No, SHH is not exempt form payment of income tax.

To be a charitable institution, an organization must meet the substantive test of charity in the case
of Lung Center. Charity is essentially a gift to an indefinite number of persons which lessens the
burden of government. In other words, charitable institutions provide for free goods and services to
the public which would otherwise fall on the shoulders of government. Thus, as a matter of
efficiency, the government forgoes taxes which should have been spent to address public needs,
because certain private entities already assume a part of the burden. This is the rationale for the tax
exemption of charitable institutions. The loss of taxes by the government is compensated by its
relief from doing public works which would have been funded by appropriations from the
Treasury.

As a general principle, a charitable institution does not lose its character and its exemption from
taxes simply because it derives income from paying patients, whether out-patient, or confined in
the hospital, or receives subsidies from the government, so long as the money received is devoted
or used altogether to the charitable object which it is intended to achieve; and no money inures to
the private benefit of the persons managing or operating the institution as provided in Sec 27(h) of
the NIRC.

Charitable institutions, however, are not ipso facto entitled to a tax exemption. The requirements
for a tax exemption are specified by the law granting it. The requirements for a tax exemption are
strictly construed against the taxpayer because an exemption restricts the collection of taxes
necessary for the existence of the government.

Based on the foregoing, SHH is not exempt from payment of income tax. The findings of the BIR
show that SHH is not operated exclusively for charitable purposes and it regularly supported the
activities of SPC, which is the member of the corporation, and thus disproving their claim no part of
their income inured to SHH member, or any person. Moreover, the burden of proof shifted to SHH
in claiming that it is exempt from income tax since tax exemptions are strictly construed against the
taxpayer.

Yes, the City Treasurer of Caloocan City can collect RPT on the land and building, however, only
those portions leased to various concessionaires of food, books, and school supplies.
In the case of Lung Center of the Philippines v. Quezon City, the Supreme Court ruled that under the
1973 and 1987 Constitutions and RA No. 7160, in order to be entitled to the tax exemption, the
petitioner is burdened to prove, by clear and unequivocal proof, that (a) it is a charitable
institution; and (b) its real properties are ACTUALLY, DIRECTLY and EXCLUSIVELY used for
charitable purposes. "Exclusive" is defined as possessed and enjoyed to the exclusion of others;
debarred from participation or enjoyment; and "exclusively" is defined, "in a manner to exclude; as
enjoying a privilege exclusively. If real property is used for one or more commercial purposes, it is
not exclusively used for the exempted purposes but is subject to taxation. The words "dominant
use" or "principal use" cannot be substituted for the words "used exclusively" without doing
violence to the Constitutions and the law. Solely is synonymous with exclusively.

What is meant by actual, direct and exclusive use of the property for charitable purposes is the
direct and immediate and actual application of the property itself to the purposes for which the
charitable institution is organized. It is not the use of the income from the real property that is
determinative of whether the property is used for tax-exempt purposes.

As such, while San Juan University use most of its properties actually, directly, and exclusively for
educational purposes (i.e., these properties would be RTP exempt), only the portions of the land
and/or buildings leased to private entities as are not exempt from RPT.
San Juan University is subject to 10% preferential tax for the year 2017 on income arising from
leasing portion of its premises to various concessionaires of food, books, and school supplies.
In the case of CIR v. St. Luke’s, the Supreme Court finds that it is a corporation that is not "operated
exclusively" for charitable or social welfare purposes insofar as its revenues from paying patients
are concerned. This ruling is based not only on a strict interpretation of a provision granting tax
exemption, but also on the clear and plain text of Section 30 (E) and (G). Section 30 (E) and (G) of
the NIRC requires that an institution be "operated exclusively" for charitable or social welfare
purposes to be completely exempt from income tax. An institution under Section 30 (E) or (G) does
not lose its tax exemption if it earns income from its for-profit activities. Such income from for-
profit activities, under the last paragraph of Section 30, is merely subject to income tax, previously
at the ordinary corporate rate but now at the preferential 10% rate pursuant to Section 27 (B). In
similar terms, Sec. 30 (H) also enjoys the same benefit from such case.
A tax exemption is effectively a social subsidy granted by the State because an exempt institution is
spared from sharing in the expenses of government and yet benefits from them. Tax exemptions for
charitable institutions should therefore be limited to institutions beneficial to the public and those
which improve social welfare. A profit-making entity should not be allowed to exploit this subsidy
to the detriment of the government and other taxpayers. St. Luke's fails to meet the requirements
under Section 30 (E) and (G) of the NIRC to be completely tax exempt from all its income. However,
it remains a proprietary non-profit hospital under Section 27 (B) of the NIRC as long as it does not
distribute any of its profits to its members and such profits are reinvested pursuant to its corporate
purposes. St. Luke's, as a proprietary non-profit hospital, is entitled to the preferential tax rate of
10% on its net income from its for-profit activities.
Based on the foregoing, since San Juan University is an entity that is not “operated exclusively” for
nonstock and nonprofit educational institution purposes insofar as its revenue earned from various
concessionaires are concerned, then it is subject to 10% preferential tax under Sec. 27 (B) on the
other income not related to its registered activities (i.e., income from leasing portion of its premises
to various concessionaires of food, books, and school supplies).
Yes, the City Assessor is correct in classifying the Center as commercial.
In the case of MCIAA v. Marcos, the SC held that under Sec. 234(b) of the LGC., Charitable
institutions, churches, parsonages or convents appurtenant thereto, mosques nonprofits or
religious cemeteries and all lands, building and improvements actually, directly, and exclusively
used for religious charitable or educational purposes are exempt from payment of RPT.
These exemptions are based on the ownership, character, and use of the property. Thus;
(a) Ownership Exemptions. Exemptions from real property taxes on the basis of ownership are
real properties owned by: (i) the Republic, (ii) a province, (iii) a city, (iv) a municipality, (v)
a barangay, and (vi) registered cooperatives.
(b) Character Exemptions. Exempted from real property taxes on the basis of their character
are: (i) charitable institutions, (ii) houses and temples of prayer like churches, parsonages
or convents appurtenant thereto, mosques, and (iii) non-profit or religious cemeteries.
(c) Usage exemptions. Exempted from real property taxes on the basis of the ACTUAL, DIRECT
and EXCLUSIVE use to which they are devoted are: (i) all lands buildings and
improvements which are actually, directed and exclusively used for religious, charitable or
educational purpose; (ii) all machineries and equipment actually, directly and exclusively
used or by local water districts or by government-owned or controlled corporations
engaged in the supply and distribution of water and/or generation and transmission of
electric power; and (iii) all machinery and equipment used for pollution control and
environmental protection.
Moreover, in the case of Lung Center v. Quezon City, the SC discussed that “what is meant by actual,
direct and exclusive use of the property for charitable purposes is the direct and immediate and
actual application of the property itself to the purposes for which the charitable institution is
organized. It is not the use of the income from the real property that is determinative of whether
the property is used for tax-exempt purposes. The petitioner failed to discharge its burden to prove
that the entirety of its real property is actually, directly and exclusively used for charitable
purposes. While portions of the hospital are used for the treatment of patients and the dispensation
of medical services to them, whether paying or non-paying, other portions thereof are being leased
to private individuals for their clinics and a canteen. Accordingly, SC held that the portions of the
land leased to private entities as well as those parts of the hospital leased to private individuals are
not exempt from such taxes. On the other hand, the portions of the land occupied by the hospital
and portions of the hospital used for its patients, whether paying or non-paying, are exempt from
real property taxes.
As such, since the Center derives income from the lease of its spaces to doctors who also entertain
out-patients, then the City Assessor is correct in classifying the Center as "commercial" instead of
"special”.

Under Sec. 13 (2) of PD 1869 grants PAGCOR exemptions –

(a) Franchise Holder: No tax of any kind or form, income or otherwise, as well as fees, charges
or levies of whatever nature, whether National or Local, shall be assessed and collected
under this Franchise from the Corporation; nor shall any form of tax or charge attach in any
way to the earnings of the Corporation, except a Franchise Tax of five (5%) percent of the
gross revenue or earnings derived by the Corporation from its operation under this
Franchise. Such tax shall be due and payable quarterly to the National Government and shall
be in lieu of all kinds of taxes, levies, fees or assessments of any kind, nature or description,
levied, established or collected by any municipal, provincial, or national government
authority.
(b) Others: The exemption herein granted for earnings derived from the operations conducted
under the franchise specifically from the payment of any tax, income or otherwise, as well
as any form of charges, fees or levies, shall inure to the benefit of and extend to
corporation(s), association(s), agency(ies), or individual(s) with whom the Corporation or
operator has any contractual relationship in connection with the operations of the casino(s)
authorized to be conducted under this Franchise and to those receiving compensation or
other remuneration from the Corporation or operator as a result of essential facilities
furnished and/or technical services rendered to the Corporation or operator.
However, in the case of PAGCOR v. BIR, the Supreme Court ruled that while PAGCOR while income
from gaming operations is subject only to five percent (5%) franchise tax under P.D. 1869, its
income from other related services is subject to corporate income tax.

Based on the foregoing, PAGCOR is only subject to Gross Receipt Tax of 5% and not subject to
Income tax, VAT and Withholding tax. However, its income from other related services is subject to
RCIT.

No, the rental income from the portion of its land leased to a mall is not exempt from income tax
and must be subjected to 10% preferential tax.
As discussed in the case of CIR v. St. Luke’s, the Supreme Court held that an institution under
Section 30 (E) or (G) does not lose its tax exemption if it earns income from its for-profit activities.
Such income from for-profit activities, under the last paragraph of Section 30, is merely subject to
income tax, previously at the ordinary corporate rate but now at the preferential 10% rate
pursuant to Section 27 (B). In similar terms, Sec. 30 (H) also enjoys the same benefit from such case.

Therefore, rental income, which is an income from for-profit activities, is subject to 10%
preferential tax.

Yes, Tax Exemption Ruling is still required prior to the availment of tax exemption of nonstock
nonprofit educational institution.
Under RMO 20-2013, only corporations or corporations that are duly qualified under Section 30
of the tax Code, as amended, shall be issued Tax Exemption Rulings. Corporations or
associations which apply for tax exemption ruling under Section 30(E) of the Tax Code, as
amended, must meet the following:
1. It must be a non-stock corporation or association organized and operated exclusively for
religious, charitable, scientific, athletic, or cultural purposes, or for rehabilitation of
veterans.
2. Must meet ORGANIZATIONAL TEST which means that it should limit its purposes to one or
more described in Section 30(E) of the Tax Code, as amended.
3. Must meet OPERATIONAL TEST which mandates that regular activities of the corporation
be exclusively devoted to accomplishment for its purpose, otherwise, it should be
considered as "activities conducted for profit" and thus, taxable
4. All the net income or assets of the corporation or association must be devoted to its
purpose/sand no part of its net income or asset accrues to or benefits any member or
specific person.
5. It must not be a branch of a foreign non-stock, non-profit corporation.
Non-stock and non-profit corporation or association claiming exemptions under Section 30 of the
Tax Code, as amended, but is not qualified will be subjected to regular income taxes. This, however,
may not apply to corporations claiming tax exemptions under special laws or under other
provisions of the Tax Code, as amended, other than Section 30 thereof.
Furthermore, an organization who wants to apply for tax exemption is required to submit
necessary documents as provided in RMO 20-2013 which will be evaluated if such organization or
corporation complies with the requisites of a non-stock and non-profit organization.
Based on the foregoing, Tax exemption Ruling is still required before any organization or
corporation can avail of the tax exemption provided in the Tax Code.