CHAM
Case No. 269
CHAPTER VI; Exclusion from Gross Income
Greenfield v Meer, p. 245
Summary: Greenfield, engaged in the embroidery business, began engaging in mining stocks for his own acct, and not as
a dealer. He was assessed deficiency taxes because he claimed as deduction P67,307.80 representing the net loss
sustained by him in mining stocks securities during the year which should be limited to the extent of the gains, the stocks
being a capital asset. In computing for the income tax due, Meer used the entire net income as per office audit, without
first deducting therefrom the amount of personal and additional exemptions.
FACTS
Greenfield has been continuously engaged in the embroidery business and began
engaging in buying and selling mining stocks and securities for his own exclusive account and
not for the account of others. However, Greenfield has not been a dealer in securities as defined
in Commonwealth Act No. 466; that he has no established place of business for the purchase and
sale of mining stocks and securities; and that he was never a member of any stock exchange.
Greenfield filed an income tax return for the calendar year 1939 showing that he made a
net profit from his embroidery business and from the purchase and sales of mining stocks and
securities.
In said income tax return, Greenfield claims his deduction of P67,307.80 representing
the net loss sustained by him in mining stocks securities during the year 1939. The defendant
disallowed said item of deduction on the ground that said losses were sustained by the plaintiff
from the sale of mining stocks and securities which are capital assets, and that the loss arising
from the sale of the same should be allowed only to the extent of the gains from such sales.
Defendant assessed plaintiff's income tax return for the year 1939 at P13,771.06. Defendant
computed the graduated rate of income tax due on the entire net income as per office audit,
without first deducting therefrom the amount of personal and additional exemptions.
ISSUE
 Whether or not the personal and additional exemptions should be considered as a
credit against or be deducted from the net income
RULING/MAIN POINT
It should be deducted from the net income. The lower court erred in not declaring
that personal and additional exemptions claimed by Greenfield should be credited against or
deducted from the net income, and consequently in not sentencing Meer to refund Greenfield.
The term “gross income” does not include those items of income exempted by the
stature, tax treaty, or fundamental law. Exemption is an immunity or privilege; it is freedom from
a charge or burden to which others are subjected. If the amounts of personal and additional
exemptions fixed in section 23 are exempt from taxation, they should not be included as part of
the net income, which is taxable. There is nothing in said section 23 to justify the contention that
the tax on personal exemptions (which are exempt from taxation) should first be fixed, and then
deducted from the tax on the net income.
CHAM
Case No. 270
CHAPTER VI; Exclusion from Gross Income
CIR v. CTA, Atlas, Mitsubishi Metal Corp, p. 245
Summary: Mitsubishi granted a loan to Atlas. Mitsubishi then applied for a loan with the Eximbank of Japan obviously for
purposes of its obligation under said contract (to lend). Pursuant to their contract, interests were paid by Atlas, with a
corresponding 15% tax in the amount of P1.9M. The amount was withheld and remitted to the gov’t. Respondents later
filed a claim for the tax credit requesting that the tax paid would be applied against their existing and future tax
liabilities. Mitsubishi claimed that it was a mere conduit of Eximbank and that the interest should be exempt because
the loans came from Eximbank, a foreign bank.
FACTS
Atlas Consolidated Mining and Development Corporation entered into a Loan and Sales
Contract with Mitsubishi for purposes of the projected expansion of the productive capacity of
the former's mines in Toledo. Under said contract, Mitsubishi agreed to extend a loan to Atlas in
the amount of $20M. Pursuant to their contract, interests were paid by Atlas, with a
corresponding 15% tax in the amount of P1.9M. The amount was withheld and remitted to the
gov’t.
Mitsubishi thereafter applied for a loan with the Export Import Bank of Japan
(Eximbank) obviously for purposes of its obligation under said contract. Private respondent filed
a claim for the tax credit requesting that the above-mentioned sum would be applied against
their existing and future tax liabilities. It was noted by CTA that Mitsubishi executed a waiver and
disclaimer of interest in the claim for tax credit in favor of Atlas.
Mitsubushi argued that it was merely an agent of Eximbank (financing institution owned
by Japanese gov’t), and is a basis from Mitsubishi to claim exemption from paying the tax on the
interest. Further, Mitsubishi claimed that the interest payments were exempted because the
loans came from Eximbank (Reference to section 29(b)(7)(A) of the NIRC).
CTA granted the exemption and adjudged that Mitsubishi was merely an arranger or
conduit which the loan flowed through from Eximbank to Atlas.
ISSUE
Whether or not the interest income from the loans extended to Atlas by Mitsubishi is
excludible from gross income taxation pursuant to Section 29 b) (7) (A) of the tax code and,
therefore, exempt from withholding tax
RULING/MAIN POINT
No. The only signatories to the same were MITSUBISHI and ATLAS. Nowhere in the
contract can it be inferred that MITSUBISHI acted for and in behalf of EXIMBANK, of Japan nor of
any entity, private or public, for that matter. In the case at bar, when MITSUBISHI obtained the
loan of $20 million from EXIMBANK, of Japan, said amount ceased to be the property of the bank
and became the property of MITSUBISHI.
The interest, therefore, of the loan paid by Atlas to Mitsubishi is entirely different from
the interest paid by Mitsubishi to Eximbank. The subject of the 15% withholding tax was the
interest earned by Mitsubishi from Atlas, not Eximbank from Mitsubishi.
Such tax-free income should not be included in the income tax return (BIR Form 1702),
unless information regarding it is specifically called for. The exclusion of such income should not
be confused with the reduction of gross income by the application of allowable statutory
deductions. Exclusions are in the nature of tax exemptions, and it behooves upon the taxpayer to
establish them convincingly.
SHEENA
CASE NO. 271
Categories of Exclusions from Gross Income
Dumaguete Cathedral Credit Cooperative v. CIR, G.R. No. 182722, 2010
Summary: Petitioner was assessed for deficiency withholding taxes for (1) the honorarium of the Board of Directors,
security and janitorial services, legal and professional fees, and (2) interest on savings and time deposits of its
members. Petitioner paid only for the honorarium and fees and claimed that a BIR Ruling declares interests from
deposits maintained by members of cooperative not subject to withholding tax. CTA held that the BIR Ruling applies
only to deposits placed in the bank and not in the cooperative.
FACTS:
Petitioner was assessed for deficiency withholding taxes for 1999 and 2000, covering the
payments of –
(1) the honorarium of the Board of Directors, security and janitorial services, legal and
professional fees, and
(2) interest on savings and time deposits of its members.
Petitioner paid only for the honorarium and fees and claimed that a BIR Ruling declares interests
from deposits maintained by members of cooperative not subject to withholding tax.
CTA held that the BIR Ruling applies only to deposits placed in the bank and not in the
cooperative such as the instant case.
ISSUE: W/N it is liable to pay the deficiency withholding taxes on interest from savings and time
deposits of its members.
RULING & MAINPOINT in bold:
NO. There is nothing in the BIR ruling to suggest that it applies only when deposits are
maintained in 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 its
members. Members of the cooperatives deserve preferential tax treatment pursuant to
R.A. 6938, as amended by R.A. 9520.
SHEENA
CASE NO. 272
Amounts received under life insurance, endowment, or annuity contracts
El Oriente Fabrica de Tabacos Inc. v. Posadas, 56 Phil. 147 (1931)
Summary: El Oriente procured a life insurance policy for its experienced manager designating itself as the beneficiary.
When the manager died, El Oriente received all the insurance proceeds, together with the interests and the dividends
accruing thereon. CIR assessed El Oriente for deficiency taxes because El Oriente did not include as income the proceeds
received from the insurance.
FACTS: El Oriente procured a life insurance policy for its experienced manager designating itself
as the beneficiary. El Oriente charged as legitimate expenses of its business all the premiums
paid and deducted the same from its gross incomes as reported in its annual income tax returns.
Upon the death of the manager, El Oriente received all the insurance proceeds, together with the
interests and the dividends accruing thereon.
CIR assessed El Oriente for deficiency taxes because El Oriente did not include as income the
proceeds received from the insurance.
ISSUE: W/N the proceeds of insurance taken by a corporation on the life of an important official
to indemnify it against loss in case of his death, are taxable as income under the Philippine
Income Tax Law.
RULING & MAINPOINT in bold: NO. Proceeds of life insurance, payable upon the death of
the insured, are considered as indemnity rather than income to the heirs or beneficiaries
who could be corporations or individuals. But interest payments thereon shall be taxable,
if such amounts are held by the insurer under an agreement to pay interest.
SHEENA
CASE NO. 273
Value of property acquired by gift, bequest, devise or descent
Pirovano (Enrico’s children) v. CIR, 14 SCRA 832 (1965)
Summary: Pirovano, Pres and GM of Dela Rama Steamship Co., made significant contributions to the success of the
corporation. His life was insured by the corporation which is also the beneficiary under the insurance policy. When he
died, the corporation donated the proceeds of the life insurance policy to his 4 minor children. CIR then assessed donor
and donee’s tax against the corporation and the children.
FACTS:
Enrico Pirovano was the President and General Manager of Dela Rama Steamship Co., he made
significant contributions to the success of the corporation. His life was then insured by the
corporation which paid the premiums and is the beneficiary under the insurance policy. When he
died, the corporation donated the proceeds of the life insurance policy to his 4 minor children.
CIR then assessed donor and donee’s tax against the corporation and the Pirovano children.
The children contested the imposition arguing that the donation was a remuneratory one, made
in consideration of the services rendered by their father, hence, not a taxable gift.
ISSUE: W/N the imposition of the donees’ gift tax is proper.
RULING:
YES. The consideration for the donation was the company's gratitude for the services, and not
the services themselves. Gifts, bequests and devises (which are subject to estate or gift
taxes) are excluded, but not the income from such property. If the amount received is on
account of services rendered, whether constituting a demandable debt or not, or the use
or opportunity to use of capital, the receipt is income.
RYLE
CASE NO. 274
Exemptions for gross income
Amounts received through accident/health insurance
BF Metal v. Sps. Lomotan and Umuyon
Summary: Umuyon was driving an owner-type jeep owned by Sps Lomotan when he met an accident caused by Rivera,
dribinga 10-wheeler truck owned by BF Metal. Umuyon suffered injuries and the jeep was in total wreck. Respondents
instituted a civil action for damages against BF Metal and Rivera. Both RTC and CA awarded P100,000 in moral damages.
Petitioner argued that the award of moral damages was premised on the resulting physical injuries arising from the
quasi-delict; since only Umuyon suffered physical injuries, the award should pertain solely to him.
FACTS: Umuyon was driving the owner-type jeep owned by Spouses Lomotan when suddenly, at
the opposite lane, the speeding ten-wheeler truck driven by Rivera overtook a car by invading
the lane being traversed by the jeep and rammed into the jeep. The jeep was a total wreck while
Umuyon suffered injuries which entailed his hospitalization for 19 days. Also in view of the
injuries he sustained, Umuyon could no longer drive, reducing his daily income fromP150.00 to
P100.00. This prompted him to institute a separate and independent civil action for damages
against petitioner BF Metal Corporation and Rivera before the RTC. The complaint prayed for the
award of actual, exemplary and moral damages and attorney’s fees. The trial court awarded
P161,700.00 for actual damages, P 100,000.00 for moral damages, P100,000 for exemplary
damages, and attorney’s fees. However, the appellate court lowered the amount of actual
damages awarded to P 143,672.
ISSUE/S: W/N Spouses Lomotan are also entitled to moral damages
RULING: NO. In the case of moral damages, recovery is more an exception rather than the rule.
Moral damages are not punitive in nature but are designed to compensate and alleviate the
physical suffering, mental anguish, fright, serious anxiety, besmirched reputation, wounded
feelings, moral shock, social humiliation, and similar harm unjustly caused to a person.
There is no legal basis in awarding moral damages to Spouses Lomotan whether arising from the
criminal negligence committed by Rivera or based on the negligence of petitioner under Article
2180. Article 2219 speaks of recovery of moral damages in case of a criminal offense resulting in
physical injuries or quasi-delicts causing physical injuries, the two instances where Rivera and BF
Metal are liable for moral damages to Umuyon. Article 2220 does speak of awarding moral
damages where there is injury to property, but the injury must be willful and the circumstances
show that such damages are justly due. There being no proof that the accident was willful, Article
2220 does not apply.
MAINPOINT (or in bold): In the case of moral damages, there must be pleading and proof
of moral suffering, mental anguish, fright and the like. The award of moral damages fulfils
two purposes: (a) to compensate the morally injured; and (b) to alleviate the suffering.
RYLE
CASE NO. 275
Exemptions for gross income
Amounts received through accident/health insurance
Sulpicio Lines v. Curso
Summary: Curso boarded a ship owned by Sulpicio Lines, which sunk due to a typhoon. His body was not found, and was
presumed dead. Curso’s siblings claimed damages based on breach of contract of carriage by sea, averring that the
petitioner had acted negligently in transporting Dr. Curso and the other passengers.
FACTS: Curso boarded a ship owned by Sulpicio Lines, which eventually sunk due to a typhoon.
His body was not found, and was presumed dead. Curso’s relatives claim damages based on
breach of contract of carriage by sea, averring that the petitioner had acted negligently in
transporting Dr. Curso and the other passengers. They also prayed for damages to be paid to
them. RTC dismissed the claim since the sinking was due to force majeure; CA set aside RTC’s
position. Hence the appeal to the SC.
ISSUE/S: Are the surviving brothers and sisters of a passenger of a vessel that sinks during a
voyage entitled to recover moral damages from the vessel owner as common carrier?
RULING: No. To be entitled to moral damages, the respondents must have a right based upon
law. It is true that under Article 1003 of the Civil Code they succeeded to the entire estate of the
late Dr. Curso in the absence of the latter’s descendants, ascendants, illegitimate children, and
surviving spouse. However, they were not included among the persons entitled to recover moral
damages, as enumerated in Article 2219 of the Civil Code. The provision does not include
succession in the collateral line as a source of the right to recover moral damages. The usage of
the phrase analogous cases in the provision means simply that the situation must be held similar
to those expressly enumerated in the law in question following the ejusdem generis rule. Hence,
Article 1003 of the Civil Code is not concerned with recovery of moral damages.
MAINPOINT (or in bold): In the case of moral damages, there must be pleading and proof
of moral suffering, mental anguish, fright and the like. The award of moral damages fulfills
two purposes: (a) to compensate the morally injured; and (b) to alleviate the suffering.
RYLE
CASE NO. 276
Exemptions for gross income
Amounts received through accident/health insurance
Kierulf v. CA
Summary: Pantranco bus driven by Malanum lost control and swerved to the left and hit the front of the Isuzu pickup
driven by Legaspi which was smashed to pieces and inflicting physical injury to Legaspi and his passenger Lucila Kierulf.
Lucila Kierulf suffered extensive injuries which disfigured her. CA awarded Lucila (200K) and driver Legaspi (25K).
Lucila and husband claimed that CA should have considered the impairment or destruction of their sexual life because of
Lucila’s deformity. They claimed that the damages should be at P1M,  not only because of Lucila’s suffering of loss of sex,
but also for husband’s psychological suffering.

FACTS: Pantranco bus was traveling along EDSA. The driver lost control of the bus, causing
vehicle damage and physical injuries. Lucila Kierulf suffered extensive injuries which disfigured
her. This required major surgeries and prolonged treatment by specialists. Also, the front portion
of the pickup truck, owned by Spouses Kierulf was smashed to pieces which cost her
P107,583.50.
Pantranco adds that on said day, the abovementioned bus was driven by Jose Malanum. While
cruising along EDSA, a used engine differential accidentally and suddenly dropped from a junk
truck in front of the bus. Said differential hit the underchassis of the bus, throwing Malanum off
his seat and making him lose control of said bus. The bus swerved to the left, hit the center
island, and bumped the pickup of the spouses. Lower court awarded P200, 000 for costs +
P20,000 moral damages. Kierulf claimed P1M + P100,000 moral damages.
ISSUE/S: W/N the award for moral damages is sufficient.
RULING: No, but grant should only up to P400K. Moral damages are awarded to enable the
injured party to obtain means, diversions or amusements that will serve to alleviate the moral
suffering he/she has undergone, by reason of the defendant's culpable action. Its award is aimed
at restoration, as much as possible, of the spiritual status quo ante; thus, it must be proportionate
to the suffering inflicted. Since each case must be governed by its own peculiar circumstances,
there is no hard and fast rule in determining the proper amount. The yardstick should be that the
amount awarded should not be so palpably and scandalously excessive as to indicate that it was
the result of passion, prejudice or corruption on the part of the trial judge. Neither should it be so
little or so paltry that it rubs salt to the injury already inflicted on plaintiffs.
MAINPOINT (or in bold): Moral damages, though incapable of pecuniary estimation, are in
the category of an award designed to compensate the claimant for actual injury suffered
and not to impose a penalty on the wrongdoer.
KARLY CASE NO. 277
AMOUNTS RECEIVED THROUGH ACCIDENT OR HEALTH INSURANCE
ERLINDA FRANCISCO vs. RICARDO FERRER, G.R. No. 142029. February 28, 2001
Summary: Ferrer filed an action for breach of contract with damages against Francisco because the latter failed to
deliver a 3-layered cake for the wedding because the order slip got lost. Both RTC and CA awarded moral damages in
favor of Ferrer. Francisco alleged that moral damages are recoverable in breach of contract cases only where the
breach was palpably wanton, reckless, malicious, in bad faith, oppressive or abusive.
FACTS: On March 12, 1993, respondent filed with the RTC-Cebu City an action for breach of
contract with damages against petitioner on the ground that the petitioner, owner of
Fountainhead Bakeshop, failed to deliver a 3-layered cake for the wedding on Dec. 14, 1992 due
to order slip got lost. RTC ruled in favor of the respondent. On appeal, CA modified the RTC’s
decision by increasing the award of moral damages from P30,000.00 to P250,000.00; and in
addition to moral damages, CA awarded exemplary damages of P100,000.00 in favor of
respondent.
Petitioners submit that the CA and the trial court erred in awarding moral damages in favor of
respondents because moral damages are recoverable in breach of contract cases only where the
breach was palpably wanton, reckless, malicious, in bad faith, oppressive or abusive. Hence, this
petition for review via certiorari.
ISSUE: WON moral and exemplary damages are recoverable in breach of contract cases only
where the breach was reckless, in bad faith, or oppressive. Hence, the petitioner is not liable.
RULING: YES. Moral damages may be awarded in breaches of contracts where the defendant
acted fraudulently or in bad faith. In this case, there is no such bad faith or fraud. Moral
damages are in the category of an award designed to compensate the claimant for actual
injury suffered and not to impose a penalty on the wrongdoer.
Nevertheless, the facts show that when confronted with their failure to deliver on the wedding
day the wedding cake was ordered and paid for, petitioners gave the lame excuse that delivery
was probably delayed because of the traffic, when in truth, no cake could be delivered because
the order slip got lost. For such prevarication, petitioners must be held liable for nominal
damages for insensitivity, inadvertence or inattention to their customers anxiety and
need of the hour.
VERDICT: SC reversed the CA’s decision and awarded nominal damages amounting to P10,000
only. No moral and exemplary damages were awarded for failure to prove fraud or bad faith.
KARLY CASE NO. 278
AMOUNTS RECEIVED THROUGH ACCIDENT OR HEALTH INSURANCE
ABS-CBN BROADCASTING CORPORATION vs. CA, VIVA, VIC DEL ROSARIO, REPUBLIC
BROADCASTING CORP. (RBC), G.R. No. 128690 January 21, 1999
Summary: Del Rosario proposed to sell to ABS-CBN airing rights over 104 Viva films for P60M. ABS-CBN counter-
proposed to buy exclusive rights to 14 films only got P36M. This was allegedly agreed upon by Del Rosario and put this
agreement as to the price and number of films in a "napkin'' signed by Mr. Lopez of ABS-CBN. Later on, Viva and Del
Rosario denied having such agreement and sold the rights to RBC. ABS-CBN then filed a complaint for specific
performance with a prayer for a writ of preliminary injunction against private respondents for the agreement. Both CA
and RTC held that there was no perfected contract, also awarded moral damages to RBC for its besmirched
reputation.
FACTS: On February 27, 1992, defendant Vic Del Rosario (producer) approached ABS-CBN, with
a list consisting of 104 films (52 re-runs & 52 original movies) proposing to sell ABS-CBN airing
rights over this package for P60M. ABS-CBN’s counter proposal that it be granted exclusive film
rights to 14 films only for a total consideration of P36 million which was allegedly agreed upon
by Del Rosario and put this agreement as to the price and number of films in a "napkin'' signed
by Mr. Lopez of ABS-CBN. Thereafter, ABS-CBN demanded that VIVA sign the 1992 Film
Exhibition Agreement to which Del Rosario denied having made any agreement with Lopez
regarding the 14 Viva films. Hence, Del Rosario and VIVA offered the same to RBC which was
accepted by the latter.
ABS-CBN filed before the RTC a complaint for specific performance with a prayer for a writ of
preliminary injunction against private respondents for the 1992 Film Exhibition Agreement. On
appeal, CA affirmed RTC’s decision on the ground that there was no perfected contract between
ABS-CBN and VIVA. Private respondents VIVA and Del Rosario also appealed seeking moral and
exemplary damages. As to the award of moral damages, the CA found reasonable basis therefore,
holding that RBS's reputation was debased by the filing of the complaint and by the non-showing
of the film "Maging Sino Ka Man." Hence, the petitioner filed a petition for review on certiorari.
ISSUE: WON the CA’s decision to award moral damages in favor of the RBC is valid.
RULING: NO. The award of moral damages cannot be granted in favor of a corporation because,
being an artificial person and having existence only in legal contemplation, it has no feelings, no
emotions, no senses, It cannot, therefore, experience physical suffering and mental anguish,
which can be experienced only by one having a nervous system. On this score alone the award
for damages must be set aside, since RBS is a corporation. Moral damages are in the category
of an award designed to compensate the claimant for actual injury suffered. and not to
impose a penalty on the wrongdoer. The award is not meant to enrich the complainant at
the expense of the defendant, but to enable the injured party to obtain means, diversion,
or amusements that will serve to obviate the moral suffering he has undergone.
KARLY CASE NO. 279
INCOME EXEMPT FROM UNDER TREATY
NATIONAL DEVELOPMENT COMPANY vs. CIR, G.R. No. L-53961
Summary: NDC entered into contracts in Tokyo with several Japanese shipbuilding companies for the construction of 12
ocean-going vessels. Corresponding payments and interest remittances were made by NDC. BIR assessed NDC for
deficiency withholding tax on interest income paid to the foreign corporations. NDC claimed that the Japanese
shipbuilders were not subject to tax under the above provision because all the related activities — the signing of
the contract, the construction of the vessels, the payment of the stipulated price, and their delivery to the NDC —
were done in Tokyo.
FACTS: The National Development Company entered into contracts in Tokyo with several
Japanese shipbuilding companies for the construction of 12 ocean-going vessels. Initial payments
were made in cash and through irrevocable letters of credit. 14 promissory notes were signed for
the balance by the NDC and, as required by the shipbuilders, guaranteed by the Republic of the
Philippines. The remaining payments and the interests thereon were remitted in due time by the
NDC to Tokyo.
The BIR assessed NDC for deficiency withholding tax on interest income paid to the foreign
corporations. NDC claimed exemption under the old Section 29(b)(4) of the 1977 Tax Code. The
petitioner argues that the Japanese shipbuilders were not subject to tax under the above
provision because all the related activities — the signing of the contract, the construction of the
vessels, the payment of the stipulated price, and their delivery to the NDC — were done in Tokyo.
CTA ruled in favor of BIR. Hence, this petition for certiorari.
ISSUE: WON NDC should remit the withholding tax on interest income paid to Japanese
shipbuilders.
RULING: YES. The Japanese shipbuilders were liable to tax on the interest remitted to them
under Section 37 of the Tax Code. The Court ruled that CA 182, as amended by CA 311, does
not provide such authorization exempting interest under Section 29(b)(4) of the old Tax
Code, but like RA 1407, it does not exempt from taxes the interest on such securities. Tax
exemptions cannot be merely implied but must be categorically and unmistakably
expressed. Any doubt concerning this question must be resolved in favor of the taxing
power. Moreover, there was nothing in the undertaking signed by the Secretary of Finance
that the court found any inhibition against the collection of the disputed taxes. In fact, the
government made such undertaking in consonance with and certainly not against the
provisions of the Tax Code. It must be noted that NDC is not the entity being taxed here.
The tax was due on the interest earned by the Japanese shipbuilders, which NDC is
mandated to withhold and deduct from the payment.
AREEJ
CASE NO. 280
Retirement benefits, pensions, gratuities etc. | Terminal leave pay
CIR v. GCL Retirement Plan | G.R. No. 95022, March 23, 1992
Summary: GCL is an employees' trust to provide retirement, pension, disability and death benefits to its employees,
which is exempt from income tax by CIR. GCL made investments and earned therefrom interest income from which
was withheld the 15% final withholding tax. GCL filed a claim for refund stating that it is an entity fully exempt from
income tax as provided under RA 4917.
FACTS: GCL Retirement Plan (GCL) is an employees' trust to provide retirement, pension,
disability and death benefits to its employees, which is exempt from income tax by CIR
pursuant to RA 4917 (enacted 1967, an act providing that retirement benefits of employees of private firms shall not be subject to attachment etc).
GCL made investments and earned therefrom interest income from which was withheld the 15%
final withholding tax imposed by PD 1959 (enacted 1985, amending NIRC). Thus, GCL filed a claim for refund
stating that it is an entity fully exempt from income tax as provided under RA 4917. CTA ruled in
favor of GCL. Hence, the petition. Petitioner insists that when PD 1959 was promulgated,
employees' trusts ceased to be exempt and thereafter became subject to the final withholding
tax.
ISSUE: Whether or not the GCL Plan is exempt from the final withholding tax on interest income
from money placements and purchase of treasury bills required by PD 1959.
RULING: YES. The GCL Plan was qualified as exempt from income tax pursuant to RA 4917,
which should be taken in relation to then Section 56(b) (now 53[b]) of the Tax Code, as amended
by RA 1983, which specifically exempted employee's trusts from income tax.
Employees' trusts or benefit plans normally provide economic assistance to employees upon the
occurrence of certain contingencies, particularly, old age retirement, death, sickness, or
disability. The tax advantage in RA 1983, Section 56(b), was conceived in order to encourage the
formation and establishment of such private Plans for the benefit of laborers and employees
outside of the Social Security Act. It is evident that tax-exemption is likewise to be enjoyed by the
income of the pension trust. Otherwise, taxation of those earnings would result in a diminution
accumulated income and reduce whatever the trust beneficiaries would receive out of the trust
fund, which is contrary to the intendment of the law. Besides, PD 1959 is a general law which
cannot repeal by implication a specific provision such as Section 56 (b).
AREEJ
CASE NO. 281
For any cause beyond the control of the said official or employee
CIR v. CA and Efren Castaneda | 203 SCRA 72 (1991)
Summary: Upon Castaneda’s retirement from the government service, he received terminal leave pay (cash equivalent of
accumulated vacay and sick leaves) from which CIR withheld P12,557.13 allegedly representing income tax thereon. CIR
contends that the terminal leave pay is income derived from employer-employee relationship and that as part of
the compensation for services rendered, terminal leave pay is actually part of gross income of the recipient.
FACTS: Efren P. Castaneda retired from the government service as Revenue Attache in the
Philippine Embassy in London, England. Upon retirement, he received terminal leave pay from
which petitioner Commissioner of Internal Revenue withheld P12,557.13 allegedly representing
income tax thereon.
CIR contends that the terminal leave pay is income derived from employer-employee
relationship and that as part of the compensation for services rendered, terminal leave pay is
actually part of gross income of the recipient.
ISSUE:  Whether or not terminal leave pay received by a government official or employee on the
occasion of his compulsory retirement from the government service is subject to withholding
(income) tax
RULING: NO. Any amount received by an official or employee or by his heirs from the employer
as a consequence of separation of such official or employee from the service of the employer due
to death, sickness, or other physical disability or for any cause beyond the control of the said
official or employee is excluded. The tax exemption applies to the salary or cash equivalent of
accumulated vacation and sick leaves such as the “terminal leave pays” of retiring government
employees, which are considered NOT part of the gross salary. The case equivalent of unused
vacation and sick leave credits qualifies as part of separation benefits excluded from gross
income.
Not being part of the gross salary or income of a government official or employee but a
retirement benefit, terminal leave pay is not subject to income tax.
AREEJ
CASE NO. 282
For any cause beyond the control of the said official or employee
CIR v. CA and Efren Castaneda | G.R. No. 96016, October 17, 1991
AREEJ
CASE NO. 283
For any cause beyond the control of the said official or employee
CIR v. CA | G.R. No. 96016, October 17, 1991
DE FIESTA
CASE NO. 284.
For any cause beyond the control of the said official or employee
Stanton v. US, F. Supp. 393
Summary: When Quiroz, chief accountant of a hospital, retired at 65, he received retirement pay equivalent to 2 months’
salary of every year of service as provided in the BIR approved retirement plan. In view of his loyalty and invaluable
service for 45 years, the BOD resolved to pay him a gratuity of P1 Million over and above his retirement pay. CIR taxed
the P1M as part of the gross compensation income of Quiroz who protested that it was excluded from income
because (a) it was a retirement pay, and (b) it was a gift.
FACTS: Mr. Quiroz worked as chief accountant of a hospital for 45 years. When he retired at 65
he received retirement pay equivalent to 2 months’ salary of every year of service as provided in
the hospital BIR approved retirement plan. The Board of Directors of the hospital felt that the
hospital should give Quiroz more than what was provided for in the hospital’s retirement plan. In
view of his loyalty and Invaluable services for 45 years, hence, it resolved to pay him a gratuity of
P1 Million over and above his retirement pay.
The CIR taxed the P1M as part of the gross compensation income of Quiroz who protested that it
was excluded form income because (a) it was a retirement pay, and (b) it was a gift.
ISSUE: W/N Mr. Quiroz is correct in claiming that the additional P1M was a gift and therefore
excluded from income?
RULING: NO. The amount received was in consideration of his loyalty and invaluable services to
the company which is clearly a compensation income received on account of employment. Under
the employer’s ‘motivation test,’ emphasis should be placed on the value of Mr. Quiroz services to
the company as the compelling reason for giving him the gratuity; hence, it should constitute a
taxable income. The payment would only qualify as a gift if there is nothing but ‘good will,
esteem and kindness’ which motivated the employer to give the gratuity.
DE FIESTA
CASE NO. 285
Miscellaneous items
Philippine Long-Distance Telephone Co. v. CIR, CTA Case No. 4375, January 7, 1992
Summary: PLDT purchased RETELCO. As a result, petitioner assumed the obligations under which RETELCO was still
bound in a supply contract with Gold-Star Tele-Electric Co., Ltd. (GST) of Korea. As a consequence of this contract
originally between GST and RETELCO, the export-import bank of Korea (KOEXIM BANK) granted GST an export loan to
finance importations of RETELCO. PLDT paid interest amounting to $599, 833.39 and remitted to the BIR the 15%
withholding tax on the entire interest payment on the loan. Later, PLDT asked for a refund claiming that the
withholding tax was erroneously paid and are not taxable in the Ph. Petitioner invoked the provisions of the RP-
Korea Tax Treaty. It alleged that said double taxation occurs where petitioner pays in the Philippines 15%
withholding tax on the interest on the loan extended by the KOEXIM BANK, while the same interest, which is
income of the party in Korea, shall also be subject to the corresponding tax in Korea.
FACTS: Petitioner acquired by purchase the Republic Telephone Company (RETELCO). As a
result, petitioner assumed the obligations under which RETELCO was still bound in a supply
contract with Gold-Star Tele-Electric Co., Ltd. (GST) of Korea involving the purchase of various
equipment by RETELCO for its expansion/ modernization program. As a consequence of this
contract originally between GST and RETELCO, the export-import bank of Korea (KOEXIM
BANK) granted GST an export loan to finance importations of RETELCO. Having bought
RETELCO, petitioner paid interest amounting to $599, 833.39 and remitted to the BIR the 15%
withholding tax on the entire interest payment on the loan, including the portion of the contract
financed by KOEXIM BANK.
Petitioner maintains that the withholding tax on the interest on the portion of the purchase price
corresponding 76% of the loan extended by KOEXIM BANK were erroneously paid and are not
taxable in the Philippines, hence, it is entitled to a refund. Petitioner invoked the provisions of
the RP-Korea Tax Treaty – the double taxation. It alleged that said double taxation occurs where
petitioner pays in the Philippines 15% withholding tax on the interest on the loan extended by
the KOEXIM BANK, while the same interest, which are income of the party in Korea, shall also be
subject to the corresponding tax in Korea.
ISSUE: W/N petitioner is entitled to a refund of the alleged erroneously paid withholding tax on
interest in the light of the provisions of the RP-Korea Tax Treaty in relation to the NIRC.
RULING: YES. It can be logically established that the RETELCO loan was, in effect, a loan from a
Korean government financial institution, the KOEXIM BANK. This settled, we find petitioner’s
alternative recourse to Section 28 of the NIRC to be also well-founded. Section 28 enumerates
the exclusions from gross income: Income derived from investments in the Philippines in
loans, stocks, bonds, or other domestic securities, or from interest on deposits in banks in the
Philippines by (i) foreign governments, (ii) financing institutions owned, controlled, or enjoying
refinancing from foreign governments, and (iii) international or regional financial institutions
established by foreign government.
Income granted by a financial institution of a foreign government such as the KOEXIM BANK is
expressly excluded from gross income and exempted from taxation, there is no necessity of
showing that such income has been taxed in Korea.
DE FIESTA
CASE NO. 286
Loan agreement without stipulation that foreign creditors act for Eximbank
Asia Transmission Corporation (ATC) v. CIR, CTA Case No. 3380, July 27, 1988
Summary: ATC into a loan agreement with Mitsubishi Motor Corp., and Nissho-Iwa Co., Ltd, corporations organized and
existing under the laws of Japan. ATC filed for a refund with BIR, alleging that the loans were actually executed by
Eximbank through Mitsubishi and Nissho, and therefore, exempt from PH withholding tax on income, Eximbank being a
financial institution owned and controlled by the government of Japan.
FACTS: Petitioner is a domestic corporation organized and existing under Philippine laws. It
entered into a loan agreement with Mitsubishi Motor Corporation., and Nissho-Iwa Co., Ltd,
corporations organized and existing under the laws of Japan, with the amount of Japanese Yen
127, 500, 000 YEN, and 300,000,000 YEN, each corporation. Petitioner filed a refund to the BIR
amounting to P517K alleging that the loans were executed to petitioner by Eximbank through
Mitsubishi and Nissho, and therefore, exempt from PH withholding tax on income pursuant to
the then Sec. 29 (b) (8) of NIRC, Eximbank being a financial institution owned and controlled by
the government of Japan.
ISSUE: W/N the interest income is not exempt from the Philippine income tax
RULING:  NO. If the loan agreements states nothing about the loan being obtained from
Eximbank of Japan nor can it be inferred or deduced from the loan agreements that foreign
creditors acted for and in behalf of Eimbank of Japan, or Eimbank of Japan had to finance or
guarantee the loans extended by foreign creditors, interest income is not exempt from the
Philippine income tax.
FRED
CASE No. 287
VI. EXCLUSION FROM GROSS INCOME: Loan and sales with Eximbank
CIR v. Mitsubishi Metal Corp., G.R. No. L-54908
SAME WITH 270
FACTS: Atlas and Mitsubishi, private respondents (PRs), entered a loan and sales contract where
Mitsubishi loaned $20M from Eximbank of Japan to be extended to Atlas for it to produce copper
and sell to Mitsubishi the product for 15 years. PRs later, filed a claim for tax requesting that
P1.9M be applied for their existing and future tax liabilities. CIR ignored. On appeal, PRs claimed
exemption from gross income claiming that Mitsubishi is a mere agent of Eximbank which is
owned by Japanese gov’t. CIR opposed. CTA ruled in favor of PRs. Hence, this petition.
ISSUE: w/n Mitsubishi is a mere conduit of Eximbank which will then be considered as the
creditor whose investments in the Philippines on loans are exempt from taxes under the code?
RULING: NO. The taxability of a party cannot be blandly glossed over on the basis of a
supposed "broad, pragmatic analysis" alone without substantial supportive evidence, lest
governmental operations suffer due to diminution of much needed funds.
While international comity is invoked in this case on the nebulous representation that the
funds involved in the loans are those of a foreign government, scrupulous care must be
taken to avoid opening the floodgates to the violation of our tax laws. The loan and sales
contract between Mitsubishi and Atlas does not contain any direct or inferential reference to
Eximbank whatsoever.
FRED
CASE No. 288
VI. EXCLUSION to GROSS INCOME: Foreign owned Finance Institutions
Gov’t of Singapore Investment Corp. v. CIT, CTA Case No. 6745
Summary: GSIC, a financial institution wholly owned/controlled by Sg, had holdings with other Ph corporations thru
HSBC. When cash dividends were declared in its favor, a tax deduction was made amounting to P4M. GSIC then sought a
refund of the deductions.
FACTS: GSIC is a financial institution wholly owned/controlled by Singapore. It had holdings
with other Philippine corporations thru HSBC. Later, cash dividends were declared in its favor by
its shareholders amounting to P19M in which a tax deduction was made amounting to P4M. GSIC
sought a refund of the deductions. CIR ignored. Hence, this petition.
ISSUE: w/n GSIC is entitled to a refund since it is a foreign financing institution owned and
controlled by Singapore, thus exempt from income taxes?
RULING: YES. A financing institution wholly-owned and controlled by a foreign Government is
legally exempt from the final tax on dividends.
CASE No. 289
VI. EXCLUSION FROM GROSS INCOME: Gains cannot include interest
Nippon Life Insurance v. CIR, CTA Case No. 6142
Summary: Nippon purchased a City Bank Bond (P20M) where it collected interest income on the bond amounting to
P1.8M. Nippon sold the bond to HSBC where it received P27M in exchange. A tax deduction was passed amounting to
P2M. BIR later issued a ruling exempting interest income derived from bonds which are subject to 20% final tax
under S27D(1) of NIRC. Nippon claimed for refund but was ignored.
FACTS: Nippon in an investment venture, purchased City Bank Bond (P20M) where it collected
interest income on the bond amounting to P1.8M. Nippon sold the bond HSBC where it received
P27M in exchange. A tax deduction was passed amounting to P2M. BIR later issued a ruling
exempting interest income derive from bonds which are subject to 20% final tax under S27D(1)
of NIRC. Nippon claimed for refund but was ignored. Hence, this appeal.
ISSUE: w/n petitioner is entitled to refund for the tax deductions derived from the sale of its
bond.
RULING: NO. Section 32(A) of the Tax Code defines gross income and, it is clear that there is a
distinction between "gains derived from dealings in property" and "interests", which are
separately classified as items of gross income. "Gains realized from the sale or exchange or
retirement of bonds, debentures and other certificate of indebtedness" would fall under the
category of "gains derived from dealings in property". On the other hand, "interests" would
include interest from bonds, debentures and other certificate of indebtedness. Only citizens,
resident aliens and nonresident aliens engaged in trade or business are exempt from income tax
on interest from long-term deposit. On the other hand, domestic and resident foreign
corporations are subject to a 20% final tax on such interest.
jAnSoriano
CASE NO. 290
Gains not included in interest
Malayan Zurich Insurance Co. v. CIR | CA-GR SP No. 77070
Summary: Petitioners filed a claim for refund/tax credit claiming that the Fixed Rates Treasury Notes (FXTNs) should be
exempted and that CIR erred in applying the 20% withholding tax rate. CIR, on the other hand, claimed that Section 32(b)
(7)(g) does not exempt interest income derived from FXTNs since it is not included in the term “gains”, thus, FXTNs is
still subject to tax.
FACTS: Petitioners filed a claim for refund/tax credit claiming that the Fixed Rates Treasury
Notes (FXTNs) should be exempted on the basis of Section 32(b)(7)(g) of the NIRC and that
respondent CIR erred in applying the 20% withholding tax rate. CIR, on the other hand, claimed
that Section 32(b)(7)(g) does not exempt interest income derived from FXTNs since it is not
included in the term “gains”, thus, FXTNs is still subject to tax.
ISSUE/S: W/N interest income is not exempted under the Section 32(b)(7)(g)of the NIRC.
RULING: Yes. The issue involved in this case has already been settled in the case of Nippon
Insurance vs. CIR (case 291). This court will not set aside lightly the conclusion reached by the
CTA which is dedicated exclusively to the consideration of tax problems unless there is GADALEJ.
Moreover, the said provision only exempts sale or exchange or retirement of bonds, debentures or
other certificates of indebtedness with a maturity of more than 5 years. The FXTNS are not
included in the provision. Where the law is clear and unambiguous, as in this case, there is
nothing for the courts to do except to apply it.
jAnSoriano
CASE NO. 291
Non-profit, Inurement Prohibition
Collector of Internal Revenue v. Club Filipino, Inc. de Cebu | GR No. L-12719
Key Words: Club Filipino claims to be a non-profit organization.
FACTS: Respondent Corporation was made to pay taxes by Petitioner Collector for the operation
of a bar and restaurant. The bar-restaurant was a necessary incident to the operation of its club
and its golf-course. The club is operated mainly with the funds derived from membership
fees and dues and was mainly for developing and cultivating sports for the healthful
recreation and entertainment of the stockholders and members. Furthermore, it was also
claimed that it was a charitable club because it was a non-profit organization.
ISSUE/S: W/N the corporation is a charitable organization
RULING: No. It is conceded that the Club derived profit from the operation of its bar and
restaurant, but such fact does not necessarily convert it into a profit-making enterprise.
However, a “non-profit” doesn’t necessarily mean “Charitable” (pg. 282). What is determinative
of whether or not the Club is engaged in such business is its object or purpose, as stated in its
articles and by-laws. The by-laws of the corporation does not provide that it is a charitable
organization. Hence, the corporation is not one.
Verdict: The operation of the bar-restaurant by the corporation should not be taxed as such
because it was merely incidental to the main purpose of the club and not because it is a
charitable organization.
jAnSoriano
CASE NO. 292
Non-profit, Inurement Prohibition
Lung Center of the Philippines v. Quezon City | GR No. 144104
Key Words: Lung Center was assessed for real taxes even when it is a hospital which accepts accepts paying and non-
paying patients, claims it is a charitable institution.
FACTS: Petitioner, hospital who accepts paying and non-paying patients, was assessed for real
property taxes by the City Assessor of Quezon City. It then filed for a claim for exemption from
real property taxes before the Local Board of Assessments Appeals of Quezon City on the ground
that it is a charitable institution. However, its petition was denied. Hence, this appeal.
ISSUE/S: W/N the petitioner is a charitable institution
RULING: Yes. To determine whether an enterprise is a charitable institution/entity or not, the
elements which should be considered include the statute creating the enterprise, its corporate
purposes, its constitution and by-laws, the methods of administration, the nature of the actual
work performed, the character of the services rendered, the indefiniteness of the beneficiaries,
and the use and occupation of the properties.
In the legal sense, a charity may be fully defined as a gift, to be applied consistently with
existing laws, for the benefit of an indefinite number of persons, either by bringing their minds
and hearts under the influence of education or religion, by assisting them to establish themselves
in life or otherwise lessening the burden of government. It may be applied to almost anything
that tend to promote the well-doing and well-being of social man. It embraces the improvement
and promotion of the happiness of man.  The word "charitable" is not restricted to relief of the
poor or sick. The test of a charity and a charitable organization are in law the same. The test of
whether an enterprise is charitable or not is whether it exists to carry out a purpose reorganized
in law as charitable or whether it is maintained for gain, profit, or private advantage.
Martin
Case No. 293
Exempt Corporations: Non-profit, inurement prohibition
CIR vs. St. Lukes| GR No. 195909 and GR No. 195960
Summary: BIR assessed St. Lukes, a non-stock and non-profit corporation, for deficiency taxes (income tax, VAT, WT on
compensation, expanded WT).
Facts: St. Luke's Medical Center, Inc. (St. Luke's) is a hospital organized as a non-stock and non-
profit corporation. However, the BIR assessed St. Luke’s for deficiency taxes (income tax, VAT,
WT on compensation, expanded WT). Consequently, St. Lukes protested the same and appealed
to CTA (ruled in favor of St. Lukes).
Issue: Whether or not St. Lukes is exempt from payment of all taxes.
Ruling/Main Point: No. The Constitution requires that a charitable institution use the property
"actually, directly and exclusively" for charitable purposes ("operated exclusively" for social
welfare). The Court finds that St. Luke's is a corporation that is not "operated exclusively" for
charitable or social welfare purposes insofar as its revenues from paying patients are concerned,
therefore, it is not exempt from all of its income (however, it remains a proprietary non-profit
hospital entitled to preferential tax rate of 10% for its for-profit activities) . If the hospital has
paid rooms generally occupied by people of good economic standing, then it should be subject to
income tax. Activities for profit should not escape the reach of taxation. Being a non-stock and
non-profit corporation does not, by this reason alone, completely exempt an institution from tax.
An institution cannot use its corporate form to prevent its profitable activities from being taxed.
Martin
Case No. 294
Exempt Corporations: Educational Institutions
CIR vs. De La Salle University| GR No. 196596/198841/198941
Summary: BIR assessed DLSU deficiency taxes (income tax on rental bldgs, VAT, DST on loans and lease contracts) hence
DLSU protested and anchored its case on the constitutional provision (Article XIV, Section 4 (3)): “All revenues and assets
of non-stock, non-profit educational institutions used actually, directly, and exclusively for educational purposes
shall be exempt from taxes and duties.” Meanwhile, the Commissioner posits that a tax-exempt organization like DLSU is
exempt only from property tax but not from income tax on the rentals earned from property.
Facts: BIR assessed DLSU deficiency taxes (income tax on rental bldgs, VAT, DST on loans and
lease contracts) hence DLSU protested and anchored its case on the constitutional provision
(Article XIV, Section 4 (3)): “All revenues and assets of non-stock, non-profit educational
institutions used actually, directly, and exclusively for educational purposes shall be exempt
from taxes and duties.” The CTA found: that portion of the rental income was used actually,
directly and exclusively for educational purposes (pay loan to build sport complex); that those
unsubstantiated claim for exemption were held to be subject to income tax and VAT; and that
DLSU proved its remittance of the DST due. Meanwhile, the Commissioner posits that a tax-
exempt organization like DLSU is exempt only from property tax but not from income tax on the
rentals earned from property.
Issue: Whether or not DLSU is exempt from income tax on the rentals earned from property
actually, directly, and exclusively for educational purposes.
Ruling/Main Point: Yes. The income and revenues of DLSU that are proven to have been used
actually, directly and exclusively for educational purposes are exempt from duties and taxes.
Under the mentioned provision of the Constitution, the phrase all revenues is unqualified by any
reference to the source of revenues. Thus, so long as the revenues and income are used actually,
directly and exclusively for educational purposes, then said revenues and income shall be
exempt from taxes and duties. The tax exemption granted by the Constitution to non-stock,
non-profit educational institutions is conditioned only on the actual, direct and exclusive
use of their assets, revenues and income for educational purposes.
*FYI: Difference on exemption -> Const. Article VI, Section 28(3) is as to assets only while Article
XIV, Section 4 (3) is as to revenue and assets (rationale: beneficial to students who may otherwise
be charged unreasonable tuition fees).
Martin
Case No. 295
Exempt Corporations: Educational Institutions
Southeast Asian Regional Center for Graduate Study and Research in Agriculture
(SEARCA) vs. CIR| CTA Case No. 4982
Facts: SEARCA, a non-stock, non-profit educational institution, seeks for a refund of the
20% final withholding tax on interest earned from savings and time deposit accounts on
the basis of Sec. 4(3), Article XIV of the 1987 Constitution.
Issue: Whether or not SEARCA is exempt from the 20% final withholding tax from savings and
deposits.
Ruling/Main Point: Yes. Interests from savings and time deposits are exempt from the 20%
final withholding tax, if earned by non-stock, non-profit educational institutions as all revenues
and assets of these institutions, which are actually, directly, and exclusively used for educational
purposes are exempt from taxation under the Constitution. The relief given to schools is
expected to be passed on to students in the form of lower tuition fees. The specification that
these institutions must be non-stock has been added as a safeguard because the moment a stock
corporation is formed, there is expectation of dividends and profits.
KIM
CASE NO. 296
Educational Institutions
Xavier School, Inc. v. CIR, CTA Case No. 1682, October 8, 1969
Summary: Xavier school purchased several lots in Echague, Quiapo for its expansion. It later discovered that the lot is
not sufficient for the expansion; hence, they sold the Echague property. CIR then demanded that it shall pay its tax
deficiency for; a.) the sale of the Echague property; b.) interest it earned from the unpaid balance of the buyers and c.)
issuance of stock dividends. Xavier claims that they are exempt since they are an educational institution and that
proceeds were for the improvement of their school.
FACTS: Petitioner Xavier school formerly Kwang Chi school purchased several lots in
Echague,Quiapo (Echgue property ) for its expansion. However later it was discovered that the
lot is not sufficient for the expansion, hence they lots in San Juan, they sold the Echague property.
They promised the buyer Continental Oil Corp that they will vacate the property on Dec 31, 1959
and pay the rentals. To finance the purchase Continental got a loan from GSIS to pay but failed to
pay. Xavier also went under financing activities to fund for another lot purchase.
Respondent CIR then demanded that it shall pay its tax deficiency for; a.) the sale of the
Enchague property; b.)interest it earned from the unpaid balance of the buyers and c.)issuance of
stock dividends
Xavier claims that they are exempt since they are an educational institution and that
proceeds were place for the improvement of their school.
ISSUE/S: W/N Xavier is totally exempt from taxes in the transactions it entered?
RULING: No. The proceeds of the sale of the Echague property is considered exempt since it is a
one time transaction which is not for profit purposes and was made due to the financing its
school expansion which is considered as an educational purpose.
As to the interest and stock dividends, they are taxable since they are not considered
part of educational activities since no payment of loan was made by petitioner Xavier to its
creditors with regards to the school expansion.
A private educational institution which deviates from its purely educational purposes
and activities shall be treated like any private domestic corporation engaged in business for
profit with respect to income derived therefrom. The protective mantle of income benefit or
exemption cannot be extended to a private educational institution which chooses to descend
from its high pedestal of tax preference or immunity to the level of an ordinary private
corporation engage in profitable undertaking or business.
KIM
CASE NO. 297
Educational Institutions
Collector v. V.G. Sinco Educational Corporation, 100 Phil. 127 (1956)
Summary: Sinco established Foundation College of Dumaguete. DepEd required that colleges should be incorporated.
Hence, he organized V. G. Sinco Educational Institution, a non-stock corporation. The Collector assessed against the
college an income tax for years they earned income and paid them. The institution claimed that it is exempt from tax and
asked for a refund.
FACTS: V.G. Sinco established Foundation College of Dumaguete. The Department of Education
required that colleges should be incorporated. Hence, in 1951, he organized V. G. Sinco
Educational Institution, a non-stock corporation. The Collector of Internal Revenue (CIR)
assessed against the college an income tax for years they earned income and paid them.
2 years later, the institution corporation commenced an action in the Court of First
Instance of Negros Oriental for the refund of this amount alleging that it is exempt from income
tax under section 27 (e) of the National Internal Revenue Code.
ISSUE/S: W/N the institution is an educational corporation; hence, exempt?
RULING: Yes. The institution never distributed any dividend or profit to its stockholders. Only
part of its income went to the payment of its teachers and to the other expenses of the college
incident to an educational institution, but none of the income had been channeled to the benefit
of any individual stockholders. While the acquisition of additional facilities may redound to the
benefit of the institution itself, it cannot be positively asserted that the same will redound to the
benefit of its stockholder, for no one can predict the financial condition of the institution upon its
dissolution. Moreover, intended to relieve the taxpayer of the duty of filing returns and paying
the tax, it cannot be said that the failure to observe the requirement called for therein constitutes
a waiver of the right to enjoy the exemption. To hold otherwise would be tantamount to
incorporate into our tax laws some legislative matter by administrative regulation. The fact that
appellant charges tuition fees and other fees for the different services it readers to the
students, which is its only source of income, does not in itself make the school a profit-
making enterprise that would Place it beyond the purview of the law.
MAINPOINT: IN BOLD AND UNDERLINED
KIM
CASE NO. 299
Charitable Organizations
CIR v. YMCA, G.R. No. 124043, October 14, 1998
Summary: YMCA, a non-stock, non-profit institution which conducts various programs and activities that are beneficial
especially to young people, leased a portion of its premises to small shop owners and charged them for parking fees. CIR
assessed it for tax deficiency for such activities. YMCA claimed that the fees collected were only enough to cover
maintenance of the place, that they are not engaged in business and should be exempt.
FACTS: Young Men's Christian Association of the Philippines, Inc (YMCA) is a non-stock, non-
profit institution, which conducts various programs and activities that are beneficial to the
public, especially the young people, pursuant to its religious, educational and charitable
objectives. The institution had leased portion of its premises to small shop owners and charged
for parking fees.
Commissioner of internal revenue (CIR) issued an assessment for tax deficiency which
was protested by YMCA. CIR denied the claims of YMCA. YMCA claims that the fees collected
were only enough to cover maintenance of the place, hence they are not engage in business.
Hence should be exempt.
CTA: affirmed that the fees derived are still subject to income tax.
ISSUE: W/N income derived from rentals of real property of a “welfare, educational and
charitable non-profit corporation" is subject to income taxation?
RULING: Yes. The rental income cannot be exempted on the solitary but unconvincing
ground that said income is not collected for profit but is merely incidental to its operation.
The law does not make a distinction. Where the law does not distinguish, neither should
we distinguish. Inasmuch as taxes are the lifeblood of the nation, the Court has always
applied the doctrine of strict interpretation in construing tax exemptions. YMCA is exempt
from the payment of property taxes only but not income taxes because it is not an educational
institution devoting its income solely for educational purposes. The term “educational
institution” has acquired a well-known technical meaning. Under the Education Act of 1982, such
term refers to schools. The school system is synonymous with formal education which “refers to
the hierarchically structured and chronologically graded learning organized and provided by the
formal school system and for which certification is required in order for the learner to progress
through the grades or move to higher“ levels.
ADDALINO
CASE NO. 300
Clubs for Pleasure, Recreation, and Other Non-Profit Purposes
CIR v. COMASERCO, G.R. No. 125355, March 30, 2000
Summary: COMASERCO is an affiliate of Philamlife organized by the latter to perform collection, consultative and
other technical services, including functioning as an internal auditor of Philamlife and its other affiliates. BIR issued
an assessment to COMASERCO for deficiency VAT. COMASERCO claimed that it should be exempt from VAT because
it operates on a “no-profit, reimbursement-of-cost-only” basis and is therefore not engaged in business.
FACTS: Commonwealth Management and Services Corporation (COMASERCO), is an affiliate
of Philamlife, organized by the latter to perform collection, consultative and other technical
services, including functioning as an internal auditor, of Philamlife and its other affiliates. BIR
issued an assessment to private respondent COMASERCO for deficiency VAT amounting to
P351,851.01, for taxable year 1988. COMASERCO protested, stating in its appeal to CTA that the
services it rendered to Philamlife and its affiliates, relating to collections, consultative and other
technical assistance, including functioning as an internal auditor, were on a “no-profit,
reimbursement-of-cost-only” basis. It averred that it was not engaged in the business of
providing services to Philamlife and its affiliates. COMASERCO stressed that it was not profit-
motivated, thus not engaged in business. In fact, it did not generate profit but suffered a net loss
in taxable year 1988, hence not liable to pay VAT.
ISSUE/S: whether COMASERCO was engaged in the sale of services, and thus liable to pay VAT
thereon.
RULING: YES. VAT is a tax on the value added by the performance of the service. It is immaterial
whether profit is derived from rendering the service. Pursuant to the Expanded VAT Law
(EVAT), Section 105, it is provided that: Any person who, in the course of trade or business, sells,
barters, exchanges, leases goods or properties, renders services, and any person who imports goods
shall be subject to the value-added tax (VAT). The phrase “in the course of trade or business”
means the regular conduct or pursuit of a commercial or an economic activity, including
transactions incidental thereto, by any person regardless of whether or not the person engaged
therein is a nonstock, nonprofit organization (irrespective of the disposition of its net income
and whether or not it sells exclusively to members of their guests), or government entity.
MAINPOINT: For VAT purposes, even non-stock, non-profit organizations are liable to pay VAT
on their sales of goods or services.
ADDALINO
CASE NO. 301
Non-Stock, Non-Profit Hospital
CIR v. St. Luke’s Medical Center, Inc., G.R. Nos. 195909 and 195960, September 26, 2012
SAME WITH 293

FACTS: St. Luke’s Medical Center, Inc. is a hospital organized as a non-stock and non-profit
corporation. The BIR assessed St. Luke’s deficiency taxes for 1998 at 10% preferential tax rate,
comprised of deficiency income tax, value-added tax, withholding tax on compensation and
expanded withholding tax, contending Section 27(B) of the NIRC, which imposes a 10%
preferential tax rate on the income of proprietary nonprofit hospitals, should be
applicable to St. Luke’s. Section 27(B), introduced in 1997, "is a new provision intended to
amend the exemption on non-profit hospitals that were previously categorized as non-
stock, non-profit corporations under Section 26 of the 1997 Tax Code x x x.
ISSUE/S: W/N Section 27 (b) of the 1997 Tax Code has the effect of removing the income tax
exemption of proprietary non-profit hospitals under Section 30(E) and (G)
RULING: NO. Section 27(B) of the NIRC does not remove the income tax exemption of
proprietary non-profit hospitals under Section 30(E) and (G). Section 27(B) on one hand, and
Section 30(E) and (G) on the other hand, can be construed together without the removal of such
tax exemption. Section 27(B) of the NIRC imposes a 10% preferential tax rate on the
income of (1) proprietary non-profit educational institutions and (2) proprietary non-
profit hospitals, instead of the ordinary 30% corporate rate under the last paragraph of Section
30 in relation to Section 27(A)(1).
An institution under Section 30(E) or (G) does not lose its tax exemption if it earns income from
its for-profit activities.
ADDALINO
CASE NO. 302
Non-Stock, Non-Profit Hospital
City Assessor of Cebu City v. Association of Benevola de Cebu, Inc., 524 SCRA 128 (2007)
Summary: Benevola, a non-stock non-profit organization and owner of Chong Hua Hospital, constructed CHH Medical
Arts Center (CHHMAC) right beside it. Petitioner issued a certification classifying the new building as commercial and
assessed the building with a market value of roughly P28M, coming up with an assessed value at around close to
P10M, at the assessment level of 35% and not 10% which was then currently imposed on CHH and its other
separate buildings, claiming that the building is used as commercial clinic/spaces for renting out physicians and thus
classified as commercial.
FACTS: Benevola de Cebu is a non-stock non-profit organization, and owner of Chong Hua
Hospital. In 1990, it constructed CHH Medical Arts Center (CHHMAC) building right beside it. In
1998, petitioner issued a certification classifying the new building as commercial and assessed
the building with a market value of roughly P28M, coming up with an assessed value at around
close to P10M, at the assessment level of 35% and not 10% which was then currently imposed
on CHH and its other separate buildings—the CHH’s Dietary and Records Departments.
PETITIONER: claimed that the building is used as commercial clinic/spaces for renting out
physicians and thus classified as commercial.
ISSUE: W/N the new building is liable to pay at the 35% assessment level
RULING: NO. The new building is an integral part of the hospital and should not be assessed as
commercial. It is undisputed that the doctors and medical specialists holding clinics in CHHMAC
are those duly accredited by CHH, that is, they are consultants of the hospital and the ones who
can treat CHH’s patients confined in it. This fact alone takes away CHHMAC from being
categorized as "commercial" since a tertiary hospital like CHH is required by law to have a pool
of physicians who comprises the required medical departments in various medical fields.
WEE
CASE NO. 304
Requirement for revalidation of tax exemption for non-stock, non-profit corporations and
associations
CIR v. St. Paul College of Makati ǀ G.R. No. 215383, 8 March 2017
Summary: Commissioner Henares issued RMO No. 20-2013, Prescribing the Policies and Guidelines in the Issuance of Tax
Exemption Rulings to Qualified Non-Stock, Non-Profit Corporations and Associations under Section 30 of the NIRC. SPCM
alleged that the RMO is unconstitutional because it imposes a prerequisite to the enjoyment by non-stock, non-profit
educational institutions of the privilege of tax exemption granted by the Constitution – that failure to file an annual
information return is a ground for a non-stock nonprofit educational institution to automatically lose its income tax-
exempt status.
FACTS: Petitioner Henares, acting in her capacity as then Commissioner of Internal Revenue
(CIR), issued RMO No. 20-2013, "Prescribing the Policies and Guidelines in the Issuance of Tax
Exemption Rulings to Qualified Non-Stock, Non-Profit Corporations and Associations under Section
30 of the National Internal Revenue Code of 1997, as Amended." Respondent St. Paul College of
Makati (SPCM) filed a Civil Action to Declare Unconstitutional [BIR] RMO No. 20-2013 before the
RTC. SPCM alleged that "RMO No. 20-2013 imposes as a prerequisite to the enjoyment by non-
stock, non-profit educational institutions of the privilege of tax exemption under Sec. 4(3) of
Article XIV of the Constitution both a registration and approval requirement. According to SPCM,
RMO No. 20-2013 adds a prerequisite to the requirement under Department of Finance Order
No. 137-87, and makes failure to file an annual information return a ground for a non-stock,
nonprofit educational institution to "automatically lose its income tax-exempt status." In a
Decision, the RTC ruled in favor of SPCM and declared RMO No. 20-2013 unconstitutional. RTC
denied CIR’s MR. Hence, this present petition.
ISSUE: Whether or not RMO No. 20-2013 imposes a prerequisite before a non-stock, non-profit
educational institution may avail of the tax exemption.
RULING: YES, HOWEVER PETITION IS DENIED FOR BEING MOOT AND ACADEMIC. It is clear
and unmistakable from the constitutional provision that non-stock, non-profit educational
institutions are constitutionally exempt from tax on all revenues derived in pursuance of its
purpose as an educational institution and used actually, directly and exclusively for educational
purposes. There are no other conditions and limitations. With the issuance of RMO No. 44-
2016, a supervening event has transpired that rendered this petition moot and academic,
and subject to denial. The CIR, in her petition, assails the RTC Decision finding RMO No.
20-2013 unconstitutional because it violated the non-stock, non-
profit educational institutions' tax exemption privilege under the Constitution. However,
subsequently, RMO No. 44-2016 clarified that non-stock, nonprofit educational
institutions are excluded from the coverage of RMO No. 20-2013.

WEE WEE
CASE NO. 305 CASE NO. 306
Requirement for revalidation of tax exemption for non-stock, non-profit corporations and Requirement for revalidation of tax exemption for non-stock, non-profit corporations and
associations associations
Congregacion de la Mission de San Vicente de Paul v. Collector ǀ CTA Case No. 1468, 14 CIR v. CA and YMCA ǀ G.R. No. 124043, 14 October 1998
October 1963 SAME WITH 299

Summary: Petitioner is operated for religious, charitable and educational purposes. Collector assessed petitioner to have FACTS: Private Respondent YMCA conducts various programs and activities that are beneficial to
a deficiency income tax on income from rents, interests, and dividends of petitioner’s real and personal properties.
the public, especially the young people, pursuant to its religious, educational and charitable
Petitioner claimed that under Sec. 27 (e) and (k) of the Tax Code, it is exempt from the payment of income tax – that any
income earned by it was in furtherance of its religious, charitable, and educational objectives considering that said income objectives. YMCA earned, among others, income from leasing out a portion of its premises to
was turned over to the St. Vincent Seminary, an organization operated by its carry out function of educating, training and small shop owners, like restaurants and canteen operators, and from parking fees collected from
preparing Filipino youths for Catholic priesthood. non-members. The commissioner of internal revenue (CIR) issued an assessment to YMCA for
deficiency income taxes, and deficiency withholding taxes. YMCA formally protested the
FACTS: Petitioner Corporation is operated for religious, charitable and educational purposes. It assessment; however, CIR denied the claims of YMCA. YMCA filed a petition for review at the
filed on time its corporate income tax returns for 1956 and 1957, reporting therein losses and CTA. CTA issued a ruling in favor of the YMCA finding no legal basis for the imposition of a
deductions exceeding its net taxable income from rents, interests, and dividends from various deficiency fixed tax. CA affirmed in toto. Hence, this petition for review.
sources. Consequently, petitioner declared no taxable income for said years. After verification of
said returns by Revenue Examiner Aguilar, petitioner was assessed to have a deficiency income
ISSUE: Whether or not the income of private respondent from rentals of small shops and parking
tax amounting to Php22,816.70. Petitioner protested the said income tax assessments and
fees is exempt from taxation.
requested their cancellation and reconsideration claiming that, under Sec. 27 (e) and (k) of the
Tax Code, it is exempt from the payment of income tax assessed against it. However, respondent
RULING: NO. While the income received by the organizations enumerated in Sec. 27 (now
denied petitioner’s request. Hence, this appeal to CTA.
Sec. 26) of the NIRC is, as a rule, exempted from the payment of tax "in respect to income
Petitioner’s argument is predicated on the preposition that the destination of said income was in
received by them as such," the exemption does not apply to income derived ". . . from any
furtherance of its religious, charitable, and educational objectives considering that said income was
of their properties, real or personal, or from any of their activities conducted for profit,
turned over to the St. Vincent Seminary, an organization operated by its carry out function of
regardless of the disposition made of such income . . . ." Rental income derived by a tax-
educating, training and preparing Filipino youths for Catholic priesthood.
exempt organization from the lease of its properties, real or personal, [is] not, therefore,
exempt from income taxation, even if such income [is] exclusively used for the
ISSUE: Whether or not petitioner is subject to income tax on its income from rents, interests, and
accomplishment of its objectives."
dividends on real and personal properties.
Private respondent is exempt from the payment of property tax, but not income tax on the
rentals from its property. The bare allegation alone that it is a non-stock, non-profit educational
RULING: YES. There is no dispute that the income in question consists of rents, interests, and
institution is insufficient to justify its exemption from the payment of income tax.
dividends of petitioner’s real and personal properties. Having been originated from the
productive use of petitioner’s properties which are not essential to, or necessarily
connected with its religious, charitable, and educational pursuits, the said income is
subject to income tax even if it is turned over to and spent by St. Vincent Seminary, a
corporation operated for religious and charitable purposes. The final and ultimate
destination of petitioner’s income from the rental of its real property; dividends from
investments in mining, insurance, and commercial corporations; and interests from loans
or deposits did not render it exempt from income tax under Sec. 27 (e) and (k) of the Tax
Code because the income from any activity conducted for profit is subject to income tax
under the amendatory law (Sec. 5 of RA 82).