Beruflich Dokumente
Kultur Dokumente
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*SECOND DIVISION.
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a tax exemption are specified by the law granting it. The power of
Congress to tax implies the power to exempt from tax. Congress
can create tax exemptions, subject to the constitutional provision
that [n]o law granting any tax exemption shall be passed without
the concurrence of a majority of all the Members of Congress.
The requirements for a tax exemption are strictly construed
against the taxpayer because an exemption restricts the collection
of taxes necessary for the existence of the government.
Same; Same; Income Taxation; Real Estate Taxes; For real
property taxes, the incidental generation of income is permissible
because the test of exemption is the use of the property; 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.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, nonprofit cemeteries, and all lands, buildings,
and improvements, actually, directly, and exclusively used for
religious, charitable, or educational purposes shall be exempt
from taxation. The test of exemption is not strictly a requirement
on the intrinsic nature or character of the institution. The test
requires that the institution 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.
Same; Same; The Constitution exempts charitable institutions
only from real property taxes. In the National Internal Revenue
Code (NIRC), Congress decided to extend the exemption to income
taxes.The Constitution exempts charitable institutions only
from real property taxes. In the NIRC, Congress decided to extend
the exemption to income taxes. However, the way Congress
crafted Section 30(E) of the NIRC is materially different from
Section 28(3), Article VI of the Constitution. Section 30(E) of the
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CARPIO, J.:
The Case
The Facts
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1The consolidation of the petitions is pursuant to the Resolution of this Court
dated 4 April 2011. Rollo (G.R. No. 195960), p. 9.
2 This Resolution denied the motions filed by both parties to reconsider the
CTA En Banc Decision dated 19 November 2010.
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3 CTA First Division Decision dated 23 February 2009, citing the
earlier decision in St. Lukes Medical Center, Inc. v. Commissioner of
Internal Revenue, CTA Case No. 6993, 21 November 2008. Rollo (G.R. No.
195909), p. 68.
4This prompted St. Lukes to file an Amended Petition for Review on
12 December 2003 before the First Division of the CTA.
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5 CTA First Division Decision, citing the Answer filed by the BIR
before the CTA. Rollo (G.R. No. 195909), p. 62.
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6Id., at p. 63.
7Id., at pp. 6567.
8 Id., at p. 67. The operating expenses of St. Lukes consisted of
professional care of patients, administrative, household and property
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expenses.
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9 This income in the amount of P17,482,304 was declared by St. Lukes as
Other IncomeNet in its 1998 Income Tax Return/Audited Statements of
Revenues and Expenses.
10 CONSTITUTION, Art. VIII, Sec. 5(2)(e). Except for criminal cases where the
penalty imposed is reclusion perpetua or higher, the enumeration under Article
VIII, Section 5(1) and (2) of the Constitution generally involves a question of law.
11RULES OF COURT, Rule 45, Sec. 1.
12CONSTITUTION, Art. VIII, Sec. 5(2)(e). See note 10.
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13Rollo (G.R. No. 195909), pp. 8283. Emphases in the original.
14 See note 9. This is one of the errors assigned by St. Lukes in its
petition before this Court.
15Rollo (G.R. No. 195909), p. 65. The revised total deficiency income
tax assessed by the BIR is P63,113,952.79, which includes the deficiency
under Other IncomeNet.
16CTA Case No. 6993, 21 November 2008.
17 These are documentary evidence which, among others, show that
government agencies such as the Department of Social Welfare and
Development and the Philippine Charity Sweepstakes Office recognize St.
Lukes as a charitable institution.
18123 Phil. 38; 16 SCRA 226 (1966).
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19Id., at p. 41; p. 229 citing 51 Am. Jur. 607.
2095 Phil. 16 (1954).
21 Commonwealth Act No. 466, as amended by Republic Act No. 82,
Sec. 27 provides: Exemption from tax on corporation.The following
organizations shall not be taxed under this Title in respect to income
received by them as such
xxxx
(e) Corporation or association organized and operated exclusively for
religious, charitable, scientific, athletic, cultural, or educational purposes,
or for the rehabilitation of veterans no part of the net income of which
inures to the benefit of any private stockholder or individual: Provided,
however, That the income of whatever kind and character from any of its
properties, real or personal, or from any activity conducted for profit
regardless of the disposition made of such income, shall be liable to the tax
imposed under this Code[.]
22Jesus Sacred Heart College v. Collector of Internal Revenue, supra
note 20 at p. 21.
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The Issue
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23Id.
24 The CTA adopted its earlier interpretation in St. Lukes Medical
Center, Inc. v. Commissioner of Internal Revenue. Supra note 16.
25Rollo (G.R. No. 195909), p. 76. Italics in the original.
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26410 Phil. 241; 358 SCRA 38 (2001).
27Id., at p. 257; pp. 4950; Rollo (G.R. No. 195960), pp. 1516.
28Rollo (G.R. No. 195960), p. 24.
29Id., at p. 50.
30NIRC, Sec. 248(A)(3).
31NIRC, Sec. 249(C)(3) provides: A deficiency tax, or any surcharge or
interest thereon on the due date appearing in the notice and demand of
the Commissioner, there shall be assessed and collected on the unpaid
amount, interest at the rate prescribed in Subsection (A) hereof until the
amount is fully paid, which interest shall form part of the tax.
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32 CTA En Banc Resolution dated 1 March 2011. Rollo (G.R. No.
195909), p. 56.
Section 249 of the NIRC provides:
(A) In General.There shall be assessed and collected on any unpaid
amount of tax, interest at the rate of twenty percent (20%) per annum, or
such higher rate as may be prescribed by rules and regulations, from the
date prescribed for its payment until the amount is fully paid.
(B) Deficiency Interest.Any deficiency in the tax due, as the term is
defined in this Code, shall be subject to the interest prescribed in
Subsection (A) hereof, which interest shall be assessed and collected from
the date prescribed for its payment until the full payment thereof.
xxxx
33Id., at pp. 2127. Section 27(E) of the NIRC of 1977 provides:
Sec. 27. Exemptions from tax on corporations.The following
organizations shall not be taxed under this Title in respect to income
received by them as such
xxxx
(E) Corporation or association organized and operated exclusively for
religious, charitable, scientific, athletic, or cultural pur
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poses, or for the rehabilitation of veterans, no part of the net income of
which inures to the benefit of any private stockholder or individual.
xxxx
34 See Comment of St. Lukes dated 19 September 2011 in G.R. No.
195909. Id., at pp. 105116.
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35Id., at pp. 106108.
36Cf. NIRC, Sec. 30(H).
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37115 Phil. 310; 5 SCRA 321 (1962).
38Id., at p. 311; p. 322.
39Id., at p. 314; p. 324.
40G.R. No. 144104, 29 June 2004, 433 SCRA 119.
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41Id., at pp. 128129. Emphasis supplied.
42For further discussion of the Subsidy Theory of Tax Exemption, see
H. Hansmann, The Rationale for Exempting Nonprofit Organizations from
Corporate Income Taxation, 91 YALE L. J. 54 (1981) at 6675. See also M.
Hall & J. Colombo, The Charitable Status of Nonprofit Hospitals: Toward
a Donative Theory of Tax Exemption, 66 WASH. L. REV. 307 (1991).
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43CONSTITUTION, Art. VI, Sec. 28(4).
44 Commissioner of Internal Revenue v. The Philippine American
Accident Insurance Company, Inc., 493 Phil. 785; 453 SCRA 668 (2005);
Lung Center of the Philippines v. Quezon City, supra note 40 at pp. 133
134; Mactan Cebu International Airport Authority v. Marcos, 330 Phil.
392; 261 SCRA 667 (1996); Manila Electric Company v. Vera, 160A Phil.
498; 67 SCRA 351 (1975).
45Supra note 18.
46Supra note 20.
47Lung Center of the Philippines v. Quezon City, supra note 40 at pp.
131132. Citation omitted.
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48CONSTITUTION, Art. VI, Sec. 28(3).
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49CORPORATION Code (B.P. Blg. 68), Sec. 87.
50Id.
51Supra note 40. Emphasis supplied.
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52Since the exemption is proportional to the revenue of the institution,
Hall & Colombo say that a general tax exemption suffers from the same
upside down effect as many tax deductions: those entities with the
highest net revenues or the greatest value of otherwisetaxable property
receive the greatest amount of subsidy, yet these are the entities that
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least need support. From the standpoint of equity among different tax
exempt entities, the result of the general tax exemption is that entities
that are the poorest in either an income or property tax sense, and thus
most in need of government assistance to serve impoverished and
uninsured patients, receive the least government assistance. Because
uncompensated care is an expense item, those hospitals with the most net
revenues are more likely to have actually rendered the least free care, all
other things being equal. Hall & Colombo, supra note 42 at pp. 355356.
Citations omitted.
53 Comment of St. Lukes dated 19 September 2011. Rollo (G.R. No.
195909), p. 113.
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55Jesus Sacred Heart College v. Collector of Internal Revenue, supra note 20 at
pp. 2021.
56Lung Center of the Philippines v. Quezon City, supra note 40.
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57Supra note 20 at p. 29.
58Supra note 20 at p. 23. Jesus Sacred Heart College distinguished an
educational institution from a charitable institution: More important
still, the law applied in the case relied upon by [the BIR] exempted from
taxation only such educational institutions as were established for
charitable or philanthropic purposes. Consequently, the amount of
fees charged or the intent to collect more than the cost of
operation or instruction was material to the determination of
such purpose. Upon the other hand, under Section 27(e) of [the old]
National Internal Revenue Code, as amended, an institution operated
exclusively for educational purposes need not have, in addition thereto, a
charitable or philanthropic character, to be exempt from taxation,
provided only that no part of its net income inures to the benefit of any
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59Italics supplied.
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60See CTA First Division Decision dated 23 February 2009. Rollo (G.R.
No. 195909), p. 69.
61533 Phil. 101; 501 SCRA 450 (2006).
62Id., at pp. 108109; p. 460.
** Designated Acting Member per Special Order No. 1308 dated 21
September 2012.
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o0o
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