TOLENTINO VS.

SECRETARY OF FINANCE

RESOLUTION

MENDOZA, J.:

These are motions seeking reconsideration of our decision dismissing the petitions filed in these cases for the declaration
of unconstitutionality of R.A. No. 7716, otherwise known as the Expanded Value-Added Tax Law. The motions, of which
there are 10 in all, have been filed by the several petitioners in these cases, with the exception of the Philippine
Educational Publishers Association, Inc. and the Association of Philippine Booksellers, petitioners in G.R. No. 115931.

The Solicitor General, representing the respondents, filed a consolidated comment, to which the Philippine Airlines, Inc.,
petitioner in G.R. No. 115852, and the Philippine Press Institute, Inc., petitioner in G.R. No. 115544, and Juan T. David,
petitioner in G.R. No. 115525, each filed a reply. In turn the Solicitor General filed on June 1, 1995 a rejoinder to the PPI's
reply.

On June 27, 1995 the matter was submitted for resolution.

I. Power of the Senate to propose amendments to revenue bills. Some of the petitioners (Tolentino, Kilosbayan, Inc.,
Philippine Airlines (PAL), Roco, and Chamber of Real Estate and Builders Association (CREBA)) reiterate previous claims
made by them that R.A. No. 7716 did not "originate exclusively" in the House of Representatives as required by Art. VI,
24 of the Constitution. Although they admit that H. No. 11197 was filed in the House of Representatives where it passed
three readings and that afterward it was sent to the Senate where after first reading it was referred to the Senate Ways and
Means Committee, they complain that the Senate did not pass it on second and third readings. Instead what the Senate
did was to pass its own version (S. No. 1630) which it approved on May 24, 1994. Petitioner Tolentino adds that what the
Senate committee should have done was to amend H. No. 11197 by striking out the text of the bill and substituting it with
the text of S. No. 1630. That way, it is said, "the bill remains a House bill and the Senate version just becomes the text
(only the text) of the House bill."

The contention has no merit.

The enactment of S. No. 1630 is not the only instance in which the Senate proposed an amendment to a House revenue
bill by enacting its own version of a revenue bill. On at least two occasions during the Eighth Congress, the Senate passed
its own version of revenue bills, which, in consolidation with House bills earlier passed, became the enrolled bills. These
were:

R.A. No. 7369 (AN ACT TO AMEND THE OMNIBUS INVESTMENTS CODE OF 1987 BY EXTENDING FROM FIVE (5)
YEARS TO TEN YEARS THE PERIOD FOR TAX AND DUTY EXEMPTION AND TAX CREDIT ON CAPITAL
EQUIPMENT) which was approved by the President on April 10, 1992. This Act is actually a consolidation of H. No. 34254,
which was approved by the House on January 29, 1992, and S. No. 1920, which was approved by the Senate on February
3, 1992.

R.A. No. 7549 (AN ACT GRANTING TAX EXEMPTIONS TO WHOEVER SHALL GIVE REWARD TO ANY FILIPINO
ATHLETE WINNING A MEDAL IN OLYMPIC GAMES) which was approved by the President on May 22, 1992. This Act is
a consolidation of H. No. 22232, which was approved by the House of Representatives on August 2, 1989, and S. No. 807,
which was approved by the Senate on October 21, 1991.

On the other hand, the Ninth Congress passed revenue laws which were also the result of the consolidation of House and
Senate bills. These are the following, with indications of the dates on which the laws were approved by the President and
dates the separate bills of the two chambers of Congress were respectively passed:

1. R.A. NO. 7642

AN ACT INCREASING THE PENALTIES FOR TAX EVASION, AMENDING FOR THIS PURPOSE THE PERTINENT
SECTIONS OF THE NATIONAL INTERNAL REVENUE CODE (December 28, 1992).

House Bill No. 2165, October 5, 1992

Senate Bill No. 32, December 7, 1992

2. R.A. NO. 7643

AN ACT TO EMPOWER THE COMMISSIONER OF INTERNAL REVENUE TO REQUIRE THE PAYMENT OF THE
VALUE-ADDED TAX EVERY MONTH AND TO ALLOW LOCAL GOVERNMENT UNITS TO SHARE IN VAT REVENUE,
AMENDING FOR THIS PURPOSE CERTAIN SECTIONS OF THE NATIONAL INTERNAL REVENUE CODE (December
28, 1992)

House Bill No. 1503, September 3, 1992

Senate Bill No. 968, December 7, 1992

3. R.A. NO. 7646

AN ACT AUTHORIZING THE COMMISSIONER OF INTERNAL REVENUE TO PRESCRIBE THE PLACE FOR
PAYMENT OF INTERNAL REVENUE TAXES BY LARGE TAXPAYERS, AMENDING FOR THIS PURPOSE CERTAIN
PROVISIONS OF THE NATIONAL INTERNAL REVENUE CODE, AS AMENDED (February 24, 1993)

House Bill No. 1470, October 20, 1992

Senate Bill No. 35, November 19, 1992

4. R.A. NO. 7649

AN ACT REQUIRING THE GOVERNMENT OR ANY OF ITS POLITICAL SUBDIVISIONS, INSTRUMENTALITIES OR

AGENCIES INCLUDING GOVERNMENT-OWNED OR CONTROLLED CORPORATIONS (GOCCS) TO DEDUCT AND
WITHHOLD THE VALUE-ADDED TAX DUE AT THE RATE OF THREE PERCENT (3%) ON GROSS PAYMENT FOR
THE PURCHASE OF GOODS AND SIX PERCENT (6%) ON GROSS RECEIPTS FOR SERVICES RENDERED BY
CONTRACTORS (April 6, 1993)

House Bill No. 5260, January 26, 1993

Senate Bill No. 1141, March 30, 1993

5. R.A. NO. 7656

AN ACT REQUIRING GOVERNMENT-OWNED OR CONTROLLED CORPORATIONS TO DECLARE DIVIDENDS

UNDER CERTAIN CONDITIONS TO THE NATIONAL GOVERNMENT, AND FOR OTHER PURPOSES (November 9,
1993)

House Bill No. 11024, November 3, 1993

Senate Bill No. 1168, November 3, 1993

6. R.A. NO. 7660

AN ACT RATIONALIZING FURTHER THE STRUCTURE AND ADMINISTRATION OF THE DOCUMENTARY STAMP
TAX, AMENDING FOR THE PURPOSE CERTAIN PROVISIONS OF THE NATIONAL INTERNAL REVENUE CODE, AS
AMENDED, ALLOCATING FUNDS FOR SPECIFIC PROGRAMS, AND FOR OTHER PURPOSES (December 23, 1993)

House Bill No. 7789, May 31, 1993

Senate Bill No. 1330, November 18, 1993

7. R.A. NO. 7717

AN ACT IMPOSING A TAX ON THE SALE, BARTER OR EXCHANGE OF SHARES OF STOCK LISTED AND TRADED
THROUGH THE LOCAL STOCK EXCHANGE OR THROUGH INITIAL PUBLIC OFFERING, AMENDING FOR THE
PURPOSE THE NATIONAL INTERNAL REVENUE CODE, AS AMENDED, BY INSERTING A NEW SECTION AND
REPEALING CERTAIN SUBSECTIONS THEREOF (May 5, 1994)

House Bill No. 9187, November 3, 1993

Senate Bill No. 1127, March 23, 1994

Thus, the enactment of S. No. 1630 is not the only instance in which the Senate, in the exercise of its power to propose
amendments to bills required to originate in the House, passed its own version of a House revenue measure. It is
noteworthy that, in the particular case of S. No. 1630, petitioners Tolentino and Roco, as members of the Senate, voted to
approve it on second and third readings.
On the other hand, amendment by substitution, in the manner urged by petitioner Tolentino, concerns a mere matter of
form. Petitioner has not shown what substantial difference it would make if, as the Senate actually did in this case, a
separate bill like S. No. 1630 is instead enacted as a substitute measure, "taking into Consideration . . . H.B. 11197."

Indeed, so far as pertinent, the Rules of the Senate only provide:

RULE XXIX

AMENDMENTS

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68. Not more than one amendment to the original amendment shall be considered.

No amendment by substitution shall be entertained unless the text thereof is submitted in writing.

Any of said amendments may be withdrawn before a vote is taken thereon.

69. No amendment which seeks the inclusion of a legislative provision foreign to the subject matter of a bill (rider) shall be
entertained.

xxx xxx xxx

70-A. A bill or resolution shall not be amended by substituting it with another which covers a subject distinct from that
proposed in the original bill or resolution. (emphasis added).

Nor is there merit in petitioners' contention that, with regard to revenue bills, the Philippine Senate possesses less power
than the U.S. Senate because of textual differences between constitutional provisions giving them the power to propose or
concur with amendments.

Art. I, 7, cl. 1 of the U.S. Constitution reads:

All Bills for raising Revenue shall originate in the House of Representatives; but the Senate may propose or concur with
amendments as on other Bills.

Art. VI, 24 of our Constitution reads:

All appropriation, revenue or tariff bills, bills authorizing increase of the public debt, bills of local application, and private
bills shall originate exclusively in the House of Representatives, but the Senate may propose or concur with amendments.

The addition of the word "exclusively" in the Philippine Constitution and the decision to drop the phrase "as on other Bills"
in the American version, according to petitioners, shows the intention of the framers of our Constitution to restrict the
Senate's power to propose amendments to revenue bills. Petitioner Tolentino contends that the word "exclusively" was
inserted to modify "originate" and "the words 'as in any other bills' (sic) were eliminated so as to show that these bills were
not to be like other bills but must be treated as a special kind."

The history of this provision does not support this contention. The supposed indicia of constitutional intent are nothing but
the relics of an unsuccessful attempt to limit the power of the Senate. It will be recalled that the 1935 Constitution originally
provided for a unicameral National Assembly. When it was decided in 1939 to change to a bicameral legislature, it became
necessary to provide for the procedure for lawmaking by the Senate and the House of Representatives. The work of
proposing amendments to the Constitution was done by the National Assembly, acting as a constituent assembly, some of
whose members, jealous of preserving the Assembly's lawmaking powers, sought to curtail the powers of the proposed
Senate. Accordingly they proposed the following provision:

All bills appropriating public funds, revenue or tariff bills, bills of local application, and private bills shall originate
exclusively in the Assembly, but the Senate may propose or concur with amendments. In case of disapproval by the
Senate of any such bills, the Assembly may repass the same by a two-thirds vote of all its members, and thereupon, the
bill so repassed shall be deemed enacted and may be submitted to the President for corresponding action. In the event
that the Senate should fail to finally act on any such bills, the Assembly may, after thirty days from the opening of the next
regular session of the same legislative term, reapprove the same with a vote of two-thirds of all the members of the
Assembly. And upon such reapproval, the bill shall be deemed enacted and may be submitted to the President for
corresponding action.

The special committee on the revision of laws of the Second National Assembly vetoed the proposal. It deleted everything
after the first sentence. As rewritten, the proposal was approved by the National Assembly and embodied in Resolution No.
38, as amended by Resolution No. 73. (J. ARUEGO, KNOW YOUR CONSTITUTION 65-66 (1950)). The proposed
amendment was submitted to the people and ratified by them in the elections held on June 18, 1940.
This is the history of Art. VI, 18 (2) of the 1935 Constitution, from which Art. VI, 24 of the present Constitution was
derived. It explains why the word "exclusively" was added to the American text from which the framers of the Philippine
Constitution borrowed and why the phrase "as on other Bills" was not copied. Considering the defeat of the proposal, the
power of the Senate to propose amendments must be understood to be full, plenary and complete "as on other Bills." Thus,
because revenue bills are required to originate exclusively in the House of Representatives, the Senate cannot enact
revenue measures of its own without such bills. After a revenue bill is passed and sent over to it by the House, however,
the Senate certainly can pass its own version on the same subject matter. This follows from the coequality of the two
chambers of Congress.

That this is also the understanding of book authors of the scope of the Senate's power to concur is clear from the following
commentaries:

The power of the Senate to propose or concur with amendments is apparently without restriction. It would seem that by
virtue of this power, the Senate can practically re-write a bill required to come from the House and leave only a trace of the
original bill. For example, a general revenue bill passed by the lower house of the United States Congress contained
provisions for the imposition of an inheritance tax . This was changed by the Senate into a corporation tax. The amending
authority of the Senate was declared by the United States Supreme Court to be sufficiently broad to enable it to make the
alteration. [Flint v. Stone Tracy Company, 220 U.S. 107, 55 L. ed. 389].

(L. TAADA AND F. CARREON, POLITICAL LAW OF THE PHILIPPINES 247 (1961))

The above-mentioned bills are supposed to be initiated by the House of Representatives because it is more numerous in
membership and therefore also more representative of the people. Moreover, its members are presumed to be more
familiar with the needs of the country in regard to the enactment of the legislation involved.

The Senate is, however, allowed much leeway in the exercise of its power to propose or concur with amendments to the
bills initiated by the House of Representatives. Thus, in one case, a bill introduced in the U.S. House of Representatives
was changed by the Senate to make a proposed inheritance tax a corporation tax. It is also accepted practice for the
Senate to introduce what is known as an amendment by substitution, which may entirely replace the bill initiated in the
House of Representatives.

(I. CRUZ, PHILIPPINE POLITICAL LAW 144-145 (1993)).

In sum, while Art. VI, 24 provides that all appropriation, revenue or tariff bills, bills authorizing increase of the public debt,
bills of local application, and private bills must "originate exclusively in the House of Representatives," it also adds, "but the
Senate may propose or concur with amendments." In the exercise of this power, the Senate may propose an entirely new
bill as a substitute measure. As petitioner Tolentino states in a high school text, a committee to which a bill is referred may
do any of the following:

(1) to endorse the bill without changes; (2) to make changes in the bill omitting or adding sections or altering its language;
(3) to make and endorse an entirely new bill as a substitute, in which case it will be known as a committee bill; or (4) to
make no report at all.

(A. TOLENTINO, THE GOVERNMENT OF THE PHILIPPINES 258 (1950))

To except from this procedure the amendment of bills which are required to originate in the House by prescribing that the
number of the House bill and its other parts up to the enacting clause must be preserved although the text of the Senate
amendment may be incorporated in place of the original body of the bill is to insist on a mere technicality. At any rate there
is no rule prescribing this form. S. No. 1630, as a substitute measure, is therefore as much an amendment of H. No. 11197
as any which the Senate could have made.

II. S. No. 1630 a mere amendment of H. No. 11197. Petitioners' basic error is that they assume that S. No. 1630 is
an independent and distinct bill. Hence their repeated references to its certification that it was passed by the Senate
"in substitution of S.B. No. 1129, taking into consideration P.S. Res. No. 734 and H.B. No. 11197," implying that there is
something substantially different between the reference to S. No. 1129 and the reference to H. No. 11197. From this
premise, they conclude that R.A. No. 7716 originated both in the House and in the Senate and that it is the product of two
"half-baked bills because neither H. No. 11197 nor S. No. 1630 was passed by both houses of Congress."

In point of fact, in several instances the provisions of S. No. 1630, clearly appear to be mere amendments of the
corresponding provisions of H. No. 11197. The very tabular comparison of the provisions of H. No. 11197 and S. No. 1630
attached as Supplement A to the basic petition of petitioner Tolentino, while showing differences between the two bills, at
the same time indicates that the provisions of the Senate bill were precisely intended to be amendments to the House bill.

Without H. No. 11197, the Senate could not have enacted S. No. 1630. Because the Senate bill was a mere amendment of
the House bill, H. No. 11197 in its original form did not have to pass the Senate on second and three readings. It was
enough that after it was passed on first reading it was referred to the Senate Committee on Ways and Means. Neither was
it required that S. No. 1630 be passed by the House of Representatives before the two bills could be referred to the
Conference Committee.
There is legislative precedent for what was done in the case of H. No. 11197 and S. No. 1630. When the House bill and
Senate bill, which became R.A. No. 1405 (Act prohibiting the disclosure of bank deposits), were referred to a conference
committee, the question was raised whether the two bills could be the subject of such conference, considering that the bill
from one house had not been passed by the other and vice versa. As Congressman Duran put the question:

MR. DURAN. Therefore, I raise this question of order as to procedure: If a House bill is passed by the House but not
passed by the Senate, and a Senate bill of a similar nature is passed in the Senate but never passed in the House, can the
two bills be the subject of a conference, and can a law be enacted from these two bills? I understand that the Senate bill in
this particular instance does not refer to investments in government securities, whereas the bill in the House, which was
introduced by the Speaker, covers two subject matters: not only investigation of deposits in banks but also investigation of
investments in government securities. Now, since the two bills differ in their subject matter, I believe that no law can be
enacted.

Ruling on the point of order raised, the chair (Speaker Jose B. Laurel, Jr.) said:

THE SPEAKER. The report of the conference committee is in order. It is precisely in cases like this where a conference
should be had. If the House bill had been approved by the Senate, there would have been no need of a conference; but
precisely because the Senate passed another bill on the same subject matter, the conference committee had to be
created, and we are now considering the report of that committee.

(2 CONG. REC. NO. 13, July 27, 1955, pp. 3841-42 (emphasis added))

III. The President's certification. The fallacy in thinking that H. No. 11197 and S. No. 1630 are distinct and unrelated
measures also accounts for the petitioners' (Kilosbayan's and PAL's) contention that because the President separately
certified to the need for the immediate enactment of these measures, his certification was ineffectual and void. The
certification had to be made of the version of the same revenue bill which at the moment was being considered. Otherwise,
to follow petitioners' theory, it would be necessary for the President to certify as many bills as are presented in a house of
Congress even though the bills are merely versions of the bill he has already certified. It is enough that he certifies the bill
which, at the time he makes the certification, is under consideration. Since on March 22, 1994 the Senate was considering
S. No. 1630, it was that bill which had to be certified. For that matter on June 1, 1993 the President had earlier certified H.
No. 9210 for immediate enactment because it was the one which at that time was being considered by the House. This bill
was later substituted, together with other bills, by H. No. 11197.

As to what Presidential certification can accomplish, we have already explained in the main decision that the phrase
"except when the President certifies to the necessity of its immediate enactment, etc." in Art. VI, 26 (2) qualifies not onl y
the requirement that "printed copies [of a bill] in its final form [must be] distributed to the members three days before its
passage" but also the requirement that before a bill can become a law it must have passed "three readings on separate
days." There is not only textual support for such construction but historical basis as well.

Art. VI, 21 (2) of the 1935 Constitution originally provided:

(2) No bill shall be passed by either House unless it shall have been printed and copies thereof in its final form furnished its
Members at least three calendar days prior to its passage, except when the President shall have certified to the necessity
of its immediate enactment. Upon the last reading of a bill, no amendment thereof shall be allowed and the question upon
its passage shall be taken immediately thereafter, and the yeas and nays entered on the Journal.

When the 1973 Constitution was adopted, it was provided in Art. VIII, 19 (2):

(2) No bill shall become a law unless it has passed three readings on separate days, and printed copies thereof in its final
form have been distributed to the Members three days before its passage, except when the Prime Minister certifies to the
necessity of its immediate enactment to meet a public calamity or emergency. Upon the last reading of a bill, no
amendment thereto shall be allowed, and the vote thereon shall be taken immediately thereafter, and
the yeas and nays entered in the Journal.

This provision of the 1973 document, with slight modification, was adopted in Art. VI, 26 (2) of the present Constitution,
thus:

(2) No bill passed by either House shall become a law unless it has passed three readings on separate days, and printed
copies thereof in its final form have been distributed to its Members three days before its passage, except when the
President certifies to the necessity of its immediate enactment to meet a public calamity or emergency. Upon the last
reading of a bill, no amendment thereto shall be allowed, and the vote thereon shall be taken immediately thereafter, and
the yeas and nays entered in the Journal.

The exception is based on the prudential consideration that if in all cases three readings on separate days are required
and a bill has to be printed in final form before it can be passed, the need for a law may be rendered academic by the
occurrence of the very emergency or public calamity which it is meant to address.
Petitioners further contend that a "growing budget deficit" is not an emergency, especially in a country like the Philippines
where budget deficit is a chronic condition. Even if this were the case, an enormous budget deficit does not make the need
for R.A. No. 7716 any less urgent or the situation calling for its enactment any less an emergency.

Apparently, the members of the Senate (including some of the petitioners in these cases) believed that there was an
urgent need for consideration of S. No. 1630, because they responded to the call of the President by voting on the bill on
second and third readings on the same day. While the judicial department is not bound by the Senate's acceptance of the
President's certification, the respect due coequal departments of the government in matters committed to them by the
Constitution and the absence of a clear showing of grave abuse of discretion caution a stay of the judicial hand.

At any rate, we are satisfied that S. No. 1630 received thorough consideration in the Senate where it was discussed for six
days. Only its distribution in advance in its final printed form was actually dispensed with by holding the voting on second
and third readings on the same day (March 24, 1994). Otherwise, sufficient time between the submission of the bill on
February 8, 1994 on second reading and its approval on March 24, 1994 elapsed before it was finally voted on by the
Senate on third reading.

The purpose for which three readings on separate days is required is said to be two-fold: (1) to inform the members of
Congress of what they must vote on and (2) to give them notice that a measure is progressing through the enacting
process, thus enabling them and others interested in the measure to prepare their positions with reference to it. (1 J. G.
SUTHERLAND, STATUTES AND STATUTORY CONSTRUCTION 10.04, p. 282 (1972)). These purposes were
substantially achieved in the case of R.A. No. 7716.

IV. Power of Conference Committee. It is contended (principally by Kilosbayan, Inc. and the Movement of Attorneys for
Brotherhood, Integrity and Nationalism, Inc. (MABINI)) that in violation of the constitutional policy of full public disclosure
and the people's right to know (Art. II, 28 and Art. III, 7) the Conference Committee met for two days in executive
session with only the conferees present.

As pointed out in our main decision, even in the United States it was customary to hold such sessions with only the
conferees and their staffs in attendance and it was only in 1975 when a new rule was adopted requiring open sessions.
Unlike its American counterpart, the Philippine Congress has not adopted a rule prescribing open hearings for conference
committees.

It is nevertheless claimed that in the United States, before the adoption of the rule in 1975, at least staff members were
present. These were staff members of the Senators and Congressmen, however, who may be presumed to be their
confidential men, not stenographers as in this case who on the last two days of the conference were excluded. There is no
showing that the conferees themselves did not take notes of their proceedings so as to give petitioner Kilosbayan basis for
claiming that even in secret diplomatic negotiations involving state interests, conferees keep notes of their meetings.
Above all, the public's right to know was fully served because the Conference Committee in this case submitted a report
showing the changes made on the differing versions of the House and the Senate.

Petitioners cite the rules of both houses which provide that conference committee reports must contain "a detailed,
sufficiently explicit statement of the changes in or other amendments." These changes are shown in the bill attached to the
Conference Committee Report. The members of both houses could thus ascertain what changes had been made in the
original bills without the need of a statement detailing the changes.

The same question now presented was raised when the bill which became R.A. No. 1400 (Land Reform Act of 1955) was
reported by the Conference Committee. Congressman Bengzon raised a point of order. He said:

MR. BENGZON. My point of order is that it is out of order to consider the report of the conference committee
regarding House Bill No. 2557 by reason of the provision of Section 11, Article XII, of the Rules of this House which
provides specifically that the conference report must be accompanied by a detailed statement of the effects of the
amendment on the bill of the House. This conference committee report is not accompanied by that detailed statement, Mr.
Speaker. Therefore it is out of order to consider it.

Petitioner Tolentino, then the Majority Floor Leader, answered:

MR. TOLENTINO. Mr. Speaker, I should just like to say a few words in connection with the point of order raised by the
gentleman from Pangasinan.

There is no question about the provision of the Rule cited by the gentleman from Pangasinan, but this provision applies to
those cases where only portions of the bill have been amended. In this case before us an entire bill is presented; therefore,
it can be easily seen from the reading of the bill what the provisions are. Besides, this procedure has been an established
practice.

After some interruption, he continued:

MR. TOLENTINO. As I was saying, Mr. Speaker, we have to look into the reason for the provisions of the Rules, and the
reason for the requirement in the provision cited by the gentleman from Pangasinan is when there are only certain words
or phrases inserted in or deleted from the provisions of the bill included in the conference report, and we cannot
understand what those words and phrases mean and their relation to the bill. In that case, it is necessary to make a
detailed statement on how those words and phrases will affect the bill as a whole; but when the entire bill itself is copied
verbatim in the conference report, that is not necessary. So when the reason for the Rule does not exist, the Rule does not
exist.

(2 CONG. REC. NO. 2, p. 4056. (emphasis added))

Congressman Tolentino was sustained by the chair. The record shows that when the ruling was appealed, it was upheld
by viva voce and when a division of the House was called, it was sustained by a vote of 48 to 5. (Id.,
p. 4058)

Nor is there any doubt about the power of a conference committee to insert new provisions as long as these are germane
to the subject of the conference. As this Court held in Philippine Judges Association v. Prado, 227 SCRA 703 (1993), in an
opinion written by then Justice Cruz, the jurisdiction of the conference committee is not limited to resolving differences
between the Senate and the House. It may propose an entirely new provision. What is important is that its report is
subsequently approved by the respective houses of Congress. This Court ruled that it would not entertain allegations that,
because new provisions had been added by the conference committee, there was thereby a violation of the constitutional
injunction that "upon the last reading of a bill, no amendment thereto shall be allowed."

Applying these principles, we shall decline to look into the petitioners' charges that an amendment was made upon the last
reading of the bill that eventually became R.A. No. 7354 and that copies thereof in its final form were not
distributed among the members of each House. Both the enrolled bill and the legislative journals certify that the measure
was duly enacted i.e., in accordance with Article VI, Sec. 26 (2) of the Constitution. We are bound by such official
assurances from a coordinate department of the government, to which we owe, at the very least, a becoming courtesy.

(Id. at 710. (emphasis added))

It is interesting to note the following description of conference committees in the Philippines in a 1979 study:

Conference committees may be of two types: free or instructed. These committees may be given instructions by their
parent bodies or they may be left without instructions. Normally the conference committees are without instructions, and
this is why they are often critically referred to as "the little legislatures." Once bills have been sent to them, the conferees
have almost unlimited authority to change the clauses of the bills and in fact sometimes introduce new measures that were
not in the original legislation. No minutes are kept, and members' activities on conference committees are difficult to
determine. One congressman known for his idealism put it this way: "I killed a bill on export incentives for my interest group
[copra] in the conference committee but I could not have done so anywhere else." The conference committee submits a
report to both houses, and usually it is accepted. If the report is not accepted, then the committee is discharged and new
members are appointed.

(R. Jackson, Committees in the Philippine Congress, in COMMITTEES AND LEGISLATURES: A COMPARATIVE
ANALYSIS 163 (J. D. LEES AND M. SHAW, eds.)).

In citing this study, we pass no judgment on the methods of conference committees. We cite it only to say that conference
committees here are no different from their counterparts in the United States whose vast powers we noted in Philippine
Judges Association v. Prado, supra. At all events, under Art. VI, 16(3) each house has the power "to determine the rules
of its proceedings," including those of its committees. Any meaningful change in the method and procedures of Congress
or its committees must therefore be sought in that body itself.

V. The titles of S. No. 1630 and H. No. 11197. PAL maintains that R.A. No. 7716 violates Art. VI, 26 (1) of the
Constitution which provides that "Every bill passed by Congress shall embrace only one subject which shall be expressed
in the title thereof." PAL contends that the amendment of its franchise by the withdrawal of its exemption from the VAT is
not expressed in the title of the law.

Pursuant to 13 of P.D. No. 1590, PAL pays a franchise tax of 2% on its gross revenue "in lieu of all other taxes, duties,
royalties, registration, license and other fees and charges of any kind, nature, or description, imposed, levied, established,
assessed or collected by any municipal, city, provincial or national authority or government agency, now or in the future."

PAL was exempted from the payment of the VAT along with other entities by 103 of the National Internal Revenue Code,
which provides as follows:

103. Exempt transactions. The following shall be exempt from the value-added tax:

xxx xxx xxx

(q) Transactions which are exempt under special laws or international agreements to which the Philippines is a signatory.

R.A. No. 7716 seeks to withdraw certain exemptions, including that granted to PAL, by amending 103, as follows:

103. Exempt transactions. The following shall be exempt from the value-added tax:

xxx xxx xxx

(q) Transactions which are exempt under special laws, except those granted under Presidential Decree Nos. 66, 529, 972,
1491, 1590. . . .

The amendment of 103 is expressed in the title of R.A. No. 7716 which reads:

AN ACT RESTRUCTURING THE VALUE-ADDED TAX (VAT) SYSTEM, WIDENING ITS TAX BASE AND ENHANCING
ITS ADMINISTRATION, AND FOR THESE PURPOSES AMENDING AND REPEALING THE RELEVANT PROVISIONS
OF THE NATIONAL INTERNAL REVENUE CODE, AS AMENDED, AND FOR OTHER PURPOSES.

By stating that R.A. No. 7716 seeks to "[RESTRUCTURE] THE VALUE-ADDED TAX (VAT) SYSTEM [BY] WIDENING
ITS TAX BASE AND ENHANCING ITS ADMINISTRATION, AND FOR THESE PURPOSES AMENDING AND
REPEALING THE RELEVANT PROVISIONS OF THE NATIONAL INTERNAL REVENUE CODE, AS AMENDED AND
FOR OTHER PURPOSES," Congress thereby clearly expresses its intention to amend any provision of the NIRC which
stands in the way of accomplishing the purpose of the law.

PAL asserts that the amendment of its franchise must be reflected in the title of the law by specific reference to P.D. No.
1590. It is unnecessary to do this in order to comply with the constitutional requirement, since it is already stated in the title
that the law seeks to amend the pertinent provisions of the NIRC, among which is 103(q), in order to widen the base of
the VAT. Actually, it is the bill which becomes a law that is required to express in its title the subject of legislation. The titles
of H. No. 11197 and S. No. 1630 in fact specifically referred to 103 of the NIRC as among the provisions sought to be
amended. We are satisfied that sufficient notice had been given of the pendency of these bills in Congress before they
were enacted into what is now R.A.
No. 7716.

In Philippine Judges Association v. Prado, supra, a similar argument as that now made by PAL was rejected. R.A. No.
7354 is entitled AN ACT CREATING THE PHILIPPINE POSTAL CORPORATION, DEFINING ITS POWERS,
FUNCTIONS AND RESPONSIBILITIES, PROVIDING FOR REGULATION OF THE INDUSTRY AND FOR OTHER
PURPOSES CONNECTED THEREWITH. It contained a provision repealing all franking privileges. It was contended that
the withdrawal of franking privileges was not expressed in the title of the law. In holding that there was sufficient
description of the subject of the law in its title, including the repeal of franking privileges, this Court held:

To require every end and means necessary for the accomplishment of the general objectives of the statute to be
expressed in its title would not only be unreasonable but would actually render legislation impossible. [Cooley,
Constitutional Limitations, 8th Ed., p. 297] As has been correctly explained:

The details of a legislative act need not be specifically stated in its title, but matter germane to the subject as expressed in
the title, and adopted to the accomplishment of the object in view, may properly be included in the act. Thus, it is proper to
create in the same act the machinery by which the act is to be enforced, to prescribe the penalties for its infraction, and to
remove obstacles in the way of its execution. If such matters are properly connected with the subject as expressed in the
title, it is unnecessary that they should also have special mention in the title. (Southern Pac. Co. v. Bartine, 170 Fed. 725)

(227 SCRA at 707-708)

VI. Claims of press freedom and religious liberty. We have held that, as a general proposition, the press is not exempt from
the taxing power of the State and that what the constitutional guarantee of free press prohibits are laws which single out
the press or target a group belonging to the press for special treatment or which in any way discriminate against the press
on the basis of the content of the publication, and R.A. No. 7716 is none of these.

Now it is contended by the PPI that by removing the exemption of the press from the VAT while maintaining those granted
to others, the law discriminates against the press. At any rate, it is averred, "even nondiscriminatory taxation of
constitutionally guaranteed freedom is unconstitutional."

With respect to the first contention, it would suffice to say that since the law granted the press a privilege, the law could
take back the privilege anytime without offense to the Constitution. The reason is simple: by granting exemptions, the
State does not forever waive the exercise of its sovereign prerogative.

Indeed, in withdrawing the exemption, the law merely subjects the press to the same tax burden to which other businesses
have long ago been subject. It is thus different from the tax involved in the cases invoked by the PPI. The license tax
in Grosjean v. American Press Co., 297 U.S. 233, 80 L. Ed. 660 (1936) was found to be discriminatory because it was laid
on the gross advertising receipts only of newspapers whose weekly circulation was over 20,000, with the result that the tax
applied only to 13 out of 124 publishers in Louisiana. These large papers were critical of Senator Huey Long who
controlled the state legislature which enacted the license tax. The censorial motivation for the law was thus evident.

On the other hand, in Minneapolis Star & Tribune Co. v. Minnesota Comm'r of Revenue, 460 U.S. 575, 75 L. Ed. 2d 295
(1983), the tax was found to be discriminatory because although it could have been made liable for the sales tax or, in lieu
thereof, for the use tax on the privilege of using, storing or consuming tangible goods, the press was not. Instead, the
press was exempted from both taxes. It was, however, later made to pay a special use tax on the cost of paper and ink
which made these items "the only items subject to the use tax that were component of goods to be sold at retail." The U.S.
Supreme Court held that the differential treatment of the press "suggests that the goal of regulation is not related to
suppression of expression, and such goal is presumptively unconstitutional." It would therefore appear that even a law that
favors the press is constitutionally suspect. (See the dissent of Rehnquist, J. in that case)

Nor is it true that only two exemptions previously granted by E.O. No. 273 are withdrawn "absolutely and unqualifiedly" by
R.A. No. 7716. Other exemptions from the VAT, such as those previously granted to PAL, petroleum concessionaires,
enterprises registered with the Export Processing Zone Authority, and many more are likewise totally withdrawn, in
addition to exemptions which are partially withdrawn, in an effort to broaden the base of the tax.

The PPI says that the discriminatory treatment of the press is highlighted by the fact that transactions, which are profit
oriented, continue to enjoy exemption under R.A. No. 7716. An enumeration of some of these transactions will suffice to
show that by and large this is not so and that the exemptions are granted for a purpose. As the Solicitor General says,
such exemptions are granted, in some cases, to encourage agricultural production and, in other cases, for the personal
benefit of the end-user rather than for profit. The exempt transactions are:

(a) Goods for consumption or use which are in their original state (agricultural, marine and forest products, cotton seeds in
their original state, fertilizers, seeds, seedlings, fingerlings, fish, prawn livestock and poultry feeds) and goods or services
to enhance agriculture (milling of palay, corn, sugar cane and raw sugar, livestock, poultry feeds, fertilizer, ingredients
used for the manufacture of feeds).

(b) Goods used for personal consumption or use (household and personal effects of citizens returning to the Philippines)
or for professional use, like professional instruments and implements, by persons coming to the Philippines to settle here.

(c) Goods subject to excise tax such as petroleum products or to be used for manufacture of petroleum products subject to
excise tax and services subject to percentage tax.

(d) Educational services, medical, dental, hospital and veterinary services, and services rendered under
employer-employee relationship.

(e) Works of art and similar creations sold by the artist himself.

(f) Transactions exempted under special laws, or international agreements.

(g) Export-sales by persons not VAT-registered.

(h) Goods or services with gross annual sale or receipt not exceeding P500,000.00.

(Respondents' Consolidated Comment on the Motions for Reconsideration, pp. 58-60)

The PPI asserts that it does not really matter that the law does not discriminate against the press because "even
nondiscriminatory taxation on constitutionally guaranteed freedom is unconstitutional." PPI cites in support of this
assertion the following statement in Murdock v. Pennsylvania, 319 U.S. 105, 87 L. Ed. 1292 (1943):

The fact that the ordinance is "nondiscriminatory" is immaterial. The protection afforded by the First Amendment is not so
restricted. A license tax certainly does not acquire constitutional validity because it classifies the privileges protected by
the First Amendment along with the wares and merchandise of hucksters and peddlers and treats them all alike. Such
equality in treatment does not save the ordinance. Freedom of press, freedom of speech, freedom of religion are in
preferred position.

The Court was speaking in that case of a license tax, which, unlike an ordinary tax, is mainly for regulation. Its imposition
on the press is unconstitutional because it lays a prior restraint on the exercise of its right. Hence, although its application
to others, such those selling goods, is valid, its application to the press or to religious groups, such as the Jehovah's
Witnesses, in connection with the latter's sale of religious books and pamphlets, is unconstitutional. As the U.S. Supreme
Court put it, "it is one thing to impose a tax on income or property of a preacher. It is quite another thing to exact a tax on
him for delivering a sermon."

A similar ruling was made by this Court in American Bible Society v. City of Manila, 101 Phil. 386 (1957) which invalidated
a city ordinance requiring a business license fee on those engaged in the sale of general merchandise. It was held that the
tax could not be imposed on the sale of bibles by the American Bible Society without restraining the free exercise of its
right to propagate.

The VAT is, however, different. It is not a license tax. It is not a tax on the exercise of a privilege, much less a constitutional
right. It is imposed on the sale, barter, lease or exchange of goods or properties or the sale or exchange of services and
the lease of properties purely for revenue purposes. To subject the press to its payment is not to burden the exercise of its
right any more than to make the press pay income tax or subject it to general regulation is not to violate its freedom under
the Constitution.

Additionally, the Philippine Bible Society, Inc. claims that although it sells bibles, the proceeds derived from the sales are
used to subsidize the cost of printing copies which are given free to those who cannot afford to pay so that to tax the sales
would be to increase the price, while reducing the volume of sale. Granting that to be the case, the resulting burden on the
exercise of religious freedom is so incidental as to make it difficult to differentiate it from any other economic imposition
that might make the right to disseminate religious doctrines costly. Otherwise, to follow the petitioner's argument, to
increase the tax on the sale of vestments would be to lay an impermissible burden on the right of the preacher to make a
sermon.

On the other hand the registration fee of P1,000.00 imposed by 107 of the NIRC, as amended by 7 of R.A. No. 7716,
although fixed in amount, is really just to pay for the expenses of registration and enforcement of provisions such as those
relating to accounting in 108 of the NIRC. That the PBS distributes free bibles and therefore is not liable to pay the VAT
does not excuse it from the payment of this fee because it also sells some copies. At any rate whether the PBS is liable for
the VAT must be decided in concrete cases, in the event it is assessed this tax by the Commissioner of Internal Revenue.

VII. Alleged violations of the due process, equal protection and contract clauses and the rule on taxation. CREBA asserts
that R.A. No. 7716 (1) impairs the obligations of contracts, (2) classifies transactions as covered or exempt without
reasonable basis and (3) violates the rule that taxes should be uniform and equitable and that Congress shall "evolve a
progressive system of taxation."

With respect to the first contention, it is claimed that the application of the tax to existing contracts of the sale of real
property by installment or on deferred payment basis would result in substantial increases in the monthly amortizations to
be paid because of the 10% VAT. The additional amount, it is pointed out, is something that the buyer did not anticipate at
the time he entered into the contract.

The short answer to this is the one given by this Court in an early case: "Authorities from numerous sources are cited by
the plaintiffs, but none of them show that a lawful tax on a new subject, or an increased tax on an old one, interferes with a
contract or impairs its obligation, within the meaning of the Constitution. Even though such taxation may affect particular
contracts, as it may increase the debt of one person and lessen the security of another, or may impose additional burdens
upon one class and release the burdens of another, still the tax must be paid unless prohibited by the Constitution, nor can
it be said that it impairs the obligation of any existing contract in its true legal sense." (La Insular v. Machuca Go-Tauco and
Nubla Co-Siong, 39 Phil. 567, 574 (1919)). Indeed not only existing laws but also "the reservation of the essential
attributes of sovereignty, is . . . read into contracts as a postulate of the legal order." (Philippine-American Life Ins. Co. v.
Auditor General, 22 SCRA 135, 147 (1968)) Contracts must be understood as having been made in reference to the
possible exercise of the rightful authority of the government and no obligation of contract can extend to the defeat of that
authority. (Norman v. Baltimore and Ohio R.R., 79 L. Ed. 885 (1935)).

It is next pointed out that while 4 of R.A. No. 7716 exempts such transactions as the sale of agricultural products, food
items, petroleum, and medical and veterinary services, it grants no exemption on the sale of real property which is equally
essential. The sale of real property for socialized and low-cost housing is exempted from the tax, but CREBA claims that
real estate transactions of "the less poor," i.e., the middle class, who are equally homeless, should likewise be exempted.

The sale of food items, petroleum, medical and veterinary services, etc., which are essential goods and services was
already exempt under 103, pars. (b) (d) (1) of the NIRC before the enactment of R.A. No. 7716. Petitioner is in error in
claiming that R.A. No. 7716 granted exemption to these transactions, while subjecting those of petitioner to the payment of
the VAT. Moreover, there is a difference between the "homeless poor" and the "homeless less poor" in the example given
by petitioner, because the second group or middle class can afford to rent houses in the meantime that they cannot yet
buy their own homes. The two social classes are thus differently situated in life. "It is inherent in the power to tax that the
State be free to select the subjects of taxation, and it has been repeatedly held that 'inequalities which result from a
singling out of one particular class for taxation, or exemption infringe no constitutional limitation.'" (Lutz v. Araneta, 98 Phil.
148, 153 (1955). Accord, City of Baguio v. De Leon, 134 Phil. 912 (1968); Sison, Jr. v. Ancheta, 130 SCRA 654, 663
(1984); Kapatiran ng mga Naglilingkod sa Pamahalaan ng Pilipinas, Inc. v. Tan, 163 SCRA 371 (1988)).

Finally, it is contended, for the reasons already noted, that R.A. No. 7716 also violates Art. VI, 28(1) which provides that
"The rule of taxation shall be uniform and equitable. The Congress shall evolve a progressive system of taxation."

Equality and uniformity of taxation means that all taxable articles or kinds of property of the same class be taxed at the
same rate. The taxing power has the authority to make reasonable and natural classifications for purposes of taxation. To
satisfy this requirement it is enough that the statute or ordinance applies equally to all persons, forms and corporations
placed in similar situation. (City of Baguio v. De Leon, supra; Sison, Jr. v. Ancheta, supra)
Indeed, the VAT was already provided in E.O. No. 273 long before R.A. No. 7716 was enacted. R.A. No. 7716 merely
expands the base of the tax. The validity of the original VAT Law was questioned in Kapatiran ng Naglilingkod sa
Pamahalaan ng Pilipinas, Inc. v. Tan, 163 SCRA 383 (1988) on grounds similar to those made in these cases, namely,
that the law was "oppressive, discriminatory, unjust and regressive in violation of Art. VI, 28(1) of the Constitution." (At
382) Rejecting the challenge to the law, this Court held:

As the Court sees it, EO 273 satisfies all the requirements of a valid tax. It is uniform. . . .

The sales tax adopted in EO 273 is applied similarly on all goods and services sold to the public, which are not exempt, at
the constant rate of 0% or 10%.

The disputed sales tax is also equitable. It is imposed only on sales of goods or services by persons engaged in business
with an aggregate gross annual sales exceeding P200,000.00. Small corner sari-sari stores are consequently exempt from
its application. Likewise exempt from the tax are sales of farm and marine products, so that the costs of basic food and
other necessities, spared as they are from the incidence of the VAT, are expected to be relatively lower and within the
reach of the general public.

(At 382-383)

The CREBA claims that the VAT is regressive. A similar claim is made by the Cooperative Union of the Philippines, Inc.
(CUP), while petitioner Juan T. David argues that the law contravenes the mandate of Congress to provide for a
progressive system of taxation because the law imposes a flat rate of 10% and thus places the tax burden on all taxpayers
without regard to their ability to pay.

The Constitution does not really prohibit the imposition of indirect taxes which, like the VAT, are regressive. What it simply
provides is that Congress shall "evolve a progressive system of taxation." The constitutional provision has been
interpreted to mean simply that "direct taxes are . . . to be preferred [and] as much as possible, indirect taxes should be
minimized." (E. FERNANDO, THE CONSTITUTION OF THE PHILIPPINES 221 (Second ed. (1977)). Indeed, the
mandate to Congress is not to prescribe, but to evolve, a progressive tax system. Otherwise, sales taxes, which perhaps
are the oldest form of indirect taxes, would have been prohibited with the proclamation of Art. VIII, 17(1) of the 1973
Constitution from which the present Art. VI, 28(1) was taken. Sales taxes are also regressive.

Resort to indirect taxes should be minimized but not avoided entirely because it is difficult, if not impossible, to avoid them
by imposing such taxes according to the taxpayers' ability to pay. In the case of the VAT, the law minimizes the regressive
effects of this imposition by providing for zero rating of certain transactions (R.A. No. 7716, 3, amending 102 (b) of the
NIRC), while granting exemptions to other transactions. (R.A. No. 7716, 4, amending 103 of the NIRC).

Thus, the following transactions involving basic and essential goods and services are exempted from the VAT:

(a) Goods for consumption or use which are in their original state (agricultural, marine and forest products, cotton seeds in
their original state, fertilizers, seeds, seedlings, fingerlings, fish, prawn livestock and poultry feeds) and goods or services
to enhance agriculture (milling of palay, corn sugar cane and raw sugar, livestock, poultry feeds, fertilizer, ingredients used
for the manufacture of feeds).

(b) Goods used for personal consumption or use (household and personal effects of citizens returning to the Philippines)
and or professional use, like professional instruments and implements, by persons coming to the Philippines to settle here.

(c) Goods subject to excise tax such as petroleum products or to be used for manufacture of petroleum products subject to
excise tax and services subject to percentage tax.

(d) Educational services, medical, dental, hospital and veterinary services, and services rendered under
employer-employee relationship.

(e) Works of art and similar creations sold by the artist himself.

(f) Transactions exempted under special laws, or international agreements.

(g) Export-sales by persons not VAT-registered.

(h) Goods or services with gross annual sale or receipt not exceeding P500,000.00.

(Respondents' Consolidated Comment on the Motions for Reconsideration, pp. 58-60)

On the other hand, the transactions which are subject to the VAT are those which involve goods and services which are
used or availed of mainly by higher income groups. These include real properties held primarily for sale to customers or for
lease in the ordinary course of trade or business, the right or privilege to use patent, copyright, and other similar property
or right, the right or privilege to use industrial, commercial or scientific equipment, motion picture films, tapes and discs,
radio, television, satellite transmission and cable television time, hotels, restaurants and similar places, securities, lending
investments, taxicabs, utility cars for rent, tourist buses, and other common carriers, services of franchise grantees of
telephone and telegraph.

The problem with CREBA's petition is that it presents broad claims of constitutional violations by tendering issues not at
retail but at wholesale and in the abstract. There is no fully developed record which can impart to adjudication the impact of
actuality. There is no factual foundation to show in the concrete the application of the law to actual contracts and exemplify
its effect on property rights. For the fact is that petitioner's members have not even been assessed the VAT. Petitioner's
case is not made concrete by a series of hypothetical questions asked which are no different from those dealt with in
advisory opinions.

The difficulty confronting petitioner is thus apparent. He alleges arbitrariness. A mere allegation, as here, does not suffice.
There must be a factual foundation of such unconstitutional taint. Considering that petitioner here would condemn such a
provision as void on its face, he has not made out a case. This is merely to adhere to the authoritative doctrine that where
the due process and equal protection clauses are invoked, considering that they are not fixed rules but rather broad
standards, there is a need for proof of such persuasive character as would lead to such a conclusion. Absent such a
showing, the presumption of validity must prevail.

(Sison, Jr. v. Ancheta, 130 SCRA at 661)

Adjudication of these broad claims must await the development of a concrete case. It may be that postponement of
adjudication would result in a multiplicity of suits. This need not be the case, however. Enforcement of the law may give
rise to such a case. A test case, provided it is an actual case and not an abstract or hypothetical one, may thus be
presented.

Nor is hardship to taxpayers alone an adequate justification for adjudicating abstract issues. Otherwise, adjudication would
be no different from the giving of advisory opinion that does not really settle legal issues.

We are told that it is our duty under Art. VIII, 1, 2 to decide whenever a claim is made that "there has been a grave
abuse of discretion amounting to lack or excess of jurisdiction on the part of any branch or instrumentality of the
government." This duty can only arise if an actual case or controversy is before us. Under Art . VIII, 5 our jurisdiction is
defined in terms of "cases" and all that Art. VIII, 1, 2 can plausibly mean is that in the exercise of that jurisdiction we
have the judicial power to determine questions of grave abuse of discretion by any branch or instrumentality of the
government.

Put in another way, what is granted in Art. VIII, 1, 2 is "judicial power," which is "the power of a court to hear and decide
cases pending between parties who have the right to sue and be sued in the courts of law and equity" (Lamb v. Phipps, 22
Phil. 456, 559 (1912)), as distinguished from legislative and executive power. This power cannot be directly appropriated
until it is apportioned among several courts either by the Constitution, as in the case of Art. VIII, 5, or by statute, as in the
case of the Judiciary Act of 1948 (R.A. No. 296) and the Judiciary Reorganization Act of 1980 (B.P. Blg. 129). The power
thus apportioned constitutes the court's "jurisdiction," defined as "the power conferred by law upon a court or judge to take
cognizance of a case, to the exclusion of all others." (United States v. Arceo, 6 Phil. 29 (1906)) Without an actual case
coming within its jurisdiction, this Court cannot inquire into any allegation of grave abuse of discretion by the other
departments of the government.

VIII. Alleged violation of policy towards cooperatives. On the other hand, the Cooperative Union of the Philippines (CUP),
after briefly surveying the course of legislation, argues that it was to adopt a definite policy of granting tax exemption to
cooperatives that the present Constitution embodies provisions on cooperatives. To subject cooperatives to the VAT
would therefore be to infringe a constitutional policy. Petitioner claims that in 1973, P.D. No. 175 was promulgated
exempting cooperatives from the payment of income taxes and sales taxes but in 1984, because of the crisis which
menaced the national economy, this exemption was withdrawn by P.D. No. 1955; that in 1986, P.D. No. 2008 again
granted cooperatives exemption from income and sales taxes until December 31, 1991, but, in the same year, E.O. No. 93
revoked the exemption; and that finally in 1987 the framers of the Constitution "repudiated the previous actions of the
government adverse to the interests of the cooperatives, that is, the repeated revocation of the tax exemption to
cooperatives and instead upheld the policy of strengthening the cooperatives by way of the grant of tax exemptions," by
providing the following in Art. XII:

1. The goals of the national economy are a more equitable distribution of opportunities, income, and wealth; a sustained
increase in the amount of goods and services produced by the nation for the benefit of the people; and an expanding
productivity as the key to raising the quality of life for all, especially the underprivileged.

The State shall promote industrialization and full employment based on sound agricultural development and agrarian
reform, through industries that make full and efficient use of human and natural resources, and which are competitive in
both domestic and foreign markets. However, the State shall protect Filipino enterprises against unfair foreign competition
and trade practices.
In the pursuit of these goals, all sectors of the economy and all regions of the country shall be given optimum opportunity
to develop. Private enterprises, including corporations, cooperatives, and similar collective organizations, shall be
encouraged to broaden the base of their ownership.

15. The Congress shall create an agency to promote the viability and growth of cooperatives as instruments for social
justice and economic development.

Petitioner's contention has no merit. In the first place, it is not true that P.D. No. 1955 singled out cooperatives by
withdrawing their exemption from income and sales taxes under P.D. No. 175, 5. What P.D. No. 1955, 1 did was to
withdraw the exemptions and preferential treatments theretofore granted to private business enterprises in general, in
view of the economic crisis which then beset the nation. It is true that after P.D. No. 2008, 2 had restored the tax
exemptions of cooperatives in 1986, the exemption was again repealed by E.O. No. 93, 1, but then again cooperatives
were not the only ones whose exemptions were withdrawn. The withdrawal of tax incentives applied to all, including
government and private entities. In the second place, the Constitution does not really require that cooperatives be granted
tax exemptions in order to promote their growth and viability. Hence, there is no basis for petitioner's assertion that the
government's policy toward cooperatives had been one of vacillation, as far as the grant of tax privileges was concerned,
and that it was to put an end to this indecision that the constitutional provisions cited were adopted. Perhaps as a matter of
policy cooperatives should be granted tax exemptions, but that is left to the discretion of Congress. If Congress does not
grant exemption and there is no discrimination to cooperatives, no violation of any constitutional policy can be charged.

Indeed, petitioner's theory amounts to saying that under the Constitution cooperatives are exempt from taxation. Such
theory is contrary to the Constitution under which only the following are exempt from taxation: charitable institutions,
churches and parsonages, by reason of Art. VI, 28 (3), and non-stock, non-profit educational institutions by reason of Art.
XIV, 4 (3).

CUP's further ground for seeking the invalidation of R.A. No. 7716 is that it denies cooperatives the equal protection of the
law because electric cooperatives are exempted from the VAT. The classification between electric and other cooperatives
(farmers cooperatives, producers cooperatives, marketing cooperatives, etc.) apparently rests on a congressional
determination that there is greater need to provide cheaper electric power to as many people as possible, especially those
living in the rural areas, than there is to provide them with other necessities in life. We cannot say that such classification is
unreasonable.

We have carefully read the various arguments raised against the constitutional validity of R.A. No. 7716. We have in fact
taken the extraordinary step of enjoining its enforcement pending resolution of these cases. We have now come to the
conclusion that the law suffers from none of the infirmities attributed to it by petitioners and that its enactment by the other
branches of the government does not constitute a grave abuse of discretion. Any question as to its necessity, desirability
or expediency must be addressed to Congress as the body which is electorally responsible, remembering that, as Justice
Holmes has said, "legislators are the ultimate guardians of the liberties and welfare of the people in quite as great a degree
as are the courts." (Missouri, Kansas & Texas Ry. Co. v. May, 194 U.S. 267, 270, 48 L. Ed. 971, 973 (1904)). It is not right,
as petitioner in G.R. No. 115543 does in arguing that we should enforce the public accountability of legislators, that those
who took part in passing the law in question by voting for it in Congress should later thrust to the courts the burden of
reviewing measures in the flush of enactment. This Court does not sit as a third branch of the legislature, much less
exercise a veto power over legislation.

WHEREFORE, the motions for reconsideration are denied with finality and the temporary restraining order previously
issued is hereby lifted.

SO ORDERED.

CIR VS. ST. LUKES MEDICAL CENTER, INC.

The Case

These are consolidated 1 petitions for review on certiorari under Rule 45 of the Rules of Court assailing the Decision of 19
November 2010 of the Court of Tax Appeals (CTA) En Banc and its Resolution 2 of 1 March 2011 in CTA Case No. 6746.
This Court resolves this case on a pure question of law, which involves the interpretation of Section 27(B) vis--vis Section
30(E) and (G) of the National Internal Revenue Code of the Philippines (NIRC), on the income tax treatment of proprietary
non-profit hospitals.

The Facts

St. Luke's Medical Center, Inc. (St. Luke's) is a hospital organized as a non-stock and non-profit corporation. Under its
articles of incorporation, among its corporate purposes are:
(a) To establish, equip, operate and maintain a non-stock, non-profit Christian, benevolent, charitable and scientific
hospital which shall give curative, rehabilitative and spiritual care to the sick, diseased and disabled persons; provided that
purely medical and surgical services shall be performed by duly licensed physicians and surgeons who may be freely and
individually contracted by patients;

(b) To provide a career of health science education and provide medical services to the community through organized
clinics in such specialties as the facilities and resources of the corporation make possible;

(c) To carry on educational activities related to the maintenance and promotion of health as well as provide facilities for
scientific and medical researches which, in the opinion of the Board of Trustees, may be justified by the facilities,
personnel, funds, or other requirements that are available;

(d) To cooperate with organized medical societies, agencies of both government and private sector; establish rules and
regulations consistent with the highest professional ethics;

xxxx3

On 16 December 2002, the Bureau of Internal Revenue (BIR) assessed St. Luke's deficiency taxes amounting
to P76,063,116.06 for 1998, comprised of deficiency income tax, value-added tax, withholding tax on compensation and
expanded withholding tax. The BIR reduced the amount to P63,935,351.57 during trial in the First Division of the CTA. 4

On 14 January 2003, St. Luke's filed an administrative protest with the BIR against the deficiency tax assessments. The
BIR did not act on the protest within the 180-day period under Section 228 of the NIRC. Thus, St. Luke's appealed to the
CTA.

The BIR argued before the CTA that Section 27(B) of the NIRC, which imposes a 10% preferential tax rate on the income
of proprietary non-profit hospitals, should be applicable to St. Luke's. According to the BIR, Section 27(B), introduced in
1997, "is a new provision intended to amend the exemption on non-profit hospitals that were previously categorized as
non-stock, non-profit corporations under Section 26 of the 1997 Tax Code x x x." 5 It is a specific provision which prevails
over the general exemption on income tax granted under Section 30(E) and (G) for non-stock, non-profit charitable
institutions and civic organizations promoting social welfare. 6

The BIR claimed that St. Luke's was actually operating for profit in 1998 because only 13% of its revenues came from
charitable purposes. Moreover, the hospital's board of trustees, officers and employees directly benefit from its profits and
assets. St. Luke's had total revenues of P1,730,367,965 or approximately P1.73 billion from patient services in 1998. 7

St. Luke's contended that the BIR should not consider its total revenues, because its free services to patients
was P218,187,498 or 65.20% of its 1998 operating income (i.e., total revenues less operating expenses)
of P334,642,615. 8 St. Luke's also claimed that its income does not inure to the benefit of any individual.

St. Luke's maintained that it is a non-stock and non-profit institution for charitable and social welfare purposes under
Section 30(E) and (G) of the NIRC. It argued that the making of profit per se does not destroy its income tax exemption.

The petition of the BIR before this Court in G.R. No. 195909 reiterates its arguments before the CTA that Section 27(B)
applies to St. Luke's. The petition raises the sole issue of whether the enactment of Section 27(B) takes proprietary
non-profit hospitals out of the income tax exemption under Section 30 of the NIRC and instead, imposes a preferential rate
of 10% on their taxable income. The BIR prays that St. Luke's be ordered to pay P57,659,981.19 as deficiency income and
expanded withholding tax for 1998 with surcharges and interest for late payment.

The petition of St. Luke's in G.R. No. 195960 raises factual matters on the treatment and withholding of a part of its
income, 9 as well as the payment of surcharge and delinquency interest. There is no ground for this Court to undertake
such a factual review. Under the Constitution 10 and the Rules of Court, 11 this Court's review power is generally limited to
"cases in which only an error or question of law is involved." 12 This Court cannot depart from this limitation if a party fails to
invoke a recognized exception.

The Ruling of the Court of Tax Appeals

The CTA En Banc Decision on 19 November 2010 affirmed in toto the CTA First Division Decision dated 23 February 2009
which held:

WHEREFORE, the Amended Petition for Review [by St. Luke's] is hereby PARTIALLY GRANTED. Accordingly, the 1998
deficiency VAT assessment issued by respondent against petitioner in the amount of P110,000.00 is hereby CANCELLED
and WITHDRAWN. However, petitioner is hereby ORDERED to PAY deficiency income tax and deficiency expanded
withholding tax for the taxable year 1998 in the respective amounts of P5,496,963.54 and P778,406.84 or in the sum
of P6,275,370.38, x x x.

xxxx
In addition, petitioner is hereby ORDERED to PAY twenty percent (20%) delinquency interest on the total amount
of P6,275,370.38 counted from October 15, 2003 until full payment thereof, pursuant to Section 249(C)(3) of the NIRC of
1997.

SO ORDERED. 13

The deficiency income tax of P5,496,963.54, ordered by the CTA En Banc to be paid, arose from the failure of St. Luke's
to prove that part of its income in 1998 (declared as "Other Income-Net") 14 came from charitable activities. The CTA
cancelled the remainder of the P63,113,952.79 deficiency assessed by the BIR based on the 10% tax rate under Section
27(B) of the NIRC, which the CTA En Banc held was not applicable to St. Luke's. 15

The CTA ruled that St. Luke's is a non-stock and non-profit charitable institution covered by Section 30(E) and (G) of the
NIRC. This ruling would exempt all income derived by St. Luke's from services to its patients, whether paying or
non-paying. The CTA reiterated its earlier decision in St. Luke's Medical Center, Inc. v. Commissioner of Internal
Revenue, 16 which examined the primary purposes of St. Luke's under its articles of incorporation and various
documents 17 identifying St. Luke's as a charitable institution.

The CTA adopted the test in Hospital de San Juan de Dios, Inc. v. Pasay City, 18 which states that "a charitable institution
does not lose its charitable character and its consequent exemption from taxation merely because recipients of its benefits
who are able to pay are required to do so, where funds derived in this manner are devoted to the charitable purposes of
the institution x x x." 19 The generation of income from paying patients does not per se destroy the charitable nature of St.
Luke's.

Hospital de San Juan cited Jesus Sacred Heart College v. Collector of Internal Revenue, 20 which ruled that the old NIRC
(Commonwealth Act No. 466, as amended) 21 "positively exempts from taxation those corporations or associations which,
otherwise, would be subject thereto, because of the existence of x x x net income." 22 The NIRC of 1997 substantially
reproduces the provision on charitable institutions of the old NIRC. Thus, in rejecting the argument that tax exemption is
lost whenever there is net income, the Court in Jesus Sacred Heart College declared: "[E]very responsible organization
must be run to at least insure its existence, by operating within the limits of its own resources, especially its regular income.
In other words, it should always strive, whenever possible, to have a surplus." 23

The CTA held that Section 27(B) of the present NIRC does not apply to St. Luke's. 24 The CTA explained that to apply the
10% preferential rate, Section 27(B) requires a hospital to be "non-profit." On the other hand, Congress specifically used
the word "non-stock" to qualify a charitable "corporation or association" in Section 30(E) of the NIRC. According to the
CTA, this is unique in the present tax code, indicating an intent to exempt this type of charitable organization from income
tax. Section 27(B) does not require that the hospital be "non-stock." The CTA stated, "it is clear that non-stock, non-profit
hospitals operated exclusively for charitable purpose are exempt from income tax on income received by them as such,
applying the provision of Section 30(E) of the NIRC of 1997, as amended." 25

The Issue

The sole issue is whether St. Luke's is liable for deficiency income tax in 1998 under Section 27(B) of the NIRC, which
imposes a preferential tax rate of 10% on the income of proprietary non-profit hospitals.

The Ruling of the Court

St. Luke's Petition in G.R. No. 195960

As a preliminary matter, this Court denies the petition of St. Luke's in G.R. No. 195960 because the petition raises factual
issues. Under Section 1, Rule 45 of the Rules of Court, "[t]he petition shall raise only questions of law which must be
distinctly set forth." St. Luke's cites Martinez v. Court of Appeals 26 which permits factual review "when the Court of
Appeals [in this case, the CTA] manifestly overlooked certain relevant facts not disputed by the parties and which, if
properly considered, would justify a different conclusion." 27

This Court does not see how the CTA overlooked relevant facts. St. Luke's itself stated that the CTA "disregarded the
testimony of [its] witness, Romeo B. Mary, being allegedly self-serving, to show the nature of the 'Other Income-Net' x x
x." 28 This is not a case of overlooking or failing to consider relevant evidence. The CTA obviously considered the evidence
and concluded that it is self-serving. The CTA declared that it has "gone through the records of this case and found no
other evidence aside from the self-serving affidavit executed by [the] witnesses [of St. Luke's] x x x." 29

The deficiency tax on "Other Income-Net" stands. Thus, St. Luke's is liable to pay the 25% surcharge under Section
248(A)(3) of the NIRC. There is "[f]ailure to pay the deficiency tax within the time prescribed for its payment in the notice of
assessment[.]" 30 St. Luke's is also liable to pay 20% delinquency interest under Section 249(C)(3) of the NIRC. 31 As
explained by the CTA En Banc, the amount of P6,275,370.38 in the dispositive portion of the CTA First Division Decision
includes only deficiency interest under Section 249(A) and (B) of the NIRC and not delinquency interest. 32

The Main Issue

The issue raised by the BIR is a purely legal one. It involves the effect of the introduction of Section 27(B) in the NIRC of
1997 vis--vis Section 30(E) and (G) on the income tax exemption of charitable and social welfare institutions. The 10%
income tax rate under Section 27(B) specifically pertains to proprietary educational institutions and proprietary non-profit
hospitals. The BIR argues that Congress intended to remove the exemption that non-profit hospitals previously enjoyed
under Section 27(E) of the NIRC of 1977, which is now substantially reproduced in Section 30(E) of the NIRC of
1997. 33 Section 27(B) of the present NIRC provides:

SEC. 27. Rates of Income Tax on Domestic Corporations. -

xxxx

(B) Proprietary Educational Institutions and Hospitals. - Proprietary educational institutions and hospitals which are
non-profit shall pay a tax of ten percent (10%) on their taxable income except those covered by Subsection (D) hereof:
Provided, That if the gross income from unrelated trade, business or other activity exceeds fifty percent (50%) of the total
gross income derived by such educational institutions or hospitals from all sources, the tax prescribed in Subsection (A)
hereof shall be imposed on the entire taxable income. For purposes of this Subsection, the term 'unrelated trade, business
or other activity' means any trade, business or other activity, the conduct of which is not substantially related to the
exercise or performance by such educational institution or hospital of its primary purpose or function. A 'proprietary
educational institution' is any private school maintained and administered by private individuals or groups with an issued
permit to operate from the Department of Education, Culture and Sports (DECS), or the Commission on Higher Education
(CHED), or the Technical Education and Skills Development Authority (TESDA), as the case may be, in accordance with
existing laws and regulations. (Emphasis supplied)

St. Luke's claims tax exemption under Section 30(E) and (G) of the NIRC. It contends that it is a charitable institution and
an organization promoting social welfare. The arguments of St. Luke's focus on the wording of Section 30(E) exempting
from income tax non-stock, non-profit charitable institutions. 34 St. Luke's asserts that the legislative intent of introducing
Section 27(B) was only to remove the exemption for "proprietary non-profit" hospitals. 35 The relevant provisions of Section
30 state:

SEC. 30. 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) Nonstock corporation or association organized and operated exclusively for religious, charitable, scientific, athletic, or
cultural purposes, or for the rehabilitation of veterans, no part of its net income or asset shall belong to or inure to the
benefit of any member, organizer, officer or any specific person;

xxxx

(G) Civic league or organization not organized for profit but operated exclusively for the promotion of social welfare;

xxxx

Notwithstanding the provisions in the preceding paragraphs, the income of whatever kind and character of the foregoing
organizations 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 tax imposed under this Code. (Emphasis supplied)

The Court partly grants the petition of the BIR but on a different ground. We hold that Section 27(B) of the NIRC does not
remove the income tax exemption of proprietary non-profit hospitals under Section 30(E) and (G). Section 27(B) on one
hand, and Section 30(E) and (G) on the other hand, can be construed together without the removal of such tax exemption.
The effect of the introduction of Section 27(B) is to subject the taxable income of two specific institutions, namely,
proprietary non-profit educational institutions 36 and proprietary non-profit hospitals, among the institutions covered by
Section 30, to the 10% preferential rate under Section 27(B) instead of the ordinary 30% corporate rate under the last
paragraph of Section 30 in relation to Section 27(A)(1).

Section 27(B) of the NIRC imposes a 10% preferential tax rate on the income of (1) proprietary non-profit educational
institutions and (2) proprietary non-profit hospitals. The only qualifications for hospitals are that they must be proprietary
and non-profit. "Proprietary" means private, following the definition of a "proprietary educational institution" as "any private
school maintained and administered by private individuals or groups" with a government permit. "Non-profit" means no net
income or asset accrues to or benefits any member or specific person, with all the net income or asset devoted to the
institution's purposes and all its activities conducted not for profit.

"Non-profit" does not necessarily mean "charitable." In Collector of Internal Revenue v. Club Filipino Inc. de Cebu, 37 this
Court considered as non-profit a sports club organized for recreation and entertainment of its stockholders and members.
The club was primarily funded by membership fees and dues. If it had profits, they were used for overhead expenses and
improving its golf course. 38 The club was non-profit because of its purpose and there was no evidence that it was engaged
in a profit-making enterprise. 39

The sports club in Club Filipino Inc. de Cebu may be non-profit, but it was not charitable. The Court defined "charity" in
Lung Center of the Philippines v. Quezon City 40 as "a gift, to be applied consistently with existing laws, for the benefit of
an indefinite number of persons, either by bringing their minds and hearts under the influence of education or religion, by
assisting them to establish themselves in life or [by] otherwise lessening the burden of government." 41 A non-profit club for
the benefit of its members fails this test. An organization may be considered as non-profit if it does not distribute any part
of its income to stockholders or members. However, despite its being a tax exempt institution, any income such institution
earns from activities conducted for profit is taxable, as expressly provided in the last paragraph of Section 30.

To be a charitable institution, however, an organization must meet the substantive test of charity in Lung Center. The issue
in Lung Center concerns exemption from real property tax and not income tax. However, it provides for the test of charity in
our jurisdiction. Charity is essentially a gift to an indefinite number of persons which lessens the burden of government. In
other words, charitable institutions provide for free goods and services to the public which would otherwise fall on the
shoulders of government. 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. 42

Charitable institutions, however, are not ipso facto entitled to a tax exemption. The requirements for 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." 43 The requirements for a tax exemption are strictly
construed against the taxpayer 44 because an exemption restricts the collection of taxes necessary for the existence of the
government.

The Court in Lung Center declared that the Lung Center of the Philippines is a charitable institution for the purpose of
exemption from real property taxes. This ruling uses the same premise as Hospital de San Juan 45 and Jesus Sacred
Heart College 46 which says that receiving income from paying patients does not destroy the charitable nature of a
hospital.

As a general principle, a charitable institution does not lose its character as such and its exemption from taxes simply
because it derives income from paying patients, whether out-patient, or confined in the hospital, or receives subsidies from
the government, so long as the money received is devoted or used altogether to the charitable object which it is intended
to achieve; and no money inures to the private benefit of the persons managing or operating the institution. 47

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 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.

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 NIRC defines the corporation or association that is
exempt from income tax. On the other hand, Section 28(3), Article VI of the Constitution does not define a charitable
institution, but requires that the institution "actually, directly and exclusively" use the property for a charitable purpose.

Section 30(E) of the NIRC provides that a charitable institution must be:

(1) A non-stock corporation or association;

(2) Organized exclusively for charitable purposes;

(3) Operated exclusively for charitable purposes; and

(4) No part of its net income or asset shall belong to or inure to the benefit of any member, organizer, officer or any specific
person.

Thus, both the organization and operations of the charitable institution must be devoted "exclusively" for charitable
purposes. The organization of the institution refers to its corporate form, as shown by its articles of incorporation, by-laws
and other constitutive documents. Section 30(E) of the NIRC specifically requires that the corporation or association be
non-stock, which is defined by the Corporation Code as "one where no part of its income is distributable as dividends to its
members, trustees, or officers" 49 and that any profit "obtain[ed] as an incident to its operations shall, whenever necessary
or proper, be used for the furtherance of the purpose or purposes for which the corporation was organized." 50 However,
under Lung Center, any profit by a charitable institution must not only be plowed back "whenever necessary or proper," but
must be "devoted or used altogether to the charitable object which it is intended to achieve." 51

The operations of the charitable institution generally refer to its regular activities. Section 30(E) of the NIRC requires that
these operations be exclusive to charity. There is also a specific requirement that "no part of [the] net income or asset shall
belong to or inure to the benefit of any member, organizer, officer or any specific person." The use of lands, buildings and
improvements of the institution is but a part of its operations.

There is no dispute that St. Luke's is organized as a non-stock and non-profit charitable institution. However, this does not
automatically exempt St. Luke's from paying taxes. This only refers to the organization of St. Luke's. Even if St. Luke's
meets the test of charity, a charitable institution is not ipso facto tax exempt. To be exempt from real property taxes,
Section 28(3), Article VI of the Constitution requires that a charitable institution use the property "actually, directly and
exclusively" for charitable purposes. To be exempt from income taxes, Section 30(E) of the NIRC requires that a charitable
institution must be "organized and operated exclusively" for charitable purposes. Likewise, to be exempt from income
taxes, Section 30(G) of the NIRC requires that the institution be "operated exclusively" for social welfare.

However, the last paragraph of Section 30 of the NIRC qualifies the words "organized and operated exclusively" by
providing that:

Notwithstanding the provisions in the preceding paragraphs, the income of whatever kind and character of the foregoing
organizations 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 tax imposed under this Code. (Emphasis supplied)

In short, the last paragraph of Section 30 provides that if a tax exempt charitable institution conducts "any" activity for profit,
such activity is not tax exempt even as its not-for-profit activities remain tax exempt. This paragraph qualifies the
requirements in Section 30(E) that the "[n]on-stock corporation or association [must be] organized and operated
exclusively for x x x charitable x x x purposes x x x." It likewise qualifies the requirement in Section 30(G) that the civic
organization must be "operated exclusively" for the promotion of social welfare.

Thus, even if the charitable institution must be "organized and operated exclusively" for charitable purposes, it is
nevertheless allowed to engage in "activities conducted for profit" without losing its tax exempt status for its not-for-profit
activities. The only consequence is that the "income of whatever kind and character" of a charitable institution "from any of
its activities conducted for profit, regardless of the disposition made of such income, shall be subject to tax." Prior to the
introduction of Section 27(B), the tax rate on such income from for-profit activities was the ordinary corporate rate under
Section 27(A). With the introduction of Section 27(B), the tax rate is now 10%.

In 1998, St. Luke's had total revenues of P1,730,367,965 from services to paying patients. It cannot be disputed that a
hospital which receives approximately P1.73 billion from paying patients is not an institution "operated exclusively" for
charitable purposes. Clearly, revenues from paying patients are income received from "activities conducted for
profit." 52 Indeed, St. Luke's admits that it derived profits from its paying patients. St. Luke's declared P1,730,367,965 as
"Revenues from Services to Patients" in contrast to its "Free Services" expenditure of P218,187,498. In its Comment in
G.R. No. 195909, St. Luke's showed the following "calculation" to support its claim that 65.20% of its "income after
expenses was allocated to free or charitable services" in 1998. 53

REVENUES FROM SERVICES TO PATIENTS P1,730,367,965.00

OPERATING EXPENSES

Professional care of patients P1,016,608,394.00

Administrative 287,319,334.00

Household and Property 91,797,622.00

P1,395,725,350.00

INCOME FROM OPERATIONS P334,642,615.00 100%

 Free Services -218,187,498.00 -65.20%

INCOME FROM OPERATIONS, Net of FREE SERVICES P116,455,117.00 34.80%

OTHER INCOME 17,482,304.00

EXCESS OF REVENUES OVER EXPENSES P133,937,421.00

In Lung Center, this Court declared:

"[e]xclusive" is defined as possessed and enjoyed to the exclusion of others; debarred from participation or enjoyment;
and "exclusively" is defined, "in a manner to exclude; as enjoying a privilege exclusively." x x x The words "dominant use"
or "principal use" cannot be substituted for the words "used exclusively" without doing violence to the Constitution and the
law. Solely is synonymous with exclusively. 54

The Court cannot expand the meaning of the words "operated exclusively" without violating the NIRC. Services to paying
patients are activities conducted for profit. They cannot be considered any other way. There is a "purpose to make profit
over and above the cost" of services. 55 The P1.73 billion total revenues from paying patients is not even incidental to St.
Luke's charity expenditure of P218,187,498 for non-paying patients.

St. Luke's claims that its charity expenditure of P218,187,498 is 65.20% of its operating income in 1998. However, if a part
of the remaining 34.80% of the operating income is reinvested in property, equipment or facilities used for services to
paying and non-paying patients, then it cannot be said that the income is "devoted or used altogether to the charitable
object which it is intended to achieve." 56 The income is plowed back to the corporation not entirely for charitable purposes,
but for profit as well. In any case, the last paragraph of Section 30 of the NIRC expressly qualifies that income from
activities for profit is taxable "regardless of the disposition made of such income."

Jesus Sacred Heart College declared that 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."

P. Cuando ha hablado de la Universidad de Santo Toms que tiene un hospital, no cree Vd. que es una actividad esencial
dicho hospital para el funcionamiento del colegio de medicina de dicha universidad?

xxxx

R. Si el hospital se limita a recibir enformos pobres, mi contestacin seria afirmativa; pero considerando que el hospital
tiene cuartos de pago, y a los mismos generalmente van enfermos de buena posicin social econmica, lo que se paga
por estos enfermos debe estar sujeto a 'income tax', y es una de las razones que hemos tenido para insertar las palabras
o frase 'or from any activity conducted for profit.' 57

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.

The Court finds that St. Luke's is a corporation that is not "operated exclusively" for charitable or social welfare purposes
insofar as its revenues from paying patients are concerned. This ruling is based not only on a strict interpretation of a
provision granting tax exemption, but also on the clear and plain text of Section 30(E) and (G). Section 30(E) and (G) of
the NIRC requires that an institution be "operated exclusively" for charitable or social welfare purposes to be completely
exempt from income tax. An institution under Section 30(E) or (G) does not lose its tax exemption if it earns income from
its for-profit activities. Such income from for-profit activities, under the last paragraph of Section 30, is merely subject to
income tax, previously at the ordinary corporate rate but now at the preferential 10% rate pursuant to Section 27(B).

A tax exemption is effectively a social subsidy granted by the State because an exempt institution is spared from sharing in
the expenses of government and yet benefits from them. Tax exemptions for charitable institutions should therefore be
limited to institutions beneficial to the public and those which improve social welfare. A profit-making entity should not be
allowed to exploit this subsidy to the detriment of the government and other taxpayers.1wphi1

St. Luke's fails to meet the requirements under Section 30(E) and (G) of the NIRC to be completely tax exempt from all its
income. However, it remains a proprietary non-profit hospital under Section 27(B) of the NIRC as long as it does not
distribute any of its profits to its members and such profits are reinvested pursuant to its corporate purposes. St. Luke's, as
a proprietary non-profit hospital, is entitled to the preferential tax rate of 10% on its net income from its for-profit activities.

St. Luke's is therefore liable for deficiency income tax in 1998 under Section 27(B) of the NIRC. However, St. Luke's has
good reasons to rely on the letter dated 6 June 1990 by the BIR, which opined that St. Luke's is "a corporation for purely
charitable and social welfare purposes"59 and thus exempt from income tax. 60 In Michael J. Lhuillier, Inc. v.
Commissioner of Internal Revenue, 61 the Court said that "good faith and honest belief that one is not subject to tax on the
basis of previous interpretation of government agencies tasked to implement the tax law, are sufficient justification to
delete the imposition of surcharges and interest." 62

WHEREFORE, the petition of the Commissioner of Internal Revenue in G.R. No. 195909 is PARTLY GRANTED. The
Decision of the Court of Tax Appeals En Banc dated 19 November 2010 and its Resolution dated 1 March 2011 in CTA
Case No. 6746 are MODIFIED. St. Luke's Medical Center, Inc. is ORDERED TO PAY the deficiency income tax in 1998
based on the 10% preferential income tax rate under Section 27(B) of the National Internal Revenue Code. However, it is
not liable for surcharges and interest on such deficiency income tax under Sections 248 and 249 of the National Internal
Revenue Code. All other parts of the Decision and Resolution of the Court of Tax Appeals are AFFIRMED.

The petition of St. Luke's Medical Center, Inc. in G.R. No. 195960 is DENIED for violating Section 1, Rule 45 of the Rules
of Court.

SO ORDERED.

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.

DECISION

CALLEJO, SR., J.:

This is a petition for review on certiorari under Rule 45 of the Rules of Court, as amended, of the Decision 1 dated July 17,
2000 of the Court of Appeals in CA-G.R. SP No. 57014 which affirmed the decision of the Central Board of Assessment
Appeals holding that the lot owned by the petitioner and its hospital building constructed thereon are subject to
assessment for purposes of real property tax.

The Antecedents

The petitioner Lung Center of the Philippines is a non-stock and non-profit entity established on January 16, 1981 by virtue
of Presidential Decree No. 1823.2 It is the registered owner of a parcel of land, particularly described as Lot No.
RP-3-B-3A-1-B-1, SWO-04-000495, located at Quezon Avenue corner Elliptical Road, Central District, Quezon City. The
lot has an area of 121,463 square meters and is covered by Transfer Certificate of Title (TCT) No. 261320 of the Registry
of Deeds of Quezon City. Erected in the middle of the aforesaid lot is a hospital known as the Lung Center of the
Philippines. A big space at the ground floor is being leased to private parties, for canteen and small store spaces, and to
medical or professional practitioners who use the same as their private clinics for their patients whom they charge for their
professional services. Almost one-half of the entire area on the left side of the building along Quezon Avenue is vacant
and idle, while a big portion on the right side, at the corner of Quezon Avenue and Elliptical Road, is being leased for
commercial purposes to a private enterprise known as the Elliptical Orchids and Garden Center.

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.
On June 7, 1993, both the land and the hospital building of the petitioner were assessed for real property taxes in the
amount of P4,554,860 by the City Assessor of Quezon City.3 Accordingly, Tax Declaration Nos. C-021-01226 (16-2518)
and C-021-01231 (15-2518-A) were issued for the land and the hospital building, respectively. 4 On August 25, 1993, the
petitioner filed a Claim for Exemption5 from real property taxes with the City Assessor, predicated on its claim that it is a
charitable institution. The petitioners request was denied, and a petition was, thereafter, filed before the Local Board of
Assessment Appeals of Quezon City (QC-LBAA, for brevity) for the reversal of the resolution of the City Assessor. The
petitioner alleged that under Section 28, paragraph 3 of the 1987 Constitution, the property is exempt from real property
taxes. It averred that a minimum of 60% of its hospital beds are exclusively used for charity patients and that the major
thrust of its hospital operation is to serve charity patients. The petitioner contends that it is a charitable institution and, as
such, is exempt from real property taxes. The QC-LBAA rendered judgment dismissing the petition and holding the
petitioner liable for real property taxes.6

The QC-LBAAs decision was, likewise, affirmed on appeal by the Central Board of Assessment Appeals of Quezon City
(CBAA, for brevity)7 which ruled that the petitioner was not a charitable institution and that its real properties were not
actually, directly and exclusively used for charitable purposes; hence, it was not entitled to real property tax exemption
under the constitution and the law. The petitioner sought relief from the Court of Appeals, which rendered judgment
affirming the decision of the CBAA.8

Undaunted, the petitioner filed its petition in this Court contending that:

A. THE COURT A QUO ERRED IN DECLARING PETITIONER AS NOT ENTITLED TO REALTY TAX EXEMPTIONS ON
THE GROUND THAT ITS LAND, BUILDING AND IMPROVEMENTS, SUBJECT OF ASSESSMENT, ARE NOT
ACTUALLY, DIRECTLY AND EXCLUSIVELY DEVOTED FOR CHARITABLE PURPOSES.

B. WHILE PETITIONER IS NOT DECLARED AS REAL PROPERTY TAX EXEMPT UNDER ITS CHARTER, PD 1823,
SAID EXEMPTION MAY NEVERTHELESS BE EXTENDED UPON PROPER APPLICATION.

The petitioner avers that it is a charitable institution within the context of Section 28(3), Article VI of the 1987 Constitution.
It asserts that its character as a charitable institution is not altered by the fact that it admits paying patients and renders
medical services to them, leases portions of the land to private parties, and rents out portions of the hospital to private
medical practitioners from which it derives income to be used for operational expenses. The petitioner points out that for
the years 1995 to 1999, 100% of its out-patients were charity patients and of the hospitals 282-bed capacity, 60% thereof,
or 170 beds, is allotted to charity patients. It asserts that the fact that it receives subsidies from the government attests to
its character as a charitable institution. It contends that the "exclusivity" required in the Constitution does not necessarily
mean "solely." Hence, even if a portion of its real estate is leased out to private individuals from whom it derives income, it
does not lose its character as a charitable institution, and its exemption from the payment of real estate taxes on its real
property. The petitioner cited our ruling in Herrera v. QC-BAA9 to bolster its pose. 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.

In their comment on the petition, the respondents aver that the petitioner is not a charitable entity. The petitioners 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. The respondents noted that in a newspaper report, it appears that graft charges were filed with the
Sandiganbayan against the director of the petitioner, its administrative officer, and Zenaida Rivera, the proprietress of the
Elliptical Orchids and Garden Center, for entering into a lease contract over 7,663.13 square meters of the property in
1990 for only P20,000 a month, when the monthly rental should be P357,000 a month as determined by the Commission
on Audit; and that instead of complying with the directive of the COA for the cancellation of the contract for being grossly
prejudicial to the government, the petitioner renewed the same on March 13, 1995 for a monthly rental of only P24,000.
They assert that the petitioner uses the subsidies granted by the government for charity patients and uses the rest of its
income from the property for the benefit of paying patients, among other purposes. They aver that the petitioner failed to
adduce substantial evidence that 100% of its out-patients and 170 beds in the hospital are reserved for indigent patients.
The respondents further assert, thus:

13. That the claims/allegations of the Petitioner LCP do not speak well of its record of service. That before a patient is
admitted for treatment in the Center, first impression is that it is pay-patient and required to pay a certain amount as
deposit. That even if a patient is living below the poverty line, he is charged with high hospital bills. And, without these bills
being first settled, the poor patient cannot be allowed to leave the hospital or be discharged without first paying the hospital
bills or issue a promissory note guaranteed and indorsed by an influential agency or person known only to the Center; that
even the remains of deceased poor patients suffered the same fate. Moreover, before a patient is admitted for treatment
as free or charity patient, one must undergo a series of interviews and must submit all the requirements needed by the
Center, usually accompanied by endorsement by an influential agency or person known only to the Center. These facts
were heard and admitted by the Petitioner LCP during the hearings before the Honorable QC-BAA and Honorable CBAA.
These are the reasons of indigent patients, instead of seeking treatment with the Center, they prefer to be treated at the
Quezon Institute. Can such practice by the Center be called charitable?10

The Issues
The issues for resolution are the following: (a) whether the petitioner is a charitable institution within the context of
Presidential Decree No. 1823 and the 1973 and 1987 Constitutions and Section 234(b) of Republic Act No. 7160; and (b)
whether the real properties of the petitioner are exempt from real property taxes.

The Courts Ruling

The petition is partially granted.

On the first issue, we hold that the petitioner is a charitable institution within the context of the 1973 and 1987 Constitutions.
To determine whether an enterprise is a charitable institution/entity or not, the elements which should be considered
include the statute creating the enterprise, its corporate purposes, its constitution and by-laws, the methods of
administration, the nature of the actual work performed, the character of the services rendered, the indefiniteness of the
beneficiaries, and the use and occupation of the properties.11

In the legal sense, a charity may be fully defined as a gift, to be applied consistently with existing laws, for the benefit of an
indefinite number of persons, either by bringing their minds and hearts under the influence of education or religion, by
assisting them to establish themselves in life or otherwise lessening the burden of government. 12 It may be applied to
almost anything that tend to promote the well-doing and well-being of social man. It embraces the improvement and
promotion of the happiness of man.13 The word "charitable" is not restricted to relief of the poor or sick. 14 The test of a
charity and a charitable organization are in law the same. The test whether an enterprise is charitable or not is whether it
exists to carry out a purpose reorganized in law as charitable or whether it is maintained for gain, profit, or private
advantage.

Under P.D. No. 1823, the petitioner is a non-profit and non-stock corporation which, subject to the provisions of the decree,
is to be administered by the Office of the President of the Philippines with the Ministry of Health and the Ministry of Human
Settlements. It was organized for the welfare and benefit of the Filipino people principally to help combat the high
incidence of lung and pulmonary diseases in the Philippines. The raison detre for the creation of the petitioner is stated in
the decree, viz:

Whereas, for decades, respiratory diseases have been a priority concern, having been the leading cause of illness and
death in the Philippines, comprising more than 45% of the total annual deaths from all causes, thus, exacting a
tremendous toll on human resources, which ailments are likely to increase and degenerate into serious lung diseases on
account of unabated pollution, industrialization and unchecked cigarette smoking in the country;lavvph!l.net

Whereas, the more common lung diseases are, to a great extent, preventable, and curable with early and adequate
medical care, immunization and through prompt and intensive prevention and health education programs;

Whereas, there is an urgent need to consolidate and reinforce existing programs, strategies and efforts at preventing,
treating and rehabilitating people affected by lung diseases, and to undertake research and training on the cure and
prevention of lung diseases, through a Lung Center which will house and nurture the above and related activities and
provide tertiary-level care for more difficult and problematical cases;

Whereas, to achieve this purpose, the Government intends to provide material and financial support towards the
establishment and maintenance of a Lung Center for the welfare and benefit of the Filipino people. 15

The purposes for which the petitioner was created are spelled out in its Articles of Incorporation, thus:

SECOND: That the purposes for which such corporation is formed are as follows:

1. To construct, establish, equip, maintain, administer and conduct an integrated medical institution which shall specialize
in the treatment, care, rehabilitation and/or relief of lung and allied diseases in line with the concern of the government to
assist and provide material and financial support in the establishment and maintenance of a lung center primarily to benefit
the people of the Philippines and in pursuance of the policy of the State to secure the well-being of the people by providing
them specialized health and medical services and by minimizing the incidence of lung diseases in the country and
elsewhere.

2. To promote the noble undertaking of scientific research related to the prevention of lung or pulmonary ailments and the
care of lung patients, including the holding of a series of relevant congresses, conventions, seminars and conferences;

3. To stimulate and, whenever possible, underwrite scientific researches on the biological, demographic, social, economic,
eugenic and physiological aspects of lung or pulmonary diseases and their control; and to collect and publish the findings
of such research for public consumption;

4. To facilitate the dissemination of ideas and public acceptance of information on lung consciousness or awareness, and
the development of fact-finding, information and reporting facilities for and in aid of the general purposes or objects
aforesaid, especially in human lung requirements, general health and physical fitness, and other relevant or related fields;
5. To encourage the training of physicians, nurses, health officers, social workers and medical and technical personnel in
the practical and scientific implementation of services to lung patients;

6. To assist universities and research institutions in their studies about lung diseases, to encourage advanced training in
matters of the lung and related fields and to support educational programs of value to general health;

7. To encourage the formation of other organizations on the national, provincial and/or city and local levels; and to
coordinate their various efforts and activities for the purpose of achieving a more effective programmatic approach on the
common problems relative to the objectives enumerated herein;

8. To seek and obtain assistance in any form from both international and local foundations and organizations; and to
administer grants and funds that may be given to the organization;

9. To extend, whenever possible and expedient, medical services to the public and, in general, to promote and protect the
health of the masses of our people, which has long been recognized as an economic asset and a social blessing;

10. To help prevent, relieve and alleviate the lung or pulmonary afflictions and maladies of the people in any and all walks
of life, including those who are poor and needy, all without regard to or discrimination, because of race, creed, color or
political belief of the persons helped; and to enable them to obtain treatment when such disorders occur;

11. To participate, as circumstances may warrant, in any activity designed and carried on to promote the general health of
the community;

12. To acquire and/or borrow funds and to own all funds or equipment, educational materials and supplies by purchase,
donation, or otherwise and to dispose of and distribute the same in such manner, and, on such basis as the Center shall,
from time to time, deem proper and best, under the particular circumstances, to serve its general and non-profit purposes
and objectives;lavvphil.net

13. To buy, purchase, acquire, own, lease, hold, sell, exchange, transfer and dispose of properties, whether real or
personal, for purposes herein mentioned; and

14. To do everything necessary, proper, advisable or convenient for the accomplishment of any of the powers herein set
forth and to do every other act and thing incidental thereto or connected therewith. 16

Hence, the medical services of the petitioner are to be rendered to the public in general in any and all walks of life including
those who are poor and the needy without discrimination. After all, any person, the rich as well as the poor, may fall sick or
be injured or wounded and become a subject of charity.17

As a general principle, a charitable institution does not lose its character as such and its exemption from taxes simply
because it derives income from paying patients, whether out-patient, or confined in the hospital, or receives subsidies from
the government, so long as the money received is devoted or used altogether to the charitable object which it is intended
to achieve; and no money inures to the private benefit of the persons managing or operating the
institution.18 In Congregational Sunday School, etc. v. Board of Review,19 the State Supreme Court of Illinois held, thus:

[A]n institution does not lose its charitable character, and consequent exemption from taxation, by reason of the fact
that those recipients of its benefits who are able to pay are required to do so, where no profit is made by the institution and
the amounts so received are applied in furthering its charitable purposes, and those benefits are refused to none on
account of inability to pay therefor. The fundamental ground upon which all exemptions in favor of charitable institutions
are based is the benefit conferred upon the public by them, and a consequent relief, to some extent, of the burden upon
the state to care for and advance the interests of its citizens.20

As aptly stated by the State Supreme Court of South Dakota in Lutheran Hospital Association of South Dakota v. Baker:21

[T]he fact that paying patients are taken, the profits derived from attendance upon these patients being exclusively
devoted to the maintenance of the charity, seems rather to enhance the usefulness of the institution to the poor; for it is a
matter of common observation amongst those who have gone about at all amongst the suffering classes, that the
deserving poor can with difficulty be persuaded to enter an asylum of any kind confined to the reception of objects of
charity; and that their honest pride is much less wounded by being placed in an institution in which paying patients are also
received. The fact of receiving money from some of the patients does not, we think, at all impair the character of the charity,
so long as the money thus received is devoted altogether to the charitable object which the institution is intended to
further.22

The money received by the petitioner becomes a part of the trust fund and must be devoted to public trust purposes and
cannot be diverted to private profit or benefit.23
Under P.D. No. 1823, the petitioner is entitled to receive donations. The petitioner does not lose its character as a
charitable institution simply because the gift or donation is in the form of subsidies granted by the government. As held by
the State Supreme Court of Utah in Yorgason v. County Board of Equalization of Salt Lake County:24

Second, the government subsidy payments are provided to the project. Thus, those payments are like a gift or donation
of any other kind except they come from the government. In both Intermountain Health Careand the present case, the crux
is the presence or absence of material reciprocity. It is entirely irrelevant to this analysis that the government, rather than a
private benefactor, chose to make up the deficit resulting from the exchange between St. Marks Tower and the tenants by
making a contribution to the landlord, just as it would have been irrelevant in Intermountain Health Care if the patients
income supplements had come from private individuals rather than the government.

Therefore, the fact that subsidization of part of the cost of furnishing such housing is by the government rather than private
charitable contributions does not dictate the denial of a charitable exemption if the facts otherwise support such an
exemption, as they do here.25

In this case, the petitioner adduced substantial evidence that it spent its income, including the subsidies from the
government for 1991 and 1992 for its patients and for the operation of the hospital. It even incurred a net loss in 1991 and
1992 from its operations.

Even as we find that the petitioner is a charitable institution, we hold, anent the second issue, that 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. Taxation is the rule and exemption is the exception. The effect of an
exemption is equivalent to an appropriation. Hence, a claim for exemption from tax payments must be clearly shown and
based on language in the law too plain to be mistaken.26 As held in Salvation Army v. Hoehn:27

An intention on the part of the legislature to grant an exemption from the taxing power of the state will never be implied
from language which will admit of any other reasonable construction. Such an intention must be expressed in clear and
unmistakable terms, or must appear by necessary implication from the language used, for it is a well settled principle that,
when a special privilege or exemption is claimed under a statute, charter or act of incorporation, it is to be construed strictly
against the property owner and in favor of the public. This principle applies with peculiar force to a claim of exemption from
taxation . 28

Section 2 of Presidential Decree No. 1823, relied upon by the petitioner, specifically provides that the petitioner shall enjoy
the tax exemptions and privileges:

SEC. 2. TAX EXEMPTIONS AND PRIVILEGES. Being a non-profit, non-stock corporation organized primarily to help
combat the high incidence of lung and pulmonary diseases in the Philippines, all donations, contributions, endowments
and equipment and supplies to be imported by authorized entities or persons and by the Board of Trustees of the Lung
Center of the Philippines, Inc., for the actual use and benefit of the Lung Center, shall be exempt from income and gift
taxes, the same further deductible in full for the purpose of determining the maximum deductible amount under Section 30,
paragraph (h), of the National Internal Revenue Code, as amended.

The Lung Center of the Philippines shall be exempt from the payment of taxes, charges and fees imposed by the
Government or any political subdivision or instrumentality thereof with respect to equipment purchases made by, or for the
Lung Center.29

It is plain as day that under the decree, the petitioner does not enjoy any property tax exemption privileges for its real
properties as well as the building constructed thereon. If the intentions were otherwise, the same should have been among
the enumeration of tax exempt privileges under Section 2:

It is a settled rule of statutory construction that the express mention of one person, thing, or consequence implies the
exclusion of all others. The rule is expressed in the familiar maxim, expressio unius est exclusio alterius.

The rule of expressio unius est exclusio alterius is formulated in a number of ways. One variation of the rule is the principle
that what is expressed puts an end to that which is implied. Expressium facit cessare tacitum. Thus, where a statute, by its
terms, is expressly limited to certain matters, it may not, by interpretation or construction, be extended to other matters.

...

The rule of expressio unius est exclusio alterius and its variations are canons of restrictive interpretation. They are based
on the rules of logic and the natural workings of the human mind. They are predicated upon ones own voluntary act and
not upon that of others. They proceed from the premise that the legislature would not have made specified enumeration in
a statute had the intention been not to restrict its meaning and confine its terms to those expressly mentioned. 30
The exemption must not be so enlarged by construction since the reasonable presumption is that the State has granted in
express terms all it intended to grant at all, and that unless the privilege is limited to the very terms of the statute the favor
would be intended beyond what was meant.31

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.32

The tax exemption under this constitutional provision covers property taxes only.33 As Chief Justice Hilario G. Davide, Jr.,
then a member of the 1986 Constitutional Commission, explained: ". . . 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."34

Consequently, the constitutional provision is implemented by Section 234(b) of Republic Act No. 7160 (otherwise known
as the Local Government Code of 1991) as follows:

SECTION 234. Exemptions from Real Property Tax. The following are exempted from payment of the real property tax:

...

(b) Charitable institutions, churches, parsonages or convents appurtenant thereto, mosques, non-profit or religious
cemeteries and all lands, buildings, and improvements actually, directly, and exclusivelyused for religious, charitable or
educational purposes.35

We note that under the 1935 Constitution, "... all lands, buildings, and improvements used exclusively for charitable
purposes shall be exempt from taxation."36 However, under the 1973 and the present Constitutions, for "lands, buildings,
and improvements" of the charitable institution to be considered exempt, the same should not only be "exclusively" used
for charitable purposes; it is required that such property be used "actually" and "directly" for such purposes. 37

In light of the foregoing substantial changes in the Constitution, the petitioner cannot rely on our ruling in Herrera v.
Quezon City Board of Assessment Appeals which was promulgated on September 30, 1961 before the 1973 and 1987
Constitutions took effect.38 As this Court held in Province of Abra v. Hernando:39

Under the 1935 Constitution: "Cemeteries, churches, and parsonages or convents appurtenant thereto, and all lands,
buildings, and improvements used exclusively for religious, charitable, or educational purposes shall be exempt from
taxation." The present Constitution added "charitable institutions, mosques, and non-profit cemeteries" and required that
for the exemption of "lands, buildings, and improvements," they should not only be "exclusively" but also "actually" and
"directly" used for religious or charitable purposes. The Constitution is worded differently. The change should not be
ignored. It must be duly taken into consideration. Reliance on past decisions would have sufficed were the words "actually"
as well as "directly" not added. There must be proof therefore of the actual and direct use of the lands, buildings, and
improvements for religious or charitable purposes to be exempt from taxation.

Under the 1973 and 1987 Constitutions and Rep. Act No. 7160 in order to be entitled to the exemption, the petitioner is
burdened to prove, by clear and unequivocal proof, that (a) it is a charitable institution; and (b) its real properties
are ACTUALLY, DIRECTLY and EXCLUSIVELY used for charitable purposes. "Exclusive" is defined as possessed and
enjoyed to the exclusion of others; debarred from participation or enjoyment; and "exclusively" is defined, "in a manner to
exclude; as enjoying a privilege exclusively."40 If real property is used for one or more commercial purposes, it is not
exclusively used for the exempted purposes but is subject to taxation. 41 The words "dominant use" or "principal use"
cannot be substituted for the words "used exclusively" without doing violence to the Constitutions and the law.42 Solely is
synonymous with exclusively.43

What is meant by actual, direct and exclusive use of the property for charitable purposes is the direct and immediate and
actual application of the property itself to the purposes for which the charitable institution is organized. It is not the use of
the income from the real property that is determinative of whether the property is used for tax-exempt purposes.44

The petitioner failed to discharge its burden 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. Further, a portion of the land is being leased to a private individual for her business enterprise
under the business name "Elliptical Orchids and Garden Center." Indeed, the petitioners evidence shows that it
collected P1,136,483.45 as rentals in 1991 and P1,679,999.28 for 1992 from the said lessees.

Accordingly, we hold that the portions of the land leased to private entities as well as those parts of the hospital leased to
private individuals are not exempt from such taxes.45 On the other hand, the portions of the land occupied by the hospital
and portions of the hospital used for its patients, whether paying or non-paying, are exempt from real property taxes.
IN LIGHT OF ALL THE FOREGOING, 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.

SO ORDERED.

G.R. No. L-39086 June 15, 1988

ABRA VALLEY COLLEGE, INC., represented by PEDRO V. BORGONIA, petitioner,

vs.
HON. JUAN P. AQUINO, Judge, Court of First Instance, Abra; ARMIN M. CARIAGA, Provincial Treasurer, Abra;
GASPAR V. BOSQUE, Municipal Treasurer, Bangued, Abra; HEIRS OF PATERNO MILLARE, respondents.

PARAS, J.:

This is a petition for review on certiorari of the decision * of the defunct Court of First Instance of Abra, Branch I, dated
June 14, 1974, rendered in Civil Case No. 656, entitled "Abra Valley Junior College, Inc., represented by Pedro V.
Borgonia, plaintiff vs. Armin M. Cariaga as Provincial Treasurer of Abra, Gaspar V. Bosque as Municipal Treasurer of
Bangued, Abra and Paterno Millare, defendants," the decretal portion of which reads:

IN VIEW OF ALL THE FOREGOING, the Court hereby declares:

That the distraint seizure and sale by the Municipal Treasurer of Bangued, Abra, the Provincial Treasurer of said province
against the lot and building of the Abra Valley Junior College, Inc., represented by Director Pedro Borgonia located at
Bangued, Abra, is valid;

That since the school is not exempt from paying taxes, it should therefore pay all back taxes in the amount of P5,140.31
and back taxes and penalties from the promulgation of this decision;

That the amount deposited by the plaintaff him the sum of P60,000.00 before the trial, be confiscated to apply for the
payment of the back taxes and for the redemption of the property in question, if the amount is less than P6,000.00, the
remainder must be returned to the Director of Pedro Borgonia, who represents the plaintiff herein;

That the deposit of the Municipal Treasurer in the amount of P6,000.00 also before the trial must be returned to said
Municipal Treasurer of Bangued, Abra;

And finally the case is hereby ordered dismissed with costs against the plaintiff.

SO ORDERED. (Rollo, pp. 22-23)

Petitioner, an educational corporation and institution of higher learning duly incorporated with the Securities and Exchange
Commission in 1948, filed a complaint (Annex "1" of Answer by the respondents Heirs of Paterno Millare; Rollo, pp. 95-97)
on July 10, 1972 in the court a quo to annul and declare void the "Notice of Seizure' and the "Notice of Sale" of its lot and
building located at Bangued, Abra, for non-payment of real estate taxes and penalties amounting to P5,140.31. Said
"Notice of Seizure" of the college lot and building covered by Original Certificate of Title No. Q-83 duly registered in the
name of petitioner, plaintiff below, on July 6, 1972, by respondents Municipal Treasurer and Provincial Treasurer,
defendants below, was issued for the satisfaction of the said taxes thereon. The "Notice of Sale" was caused to be served
upon the petitioner by the respondent treasurers on July 8, 1972 for the sale at public auction of said college lot and
building, which sale was held on the same date. Dr. Paterno Millare, then Municipal Mayor of Bangued, Abra, offered the
highest bid of P6,000.00 which was duly accepted. The certificate of sale was correspondingly issued to him.

On August 10, 1972, the respondent Paterno Millare (now deceased) filed through counstel a motion to dismiss the
complaint.

On August 23, 1972, the respondent Provincial Treasurer and Municipal Treasurer, through then Provincial Fiscal Loreto
C. Roldan, filed their answer (Annex "2" of Answer by the respondents Heirs of Patemo Millare; Rollo, pp. 98-100) to the
complaint. This was followed by an amended answer (Annex "3," ibid, Rollo, pp. 101-103) on August 31, 1972.
On September 1, 1972 the respondent Paterno Millare filed his answer (Annex "5," ibid; Rollo, pp. 106-108).

On October 12, 1972, with the aforesaid sale of the school premises at public auction, the respondent Judge, Hon. Juan P.
Aquino of the Court of First Instance of Abra, Branch I, ordered (Annex "6," ibid; Rollo, pp. 109-110) the respondents
provincial and municipal treasurers to deliver to the Clerk of Court the proceeds of the auction sale. Hence, on December
14, 1972, petitioner, through Director Borgonia, deposited with the trial court the sum of P6,000.00 evidenced by PNB
Check No. 904369.

On April 12, 1973, the parties entered into a stipulation of facts adopted and embodied by the trial court in its questioned
decision. Said Stipulations reads:

STIPULATION OF FACTS

COME NOW the parties, assisted by counsels, and to this Honorable Court respectfully enter into the following agreed
stipulation of facts:

1. That the personal circumstances of the parties as stated in paragraph 1 of the complaint is admitted; but the particular
person of Mr. Armin M. Cariaga is to be substituted, however, by anyone who is actually holding the position of Provincial
Treasurer of the Province of Abra;

2. That the plaintiff Abra Valley Junior College, Inc. is the owner of the lot and buildings thereon located in Bangued, Abra
under Original Certificate of Title No. 0-83;

3. That the defendant Gaspar V. Bosque, as Municipal treasurer of Bangued, Abra caused to be served upon the Abra
Valley Junior College, Inc. a Notice of Seizure on the property of said school under Original Certificate of Title No. 0-83 for
the satisfaction of real property taxes thereon, amounting to P5,140.31; the Notice of Seizure being the one attached to the
complaint as Exhibit A;

4. That on June 8, 1972 the above properties of the Abra Valley Junior College, Inc. was sold at public auction for the
satisfaction of the unpaid real property taxes thereon and the same was sold to defendant Paterno Millare who offered the
highest bid of P6,000.00 and a Certificate of Sale in his favor was issued by the defendant Municipal Treasurer.

5. That all other matters not particularly and specially covered by this stipulation of facts will be the subject of evidence by
the parties.

WHEREFORE, it is respectfully prayed of the Honorable Court to consider and admit this stipulation of facts on the point
agreed upon by the parties.

Bangued, Abra, April 12, 1973.

Sgd. Agripino Brillantes

Typ AGRIPINO BRILLANTES
Attorney for Plaintiff

Sgd. Loreto Roldan

Typ LORETO ROLDAN
Provincial Fiscal
Counsel for Defendants
Provincial Treasurer of
Abra and the Municipal
Treasurer of Bangued, Abra

Sgd. Demetrio V. Pre

Typ. DEMETRIO V. PRE
Attorney for Defendant
Paterno Millare (Rollo, pp. 17-18)

Aside from the Stipulation of Facts, the trial court among others, found the following: (a) that the school is recognized by
the government and is offering Primary, High School and College Courses, and has a school population of more than one
thousand students all in all; (b) that it is located right in the heart of the town of Bangued, a few meters from the plaza and
about 120 meters from the Court of First Instance building; (c) that the elementary pupils are housed in a two-storey
building across the street; (d) that the high school and college students are housed in the main building; (e) that the
Director with his family is in the second floor of the main building; and (f) that the annual gross income of the school
reaches more than one hundred thousand pesos.

From all the foregoing, the only issue left for the Court to determine and as agreed by the parties, is whether or not the lot
and building in question are used exclusively for educational purposes. (Rollo, p. 20)
The succeeding Provincial Fiscal, Hon. Jose A. Solomon and his Assistant, Hon. Eustaquio Z. Montero, filed a
Memorandum for the Government on March 25, 1974, and a Supplemental Memorandum on May 7, 1974, wherein they
opined "that based on the evidence, the laws applicable, court decisions and jurisprudence, the school building and school
lot used for educational purposes of the Abra Valley College, Inc., are exempted from the payment of taxes." (Annexes
"B," "B-1" of Petition; Rollo, pp. 24-49; 44 and 49).

Nonetheless, the trial court disagreed because of the use of the second floor by the Director of petitioner school for
residential purposes. He thus ruled for the government and rendered the assailed decision.

After having been granted by the trial court ten (10) days from August 6, 1974 within which to perfect its appeal (Per Order
dated August 6, 1974; Annex "G" of Petition; Rollo, p. 57) petitioner instead availed of the instant petition for review
on certiorari with prayer for preliminary injunction before this Court, which petition was filed on August 17, 1974 (Rollo,
p.2).

In the resolution dated August 16, 1974, this Court resolved to give DUE COURSE to the petition (Rollo, p. 58).
Respondents were required to answer said petition (Rollo, p. 74).

Petitioner raised the following assignments of error:

THE COURT A QUO ERRED IN SUSTAINING AS VALID THE SEIZURE AND SALE OF THE COLLEGE LOT AND
BUILDING USED FOR EDUCATIONAL PURPOSES OF THE PETITIONER.

II

THE COURT A QUO ERRED IN DECLARING THAT THE COLLEGE LOT AND BUILDING OF THE PETITIONER ARE
NOT USED EXCLUSIVELY FOR EDUCATIONAL PURPOSES MERELY BECAUSE THE COLLEGE PRESIDENT
RESIDES IN ONE ROOM OF THE COLLEGE BUILDING.

III

THE COURT A QUO ERRED IN DECLARING THAT THE COLLEGE LOT AND BUILDING OF THE PETITIONER ARE
NOT EXEMPT FROM PROPERTY TAXES AND IN ORDERING PETITIONER TO PAY P5,140.31 AS REALTY TAXES.

IV

THE COURT A QUO ERRED IN ORDERING THE CONFISCATION OF THE P6,000.00 DEPOSIT MADE IN THE
COURT BY PETITIONER AS PAYMENT OF THE P5,140.31 REALTY TAXES. (See Brief for the Petitioner, pp. 1-2)

The main issue in this case is the proper interpretation of the phrase "used exclusively for educational purposes."

Petitioner contends that the primary use of the lot and building for educational purposes, and not the incidental use thereof,
determines and exemption from property taxes under Section 22 (3), Article VI of the 1935 Constitution. Hence, the
seizure and sale of subject college lot and building, which are contrary thereto as well as to the provision of
Commonwealth Act No. 470, otherwise known as the Assessment Law, are without legal basis and therefore void.

On the other hand, private respondents maintain that the college lot and building in question which were subjected to
seizure and sale to answer for the unpaid tax are used: (1) for the educational purposes of the college; (2) as the
permanent residence of the President and Director thereof, Mr. Pedro V. Borgonia, and his family including the in-laws and
grandchildren; and (3) for commercial purposes because the ground floor of the college building is being used and rented
by a commercial establishment, the Northern Marketing Corporation (See photograph attached as Annex "8" (Comment;
Rollo, p. 90]).

Due to its time frame, the constitutional provision which finds application in the case at bar is Section 22, paragraph 3,
Article VI, of the then 1935 Philippine Constitution, which expressly grants exemption from realty taxes for "Cemeteries,
churches and parsonages or convents appurtenant thereto, and all lands, buildings, and improvements used
exclusively for religious, charitable or educational purposes ...

Relative thereto, Section 54, paragraph c, Commonwealth Act No. 470 as amended by Republic Act No. 409, otherwise
known as the Assessment Law, provides:

The following are exempted from real property tax under the Assessment Law:

xxx xxx xxx

(c) churches and parsonages or convents appurtenant thereto, and all lands, buildings, and improvements used
exclusively for religious, charitable, scientific or educational purposes.

xxx xxx xxx

In this regard petitioner argues that the primary use of the school lot and building is the basic and controlling guide, norm
and standard to determine tax exemption, and not the mere incidental use thereof.

As early as 1916 in YMCA of Manila vs. Collector of lnternal Revenue, 33 Phil. 217 [1916], this Court ruled that while it
may be true that the YMCA keeps a lodging and a boarding house and maintains a restaurant for its members, still these
do not constitute business in the ordinary acceptance of the word, but an institution used exclusively for religious,
charitable and educational purposes, and as such, it is entitled to be exempted from taxation.

In the case of Bishop of Nueva Segovia v. Provincial Board of Ilocos Norte, 51 Phil. 352 [1972], this Court included in the
exemption a vegetable garden in an adjacent lot and another lot formerly used as a cemetery. It was clarified that the term
"used exclusively" considers incidental use also. Thus, the exemption from payment of land tax in favor of the convent
includes, not only the land actually occupied by the building but also the adjacent garden devoted to the incidental use of
the parish priest. The lot which is not used for commercial purposes but serves solely as a sort of lodging place, also
qualifies for exemption because this constitutes incidental use in religious functions.

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 test of exemption from taxation is the use of the property for purposes mentioned in the Constitution (Apostolic Prefect
v. City Treasurer of Baguio, 71 Phil, 547 [1941]).

It must be stressed however, that while this Court allows a more liberal and non-restrictive interpretation of the phrase
"exclusively used for educational purposes" as provided for in Article VI, Section 22, paragraph 3 of the 1935 Philippine
Constitution, reasonable emphasis has always been made that exemption extends to facilities which are incidental to and
reasonably necessary for the accomplishment of the main purposes. Otherwise stated, the use of the school building or lot
for commercial purposes is neither contemplated by law, nor by jurisprudence. Thus, while the use of the second floor of
the main building in the case at bar for residential purposes of the Director and his family, may find justification under the
concept of incidental use, which is complimentary to the main or primary purposeeducational, the lease of the first floor
thereof to the Northern Marketing Corporation cannot by any stretch of the imagination be considered incidental to the
purpose of education.

It will be noted however that the aforementioned lease appears to have been raised for the first time in this Court. That the
matter was not taken up in the to court is really apparent in the decision of respondent Judge. No mention thereof was
made in the stipulation of facts, not even in the description of the school building by the trial judge, both embodied in the
decision nor as one of the issues to resolve in order to determine whether or not said properly may be exempted from
payment of real estate taxes (Rollo, pp. 17-23). On the other hand, it is noteworthy that such fact was not disputed even
after it was raised in this Court.

Indeed, it is axiomatic that facts not raised in the lower court cannot be taken up for the first time on appeal. Nonetheless,
as an exception to the rule, this Court has held that although a factual issue is not squarely raised below, still in the interest
of substantial justice, this Court is not prevented from considering a pivotal factual matter. "The Supreme Court is clothed
with ample authority to review palpable errors not assigned as such if it finds that their consideration is necessary in
arriving at a just decision." (Perez vs. Court of Appeals, 127 SCRA 645 [1984]).

Under the 1935 Constitution, the trial court correctly arrived at the conclusion that the school building as well as the lot
where it is built, should be taxed, not because the second floor of the same is being used by the Director and his family for
residential purposes, but because the first floor thereof is being used for commercial purposes. However, since only a
portion is used for purposes of commerce, it is only fair that half of the assessed tax be returned to the school involved.

PREMISES CONSIDERED, the decision of the Court of First Instance of Abra, Branch I, is hereby AFFIRMED subject to
the modification that half of the assessed tax be returned to the petitioner.

SO ORDERED.