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Cta Eb CV 00823 D 2012dec03 Ass PDF
Cta Eb CV 00823 D 2012dec03 Ass PDF
ENBANC
Present:
Acosta, P.J.
Castaneda, Jr.
Bautista,
Uy,
-ve rsus- Casanova ,
Palanca-Enriquez,
Fa bon-Victorino,
Mindaro-Grulla , and
Cotangco-Manalastas,
JJ .
DECISION
COTANGCO-MANALASTAS, J.:
I Rollo, p p. 7 -2 1.
DECISION
CTA EB No. 823 (CTA Case No . 7857)
Commissioner of Internal Revenue vs. St. Luke's Medical Center, Inc. Page 2 of 28
Republic Act No . 9503, 2 are the August 23, 2011 Resolution3 and June
CTA Case No . 7857 entitled "St. Luke's Medical Center, Inc., us.
SO ORDERED ."
August 23, 2011 Resolution and June 3, 2011 Decision and to issue a
lax for taxab le year 2007, plus 25% surcharge and 20% annual/--
2 Otherwise known as "An 1\ct Expanding the Jurisdiction of the Court of Tax
Appeals (CTA), Elevating its Rank to the Level of a Collegiate Court with Special
Jurisdiction and Enlarging its Membership , /\mending for the Purpose Certain
Sections of Republic Act No. 1125, as amended, Otherwise Known as the Law
Creating the Court of Tax Appeals, and for Other Purposes."
3 Rollo, pp . 45-48.
4 Hollo, pp. 23 -44.
DECISION
CTA EB No . 823 (CTA Case No. 7857)
Commissioner oflnternall?evenue us. St. Luke 's Medical Cente r, Inc. Page 3 of 28
248 an d 249 of the Na tion a l Inte rn a l Reve nue Cod e (NIRC) of 1997 , as
a m e nd ed .
THE FACTS
Section 30(E) which requires that 'no part of its net income or
asset shaJI be long to or inure to the benefit of any m e mbe r,
organizer, offi ce r or any specific pe rson .' Although th e re is no
ex plicit re quire m e nt for non - profit hospitals to aJlot a certa in
percentage of its n e t income for charitable purposes , Section
27 (8) considers non - profit hospitals as ordin ary corporations
but subject to a pre fe re nti a l rate of 10% .
Pe tition er' s reliance on the alleged le tte r of exemption
issu e d to it on 9 Jun e 1990 stating among others that it faJls
within the purview of a co rporation for pure ly c harita ble and
social welfare purposes, and acco rdingly , it is exempt from th e
pay m e nt of income tax on in com e receive d by it as such
organization is utte rly misplaced . In li ght of the e nactme nt of
the NIRC of 1997 which took e ffect on 1 January 1998, the
1990 ruling be ing invoke d by petition e r is d ee m ed repealed by
Section 27 (8) . Thus, p etitio n e r , as non - profit hospital is now
subject to t h e 10% tax on its taxa bl e in com e.
6. Th e payme nt of surcharge is mandatory . It has
been explain e d by the Supreme Court' .. . th at it is mand atory
to co ll ect pe nalty and inte rest a t th e stated rate in case of
d e linqu e ncy . Th e inte ntion of the la w is to dis courage d e lay in
th e p ay m e nt of taxes du e the Government and, in this sense,
th e penalty and interest are not pe nal but co mpensatory for
the concomita nt use of th e funds by the taxpaye r beyond the
d ate when he is supposed to h ave p aj d them to the
Government. .. . ' (Philippine Re finin g Company vs. Court of
Appeals, e t al., G.R. No . 118794 , 8 May 1996) .
Although petition er fil ed Annual Income Tax Re turns for
taxabl e year 2 007 , the said return was evide nlly d e fi cie nt and
faJse as it did not contain the incom e tax du e for th e said
taxable year. Section 248 (B) categorically provides th at 'in
case of willful n eglect to file th e return within the pe riod
prescribed by this Code or by rul es and regul a tions , or in case
a false or fr a udulent return is wil lfull y m a d e, the pe nalty to be
imposed shall be fifty perce nt (50%) of the tax or of the~
DECISION
CTA EB No. 823 (CTJ\ Case No. 7857)
Commissioner of Internal Revenue vs. St. Luke's Medical Center, Inc. Page 7 of 28
for alleged deficiency income taxes for the taxable year 2007.
SLMCI to file its comment on the subject petition within ten (10) days
from notice. Respondent SLMCI failed to file its comment within the
by the petitioner, this Court resolved to give due course to the Petition
Supra, Note 4.
6 Supra, Note 3 .
7 Supra, Note 1.
B Rollo, pp. 57 - 58 .
DECISION
CTA EB No . 823 (CTA Case No . 7857)
Commissioner of Inte rnal Revenue vs. St. Luke's Me dical Ce nter, Inc. Page 9 of 28
that she is adopti n g the subject Petition for Review filed on September
instant Petition for Review was submitted for decision on January 18,
2012.
THE ISSUE/S
OF 1997). "
Arguments of Petitionerll
1977, as a m e nd e d.
should b e distin guish ed from Sec tion 3 0 (E) of th e NIRC of 1997 ; the
profi t", whil e th e !a lte r ge n e ra lly e nume ra te s non -stoc k c orpora tion s
purpose s; it doe s not n ecessa rily follow that wh e n a hosp ita l is non -
sam e sta tute a nd th e la tte r in its most compre h e nsive s e nse would
purpose s . V
DECISION
CTA EB No . 823 (CTA Case No. 7857)
Commissioner oflntemal Revenue us. St. Luke's Medical Cente r, Inc. Page 11 of 28
assess m ent.
Arguments of Respondentl2
1997 imposes a 10% income lax on non - profit hospita ls lhal are
proprietary, but said provision does nol stale that the 10% in co m e tax
(E) a nd (G) of the NIRC o f 1997; t h e legisl ative inte nt was to re m ove
the tax exemp tion only of proprietary non - profit hospita ls is evi d ent
1997, the exe mption from lax was no lon ge r exte nd ed lo a ny non -
profit co rporation or assoc iatio n , the exe mption from inco m e tax V
12 Ro llo, pp. 68 -7 7.
DECISION
CTA EB No. 823 (CTA Case No. 7857)
Co mmissioner of Inte rnal Revenue us. St. Luke's Me dical Cente r, Inc. Page 12 of 28
under Section 30 (E) of the NIRC of 1997 is now limite d to non -s tock
co rpora Lions Lhat are non - profit; a nd LhaL pe LiLione rs insiste nce that
res pond e nt is Laxab le und e r Sec tion 27 (B) of th e NIRC of 1997 would
non - profit hospila l Laxabl e und e r Sec tion 27 (B) of the NlRC of 1997 ,
social welfare purposes that is exe mpl from incom e Lax und e r Section
F'or its fina l point, res pond e nt argues Lhal it has shown by
that what h e ac tually said was that "al least" 10% of res pondent's
Alty . An c h e la was not given in the insla nt case but in a noth e r case
1977, a s a m e nd ed .
purpose s th a t is exe mpt from in come lax und e r Sec tion 3 0 (E) a nd (G) ~
DECISION
CTJ\ El3 No . 823 (CTA Ca se No. 7857)
Commissione r of Int e rnal Revenue us. S t. Luke 's Medical Cente r, Inc. Page 14 of 28
o f th e NIRC of 1997; and conte nts that S ection 27 (B) of the NIRC of
proprie tary, bul said provision doe s not sta le th a t th e 10% income tax
provid e:
Xxx
XXX
"(G) Civic leagu e or organi zation no t organi zed for profit but
ope ra te d exclusi ve ly for th e promotion of soc ia l we lfare;
XXX
o f BIR. V
DECISION
CTA EB No. 823 (CTA Ca se No. 7857)
Co mmissione r of Int e rnal Re ve nue us . St. Luke's Medical Cente r, Inc. Page 15 of 28
Co mmiss ione r of Inte rnal Re ve nue us. S t. Luke's Medical Ce nte r, Inc., 13
2 7 (B) may still re ta in its lax exe mpt sta tus und e r S e ction 30 (E) a nd
exempt from income taxes, Section 30(£) of the NIRC requires that a
charita ble institution use the prope rty "actually, dire ctly and
exclusive ly" for charita ble purposes . To be exe mpt from
income taxe s , Section 30(E) of th e NIRC re quire s that a
c harita bl e institution must be "organized and operated
exclusively" for c h a rita bl e purposes . Likewise, to be exe mpt
from in com e taxes, Sec tion 30(G) of th e NIRC re quire s tha t the
institution be ope ra te d exclusi vely" for soc ia l we lfare ."
los in g its l ax exe mpt sta tus for its not-for-profit activities . Th e only
d ec lare d that the Pl. 73 billion from paying pati e nts are mcome
ex pl a in e d, thus:
"St. Luke's fa ils to m eet the require m e nts under Section 30(E)
and (G) of th e NIRC to be completely tax exempt from a ll its
incom e . However, it re m a ins a propri e tary non - profit hospita l
und er Section 27(8) of th e NIRC as long as it does no t
distribute a ny of its profits to its m e mbe rs a nd such profits are
reinvested pursu a nt to its corporate purposes. St. Luke's, as a.
propri e ta ry non - profit hospital , is e ntitl e d to th e pre fe re ntial
tax rate of 10% on its n e t income from its for - profit ac tiviti es."
(Underscoring supplied)
St. Luke 's Medical Cente r, Inc., G .R. No. 195909 a nd 195960,
similar to those of G.R. No. 195909. Thus, applying the forego ing
NIRC of 1997, as a m e nd ed .
from incom e tax und e r Section 30 (E) and (G) of the NIRC of 1997, as
agree s with the Court in Division in finding that res pond e nt SLMCI
profit c orporat ion organized for c haritable and soc ial we lfare
the basis of a judici a l a ffid a vit, wh ich was not con tested by the
It is the third requisite which res pondent SLMC I ulle rly fa iled to
satisfy. In lin e with the a bove-me ntion ed jurisprude nti a l prece pts
e nun c ia ted in G.R. No. 1959 091 5, and based on th e ex plicit provisions
on the strict inte rpretation of a provtston granting tax exe mption , the
Court holds that res pond e nt SLMCI is not "operated exclusive ly" for
pay ing pati e nts are concerned. Th e Supreme Court ex pre ssed th at
'"Se rvice s to paying pa ti e nts are act ivities conducted for profit. Th ey~
1" Commissioner of Int e rnal Revenue vs. St. Luke's Medical Cen te r, Inc., G.R. No .
195909 and 19 5960, September 26, 20 12.
DECISION
CTA EB No . 823 (CTA Case No. 7857)
Commissioner of Inte rnal Revenue vs. St. Luke's Medical Cente r, Inc. Page 23 of 28
In the case of Lung Center of the Philippines us. Quezon City 17 , the
Reve nu e Ove r Expenses") '" is re inve sted in prope rty, equipm e nt, or fr.
16 S upra, Note 15 .
17 G . l~ . No . 144104, June 29 , 2004 .
DECISION
CTA EB No. 823 (CTA Case No . 7 857)
Commissione r of Int e rnal Re ve nue vs. St. Luke's Me dical Center, Inc. Page 24 of 28
Neve rth e less , eve n if this Court rul es thal res pond e nt is a n
may still be held liab le for d e fici e ncy incom e tax und e r of the last
tax exe mpt under S ec tion 30 (E) and (G), conducts "any" activity for
profit, lhe income from such activity is not lax exe mpt rega rdl e ss of
institution und e r S ec tion 3 0(E) or (G) do es nol lose ils tax exe mption if
il earns incom e from its for - profit activities. Such in co m e from for-
"operated exclusive ly" for charitable purpose s, its reve nu es rece ived
conducted for profit" a nd there fore subj ect to tax und e r the Tax
introduction of S ec tion 27(8), the tax rate on such incom e from for-
exe mpt from a ll its in co m e. Non eth e less, co nsid e rin g th at it re m a ins a
res pond e nt SLMC I is e ntitl ed lo the pre fe re nti a l tax rate of 10% on its
an d inte rest. This is in kee pin g with the rulin g of the Supreme Court
22 Supra, Note 15 .
23 Supra.
24 Supra.
DECISION
CTA EB No . 823 (CTA Case No . 7857)
Co mmissione r of Inte rnal Revenue us. St. Luke 's Medical Center, Inc. Page 27 of 28
of this Court d ated clune 3, 2011 a nd its Resolution d ated Au gust 23,
2 011 in CTA Case No. 7857 a re MODIFIED . Rcs pond en t St. Luke's
SO ORDERED .
~~-/-~~
AMELIA R. COTANGCO-MANALASTAS
Associate Justi ce
WE CONCUR:
~~ It · \J....,A..--
ERNESTO D. ACOSTA
Presidin g Justice
E~P.UY ~
CAESAR A. CASANOVA
Associate Justice
(On Leave)
OLGA PALANCA-ENRIQUEZ ESPE
Associate ,Justice
W,lzt N. M~~ C~
CIELITO N. MINDARO-GRULLA
Associ a te Justi ce
CERTIFICATION
~/iJ;.. 0 -.J\--
ERNESTO D . ACOSTA
Pre siding Justi ce