John Hay Peoples vs.

Lim

Facts: 1992: Congress enacted RA 7227, or the Bases Conversion and Development Act

The act accelerates the conversion of the military reservations into other productive uses and creates
the Bases Conversion and Development Authority (BCDA)

RA 7227 primarily created the Subic Special Economic Zone (Subic SEZ), delineated its metes and
bounds, and granted the Subic SEZ incentives like tax and duty-free importations, and exemptions of
businesses from local and national taxes

The RA also gave express authority to the President to create via Executive Proclamation, subject to the
concurrence of the LGUs to be affected, other SEZs in areas covered by Clark, Wallace Station in San
Fernando, and Camp John Hay (CJH)

1993: BCDA entered into a Memorandum of Agreement (MOA) and Escrow Agreement with Tuntex and
Asiaworld (British Virgin Islands corporations)

Agreed on a joint venture agreement (JVA), which was executed, thus creating the Baguio International
Development Management Corporation to LEASE areas within CJH in Baguio and Poro Point in La Union

1993: Sangguniang Panglungsod of Baguio (Sanggunian) officially asked the BCDA to exclude 9 barangays
partly and totally located in the CJH area from the coverage of any plan for development

Also submitted a 15-point concept for the development of CJH

They proposed that the development be protective of the environment and that priority development
opportunities, as well as free access, be granted to Baguio residents

Also proposed guaranteed participation of the city govt. in the management and operation of the camp
and liability for local taxes of the businesses to be established in the CJH

BCDA partly agreed and rejected other proposals; the Sanggunian then submitted their proposal to the
President

1994: Pres. Ramos issued Proc. 420, granting BCDA authority to implement all necessary policies, rules,
and regulations, including investment incentives in the Camp John Hay Area

1995: Petitioners filed instant petition challenging the constitutionality and validity of the MOA and JVA
between BCDA, Tuntex, and Asiaworld

ISSUE: 1. WN Proc. 420 is unconstitutional by providing for national and local tax exemption: YES

 It was established in the language of Sec. 12, RA 7227 that the tax exemption only applies to SUBIC
SEZ; no express extension of the aforesaid benefits to other SEZs still to be created was made. The
deliberations of the Senate also affirm this fact [see Notes]

 It is the legislature, unless limited by the Constitution, that has full power to exempt any person,
corporation, or class from tax, as included in their broad power to tax. The Constitution may provide for
specific tax exemptions; local govts may pass ordinances of tax exemption but only for local taxes
 Sec. 28(4), Art. 6, 1987 Consti: No law granting any tax exemption shall be passed without the
concurrence of a majority of all Members of Congress

 Proc. 420 extends the tax exemption contemplated in RA 7227 to other economic zones. Thus, it is an
infringement of RA 7227 and Sec. 28(4), Art. 6

2. WN Proc. 420 is unconsti for limiting or interfering w local autonomy of Baguio City: NO

 Petitioners:

o Argue that President has no authority to subject the CJH SEZ to the governance of the BCDA which has
only oversight functions

o Beyond oversight, they argue that there will be a diminution of the city govt's power over an area
within its jurisdiction

o Basically, they believe Proc. 420 gives the President power of control rather than just supervision over
local govt.

 Court:

o Sec. 12 of RA 7227 explicitly grants broad rights of ownership and administration to the BCDA; hence,
they necessarily have CONTROL over it subject to certain limitations provided by law

o Sec. 15, RA 7227 authorizes the President to delineate and declare portions, by means of an executive
proclamation, other SEZs in areas covered by Clark, Wallace Station in San Fernando, and Camp John
Hay (CJH)

RULING: 2ND sentence of Sec. 3 of Proc. 420 is declared NULL AND VOID. Not the whole Proc. 420 is
declared unconstitutional since only the said provision on tax exemption is repugnant to RA 7227 and
Sec. 28(4), Art. 6. Proc. 420, without the invalidated portion, remains valid and effective.

NOTES:

Senate Deliberations

Senator Angara: [D]uring our short caucus, Senator Laurel raised the point that if we give this delegation
to the President to establish other economic zones, that may be an unwarranted delegation.

So we agreed we will simply limit the definition of powers and description of the zone to Subic, but that
does not exclude the possibility of creating other economic zones within the baselands … This provision
now will be confined only to Subic.

CIR vs. DLSU

FACTS: In 2004, the Bureau of Internal Revenue (BIR) issued a letter authorizing it’s revenue officers to
examine the book of accounts of and records for the year 2003 De La Salle University (DLSU) and later
on issued a demand letter to demand payment of tax deficiencies for:

Income tax on rental earnings from restaurants/canteens and bookstores operating within the campus;
Value-added tax (VAT) on business income; and Documentary stamp tax (DST) on loans and lease
contracts for the years 2001,2002, and 2003, amounting to P17,303,001.12.
DLSU protested the assessment that was however not acted upon, and later on filed a petition for
review with the Court of Tax Appeals(CTA). DLSU argues that as a non-stock, non-profit educational
institution, it is exempt from paying taxes according to Article XIV, Section 4 (3) of the Constitution (All
revenues and assets of non-stock, non-profit educational institutions used actually, directly, and
exclusively for educational purposes shall be exempt from taxes and duties.)

The CTA only granted the removal of assessment on the load transactions. Both CIR and DLSU moved for
reconsideration, the motion of the CIR was denied. The CIR appealed to the CTA en banc arguing that
DLSU’s use of its revenues and assets for non-educational or commercial purposes removed these items
from the exemption, that a tax-exempt organization like DLSU is exempt only from property tax but not
from income tax on the rentals earned from property. Thus, DLSU’s income from the leases of its real
properties is not exempt from taxation even if the income would be used for educational purposes.

DLSU on the other hand offered supplemental pieces of documentary evidence to prove that its rental
income was used actually, directly and exclusively for educational purposes and no objection was made
by the CIR.

Thereafter, DLSU filed a separate petition for review with the CTA En Banc on the following grounds:

The entire assessment should have been cancelled because it was based on an invalid LOA;

Assuming the LOA was valid, the CTA Division should still have cancelled the entire assessment because
DLSU submitted evidence similar to those submitted by Ateneo De Manila University (Ateneo) in a
separate case where the CTA cancelled Ateneo’s tax assessment; and

The CTA Division erred in finding that a portion of DLSU’s rental income was not proved to have been
used actually, directly and exclusively for educational purposes.

That under RMO No.43-90, LOA should cover only 1 year, the LOA issued by CIR is invalid for covering
the years 2001-2003

The CTA en banc ruled that the case of Ateneo is not applicable because it involved different parties,
factual settings, bases of assessments, sets of evidence, and defenses, it however further reduced the
liability of DLSU to P2,554,825.47

CIR argued that the rental income is taxable regardless of how such income is derived, used or disposed
of. DLSU’s operations of canteens and bookstores within its campus even though exclusively serving the
university community do not negate income tax liability. Article XIV, Section 4 (3) of the Constitution
must be harmonized with Section 30 (H) of the Tax Code, which states among others, that the income of
whatever kind and character of [a non-stock and non-profit educational institution] from any of [its]
properties, real or personal, or from any of (its] activities conducted for profit regardless of the
disposition made of such income, shall be subject to tax imposed by this Code.

that a tax-exempt organization like DLSU is exempt only from property tax but not from income tax on
the rentals earned from property. Thus, DLSU’s income from the leases of its real properties is not
exempt from taxation even if the income would be used for educational purposes.

DLSU argued that Article XIV, Section 4 (3) of the Constitution is clear that all assets and revenues of
non-stock, non-profit educational institutions used actually, directly and exclusively for educational
purposes are exempt from taxes and duties. Under the doctrine of constitutional supremacy, which
renders any subsequent law that is contrary to the Constitution void and without any force and effect.
Section 30 (H) of the 1997 Tax Code insofar as it subjects to tax the income of whatever kind and
character of a non-stock and non-profit educational institution from any of its properties, real or
personal, or from any of its activities conducted for profit regardless of the disposition made of such
income, should be declared without force and effect in view of the constitutionally granted tax
exemption on “all revenues and assets of non-stock, non-profit educational institutions used actually,
directly, and exclusively for educational purposes.“

that it complied with the requirements for the application of Article XIV, Section 4 (3) of the
Constitution.

Issue:

Whether DLSU is taxable as a non-stock, non-profit educational institution whose income have been
used actually, directly and exclusively for educational purposes.

Whether the entire assessment should be void because of the defective LOA

Held:

First issue:

A plain reading of the Constitution would show that Article XIV, Section 4 (3) does not require that the
revenues and income must have also been sourced from educational activities or activities related to the
purposes of an educational institution. The phrase all revenues is unqualified by any reference to the
source of revenues. Thus, so long as the revenues and income are used actually, directly and exclusively
for educational purposes, then said revenues and income shall be exempt from taxes and duties.

Revenues consist of the amounts earned by a person or entity from the conduct of business operations.
It may refer to the sale of goods, rendition of services, or the return of an investment. Revenue is a
component of the tax base in income tax, VAT, and local business tax (LBT). Assets, on the other hand,
are the tangible and intangible properties owned by a person or entity. It may refer to real estate, cash
deposit in a bank, investment in the stocks of a corporation, inventory of goods, or any property from
which the person or entity may derive income or use to generate the same. In Philippine taxation, the
fair market value of real property is a component of the tax base in real property tax (RPT). Also, the
landed cost of imported goods is a component of the tax base in VAT on importation and tariff duties.
Thus, when a non-stock, non-profit educational institution proves that it uses its revenues actually,
directly, and exclusively for educational purposes, it shall be exempted from income tax, VAT, and LBT.
On the other hand, when it also shows that it uses its assets in the form of real property for educational
purposes, it shall be exempted from RPT.

The last paragraph of Section 30 of the Tax Code without force and effect for being contrary to the
Constitution insofar as it subjects to tax the income and revenues of non-stock, non-profit educational
institutions used actually, directly and exclusively for educational purpose. We make this declaration in
the exercise of and consistent with our duty to uphold the primacy of the Constitution.

Second Issue:
No.“A Letter of Authority LOA should cover a taxable period not exceeding one taxable year. The
practice of issuing LOAs covering audit of unverified prior years is hereby prohibited. If the audit of a
taxpayer shall include more than one taxable period, the other periods or years shall be specifically
indicated in the LOA.”

The requirement to specify the taxable period covered by the LOA is simply to inform the taxpayer of
the extent of the audit and the scope of the revenue officer’s authority. Without this rule, a revenue
officer can unduly burden the taxpayer by demanding random accounting records from random
unverified years, which may include documents from as far back as ten years in cases of fraud audit.

The assessment for taxable year 2003 is valid because this taxable period is specified in the LOA. DLSU
was fully apprised that it was being audited for taxable year 2003. While the assessments for taxable
years 2001 and 2002 are void for having been unspecified on separate LOAs as required under RMO No.
43-90.

HEÑARES vs. CIR

FACTS: On 22 July 2013, petitioner Kim S. Jacinto-Henares, acting in her capacity as then Commissioner
of Internal Revenue (CIR), issued RMO No. 20-2013, "Prescribing the Policies and Guidelines in the
Issuance of Tax Exemption Rulings to Qualified Non-Stock, Non-Profit Corporations and Associations
under Section 30 of the National Internal Revenue Code of 1997, as Amended."

On 29 November 2013, respondent St. Paul College of Makati (SPCM), a non-stock, non-profit
educational institution organized and existing under Philippine laws, filed a Civil Action to Declare
Unconstitutional [Bureau of Internal Revenue] RMO No. 20-2013 with Prayer for Issuance of Temporary
Restraining Order and Writ of Preliminary Injunction4 before the RTC. SPCM alleged that "RMO No. 20-
2013 imposes as a prerequisite to the enjoyment by non-stock, non-profit educational institutions of the
privilege of tax exemption under Sec. 4(3) of Article XIV of the Constitution both a registration and
approval requirement, i.e., that they submit an application for tax exemption to the BIR subject to
approval by CIR in the form of a Tax[]Exemption Ruling (TER) which is valid for a period of [three] years
and subject to renewal." According to SPCM, RMO No. 20-2013 adds a prerequisite to the requirement
under Department of Finance Order No. 137-87, and makes failure to file an annual information return a
ground for a non-stock, nonprofit educational institution to "automatically lose its income tax-exempt
status."

The RTC issued a Temporary Restraining Order and later on issued a Writ of Preliminary Injunction. It
found

RMO No. 20-2013 appears to divest non-stock, non-profit educational institutions of their tax exemption

privilege. Hence, this petition.

ISSUE/S:

(1) WHETHER THE TRIAL COURT CORRECTLY CONCLUDED THAT RMO [NO.] 20-2013 IMPOSES A

PREREQUISITE BEFORE A NONSTOCK, NON-PROFIT EDUCATIONAL INSTITUTION MAY AVAIL

OF THE TAX EXEMPTION UNDER SECTION 4(3), ARTICLE XIV OF THE CONSTITUTION.
(2) WHETHER THE TRIAL COURT CORRECTLY CONCLUDED THAT RMO NO. 20-2013 ADDS TO THE

REQUIREMENT UNDER DEPARTMENT OF FINANCE ORDER NO. 137-87.

RULING:

YES. The petition is denied for being moot and academic.

The court took judicial notice that on 25 July 2016, the present CIR Caesar R. Dulay issued RMO No. 44-
2016,which provides that:

SUBJECT: Amending Revenue Memorandum Order No. 20- 2013, as amended (Prescribing the Policies
and Guidelines in the Issuance of Tax Exemption Rulings to Qualified Non-Stock, Non-Profit Corporations
and Associations under Section 30 of the National Internal Revenue Code of 1997, as Amended)

In line with the Bureau's commitment to put in proper context the nature and tax status of non-profit,
non-stock educational institutions, this Order is being issued to exclude non-stock, non-profit
educational institutions from the coverage of Revenue Memorandum Order No. 20-2013, as amended.

SECTION 1. Nature of Tax Exemption. --- The tax exemption of non-stock, non-profit educational
institutions is directly conferred by paragraph 3, Section 4, Article XIV of the 1987 Constitution, the
pertinent portion of which reads:

"All revenues and assets of non-stock, non-profit educational institutions used actually, directly and
exclusively (or educational purposes shall be exempt from taxes and duties."

This constitutional exemption is reiterated in Section 30 (H) of the 1997 Tax Code, as amended, which
provides as follows:

"Sec. 30. Exempt from Tax on Corporations. - The following organizations shall not be taxed under this
Title in respect to income received by them as such:

xxxxxxxxx

(H) A non-stock and non-profit educational institution; x x x."

It is clear and unmistakable from the aforequoted constitutional provision that non-stock, non-profit
educational institutions are constitutionally exempt from tax on all revenues derived in pursuance of its
purpose as an educational institution and used actually, directly and exclusively for educational
purposes.

This constitutional exemption gives the non-stock, non-profit educational institutions a distinct
character. And for the constitutional exemption to be enjoyed, jurisprudence and tax rulings affirm the
doctrinal rule that there are only two requisites: (1) The school must be non-stock and non-profit; and
(2) The income is actually, directly and exclusively used for educational purposes.

There are no other conditions and limitations.

In this light, the constitutional conferral of tax exemption upon non-stock and non-profit educational
institutions should not be implemented or interpreted in such a manner that will defeat or diminish the
intent and language of the Constitution.
With the issuance of RMO No. 44-2016, a supervening event has transpired that rendered this petition
moot and academic, and subject to denial. 1âwphi1 The CIR, in her petition, assails the RTC Decision
finding RMO No. 20- 2013 unconstitutional because it violated the non-stock, non-profit educational
institutions' tax exemption privilege under the Constitution.

However, subsequently, RMO No. 44-2016 clarified that non-stock, nonprofit educational institutions
are excluded from the coverage of RMO No. 20-2013. Consequently, the RTC Decision no longer stands,
and there is no longer any practical value in resolving the issues raised in this petition.

CIR vs ST. LUKES

FACTS: St. Luke’s Medical Center, Inc. is a hospital organized as a non-stock and non-profit corporation.
The BIR assessed St. Luke’s deficiency taxes for 1998, comprised of deficiency income tax, value-added
tax, withholding tax on compensation and expanded withholding tax. 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.

BIR’s contentions: 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 nonprofit 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.” 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. 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 contention: 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. 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.

ISSUE/S: 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.
RULING: 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.”

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

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.”

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.” 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.
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).

LUNG CENTER OF THE PHIL. vs. QUEZON CITY

FACTS: The petitioner Lung Center of the Philippines is a non-stock and non-profit entity by virtue of
Presidential Decree No. 1823. It is the registered owner of a parcel of land. 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 is vacant and
idle, while a big portion on the right side 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.

Both the land and the hospital building of the petitioner were assessed for real property taxes in the
amount of ₱4,554,860 by the City Assessor of Quezon City. Accordingly, Tax Declarations were issued for
the land and the hospital building, respectively.

The petitioner filed a Claim for Exemption from real property taxes with the City Assessor, predicated on
its claim that it is a charitable institution. The petitioner’s 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.
The QC-LBAA’s decision was, likewise, affirmed on appeal by the Central Board of Assessment Appeals of
Quezon City (CBAA, for brevity) 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.

ISSUES:

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.

RATIO:

a) 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.

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.

b) 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.

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.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."

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 exclusively used
for religious, charitable or educational purposes.

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.

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.

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 petitioner’s evidence shows that it collected
₱1,136,483.45 as rentals in 1991 and ₱1,679,999.28 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.

DISPOSITIVE PORTION:

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.