TAXATION 1

6/25/2013
June 16, 1965

CASES- 2

1. LLADOC V. CIR, G.R. No. L-19201

SUPREME COURT EN BANC REV. FR. CASIMIRO LLADOC, petitioner vs. The COMMISSIONER OF INTERNAL REVENUE and The COURT of TAX APPEALS, respondents. PAREDES, J.:

Sometime in 1957, the M.B. Estate, Inc., of Bacolod City, donated P10,000.00 in cash to Rev. Fr. Crispin Ruiz, then parish priest of Victorias, Negros Occidental, and predecessor of herein petitioner, for the construction of a new Catholic Church in the locality. The total amount was actually spent for the purpose intended. On March 3, 1958, the donor M.B. Estate, Inc., filed the donor's gift tax return. Under date of April 29, 1960, the respondent Commissioner of Internal Revenue issued an assessment for donee's gift tax against the Catholic Parish of Victorias, Negros Occidental, of which petitioner was the priest. The tax amounted to P1,370.00 including surcharges, interests of 1% monthly from May 15, 1958 to June 15, 1960, and the compromise for the late filing of the return. Petitioner lodged a protest to the assessment and requested the withdrawal thereof. The protest and the motion for reconsideration presented to the Commissioner of Internal Revenue were denied. The petitioner appealed to the Court of Tax Appeals on November 2, 1960. In the petition for review, the Rev. Fr. Casimiro Lladoc claimed, among others, that at the time of the donation, he was not the parish priest in Victorias; that there is no legal entity or juridical person known as the "Catholic Parish Priest of Victorias," and, therefore, he should not be liable for the donee's gift tax. It was also asserted that the assessment of the gift tax, even against the Roman Catholic Church, would not be valid, for such would be a clear violation of the provisions of the Constitution. After hearing, the CTA rendered judgment, the pertinent portions of which are quoted below: ... . Parish priests of the Roman Catholic Church under canon laws are similarly situated as its Archbishops and Bishops with respect to the properties of the church within their parish. They are the guardians, superintendents or administrators of these properties, with the right of succession and may sue and be sued. xxx xxx xxx The petitioner impugns the, fairness of the assessment with the argument that he should not be held liable for gift taxes on donation which he did not receive personally since he was not yet the parish priest of Victorias in the year 1957 when said donation was given. It is intimated that if someone has to pay at all, it should be petitioner's predecessor, the Rev. Fr. Crispin Ruiz, who received the donation in behalf of the Catholic parish of Victorias or the Roman Catholic Church. Following petitioner's line of thinking, we should be equally unfair to hold that the assessment now in question should have been addressed to, and collected from, the Rev. Fr. Crispin Ruiz to be paid from income derived from his present parish where ever it may be. It does not seem right to indirectly burden the present parishioners of Rev. Fr. Ruiz for donee's gift tax on a donation to which they were not benefited. xxx xxx xxx

We saw no legal basis then as we see none now, to include within the Constitutional exemption, taxes which partake of the nature of an excise upon the use made of the properties or upon the exercise of the privilege of receiving the properties. (Phipps vs. Commissioner of Internal Revenue, 91 F [2d] 627; 1938, 302 U.S. 742.) It is a cardinal rule in taxation that exemptions from payment thereof are highly disfavored by law, and the party claiming exemption must justify his claim by a clear, positive, or express grant of such privilege by law. (Collector vs. Manila Jockey Club, G.R. No. L-8755, March 23, 1956; 53 O.G. 3762.) The phrase "exempt from taxation" as employed in Section 22(3), Article VI of the Constitution of the Philippines, should not be interpreted to mean exemption from all kinds of taxes. Statutes exempting charitable and religious property from taxation should be construed fairly though strictly and in such manner as to give effect to the main intent of the lawmakers. (Roman Catholic Church vs. Hastrings 5 Phil. 701.) xxx xxx xxx WHEREFORE, in view of the foregoing considerations, the decision of the respondent Commissioner of Internal Revenue appealed from, is hereby affirmed except with regard to the imposition of the compromise penalty in the amount of P20.00 (Collector of Internal Revenue v. U.S.T., G.R. No. L-11274, Nov. 28, 1958); ..., and the petitioner, the Rev. Fr. Casimiro Lladoc is hereby ordered to pay to the respondent the amount of P900.00 as donee's gift tax, plus the surcharge of five per centum (5%) as ad valorem penalty under Section 119 (c) of the Tax Code, and one per centum (1%) monthly interest from May 15, 1958 to the date of actual payment. The surcharge of 25% provided in Section 120 for failure to file a return may not be imposed as the failure to file a return was not due to willful neglect.( ... ) No costs. The above judgment is now before us on appeal, petitioner assigning two (2) errors allegedly committed by the Tax Court, all of which converge on the singular issue of whether or not petitioner should be liable for the assessed donee's gift tax on the P10,000.00 donated for the construction of the Victorias Parish Church. Section 22 (3), Art. VI of the Constitution of the Philippines, exempts from taxation cemeteries, churches and parsonages or convents, appurtenant thereto, and all lands, buildings, and improvements used exclusively for religious purposes. The exemption is only from the payment of taxes assessed on such properties enumerated, as property taxes, as contra distinguished from excise taxes. In the present case, what the Collector assessed was a donee's gift tax; the assessment was not on the properties themselves. It did not rest upon general ownership; it was an excise upon the use made of the properties, upon the exercise of the privilege of receiving the properties (Phipps vs. Com. of Int. Rec. 91 F 2d 627). Manifestly, gift tax is not within the exempting provisions of the section just mentioned. A gift tax is not a property tax, but an excise tax imposed on the transfer of property by way of giftinter vivos, the imposition of which on property used exclusively for religious purposes, does not constitute an impairment of the Constitution. As well observed by the learned respondent Court, the phrase "exempt from taxation," as employed in the Constitution ( supra) should not be interpreted to mean exemption from all kinds of taxes. And there being no clear, positive or express grant of such privilege by law, in favor of petitioner, the exemption herein must be denied. The next issue which readily presents itself, in view of petitioner's thesis, and Our finding that a tax

liability exists, is, who should be called upon to pay the gift tax? Petitioner postulates that he should not be liable, because at the time of the donation he was not the priest of Victorias. We note the merit of the above claim, and in order to put things in their proper light, this Court, in its Resolution of March 15, 1965, ordered the parties to show cause why the Head of the Diocese to which the parish of Victorias pertains, should not be substituted in lieu of petitioner Rev. Fr. Casimiro Lladoc it appearing that the Head of such Diocese is the real party in interest. The Solicitor General, in representation of the Commissioner of Internal Revenue, interposed no objection to such a substitution. Counsel for the petitioner did not also offer objection thereto. On April 30, 1965, in a resolution, We ordered the Head of the Diocese to present whatever legal issues and/or defenses he might wish to raise, to which resolution counsel for petitioner, who also appeared as counsel for the Head of the Diocese, the Roman Catholic Bishop of Bacolod, manifested that it was submitting itself to the jurisdiction and orders of this Court and that it was presenting, by reference, the brief of petitioner Rev. Fr. Casimiro Lladoc as its own and for all purposes. In view here of and considering that as heretofore stated, the assessment at bar had been properly made and the imposition of the tax is not a violation of the constitutional provision exempting churches, parsonages or convents, etc. (Art VI, sec. 22 [3], Constitution), the Head of the Diocese, to which the parish Victorias Pertains, is liable for the payment thereof. The decision appealed from should be, as it is hereby affirmed insofar as tax liability is concerned; it is modified, in the sense that petitioner herein is not personally liable for the said gift tax, and that the Head of the Diocese, herein substitute petitioner, should pay, as he is presently ordered to pay, the said gift tax, without special, pronouncement as to costs. Bengzon, C.J., Bautista Angelo, Concepcion, Reyes, J.B.L., Dizon, Regala, Makalintal, Bengzon, J.P., and Zaldivar, JJ., concur. Barrera, J., took no part. 2. ABRA VALLEY COLLEGES INC V. AQUINO G.R. No. L-39086 June 15, 1988
SUPREME COURT SECOND DIVISION ABRA VALLEY COLLEGE, INC., represented by PEDRO V. BORGONIA,petitioner vs. HON. JUAN P. AQUINO, Judge, Court of First Instance, Abra; ARMIN M. CARIAGA, Provincial Treasurer, Abra; GASPAR V. BOSQUE, Municipal Treasurer, Bangued, Abra; HEIRS OF PATERNO MILLARE,respondents. PARAS, J.:

the amount of P5,140.31 and back taxes and penalties from the promulgation of this decision; That the amount deposited by the plaintaff him the sum of P60,000.00 before the trial, be confiscated to apply for the payment of the back taxes and for the redemption of the property in question, if the amount is less than P6,000.00, the remainder must be returned to the Director of Pedro Borgonia, who represents the plaintiff herein; That the deposit of the Municipal Treasurer in the amount of P6,000.00 also before the trial must be returned to said Municipal Treasurer of Bangued, Abra; And finally the case is hereby ordered dismissed with costs against the plaintiff. SO ORDERED. (Rollo, pp. 22-23)

This is a petition for review on certiorari of the decision * of the defunct Court of First Instance of Abra, Branch I, dated June 14, 1974, rendered in Civil Case No. 656, entitled "Abra Valley Junior College, Inc., represented by Pedro V. Borgonia, plaintiff vs. Armin M. Cariaga as Provincial Treasurer of Abra, Gaspar V. Bosque as Municipal Treasurer of Bangued, Abra and Paterno Millare, defendants," the decretal portion of which reads:
IN VIEW OF ALL THE FOREGOING, the Court hereby declares: That the distraint seizure and sale by the Municipal Treasurer of Bangued, Abra, the Provincial Treasurer of said province against the lot and building of the Abra Valley Junior College, Inc., represented by Director Pedro Borgonia located at Bangued, Abra, is valid; That since the school is not exempt from paying taxes, it should therefore pay all back taxes in

Petitioner, an educational corporation and institution of higher learning duly incorporated with the Securities and Exchange Commission in 1948, filed a complaint (Annex "1" of Answer by the respondents Heirs of Paterno Millare; Rollo, pp. 95-97) on July 10, 1972 in the court a quo to annul and declare void the "Notice of Seizure' and the "Notice of Sale" of its lot and building located at Bangued, Abra, for non-payment of real estate taxes and penalties amounting to P5,140.31. Said "Notice of Seizure" of the college lot and building covered by Original Certificate of Title No. Q-83 duly registered in the name of petitioner, plaintiff below, on July 6, 1972, by respondents Municipal Treasurer and Provincial Treasurer, defendants below, was issued for the satisfaction of the said taxes thereon. The "Notice of Sale" was caused to be served upon the petitioner by the respondent treasurers on July 8, 1972 for the sale at public auction of said college lot and building, which sale was held on the same date. Dr. Paterno Millare, then Municipal Mayor of Bangued, Abra, offered the highest bid of P6,000.00 which was duly accepted. The certificate of sale was correspondingly issued to him. On August 10, 1972, the respondent Paterno Millare (now deceased) filed through counstel a motion to dismiss the complaint. On August 23, 1972, the respondent Provincial Treasurer and Municipal Treasurer, through then Provincial Fiscal Loreto C. Roldan, filed their answer (Annex "2" of Answer by the respondents Heirs of Patemo Millare; Rollo, pp. 98-100) to the complaint. This was followed by an amended answer (Annex "3," ibid, Rollo, pp. 101-103) on August 31, 1972. On September 1, 1972 the respondent Paterno Millare filed his answer. On October 12, 1972, with the aforesaid sale of the school premises at public auction, the respondent Judge, Hon. Juan P. Aquino of the Court of First Instance of Abra, Branch I, ordered (Annex "6," ibid; Rollo, pp. 109-110) the respondents provincial and municipal treasurers to deliver to the Clerk of Court the proceeds of the auction sale. Hence, on December 14, 1972, petitioner, through Director Borgonia, deposited with the trial court the sum of P6,000.00 evidenced by PNB Check No. 904369. On April 12, 1973, the parties entered into a stipulation of facts adopted and embodied by the trial court in its questioned decision. Said Stipulations reads:
STIPULATION OF FACTS COME NOW the parties, assisted by counsels, and to this Honorable Court respectfully enter into the following agreed stipulation of facts: 1. That the personal circumstances of the parties as stated in paragraph 1 of the complaint is admitted; but the particular person of Mr. Armin M. Cariaga is to be substituted, however, by anyone who is actually holding the position of Provincial Treasurer of the Province of Abra; 2. That the plaintiff Abra Valley Junior College, Inc. is the owner of the lot and buildings

thereon located in Bangued, Abra under Original Certificate of Title No. 0-83; 3. That the defendant Gaspar V. Bosque, as Municipal treasurer of Bangued, Abra caused to be served upon the Abra Valley Junior College, Inc. a Notice of Seizure on the property of said school under Original Certificate of Title No. 0-83 for the satisfaction of real property taxes thereon, amounting to P5,140.31; the Notice of Seizure being the one attached to the complaint as Exhibit A; 4. That on June 8, 1972 the above properties of the Abra Valley Junior College, Inc. was sold at public auction for the satisfaction of the unpaid real property taxes thereon and the same was sold to defendant Paterno Millare who offered the highest bid of P6,000.00 and a Certificate of Sale in his favor was issued by the defendant Municipal Treasurer. 5. That all other matters not particularly and specially covered by this stipulation of facts will be the subject of evidence by the parties. WHEREFORE, it is respectfully prayed of the Honorable Court to consider and admit this stipulation of facts on the point agreed upon by the parties. Bangued, Abra, April 12, 1973.
Sgd. Agripino Brillantes Typ AGRIPINO BRILLANTES Attorney for Plaintiff Sgd. Loreto Roldan Typ LORETO ROLDAN Provincial Fiscal Counsel for Defendants Provincial Treasurer of Abra and the Municipal Treasurer of Bangued, Abra Sgd. Demetrio V. Pre Typ. DEMETRIO V. PRE Attorney for Defendant Paterno Millare (Rollo, pp. 17-18)

Aside from the Stipulation of Facts, the trial court among others, found the following: (a) that the school is recognized by the government and is offering Primary, High School and College Courses, and has a school population of more than one thousand students all in all; (b) that it is located right in the heart of the town of Bangued, a few meters from the plaza and about 120 meters from the Court of First Instance building; (c) that the elementary pupils are housed in a two-storey building across the street; (d) that the high school and college students are housed in the main building; (e) that the Director with his family is in the second floor of the main building; and (f) that the annual gross income of the school reaches more than one hundred thousand pesos. From all the foregoing, the only issue left for the Court to determine and as agreed by the parties, is whether or not the lot and building in question are used exclusively for educational purposes. (Rollo, p. 20) The succeeding Provincial Fiscal, Hon. Jose A. Solomon and his Assistant, Hon. Eustaquio Z. Montero, filed a Memorandum for the Government on March 25, 1974, and a Supplemental Memorandum on May 7, 1974, wherein they opined "that based on the evidence, the laws applicable, court decisions and jurisprudence, the school building and school lot used for educational purposes of the Abra Valley College, Inc., are exempted from the payment of taxes." (Annexes "B," "B-1" of Petition; Rollo, pp. 24-49; 44 and 49). Nonetheless, the trial court disagreed because of the use of the second floor by the Director of

petitioner school for residential purposes. He thus ruled for the government and rendered the assailed decision. After having been granted by the trial court ten (10) days from August 6, 1974 within which to perfect its appeal (Per Order dated August 6, 1974; Annex "G" of Petition; Rollo, p. 57) petitioner instead availed of the instant petition for review on certiorari with prayer for preliminary injunction before this Court, which petition was filed on August 17, 1974 (Rollo, p.2). In the resolution dated August 16, 1974, this Court resolved to give DUE COURSE to the petition (Rollo, p. 58). Respondents were required to answer said petition (Rollo, p. 74). Petitioner raised the following assignments of error: I. THE COURT A QUO ERRED IN SUSTAINING AS VALID THE SEIZURE AND SALE OF THE COLLEGE LOT AND BUILDING USED FOR EDUCATIONAL PURPOSES OF THE PETITIONER. II. THE COURT A QUO ERRED IN DECLARING THAT THE COLLEGE LOT AND BUILDING OF THE PETITIONER ARE NOT USED EXCLUSIVELY FOR EDUCATIONAL PURPOSES MERELY BECAUSE THE COLLEGE PRESIDENT RESIDES IN ONE ROOM OF THE COLLEGE BUILDING. III. THE COURT A QUO ERRED IN DECLARING THAT THE COLLEGE LOT AND BUILDING OF THE PETITIONER ARE NOT EXEMPT FROM PROPERTY TAXES AND IN ORDERING PETITIONER TO PAY P5,140.31 AS REALTY TAXES. IV. THE COURT A QUO ERRED IN ORDERING THE CONFISCATION OF THE P6,000.00 DEPOSIT MADE IN THE COURT BY PETITIONER AS PAYMENT OF THE P5,140.31 REALTY TAXES. (See Brief for the Petitioner, pp. 1-2) The main issue in this case is the proper interpretation of the phrase "used exclusively for educational purposes." Petitioner contends that the primary use of the lot and building for educational purposes, and not the incidental use thereof, determines and exemption from property taxes under Section 22 (3), Article VI of the 1935 Constitution. Hence, the seizure and sale of subject college lot and building, which are contrary thereto as well as to the provision of Commonwealth Act No. 470, otherwise known as the Assessment Law, are without legal basis and therefore void. On the other hand, private respondents maintain that the college lot and building in question which were subjected to seizure and sale to answer for the unpaid tax are used: (1) for the educational purposes of the college; (2) as the permanent residence of the President and Director thereof, Mr. Pedro V. Borgonia, and his family including the in-laws and grandchildren; and (3) for commercial purposes because the ground floor of the college building is being used and rented by a commercial establishment, the Northern Marketing Corporation (See photograph attached as Annex "8" (Comment; Rollo, p. 90]). Due to its time frame, the constitutional provision which finds application in the case at bar is Section 22, paragraph 3, Article VI, of the then 1935 Philippine Constitution, which expressly grants exemption from realty taxes for "Cemeteries, churches and parsonages or convents appurtenant thereto, and all lands, buildings, and improvements used exclusively for religious, charitable or educational purposes ...

Relative thereto, Section 54, paragraph c, Commonwealth Act No. 470 as amended by Republic Act No. 409, otherwise known as the Assessment Law, provides: The following are exempted from real property tax under the Assessment Law: (c) churches and parsonages or convents appurtenant thereto, and all lands, buildings, and improvements used exclusively for religious, charitable, scientific or educational purposes. In this regard petitioner argues that the primary use of the school lot and building is the basic and controlling guide, norm and standard to determine tax exemption, and not the mere incidental use thereof. As early as 1916 in YMCA of Manila vs. Collector of lnternal Revenue, 33 Phil. 217 [1916], this Court ruled that while it may be true that the YMCA keeps a lodging and a boarding house and maintains a restaurant for its members, still these do not constitute business in the ordinary acceptance of the word, but an institution used exclusively for religious, charitable and educational purposes, and as such, it is entitled to be exempted from taxation. In the case of Bishop of Nueva Segovia v. Provincial Board of Ilocos Norte , 51 Phil. 352 [1972], this Court included in the exemption a vegetable garden in an adjacent lot and another lot formerly used as a cemetery. It was clarified that the term "used exclusively" considers incidental use also. Thus, the exemption from payment of land tax in favor of the convent includes, not only the land actually occupied by the building but also the adjacent garden devoted to the incidental use of the parish priest. The lot which is not used for commercial purposes but serves solely as a sort of lodging place, also qualifies for exemption because this constitutes incidental use in religious functions. The phrase "exclusively used for educational purposes" was further clarified by this Court in the cases of Herrera vs. Quezon City Board of assessment Appeals , 3 SCRA 186 [1961] and Commissioner of Internal Revenue vs. Bishop of the Missionary District, 14 SCRA 991 [1965], thus Moreover, the exemption in favor of property used exclusively for charitable or educational purposes is 'not limited to property actually indispensable' therefor (Cooley on Taxation, Vol. 2, p. 1430), but extends to facilities which are incidental to and reasonably necessary for the accomplishment of said purposes, such as in the case of hospitals, "a school for training nurses, a nurses' home, property use to provide housing facilities for interns, resident doctors, superintendents, and other members of the hospital staff, and recreational facilities for student nurses, interns, and residents' (84 CJS 6621), such as "Athletic fields" including "a firm used for the inmates of the institution. (Cooley on Taxation, Vol. 2, p. 1430). The test of exemption from taxation is the use of the property for purposes mentioned in the Constitution (Apostolic Prefect v. City Treasurer of Baguio, 71 Phil, 547 [1941]). It must be stressed however, that while this Court allows a more liberal and non-restrictive interpretation of the phrase "exclusively used for educational purposes" as provided for in Article VI, Section 22, paragraph 3 of the 1935 Philippine Constitution, 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 building or lot for commercial purposes is neither contemplated by law, nor by jurisprudence. Thus, while the use of the second floor of the main building in the case at bar for residential purposes of the Director and his

family, may find justification under the concept of incidental use, which is complimentary to the main or primary purposeeducational, the lease of the first floor thereof to the Northern Marketing Corporation cannot by any stretch of the imagination be considered incidental to the purpose of education. It will be noted however that the aforementioned lease appears to have been raised for the first time in this Court. That the matter was not taken up in the to court is really apparent in the decision of respondent Judge. No mention thereof was made in the stipulation of facts, not even in the description of the school building by the trial judge, 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 (Rollo, pp. 17-23). On the other hand, it is noteworthy that such fact was not disputed even after it was raised in this Court. Indeed, it is axiomatic that facts not raised in the lower court cannot be taken up for the first time on appeal. Nonetheless, as an exception to the rule, this Court has held that although a factual issue is not squarely raised below, still in the interest of substantial justice, this Court is not prevented from considering a pivotal factual matter. "The Supreme Court is clothed with ample authority to review palpable errors not assigned as such if it finds that their consideration is necessary in arriving at a just decision." (Perez vs. Court of Appeals, 127 SCRA 645 [1984]). Under the 1935 Constitution, the trial court correctly arrived at the conclusion that the school building as well as the lot where it is built, should be taxed, not because the second floor of the same is being used by the Director and his family for residential purposes, but because the first floor thereof is being used for commercial purposes. However, 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. PREMISES CONSIDERED, the decision of the Court of First Instance of Abra, Branch I, is hereby AFFIRMED subject to the modification that half of the assessed tax be returned to the petitioner. SO ORDERED. Yap, C.J., Melencio-Herrera, Padilla and Sarmiento, JJ., concur. 3. HOSPITAL DE SAN JUAN DE DIOS V. CITY OF PASAY, G.R. No. L-19371 Feb. 28, 1966
SUPREME COURT EN BANC HOSPITAL DE SAN JUAN DE DIOS, INC., plaintiff-appellant, vs. PASAY CITY, PABLO CUNETA, R. N. ASCAO and G. C. FUENTES, defendants-appellees. DIZON, J.:

Appeal taken by the Hospital de San Juan de Dios, Inc. from the decision of the Court of First Instance of Rizal in Civil Case No. 1775-P dismissing its complaint against the City of Pasay - hereinafter referred to as the City - Pablo Cuneta, R. N. Ascano and Ceferino Fuentes, in their capacities as Mayor, City Engineer and City Treasurer, respectively, of said city. It is admitted that on July 24, 1954 and May 27, 1957, appellant paid, under protest, to the City the amounts of P829.60 and P879.90, respectively, representing electrical inspection fees allegedly due it from appellant under Section 5, Ordinance No. 7, series of 1945, as amended by Ordinance No. 22, series of 1947 and further amended by Ordinance No. 54, series of 1955, which reads as follows: That the City Electrician shall inspect all electric wires, poles, and other apparatus whether electric crude oil, charcoal or gasoline installed or used for generating, containing, conducting

or measuring electricity or telephone service, issue to the owner or user thereof a statement of the result of such inspection. . . . However, residential houses with outlets not exceeding eight (8) in number shall be exempted from the payment of the corresponding inspection fees. For the purpose of this ordinance, any accessoria, irrespective of the number of doors or rooms it contains, is considered one building. Churches and such other religious institutions and buildings housing charitable organizations, are likewise subject to annual inspection but exempted from the payment of inspection fees. Although appellant claimed that, as a charitable institution, it was exempt from the payment of the inspection fees provided for in the above-quoted section, it found itself compelled to pay the amounts mentioned heretofore by reason of the refusal of appellees Pablo Cuneta, as Mayor, and R. N. Ascao, as City Engineer, to issue a building permit to make additional constructions applied for by appellant until after the full payment of the electrical inspection fees assessed against it by appellee Ascao. As a result, appellant commenced the present action in the Court of First Instance of Rizal (Civil Case No. 1775-P) to recover from appellees the above-mentioned amounts it had paid as electrical inspection fees as well as the sum of P500.00 as attorney's fees and the costs of suit. After due trial the court rendered the appealed judgment. The issue determinative of the present appeal is whether or not appellant is a charitable institution and, as such exempt, under the provisions of the last sentence of Section 5 of the ordinance in question, from the payment of the inspection fees provided for therein. The trial court, while admitting that appellant was organized for charitable purposes, held that it "is not actually being managed and operated as a charitable institution but one for profit" and, as such, "is not entitled to the relief sought in the present action." This, We believe, is not correct. It not being disputed that appellant was organized as a charitable institution, the presumption is that it is operating as such, the burden of proof being on appellees to show that it is operating otherwise. The record does not show that they have satisfactorily discharged this burden.1wph1.t But the lower court, disregarding the presumption mentioned above, claims that "plaintiff failed to prove that it is actually engaged in charitable work" and that "No evidence whatsoever was presented to show how it doles out charity, etc." This is also erroneous. Aside from the appellant's Articles of Incorporation showing that it had no capital stock and that no part of its net income, if any, could inure to the benefit of any private individual, there is Exhibit D, a ruling of June 20, 1957 of the Workmen's Compensation Commissioner and the Undersecretary of Labor to the effect that appellant is a charitable institution exempt from the scope of the Workmen's Compensation Act; a written statement of appellant's cashier that the latter maintains two free wards of sixty beds each; an admission by appellees to the effect that, in addition to the free wards just mentioned, appellant also maintains six free beds in the Pediatrics Section (transcript of June 16, 1960, pp. 2-4). It is not therefore correct to say that there is no evidence whatsoever showing how appellant doles out charity. Moreover, the question of whether or not appellant and other institutions similarly situated and operated are charitable institutions has been decided both here and in the United States. The American rule is summarized in 51 American Jurisprudence, p. 607, as follows: 636. Effect of Receipt of Pay from Patients.

The general rule that a charitable institution does not lose its charitable character and its consequent exemption from taxation merely because recipients of its benefits who are able to pay are required to do so, where funds derived in this manner are devoted to the charitable purposes of the institution, applies to hospitals. A hospital owned and conducted by a charitable organization, devoted for the most part to the gratuitous care of charity patients, is exempt from taxation as a building used for "purposes purely charitable", notwithstanding it receives and cares for pay patients, where any profit thus derived is applied to the purposes of the institution. An institution established, maintained, and operated for the purpose of taking care of the sick, without any profit or view to profit, but at a loss, which is made up by benevolent contributions, the benefits of which are open to the public generally, is a purely public charity within the meaning of a statute exempting the property of institutions of purely public charity from taxation; the fact that patients who are able to pay are charged for services rendered, according to their ability, being of no importance upon the question of the character of the institution. On the other hand, in Jesus Sacred Heart College vs. Collector, etc., G.R. No. L-6807, May 20, 1954, We overruled the contention of the Collector of Internal Revenue to the effect that the fact that the appellant herein had a profit or net income was sufficient to show that it was an institution "for profit and gain" and therefore no longer exempt from income tax as follows: To hold that an educational institution is subject to income tax wherever it is so administered as to reasonably assure that it will not incur a deficit, is to nullify and defeat the aforementioned exemption. Indeed, the effect, in general, of the interpretation advocated by appellant would be to deny the exemption whenever there is a net income, contrary to the tenor of said Section 27 (e) which positively exempts from taxation those corporations which, otherwise, would be subject thereto, because of the existence of said net income. Explaining our view that the making of profit does not destroy the tax exemption of a charitable, benevolent or educational institution, We said: Needless to say, every responsible organization must be so run as to at least, insure its existence, by operating within the limits of its own resources, especially its regular income. In other words, it should always strive, whenever possible, to have a surplus. Upon the other hand, appellant's pretense, would limit the benefits of the exemption, under said Section 27 (e), to institutions which do not hope, or propose, to have such surplus. Under this view, the exemption would apply only to schools which are on the verge of bankruptcy, forunlike the United States, where a substantial number of institutions of learning are dependent upon voluntary contributions and still enjoy economic stability, such as Harvard, the trust fund of which has been steadily increasing with the yearsthere are, and there have always been very few educational enterprises in the Philippines which are supported by donations, and those organizations usually have a very precarious existence. The final result of appellant's contention, if adopted, would be to discourage the establishment of colleges in the Philippines, which is precisely the opposite of the objective consistently sought by our laws. In U.S.T. Hospital Employees Association vs. Sto. Tomas University Hospital , G.R. No. L-6988 (May 24, 1952), it was argued that the fact that the aforesaid hospital charged fees for 140 paying beds made it lose its character of a charitable institution. We likewise rejected this view because the paying beds aforesaid were maintained to partly finance the expenses of the free wards maintained by the hospital.

We express the same view in Collector of Internal Revenue vs. St. Paul's Hospital in Iloilo , G.R. No. L-12127 (May 25, 1959) where We said the following: In this connection, it should be noted that respondent therein is a corporation organized for "charitable, educational and religious purposes"; that no part of its net income inures to the benefit of any private individual; that it is exempt from paying income tax; that it operates a hospital in which MEDICAL assistance is given to destitute persons free of charge; that it maintains a pharmacy department within the premises of said hospital, to supply drugs and medicines only to charity and paying patients confined therein; and that only the paying patients are required to pay the medicines supplied to them, for which they are charged the cost of the medicines, plus an additional 10% thereof, to partly offset the cost of medicines supplied free of charge to charity patients. Under these facts, we are of the opinion, and so hold, that the Hospital may not be regarded as engaged in "business" by reason of said sale of medicines to its paying patients. In line with the foregoing, in U.S.T. Hospital Employees Association vs. Santo Tomas University Hospital (G.R. No. L-6988, decided May 24, 1954), we held that the U.S.T. Hospital was not established for profit-making purposes, despite the fact that it had 140 paying beds, because the same were maintained only to "partly finance the expenses of the free wards", containing 203 beds for charity patients. Although said case involved the interpretation of Republic Act No. 772, it is patent from our decision therein that said institution was not considered engaged in "business." It is trite to say that a tax on the limited revenue of charitable institutions of this kind tends to hamper its operation, and accordingly, to discourage the establishment and maintenance thereof. In the absence of a clear legal provision thereon, we must not so construe our laws as to lead to such result. In other words, the second, third and fourth assignments of error are untenable. In San Juan de Dios Hospital (the same party appellant herein) vs. Metropolitan Water District , 54 Phil. 174, this Court considered said hospital as a charitable institution in spite of the fact that it maintained paying beds. From the decision in said case, We quote the following: A hospital (referring to the San Juan de Dios Hospital) is generally considered to be a charitable institution. It is good public policy to encourage works of charity. What Carriedo did in his will was to make a beneficient grant not to a hospital thought of as a building, but to a hospital thought of as an institution. The free water was for the good of the hospital in this large sense. Should the hospital be enlarged or rebuilt, the water concession would continue just the same. But a hospital cannot function without personnel. And such personnel must have a place to live, which is the reason why a home devoted exclusively to the needs of the nurses was founded. Free water for a nurses home as an adjunct to a hospital is as beneficial to the charitable purposes of the hospital as is free water for the hospital proper. Finally, in Manila Sanitarium and Hospital vs. Gabuco , G.R. No. L-14331, January 31, 1963, We held that the mere charging of medical and hospital fees from those who could afford to pay, did not make the institution one established for profit or gain. Upon all the foregoing, the appealed decision is reversed, and another is hereby rendered ordering appellees to pay appellant the amount of P1,709.50, with interest at the legal rate from the date of the filing of complaint in this case. With costs.

Bengzon, C.J., Bautista Angelo, Concepcion, Reyes, J.B.L. Regala, Makalintal, Bengzon, J.P., Zaldivar and Sanchez, JJ., concur. Barrera, J., took no part.