Republic of the Philippines Contesting the denial of its protest, the YMCA filed a petition for review at the

iled a petition for review at the Court of

SUPREME COURT Tax Appeals (CTA) on March 14, 1989. In due course, the CTA issued this ruling in
Manila favor of the YMCA:

FIRST DIVISION  . . . [T]he leasing of [private respondent's] facilities to small shop

owners, to restaurant and canteen operators and the operation of
G.R. No. 124043 October 14, 1998 the parking lot are reasonably incidental to and reasonably
necessary for the accomplishment of the objectives of the [private
respondents]. It appears from the testimonies of the witnesses for
COMMISSIONER OF INTERNAL REVENUE, petitioner, the [private respondent] particularly Mr. James C. Delote, former
vs. accountant of YMCA, that these facilities were leased to members
COURT OF APPEALS, COURT OF TAX APPEALS and YOUNG MEN'S and that they have to service the needs of its members and their
CHRISTIAN ASSOCIATION OF THE PHILIPPINES, INC., respondents. guests. The rentals were minimal as for example, the barbershop
was only charged P300 per month. He also testified that there was
PANGANIBAN, J.: actually no lot devoted for parking space but the parking was done
at the sides of the building. The parking was primarily for members
Is the income derived from rentals of real property owned by the Young Men's with stickers on the windshields of their cars and they charged P.50
Christian Association of the Philippines, Inc. (YMCA) — established as "a welfare, for non-members. The rentals and parking fees were just enough to
educational and charitable non-profit corporation" — subject to income tax under the cover the costs of operation and maintenance only. The earning[s]
National Internal Revenue Code (NIRC) and the Constitution? from these rentals and parking charges including those from
lodging and other charges for the use of the recreational facilities
constitute [the] bulk of its income which [is] channeled to support its
The Case many activities and attainment of its objectives. As pointed out
earlier, the membership dues are very insufficient to support its
This is the main question raised before us in this petition for review program. We find it reasonably necessary therefore for [private
on  certiorari challenging two Resolutions issued by the Court of Appeals1 on respondent] to make [the] most out [of] its existing facilities to earn
September 28, 19952 and February 29, 19963 in CA-GR SP No. 32007. Both some income. It would have been different if under the
Resolutions affirmed the Decision of the Court of Tax Appeals (CTA) allowing the circumstances, [private respondent] will purchase a lot and convert
YMCA to claim tax exemption on the latter's income from the lease of its real it to a parking lot to cater to the needs of the general public for a
property. fee, or construct a building and lease it out to the highest bidder or
at the market rate for commercial purposes, or should it invest its
funds in the buy and sell of properties, real or personal. Under
The Facts
these circumstances, we could conclude that the activities are
already profit oriented, not incidental and reasonably necessary to
The facts are undisputed.4 Private Respondent YMCA is a non-stock, non-profit the pursuit of the objectives of the association and therefore, will fall
institution, which conducts various programs and activities that are beneficial to the under the last paragraph of Section 27 of the Tax Code and any
public, especially the young people, pursuant to its religious, educational and income derived therefrom shall be taxable.
charitable objectives.
Considering our findings that [private respondent] was not engaged
In 1980, private respondent earned, among others, an income of P676,829.80 from in the business of operating or contracting [a] parking lot, we find no
leasing out a portion of its premises to small shop owners, like restaurants and legal basis also for the imposition of [a] deficiency fixed tax and [a]
canteen operators, and P44,259.00 from parking fees collected from non-members. contractor's tax in the amount[s] of P353.15 and P3,129.73,
On July 2, 1984, the commissioner of internal revenue (CIR) issued an assessment to respectively.
private respondent, in the total amount of P415,615.01 including surcharge and
interest, for deficiency income tax, deficiency expanded withholding taxes on rentals
x x x           x x x          x x x
and professional fees and deficiency withholding tax on wages. Private respondent
formally protested the assessment and, as a supplement to its basic protest, filed a
letter dated October 8, 1985. In reply, the CIR denied the claims of YMCA. WHEREFORE, in view of all the foregoing, the following
assessments are hereby dismissed for lack of merit:

1980 Deficiency Fixed Tax — P353,15;

 1980 Deficiency Contractor's Tax — P3,129.23; II

1980 Deficiency Income Tax — P372,578.20. The conclusions of law of [p]ublic [r]espondent exempting [p]rivate
[r]espondent from the income on rentals of small shops and parking
While the following assessments are hereby sustained: fees [are] in accord with the applicable law and jurisprudence. 8

1980 Deficiency Expanded Withholding Tax — P1,798.93; Finding merit in the Motion for Reconsideration filed by the YMCA, the CA reversed
itself and promulgated 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 CTA's findings of fact, as they are
plus 10% surcharge and 20% interest per annum from July 2, 1984 supported by evidence beyond what is considered as substantial.
until fully paid but not to exceed three (3) years pursuant to Section
51(e)(2) & (3) of the National Internal Revenue Code effective as of
1984. 5 x x x           x x x          x x x

Dissatisfied with the CTA ruling, the CIR elevated the case to the Court of Appeals The second ground raised is that the respondent CTA did not err in
(CA). In its Decision of February 16, 1994, the CA6 initially decided in favor of the CIR saying that the rental from small shops and parking fees do not
and disposed of the appeal in the following manner: result in the loss of the exemption. Not even the petitioner would
hazard the suggestion that YMCA is designed for profit.
Consequently, the little income from small shops and parking fees
Following the ruling in the afore-cited cases of Province of Abra vs. help[s] to keep its head above the water, so to speak, and allow it
Hernando and Abra Valley College Inc. vs. Aquino, the ruling of the to continue with its laudable work.
respondent Court of Tax Appeals that "the leasing of petitioner's
(herein respondent's) facilities to small shop owners, to restaurant
and canteen operators and the operation of the parking lot are The Court, therefore, finds the second ground of the motion to be
reasonably incidental to and reasonably necessary for the meritorious and in accord with law and jurisprudence.
accomplishment of the objectives of the petitioners, and the income
derived therefrom are tax exempt, must be reversed. WHEREFORE, the motion for reconsideration is GRANTED; the
respondent CTA's decision is AFFIRMED  in toto.9
WHEREFORE, the appealed decision is hereby REVERSED in so
far as it dismissed the assessment for: The internal revenue commissioner's own Motion for Reconsideration was denied by
Respondent Court in its second assailed Resolution of February 29, 1996. Hence,
1980 Deficiency Income Tax P 353.15 this petition for review under Rule 45 of the Rules of Court. 10

1980 Deficiency Contractor's Tax P 3,129.23, & The Issues

1980 Deficiency Income Tax P 372,578.20 Before us, petitioner imputes to the Court of Appeals the following errors:

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

Aggrieved, the YMCA asked for reconsideration based on the following grounds: In holding that it had departed from the findings of fact of
Respondent Court of Tax Appeals when it rendered its Decision
dated February 16, 1994; and
I
II
The findings of facts of the Public Respondent Court of Tax
Appeals being supported by substantial evidence [are] final and
conclusive.
 In affirming the conclusion of Respondent Court of Tax Appeals Sec. 27. Exemptions from tax on corporations. — The following
that the income of private respondent from rentals of small shops organizations shall not be taxed under this Title in respect to
and parking fees [is] exempt from taxation. 11 income received by them as such —

This Court's Ruling x x x           x x x          x x x

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

Clearly, the CA did not alter any fact or evidence. It merely resolved the Petitioner adds that "rental income derived by a tax-exempt organization from the
aforementioned issue, as indeed it was expected to. That it did so in a manner lease of its properties, real or personal, [is] not, therefore, exempt from income
different from that of the CTA did not necessarily imply a reversal of factual findings. taxation, even if such income [is] exclusively used for the accomplishment of its
objectives." 17 We agree with the commissioner.
The distinction between a question of law and a question of fact is clear-cut. It has
been held that "[t]here is a question of law in a given case when the doubt or Because taxes are the lifeblood of the nation, the Court has always applied the
difference arises as to what the law is on a certain state of facts; there is a question of doctrine of strict in interpretation in construing tax exemptions. 18 Furthermore, a claim
fact when the doubt or difference arises as to the truth or falsehood of alleged of statutory exemption from taxation should be manifest. and unmistakable from the
facts." 16 In the present case, the CA did not doubt, much less change, the facts language of the law on which it is based. Thus, the claimed exemption "must
narrated by the CTA. It merely applied the law to the facts. That its interpretation or expressly be granted in a statute stated in a language too clear to be mistaken." 19
conclusion is different from that of the CTA is not irregular or abnormal.
In the instant case, the exemption claimed by the YMCA is expressly disallowed by
Second Issue: the very wording of the last paragraph of then Section 27 of the NIRC which
Is the Rental Income of the YMCA Taxable? 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.
We now come to the crucial issue: Is the rental income of the YMCA from its real Because the last paragraph of said section unequivocally subjects to tax the rent
estate subject to tax? At the outset, we set forth the relevant provision of the NIRC: income of the YMCA from its real property, 20 the Court is duty-bound to abide strictly
by its literal meaning and to refrain from resorting to any convoluted attempt at
construction.
It is axiomatic that where the language of the law is clear and unambiguous, its The Court is not persuaded. The debates, interpellations and expressions of opinion
express terms must be applied. 21 Parenthetically, a consideration of the question of of the framers of the Constitution reveal their intent which, in turn, may have guided
construction must not even begin, particularly when such question is on whether to the people in ratifying the Charter. 32 Such intent must be effectuated.
apply a strict construction or a liberal one on statutes that grant tax exemptions to
"religious, charitable and educational propert[ies] or institutions." 22 Accordingly, Justice Hilario G. Davide, Jr., a former constitutional commissioner, who
is now a member of this Court, stressed during the Concom debates that ". . . what is
The last paragraph of Section 27, the YMCA argues, should be "subject to the exempted is not the institution itself . . .; those exempted from real estate taxes are
qualification that the income from the properties must arise from activities 'conducted lands, buildings and improvements actually, directly and exclusively used for
for profit' before it may be considered taxable." 23 This argument is erroneous. As religious, charitable or educational
previously stated, a reading of said paragraph ineludibly shows that the income from purposes." 33 Father Joaquin G. Bernas, an eminent authority on the Constitution and
any property of exempt organizations, as well as that arising from any activity it also a member of the Concom, adhered to the same view that the exemption created
conducts for profit, is taxable. The phrase "any of their activities conducted for profit" by said provision pertained only to property taxes. 34
does not qualify the word "properties." This makes from the property of the
organization taxable, regardless of how that income is used — whether for profit or for In his treatise on taxation, Mr. Justice Jose C. Vitug concurs, stating that "[t]he tax
lofty non-profit purposes. exemption covers  property taxes only." 35 Indeed, the income tax exemption claimed
by private respondent finds no basis in Article VI, Section 26, par. 3 of the
Verba legis non est recedendum. Hence, Respondent Court of Appeals committed Constitution.
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 Private respondent also invokes Article XIV, Section 4, par. 3 of the
unconvincing ground that the said income is not collected for profit but is merely Character, 36 claiming that the YMCA "is a non-stock, non-profit educational institution
incidental to its operation. The law does not make a distinction. The rental income is whose revenues and assets are used actually, directly and exclusively for educational
taxable regardless of whence such income is derived and how it is used or disposed purposes so it is exempt from taxes on its properties and income." 37 We reiterate that
of. Where the law does not distinguish, neither should we. private respondent is exempt from the payment of property tax, but not income tax on
the rentals from its property. The bare allegation alone that it is a non-stock, non-profit
Constitutional Provisions educational institution is insufficient to justify its exemption from the payment of
income tax.
On Taxation
As previously discussed, laws allowing tax exemption are construed strictissimi juris.
Invoking not only the NIRC but also the fundamental law, private respondent submits Hence, for the YMCA to be granted the exemption it claims under the aforecited
that Article VI, Section 28 of par. 3 of the 1987 Constitution, 24 exempts "charitable provision, it must prove with substantial evidence that (1) it falls under the
institutions" from the payment not only of property taxes but also of income tax from classification non-stock, non-profit educational institution; and (2) the income it seeks
any source. 25 In support of its novel theory, it compares the use of the words to be exempted from taxation is used  actually, directly, and exclusively for
"charitable institutions," "actually" and "directly" in the 1973 and the 1987 educational purposes. However, the Court notes that not a scintilla of evidence was
Constitutions, on the one hand; and in Article VI, Section 22, par. 3 of the 1935 submitted by private respondent to prove that it met the said requisites.
Constitution, on the other hand. 26
Is the YMCA an educational institution within the purview of Article XIV, Section 4,
Private respondent enunciates three points.  First, the present provision is divisible par. 3 of the Constitution? We rule that it is not. The term "educational institution" or
into two categories: (1) "[c]haritable institutions, churches and parsonages or "institution of learning" has acquired a well-known technical meaning, of which the
convents appurtenant thereto, mosques and non-profit cemeteries," the incomes of members of the Constitutional Commission are deemed cognizant. 38 Under the
which are, from whatever source, all tax-exempt; 27 and (2) "[a]ll lands, buildings and Education Act of 1982, such term refers to schools. 39 The school system is
improvements actually and directly used for religious, charitable or educational synonymous with formal education, 40 which "refers to the hierarchically structured
purposes," which are exempt only from property taxes. 28 Second, Lladoc v. and chronologically graded learnings organized and provided by the formal school
Commissioner of Internal Revenue, 29 which limited the exemption only to the system and for which certification is required in order for the learner to progress
payment of property taxes, referred to the provision of the 1935 Constitution and not through the grades or move to the higher levels." 41 The Court has examined the
to its counterparts in the 1973 and the 1987 Constitutions. 30  Third, the phrase "Amended Articles of Incorporation" and "By-Laws"43 of the YMCA, but found nothing
"actually, directly and exclusively used for religious, charitable or educational in them that even hints that it is a school or an educational institution. 44
purposes" refers not only to "all lands, buildings and improvements," but also to the
above-quoted first category which includes charitable institutions like the private Furthermore, under the Education Act of 1982, even non-formal education is
respondent. 31 understood to be school-based and "private auspices such as foundations and civic-
spirited organizations" are ruled out. 45 It is settled that the term "educational
institution," when used in laws granting tax exemptions, refers to a ". . . school In deliberating on this petition, the Court expresses its sympathy with private
seminary, college or educational establishment . . . ." 46 Therefore, the private respondent. It appreciates the nobility of its cause. However, the Court's power and
respondent cannot be deemed one of the educational institutions covered by the function are limited merely to applying the law fairly and objectively. It cannot change
constitutional provision under consideration. the law or bend it to suit its sympathies and appreciations. Otherwise, it would be
overspilling its role and invading the realm of legislation.
. . . Words used in the Constitution are to be taken in their ordinary
acceptation. While in its broadest and best sense education We concede that private respondent deserves the help and the encouragement of the
embraces all forms and phases of instruction, improvement and government. It needs laws that can facilitate, and not frustrate, its humanitarian tasks.
development of mind and body, and as well of religious and moral But the Court regrets that, given its limited constitutional authority, it cannot rule on
sentiments, yet in the common understanding and application it the wisdom or propriety of legislation. That prerogative belongs to the political
means a place where systematic instruction in any or all of the departments of government. Indeed, some of the members of the Court may even
useful branches of learning is given by methods common to believe in the wisdom and prudence of granting more tax exemptions to private
schools and institutions of learning. That we conceive to be the true respondent. But such belief, however well-meaning and sincere, cannot bestow upon
intent and scope of the term [educational institutions,] as used in the Court the power to change or amend the law.
the
Constitution. 47 WHEREFORE, the petition is GRANTED. The Resolutions of the Court of Appeals
dated September 28, 1995 and February 29, 1996 are hereby REVERSED and SET
Moreover, without conceding that Private Respondent YMCA is an educational ASIDE. The Decision of the Court of Appeals dated February 16, 1995 is
institution, the Court also notes that the former did not submit proof of the REINSTATED, insofar as it ruled that the income derived by petitioner from rentals of
proportionate amount of the subject income that was actually, directly and exclusively its real property is subject to income tax. No pronouncement as to costs.
used for educational purposes. Article XIII, Section 5 of the YMCA by-laws, which
formed part of the evidence submitted, is patently insufficient, since the same merely SO ORDERE
signified that "[t]he net income derived from the rentals of the commercial buildings
shall be apportioned to the Federation and Member Associations as the National
Board may decide." 48 In sum, we find no basis for granting the YMCA exemption from
income tax under the constitutional provision invoked.

Cases Cited by Private

Respondent Inapplicable

The cases 49 relied on by private respondent do not support its cause.  YMCA of

Manila v. Collector of Internal Revenue  50 and Abra Valley College, Inc. v.
Aquino 51 are not applicable, because the controversy in both cases involved
exemption from the payment of property tax, not income tax.  Hospital de San Juan
de Dios, Inc. v. Pasay City 52 is not in point either, because it involves a claim for
exemption from the payment of regulatory fees, specifically electrical inspection fees,
imposed by an ordinance of Pasay City — an issue not at all related to that involved
in a claimed exemption from the payment of income taxes imposed on property
leases. In Jesus Sacred Heart College v. Com. of Internal Revenue, 53 the party
therein, which claimed an exemption from the payment of income tax, was an
educational institution which submitted substantial evidence that the income subject
of the controversy had been devoted or used solely for educational purposes. On the
other hand, the private respondent in the present case has not given any proof that it
is an educational institution, or that part of its rent income is actually, directly and
exclusively used for educational purposes.

Epilogue