (3) of the Constitution refers to 2 kinds of

institutions; (1) non-stock, non-profit educational institutions and (2)
proprietary educational institutions. DLSU falls on the first category. The
difference is that The tax exemption granted to non-stock, non-profit
educational institutions is conditioned only on the actual, direct and
exclusive use of their revenues and assets for educational purposes. While
tax exemptions may also be granted to proprietary educational institutions,
these exemptions may be subject to limitations imposed by Congress.

The tax exemption granted by the Constitution to non-stock, non-profit

educational institutions, unlike the exemption that may be availed of by
proprietary educational institutions, is not subject to limitations imposed
by law.

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.

Court laid down 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.

We find that unlike Article VI, Section 28 (3) of the Constitution

(pertaining to charitable institutions, churches, parsonages or convents,
mosques, and non-profit cemeteries), which exempts from tax only the
assets, i.e., "all lands, buildings, and improvements, actually, directly, and
exclusively used for religious, charitable, or educational purposes...,"
Article XIV, Section 4 (3) categorically states that "all revenues and
assets... used actually, directly, and exclusively for educational purposes
shall be exempt from taxes and duties."
Wherefore, SC denied the petition of CIR and affirmed the ruling of
CTA En Banc.

CIR v CA, CTA, & YMCA

G.R. No. 124043
October 14, 1998

FACTS:
1. Young Men’s Christian Association of the Philippines, Inc. 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.

2. In 1980, the private respondent earned, among others an income from

the leasing out of a portion of its premises to small shop owners, like
restaurants and canteen operators and parking fees collected from
non-members.

3. CIR issued an assessment to private respondent for deficiency

income tax, deficiency expanded withholding taxes on rentals and
professional fees and deficiency withholding tax on wages . Private
respondent protested the assessment. CIR denied the claims of
YMCA considering that it was no engaged in the business of
operating or contracting parking lot as it is only for members with
stickers. The rentals and parking fees were only enough to cover the
costs of operation and maintenance.

4. CIR elevated the case to the CA who decided in favor of CIR,

reversing the CTA decision. YMCA asked for reconsideration, which
CA granted. CTA decision now affirmed.

5. CIR then filed motion for reconsideration which was denied by CA.

ISSUE:
WON the income derived from the rentals of real property owned by
YMCA (a welfare, educational and charitable non-profit corporation) is
subject to income tax under NIRC and the constitution.

HELD:
YES. The exemption claimed by YMCA is expressly disallowed by the very
wording of the last paragraph of the then section 27 of the NIRC which
mandates that the income of exempt organizations (such as the YMCA)
from any of their properties, real or personal, be subject to the tax imposed
by the same Code. The last paragraph of said section unequivocally
subjects to tax the rent income of the YMCA from its real property. Thus
the Court is duty-bound to abide strictly by its literal meaning and to
refrain from resorting to any convoluted attempt at construction.

The CA committed reversible error when it allowed on reconsideration, the

tax exemption claimed by YMCA on income it derived from renting out its
real property, on the solitary but unconvincing ground that the said income
is not collected for profit byt is merely incidental to its operation. 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.

On YMCA’s argument that the constitution gives tax exemption on

charitable institutions, the Court is not persuaded. Justice Hilario Davide,
Jr., stressed during the Concom debates that “…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 education purposes.” Father Joaquin Bernas adhered
to the same view (in short, only property taxes).

YMCA is only exempt from payment of property tax, but not income tax on
the rentals from its property. Laws allowing tax exemptions are construed
strictissimi juris as taxes are the lifeblood of the government.

ADDITIONAL: For YMCA to be granted the exemption it claims, 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. Such was not proven by the YMCA.

Sec. 27 of the NIRC (NOW SEC. 26) provides:

Exemptions from tax on corporations- the following organizations shall not

be taxed under this title in respect to income received by them as such-

(g) Civic league organization not organized for profit but operated
exclusively for the promotion of social welfare
(h) club organized and operated exclusively for pleasure, recreation, and
other non-profittable purposes, no part of the net income of which inures to
the benefit of any private stockholder or member
Notwithstanding the provisions in the preceding paragraphs, the income of
whatever kind and character of the foregoing organization 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 this code.

Aglipay vs Ruiz GR No L-45459

By ResIpsaLoquitor - April 25, 2014
Aglipay vs. Ruiz
GR No. L-45459 March 13, 1937
Facts:
The Director of Post announced that he would order the issues of postage
stamps commemorating the celebration of City of Manila of the
33rd International Eucharistic Congress organized by the Roman Catholic
Church pursuant to Act No. 4052 for the purpose of appropriating funds
for the making of new postage stamps. Aglipay requested Atty. Vicente
Sotto to denounce the matter to the President. It was alleged that Ruiz is in
direct violation of the Constitution by issuing and selling postage stamps
commemorative of the 33rd International Eucharistic Congress. That such
act was violative of Art. VI, Sec. 23 (3) of the Philippines, to wit:
No public money or property shall ever be appropriated, applied, or used,
directly or indirectly, for the use, benefit, or support of any sect, church,
denomination, secretarian, institution, or system of religion, or for the use,
benefit, or support of any priest, preacher, minister, or other religious
teacher or dignitary as such, except when such priest, preacher, minister, or
dignitary is assigned to the armed forces or to any penal institution,
orphanage, or leprosarium.
The prohibition herein expressed is a direct corollary of the principle of
separation of church and state.

Issue:
Is the production and selling of the International Eucharistic Congress
commemorative stamps violation of the separation of Church and State
and Art. VI, Sec. 23 (3)?

Ruling:
No, we are much impressed with the vehement appeal of counsel for the
petitioner to maintain inviolate the complete separation of church and state
and curb any attempt to infringe by indirection a constitutional inhibition.
Indeed, in the Philippines, once the scene of religious intolerance and
prescription, care should be taken that at this stage of our political
development nothing is done by the Government or its officials that may
lead to the belief that the Government is taking sides or favoring a
particular religious sect or institution. But, upon very serious reflection,
examination of Act No. 4052, and scrutiny of the attending circumstances,
we have come to the conclusion that there has been no constitutional
infraction in the case at bar, Act No. 4052 grants the Director of Posts, with
the approval of the Secretary of Public Works and Communications,
discretion to misuse postage stamps with new designs "as often as may be
deemed advantageous to the Government.”

Act No. 4052 contemplates no religious purpose. What it gives is the

discretionary powers to determine when the issuance of special postage
stamps would be advantageous to the government.
G.R. No. 168056 September 1, 2005
ABAKADA GURO PARTY LIST (Formerly AASJAS) OFFICERS
SAMSON S. ALCANTARA and ED VINCENT S. ALBANO vs.
v
THE HONORABLE EXECUTIVE SECRETARY EDUARDO ERMITA;
HONORABLE SECRETARY OF THE DEPARTMENT OF FINANCE
CESAR PURISIMA; and HONORABLE COMMISSIONER OF
INTERNAL REVENUE GUILLERMO PARAYNO, JR

I. FACTS
The petitioners challenged the constitutionality of Republic Act No. 9337
(VAT Reform Act). They question the constitutionality of Sections 4, 5 and
6 of R.A. No. 9337, amending Sections 106, 107 and 108, respectively, of the
National Internal Revenue Code (NIRC). Section 4 imposes a 10% VAT on
sale of goods and properties, Section 5 imposes a 10% VAT on importation
of goods, and Section 6 imposes a 10% VAT on sale of services and use or
lease of properties. These questioned provisions contain a
uniform proviso authorizing the President, upon recommendation of the
Secretary of Finance, to raise the VAT rate to 12%, effective January 1, 2006,
after any of the following conditions have been satisfied, to wit:
(i) Value-added tax collection as a percentage of Gross Domestic
Product (GDP) of the previous ye3ar exceeds two and four-fifth
percent (2 4/5%); or
(ii) National government deficit as a percentage of GDP of the
previous year exceeds one and one-half percent (1 %).
The following are the arguments raised by the Petitioners:
1. The law is unconstitutional, as it constitutes abandonment by Congress
of its exclusive authority to fix the rate of taxes under Article VI, Section
28(2) of the 1987 Philippine Constitution;
2. VAT is a tax levied on the sale or exchange of goods and services and
cannot be included within the purview of tariffs under the exemption
delegation since this refers to customs duties, tolls or tribute payable upon
merchandise to the government and usually imposed on
imported/exported goods;
3. No guiding standards are made by law as to how the Secretary of
Finance will make the recommendation. The President has powers to
cause, influence or create the conditions provided by law to bring about the
conditions precedent. Any recommendation of the Secretary of Finance can
easily be brushed aside by the President since the former is a mere alter ego
of the latter.

II. ISSUES
Whether or not there was an undue delegation of legislative power in
violation of Article VI Sec 28 Par 1 and 2 of the Constitution.

III. RULING
No. There is no undue delegation of legislative power but only of the
discretion as to the execution of a law. This is constitutionally permissible.
Congress does not abdicate its functions or unduly delegate power when it
describes what job must be done, who must do it, and what is the scope of
his authority; in our complex economy that is frequently the only way in
which the legislative process can go forward. The Secretary if Finance
becomes the means or tool by which Legislative policy is determined and
implemented, considering that he possesses all the facilities to gather data
and information. In making his recommendation, the Secretary of Finance
is not acting as the alter ego of the President, but as the agent of the
Legislative department, to determine and declare the event upon which its
expressed will is to take effect.