LUNG CENTER OF PHILIPPINES v. QUEZON CITY, GR No.

144104, 2004-06-29
Facts:
The petitioner Lung Center of the Philippines... 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.
while a big portion on the right side... is being... leased for commercial purposes to a private
enterprise
On June 7, 1993, both the land and the hospital building of the petitioner were assessed for real
property taxes... by the City Assessor of Quezon City.
the petitioner filed a Claim for Exemption[5] 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... 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.
likewise, affirmed on appeal by the Central Board of Assessment Appeals of Quezon City...
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
The petitioner avers that it is a charitable institution within the context of Section 28(3), Article
VI of the 1987 Constitution.
It asserts that its character as a charitable institution is not altered by the fact that it admits paying
patients and renders medical services to... them, leases portions of the land to private parties, and
rents out portions of the hospital to private medical practitioners from which it derives income to
be used for operational expenses.
It contends that the
"exclusivity" required in the Constitution does not necessarily mean "solely." Hence, even if a
portion of its real estate is leased out to private individuals from whom it derives income, it does
not lose its character as a charitable institution, and its exemption from the... payment of real
estate taxes on its real property.
the respondents aver that the petitioner is not a charitable entity.
The petitioner's real property is not exempt from the payment of real estate taxes under P.D. No.
1823 and even under the 1987 Constitution because it failed to prove that it... is a charitable
institution and that the said property is actually, directly and exclusively used for charitable
purposes.
Issues:
whether the petitioner is a charitable institution... whether the real properties of the... petitioner
are exempt from real property taxes.
Ruling:
The petition is partially granted.
we hold that the petitioner is a charitable institution within the context of the 1973 and 1987
Constitutions.
To determine whether an enterprise is a charitable institution/entity or not, the elements which
should be considered include the statute creating... the enterprise, its corporate purposes, its
constitution and by-laws, the methods of administration, the nature of the actual work performed,
the character of the services rendered, the indefiniteness of the beneficiaries, and the use and
occupation of the properties.
the medical services of the petitioner are to be rendered to the public in general in any and all
walks of life including those who are poor and the needy without discrimination. After all, any
person, the rich as well as the poor, may fall sick or be injured or wounded... and become a
subject of charity
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.
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.
anent the second issue,... those portions of its real property that are leased to private entities are
not exempt from real property taxes as these are not actually, directly and exclusively used for...
charitable purposes.
The settled rule in this jurisdiction is that laws granting exemption from tax are construed
strictissimi juris against the taxpayer and liberally in favor of the taxing power.
It is plain as day that under the decree, the petitioner does not enjoy any property tax exemption
privileges for its real properties as well as the building constructed thereon.
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.
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.
IN LIGHT OF ALL THE FOREGOING, the petition is PARTIALLY GRANTED.
 CIR V DLSU G.R. 196596 Nov. 9 2016

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.
 Aglipay Vs. Ruiz 64 Phil 201 G.R. No. 45459 March 13, 1937

Facts:

Petitioner seeks the issuance of a writ of prohibition against respondent Director of Posts from issuing
and selling postage stamps commemorative of the 33rd International Eucharistic Congress. Petitioner
contends that such act is a violation of the Constitutional provision stating that no public funds shall be
appropriated or used in the benefit of any church, system of religion, etc. This provision is a result of the
principle of the separation of church and state, for the purpose of avoiding the occasion wherein the state
will use the church, or vice versa, as a weapon to further their ends and aims. Respondent contends that
such issuance is in accordance to Act No. 4052, providing for the appropriation funds to respondent for
the production and issuance of postage stamps as would be advantageous to the government.

Issue: Whether or not the production of the said stamps violate the Constitution

Held:

No. The sale of stamps is not in violation of the Constitution. In fact, what was emphasized on the stamps
was not the religious event itself but rather the City of Manila as being the seat of such event. Act No.
4052 on the other hand did not appropriate any public money to a religious event. Act No. 4052
appropriated the sum of P60,000.00 for the cost of plates and printing of postage stamps with new designs
and other expenses incident thereto, and merely authorizes the Director of Posts, with the approval of the
Secretary of Public Works and Communications, to dispose of the amount appropriated in the manner
indicated and “as often as may be deemed advantageous to the Government”. The fact that the fund is
being used for such is only incidental to the function of Director of Posts and under his discretion.