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COMMISSIONER OF INTERNAL REVENUE from paying income tax under Section 30(E)

vs. ST. LUKE’S MEDICAL CENTER, INC. and (G) of the same Code.
G.R. No. 203514 February 13, 2017 DEL
CASTILLO, J.: CIR moved for reconsideration but the CTA
Division denied the same. This prompted CIR
Under Section 30 (E) and (G) of the 1997 NIRC, to file a Petition for Review before the CTA En
a charitable institution will be exempted from Banc.
tax if it has the following qualifications: a non-
stock corporation or association; organized Ruling of the Court of Tax Appeals En Banc
exclusively for charitable purposes; operated On May 9, 2012, the CTA En Banc affirmed the
exclusively for charitable purposes; and no part cancellation and setting aside of the Audit
of its net income or asset shall belong to or inure Results/Assessment Notices issued against
to the benefit of any member, organizer, officer, SLMC. It sustained the findings of the CTA
or any specific person. Division that SLMC complies with all the
requisites under Section 30(E) and (G) of the
FACTS: 1997 NIRC and thus, entitled to the tax
On December 2007 St. Luke’s Medical exemption provided therein. The CTA En Banc
Center, Inc. (SLMC) received from the Large denied CIR's Motion for Reconsideration.
Taxpayers Service-Documents Processing and
Quality Assurance Division of the (BIR) Audit ISSUE: Whether or not SLMC is exempted from
Results/Assessment Notice Nos. QA-07- the payment of income tax.
000096 and QA-07-000097, assessing SLMC
deficiency income tax under Section 27(B)7 of NOTE: During the pendency of this case in
the 1997 National Internal Revenue Code 2012, SC rendered a decision between the
(NIRC), as amended, for taxable year 2005 in same parties and involving the same issue –
the amount of ₱78,617,434.54 and for taxable whether or not SLMC is entitled to tax
year 2006 in the amount of ₱57,119,867.33. exemption under Section 30 (E) and (G) of the
1997 NIRC. It ruled that SLMC is not entitled
SLMC then filed with petitioner (CIR) an to tax exemption under Section 30 (E) and (G)
administrative protest assailing the of the 1997 NIRC because it does not operate
assessments. They claimed that as a non-stock, exclusively for charitable or social purposes
non-profit charitable and social welfare insofar as its revenues from paying patients
organization under Section 30(E) and (G) of are concerns. SLMC was ordered to pay the
the 1997 NIRC, as amended, it is exempt from deficiency taxes in 1998 based on the 10
paying income tax. percent preferential income tax under Section
27 (B) of the 1997 NIRC. In April 2013, SLMC
On April 25, 2008, SLMC received petitioner paid the amount of basic taxes due for taxable
CIR's Final Decision on the Disputed years 1998, 2000-2002, and 2004-2007. It
Assessment dated April 9, 2008 increasing the informed the Court of such payments through
deficiency income for the taxable year 2005 a Manifestation and Motion and thereafter
tax to ₱82,419,522.21 and for the taxable year moved for the dismissal of the instant case on
2006 to ₱60,259,885.94. Aggrieved, SLMC the ground of mootness. The CIR, however,
elevated the matter to the CTA via a Petition opposed the motion claiming that the payment
for Review. confirmation submitted by the SLMC is not a
competent proof of payment.
Ruling of the Court of Tax Appeals Division
On August 26, 2010, the CTA Division RULING:
rendered a Decision finding SLMC not liable for
deficiency income tax under Section 27(B) of The Supreme Court ruled that SLMC is not
the 1997 NIRC, as amended, since it is exempt entitled to tax exemption under Section 30 (E)
and (G) of the 1997 NIRC and applied the not revoke or remove a charitable institution’s
doctrine of stare decisis - "absent any powerful tax exemption under the same provision. It
countervailing considerations, like cases merely subjects the earnings for profit by the
ought to be decided alike." charitable institution to 10 percent income tax
pursuant to section 27(B) of the 1997 NIRC.
Under Section 30 (E) and (G) of the 1997 NIRC, SLMC is liable for the deficiency income taxes.
a charitable institution will be exempted from
tax if it has the following qualifications: a non- With regard to whether or not SLMC is liable
stock corporation or association; organized for surcharges, interest, and compromise
exclusively for charitable purposes; operated penalty, the Court ruled that: ‘good faith and
exclusively for charitable purposes; and no honest belief, that one is not subject to tax on
part of its net income or asset shall belong to the basis of previous interpretation of
or inure to the benefit of any member, government agencies tasked to implement the
organizer, officer, or any specific person. tax law, are sufficient justification to delete
[such] imposition(s).’
Although there is no question that SLMC is
organized as a non-stock, non-profit charitable The Court dismissed the petition by CIR since
institution, it is not automatically exempted the case was rendered moot by the payments
from paying taxes. To be exempted from made by SLMC of the basic taxes for the
paying real property taxes, Section 28 (3) of taxable years 2005 and 2006, in the amounts
the 1987 Constitution requires that a of P49,919,496.40 and P41,525,608.40,
charitable institution use the property respectively.
‘actually, directly and exclusively for
charitable purposes.’ To be exempted from
income taxes, Section 30 (E) of the 1997 NIRC G.R. No. 196596, November 09, 2016
requires that a charitable institution must be COMMISSIONER OF INTERNAL REVENUE,
‘organized and operated exclusively’ for Petitioner, v. DE LA SALLE UNIVERSITY, INC.,
charitable purposes. Likewise to qualify as Respondent.
exempted in income tax, Section 30 (G) of the
1997 NIRC requires that the institution be G.R. No. 198841
‘operated exclusively’ for social welfare. DE LA SALLE UNIVERSITY INC., Petitioner, v.
The Court defined ‘exclusive’ as ‘possessed REVENUE,Respondent.
and enjoyed to the exclusion of others;
debarred from participation or enjoyment. G.R. No. 198941
Given that SLMC has an income of P1.73 COMMISSIONER OF INTERNAL REVENUE,
billion, it cannot be disputed that it is not an Petitioner, v. DE LA SALLE UNIVERSITY, INC.,
institution ’operated exclusively’ for Respondent.
charitable purposes.
The Court found that SLMC is a corporation SECOND DIVISION
that is not ‘operated exclusively’ for charitable BRION, J.:
purposes or social welfare purposes insofar as Factual Antecedents
its revenues from paying clients are
concerned. On the clear and plain text of Sometime in 2004, the Bureau of Internal
Section 30 (E) and (G) of the 1997 NIRC, an Revenue (BIR) issued to DLSU Letter of
institution must be ‘operated exclusively’ for Authority (LOA) No. 2794 authorizing its
charitable and social welfare purposes to be revenue officers to examine the latter's books
completely exempt from tax. However, of accounts and other accounting records for
earning income from for-profit activities does
all internal revenue taxes for the period Fiscal In addition, [DLSU] is hereby held liable to
Year Ending 2003 and Unverified Prior Years.5 pay 20% delinquency interest on the total
amount due computed from September 30,
On May 19, 2004, BIR issued a Preliminary 2004 until full payment thereof pursuant to
Assessment Notice to DLSU.6 Section 249(C)(3) of the [National Internal
Revenue Code]. Further, the compromise
Subsequently on August 18, 2004, the BIR penalties imposed by [the Commissioner]
through a Formal Letter of Demand assessed were excluded, there. being no compromise
DLSU the following deficiency taxes: (1) agreement between the parties.
income tax on rental earnings from
restaurants/canteens and bookstores
operating within the campus; (2) value-added Both the Commissioner and DLSU moved for
tax (VAT) on business income; and (3) the reconsideration of the January 5, 2010
documentary stamp tax (DST) on loans and decision.10 On April 6, 2010, the CTA Division
lease contracts. The BIR demanded the denied the Commissioner's motion for
payment of P17,303,001.12, inclusive of reconsideration while it held in abeyance the
surcharge, interest and penalty for taxable resolution on DLSU's motion for
years 2001, 2002 and 2003.7 reconsideration.11
DLSU protested the assessment. The On May 13, 2010, the Commissioner appealed
Commissioner failed to act on the protest; to the CTA En Banc (CTA En Banc Case No.
thus, DLSU filed on August 3, 2005 a petition 622) arguing that DLSU's use of its revenues
for review with the CTA Division.8 and assets for non-educational or commercial
purposes removed these items from the
DLSU, a non-stock, non-profit educational exemption coverage under the Constitution.12
institution, principally anchored its petition
on Article XIV, Section 4 (3) of the On May 18, 2010, DLSU formally offered to
Constitution, which reads: the CTA Division supplemental pieces of
documentary evidence to prove that its rental
(3) All revenues and assets of non-stock, income was used actually, directly and
non-profit educational institutions exclusively for educational purposes.13The
used actually, directly, and exclusively Commissioner did not promptly object to the
for educational purposes shall be formal offer of supplemental evidence despite
exempt from taxes and duties. xxx. notice.14
On January 5, 2010, the CTA Division partially
granted DLSU's petition for review. The On July 29, 2010, the CTA Division, in view of
dispositive portion of the decision reads: the supplemental evidence submitted,
reduced the amount of DLSU's tax
deficiencies. The dispositive portion of the
WHEREFORE, the Petition for Review is amended decision reads:
on the loan transactions of [DLSU] in the WHEREFORE, [DLSU]'s Motion for Partial
amount of P1,1681,774.00 is hereby Reconsideration is hereby PARTIALLY
TO PAY deficiency income tax, VAT and DST PAY for deficiency income tax, VAT and DST
on its lease contracts, plus 25% surcharge for plus 25% surcharge for the fiscal years 2001,
the fiscal years 2001, 2002 and 2003 in the 2002 and 2003 in the total adjusted amount
total amount of P18,421, of P5,506,
In addition, [DLSU] is hereby held liable to Relying on the findings of the court-
pay 20% per annum deficiency interest on commissioned Independent Certified Public
the...basic deficiency taxes...until full payment Accountant (Independent CPA), the CTA En
thereof pursuant to Section 249(B) of the Banc found that DLSU was able to prove that
[National Internal Revenue Code] a portion of the assessed rental income was
used actually, directly and exclusively for
Further, [DLSU] is hereby held liable to pay educational purposes; hence, exempt from
20% per annum delinquency interest on the tax.20 The CTA En Banc was satisfied with
deficiency taxes, surcharge and deficiency DLSU's supporting evidence confirming that
interest which have accrued...from September part of its rental income had indeed been
30, 2004 until fully paid. used to pay the loan it obtained to build the
university's Physical Education - Sports
Consequently, the Commissioner
supplemented its petition with the CTA En
Banc and argued that the CTA Division erred Parenthetically, DLSU's unsubstantiated claim
in admitting DLSU's additional evidence.16 for exemption, i.e., the part of its income that
was not shown by supporting documents to
have been actually, directly and exclusively
Dissatisfied with the partial reduction of its used for educational purposes, must be
tax liabilities, DLSU filed a separate petition subjected to income tax and VAT.22
for review with the CTA En Banc (CTA En
Banc Case No. 671) on the following grounds:
(1) the entire assessment should have been The Consolidated Petitions
cancelled because it was based on an invalid
LOA; (2) assuming the LOA was valid, the CTA G.R. No. 196596
Division should still have cancelled the entire
assessment because DLSU submitted The Commissioner submits the following
evidence similar to those submitted by arguments:
Ateneo De Manila University (Ateneo) in a
separate case where the CTA cancelled First, DLSU's rental income is taxable
Ateneo's tax assessment;17 and (3) the CTA regardless of how such income is derived,
Division erred in finding that a portion of used or disposed of.35 DLSU's operations of
DLSU's rental income was not proved to have canteens and bookstores within its campus
been used actually, directly and exclusively even though exclusively serving the
for educational university community do not negate income
purposes.18chanroblesvirtuallawlibrary tax liability.36

The CTA En Banc Rulings The Commissioner contends that Article XIV,
Section 4 (3) of the Constitution must be
CTA En Banc Case No. 622 harmonized with Section 30 (H) of the Tax
Code, which states among others, that the
The CTA En Banc dismissed the income of whatever kind and character of [a
Commissioner's petition for review and non-stock and non-profit educational
sustained the findings of the CTA Division.19 institution] from any of [its] properties, real
or personal, or from any of (its] activities
conducted for profit regardless of the
Tax on rental income disposition made of such income, shall be
subject to tax imposed by this Code.37
The Commissioner argues that the CTA En
Banc misread and misapplied the case of DLSU rests it case on Article XIV, Section 4 (3)
Commissioner of Internal Revenue v. of the 1987 Constitution, which reads:
YMCA38 to support its conclusion that
revenues however generated are covered by (3) All revenues and assets of non-stock,
the constitutional exemption, provided that, non-profit educational institutions
the revenues will be used for educational used actually, directly, and
purposes or will be held in reserve for such exclusively for educational purposes
purposes.39 shall be exempt from taxes and
duties. Upon the dissolution or
On the contrary, the Commissioner posits that cessation of the corporate existence of
a tax-exempt organization like DLSU is such institutions, their assets shall be
exempt only from property tax but not from disposed of in the manner provided by
income tax on the rentals earned from law. Proprietary educational
property.40 Thus, DLSU's income from the institutions, including those
leases of its real properties is not exempt cooperatively owned, may likewise be
from taxation even if the income would be entitled to such exemptions subject
used for educational purposes.41 to the limitations provided by law
including restrictions on dividends and
provisions for reinvestment
Issues [underscoring and emphasis supplied]
Although the parties raised a number of Before fully discussing the merits of the case,
issues, the Court shall decide only the pivotal we observe that:
issues, which we summarize as follows:
First, the constitutional provision refers to
1. Whether DLSU's income and revenues two kinds of educational institutions: (1) non-
proved to have been used actually, stock, non-profit educational institutions and
directly and exclusively for (2) proprietary educational institutions.69
educational purposes are exempt
from duties and taxes; Second, DLSU falls under the first category.
Even the Commissioner admits the status of
DLSU as a non-stock, non-profit educational
Our Ruling institution.70

As we explain in full below, we rule that: Third, while DLSU's claim for tax exemption
arises from and is based on the Constitution,
1. The income, revenues and assets of the Constitution, in the same provision, also
non-stock, non-profit educational imposes certain conditions to avail of the
institutions proved to have been used exemption. We discuss below the import of
actually, directly and exclusively for the constitutional text vis-a-vis the
educational purposes are exempt Commissioner's counter-arguments.
from duties and taxes.
Fourth, there is a marked distinction
between the treatment of nonstock, non-
I. The revenues and assets of non-stock, profit educational institutions and
non-profit educational institutions proved proprietary educational institutions. The
to have been used actually, directly, and tax exemption granted to non-stock, non-
exclusively for educational purposes are profit educational institutions is conditioned
exempt from duties and taxes. only on the actual, direct and exclusive use of
their revenues and assets for educational Did the 1997 Tax Code qualifY the tax
purposes. While tax exemptions may also be exemption constitutionally-granted to
granted to proprietary educational non-stock, non-profit educational
institutions, these exemptions may be subject institutions?
to limitations imposed by Congress.
We answer in the negative.
As we explain below, the marked
distinction between a non-stock, non- While the present petition appears to be a
profit and a proprietary educational case of first impression,71 the Court in the
institution is crucial in determining the YMCA case had in fact already analyzed and
nature and extent of the tax exemption explained the meaning of Article XIV, Section
granted to non-stock, non-profit 4 (3) of the Constitution. The Court in that
educational institutions. case made doctrinal pronouncements that are
relevant to the present case.
The Commissioner opposes DLSU's claim for
tax exemption on the basis of Section 30 (H) The issue in YMCA was whether the income
of the Tax Code. The relevant text reads: derived from rentals of real property owned
by the YMCA, established as a "welfare,
The following organizations shall not be educational and charitable non-profit
taxed under this Title [Tax on Income] in corporation," was subject to income tax under
respect to income received by them as such: the Tax Code and the Constitution.72

xxxx The Court denied YMCA's claim for exemption

on the ground that as a charitable institution
(H) A non-stock and non-profit falling under Article VI, Section 28 (3) of the
educational institution Constitution,73 the YMCA is not tax-exempt
per se; "what is exempted is not the
xxxx institution itself...those exempted from real
estate taxes are lands, buildings and
Notwithstanding the provisions in the improvements actually, directly and
preceding paragraphs, the income of exclusively used for religious, charitable or
whatever kind and character of the educational purposes."74
foregoing organizations from any of their
properties, real or personal, or from any of The Court held that the exemption claimed by
their activities conducted for profit the YMCA is expressly disallowed by the last
regardless of the disposition made of such paragraph of then Section 27 (now Section
income shall be subject to tax imposed 30) of the Tax Code, which mandates that the
under this Code. [underscoring and income of exempt organizations from any of
emphasis supplied] their properties, real or personal, are subject
The Commissioner posits that the 1997 Tax to the same tax imposed by the Tax Code,
Code qualified the tax exemption granted to regardless of how that income is used. The
non-stock, non-profit educational institutions Court ruled that the last paragraph of Section
such that the revenues and income they 27 unequivocally subjects to tax the rent
derived from their assets, or from any of their income of the YMCA from its property.75
activities conducted for profit, are taxable
even if these revenues and income are used In short, the YMCA is exempt only from
for educational purposes. property tax but not from income tax.

As a last ditch effort to avoid paying the taxes

on its rental income, the YMCA invoked the
tax privilege granted under Article XIV, We find that unlike Article VI, Section 28 (3)
Section 4 (3) of the Constitution. of the Constitution (pertaining to charitable
institutions, churches, parsonages or
The Court denied YMCA's claim that it falls convents, mosques, and non-profit
under Article XIV, Section 4 (3) of the cemeteries), which exempts from tax only the
Constitution holding that the term assets, i.e., "all lands, buildings, and
educational institution, when used in laws improvements, actually, directly, and
granting tax exemptions, refers to the school exclusively used for religious, charitable, or
system (synonymous with formal education); educational purposes...," Article XIV, Section
it includes a college or an educational 4 (3) categorically states that "[a]ll revenues
establishment; it refers to the hierarchically and assets... used actually, directly, and
structured and chronologically graded exclusively for educational purposes shall be
learnings organized and provided by the exempt from taxes and duties."
formal school system.76
The addition and express use of the word
The Court then significantly laid down the revenues in Article XIV, Section 4 (3) of the
requisites for availing the tax exemption Constitution is not without significance.
under Article XIV, Section 4 (3), namely: (1)
the taxpayer falls under the classification We find that the text demonstrates the policy
non-stock, non-profit educational of the 1987 Constitution, discernible from the
institution; and (2) the income it seeks to be records of the 1986 Constitutional
exempted from taxation is used actually, Commission79 to provide broader tax
directly and exclusively for educational privilege to non-stock, non-profit educational
purposes.77 institutions as recognition of their role in
assisting the State provide a public good. The
We now adopt YMCA as precedent and hold tax exemption was seen as beneficial to
that: students who may otherwise be charged
unreasonable tuition fees if not for the tax
1. The last paragraph of Section 30 of exemption extended to all revenues and
the Tax Code is without force and assets of non-stock, non-profit educational
effect with respect to non-stock, non- institutions.80
profit educational institutions,
provided, that the non-stock, non- Further, a plain reading of the Constitution
profit educational institutions prove would show that Article XIV, Section 4 (3)
that its assets and revenues are used does not require that the revenues and
actually, directly and exclusively for income must have also been sourced from
educational purposes. educational activities or activities related to
2. The tax-exemption constitutionally- the purposes of an educational institution.
granted to non-stock, non profit The phrase all revenues is unqualified by any
educational institutions, is not subject reference to the source of revenues. Thus, so
to limitations imposed by law. long as the revenues and income are used
actually, directly and exclusively for
The tax exemption granted by the educational purposes, then said revenues and
Constitution to non-stock, non-profit income shall be exempt from taxes and
educational institutions is conditioned duties.81
only on the actual, direct and exclusive use
of their assets, revenues and income78for We find it helpful to discuss at this point the
educational purposes. taxation of revenues versus the taxation of
Revenues consist of the amounts earned by a also held that the exemption extends to
person or entity from the conduct of business facilities which are incidental to and
operations.82 It may refer to the sale of goods, reasonably necessary for the accomplishment
rendition of services, or the return of an of the main purposes.
investment. Revenue is a component of the
tax base in income tax,83 VAT,84 and local In concrete terms, the lease of a portion of a
business tax (LBT).85 school building for commercial purposes,
removes such asset from the property tax
Assets, on the other hand, are the tangible and exemption granted under the Constitution.91
intangible properties owned by a person or There is no exemption because the asset is not
entity.86 It may refer to real estate, cash used actually, directly and exclusively for
deposit in a bank, investment in the stocks of educational purposes. The commercial use of
a corporation, inventory of goods, or any the property is also not incidental to and
property from which the person or entity may reasonably necessary for the accomplishment
derive income or use to generate the same. In of the main purpose of a university, which is
Philippine taxation, the fair market value of to educate its students.
real property is a component of the tax base
in real property tax (RPT).87 Also, the landed However, if the university actually, directly
cost of imported goods is a component of the and exclusively uses for educational purposes
tax base in VAT on importation88 and tariff the revenues earned from the lease of its
duties.89 school building, such revenues shall be
exempt from taxes and duties. The tax
Thus, when a non-stock, non-profit exemption no longer hinges on the use of the
educational institution proves that it uses its asset from which the revenues were earned,
revenues actually, directly, and exclusively for but on the actual, direct and exclusive use of
educational purposes, it shall be exempted the revenues for educational purposes.
from income tax, VAT, and LBT. On the other
hand, when it also shows that it uses its assets Parenthetically, income and revenues of non-
in the form of real property for educational stock, non-profit educational institution not
purposes, it shall be exempted from RPT. used actually, directly and exclusively for
educational purposes are not exempt from
To be clear, proving the actual use of the duties and taxes. To avail of the exemption,
taxable item will result in an exemption, but the taxpayer must factually prove that it
the specific tax from which the entity shall be used actually, directly and exclusively for
exempted from shall depend on whether the educational purposes the revenues or income
item is an item of revenue or asset. sought to be exempted.

To illustrate, if a university leases a portion of The crucial point of inquiry then is on the use
its school building to a bookstore or cafeteria, of the assets or on the use of the revenues.
the leased portion is not actually, directly and These are two things that must be viewed and
exclusively used for educational purposes, treated separately. But so long as the assets
even if the bookstore or canteen caters only or revenues are used actually, directly and
to university students, faculty and staff. exclusively for educational purposes, they are
exempt from duties and taxes.
The leased portion of the building may be
subject to real property tax, as held in Abra The tax exemption granted by the
Valley College, Inc. v. Aquino.90 We ruled in Constitution to non-stock, non-profit
that case that the test of exemption from educational institutions, unlike the
taxation is the use of the property for exemption that may be availed of by
purposes mentioned in the Constitution. We
proprietary educational institutions, is not trade, business or activity does not exceed
subject to limitations imposed by law. 50% of its total gross income.

That the Constitution treats non-stock, non- Consistent with Article XIV, Section 4 (3) of
profit educational institutions differently the Constitution, these limitations do not
from proprietary educational institutions apply to non-stock, non-profit educational
cannot be doubted. As discussed, the privilege institutions.
granted to the former is conditioned only on
the actual, direct and exclusive use of their Thus, we declare the last paragraph of Section
revenues and assets for educational purposes. 30 of the Tax Code without force and effect
In clear contrast, the tax privilege granted to for being contrary to the Constitution insofar
the latter may be subject to limitations as it subjects to tax the income and revenues
imposed by law. of non-stock, non-profit educational
institutions used actually, directly and
We spell out below the difference in exclusively for educational purpose. We make
treatment if only to highlight the privileged this declaration in the exercise of and
status of non-stock, non-profit educational consistent with our duty93 to uphold the
institutions compared with their proprietary primacy of the Constitution.94
Finally, we stress that our holding here
While a non-stock, non-profit educational pertains only to non-stock, non-profit
institution is classified as a tax-exempt entity educational institutions and does not cover
under Section 30 (Exemptions from Tax on the other exempt organizations under Section
Corporations) of the Tax Code, a proprietary 30 of the Tax Code.
educational institution is covered by Section
27 (Rates of Income Tax on Domestic For all these reasons, we hold that the income
Corporations). and revenues of DLSU proven to have been
used actually, directly and exclusively for
To be specific, Section 30 provides that educational purposes are exempt from duties
exempt organizations like non-stock, non- and taxes.
profit educational institutions shall not be
taxed on income received by them as such.
Finally, it is true that educational institutions
Section 27 (B), on the other hand, states that are not included in the class of taxpayers who
[p]roprietary educational institutions...which can pay and remit DST through the On-Line
are nonprofit shall pay a tax of ten percent Electronic DST Imprinting Machine under RR
(10%) on their taxable income...Provided, that No. 9-2000. As correctly held by the CTA, this
if the gross income from unrelated trade, is irrelevant because it was not DLSU who
business or other activity exceeds fifty used the On-Line Electronic DST Imprinting
percent (50%) of the total gross income Machine but the bank that handled its
derived by such educational institutions...[the mortgage and loan transactions. RR No. 9-
regular corporate income tax of 30%] shall be 2000 expressly includes banks in the class of
imposed on the entire taxable income...92 taxpayers that can use the On-Line Electronic
DST Imprinting Machine.
By the Tax Code's clear terms, a proprietary
educational institution is entitled only to the Thus, the Court sustains the finding of the
reduced rate of 10% corporate income tax. CTA that DLSU proved the payment of the
The reduced rate is applicable only if: (1) the assessed DST deficiency, except for the
proprietary educational institution is non unpaid balance of P13,265.48.152
profit and (2) its gross income from unrelated
WHEREFORE, premises considered, we people, pursuant to its religious, educational
DENY the petition of the Commissioner of and charitable objectives.
Internal Revenue in G.R. No. 196596 and • In 1980, private respondent earned,
AFFIRM the December 10, 2010 decision and among others, an income of P676,829.80
March 29, 2011 resolution of the Court of Tax from leasing out a portion of its premises to
Appeals En Banc in CTA En Banc Case No. 622, small shop owners, like restaurants and
except for the total amount of deficiency tax canteen operators, and P44,259.00 from
liabilities of De La Salle University, Inc., which parking fees collected from non-members.
had been reduced. • On July 2, 1984, the commissioner of
internal revenue (CIR) issued an assessment
We also DENY both the petition of De La Salle to private respondent, in the total amount of
University, Inc. in G.R. No. 198841 and the P415,615.01 including surcharge and
petition of the Commissioner of Internal interest, for deficiency income tax, deficiency
Revenue in G.R. No. 198941 and thus AFFIRM expanded withholding taxes on rentals and
the June 8, 2011 decision and October 4, 2011 professional fees and deficiency withholding
resolution of the Court of Tax Appeals En tax on wages.
Banc in CTA En Banc Case No. 671, with the • Private respondent formally
MODIFICATION that the base for the protested the assessment and, as a
deficiency income tax and VAT for taxable supplement to its basic protest, filed a letter
year 2003 is P343,576.70. dated October 8, 1985.
• CIR denied the claims of YMCA.
• Due to such denial of its protest,
CIR v. CA and YMCA (Young Men’s YMCA filed to CTA Pet. for review.
Christian Association of the Philippines, • CTA ruled in favor of YMCA
Inc.) • CIR contested the ruling of the CTA to
the CA
• CA reversed ruling of CTA that "the
Main issue to be resolved: leasing of petitioner's (herein respondent's)
facilities to small shop owners, to restaurant
Is the income derived from rentals of real and canteen operators and the operation of
property owned by the Young Men's Christian the parking lot are reasonably incidental to
Association of the Philippines, Inc. (YMCA) — and reasonably necessary for the
established as "a welfare, educational and accomplishment of the objectives of the
charitable non-profit corporation" — subject petitioners, and the income derived
to income tax under the National Internal therefrom are tax exempt.”
Revenue Code (NIRC) and the Constitution? • YMCA opposed arguing that its rental
income is not subject to tax mainly because of
RULE: Tax Exemption if claimed must be the provisions of Section 27 of the NIRC
expressly granted in a statute stated in a (National Internal Revenue Code) which
language TOO CLEAR TO BE MISTAKEN provides that “civic leagues or organizations
not organized for profit but operate
Tax Exemptions are Strictly construed exclusively for promotion of social welfare
(Doctrine of Strict Interpretation in and those organized exclusively for pleasure,
construing tax exemptions.) recreation and other non-profitable
businesses SHALL NOT BE TAXED.”
• Private Respondent YMCA is a non-
stock, non-profit institution, which conducts Issues:
various programs and activities that are A. W/N the contention of YMCA on their tax
beneficial to the public, especially the young exemption tenable?
B. Is the YMCA an educational institution such income . . . ."
within the purview of Article XIV, Section 4,
par. 3 of the Constitution? • SC agrees with the petitioner that
"rental income derived by a tax-exempt
Ruling: Petition of the CIR was organization from the lease of its properties,
granted. real or personal, [is] not, therefore, exempt
from income taxation, even if such income [is]
a. No. The contention of YMCA on their exclusively used for the accomplishment of its
tax exemption is not tenable. The rental objectives."
income of the YMCA made for profit is
taxable. • Because taxes are the lifeblood of the
Sec. 27. Exemptions from tax on corporations. nation, the Court has always applied the
— The following organizations shall not be doctrine of strict in interpretation in
taxed under this Title in respect to income construing tax exemptions. Furthermore, a
received by them as such — claim of statutory exemption from taxation
should be manifest. and unmistakable from
the language of the law on which it is based.
xxx xxx xxx Thus, the claimed exemption "must expressly
(g) Civic league or organization not be granted in a statute stated in a language
organized for profit but operated too clear to be mistaken."
exclusively for the promotion of social
welfare; • In the instant case, the exemption
(h) Club organized and operated claimed by the YMCA is expressly disallowed
exclusively for pleasure, recreation, by the very wording of the last paragraph of
and other non-profitable purposes, no then Section 27 of the NIRC which mandates
part of the net income of which inures that the income of exempt organizations
to the benefit of any private (such as the YMCA) from any of their
stockholder or member; properties, real or personal, be subject to the
xxx xxx xxx tax imposed by the same Code. Because the
Notwithstanding the provisions in the last paragraph of said section unequivocally
preceding paragraphs, the income of subjects to tax the rent income of the YMCA
whatever kind and character of the from its real property, the Court is duty-
foregoing organizations from any of bound to abide strictly by its literal meaning
their properties, real or personal, or and to refrain from resorting to any
from any of their activities conducted convoluted attempt at construction.
for profit, regardless of the
disposition made of such income, shall • It is axiomatic that where the
be subject to the tax imposed under language of the law is clear and unambiguous,
this Code. its express terms must be applied. 21
Parenthetically, a consideration of the
question of construction must not even begin,
• While the income received by the particularly when such question is on
organizations enumerated in Section 27 (now whether to apply a strict construction or a
Section 26) of the NIRC is, as a rule, exempted liberal one on statutes that grant tax
from the payment of tax "in respect to income exemptions to "religious, charitable and
received by them as such," the exemption educational propert[ies] or institutions."
does not apply to income derived ". . . from
any of their properties, real or personal, or • Private respondent also invokes
from any of their activities conducted for Article XIV, Section 4, par. 3 of the Character,
profit, regardless of the disposition made of 36 claiming that the YMCA "is a non-stock,
non-profit educational institution whose have been paid in lieu of the taxes paid.
revenues and assets are used actually, Determining the proper category of tax
directly and exclusively for educational that should have been paid is not an
purposes so it is exempt from taxes on its assessment. It is incidental to
properties and income." 37 We reiterate that determining whether there should be a
private respondent is exempt from the refund.
payment of property tax, but not income tax
on the rentals from its property. The bare  A Philippine Economic Zone Authority
allegation alone that it is a non-stock, non- (PEZA)-registered corporation that has
profit educational institution is insufficient to never commenced operations may not
justify its exemption from the payment of avail the tax incentives and preferential
income tax. rates given to PEZA-registered
enterprises. Such corporation is subject
• As previously discussed, laws to ordinary tax rates under the NIRC.
allowing tax exemption are construed
strictissimi juris. Hence, for the YMCA to be Facts:
granted the exemption it claims under the
· SMI-Ed Philippines is a PEZA-registered
aforecited provision, it must prove with
corporation authorized "to engage in the
substantial evidence that (1) it falls under the
business of manufacturing ultra high-density
classification non-stock, non-profit
microprocessor unit package."
educational institution; and (2) the income it
seeks to be exempted from taxation is used · After its registration on June 29, 1998,
actually, directly, and exclusively for SMI-Ed constructed buildings and purchased
educational purposes. However, the Court machineries and equipment.
notes that not a scintilla of evidence was · SMI-Ed "failed to commence operations."
submitted by private respondent to prove Its factory was temporarily closed, effective
that it met the said requisites. October 15, 1999. On August 1, 2000, it sold its
buildings and some of its installed machineries
and equipment to Ibiden Philippines, Inc.,
b. Is the YMCA an educational institution another PEZA-registered enterprise. SMI-Ed
within the purview of Article XIV, Section 4, was dissolved on Nov. 30, 2000.
par. 3 of the Constitution? · In its quarterly income tax return for year
We rule that it is not. The term 2000, SMI-Ed subjected the entire gross sales
"educational institution" or "institution of of its properties to 5% final tax on PEZA
learning" has acquired a well-known registered corporations. SMI-Ed paid taxes
technical meaning, of which the members of amounting to P44,677,500.00.
the Constitutional Commission are deemed · On February 2, 2001, after requesting the
cognizant. cancellation of its PEZA registration and
amending its articles of incorporation to
shorten its corporate term, SMI-Ed filed an
administrative claim for the refund of
SMI-ED Technology v. CIR P44,677,500.00 with the Bureauof Internal
G.R. No. 175410, November 12, 2014, Revenue (BIR). SMIEd alleged that the amount
LEONEN, J. was erroneously paid.
Doctrines: · The BIR did not act on SMI-Ed Philippines’
 In an action for the refund of taxes claim, which prompted the latter to file a
allegedly erroneously paid, the Court of petition for review before the Court of Tax
Tax Appeals (CTA) may determine Appeal.
whether there are taxes that should
CTA denied SMI-ED claim for refund. It held 1. WON CTA En Banc grievously erred
that: and acted beyond its jurisdiction when
1. fiscal incentives given to it assessed for deficiency tax in the first
PEZA-registered enterprises may be instance
availed only by PEZA-registered 2. WON SMI-ED is entitled to the benefits
enterprises that had already given to PEZA-registered enterprises
commenced operations. Since SMI-Ed including the 5% preferential tax rate
had not commenced operations, it was 3. WON SMI-ED is entitled to the benefits
not entitled to the incentives of either given to PEZA-registered enterprises
the income tax holiday or the 5% including the 5% preferential tax rate
preferential tax rate. Payment of the 4. WON the government can still collect
5% preferential tax amounting to for the deficiency taxes (kay 5%
P44,677,500.00 was erroneous. preferential tax rate raman tu ya
2. It found that the properties gibayran when it should have been 6%
sold by SMI-ED were capital assets capital gains tax rate)
under Sec. 39(A)(1) of the NIRC, hence
it subjected the sale of SMIEd Ruling:
Philippines’ assets to 6% capital gains 1. WON CTA En Banc grievously erred and
tax. It was found liable for capital gains acted beyond its jurisdiction when it
tax amounting to assessed for deficiency tax in the first
P53,613,000.00.20. Therefore, SMIEd instance
must still pay the balance of No. The term "assessment" refers to
P8,935,500.00 as deficiency tax. the determination of amounts due from a
person obligated to make payments. In the
· SMI-ED filed a peitition for review with context of national internal revenue collection,
the CTA en banc. it refers the determination of the taxes due
· CTA en banc affirmed the CTA second from a taxpayer under the NIRC of 1997. The
division. power and duty to assess national internal
· SMI-Ed filed a petition for review before revenue taxes are lodged with the BIR.
the Supreme Court praying for the grant of its The CTA has no powerto make an
claim for refund and the reversal of the CTA En assessment at the first instance. On matters
Banc’s decision. such as tax collection, tax refund, and others
related to the national internal revenue taxes,
the CTAs’ jurisdiction is appellate in nature.
Based on the law, the following must
SMI-ED’s Arguments: be present for the CTA to have jurisdiction
· It argued that the CTA Second Division over a case involving the BIR’s decisions or
erroneously assessed the 6% capital gains tax inactions:
on the sale of SMI-Ed Philippines’ equipment, a) A case involving any of the
machineries, and buildings. It also argued that following:
the CTA Second Division cannot make an i. Disputed assessments;
assessment at the first instance. Even if the ii. Refunds of internal revenue taxes,
CTAS econd Division has such power, the fees, or other charges, penalties in
period to make an assessment had already relation thereto; &
iii. Other matters arising under the
Issues: b) CIR’s decision or inaction in a case
submitted to him or her
tax return filed was not proper, the
Thus, the BIR first has to make an assessment correctness of the amount paid and, therefore,
of the taxpayer’s liabilities. When the BIR the claim for refund become questionable. In
makes the assessment, the taxpayer is allowed that case, the court must determine if a
to dispute that assessment before the BIR. If taxpayer claiming refund of erroneously paid
the BIR issues a decision that is unfavorable to taxes is more properly liable for taxes other
the taxpayer or if the BIR fails to act on a than that paid.
dispute brought by the taxpayer, the BIR’s In this case, petitioner’s claim that it
decision or inaction may be brought on appeal erroneously paid the 5% final tax is an
to the CTA. The CTA then acquires jurisdiction admission that the quarterly tax return it filed
over the case. in 2000 was improper. Hence, to determine if
When the BIR’s unfavorable decision is petitioner was entitled to the refund being
brought on appeal to the CTA, the CTA reviews claimed, the CTA has the duty to determine if
the correctness of the BIR’s assessment and petitioner was indeed not liable for the 5%
decision. In reviewing the BIR’s assessment final tax and, instead, liable for taxes other
and decision, the CTA had to make its own than the 5% final tax. As in South African
determination of the taxpayer’s tax liabilities. Airways, petitioner’s request for refund can
The CTA may not make such determination neither be granted nor denied outright
before the BIR makes its assessment and without such determination.
before a dispute involving such assessment is Any liability in excess of the
brought to the CTA on appeal. refundable amount, however, may not be
collected in a case involving solely the issue of
In this case, the CTAs’ jurisdiction was the taxpayer’s entitlement to refund. The
acquired because petitioner brought the case question of tax deficiencyis distinct and
on appeal before the CTA after the BIR had unrelated to the question of petitioner’s
failed to act on petitioner’s claim for refund of entitlement to refund. Tax deficiencies should
erroneously paid taxes. The CTA did not be subject to assessment procedures and the
acquire jurisdiction as a result of a disputed rules of prescription. The court cannot be
assessment of a BIR decision. expected to perform the BIR’s duties
As earlier established, the CTA has no whenever it fails to do so either through
assessment powers. In stating that petitioner’s neglect or oversight. Neither can court
transactions are subject to capital gains tax, processes be used as a tool to circumvent laws
however, the CTA was not making an protecting the rights of taxpayers.
assessment. It was merely determining the
proper category of tax that petitioner should 2. WON SMI-ED is entitled to the
have paid, in view of its claim that it benefits given to PEZA-registered
erroneously imposed upon itself and paid the enterprises including the 5% preferential
5% final tax imposed upon PEZA-registered tax rate.
enterprises. NO. This is because it never began its
The determination of the proper operation.
category of tax that petitioner should have
paid is an incidental matter necessary for the Essentially, the purpose of RA 7916 is to
resolution of the principal issue, which is promote development and encourage
whether petitioner was entitled to a refund. investments and business activities that will
The issue of petitioner’s claim for tax generate employment. Giving fiscal incentives
refund is intertwined with the issue of the to businesses is one of the means devised to
proper taxes that are due from petitioner. A achieve this purpose. It comes with the
claim for tax refund carries the assumption expectation that persons who will avail these
that the tax returns filed were correct. If the incentives will contribute to the purpose’s
achievement. Hence, to avail the fiscal trade. Based on the definition of capital assets
incentives under RA 7916, the law did not say under Sec. 39 of the NIRC, they are capital
that mere PEZA registration is sufficient. assets.
The fiscal incentives and the 5% As regards machineries and equipments, these
preferential tax rate are available only to should not be subjected to the capital gains tax
businesses operating within the Ecozone. A since these are not real properties. Only the
business is considered in operation when it presumed gain from the sale of petitioner’s
starts entering into commercial transactions land and/or building may be subjected to the
that are not merely incidental to but are 6% capital gains tax. The income from the sale
related to the purposes of the business. It is of petitioner’s machineries and equipment is
similar to the definition of "doing business," as subject to the provisions on normal corporate
applied in actions involvingthe right of foreign income tax.
corporations to maintain court actions. The To determine, therefore, if petitioner is
terms "doing" or "engaging in" or entitled to refund, the amount of capital gains
"transacting" business": impl[y] a continuity of tax for the sold land and/or building of
commercial dealings and arrangements, and petitioner and the amount of corporate
contemplates, to that extent, the performance income tax for the sale of petitioner’s
of acts or works or the exercise of some of the machineries and equipment should be
functions normally incident to, and in deducted from the total final tax paid.
progressive prosecution of, the purpose and Petitioner indicated, however, in its March 1,
object of its organization. Petitioner never 2001 income tax return for the 11-month
started its operations since its registration on period ending on Nov. 30, 2000 that it suffered
June 29, 1998 because of the Asian financial a net loss of P2,233,464,538.00.69 This
crisis. It is not entitled to the preferential tax declaration was made under the pain of
rate of 5% on gross income in lieu of all taxes. perjury. The BIR did not make a deficiency
Because petitioner is not entitled to a assessment for this declaration. Neither did
preferential rate, it is subject to ordinary tax the BIR dispute this statement in its pleadings
rates under the NIRC. filed before this court. There is, therefore, no
reason todoubt the truth that petitioner
3. WON CTA erred in imposing the indeed suffered a net loss in 2000. Since
capital gains tax on the sale of SMI-Ed’s petitioner had not started its operations, it
buildings, equipments, and machineries- was also not subject to the minimum
With respect to the sale of buildings corporate income tax of 2% on gross income.
and and land, CA was mistaken Therefore, petitioner is not liable for any
With respect to the sale of machineries income tax.
and equipments, CA was not mistaken
4. WON the government can still collect
For petitioner’s properties to be subjected to for the deficiency taxes (kay 5%
capital gains tax, the properties must form preferential tax rate raman tu ya gibayran
part of petitioner’s capital assets. The when it should have been 6% capital gains
properties involved in this case include tax rate)- NOT ANYMORE
petitioner’s buildings, equipment, and Sec. 203 of the NIRC provides that as a
machineries. They are not among the general rule, the BIR has three (3) years from
exclusions enumerated in Sec. 39(A)(1) of the the last day prescribed by law for the filing of
NIRC. None of the properties were used in a return to make an assessment. If the return
petitioner’s trade or ordinary course of is filed beyond the last day prescribed by law
business because petitioner never for filing, the three-year period shall run from
commenced operations. They were not part of the actual date of filing.
the inventory. None of themwere stocks in
The prescriptive period to make an · In view of the lapse of the prescriptive
assessment of internal revenue taxes is period for assessment, any capital gains tax
provided "primarily to safeguard the interests accrued from the sale of its land and building
of taxpayers from unreasonable that is in excess of the 5% final tax paid to the
investigation." This SC explained in CIR v. FMF Bureau of Internal Revenue may no longer be
Development Corporation the reason behind recovered from petitioner SMI-Ed Philippines
the provisions on prescriptive periods for tax Technology, Inc.
assessments: Accordingly, the government
must assess internal revenue taxes on time so
as not to extend indefinitely the period of
assessment and deprive the taxpayer of the
assurance that it will no longer be subjected to
further investigation for taxes after the
expiration of reasonable period of time.
Thus, the law on prescription, being a
remedial measure, should be liberally
construed in order to afford such protection. REPUBLIC v. SORIANO
As a corollary, the exceptions to the law on GR No. 211666
prescription should perforce be strictly February 25, 2015
The BIR had three years from the filing
of petitioner’s final tax return in 2000 to assess TOPIC:
petitioner’s taxes. Nothing stopped the BIR Who pays the capital gains tax and
from making the correct assessment. The documentary stamp tax
elevation of the refund claim with the CTA was (Both in the nature of transfer taxes) in case of
not a bar against the BIR’s exercise of its expropriation by the national government?
assessment powers.
The BIR, however, did not initiate any FACTS:
assessment for deficiency capital gains tax.
Since more than a decade have lapsed from the · Petitioner Republic of the Philippines
filing of petitioner's return, the BIR can no (represented by DPWH) filed a complaint for
longer assess petitioner for deficiency capital expropriation against the property of Arlene
gains taxes, if petitioner is later found to have Soriano (respondent).
capital gains tax liabilities in excess of the
amount claimed for refund. · The property sought to be expropriated
shall be used in implementing the construction
CTA should not be expected to perform
of the North Luzon Expressway (NLEX) –
the BIR's duties of assessing and collecting
Harbor Link Project
taxes whenever the BIR, through neglect or
oversight, fails to do so within the prescriptive
· Republic duly deposited with the court
period allowed by law.
the amount of P420,000 representing the
100% of the zonal value of the expropriated
DISPOSITION: property.
· BIR is ordered to refund petitioner SMI-
Ed Philippines Technology, Inc. the amount of · Thereafter, the RTC issued a Writ of
5% final tax paid to the BIR, less the 6% capital Possession and Writ of Expropriation for
gains tax on the sale of petitioner SMI-Ed failure of Soriano to appear, despite notice,
Philippines Technology, Inc. 's land and during the hearing.
· RTC then appointed the Board of stipulation to the contrary, shall be the
Commissioners for the determination of just payment of the interest agreed upon, and in
compensation. However, the trial court the absence of stipulation, the legal interest,
subsequently revoked the appointment of the which is six per cent per annum."
Commissioners for their failure to submit a
report as to the FMV (fair market value) of · So, Republic filed the instant petition
the property and instead, the Court directed before the Supreme Court based on the
the parties to submit their respective position following arguments:
papers. 1. That is not entitled to pay the legal
interest of 6% per annum on the amount of
· Republic adduced evidence to show that just compensation since there was no delay on
the P420,000 it deposited was just, fair and its part
equitable. Accordingly, RTC considered - ang reason ni Republic is because legal
Soriano to have waived her right to adduce interest applies only when the property was
evidence due to her continued absence. (Wala taken prior to the deposit of payment and only
ra siguro ni pakialam si ate kung ma- to the extent that there was delay. In this case,
expropriate iyang property..hahaha) petitioner was able to deposit with the court
the amount representing the zonal value of the
· So RTC rendered its decision: property before its taking hence it cannot be
1. Declared that Republic had the lawful said that there was delay. Thus, there can be
right to acquire possession of and title to the no interest due on the payment of just
expropriated property compensation.
2. Ordered Republic to pay Soriano
P420,000 as just compensation with legal 2. That based on the NIRC and LGC, it is
interest at 12% per annum from the taking respondent’s (Soriano) obligation to pay the
of the property transfer taxes (CGT and DST)
3. Ordered Republic to pay Soriano - ang reason ni Republic is because transfer
consequential damages (remember katong taxes, in the nature of CGT and DST, necessary
discussion ni Judge P. sa Poli on expropriation for the transfer of the expropriated property
cases) which include: value of the transfer are the liabilities of Soriano and not petitioner
tax (CGT and DST) for the transfer of the
property in the name of Soriano to that of NB: I will skip the other portions of the
the Republic decision pertaining to Credit Transactions and
will instead focus on the tax-related matters.
· Of course, Republic filed an MR on the Kindly refer to the full-text below nalang.
decision arguing that pursuant to BSP Circular
No. 799 (Series of 2013), the interest rate by ISSUE:
the RTC on the just compensation should be
lowered to 6% since the case falls under a loan WON the payment of the transfer taxes
or forbearance of money (queue again, (CGT and DST) is a liability of petitioner
remember our lessons on interest sa Credit (buyer) or of respondent (seller)?

· So RTC reduced the interest rate to 6%

per annum, however not on the basis of the RULING:
BSP Circular but on the basis of Art. 2209:
"If the obligation consists in the payment of a
sum of money, and the debtor incurs in delay, Let’s tackle first on CAPITAL GAINS TAX:
the indemnity for damages, there being no
In this aspect, Court found merit in petitioner’s (a) In General. - The documentary stamp
argument that pursuant to Sections 24(D) and taxes under Title VII of the Code is a tax on
56(A)(3) of the 1997 National Internal certain transactions. It is imposed against
Revenue Code (NIRC), capital gains tax due on "the person making, signing, issuing,
the sale of real property is a liability for the accepting, or transferring" the document
account of the SELLER or facility evidencing the aforesaid
Since capital gains tax is a Tax on PASSIVE Thus, in general, it may be imposed on the
INCOME, it is the SELLER, not the buyer, who transaction itself or upon the document
generally would shoulder the tax. Accordingly, underlying such act. Any of the parties
the BIR, in its BIR Ruling No. 476-2013, dated thereto shall be liable for the full amount of
December 18, 2013, constituted the DPWH as the tax due: Provided, however, that as
a withholding agent to withhold the six between themselves, the said parties may
percent (6%) final withholding tax in the agree on who shall be liable or how they
expropriation of real property for may share on the cost of the tax.
infrastructure projects. (b) Exception. - Whenever one of the parties
to the taxable transaction is exempt from the
Hence, as far as the government is concerned, tax imposed under Title VII of the Code, the
the CGT remains the liability of the seller other party thereto who is not exempt shall be
since it is a tax on the seller’s gain from the the one directly liable for the tax.
sale of real estate property.
As a general rule, therefore, any of the parties
In application to this case, correct si Republic to a transaction shall be liable for the full
in arguing that it should have been Soriano amount of the documentary stamp tax due,
(seller) who will shoulder the payment of the unless they agree among themselves on who
capital gains tax. shall be liable for the same.
In this case, there is no agreement as to the
party liable for the documentary stamp tax
due on the sale of the land to be expropriated.
Now, let’s proceed with respect to the But while petitioner rejects any liability for the
DOCUMENTARY STAMP TAX: same, this Court must take note of petitioner’s
Citizen’s Charter, which functions as a guide
In this aspect, the Court found it inconsistent for the procedure to be taken by the DPWH in
for petitioner to deny its liability for the acquiring real property through expropriation
payment of DST. under RA 8974.

Petitioner cites Section 196 of the 1997 NIRC The Citizen’s Charter, issued by petitioner
as its basis in saying that the documentary DPWH itself on December 4,2013, explicitly
stamp tax is the liability of the seller. Yet, a provides that the
perusal of the provision cited above does not a. documentary stamp tax,
explicitly impute the obligation to pay the b. transfer tax, and
documentary stamp tax on the seller. In fact, c. registration fee due on the
according to the BIR, all the parties to a transfer of the title of land in the
transaction are primarily liable for the name of the Republic
documentary stamp tax, as provided by
Section 2 of BIR Revenue Regulations No. 9- shall be shouldered by the
2000: implementing agency of the DPWH,
SEC. 2. Nature of the
Documentary Stamp Tax and Persons Liable
for the Tax. –
while the capital gains tax shall be The mortgagors filed a complaint
paid by the affected property against the bank to recover the allegedly
owner. unlawful and excessive charges of
P5,331,237.77, with prayer for damages and
attorney's fees. The bank asserted that the
Thus, while there is no specific agreement redemption price reflecting the stipulated
between petitioner and respondent, interest, charges and/or expenses, is valid,
petitioner's issuance of the Citizen's Charter legal and in accordance with documents duly
serves as its notice to the public as to the signed by the mortgagors. The bank further
procedure it shall generally take in cases of contended that the claims are deemed waived
expropriation under RA 8974. Accordingly, it and the mortgagors are already estopped from
will be rather unjust for this Court to blindly questioning the terms and conditions of their
accede to petitioner's vague rejection of contract.
liability in the face of its issuance of the
Citizen's Charter, which contains a clear and
unequivocal assumption of accountability for ISSUE:
the documentary stamp tax. Had petitioner Is the mortgagee-bank liable to pay the
provided this Court with more convincing capital gains tax upon the execution of the
basis, apart from a mere citation of an certificate of sale and before the expiry of the
indefinite provision of the 1997 NIRC, redemption period?
showing that it should be respondent-seller
who shall be liable for the documentary
stamp tax due on the sale of the subject HELD:
property, its rejection of the payment of the
same could have been sustained. NO. It is clear that in foreclosure sale
there is no actual transfer of the mortgaged
real property until after the expiration of the
Supreme Transliner v. BPI Savings one-year period and title is consolidated in the
G.R. No. 165617, February 25, 2011, name of the mortgagee in case of non-
VILLARAMA, JR., J. redemption. This is because before the period
expires there is yet no transfer of title and no
profit or gain is realized by the mortgagor.
Under Revenue Regulations (RR) No.
Supreme Transliner, Inc. represented 13-85 (December 12,1985), every sale or
by its Managing Director, Moises C. Alvarez, exchange or other disposition of real property
and Paulita S. Alvarez, obtained a loan in the classified as capital asset under the National
amount of P9,853,000.00 from BPI Family Internal Revenue Code (NIRC) shall be subject
Savings Bank with a 714-square meter lot to final capital gains tax. The term “sale”
covered by Transfer Certificate of Title No. T- includes pacto de retro and other forms of
79193 in the name of Moises C. Alvarez and conditional sale. Section 2.2 of Revenue
Paulita S. Alvarez, as collateral. Memorandum Order (RMO) No. 29-86, as
Due to non-payment of the loan, the amended by RMO Nos. 16-88, 27-89 and 6-92,
mortgage was extrajudicially foreclosed and states that these conditional sales “necessarily
the property was sold to the bank as the includes mortgage foreclosure sales (judicial
highest bidder. Before the expiration of the and extrajudicial foreclosure sales).” Further,
one-year redemption period, the mortgagors for real property foreclosed by a bank on or
notified the bank of their intention to redeem after September 3, 1986, the capital gains tax
the property. and documentary stamp tax must be paid
before title to the property can be
consolidated in favor of the bank. Under
Section 63 of Presidential Decree No. 1529, or Should there have been a simultaneous sale to
the Property Registration Decree, if no right of 20 or more lenders/investors, the PEACE Bonds
redemption exists, the certificate of title of the are deemed deposit substitutes within the
mortgagor shall be cancelled, and a new meaning of Section 22(Y) of the 1997 National
certificate issued in the name of the purchaser. Internal Revenue Code and RCBC
But where the right of redemption exists, the Capital/CODE-NGO would have been obliged to
certificate of title of the mortgagor shall not be pay the 20% final withholding tax on the
cancelled, but the certificate of sale and the interest or discount from the PEACE Bonds.
order confirming the sale shall be registered
by brief memorandum thereof made by the
Register of Deeds on the certificate of title.
A notice by the Bureau of Treasury (BTr) to all
It is therefore clear that in foreclosure
Government Securities Eligible Dealer (GSED)
sale, there is no actual transfer of the
entitled Public Offering of Treasury Bonds
mortgaged real property until after the
denominated as the Poverty Eradication and
expiration of the one-year redemption period
Alleviation Certificates or the PEACE Bonds,
as provided in Act No. 3135, or An Act or
announced that P30 Billion worth of 10-year
Regulate the Sale of Property Under Special
Zero-Coupon Bonds will be auctioned on Oct.
Powers Inserted In or Annexed to Real Estate
16, 2011. The notice stated that the Bonds
Mortgages, and title thereto is consolidated in
“shall be issued to not more than 19
the name of the mortgagee in case of non-
buyers/lenders. Lastly, it stated that “while
redemption. In the interim, the mortgagor is
taxable shall not be subject to the 20% final
given the option whether or not to redeem the
withholding tax” pursuant to the BIR Revenue
real property. The issuance of the Certificate of
Regulation No. 020 2001. After the auction,
Sale does not by itself transfer ownership. RR
RCBC which participated on behalf of CODE-
No. 4-99 (March 16, 1999), further amends
NGO was declared as the winning bidder
RMO No. 6-92 relative to the payment of
having tendered the lowest bids. On October 7,
capital gains tax and documentary stamp tax
2011, “the BIR issued the assailed 2011 BIR
on extrajudicial foreclosure sale of capital
Ruling imposing a 20% FWT on the
assets initiated by banks, finance and
Government Bonds and directing the BTr to
insurance companies. Under this RMO, in case
withhold said final tax at the maturity thereof.
the mortgagor exercises his right of
Furthermore the Bureau of Internal Revenue
redemption within one year from the issuance
issued BIR Ruling No. DA 378-201157
of the certificate of sale, no capital gains tax
clarifying that the final withholding tax due on
shall be imposed because no capital gain has
the discount or interest earned on the PEACE
been derived by the mortgagor and no sale or
Bonds should “be imposed and withheld not
transfer of real property was realized.
only on RCBC/CODE NGO but also on all
Moreover, the transaction will be subject to
subsequent holders of the Bonds.
documentary stamp tax of only PhP 15 no land
or realty was sold or transferred for a
consideration. Banco de Oro, et al. filed a petition for
Certiorari, Prohibition and Mandamus under
Rule 65 to the Supreme Court contending that
the assailed 2011 BIR Ruling which ruled that
“all treasury bonds are ‘deposit substitutes’
regardless of the number of lenders, in clear
disregard of the requirement of twenty (20) or
INTERNAL REVENUE G.R. No. 198756, 13
more lenders mandated under the NIRC.
January 2015, EN BANC (Leonen, J.)
Furthermore it will cause substantial
impairment of their vested rights under the secondary market in connection with the
Bonds since the ruling imposes new purchase or sale of securities.
conditions by “subjecting the PEACE Bonds to
In the case at bar, it may seem that
the twenty percent (20%) final withholding
there was only one lender — RCBC on behalf
tax notwithstanding the fact that the terms
of CODE-NGO — to whom the PEACE Bonds
and conditions thereof as previously
were issued at the time of origination.
represented by the Government, through
However, a reading of the underwriting
respondents BTr and BIR, expressly state that
agreement and RCBC term sheet reveals that
it is not subject to final withholding tax upon
the settlement dates for the sale and
their maturity.”
distribution by RCBC Capital (as underwriter
for CODE-NGO) of the PEACE Bonds to various
The Commissioner of the Internal undisclosed investors.
Revenue countered that the BTr has no power
At this point, however, we do not know
to contractually grant a tax exemption in
as to how many investors the PEACE Bonds
favour of Banco de Oro, et al.. Moreover, they
were sold to by RCBC Capital. Should there
contend that the word “any” in Section 22(Y)
have been a simultaneous sale to 20 or more
of the National Internal Revenue Code plainly
lenders/investors, the PEACE Bonds are
indicates that the period contemplated is the
deemed deposit substitutes within the
entire term of the bond and not merely the
meaning of Section 22(Y) of the 1997 National
point of origination or issuance.
Internal Revenue Code and RCBC
Capital/CODE-NGO would have been obliged
ISSUE: to pay the 20%final withholding tax on the
interest or discount from the PEACE Bonds.
Is the 10-year zero-coupon treasury bonds
Further, the obligation to withhold the 20%
issued by the Bureau of Treasury subject to
final tax on the corresponding interest from
20% Final Withholding Tax?
the PEACE Bonds would likewise be required
of any lender/investor had the latter turned
RULING: around and sold said PEACE Bonds, whether in
Under Sections 24(B)(1), 27(D)(1), and whole or part, simultaneously to 20 or more
28(A)(7) of the 1997 National Internal lenders or investors.
Revenue Code, a final withholding tax at the
rate of 20% is imposed on interest on any
currency bank deposit and yield or any other DUMAGUETE CATHEDRAL CREDIT
monetary benefit from deposit substitutes and COOPERATIVE [DCCCO], Represented by
from trust funds and similar arrangements. Felicidad L. Ruiz, its General Manager vs.
Under Section 22(Y), deposit substitute is an COMMISSIONER OF INTERNAL REVENUE,
alternative form of obtaining funds from the Respondent
public (the term 'public' means borrowing
G.R. No. 182722, January 22, 2010, Del
from twenty (20) or more individual or
Castillo, J.
corporate lenders at any one time).
Hence, the number of lenders is
determinative of whether a debt instrument FACTS:
should be considered a deposit substitute and Petitioner Dumaguete Cathedral Credit
consequently subject to the 20% final Cooperative (DCCCO) is a credit cooperative
withholding tax. Furthermore the phrase “at duly registered with and regulated by the
any one time” for purposes of determining the Cooperative Development Authority (CDA).
“20 or more lenders” would mean every BIR Operations Group Deputy Commissioner,
transaction executed in the primary or Lilian B. Hefti, issued Letters of Authority
authorizing BIR Officers to examine and legal and professional fee and affirmed the
petitioner’s books of accounts and other assessments for deficiency withholding taxes
accounting records for all internal revenue on interests.
taxes for the taxable years 1999 and 2000.
CTA en banc: Affirmed CTA.

On 2002, DCCCO received two Pre-Assessment

ISSUE: Whether or not DCCCO is liable to pay
Notices for deficiency withholding taxes for
the deficiency withholding taxes on interest
taxable years 1999 and 2000 which were
from savings and time deposits of its
protested by petitioner. Thereafter, on
members, as well as the delinquency interest
October 16, 2002, petitioner received two
of 20% per annum.
other Pre-Assessment Notices for deficiency
withholding taxes also for taxable years 1999
and 2000. The deficiency withholding taxes Petitioner (DCCCO): The savings and time
cover the payments of the honorarium of the deposits of members of cooperatives are not
Board of Directors, security and janitorial included in the enumeration under Sec.
services, legal and professional fees, and 24(B)(1) of the NIRC which imposes tax on
interest on savings and time deposits of its certain passive income, and thus not subject to
members. the 20% final tax.

DCCCO informed BIR that it would ONLY pay “Sec. 24(B)(1) of the NIRC — A final tax at the
the deficiency withholding taxes rate of twenty percent (20%) is hereby
corresponding to the honorarium of the Board imposed upon the amount of interest from any
of Directors, security and janitorial services, currency bank deposit and yield or any other
legal and professional fees for the year 1999 monetary benefit from deposit substitutes and
and 2000, EXCLUDING penalties and interest. from trust funds and similar arrangements; x x
On November 29, 2002, petitioner availed of
the Voluntary Assessment and Abatement It applies only to banks and not to
Program and paid the amounts corresponding cooperatives, since the phrase "similar
to the withholding taxes on the payments for arrangements" is preceded by terms referring
the compensation, honorarium of the Board of to banking transactions that have deposit
Directors, security and janitorial services, and peculiarities.
legal and professional services, for the years
1999 and 2000. Thereafter, petitioner
received from the BIR Regional Director Respondent: Section 24(B)(1) of the NIRC
Letters of Demand to pay the deficiency applies to cooperatives as the phrase similar
withholding taxes, inclusive of penalties, for arrangements is not limited to banks, but
the same years, which petitioners protested. includes cooperatives that are depositaries of
their members. Respondent likewise points
out that the deficiency tax assessments were
BIR: Failed to act on the protest within the issued against petitioner not as a taxpayer but
prescribed 180-day period; hence petitioner as a withholding agent.
filed a Petition for Review before the CTA.
CTA: Cancelled the assessment for deficiency RULING: No, petitioner is not liable to pay the
withholding taxes on the honorarium and per deficiency withholding taxes on interest from
diems of petitioners Board of Directors, savings and time deposits of its members, as
security and janitorial services, commissions
well as the delinquency interest of 20% per corresponding tax on the interest from savings
annum. and time deposits of their members, which
was reiterated in BIR Ruling [DA-591-2006],
applies to the instant case.
BIR declared in BIR Ruling No. 551-888 that
cooperatives are not required to withhold
taxes on interest from savings and time Members of the cooperative also deserve a
deposits of their members. CTA en banc ruled preferential tax treatment pursuant to RA
that the BIR Ruling was based on the premise 6938, as amended by RA 9520 (Cooperative
that the savings and time deposits were placed Code of the Philippines) which exempts
by the members of the cooperative in the bank transactions of members with the cooperative
and consequently, it does not apply when the from any taxes and fees, including but not
deposits are maintained in the cooperative limited to final taxes on members deposits and
such as the instant case. This is incorrect. documentary tax.

There is nothing in the ruling to suggest that it Therefore, DCCCO is not liable to pay
applies only when deposits are maintained in deficiency withholding taxes.
a bank. Rather, the ruling clearly states,
without any qualification, that since interest
from any Philippine currency bank deposit
and yield or any other monetary benefit from
deposit substitutes are paid by banks,
cooperatives are not required to withhold the
corresponding tax on the interest from savings
and time deposits of their members.

It bears stressing that interpretations of

administrative agencies in charge of enforcing
a law are entitled to great weight and
consideration by the courts, unless such
interpretations are in a sharp conflict with the
governing statute or the Constitution and
other laws.

In this case, BIR Ruling No. 551-888 and BIR

Ruling [DA-591-2006] are in perfect harmony
with the Constitution and the laws they seek to
implement. In BIR Ruling [DA-591-2006], the
BIR opined that since members’ deposits with
the cooperatives are not currency bank
deposits nor deposit substitutes, Section
24(B)(1) and Section 27(D)(1), therefore, do
not apply to members of cooperatives and to
deposits of primaries with federations,
respectively. Accordingly, the interpretation
in BIR Ruling No. 551-888 that cooperatives
are not required to withhold the