12. BIR v.

First E-Bank Tower Condominium Corporation

GR No. 215801 January 15, 2020 LAZARO-JAVIER, J.:
Declaratory Relief not a preferred remedy; VAT in Condo Corp

DOCTRINE:
Income may be defined as an amount of money coming to a person or corporation within a specified time,
whether as payment for services, interest or profit from investment. Unless otherwise specified, it
means cash or its equivalent. Income can also be thought of as a flow of the fruits of one's labor.

FACTS:

The First E-Bank filed the a petition for declaratory relief seeking to declare as invalid Revenue
Memorandum Circular No. 65-2012 (RMC 65-2012) before the RTC Br. 146, Makati City. RMC 65-2012
imposed income tax and VAT to the gross receipts including association dues, membership fees,
and other charges collected by a condominium corporation which constitute income payments or
compensation for beneficial services it provides to its members and tenants, and income payments
made to the condominium corporation were subjected to applicable withholding taxes.

The First E-Bank argued that it is a non-stock, non-profit condominium corporation, and RMC 65-
2012 burdened the owners of the condominium units with income tax and VAT on their own
money which they exclusively used for the maintenance and preservation of the building and its
premises. Thus, RMC 65-2012 is oppressive and confiscatory as it requires condominium unit
owners to produce additional amounts for the 32% income tax and 12% VAT. The First E-Bank
requested the BIR Commissioner for the deferment of RMC 65- 2012, yet informed the Makati City RDO
Ricardo Espiritu of the continuous judicial consignation of the income tax and VAT payments due under
RMC 65-2012.

The BIR argued that declaratory relief was no longer proper since RMC 65-2012 already took effect on 31
October 2012 and has already been violated; and that the petition also violated the principle of primary
jurisdiction as only the Secretary of Finance has the primary jurisdiction over the issue. The RTC, in a
Resolution, invalidated RMC 65-2012 for having expanded the law, created additional tax burden on
condominium corporations, and issued without requisite notice and hearing. According to the RTC, RMC
65-2012 did not merely interpret or clarify existing BIR Ruling but it legislated or introduced a new
legislation under the guise of its quasi-legislative power. More so, the RMC failed to show what particular
law it clarified. On other hand, the RTC noted the absence of proof of judicial consignation made by the
First E-Bank. After denial of the parties’ respective motions for reconsideration, they both appealed to the
CA. But the CA dismissed the appeal citing as the reason the exclusive jurisdiction of the CTA noting that
the issue involved is a tax matter. Thus, the petitions were filed before the Supreme Court.

ISSUES - HELD - RATIO:

Is a condominium corporation engaged in trade or business? Are association dues,
membership fees, and other charges subject to income tax, VAT and withholding tax?

In Yamane v. BA Lepanto Condominium Corp., the Court held therein that a corporation condominium
is not designed to engage in activities that generate income or profit. The amounts collected are
not intended for the incurrence of profit by the Corporation or its members, but to shoulder the
multitude of necessary expenses that arise from the maintenance of the Condominium Project.

Just as much is confirmed by Section 1, Article V of the Amended By-Laws, which enumerate the
particular expenses to be defrayed by the regular assessments collected from the unit owners. These
would include the salaries of the employees of the Corporation, and the cost of maintenance and
ordinary repairs of the common areas

SC VERBATIM

Here, it is imperative to determine whether the First E-Bank actually complied with the requirements
for judicial consignation. This is a question of fact which by this Court, not being a trial court cannot
pass upon. The trial court, therefore, thus correctly held that the First E-Bank may initiate the
appropriate motion for the release of the consignated funds, upon finality of the judicial determination
on the validity ofRMC No. 65-2012 and only after it has determined the presence of the requirements
for judicial consignation.

A final word

RMC No. 65-2012 is invalid for ordaining that "gross receipts of condominium corporations including
association dues, membership fees, and other assessments/charges are subject to VAT, income tax
and income payments made to it are subject to applicable withholding taxes." A law will not be
construed as imposing a tax unless it does so clearly and expressly. In case of doubt, tax laws must
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be construed strictly against the government and in favor of the taxpayer. Taxes, as burdens that
must be endured by the taxpayer, should not be presumed to go beyond what the law expressly and
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clearly declares.

ACCORDINGLY, the Court RESOLVES:

1) To REVERSE and SET ASIDE the assailed Resolutions dated June 26, 2014 and November 27,
2014 of the Court of Appeals in CA-G.R. CV No. 102266;

2) To DENY the Petition for Review dated February 17,2015 in G.R. No. 215801 and the Special
Civil Action for Certiorari dated February 12, 2015 in G.R. No. 218924; and

3) To AFFIRM the Resolution dated September 5, 2013 and Order dated December 18, 2013 of the
Regional Trial Court, Branch 146, Makati City in Special Civil Action No. 12-1236.

SO ORDERED.