Cases in Taxation 1 - Constitutional Limitations (Unifomity of Tax to Tax Exemptions of Properties...

8/20/2019 Cases in Taxation 1 - Constitutional Limitations (Unifomity of Tax to Tax Exemptions of Properties Used for Religio…

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C. UNIFORMITY OF TAXATION

G.R. No. 81311 June 30, 1988

KAPATIRAN NG MGA NAGLILINGKOD SA PAMAALAAN NG PILIPINAS, INC., !RMINIGILDOC. DUMLAO, G!RONIMO ". "UADRA, #n$ MARIO C. %ILLANU!%A, petitioners,

vs.ON. &I!N%!NIDO TAN, #' Co(()'')one* o+ Ine*n#- Reenue, respondent.

G.R. No. 818/0 June 30, 1988

KILUSANG MAYO UNO LA&OR C!NT!R KMU, )' o++)2e*' #n$ #++)-)#e$ -#o* +e$e*#)on' #n$#--)#n2e', petitioners,vs.

T! !X!CUTI%! S!CR!TARY, S!CR!TARY OF FINANC!, T! COMMISSION!R OF INT!RNALR!%!NU!, #n$ S!CR!TARY OF &UDG!T, respondents.

G.R. No. 819/1 June 30, 1988

INT!GRAT!D CUSTOMS &ROK!RS ASSOCIATION OF T! PILIPPIN!S #n$ J!SUS &.&ANAL, petitioners,vs.

T4e ON. COMMISSION!R, &UR!AU OF INT!RNAL R!%!NU!, respondent.

G.R. No. 8/15/ June 30, 1988

RICARDO C. %ALMONT!, petitioner,vs.

T! !X!CUTI%! S!CR!TARY, S!CR!TARY OF FINANC!, COMMISSION!R OF INT!RNAL

R!%!NU! #n$ S!CR!TARY OF &UDG!T, respondent.

PADILLA, J.:

These four (4) petitions, which have been consolidated because of the similarity of the main issues involved therein,

seek to nullify Executive Order o. !"# (EO !"#, for short), issued by the $resident of the $hilippines on !% &uly

'", to take effect on ' &anuary ', and which amended certain sections of the ational *nternal +evenue ode

and adopted the value-added tax (/T, for short), for bein0 unconstitutional in that its enactment is not alled0edly

within the powers of the $resident1 that the /T is oppressive, discriminatory, re0ressive, and violates the due

process and e2ual protection clauses and other provisions of the '" onstitution.

The 3olicitor eneral prays for the dismissal of the petitions on the 0round that the petitioners have failed to show 5ustification for the exercise of its 5udicial powers, vi6. (') the existence of an appropriate case1 (!) an interest,

personal and substantial, of the party raisin0 the constitutional 2uestions1 (#) the constitutional 2uestion should be

raised at the earliest opportunity1 and (4) the 2uestion of constitutionality is directly and necessarily involved in a

5usticiable controversy and its resolution is essential to the protection of the ri0hts of the parties. /ccordin0 to the

3olicitor eneral, only the third re2uisite 7 that the constitutional 2uestion should be raised at the earliest

opportunity 7 has been complied with. 8e also 2uestions the le0al standin0 of the petitioners who, he contends, are

merely askin0 for an advisory opinion from the ourt, there bein0 no 5usticiable controversy for resolution.


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Ob5ections to taxpayers9 suit for lack of sufficient personality standin0, or interest are, however, in the main

procedural matters. onsiderin0 the importance to the public of the cases at bar, and in keepin0 with the ourt9s

duty, under the '" onstitution, to determine wether or not the other branches of 0overnment have kept

themselves within the limits of the onstitution and the laws and that they have not abused the discretion 0iven to

them, the ourt has brushed aside technicalities of procedure and has taken co0ni6ance of these petitions.

:ut, before resolvin0 the issues raised, a brief look into the tax law in 2uestion is in order.

The /T is a tax levied on a wide ran0e of 0oods and services. *t is a tax on the value, added by every seller, with

a00re0ate 0ross annual sales of articles and;or services, exceedin0 $!


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under the '" onstitution, was convened on !" &uly '". 8ence, the enactment of EO !"# on !% &uly '", two

(!) days before on0ress convened on !" &uly '", was within the $resident9s constitutional power and authority to

le0islate.

$etitioner almonte claims, additionally, that on0ress was really convened on #< &une '" (not !" &uly '"). 8e

contends that the word >convene> is synonymous with >the date when the elected members of on0ress assumed

office.>

The contention is without merit. The word >convene> which has been interpreted to mean >to call to0ether, cause to

assemble, or convoke,> 1 is clearly different from assumption of office by the individual members of on0ress or their takin0 the oath of office. /s an example, we call to mind the interim ational /ssembly created under the '"#

onstitution, which had not been >convened> but some members of the body, more particularly the dele0ates to the

'"' onstitutional onvention who had opted to serve therein by votin0 affirmatively for the approval of said

onstitution, had taken their oath of office.

To uphold the submission of petitioner almonte would stretch the definition of the word >convene> a bit too far. *t

would also defeat the purpose of the framers of the '" onstitutional and render meanin0less some other

provisions of said onstitution. Cor example, the provisions of /rt. *, sec. '%, re2uirin0 on0ress to conveneonceevery year on the fourth onday of &uly for its re0ular session would be a contrariety, since on0ress would already

be deemed to be in session after the individual members have taken their oath of office. / portion of the provisions

of /rt. **, sec. 'rave abuse of discretion> has been defined, as followsA

rave abuse of discretion> implies such capricious and whimsical exercise of 5ud0ment as is

e2uivalent to lack of 5urisdiction (/bad 3antos vs. $rovince of Tarlac, # Off. a6. #4), or, in

other words, where the power is exercised in an arbitrary or despotic manner by reason of passion

or personal hostility, and it must be so patent and 0ross as to amount to an evasion of positive duty

or to a virtual refusal to perform the duty en5oined or to act at all in contemplation of law. (Tavera-Funa, *nc. vs. able, # Off. a6. @!). /

$etitioners have failed to show that EO !"# was issued capriciously and whimsically or in an arbitrary or despotic

manner by reason of passion or personal hostility. *t appears that a comprehensive study of the /T had been

extensively discussed by this framers and other 0overnment a0encies involved in its implementation, even under the

past administration. /s the 3olicitor eneral correctly sated. >The si0nin0 of E.O. !"# was merely the last sta0e in

the exercise of her le0islative powers. The le0islative process started lon0 before the si0nin0 when the data were


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0athered, proposals were wei0hed and the final wordin0s of the measure were drafted, revised and finali6ed.

ertainly, it cannot be said that the $resident made a 5ump, so to speak, on the on0ress, two days before it

convened.> 3

ext, the petitioners claim that EO !"# is oppressive, discriminatory, un5ust and re0ressive, in violation of the

provisions of /rt. *, sec. !(') of the '" onstitution, which statesA

3ec. ! (') The rule of taxation shall be uniform and e2uitable. The on0ress shall evolve a

pro0ressive system of taxation.

The petitioners> assertions in this re0ard are not supported by facts and circumstances to warrant their conclusions.

They have failed to ade2uately show that the /T is oppressive, discriminatory or un5ust. $etitioners merely rely

upon newspaper articles which are actually hearsay and have evidentiary value. To 5ustify the nullification of a law.

there must be a clear and une2uivocal breach of the onstitution, not a doubtful and ar0umentative implication. 6

/s the ourt sees it, EO !"# satisfies all the re2uirements of a valid tax. *t is uniform. The court, in City of Baguio

vs. De Leon, 5 saidA

... *n $hilippine Trust ompany v. Gatco (@ $hil. 4!/ tax is considered uniform when it operates with the same force and effect in every place

where the sub5ect may be found.>

There was no occasion in that case to consider the possible effect on such a constitutional

re2uirement where there is a classification. The opportunity came in Eastern Theatrical o. v.

/lfonso (# $hil. %!, @!). ThusA >E2uality and uniformity in taxation means that all taxable

articles or kinds of property of the same class shall be taxed at the same rate. The taxin0 power has

the authority to make reasonable and natural classifications for purposes of taxation1 . . .> /bout

two years later, &ustice Tuason, speakin0 for this ourt in anila +ace 8orses Trainers /ssn. v. de

la Cuente ( $hil. @Takin0

everythin0 into account, the differentiation a0ainst which the plaintiffs complain conforms to the

practical dictates of 5ustice and e2uity and is not discriminatory within the meanin0 of the

onstitution.>

To satisfy this re2uirement then, all that is needed as held in another case decided two years later,

(By atias v. ity of ebu, # $hil. # This ourt is on record

as acceptin0 the view in a leadin0 /merican case (armichael v. 3outhern oal and oke o., #


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The ourt likewise finds no merit in the contention of the petitioner *nte0rated ustoms :rokers /ssociation of the

$hilippines that EO !"#, more particularly the new 3ec. '

3ec. '

the two sections, (3ecs. '

by the petitioners that the adoption of the /T will tri00er skyrocketin0 of prices of basic commodities and services,

as well as mass actions and demonstrations a0ainst the /T should by now be evident. The fact that nothin0 of the

sort has happened shows that the fears and apprehensions of the petitioners appear to be more ima0ined than real. *twould seem that the /T is not as bad as we are made to believe.

*n any event, if petitioners seriously believe that the adoption and continued application of the /T are pre5udicial to

the 0eneral welfare or the interests of the ma5ority of the people, they should seek recourse and relief from the

political branches of the 0overnment. The ourt, followin0 the time-honored doctrine of separation of powers,

cannot substitute its 5ud0ment for that of the $resident as to the wisdom, 5ustice and advisability of the adoption of

the /T. The ourt can only look into and determine whether or not EO !"# was enacted and made effective as law,


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in the manner re2uired by, and consistent with, the onstitution, and to make sure that it was not issued in 0rave

abuse of discretion amountin0 to lack or excess of 5urisdiction1 and, in this re0ard, the ourt finds no reason to

impede its application or continued implementation.

H8E+ECO+E, the petitions are ?*3*33E?. Hithout pronouncement as to costs.

3O O+?E+E?.

D. NONIMPAIRM!NT CLAUS!

1 G.R. No. 363 M#*24 //, 190

J. CASANO%AS, plaintiff-appellant,

vs.JNO. S. ORD, defendant-appellee.

:ILLARD, J.:

The plaintiff brou0ht this action a0ainst the defendant, the ollector of *nternal +evenue, to recover the sum of

$,@


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3E. '#4. On all valid perfected minin0 concessions 0ranted prior to /pril eleventh, ei0hteen hundred and

ninety-nine, there shall be levied and collected on the after &anuary first, nineteen hundred and five, the

followin0 taxesA

!. (a) On each claim containin0 an area of sixty thousand s2uare meters, an annual tax of one hundred

pesos1 (b) and at the same rate proportionately on each claim containin0 an area in excess of, or less than,

sixty thousand s2uare meters.

#. On the 0ross output of each an ad valorem tax e2ual to three per centum of the actual market value of

such output.

The defendant accordin0ly imposed upon these properties the tax mentioned in section '#4, which tax, as has before

been stated, plaintiff paid under protest.

The only 2uestion in the case is whether this section '#4 is void or valid.

*. *t is claimed by the plaintiff that it is void because it comes within the provision of section % of the act of on0ress

of &uly ', 'that no law impairin0 the obli0ation of contracts shall beenacted.> The royal decree of the '4th of ay, '@", provided, amon0 other thin0s, as followsA

/+T. "@. On each pertenencia minera (minin0 claim) of the area prescribed in the first para0raph of article

'# (sixty thousand s2uare meters) there shall be paid annually a fixed tax of forty escudos (about $!ueva alifornia 3e0unda> in the 5urisdiction of $aracale, $rovince of /mbos


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amarinesA ow, therefore, in the name of 8is a5esty the Iin0 (whom od preserve), and pursuant to the

provisions of article #" of the royal decree of ay '4, '@", re0ulatin0 minin0 in these *slands, * issue, this

fifth day of ovember, ei0hteen hundred and ninety-six, this title deed to four pertenencias, comprisin0 an

area of two hundred and forty thousand s2uare meters, as shown in the attached sketch map drafted by the

en0ineer ?on Enri2ue /bella y asarie0o, and dated at anila ?ecember sixteenth of the said year, sub5ect

to the followin0 0eneral terms and conditionsA

'. That the mine shall be worked in conformity with the rules in minin0, the 0rantee and his laborers to be

0overned by the police rules established by existin0 re0ulations.

!. That the 0rantee shall be liable for all dama0es to third parties that may be caused by his operations.

#. That the 0rantee shall likewise indemnify his nei0hbors for any dama0e they may suffer by reason of

water accumulated on his works, if, upon bein0 re2uested, he fail to drain the same within the time

indicated.

4. That he shall contribute for the draina0e of the ad5acent mines and for the 0eneral 0alleries for draina0e

or haula0e in proportion to the benefit he derives therefrom, whenever, by authority of the overnor-eneral, such works shall be opened for a 0roup of pertenencias or for the entire minin0 locality in which

the mine is situated.

%. That he shall commence work on the mine immediately upon receipt of this concession unless prevented

by force majeure.

@. That he shall keep the mine in active operation by employin0 at the rate of at least four laborers for

each pertenencia for at least six months of each year.

". That he shall stren0then the walls of the mine within the time indicated whenever, by reason of

mismana0ement of the work, it threatens to cave in, unless he be prevented by force majeure.

. That he shall not render further profitable development of the mine difficult or impossible by avaricious

operation.

. That he shall not suspend the operation of the mine with the intention of abandonin0 the same without

first informin0 the overnor of his intention, in which case he must leave the mine in a 0ood state of

timberin0.

'


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laws, and to en5oy all the ri0hts and benefits conceded to such 0rantees by the royal decree and by the

minin0 re0ulations. /nd for the prompt fulfillment and observance of the said conditions, both on the part

of the said 0rantees and by all authorities, courts, corporations, and private persons whom it may concern, *

have ordered this title deed to be issued 7 0iven under my hand and the proper seal and countersi0ned by

the undersi0ned ?irector-eneral of ivil /dministration.

*t seems very clear to us that this deed constituted a contract between the 3panish overnment and the plaintiff, the

obli0ation of which contract was impaired by the enactment of section '#4 of the *nternal +evenue Faw above cited,

thereby infrin0in0 the provisions above 2uoted from section % of the act of on0ress of &uly ', '

conclusion seems necessarily to result from the decisions of the 3upreme ourt of the Bnited 3tates in similar cases.

*n the case of cee vs. athis (4 Hallace, '4#), it appeared that the 3tate of /rkansas, by an act of the le0islature

of '%', provided for the sale of certain swamp lands 0ranted to it by the Bnited 3tates1 for the issue of transferable

scrip receivable for any lands not already taken up at the time of selection by the holder1 for contracts for the makin0

of levees and drains, and for the payment of contractors in scrip and otherwise. *n the fourteenth section of this act it

was provided that 7

To encoura0e by all 5ust means the pro0ress and completion of the reclaimin0 of such lands by offerin0

inducements to purchasers and contractors to take up said lands, all said swamp and overflowed lands shall be exempt from taxation for the term of ten years or until they shall be reclaimed.

*n '%% this section was repealed and provision was made by law for the taxation of swamp and overflowed lands,

sold or to be sold, precisely as other lands. cee, before this appeal, had become the owner by transfer from

contractors of a lar0e amount of scrip issued under the /ct of '%', and with this scrip, after the repeal, took up and

paid for many sections and parts of sections of the 0ranted lands. Taxes were levied by the 3tate on the lands so

taken up by cee. The 3upreme ourt held that these taxes could not be collected. The ourt said at pa0e '%@A

*t seems 2uite clear that the /ct of '%' authori6in0 the issue of land scrip constituted a contract between

the 3tate and the holders of the land scrip issued under the act.

*n the case of the 8ome of the Criendless vs. +ouse ( Hallace, 4#


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that it should en5oy the same exemption from taxation which was en5oyed by the Orphan :oys9 /sylum of ew

Orleans. The law relatin0 to the last named institution provided (pa0e #@4)A

That, from and after the passa0e of this act, all the property, real and personal, belon0in0 to the Orphan

:oys9 /sylum of ew Orleans be, and the same is hereby exempted from all taxation, either by the 3tate,

parish, or city in which it is situated, any law to the contrary notwithstandin0.

*t was held that the 3tate had no power by subse2uent le0islation to impose taxes upon the property of this

institution.

That the doctrine announced in these cases is still maintained in that court is apparent from the case of

$owersvs. The ?etroit, rand 8aven and ilwaukee +ailway which was decided on the '@th of /pril, '


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Helchvs. ook (" B.3., %4'). *n these cases the exemption was a mere bounty and did not form a part of any

contract.

The fact that this concession was made by the overnment of 3pain, and not by the overnment of the Bnited

3tates, is not important. (Trustees of ?artmouth olle0e vs. Hoodward, 4 Hheaton, %'.)

Our conclusion is that the concessions 0ranted by the overnment of 3pain to the plaintiff, constitute contracts

between the parties1 that section '#4 of the *nternal +evenue Faw impairs the obli0ation of these contracts, and is

therefore void as to them.

**. He think that this section is also void because in conflict with section @< of the act of on0ress of &uly ', '

This section is as followsA

That nothin0 in this /ct shall be construed to effect the ri0hts of any person, partnership, or corporation,

havin0 a valid, perfected minin0 concession 0ranted prior to /pril eleventh, ei0hteen hundred and ninety-

nine, but all such concessions shall be conducted under the provisions of the law in force at the time they

were 0ranted, sub5ect at all times to cancellation by reason of ille0ality in the procedure by which they were

obtained, or for failure to comply with the conditions prescribed as re2uisite to their retention in the lawsunder which they were 0rantedA Provided That the owner or owners of every such concession shall cause

the corners made by its boundaries to be distinctly marked with permanent monuments within six months

after this act has been promul0ated in the $hilippine *slands, and that any concessions, the boundaries of

which are not so marked within this period shall be free and open to explorations and purchase under the

provisions of this act.!

This section seems to indicate that concessions, like those in 2uestion, can be canceled only by reason of ille0ality in

the procedure by which they were obtained, or for failure to comply with the conditions prescribed as re2uisite for

their retention in the laws under which they were 0ranted. There is nothin0 in the section which indicates that they

can be canceled for failure to comply with the conditions prescribed by subse2uent le0islation. *n fact, the real

intention of the act seems to be that such concession should be sub5ect to the former le0islation and not to any

subse2uent le0islation. There is no claim in this case that there was any ille0ality in the procedure by which these

concessions were obtained, nor is there any claim that the plaintiff has not complied with the conditions prescribed

in the said royal decree of '@".

***. *n view of the result at which we have arrived, it is not necessary to consider the further claim made by the

plaintiff that the taxes imposed by article '#4 above 2uoted, are in violation of the part of section % of the act of &uly

', 'that the rule of taxation in said *slands shall be uniform.>

The 5ud0ment of the court below is reversed, and 5ud0ment is ordered in favor of the plaintiff and a0ainst the

defendant for $,@


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/ Re#$ C#'e No. 13 )n Con')u)on#- L)()#)on', !;u#- P*oe2)on o+ 4e L#<3 G.R. No. L701/7 Se=e(e* /5, 1985

CAGAYAN !L!CTRIC PO:!R > LIGT CO., INC., petitioner,vs.

COMMISSION!R OF INT!RNAL R!%!NU! #n$ COURT OF APP!ALS, respondents.

A"UINO, J.:

This is about the liability of petitioner a0ayan Electric $ower J Fi0ht o., *nc. for income tax amountin0 to

$"%,'4."# for the more than seven-month period of the year '@ in addition to franc!ise tax.

The petitioner is the holder of a le0islative franchise, +epublic /ct o. #!4", under which its payment of #= tax on

its 0ross earnin0s from the sale of electric current is >in lieu of all taxes and assessments of whatever authority upon

privile0es, earnin0s, income, franchise, and poles, wires, transformers, and insulators of the 0rantee, from which

taxes and assessments the 0rantee is hereby expressly exempted> (3ec. #).

On &une !", '@, +epublic /ct o. %4#' amended section !4 of the Tax ode by makin0 liable for income tax all

corporate taxpayers not specifically exempt under para0raph (c) (') of said section and section !" of the Tax ode

notwithstandin0 the >provisions of existin0 special or 0eneral laws to the contrary>. Thus, franchise companies were

sub5ected to income tax in addition to franc!ise tax.

8owever, in petitioner9s case, its franchise was amended by +epublic /ct o. @

only for the income tax for t!e period from )anuary $ to "ugust * $%&% or before the passa0e of +epublic /ct o.

@

*t contends that the Tax ourt erred (') in not holdin0 that the franchise tax paid by the petitioner is a commutativetax which already includes the income tax1 (!) in holdin0 that +epublic /ct o. %4#' as amended, altered or

repealed petitioner9s franchise1 (#) in holdin0 that petitioner9s franchise is a contract which can be impaired by an

implied repeal and (4) in not holdin0 that section !4(d) of the Tax ode should be construed strictly a0ainst the

overnment.

He hold that on0ress could impair petitioner9s le0islative franchise by makin0 it liable for income tax from which

heretofore it was exempted by virtue of the exemption provided for in section # of its franchise.


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The onstitution provides that a franchise is sub5ect to amendment, alteration or repeal by the on0ress when the

public interest so re2uires (3ec. , /rt. D*, '#% onstitution1 3ec. %, /rt. D*, '"# onstitution),

3ection ' of petitioner9s franchise, +epublic /ct o. #!4", provides that it is sub5ect to the provisions of the

onstitution and to the terms and conditions established in /ct o. #@#@ whose section '! provides that the

franchise is sub5ect to amendment, alteration or repeal by on0ress.

+epublic /ct o. %4#', in amendin0 section !4 of the Tax ode by sub5ectin0 to income tax all corporate taxpayers

not expressly exempted therein and in section !" of the ode, had the effect of +it!dra+ing petitioner,s exemption

from income tax.

The Tax ourt acted correctly in holdin0 that the exemption was restored by the subse2uent enactment on /u0ust 4,

'@ of +epublic /ct o. @

income tax for the period from &anuary ' to /u0ust #, '@ when its tax exemption was modified by +epublic /ct

o. %4#'.

*t is relevant to note that franchise companies, like the $hilippine Fon0 ?istance Telephone ompany, have been

payin0 income tax in addition to the franchise tax.

8owever, it cannot be denied that the said '@ assessment appears to be hi0hly controversial. The ommissioner at

the outset was not certain as to petitioner9s income tax liability. *t had reason not to pay income tax because of the

tax exemption in its franchise.

Cor this reason, it should be liable only for tax proper and should not be held liable for the surchar0e and interest.

(/dvertisin0 /ssociates, *nc. vs. ommissioner of *nternal +evenue and ourt of Tax /ppeals, . +. o. %"%,

?ecember !@, '4,'## 3+/ "@%1 *mus Electric o., *nc. vs. ommissioner of *nternal +evenue, '!% $hil. '

.. 8oskins J o., *nc. vs. ommissioner of *nternal +evenue, F-!##, &une !!, '"@, "' 3+/ %''.)

H8E+ECO+E, the 5ud0ment of the Tax ourt is affirmed with the modification that the petitioner is liable only for the tax proper and that it should not pay the delin2uency penalties. o costs.

3O O+?E+E?.

6 P4)- Po


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!. &ILLS TO ORIGINAT! FROM T! OUS! OF R!PR!S!NTATI%!S

Re#$ C#'e No. 13 )n Con')u)on#- L)()#)on', !;u#- P*oe2)on o+ 4e L#<

F. TAXATION AND T! FR!!DON OF T! PR!SS

Re#$ C#'e No. 13 )n Con')u)on#- L)()#)on', !;u#- P*oe2)on o+ 4e L#<

G. TAX !X!MPTION OF PROP!RTI!S US!D FOR R!LIGIOUS, CARITA&L!, AND !DUCATIONALPURPOS!S

1 G.R. No. L39087 June 15, 1988

A&RA %ALL!Y COLL!G!, INC., *e=*e'ene$ B P!DRO %. &ORGONIA, petitioner,vs.

ON. JUAN P. A"UINO, Ju$e, Cou* o+ F)*' In'#n2e, A*# ARMIN M. CARIAGA, P*o)n2)#- T*e#'u*e*,

A*# GASPAR %. &OS"U!, Mun)2)=#- T*e#'u*e*, nue$, A*# !IRS OF PAT!RNO MILLAR!,respondents.

PARAS, J.:

This is a petition for review on certiorari of the decision of the defunct ourt of Cirst *nstance of /bra, :ranch *,dated &une '4, '"4, rendered in ivil ase o. @%@, entitled >/bra alley &unior olle0e, *nc., represented by

$edro . :or0onia, plaintiff vs. /rmin . aria0a as $rovincial Treasurer of /bra, aspar . :os2ue as unicipal

Treasurer of :an0ued, /bra and $aterno illare, defendants,> the decretal portion of which readsA

* *EH OC /FF T8E CO+EO*, the ourt hereby declaresA

That the distraint sei6ure and sale by the unicipal Treasurer of :an0ued, /bra, the $rovincial

Treasurer of said province a0ainst the lot and buildin0 of the /bra alley &unior olle0e, *nc.,

represented by ?irector $edro :or0onia located at :an0ued, /bra, is valid1

That since the school is not exempt from payin0 taxes, it should therefore pay all back taxes in the

amount of $%,'4


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That the amount deposited by the plaintaff him the sum of $@


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'. That the personal circumstances of the parties as stated in para0raph ' of the complaint is

admitted1 but the particular person of r. /rmin . aria0a is to be substituted, however, by

anyone who is actually holdin0 the position of $rovincial Treasurer of the $rovince of /bra1

!. That the plaintiff /bra alley &unior olle0e, *nc. is the owner of the lot and buildin0s thereon

located in :an0ued, /bra under Ori0inal ertificate of Title o.


17/36

are housed in the main buildin01 (e) that the ?irector with his family is in the second floor of the main buildin01 and

(f) that the annual 0ross income of the school reaches more than one hundred thousand pesos.

Crom all the fore0oin0, the only issue left for the ourt to determine and as a0reed by the parties, is whether or not

the lot and buildin0 in 2uestion are used exclusively for educational purposes. (+ollo, p. !


18/36

The main issue in this case is the proper interpretation of the phrase >used exclusively for educational purposes.>

$etitioner contends that the primary use of the lot and buildin0 for educational purposes, and not the incidental use

thereof, determines and exemption from property taxes under 3ection !! (#), /rticle * of the '#% onstitution.

8ence, the sei6ure and sale of sub5ect colle0e lot and buildin0, which are contrary thereto as well as to the provision

of ommonwealth /ct o. 4"emeteries, churches and parsona0es or convents appurtenant thereto, and all lands, buildin0s, and

improvements used exclusively for reli0ious, charitable or educational purposes ...

+elative thereto, 3ection %4, para0raph c, ommonwealth /ct o. 4"< as amended by +epublic /ct o. 4


19/36

The phrase >exclusively used for educational purposes> was further clarified by this ourt in the cases of 7errera

vs. ue8on City Board of assessment "ppeals , # 3+/ '@ N'@'M and Commissioner of 6nternal 3evenue vs.

Bis!op of t!e 2issionary District , '4 3+/ ' N'@%M, thus 7

oreover, the exemption in favor of property used exclusively for charitable or educational

purposes is 9not limited to property actually indispensable9 therefor (ooley on Taxation, ol. !, p.

'4#a school for trainin0 nurses, a

nurses9 home, property use to provide housin0 facilities for interns, resident doctors,

superintendents, and other members of the hospital staff, and recreational facilities for student

nurses, interns, and residents9 (4 &3 @@!'), such as >/thletic fields> includin0 >a firm used for

the inmates of the institution. (ooley on Taxation, ol. !, p. '4#exclusively used for educational purposes> as provided for in /rticle *, 3ection !!, para0raph # of the '#%$hilippine onstitution, 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 buildin0 or lot for commercial purposes is neither contemplated by law, nor by 5urisprudence. Thus, while the

use of the second floor of the main buildin0 in the case at bar for residential purposes of the ?irector and his family,

may find 5ustification under the concept of incidental use, which is complimentary to the main or primary purpose7

educational, the lease of the first floor thereof to the orthern arketin0 orporation cannot by any stretch of the

ima0ination be considered incidental to the purpose of education.

*t will be noted however that the aforementioned lease appears to have been raised for the first time in this ourt.

That the matter was not taken up in the to court is really apparent in the decision of respondent &ud0e. o mention

thereof was made in the stipulation of facts, not even in the description of the school buildin0 by the trial 5ud0e, both

embodied in the decision nor as one of the issues to resolve in order to determine whether or not said properly may

be exempted from payment of real estate taxes (+ollo, pp. '"-!#). On the other hand, it is noteworthy that such fact

was not disputed even after it was raised in this ourt.

*ndeed, it is axiomatic that facts not raised in the lower court cannot be taken up for the first time on appeal.

onetheless, as an exception to the rule, this ourt has held that althou0h a factual issue is not s2uarely raised

below, still in the interest of substantial 5ustice, this ourt is not prevented from considerin0 a pivotal factual matter.

>The 3upreme ourt is clothed with ample authority to review palpable errors not assi0ned as such if it finds that

their consideration is necessary in arrivin0 at a 5ust decision.> ($ere6 vs. ourt of /ppeals, '!" 3+/ @4% N'4M).

Bnder the '#% onstitution, the trial court correctly arrived at the conclusion that the school buildin0 as well as the

lot where it is built, should be taxed, not because the second floor of the same is bein0 used by the ?irector and hisfamily for residential purposes, but because the first floor thereof is bein0 used for commercial purposes. 8owever,

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.

$+E*3E3 O3*?E+E?, the decision of the ourt of Cirst *nstance of /bra, :ranch *, is hereby /CC*+E?

sub5ect to the modification that half of the assessed tax be returned to the petitioner.


20/36

3O O+?E+E?.

/ G.R. No. L19/01 June 17, 1975

R!%. FR. CASIMIRO LLADOC, petitioner,vs.

T4e COMMISSION!R OF INT!RNAL R!%!NU! #n$ T4e COURT o+ TAX APP!ALS, respondents.

PAR!D!S, J.:

3ometime in '%", the .:. Estate, *nc., of :acolod ity, donated $'


21/36

On arch #, '%, the donor .:. Estate, *nc., filed the donor9s 0ift tax return. Bnder date of /pril !, '@


22/36

x x x x x x x x x

H8E+ECO+E, in view of the fore0oin0 considerations, the decision of the respondent ommissioner of

*nternal +evenue appealed from, is hereby affirmed except with re0ard to the imposition of the compromise

penalty in the amount of $!exempt from

taxation,> as employed in the onstitution ( supra) should not be interpreted to mean exemption from all kinds of

taxes. /nd there bein0 no clear, positive or express 0rant of such privile0e by law, in favor of petitioner, the

exemption herein must be denied.

The next issue which readily presents itself, in view of petitioner9s thesis, and Our findin0 that a tax liability exists,

is, who should be called upon to pay the 0ift tax $etitioner postulates that he should not be liable, because at the

time of the donation he was not the priest of ictorias. He note the merit of the above claim, and in order to put

thin0s in their proper li0ht, this ourt, in its +esolution of arch '%, '@%, ordered the parties to show cause why

the 8ead of the ?iocese to which the parish of ictorias pertains, should not be substituted in lieu of petitioner +ev.

Cr. asimiro Fladoc it appearin0 that the 8ead of such ?iocese is the real party in interest. The 3olicitor eneral, in

representation of the ommissioner of *nternal +evenue, interposed no ob5ection to such a substitution. ounsel for

the petitioner did not also offer ob5ection thereto.

On /pril #


23/36

The decision appealed from should be, as it is hereby affirmed insofar as tax liability is concerned1 it is modified, in

the sense that petitioner herein is not personally liable for the said 0ift tax, and that the 8ead of the ?iocese, herein

substitute petitioner, should pay, as he is presently ordered to pay, the said 0ift tax, without special, pronouncement

as to costs.

3 G.R. No. L988 J#nu#*B 19, 1917


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T! YOUNG M!NES CRISTIAN ASSOCIATION OF MANILA, plaintiff-appellant,vs.

T! COLL!CTOR OF INT!RNAL R!%!NU!, defendant-appellee.

MOR!LAND, J.

The 2uestion at issue in this case is whether or not the buildin0 and 0rounds of the Goun0 en9s hristian

/ssociation of anila are sub5ect to taxation, under section 4 of the charter of the city of anila 2uoted in the

footnote NsyllabusM.

The city of anila, contendin0 that the property is taxable, assessed it and levied a tax thereon. *t was paid under

protest and this action be0un to recover it on the 0round that the property was exempt from taxation under the

charter of the city of anila. The decision was for the city and the association appealed.

The Goun0 en9s hristian /ssociation came to the $hilippine with the army of occupation in '. Hhen the lar0e

body of troops in anila was removed to permanent 2uarters at Cort Hilliam cIinley in Cebruary, '


25/36

about the same si6e as those on the ri0ht of the reception hall, the first bein0 the billiard room and the other the

restaurant. The athletic buildin0 is entered from the rear veranda. *t is a two story win0 @ by % feet. $assin0 from

the veranda into the athletic hall one finds first, on the left, the toilet room, and beyond this, to the rear, the shower

baths and locker rooms. The swimmin0 pool is in the center of the athletic win0 and is @< by ' feet in si6e, lined

with cement. To the ri0ht of the swimmin0 pool are the bowlin0 alleys. / wide stairways leads to the second floor.

/bove the swimmin0-pool and bowlin0 alley is a lar0e room %< by % feet which is the 0ymnasium and also the

auditorium when occasion re2uires. /bout one-third of the roof convertin0 the athletic win0 is used as a roof 0arden.

The second and third floors of the main buildin0 are 0iven over almost wholly to roomin0 apartments and baths. On

the second floor over the entrance hall is a members9 parlor, from which a small balcony pro5ects over the main

entrance. The remainder of the second floor and all to the third are composed of the livin0 rooms. These apartments,

of which there are '4 on the second and !< on the third floor are approximately ' by '4 feet each. They provide

accommodations for @4 men.

The purposes of the association, as set forth in its charter and constitution, areA

To develop the hristian character and usefulness of its members, to improve the spiritual, intellectual,

social and physical condition of youn0 men, and to ac2uire, hold, mort0a0e, and dispose of the necessarylands, buildin0s and personal property for the use of said corporation exclusively for reli0ious, charitable

and educational purposes, and not for investment or profit.

The purposes of this association shall be exclusively reli0ious, charitable and educational, in developin0 the

hristian character and usefulness of its members and in improvin0 the spiritual, mental, social and

physical condition of youn0 men.

3peakin0 0enerally, the association claims exemption from taxation on the 0round that it is a reli0ious, charitable

and educational institution combined. That it has an educational department is not denied. *t is undisputed that the

aim of this department is to furnish, at much less than cost, instruction in sub5ects that will 0reatly increase the

mental efficiency and wa0e-earnin0 capacity of youn0 men, prepare them in special lines of business and offer them

special lines of study. /ttention is 0iven to sub5ects included in civil service and consular examinations both here

and in the Bnited 3tates. The courses offer commercial sub5ects, as well as many others, and include steno0raphy

and typewritin0, bookkeepin0, arithmetic, En0lish composition, forei0n lan0ua0es, includin0 elementary and

advanced 3panish and Ta0alo0, special courses in $hilippine history, public speakin0, surveyin0, horticulture,

tropical dependencies, and the 0roup of sub5ects re2uired for entrance into the consular services, such as political

economy, /merican and modern history. ourses are also offered in law, social, ethics, political economy and other

sub5ects.

The institution has also its reli0ious department. *n that department there are, 0enerally speakin0, three main lines of

work 7 :ible study, reli0ious meetin0s and special classes. ourse are offered in the Fife of hrist and the Old

Testament and in the lar0er social si0nificance of the teachin0s of &esus. eetin0s are held on 3unday afternoons

and several times durin0 the week and courses are offered in the study of missions, in the method of teachin0 the:ible and kindred sub5ects.

The atmosphere of the Goun0 en9s hristian /ssociation is distinctly reli0ious and there is constant effort on the

part of the officials to create a reli0ious spirit1 and to that end there is continuous pressure to induce members to

attend not only the reli0ious services of the association but also those of one or another of the churches of anila.

Hhile the association is nonsectarian, it is preeminently reli0ious1 and the fundamental basis and 0roundwork is the


26/36

hristian reli0ion. /ll of the officials of the association are devoted hristians, members of a church, and have

dedicated their lives to the spread of the hristian principles and buildin0 of hristian character.

The institution also has charitable features. *t makes no profit on any of its activities. The professors and instructors

in all departments serve without pay and freely 0ive of their time and ability to further the purposes of the

institution. The chief secretary and his assistant receive no salary from the institution. Hhatever they are paid comes

from the Bnited 3tates. *n estimatin0 the cost of instruction in the various departments, or of the other thin0s for

which pay is received, no account is taken of the interest on the money invested in the 0rounds and buildin0, of

deterioration in value resultin0 from the lapse of time, or of the fact that the professors and instructors and certain

officials receive no pay. He have, then, a buildin0 and 0rounds, professors and instructors, and certain institution

officials, furnished free of char0e, and which makes no profit even on that basis. This, it would seem, would lend

some color to the claim that the association takes on some of the aspect of a charitable institution. Hhile it appears

that the association is not exclusively reli0ious or charitable or educational, it is demonstrated that it is a happy

combination of all three, 0ivin0 to its membership the reli0ious opportunities of the church, the educational

opportunities of the school and the blessin0s of charity where needed without the recipient feelin0 or even knowin0

that he is the ob5ect of charity.

*t is claimed, however, that the institution is run as a business in that it keeps a lod0in0 and boardin0 house. *t may be admitted that there are @4 persons occupyin0 rooms in the main buildin0 as lod0ers or roomers and that they take

their meals at the restaurant below. These facts, however, are far from constitutin0 a business in ordinary acceptation

of the word. *n the first place, no profit is reali6ed by the association in any sense. *n the second place, it is

undoubted, as it is undisputed, that the purpose of the association is not, primarily, to obtain the money which comes

from the lod0ers and boarders. The real purpose is to keep the membership continually within the sphere of

influence of the institution1 and thereby to prevent, as far as possible, the opportunities which vice president to

youn0 men in forei0n countries who lack home or other similar influences. He re0ard this feature of the institution

not as a business or means of makin0 money, but, rather, as a very efficient means of maintainin0 the influence of

the institution over its membership. /s we held in the case of the olumbia lub, reli0ious and moral teachin0s do

not always stop with the spoken word1 but to be effective in the hi0hest de0ree they must follow the youn0 man

throu0h as many moments of his life as possible. To this end the feature of the Goun0 en9s hristian /ssociation to

which ob5ection is made lends itself with 0reat effect1 and we are, accordin0ly, forced to re0ards this activity of the

institution not as a business but as a method by which the institution maintains its influence and conserves the

benefits which its or0ani6ation was desi0ned to confer.

/s we have seen in the description already 0iven of the association buildin0 and 0rounds, no part is occupied for any

but institutional purposes. Crom end to end the buildin0 and 0rounds are devoted exclusively to the purposes stated

in the constitution of the association. The library and readin0 rooms, the 0ame and loun0in0 halls, the lecture rooms,

the auditorium, the baths, pools, devices for physical development, and the 0rounds, are all dedicated exclusively to

the ob5ects and purpose of the association 7 the buildin0 of hristian character and the creation of moral sentiment

and fiber in men. *t is the belief of the Goun0 en9s hristian /ssociation that a hristian man, a man of moral

sentiment and firm moral fiber, is yet a better man for bein0 also all-round man 7 one who is sound not only

accordin0 to hristian principles and the hi0hest moral conceptions, but physically and mentally1 whose body andmind act in harmony and within the limits which the ri0hts of others set1 who are 0entleman in physical and mental

stru00les, as well as in reli0ious service1 who have self-respect and self-restraint1 who can hit hard and still kindly1

who can lose without envy1 who can con0ratulate his con2ueror with sincerity1 who can vie without temper, contend

without malice, concede without re0ret1 who can win and still be 0enerous, 7 in short, one who fi0hts hard but

s2uare. To the production of such men the association lends all its efforts, husbands all its resources.

He are aware that there are many decisions holdin0 that institutions of this character are not exempt from taxation1 but, on

investi0ation, we find that the ma5ority of them are based on statutes much narrower than the one under consider and that in all


27/36

probability the decisions would have been otherwise if the court had been passin0 on a statute similar to ours. On the other hand,

there are many decisions of the courts in the Bnited 3tates founded on statutes like the $hilippine statute which hold that

associations of this class are exempt from taxation. He have examined all of the decisions, both for and a0ainst, with care and

deliberation, and we are convinced that the wei0ht of authority sustains the positions we take in this case.

There is no doubt about the correctness of the contention that an institution must devote itself exclusively to one or the other of

the purpose mentioned in the statute before it can be exempt from taxation1 but the statute does not say that it must bedevoted exclusively to any one of the purposes therein mentioned. *t may be a combination of two or three or more of those

purposes and still be entitled to exempt. The Goun0 en9s hristian /ssociation of anila cannot be said to be an institution

used exclusively for reli0ious purposes, or an institution used exclusively for charitable purposes, or an institution devoted

exclusively to educational purposes1 but we believe it can be truthfully said that it is an institution used exclusively for all three

purposes, and that, as such, it is entitled to be exempted from taxation.

The 5ud0ment appealed from is reversed and the cause remanded with instructions to enter a 5ud0ment a0ainst the city of anila

and in favor of the Goun0 en9s hristian /ssociation of anila in the sum of $@,!!'.#%. Hithout costs in this instance. 3o

ordered.

6 G.R. No. L/588 De2e(e* 31, 19/

T! ROMAN CATOLIC &ISOP OF NU!%A S!GO%IA, #' *e=*e'en#)e o+ 4e Ro(#n C#4o-)2A=o'o-)2 C4u*24, plaintiff-appellant,vs.

T! PRO%INCIAL &OARD OF ILOCOS NORT!, !T AL., defendants-appellants..

A%ANC!A, J.:

The plaintiff, the +oman atholic /postolic hurch, represented by the :ishop of ueva 3e0ovia, possesses and is

the owner of a parcel of land in the municipality of 3an icolas, *locos orte, all four sides of which face on public

streets. On the south side is a part of the churchyard, the convent and an ad5acent lot used for a ve0etable 0arden,

containin0 an area off ',@!4 s2uare meters, in which there is a stable and a well for the use of the convent. *n thecenter is the remainder of the churchyard and the church. On the north is an old cemetery with two of its walls still

standin0, and a portion where formerly stood a tower, the base of which still be seen, containin0 a total area of ,%%

s2uare meters.

/s re2uired by the defendants, on &uly #, '!% the plaintiff paid, under protest, the land tax on the lot ad5oinin0 the

convent and the lot which formerly was the cemetery with the portion where the tower stood.

The plaintiff filed this action for the recovery of the sum paid by to the defendants by way of land tax, alle0in0 that

the collection of this tax is ille0al. The lower court absolved the defendants from the complaint in re0ard to the lot

ad5oinin0 convent and declared that the tax collected on the lot, which formerly was the cemetery and on the portion

where the lower stood, was ille0al. :oth parties appealed from this 5ud0ment.

The exemption in favor of the convent in the payment of the land tax (sec. #44 NcM /dministrative ode) refers to the

home of the parties who presides over the church and who has to take care of himself in order to dischar0e his

duties. *n therefore must, in the sense, include not only the land actually occupied by the church, but also the

ad5acent 0round destined to the ordinary incidental uses of man. Except in lar0e cities where the density of the

population and the development of commerce re2uire the use of lar0er tracts of land for buildin0s, a ve0etable

0arden belon0s to a house and, in the case of a convent, it use is limited to the necessities of the priest, which comes

under the exemption.la+p!i$.net


28/36

*n re0ard to the lot which formerly was the cemetery, while it is no lon0er used as such, neither is it used for

commercial purposes and, accordin0 to the evidence, is now bein0 used as a lod0in0 house by the people who

participate in reli0ious festivities, which constitutes an incidental use in reli0ious functions, which also comes within

the exemption.

The 5ud0ment appealed from is reversed in all it parts and it is held that both lots are exempt from land tax and the

defendants are ordered to refund to plaintiff whatever was paid as such tax, without any special pronouncement as to

costs. 3o ordered.

5 G.R. No. L15/0 Se=e(e* 30, 1971

JOS! %. !RR!RA #n$ !ST!R OCANGCO !RR!RA, petitioners,vs.

T! "U!HON CITY &OARD OF ASS!SSM!NT APP!ALS, respondent.

CONC!PCION, J.:

/ppeal, by petitioners &ose . 8errera and Ester Ochan0co 8errera, from a decision of the ourt of Tax /ppeals

affirmin0 that of the :oard of /ssessment /ppeals of Kue6on ity, which held that certain properties of said petitioners are sub5ect to assessment for purposes of real estate tax.

The facts and the issue are set forth in the aforementioned decision of the ourt of Tax /ppeals, from which we

2uoteA

On &uly !4, '%!, the ?irector of the :ureau of 8ospitals authori6ed the petitioners to establish and operate

the >3t. atherine9s 8ospital>, located at % ?. Tua6on, 3ta. esa 8ei0hts, Kue6on ity (Exhibit >C-'>, p.

", :*+ rec.). On or about &anuary #, '%#, the petitioners sent a letter to the Kue6on ity /ssessor

re2uestin0 exemption from payment of real estate tax on the lot, buildin0 and other improvementscomprisin0 the hospital statin0 that the same was established for charitable and humanitarian purposes and

not for commercial 0ain (Exhibit >C-!>, pp. -, :*+ rec.). /fter an inspection of the premises in 2uestion

and after a careful study of the case, the exemption from real property taxes was 0ranted effective the years

'%#, '%4 and '%%.

3ubse2uently, however, in a letter dated /u0ust '


29/36

The buildin0 involved in this case is principally used as a hospital. *t is mainly a sur0ical and orthopedic

hospital with emphasis on obstetrical cases, the latter constitutin0 and >:-!>)

' % @

6ncome Expenses Deficit


30/36

harity Hard

$ay Hard$!',4@".4<

$ %,%%.

'@,!4.>, >-'> and >-!>)

/side from the 3t. atherine and 3t. ary hospitals, the petitioners declared that they also own lands and coconut

plantations in Kue6on $rovince, and other real estate in the ity of anila consistin0 of apartments for rent. The petitioner, &ose . 8errera, is an architect, actively en0a0ed in the practice of his profession, with office at Tuason

:uildin0, Escolta, anila. 8e was formerly hairman, :oard of Examiners for /rchitects and hairman, :oard of

/rchitects connected with the Bnited ations. 8e was also connected with the /llied Technolo0ists which

constructed the eterans 8ospital in Kue6on ity.

The only issue raised, is whether or not the lot, buildin0 and other improvements occupied by the 3t. atherine8ospital are exempt from the real property tax. The resolution of this 2uestion boils down to the corollary issue as to

whether or not the said properties are used exclusively for charitable or educational purposes. ($etitioners9 brief, pp.

!4-!).

The ourt of Tax /ppeals decided the issue in the ne0ative, upon the 0round that the 3t. atherine9s 8ospital >has a pay ward for ... pay-patients, who are char0ed for the use of the private rooms, operatin0 room, laboratory room,

delivery room, etc., like other hospitals operated for profit> and that >petitioners and their family occupy a portion of

the buildin0 for their residence.> Hith respect to petitioners9 claim for exemption based upon the operation of the

school of midwifery, the ourt conceded that >the proposition mi0ht be proper if the property used for the school of midwifery were separate and distinct from the hospital.> *t added, however, that, >in the instant case, the portions of

the buildin0 used for classrooms of the school of midwifery have not been shown to be exclusively for school

purposes>1 that said portions >rather ... have a dual use, i.e., for classroom and for hospital use, the latter not bein0 a

purpose that renders the property tax exempt1> that part of the buildin0 and lot in 2uestion >is used as a hospital, partas residence of the petitioners, part as 0ara0e, part as dormitory and part as school>1 and that >the portion dedicated

to educational and charitable purposes can not be identified from those destined to other uses1 and the buildin0 is

itself an indivisible unit of property.>

*t should be noted, however, that, accordin0 to the very statement of facts made in the decision appealed from, of thethirty-two (#!) beds in the hospital, twenty (!the income reali6ed from pay-patientsis spent for improvement of the charity wards1> and that >petitioners, ?r. Ester Ochan0co 8errera, as directress> of

said hospital, >does not receive any salary,> althou0h its resident physician 0ets a monthly salary of $'"public charity> (4.&.3., @'"1 see, also, %' /m. &ur. @charitable educational and reli0ious purposes> can not be

considered as en0a0ed in business merely because its pharmacy department char0es payin0 patients the cost of their

medicine, plus '


31/36

the stock dividends of the corporation, in view of a 0ain of $! the accomplishment of said purposes, such as, in the case of hospitals,

>a school for trainin0 nurses, a nurses9 home, property use to provide housin0 facilities for interns, resident doctors,

superintendents, and other members of the hospital staff, and recreational facilities for student nurses, interns andresidents> (4 .&.3., @!'), such as >athletic fields,> includin0 >a farm used for the inmates of the institution>

(ooley on Taxation, ol. !, p. '4#out-charity patients> who come only for consultation.

/0ain, the existence of >3t. atherine9s 3chool of idwifery>, with an enrollment of about !all lands, buildin0 and improvements used

exclusively for reli0ious, charitable or educational purposes shall be exempt from taxation,> pursuant to the

onstitution, re0ardless of whether or not material profits are derived from the operation of the institutions in2uestion. *n other words, on0ress may, if it deems fit to do so, impose taxes upon such >profits>, but said >lands,

buildin0s and improvements> are beyond its taxin0 power.

3imilarly, the 0ara0e in the buildin0 above referred to 7 which was obviously essential to the operation of theschool of midwifery, for the students therein enrolled practiced, not only in 3t. atherine9s 8ospital, but, also, in 3t.

ary9s 8ospital, and were entitled to transportation thereto 7 for rs. 8errera received no compensation asdirectress of 3t. atherine9s 8ospital 7 were incidental to the operation of the latter and of said school, and,

accordin0ly, did not affect the charitable character of said hospital and the educational nature of said school.

H8E+ECO+E, the decision of the ourt of Tax /ppeals, as well as that of the /ssessment :oard of /ppeals of

Kue6on ity, are hereby reversed and set aside, and another one entered declarin0 that the lot, buildin0 andimprovements constitutin0 the 3t. atherine9s 8ospital are exempt from taxation under the provisions of the

onstitution, without special pronouncement as to costs. *t is so ordered.


32/36

7 G.R. No. L19665 Auu' 31, 1975

COMMISSION!R OF INT!RNAL R!%!NU!, petitioner,vs.

&ISOP OF T! MISSIONARY DISTRICT OF T! PILIPPIN! ISLANDS OF T! PROT!STANT!PISCOPAL CURC IN T! U.S.A. #n$ T! COURT OF TAX APP!ALS, respondents.

R!GALA, J.:

This is an appeal taken from the ommissioner of *nternal +evenue from a decision of the ourt of Tax /ppeals

orderin0 him to refund to the :ishop of the issionary ?istrict of the $hilippines *slands of the $rotestant Episcopal

in the B.3./. the sum of $'',4" which the latter had paid by way of compensatin0 tax.

+espondent :ishop of the issionary ?istrict of the $hilippines *slands of the $rotestant, Episcopal hurch in the

B.3./. is a corporation sole duly re0istered with the 3ecurities and Exchan0e ommission. 8e is in char0e of the

administration of the temporalities and the mana0ement of the estates and properties in the $hilippines of the

?omestic and Corei0n issionary 3ociety of the $rotestant Episcopal hurch in the Bnited 3tates (hereinafter

referred to as issionary 3ociety). On the other hand, the issionary ?istrict of the $hilippine *slands of the

$rotestant Episcopal hurch the B.3./. (hereinafter referred to as issionary ?istrict) is a duly incorporated and

established reli0ious society. *t owns and operates the 3t. Fuke9s 8ospital in Kue6on ity, the :rent 8ospital in

Lamboan0a ity and the 3t. 3tephen9s 8i0h 3chool in anila.

On different dates in '%", '% and '%, the issionary ?istrict in the $hilippines received from the issionary

3ociety in the Bnited 3tates various shipments of materials, supplies, e2uipment and other articles intended for use

in the construction and operation of the new 3t. Fuke9s 8ospital in Kue6on ity and the :rent 8ospital and 3t.

3tephen9s 8i0h 3chool. The issionary ?istrict also received from a certain Hilliam innis of anada a stove for

the use of the :rent 8ospital.


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On these shipments, the ommissioner of *nternal +evenue levied and collected the total amount of $'',4" as

compensatin0 tax.

The :ishop of the issionary ?istrict filed claims for refund of the amount he had paid on the 0round that under

+epublic /ct o. ''@, the materials and articles received by him were exempt from the payment of compensatin0

tax. /s the two-year period for recovery of tax was about to expire, the :ishop of the issionary ?istrict filed a

petition for review in the ourt of Tax /ppeals, without awaitin0 action on his claim for refund. 3ubse2uently, he

also filed two supplemental petitions for review coverin0 other shipments received by him and on which he had paid

compensatin0 taxes.

On /u0ust !', '%, the petitioner, the ommissioner of *nternal +evenue denied respondent9s claim for refund on

the 0round that 3t. Fuke9s 8ospital was not a charitable institution and, therefore, was not exempt under the law.

This is also the position he maintained in his answer to the first supplemental petition for review in the Tax ourt.

/fter trial, the Tax ourt rendered a decision holdin0 the shipments exempt from taxation orderin0 the petitioner to

refund to the respondent the amount of $'',4". *t denied a motion for reconsideration of its decision, promptin0

petitioner to interpose this appeal.

$etitioner makes the followin0 assi0nment of errorsA

'. The shipments cannot be considered donations because the issionary ?istrict is merely a branch of the

issionary 3ociety. The two hold identical interests.

!. The Tax ourt9s holdin0 that the real donors are the people who contributed money to the issionary 3ociety in

/merica is based on the uncorroborated testimony of +obert eyer, Treasurer of the issionary ?istrict in the

$hilippines, who did not have personal knowled0e of the alle0ed contribution. The alle0ed contributors were not

even identified.

#. The 3t. Fuke9s 8ospital is not a charitable institution and, therefore, is not exempt from taxation because itsadmits pay patients. The 3ecretary of Cinance states in his ?ept. Order o. ' that hospitals admittin0 pay patients

and charity patients are not charitable institutions.

This order was issued pursuant to the power 0iven him by the last proviso of +epublic /ct o. ''@ which providesA

3ET*O '. The provisions of existin0 laws to the contrary notwithstandin0, all donations in any form and

all articles imported into the $hilippines, consi0ned to a duly incorporated or established international civic

or0ani6ation, reli0ious or charitable society or institution for civic, reli0ious or charitable purposes shall be

exempt from the payment of all taxes and duties upon proof satisfactory to the ommissioner of ustoms

and;or ollector of *nternal +evenue that such donations in any form and articles so imported are donations

for its use or for free distribution and not for barter, sale or hireA Provided !o+ever , That in case such are

subse2uently conveyed or transferred to other parties for a consideration, taxes and duties shall be collected

thereon at double the rate provided under existin0 laws payable by the transferorA Provided furt!er , That

rules and re0ulation, shall be promul0ated by the ?epartment of Cinance for the implementation of this /ct.

This ourt has already held that the followin0 re2uisites must concur in order that a taxpayer may claim exemption

under the law (') the imported articles must have been donated1 (!) the donee must be a duly incorporated or

established international civic or0ani6ation, reli0ious or charitable society, or institution for civic reli0ious or

charitable purposes1 and (#) the articles so imported must have been donated for the use of the or0ani6ation, society


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or institution or for free distribution and not for barter, sale or hire. (ommissioner v. hurch of &esus hrist >ew

&erusalem,> .+. o. F-'%""!, Oct. #', '@')

*n this appeal, the petitioner contends that the importations in 2uestion cannot be considered >donations> because the

issionary 3ociety, which made the shipments, and the issionary ?istrict in the $hilippines are not different

persons but rather are one and the same, the latter bein0 a mere branch of the former.

*t should be enou0h to point out that by stipulation of the parties, the respondent :ishop is admitted to be a corporation sole duly re0istered with

the 3ecurities and Exchan0e ommission and that the issionary ?istrict is a >duly incorporated and established reli0ious society.> They are,

therefore, entities separate and distinct from the issionary 3ociety whose address is at !' Courth 3outh, ew Gork '


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to 3epublic actually, directly and exclusively> as sources of support

of the parish priest and his helpers and also of private respondent :ishop. 18 *n the motion to dismiss filed on behalf

of petitioner $rovince of /bra, the ob5ection was based primarily on the lack of 5urisdiction, as the validity of a tax

assessment may be 2uestioned before the Focal :oard of /ssessment /ppeals and not with a court. There was also

mention of a lack of a cause of action, but only because, in its view, declaratory relief is not proper, as there had

been breach or violation of the ri0ht of 0overnment to assess and collect taxes on such property. *t clearly appears,

therefore, that in failin0 to accord a hearin0 to petitioner $rovince of /bra and decidin0 the case immediately in

favor of private respondent, respondent &ud0e failed to abide by the constitutional command of procedural due

process.

H8E+ECO+E, the petition is 0ranted and the resolution of &une ', '" is set aside. +espondent &ud0e, or whoever is actin0 on his behalf, is ordered to hear the case on the merit. o costs.

Cases in Taxation 1 - Constitutional Limitations (Unifomity of Tax to Tax Exemptions of Properties...

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Transcript of Cases in Taxation 1 - Constitutional Limitations (Unifomity of Tax to Tax Exemptions of Properties...