WALTER LUTZ vs.

ARANETA

POWER OF STATE TO LEVY TAX IN AID AND SUPPORT OF SUGAR INDUSTRY.—

As the protection and promotion of the sugar industry is a matter of public concern, the Legislature may
determine within reasonable bounds what is necessary for its protection and expedient for its promotion. Here, the
legislative discretion must be allowed full play, subject only to the test of reasonableness; and it is not contended that
the means provided in section 6 of Commonwealth Act No. 567 bear no relation to the objective pursued or are
oppressive in character. If objective and methods arealike constitutionally valid, no reason is seen why the state may
not levy taxes to raise funds for their prosecution and attainment. Taxation may be made the implement of the state’s
police power (Great Atl. & Pac. Tea Co. vs. Grosjean, 301 U.S. 412, 81 L. Ed. 1193; U.S. vs. Butler, 297 U.S. 1, 80 L.
Ed. 477; M’Culloch vs. Maryland, 4 Wheat. 316, 4 L. Ed. 579).

POWER OF STATE TO SELECT SUBJECT OF TAXATION.—It is inherent in the power to tax that a 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 110 constitutional limitation (Carmichael vs. Southern Coal & Coke
Co., 301 U.S. 495, 81 L. Ed. 1245, citing numerous authorities, at 1251).

VALENTIN TIO vs VIDEOGRAM REGULATORY BOARD

Tax imposed under the Decree is not harsh; oppressive, confiscatory and in restraint of trade but regulatory and a
revenue measure; The levy is for a public purpose.—

Petitioner also submits that the thirty percent (30%) tax imposed is harsh and oppressive, confiscatory, and in
restraint of trade. However, it is beyond serious question that a tax does not cease to be valid merely because it
regulates, discourages, or even definitely deters the activities taxed. The power to impose taxes is one so unlimited in
force and so searching in extent, that the courts scarcely venture to declare that it is subject to any restrictions
whatever, except such as rest in the discretion of the authority which exercises it. In imposing a tax, the legislature
acts upon its constituents. This is, in general, a sufficient security against erroneous and oppressive taxation. The tax
imposed by the DECREE is not only a regulatory but also a revenue measure prompted by the realization that
earnings of videogram establishments of around P600 million per annum have not been subjected to tax, thereby
depriving the Government of an additional source of revenue. It is an end-user tax, imposed on retailers for every
videogram they make available for public viewing, It is similar to the 30% amusement tax imposed or borne by the
movie industry which the theater-owners pay to the government, but which is passed on to the entire cost of the
admission ticket, thus shifting the tax burden on the buying or the viewing public. It is a tax that is imposed uniformly
on all videogram operators. The levy of the 30% tax is for a public purpose. It was imposed primarily to answer the
need for regulating the video industry, particularly because of the rampant film piracy, the flagrant violation of
intellectual property rights, and the proliferation of pornographic video tapes. And while it was also an objective of the
DECREE to protect the movie industry, the tax remains a valid imposition.

CALTEX PHILIPPINES, INC. vs. COMMISSION ON AUDIT

Civil Law; Taxation; LOI 1416 has no binding force or effect as it was never published in the Official Gazette after its
issuance or at anytime after the decision in the above-mentioned cases.—LOI 1416 has, therefore, no binding force or
effect as it was never published in the Official Gazette after its issuance or at any time after the decision in the
abovementioned cases.

Same; Same; Tax exemptions as a general rule are construed strictly against the grantee and liberally in favor of the
taxing authority.—Furthermore, even granting arguendo that LOI 1416 has force and effect, petitioner’s claim must still
fail. Tax exemptions as a general rule are construed strictly against the grantee and liberally in favor of the taxing
authority. The burden of proof rests upon the party claiming exemption to prove that it is in fact covered by the
exemption so claimed. The party claiming exemption must therefore be expressly mentioned in the exempting law or
at least be within its purview by clear legislative intent.

Same; Same; Though LOI 1416 may suspend the payment of taxes by copper mining companies it does not give
petitioner the same privilege with respect to the payment of OPSF dues.—In the case at bar, petitioner failed to prove
that it is entitled, as a consequence of its sales to ATLAS and MARCOPPER, to claim reimbursement from the OPSF
under LOI 1416. Though LOI 1416 may suspend the payment of taxes by copper mining companies, it does not give
petitioner the same privilege with respect to the payment of OPSF dues.

Same; Same; It is settled that a taxpayer may not offset taxes due from the claims that he may have against the
government.—It is settled that a taxpayer may not offset taxes due from the claims that he may have against the
government. Taxes cannot be the subject of compensation because the government and taxpayer are not mutually
creditors and debtors of each other and a claim for taxes is not such a debt, demand, contract or judgment as is
allowed to be set-off.

PHILIPPINE PRESS INSTITUTE, INC. vs. CHATO

Taxation; The press is not exempt from the taxing power of the State.—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 RA. No. 7716 is none of these.

Exceptions; By granting exemptions, the State does not forever waive the exercise of its sovereign prerogative.—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.

Same; Same; Same; Same; In withdrawing the exemption, the law merely subjects the press to the same tax burden
to which other businesses have long ago been subject.—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.

Same; Same; Same; Same; The VAT 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.—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.

Same; Same; Same; “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.’ ”—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)).

Same; Same; Same; Equality and uniformity of taxation means that all taxable articles or kinds of property of the same
class be taxed at the same rate.—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, 134 Phil.
912 (1968); Sison, Jr. v. Ancheta, 130 SCRA 654, 663 (1984)).

Same; Same; Same; Congress shall “evolve a progressive system of taxation” has been interpreted to mean that
“direct taxes are to be preferred and as much as possible indirect taxes should be minimized.”—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 revolve, 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).

Same; Same; Same; 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) which under the Constitution are the only exempt from
taxation.—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).

ARTURO M. TOLENTINO vs.THE SECRETARY OF FINANCE and THE COMMISSIONER OF INTERNAL

REVENUE

Constitutional Law; Statutes; Taxation; Origin of revenue bills; A bill originating in the House of Representatives may
undergo such extensive changes in the Senate that the result may be a rewriting of the whole; As a result of the
Senate action, a distinct bill may be produced and to insist that a revenue statute must substantially be the same as
the House bill would be to deny the Senate’s power not only to “concur with amendments” but also to “propose
amendments.”—Petitioners’ contention is that Republic Act No. 7716 did not “originate exclusively” in the House of
Representatives as required by Art. VI, § 24 of the Constitution, because it is in fact the result of the consolidation of
two distinct bills, H. No. 11197 and S. No. 1630. In this connection, petitioners point out that although Art. VI, § 24 was
adopted from the American Federal Constitution, it is notable in two respects: the verb “shall originate” is qualified in
the Philippine Constitution by the word “exclusively” and the phrase “as on other bills” in the American version is
omitted. This means, according to them, that to be considered as having originated in the House, Republic Act No.
7716 must retain the essence of H. No. 11197. This argument will not bear analysis. To begin with, it is not the law—
but the revenue bill—which is required by the Constitution to “originate exclusively” in the House of Representatives. It
is important to emphasize this, because a bill originating in the House may undergo such extensive changes in the
Senate that the result may be a rewriting of the whole. The possibility of a third version by the conference committee
will be discussed later. At this point, what is important to note is that, as a result of the Senate action, a distinct bill
may be produced. To insist that a revenue statute—and not only the bill which initiated the legislative process
culminating in the enactment of the law—must substantially be the same as the House bill would be to deny the
Senate’s power not only to “concur with amendments” but also to “propose amendments.” It would be to violate the
coequality of legislative power of the two houses of Congress and in fact make the House superior to the Senate.

Same; Same; Same; Same; Legislative power is vested in the Congress of the Philippines, consisting of “a Senate
and a House of Representatives,” not in any particular chamber.—The contention that the constitutional design is to
limit the Senate’s power in respect of revenue bills in order to compensate for the grant to the Senate of the treaty-
ratifying power and thereby equalize its powers and those of the House overlooks the fact that the powers being
compared are different. We are dealing here with the legislative power which under the Constitution is vested not in
any particular chamber but in the Congress of the Philippines, consisting of “a Senate and a House of Represen-
tatives.” The exercise of the treaty-ratifying power is not the exercise of legislative power. It is the exercise of a check
on the executive power. There is, therefore, no justification for comparing the legislative powers of the House and of
the Senate on the basis of the possession of such nonlegislative power by the Senate. The possession of a similar
power by the U.S. Senate has never been thought of as giving it more legislative powers than the House of
Representatives.

Same; Same; Same; Same; There is really no difference between the Senate preserving the House Bill up to the
enacting clause and then writing its own version following the enacting clause and, on the other hand, separately
presenting a bill of its own on the same subject matter.—It is insisted, however, that S. No. 1630 was passed not in
substitution of H. No. 11197 but of another Senate bill (S. No. 1129) earlier filed and that what the Senate did was
merely to “take [H. No. 11197] into consideration” in enacting S. No. 1630. There is really no difference between the
Senate preserving H. No. 11197 up to the enacting clause and then writing its own version following the enacting
clause (which, it would seem, petitioners admit is an amendment by substitution), and, on the other hand, separately
presenting a bill of its own on the same subject matter. In either case the result are two bills on the same subject.

Same; Same; Same; Same; The Constitution simply means that the initiative for filing revenue, tariff, or tax bills, bills
authorizing an increase of the public debt, private bills and bills of local application must come from the House of
Representatives and that it does not prohibit the filing in the Senate of a substitute bill in anticipation of its receipt of
the bill from the House.—Indeed, what the Constitution simply means is that the initiative for filing revenue, tariff, or
tax bills, bills authorizing an increase of the public debt, private bills and bills of local application must come from the
House of Representatives on the theory that, elected as they are from the districts, the members of the House can be
expected to be more sensitive to the local needs and problems. On the other hand, the senators, who are elected at
large, are expected to approach the same problems from the national perspective. Both views are thereby made to
bear on the enactment of such laws. Nor does the Constitution prohibit the filing in the Senate of a substitute bill in
anticipation of its receipt of the bill from the House, so long as action by the Senate as a body is withheld pending
receipt of the House bill.

Association of Costom Brokers, Inc. and G. Manlapit, Inc. vs. The Municipality of Board, The City Treasurer,
The City Assessor and The City Mayor, all of the City of Manila

Taxation; Taxes on Motor Vehicles; no Fees Other than Property Tax  and Those Provided in Act No. 3992 may be
Exacted on Motor Vehicles.—Under section 70—b of Act No. 3992 as amended, no fees may be exacted or
demanded for the operation of any motor vehicle other than those therein provided, the only exception being that
which refers to property tax which may be imposed by a municipal corporation. This provision is all-inclusive in the
sense that it applies to all motor vehicles. In this sense, this provision should be con strued as limiting the broad grant
of power conferred upon the City of Manila by its Charter to impose taxes. When Section 18 of said Charter provides
that the City of Manila can impose a tax on motor vehicles operating within its limits, it can only refer to property tax,
as a different interpretation would make it repugnant to the Motor Vehicle Law. 

Id; Constitutional Law; Ordinance No. 3379 of Manila Invalid; Property Tax, Distinguished Tax From Excise Tax or
License Fee.—While Ordinance No. 3379 of the City of Manila refers to property tax and it is fixed ad valorem yet we
can not reject the idea that it is merely levied on motor vehicles operating within the said city with the main purpose of
raising funds to be expended exclusively for the repair, maintenance and improvement of the streets and bridges in
said city. This is precisely what the Motor Vehicle Law (Act No. 3992) intends to prevent, for the reason that, under
said Act, municipal corporations already participate in the distribution of the proceeds that are raised for the same
purpose of repairing, maintaining and improving bridges and public highways (Motor Vehicle Law, sec. 73). This
prohibition is intended to prevent duplication in the imposition of fees for the same purpose. It is for this reason that it
is believed that the ordinance in question merely imposes a license fee although under the cloak of an ad valorem tax
to circumvent the prohibition adverted to.

3. Id Id.; Id.; Uniformity of Taxation.—The said ordinance infringes also the rule of uniformity of taxation ordained by
our Constitution. It exacts the tax upon all motor vehicles operating within the City of Manila. It does not distinguish
between a motor vehicle for hire and one which is purely for private use. Neither does it distinguish between a motor
vehicle registered in the City of Manila and one registered in another place but occasionally comes to Manila and uses
its streets and public highways. There is no pretense that the ordinance equally applies to motor vehicles which come
to Manila for a temporary stay or for short errands, and it cannot be denied that they contribute in no small degree to
the deterioration of the streets and public highways. As they are benefited by their use they should also be made to
share the corresponding burden. This is an inequality which is found in the ordinance in question and which renders it
offensive to the Constitution.

COMMISSIONER OF INTERNAL REVENUE vs. COURT OF APPEALS

Taxation; Court of Tax Appeals; Factual findings of the CTA, when supported by substantial evidence, will not be
disturbed on appeal unless it is shown that the court committed gross error in the appreciation of facts.—Indeed, it is a
basic rule in taxation that the factual findings of the CTA, when supported by substantial evidence, will not be
disturbed on appeal unless it is shown that the said court committed gross error in the appreciation of facts. In the
present case, this Court finds that the February 16, 1994 Decision of the CA did not deviate from this rule. The latter
merely applied the law to the facts as found by the CTA and ruled on the issue raised by the CIR: “Whether or not the
collection or earnings of rental income from the lease of certain premises and income earned from parking fees shall
fall under the last paragraph of Section 27 of the National Internal Revenue Code of 1977, as amended.”

Same; Same; Distinction between a question of law and a question of fact.—The distinction between a question of law
and a question of fact is clear-cut. It has been held that “[t]here is a question of law in a given case when the doubt or
difference arises as to what the law is on a certain state of facts; there is a question of fact when the doubt or
difference arises as to the truth or falsehood of alleged facts.”

Same; Tax Exemptions; Court has always applied the doctrine of strict interpretation in construing tax exemptions.—
Because taxes are the lifeblood of the nation, the Court has always applied the doctrine of strict interpretation in
construing tax exemptions. Furthermore, a claim of statutory exemption from taxation should be manifest and
unmistakable from the language of the law on which it is based. Thus, the claimed exemption “must expressly be
granted in a statute stated in a language too clear to be mistaken.”

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

Same; Same; Private respondent is exempt from the payment of property tax, but not income tax on the rentals from
its property.—Private respondent also invokes Article XIV, Section 4, par. 3 of the Charter, claiming that the YMCA “is
a non-stock, non-profit educational institution whose revenues and assets are used actually, directly and exclusively
for educational purposes so it is exempt from taxes on its properties and income.” We reiterate that private respondent
is exempt from the payment of property tax, but not income tax on the rentals from its property. The bare allegation
alone that it is a non-stock, non-profit educational institution is insufficient to justify its exemption from the payment of
income tax.

Same; Constitutional Law; YMCA is not a school or an educational institution.—The term “educational institution” or
“institution of learning” has acquired a well-known technical meaning, of which the members of the Constitutional
Commission are deemed cognizant. Under the Education Act of 1982, such term refers to schools. The school system
is synonymous with formal education, which “refers to the hierarchically structured and chronologically graded
learnings organized and provided by the formal school system and for which certification is required in order for the
learner to progress through the grades or move to the higher levels.” The Court has examined the “Amended Articles
of Incorporation” and “By-Laws” of the YMCA, but found nothing in them that even hints that it is a school or an
educational institution.

ABRA VALLEY COLLEGE, INC. vs. AQUINO

The exemption extends to facilities which are incidental to and reasonably necessary for the accomplishment of the
main purpose the lease of the first floor to the Northern Marketing Corporation cannot by any stretch of the
imagination be considered incidental to the purposes of education; Case at bar.—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 pur-pose—educational, the lease of the
first floor thereof to the Northern Marketing Corporation cannot by any stretch of the imagination be considered
incidental to the purposes of education.

Same; Same; Same; Same; Same; Trial Court correct in imposing the tax not because the second floor is being used
by the Director and his family for residential purposes but because the first floor is being used for commercial
purposes.—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.

Same; Same; Appeal; Fact of lease raised for the first time on appeal; 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.—
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.”

LUNG CENTER OF THE PHILIPPINES vs. QUEZON CITY and CONSTANTINO P. ROSAS

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.—
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.
In Congregational Sunday School, etc. v. Board of Review, 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.

Same; Same; Same; The Lung Center of the Philippines 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.—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: 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 Care and 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. Mark’s 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.

Same; Same; Same; Those portions of Lung Center’s 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.—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.

Same; Same; Same; Statutory Construction; Taxation is the rule and exemption is the exception—the effect of an
exemption is equivalent to an appropriation.—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. As
held in Salvation Army v. Hoehn: 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 . …

Same; Same; Same; Same; It is plain as day that under P.D. 1823, the Lung Center of the Philippines does not enjoy
any property tax exemption privileges for its real properties as well as the building constructed thereon.—It is plain as
day that under the decree (P.D. 1823), 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 one’s 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.

Same; Same; Same; Same; The exemption must not be so enlarged by construction.—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.

Same; Same; Same; Same; The tax exemption under Section 28 (3), Article VI of the 1987 Constitution covers
property taxes only.—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. The tax exemption under this constitutional provision covers property taxes only. 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.”

Same; Same; Same; Same; 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.—We note that under
the 1935 Constitution, “. . . all lands, buildings, and improvements used ‘exclusively’ for . . . charitable . . . purposes
shall be exempt from taxation.” 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. 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.

Same; Same; Same; Same; Words and Phrases; 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—the words “dominant use” or “principal use”
cannot be substituted for the words “used exclusively” without doing violence to the Constitutions and the law.—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.” 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. The words “dominant use” or “principal use”
cannot be substituted for the words “used exclusively” without doing violence to the Constitutions and the law. Solely
is synonymous with exclusively. 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.

Same; Same; Same; Portions of the land leased to private entities as well as those parts of Lung Center leased to
private individuals are not exempt from taxes but 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.—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. 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.

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. ST. LUKE’S MEDICAL CENTER, INC.

Taxation; Tax Exemptions; The Supreme Court holds that Section 27(B) of the National Internal Revenue Code
(NIRC) does not remove the income tax exemption of proprietary non-profit hospitals under Section 30(E) and
(G).―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 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).

Same; Preferential Tax Rate; Section 27(B) of the National Internal Revenue Code (NIRC) imposes a 10% preferential
tax rate on the income of (1) proprietary non-profit educational institutions and (2) proprietary non-profit
hospitals.―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.

Same; “Non-profit” does not necessarily mean “charitable.”―“Non-profit” does not necessarily mean “charitable.” In
Collector of Internal Revenue v. Club Filipino Inc. de Cebu, 5 SCRA 321 (1962), 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. The club was non-profit because of its purpose and there was no evidence that it was engaged in a profit-
making enterprise.

Same; Tax Exemptions; 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; The government forgoes taxes which should have been spent to
address public needs, because certain private entities already assume a part of the burden.―To be a charitable
institution, however, an organization must meet the substantive test of charity in Lung Center of the Philippines vs.
Quezon City, 433 SCRA 119 (2004). 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.

Same; Same; Charitable institutions are not ipso facto entitled to a tax exemption. The requirements for a tax
exemption are specified by the law granting it.―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.” The requirements for a tax exemption are strictly construed against the taxpayer because an exemption
restricts the collection of taxes necessary for the existence of the government.

Same; Same; Income Taxation; Real Estate Taxes; For real property taxes, the incidental generation of income is
permissible because the test of exemption is the use of the property; The effect of failing to meet the use requirement
is simply to remove from the tax exemption that portion of the property not devoted to charity.―For real property
taxes, the incidental generation of income is permissible because the test of exemption is the use of the property. The
Constitution provides that “[c]haritable institutions, churches and personages or convents appurtenant thereto,
mosques, 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.” The test of exemption is not strictly a
requirement on the intrinsic nature or character of the institution. The test requires that the institution use the property
in a certain way, i.e. for a charitable purpose. Thus, the Court held that the Lung Center of the Philippines did not lose
its charitable character when it used a portion of its lot for commercial purposes. The effect of failing to meet the use
requirement is simply to remove from the tax exemption that portion of the property not devoted to charity.

Same; Same; The Constitution exempts charitable institutions only from real property taxes. In the National Internal
Revenue Code (NIRC), Congress decided to extend the exemption to income taxes.―The Constitution exempts
charitable institutions only from real property taxes. In the NIRC, Congress decided to extend the exemption to income
taxes. However, the way Congress crafted Section 30(E) of the NIRC is materially different from Section 28(3), Article
VI of the Constitution. Section 30(E) of the 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.

Same; Same; Real Estate Taxes; Income Taxation; 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 National Internal Revenue Code (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 National Internal Revenue Code (NIRC) requires that the institution
be “operated exclusively” for social welfare.―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.
Same; Same; 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.―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%.

Same; Income Taxation; Preferential Tax Rate; The Supreme 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; 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).―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).

Same; Tax Exemptions; 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.―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.