TAXATION1 CASE DIGESTS

devoted to the benevolent purposes of the institution, the mere fact that a profit has been made will
63. HERRERA V. QUEZON CITY BOARD OF ASSESSMENT APPEALS not deprive the hospital of its benevolent character"

FACTS:
Director of the Bureau of Hospitals authorized the petitioners to establish and operate the
"St. Catherine's Hospital". On or about January 3, 1953, the petitioners sent a letter to the Quezon
City Assessor requesting exemption from payment of real estate tax on the lot, building and
other improvements comprising the hospital stating that the same was established for
charitable and humanitarian purposes and not for commercial gain. After an inspection of the
premises and after a careful study of the case, the exemption from real property taxes was granted
effective the years
1953, 1954 and 1955.
Subsequently, however, in a letter the Quezon City Assessor notified the petitioners that
the previously mentioned properties were re-classified from exempt to "taxable" and thus assessed
for real property taxes effective 1956. The petitioners appealed the assessment to the
Quezon City Board of Assessment Appeals, which, in a decision affirmed the decision of the City
Assessor.
The building involved in this case is principally used as a hospital. It is mainly a surgical
and orthopedic hospital with emphasis on obstetrical cases, the latter constituting 90% of
the total number of cases registered therein. The hospital has thirty-two (32) beds, of which twenty
(20) are for charity-patients and twelve (12) for pay-patients. It is made to appear that there are two
kinds of charity patients — (a) those who come for consultation only ("out-charity patients"); and (b)
those who remain in the hospital for treatment ("lying-in-patients"). The out-charity patients are
given free consultation and prescription, although sometimes they are furnished with free
medicines. The charity lying-in-patients are given free medical service and medicine although the
food served to the pay-patients is very much better than that given to the former.
Moreover, the exemption in favor of property used exclusively for charitable or educational
purposes is "not limited to property actually indispensable" therefor but extends to facilities which
are "incidental to and reasonably necessary for" the accomplishment of said purposes, such as, in
the case of hospitals, "a school for training nurses, a nurses' home, property use to provide housing
facilities for interns, resident doctors, superintendents, and other members of the hospital staff, and
recreational facilities for student nurses, interns and residents"
Within the purview of the Constitutional exemption from taxation, the St. Catherine's Hospital
is, therefore, a charitable institution, and the fact that it admits pay-patients does not bar it
from claiming that it is devoted exclusively to benevolent purposes, it being admitted that the
income derived from pay-patients is devoted to the improvement of the charity wards, which
represent almost two-thirds (2/3) of the bed capacity of the hospital, aside from "out-charity
patients" who come only for consultation.
Again, the existence of "St. Catherine's School of Midwifery", with an enrollment of about
200 students, who practice partly in St. Catherine's Hospital and partly in St. Mary's Hospital,
which, likewise, belongs to petitioners herein, does not, and cannot, affect the exemption to
which St. Catherine's Hospital is entitled under our fundamental law. On the contrary, it
furnishes another ground for exemption for or "all lands, building and improvements used
exclusively for religious, charitable or educational purposes shall be exempt from taxation,"
pursuant to the Constitution, regardless of whether or not material profits are derived from
the operation of the institutions in question. In other words, Congress may, if it deems fit to do
so, impose taxes upon such "profits", but said "lands, buildings and improvements" are beyond its
taxing power.

Petitioners also operate within the premises of the hospital the "St. Catherine's School of
Midwifery". The students practice in the St. Catherine's Hospital, as well as in the St. Mary's
Hospital, which is also owned by the petitioners.

ISSUE:

Whether or not the lot, building and other improvements occupied by the St. Catherine Hospital are
exempt from the real property tax and whether or not the said properties are used exclusively for
charitable or educational purposes.

HELD:

Exempted from real property tax. It should be noted, however, that, according to the very statement
of facts made in the decision appealed from, of the thirty-two (32) beds in the hospital, twenty (20)
are for charity-patients; that "the income realized from pay-patients is spent for improvement of the
charity wards;" and that "petitioners, as directress" of said hospital, "does not receive any salary,"
although its resident physician gets a monthly salary of P170.00. "In other words, where rendering
charity is its primary object, and the funds derived from payments made by patients able to pay are
64. THE ROMAN CATHOLIC BISHOP OF NUEVA SEGOVIA v. THE PROVINCIAL BOARD OF
ILOCOS NORTE
FACTS:
The Roman Catholic Apostolic Church, represented by the Bishop of Nueva Segovia, possesses
and is the owner of a parcel of land in the municipality of San Nicolas, Ilocos Norte, all four sides of
which face on public streets. On the south side is a part of the churchyard, the convent and
an adjacent lot used for a vegetable garden and in which there is a stable and a well for the use of
the convent. In the center is the remainder of the churchyard and the church. On the north is an old
cemetery with two of its walls still standing, and a portion where formerly stood a tower, the base of
which still be seen.
The Province of Ilocos Norte required the Church to pay the land tax on the lot adjoining
the convent and the lot which formerly was the cemetery with the portion where the tower stood.
The Bishop paid under protest and then filed an action for the recovery of the amounts paid,
alleging that the collection of this tax is illegal.
ISSUE:
Whether or not the parcels of land are exempt from tax.
HELD:
The lots are exempt from land tax. The Province of Ilocos Norte was ordered to refund the amounts
paid.
The exemption in favor of the convent in the payment of the land tax (sec. 344 [c] Administrative
Code) refers to the home of the parties who presides over the church and who has to take care of
himself in order to discharge his duties. It therefore must, in the sense, include not only the land
actually occupied by the church, but also the adjacent ground destined to the ordinary incidental
uses of man. Except in large cities where the density of the population and the
development of commerce require the use of larger tracts of land for buildings, a vegetable garden
belongs to a house and, in the case of a convent, it use is limited to the necessities of the priest,
which comes under the exemption.
In regard to the lot which formerly was the cemetery, while it is no longer used as such, neither is it
used for commercial purposes and, according to the evidence, is now being used as a
lodging house by the people who participate in religious festivities, which constitutes an incidental
use in religious functions, which also comes within the exemption.
65. CIR v. COURT OF APPEALS, COURT OF TAX APPEALS and YOUNG MEN’S CHRISTIAN
ASSOCIATION OF THE PHILIPPINES, INC.
FACTS:
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. In 1980, YMCA, among others, an amount of income (about P700k+)
from leasing out a portion of its premises to small shop owners, like restaurants and canteen
operators, and from parking fees collected from non-members. The CIR thus issued an
assessment to YMCA totaling about P415k+ including surcharge and interest, for deficiency
income tax, deficiency expanded withholding taxes on rentals and professional fees and
deficiency withholding tax on wages. YMCA protested the assessment and filed a letter. In reply,
the CIR denied the claims of YMCA.YMCA thus filed a petition to the CTA to take out the taxes and
CTA ruled in favor of YMCA. CIR filed a petition with the CA to reverse, but CA affirmed CTA's
decision.
ISSUE:
W/N the income derived from rentals of real property owned by YMCA (established as "a welfare,
educational and charitable non-profit corporation") is subject to income tax under the NIRC
and Constitution
HELD:
YES, the income derived by YMCA from rentals of its real property is subject to income tax.
Under the NIRC:
While Section 27 of the NIRC provides that non-profit organizations and clubs shall not be taxed on
their income, it also provides that this exemption will not apply to income derived from 1) properties,
real or personal, and 2) any other activities conducted for profit shall be subject to tax (amended by
PD 1457).
Because taxes are the lifeblood of the nation, the Court has always applied the doctrine of strict
interpretation in construing tax exemptions. A claimed exemption must expressly be granted in a
statute stated in a language too clear to be mistaken. The phrase "any of their activities conducted
for profit” does not qualify the word “properties.” This makes income from the property of
the organization taxable, regardless of how that income is used -- whether for profit or for lofty
non- profit purposes. Thus, the exemption claimed by the YMCA is expressly disallowed by
the very wording of the aforementioned law.
Under the Constitution:
YMCA submits that Article VI, Section 28 of the Constitution exempts “charitable institutions” from
the payment not only of property taxes but also of income tax from any source. However, it is clear
from the debates and opinions of the constitutional framers that the exemption does not pertain to
income tax but only property taxes.

YMCA also posits that it is an "educational instititution" within the purview of Art XIV, Sec 4. For the
YMCA to be granted the exemption, it must prove with substantial evidence that: it falls under the
classification non-stock, non-profit educational institution; and the income it seeks to be exempted
from taxation is used actually, directly, and exclusively for educational purposes.
However, no evidence was submitted by YMCA to prove that they met the requisites. The
term “educational institution” or “institution of learning” has acquired a well-known technical
meaning, of which the members of the Constitutional Commission are deemed cognizant.
Under the Education Act of 1982, such term refers to schools, which is synonymous with formal
education OR a school seminary, college, or educational establishment. The Court,
upon examining the “Amended Articles of Incorporation” and “By-Laws” of the YMCA, but found
nothing in them that even hints that it is a school or an educational institution.
Even if YMCA is an educational institution, the Court also notes that YMCA did not submit proof of
the proportionate amount of the subject income that was actually, directly and exclusively used for
educational purposes.
NOTE: (if Sir asks about how this differs with OTHER cases): The cases relied on by YMCA do not
support its cause. YMCA of Manila v. CIR and Abra Valley College, Inc. v. Aquino are
not applicable, because the controversy in both cases involved exemption from the payment
of property tax, not income tax. Hospital de San Juan de Dios, Inc. v. Pasay City is not in point
either, because it involves a claim for exemption from the payment of regulatory fees, specifically
electrical inspection fees, imposed by an ordinance of Pasay City -- an issue not at all related to
that involved in a claimed exemption from the payment if income taxes imposed on property
leases. In Jesus Sacred Heart College v. Com. Of Internal Revenue, the party therein, which
claimed an exemption from the payment of income tax, was an educational institution which
submitted substantial evidence that the income subject of the controversy had been devoted
or used solely for educational purposes. On the other hand, YMCA in the present case had not
given any proof that it is an educational institution, or that of its rent income is actually, directly and
exclusively used for educational purposes.
66. LUNG CENTER OF THE PHILIPPINES V. QUEZON CITY
FACTS:
Lung Center is a non-stock and non-profit entity established by PD No. 1823. It is the registered
owner of a parcel of land located at Quezon Ave, QC. Erected in the middle of the aforesaid lot is a
hospital known as the Lung Center of the Philippines. A big space at the ground floor is
being leased to private parties as canteen and small store spaces as well as to medical
practitioners who use the same as private clinics for their patients whom they charge for their
professional fees. Lung Center accepts paying and non-paying patients and renders medical
services to both paying and non-paying out-patients. Aside from its income from paying patients, it
receives annual subsidies from the government.
In 1993, both the land and hospital building were assessed for real property taxes in P4,554,860 by
the City Assessor. Petitioner filed a Claim for Exemption from real property taxes with the
City Assessor, on the ground that it is a charitable institution. It was denied. They appealed his
decision to the Local Board of Assessment Appeals who dismissed their petition and was affirmed
by the Central Board of Assessment Appeals as well as the Court of Appeals.
Lung Center alleges that under Sec.28, par.3 of the Constitution, the property is exempt from real
property taxes. It averred that a minimum of 60% of its hospital beds were used for charity patients
and that the major thrust of its hospital is to serve charity patients. Thus, it contends that it is a
charitable institution exempt from taxes.
ISSUES:
1. Whether Lung Center is a charitable institution within the context of PD1823 and the 1973
and 1987 Constitutions?
2. Whether the real properties of Lung Center are exempt from real property taxes?
HELD:
Petition was partially granted. As a charitable institution, Lung Center is exempt from real property
taxes but those portions that are leased to private entities are taxable. Charity may be applied to
almost anything that tend to promote the well-being of social man. The test 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 maintaining for gain, profit or private advantage.
Under PD1823, petitioner is a non-profit and non-stock corporation to be administered by the Office
of the President with the Ministry of Health and the Ministry of Human Settlements. It was
organized for the welfare and benefit of the Filipino people principally to help combat the
high incidence of lung and pulmonary diseases in the Philippines. Hence, its medical services are to
be rendered to the public in general in any and all walks of life including those who are poor and
needy without discrimination.
As a general principle, a charitable institution does not lose its character as such 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 any of the persons managing or operating the institution.
In this case, petitioner adduced substantial evidence that it spent its income, including the subsidies
from government for 1991 and 1992 for its patients and for the operation of the hospital. It even
incurred a net loss in those years from its operations.
Even though petitioner is a charitable institution, the Court held that the portions of its real property
leased to private entities are not exempt as they are not actually, directly and exclusively used for
charitable purposes. PD1823 holds that petitioner does not enjoy any property tax
exemption privileges for its real properties as well as the building. The tax exemption under the
Constitution only covers property tax.

Under the 1987 Constitution, petitioner is burdened to prove that it is a charitable institution and its
real properties are ACTUALLY, DIRECTLY AND EXCLUSIVELY used for charitable purposes. 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. 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, not the use of the
income from the real property that is determinative of whether the property is used for tax-exempt
purposes.
Petitioner had failed to prove that the entirety of its real property is actually, directly and exclusively
used for charitable purposes. 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.
67. CIR V. ST. LUKE’S MEDICAL CENTER
FACTS:
St. Luke’s Medical Center, Inc. (St. Luke’s) is a hospital organized as a non-stock and non-profit
corporation.The BIR assessed St. Luke’s deficiency taxes for 1998 comprised of deficiency income
tax, value-added tax, and withholding tax. The BIR claimed that St. Luke’s should be liable
for income tax at a preferential rate of 10% as provided for by Section 27(B). Further, the BIR
claimed that St. Luke’s was actually operating for profit in 1998 because only 13% of its revenues
came from charitable purposes. Moreover, the hospital’s board of trustees, officers and
employees directly benefit from its profits and assets. On the other hand, St. Luke’s maintained
that it is a non-stock and non-profit institution for charitable and social welfare purposes exempt
from income tax under Section 30(E) and (G) of the NIRC. It argued that the making of profit per se
does not destroy its income tax exemption.
ISSUE:
Whether St. Luke’s is liable for deficiency income tax in 1998 under Section 27(B) of the NIRC,
which imposes a preferential tax rate of 10^ on the income of proprietary non-profit hospitals.
HELD:
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. The only qualifications
for hospitals are that they must be proprietary and non-profit. “Proprietary” means private, following
the definition of a “proprietary educational institution” as “any private school maintained
and
administered by private individuals or groups” with a government permit. “Non-profit” means no
net income or asset accrues to or benefits any member or specific person, with all the net income or
asset devoted to the institution’s purposes and all its activities conducted not for profit. “Non-
profit” does not necessarily mean “charitable.” In Collector of Internal Revenue v. Club Filipino Inc.
de Cebu, this Court considered as non-profit a sports club organized for recreation
and entertainment of its stockholders and members. The club was primarily funded by membership
fees and dues. If it had profits, they were used for overhead expenses and improving its golf
course. The club was non-profit because of its purpose and there was no evidence that it was
engaged in a profit-making enterprise.
To be a charitable institution, however, an organization must meet the substantive test of charity
in Lung Center. The issue in Lung Center concerns exemption from real property tax and not
income tax. However, it provides for the test of charity in our jurisdiction. 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
The Constitution exempts charitable institutions only from real property taxes. In the NIRC,
Congress decided to extend the exemption to income taxes. However, the way Congress crafted
Section 30(E) of the NIRC is materially different from Section 28(3), Article VI of the Constitution.
(Emphasis supplied)
Section 30(E) of the NIRC defines the corporation or association that is exempt from income tax.
On the other hand, Section 28(3), Article VI of the Constitution does not define a
charitable institution, but requires that the institution “actually, directly and exclusively” use the
property for a charitable purpose.
To be exempt from real property taxes, Section 28(3), Article VI of the Constitution requires that a
charitable institution use the property “actually, directly and exclusively” for charitable purposes.
To be exempt from income taxes, Section 30(E) of the NIRC requires that a charitable institution
must be “organized and operated exclusively” for charitable purposes. Likewise, to be exempt
from income taxes, Section 30(G) of the NIRC requires that the institution be “operated exclusively”
for social welfare. However, the last paragraph of Section 30 of the NIRC qualifies the
words “organized and operated exclusively” by providing that:
Notwithstanding the provisions in the preceding paragraphs, the income of whatever kind
and character of the foregoing organizations from any of their properties, real or personal, or
from any of their activities conducted for profit regardless of the disposition made of such
income, shall be subject to tax imposed under this Code. In short, the last paragraph of Section 30
provides that if a tax exempt charitable institution conducts “any” activity for profit, such activity is
not tax exempt even as its not-for-profit activities remain tax exempt.
Thus, even if the charitable institution must be “organized and operated exclusively” for charitable
purposes, it is nevertheless allowed to engage in “activities conducted for profit” without losing its
tax exempt status for its not-for-profit activities. The only consequence is that the “income
of whatever kind and character” of a charitable institution “from any of its activities conducted
for profit, regardless of the disposition made of such income, shall be subject to tax.” Prior to the
introduction of Section 27(B), the tax rate on such income from for-profit activities was the ordinary
corporate rate under Section 27(A). With the introduction of Section 27(B), the tax rate is now 10%.
(Emphasis supplied)

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. 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).
(Emphasis supplied)

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. St. Luke’s is
therefore liable for deficiency income tax in 1998 under Section 27(B) of the NIRC. However, St.
Luke’s has good reasons to rely on the letter dated 6 June 1990 by the BIR, which opined that St.
Luke’s is “a corporation for purely charitable and social welfare purposes” and thus exempt from
income tax.

In Michael J. Lhuillier, Inc. v. Commissioner of Internal Revenue, the Court said that “good faith and
honest belief that one is not subject to tax on the basis of previous interpretation of government
agencies tasked to implement the tax law, are sufficient justification to delete the imposition
of surcharges and interest.”
68. CIR V. DE LA SALLE UNIVERSITY
Facts
In 2004, the Bureau of Internal Revenue (BIR) issued a letter authorizing it’s revenue officers to
examine the book of accounts of and records for the year 2003 De La Salle University (DLSU) and
later on issued a demand letter to demand payment of tax deficiencies for:
1. Income tax on rental earnings from restaurants/canteens and bookstores operating within
the campus;
2. Value-added tax (VAT) on business income; and
3. Documentary stamp tax (DST) on loans and lease contracts for the years 2001,2002, and
2003, amounting to P17,303,001.12.
DLSU protested the assessment that was however not acted upon, and later on filed a petition for
review with the Court of Tax Appeals(CTA). DLSU argues that as a non-stock, non-profit
educational institution, it is exempt from paying taxes according to Article XIV, Section 4 (3) of the
Constitution (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 only granted the removal of assessment on the load transactions. Both CIR and DLSU
moved for reconsideration, the motion of the CIR was denied. The CIR appealed to the CTA en
banc arguing that DLSU’s use of its revenues and assets for non-educational or commercial
purposes removed these items from the exemption, that a tax-exempt organization like DLSU is
exempt only from property tax but not from income tax on the rentals earned from property. Thus,
DLSU’s income from the leases of its real properties is not exempt from taxation even if the income
would be used for educational purposes.
DLSU on the other hand offered supplemental pieces of documentary evidence to prove that its
rental income was used actually, directly and exclusively for educational purposes and no objection
was made by the CIR.
Thereafter, DLSU filed a separate petition for review with the CTA En Banc on the following
grounds:
1. The entire assessment should have been cancelled because it was based on an invalid
LOA;
2. Assuming the LOA was valid, the CTA Division should still have cancelled the entire
assessment because DLSU submitted evidence similar to those submitted by Ateneo De Manila
University (Ateneo) in a separate case where the CTA cancelled Ateneo’s tax assessment; and
3. The CTA Division erred in finding that a portion of DLSU’s rental income was not proved
to have been used actually, directly and exclusively for educational purposes.
4. That under RMO No.43-90, LOA should cover only 1 year, the LOA issued by CIR is
invalid for covering the years 2001-2003
The CTA en banc ruled that the case of Ateneo is not applicable because it involved different
parties, factual settings, bases of assessments, sets of evidence, and defenses, it however further
reduced the liability of DLSU to P2,554,825.47
CIR argued that the rental income is taxable regardless of how such income is derived, used or
disposed of. DLSU’s operations of canteens and bookstores within its campus even though
exclusively serving the university community do not negate income tax liability. Article XIV, Section
4 (3) of the Constitution must be harmonized with Section 30 (H) of the Tax Code, which states
among others, that the income of whatever kind and character of [a non-stock and non-profit
educational institution] from any of [its] properties, real or personal, or from any of (its] activities
conducted for profit regardless of the disposition made of such income, shall be subject to tax
imposed by this Code.
that a tax-exempt organization like DLSU is exempt only from property tax but not from income tax
on the rentals earned from property. Thus, DLSU’s income from the leases of its real properties is
not exempt from taxation even if the income would be used for educational purposes.
DLSU argued that Article XIV, Section 4 (3) of the Constitution is clear that all assets and revenues
of non-stock, non-profit educational institutions used actually, directly and exclusively for
educational purposes are exempt from taxes and duties. Under the doctrine of constitutional
supremacy, which renders any subsequent law that is contrary to the Constitution void and without
any force and effect. Section 30 (H) of the 1997 Tax Code insofar as it subjects to tax the income of
whatever kind and character of a non-¬stock and non-profit educational institution from any of its
properties, real or personal, or from any of its activities conducted for profit regardless of the
disposition made of such income, should be declared without force and effect in view of the
constitutionally granted tax exemption on “all revenues and assets of non-stock, non-profit
educational institutions used actually, directly, and exclusively for educational purposes.“
that it complied with the requirements for the application of Article XIV, Section 4 (3) of the
Constitution.
Issue:
1. Whether DLSU is taxable as a non-stock, non-profit educational institution whose income
have been used actually, directly and exclusively for educational purposes.
2. Whether the entire assessment should be void because of the defective LOA
Held:
First issue:
A plain reading of the Constitution would show that Article XIV, Section 4 (3) does not require that
the revenues and income must have also been sourced from educational activities or activities
related to the purposes of an educational institution. 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.
Revenues consist of the amounts earned by a person or entity from the conduct of business
operations. It may refer to the sale of goods, rendition of services, or the return of an investment.
Revenue is a component of the tax base in income tax, VAT, and local business tax (LBT). Assets,
on the other hand, are the tangible and intangible properties owned by a person or entity. It may
refer to real estate, cash deposit in a bank, investment in the stocks of a corporation, inventory of
goods, or any property from which the person or entity may derive income or use to generate the
same. In Philippine taxation, the fair market value of real property is a component of the tax base in
real property tax (RPT). Also, the landed cost of imported goods is a component of the tax base in
VAT on importation and tariff duties. Thus, when a non-stock, non-profit educational institution
proves that it uses its revenues actually, directly, and exclusively for educational purposes, it shall
be exempted from income tax, VAT, and LBT. On the other hand, when it also shows that it uses its
assets in the form of real property for educational purposes, it shall be exempted from RPT.
The last paragraph of Section 30 of the Tax Code without force and effect for being contrary to the
Constitution insofar as it subjects to tax the income and revenues of non-stock, non-profit
educational institutions used actually, directly and exclusively for educational purpose. We make
this declaration in the exercise of and consistent with our duty to uphold the primacy of the
Constitution.

Second Issue:

No.“A Letter of Authority LOA should cover a taxable period not exceeding one taxable year. The
practice of issuing LOAs covering audit of unverified prior years is hereby prohibited. If the audit of
a taxpayer shall include more than one taxable period, the other periods or years shall be
specifically indicated in the LOA.”

The requirement to specify the taxable period covered by the LOA is simply to inform the taxpayer
of the extent of the audit and the scope of the revenue officer’s authority. Without this rule, a
revenue officer can unduly burden the taxpayer by demanding random accounting records from
random unverified years, which may include documents from as far back as ten years in cases of
fraud audit.

The assessment for taxable year 2003 is valid because this taxable period is specified in the LOA.
DLSU was fully apprised that it was being audited for taxable year 2003. While the assessments for
taxable years 2001 and 2002 are void for having been unspecified on separate LOAs as required
under RMO No. 43-90.

SITUS OF TAXATION AND DOUBLE TAXATION
69. Republic Bank v CTA
70. Procter &Gamble Phil. Manufacturing Corp.vMunicipality of Jagna
G.R. No. L-24265; December 28, 1979; Melencio-Herrera, J.
Facts:
1. December 13, 1957, the Municipal Council of Jagna, Bohol enacted Mun. Ordinance No. 4
Series of 1957 “Imposing Storage Fees [on] All Exportable Copra Deposited in the Bodega
Within the Jurisdiction of the Municipality.”
2. For six years (1958-1963), Procter & Gamble paid the Municipality under protest, storage fees
totaling P42,265.13.
3. March 3, 1964, Procter & Gamble (P&G) filed suit in the CFI of Manila seeking that: 1)
Ordinance no 4 be declared inapplicable to it, or that it be called ultra vires, and 2) that the
Municipality be ordered to refund the amount paid under protest + costs.
a. Municipality: questioned the jurisdiction of the trial court to take cognizance of the
action and pleaded prescription and laches for failure to timely question the validity
of the ordinance.
4. TC: Upheld jurisdiction as well as Municipality’s power to enact the Ordinance under the
Revised Admin Code’s sec. 2238, known as the general welfare clause. It also declared
P&G’s right of action prescribed under the 5 year period provided by Art 1149 NCC.
5. P&G appeals the case submitting that:
a. The ordinance is inapplicable as it is not engaged in the business trade of storing
copra for others for compensation or profit, and that the only copra it stores is for
exclusive use in connection with its business as a manufacturer of soap, edible oil,
margarine and other similar products.
b. That the levy is intended as an “export tax” since it is collected from “exportable
copra” which is beyond the powers of the Municipal Council.
c. That the fee of P0.10 for every 100 kilos of copra stored in the bodega is excessive,
unreasonable and oppressive and is imposed more for revenue than as a regulatory
fee.
Issues:
W/N the Municipality of Jagna was authorized to impose and collect the storage fee
provided or in Ordinance No. 4– YES.
Held:
The validity of the ordinance is sustained.
Ratio:
 The Validity of the ordinance must be upheld pursuant to the broad authority conferred upon
municipalities by Commonwealth Act No. 472 (prevailing when the ordinance was enacted).
o Under such article, a municipality is authorized to impose three kinds of licenses 1)
a license for regulation of useful occupation or enterprises, 2) license for restriction
or regulation of non-useful occupations or enterprises, and 3) license for revenue.
o It is thus unnecessary to determine whether the subject storage fee is a tax for
revenue purposes or a license fee to reimburse the municipality for supervision
services since both are within the powers granted to the municipality.
 The storage fee imposed under the ordinance is actually a municipal license tax or fee on
persons, firms and corporations exercising the privilege of storing copra in a bodega within the
muicipality’s territorial jurisdiction.
o “License tax” has not acquired a fixed meaning. It is often use to indiscriminately
designate impositions exacted for various privileges including revenue raising
activities.
 Further, the business of buying and selling and sorting copra is properly the subject of
regulation within the police power granted to municipalities under the Revised Admin Code’s
“general welfare clause”. Since it has been held that warehouses keeping copra is a likely
danger to public safety because it contains flammable substances that are difficult to put under
the control of water.
 The claim that P0.10 / 100kilos fee is beyond the cost of regulation and surveillance is not well
taken. As discussed Victorias Milling v Municipality of Victorias, “[t]he cost of regulation cannot
be taken as a gauge, if the municipality reallt intended to enact a revenue ordinance[…]”
 Municipal corps. Are allowed wide discretion in determining the rates of imposable license fees
even in cases of purely police power measures.
 In the absence of proof as to municipal conditions and the nature of business being
taxed as well as other factors relevant to the issue of arbitrariness of the questioned
rates, courts will go slow in writing off an ordinance.
 P&G’s averment that even if presumed valid, the ordinance is inapplicable to it since it is not in
the business of buying or selling copra should also fail. The question is irrelevant since the
storage fee is an imposition on the privilege of storing copra in bodegas in the
municipality.
 The imposition is also not an export tax, prohibited by the Admin code. Only where there is a
clear showing that what is being taxed is an export to any foreign country would the prohibition
come into play.
o “exportable” copra in the ordinance does not exclusively mean export to a foreign
country, but shipment out of the municipality.
o It is also not a tax on exports because it is also impose upon copra to be used for
domestic purposes.
 However, the lower court erred in claiming that the action has prescribed. In Municipality of
Opon v Caltex, the prescription period for actions to recover municipal license taxes is six
years, governed by Art. 1145(2) NCC.
 Section 2 of Republic Act No. 2264 emanated from beyond the sphere of the legislative
power to enact and vest in local governments the power of local taxation.

(71) Pepsi Cola Bottling Company vs Municipality of Tanauan

69 SCRA 460 – Taxation – Delegation to Local Governments – Double Taxation  taxation cannot be merited. It must be observed that the delegating authority specifies the
Pepsi Cola has a bottling plant in the Municipality of Tanauan, Leyte. In September
1962, the Municipality approved Ordinance No. 23 which levies and collects “from soft
drinks producers and manufacturers a tai of one-sixteenth (1/16) of a centavo for every
bottle of soft drink corked.”
In December 1962, the Municipality also approved Ordinance No. 27 which levies and
collects “on soft drinks produced or manufactured within the territorial jurisdiction of
this municipality a tax of one centavo P0.01) on each gallon of volume capacity.”
There is no double taxation. The argument of the Municipality is well taken. Further,
Pepsi Cola’s assertion that the delegation of taxing power in itself constitutes double
limitations and enumerates the taxes over which local taxation may not be exercised. The
reason is that the State has exclusively reserved the same for its own prerogative.
Moreover, double taxation, in general, is not forbidden by our fundamental law unlike in
other jurisdictions. Double taxation becomes obnoxious only where the taxpayer is taxed
twice for the benefit of the same governmental entity or by the same jurisdiction for the
same purpose, but not in a case where one tax is imposed by the State and the other by
the city or municipality.

Pepsi Cola assailed the validity of the ordinances as it alleged that they constitute double
taxation in two instances: a) double taxation because Ordinance No. 27 covers the same
subject matter and impose practically the same tax rate as with Ordinance No. 23, b)
double taxation because the two ordinances impose percentage or specific taxes.

Pepsi Cola also questions the constitutionality of Republic Act 2264 which allows for the
delegation of taxing powers to local government units; that allowing local governments
to tax companies like Pepsi Cola is confiscatory and oppressive.

The Municipality assailed the arguments presented by Pepsi Cola. It argued, among
others, that only Ordinance No. 27 is being enforced and that the latter law is an
amendment of Ordinance No. 23, hence there is no double taxation.

ISSUE: Whether or not there is undue delegation of taxing powers. Whether or not there
is double taxation.

HELD: No.  There is no undue delegation. The Constitution even allows such
delegation. Legislative powers may be delegated to local governments in respect of
matters of local concern. By necessary implication, the legislative power to create
political corporations for purposes of local self-government carries with it the power to
confer on such local governmental agencies the power to tax. Under the New
Constitution, local governments are granted the autonomous authority to create their own
sources of revenue and to levy taxes. Section 5, Article XI provides: “Each local
government unit shall have the power to create its sources of revenue and to levy taxes,
subject to such limitations as may be provided by law.” Withal, it cannot be said that
(72) Villanueva V City Of Iloilo
(26 SCRA 578)
FACTS:
Relying on the passage of RA 2264 or the Local Autonomy Act, Iloilo enacted
Ordinance 11 Series of 1960, imposing a municipal license tax on tenement houses in
accordance with the schedule of payment provided by therein. Villanueva and the other
appellees are apartment owners from whom the city collected license taxes by virtue of
Ordinance 11. Appellees aver that the said ordinance is unconstitutional for RA 2264
does not empower cities to impose apartment taxes; that the same is oppressive and
unreasonable for it penalizes those who fail to pay the apartment taxes; that it constitutes
not only double taxation but treble taxation; and, that it violates uniformity of taxation
Issues:
1. Does the ordinance impose double taxation?
2. Is Iloilo city empowered by RA 2264 to impose tenement taxes?
Held:
While it is true that appellees are taxable under the NIRC as real estate dealers, and
taxable under Ordinance 11, double taxation may not be invoked. This is because the
same tax may be imposed by the national government as well as by the local
government. The contention that appellees are doubly taxed because they are paying real
estate taxes and the tenement tax is also devoid of merit. A license tax may be levied
upon a business or occupation although the land or property used in connection therewith
is subject to property tax. In order to constitute double taxation, both taxes must be the
same kind or character. Real estate taxes and tenement taxes are not of the same
character.
RA 2264 confers local governments broad taxing powers. The imposition of the
tenement taxes does not fall within the exceptions mentioned by the same law. It is
argued however that the said taxes are real estate taxes and thus, the imposition of more
the 1 per centum real estate tax which is the limit provided by CA 158, makes the said
ordinance ultra vires. The court ruled that the tax in question is not a real estate tax. It
does not have the attributes of a real estate tax. By the title and the terms of the
ordinance, the tax is a municipal tax which means an imposition or exaction on the right
to use or dispose of property, to pursue a business, occupation or calling, or to exercise a
privilege. Tenement houses being offered for rent or lease constitute a distinct form of
business or calling and as such, the imposition of municipal tax finds support in Section
2 of RA 2264.
(73) Compania General de Tabacos de Filipinas vs. City of Manila [G.R. No. L-
16619. June 29, 1963.]
Facts:
Compañia General de Tabacos de Filipinas (Tabacalera), as a duly licensed first class
wholesale and retail liquor dealer paid the City the fixed license fees prescribed by
Ordinance 3358 for the years 1954 to 1957, inclusive. In 1954, City Ordinance 3634,
amending City Ordinance 3420, and City Ordinance 3816, amending City Ordinance
3301 were passed.
By reason thereof, the City Treasurer issued the regulations, according to which, the term
“general merchandise”, as used in said ordinances, includes all articles referred to in
chapter 1, Sections 123 to 148 of the National Internal Revenue Code. Of these, Section
133-135 included liquor among the taxable articles.
Pursuant to said regulations, Tabacalera included its sales of liquor in its sworn quarterly
declaration submitted to the City Treasurer beginning from the third quarter of 1954 to
the second quarter of 1957, with a total value of P722,501.09 and correspondingly paid a
wholesaler’s tax amounting to P13,688 and a retailer’s tax amounting to P1,520, or a
total of P15,208.
In 1954, the City, through its treasurer, addressed a letter to Messrs. Sycip, Gorres,
Velayo and Co., an accounting firm, expressing the view that liquor dealers paying the
annual wholesale and retail fixed tax under City Ordinance 3358 are not subject to the
wholesale and retail dealers’ taxes prescribed by City Ordinances 3634, 3301, and 3816.
Upon learning of said opinion, the Tabacalera stopped including its sales of liquor in its
quarterly sworn declarations submitted in accordance with the City Ordinances 3634,
3301, and 3816, and on 3 December 1957, it addressed a letter to the City Treasurer
demanding refund of the alleged overpayment.
 As the claim was disallowed, the Tabacalera filed the action in the CFI Manila to
recover from the City of Manila and its Treasurer, Marcelino Sarmiento the sum of
P15,280.00 allegedly overpaid by it as taxes on its wholesale and retail sales of liquor for
the period from the third quarter of 1954 to the second quarter of 1957, inclusive, under
Ordinances 3634, 3301, and 3816.
The CFI Manila ordered the City Treasurer of Manila to refund the sum of P15,280 to
Compañia General de Tabacos de Filipinas. Hence, the appeal
Issues:
1. WON taxes and license fee is similar terms
2. WON double taxation exist
1. NO, the term “tax” applies — generally speaking — to all kinds of exactions which
become public funds.It is often loosely used to include levies for revenue as well as
levies for regulatory purposes. Thus license fees are commonly called taxes. Legally
speaking, however, license fee is a legal concept quite distinct from tax; the former is
imposed in the exercise of police power for purposes of regulation, while the latter is
imposed under the taxing power for the purpose of raising revenues.
Therefore taxes and license fee are not similar terms.
2. NO, Ordinance 3358 is a valid exercise of police power by regulatory enactment for
the sale of intoxicating liquors. It clearly prescribes municipal license fees for the
privilege to engage in the business of selling liquor or alcoholic beverages, having been
enacted by the Municipal Board of Manila pursuant to its charter power to fix license
fees on, and regulate, the sale of intoxicating liquors, whether imported or locally
manufactured. The license fees imposed by it are essentially for purposes of regulation,
and are justified, considering that the sale of intoxicating liquor is, potentially at least,
harmful to public health and morals, and must be subject to supervision or regulation by
the state and by cities and municipalities authorized to act in the premises. While
Ordinance 3634, 3301 and 316 are revenue measures which clearly impose taxes on the
sales of general merchandise, wholesale or retail, and are revenue measures enacted by
the Municipal Board of Manila by virtue of its power to tax dealers for the sale of such
merchandise.
Therefore double taxation do not exist in the case at bar.
The Supreme Court reversed the decision appealed from, with the result that the case
should be dismissed.
(74) Province of Bulacan vs. CA
A province has no authority to impose taxes on stones, sand, gravel, earth and other
quarry resources extracted from private lands.
A province may not levy excise taxes on articles already taxed by the National Internal
Revenue Code.
THE PROVINCE OF BULACAN, ROBERTO M. PAGDANGANAN, FLORENCE
CHAVES, and MANUEL DJ SIAYNGCO in their capacity as PROVINCIAL
GOVERNOR, PROVINCIAL TREASURER, PROVINCIAL LEGAL ADVISER,
respectively, petitioners, vs. THE HONORABLE COURT OF APPEALS
(FORMER SPECIAL 12TH DIVISION), REPUBLIC CEMENT CORPORATION,
respondents.
299 SCRA 442 | G.R. No. 126232
November 27, 1998
Ponente: ROMERO, J.
NATURE OF CASE
PETITION for review on certiorari of a decision of the Court of Appeals.
BRIEF
Before us is a petition for certiorari seeking the reversal of the decision of the Court of
Appeals dated September 27, 1995 declaring petitioner without authority to levy taxes on
stones, sand, gravel, earth and other quarry resources extracted from private lands, as
well as the August 26, 1996 resolution of the appellate court denying its motion for
reconsideration.
FACTS
On June 26, 1992, the Sangguniang Panlalawigan of Bulacan passed Provincial
Ordinance No. 3, known as “An Ordinance Enacting the Revenue Code of the Bulacan
Province.” Section 21 of the ordinance provides as follows:
Section 21. Imposition of Tax.—There is hereby levied and collected a tax of 10% of the
fair market value in the locality per cubic meter of ordinary stones, sand, gravel, earth
and other quarry resources, such, but not limited to marble, granite, volcanic cinders,
basalt, tuff and rock phosphate, extracted from public lands or from beds of seas, lakes,
rivers, streams, creeks and other public waters within its territorial jurisdiction.
Pursuant thereto, the Provincial Treasurer of Bulacan, assessed private respondent
Republic Cement Corporation P2,524,692.13 for extracting limestone, shale and silica
from several parcels of private land in the province. Believing that the province, on the
basis of above-said ordinance, had no authority to impose taxes on quarry resources
extracted from private lands, Republic Cement formally contested the same but was,
however, denied by the Provincial Treasurer. Republic Cement, consequently filed a
petition for declaratory relief with the RTC of Bulacan. The province filed a motion to
dismiss Republic Cement’s petition, which was granted by the trial court, ruling that
declaratory relief was improper, allegedly because a breach of the ordinance had been
committed by Republic Cement. Respondent then filed a petition for certiorari with the
SC but was referred to the CA. The appellate court required petitioners to file a
comment. In the interim, the Province of Bulacan issued a warrant of levy against
Republic Cement, allegedly because of its unpaid tax liabilities. Negotiations between
Republic Cement and petitioners resulted in an agreement and modus vivendi, whereby
Republic Cement agreed to pay under protest P1,262,346.00, 50% of the tax assessed by
petitioner, in exchange for the lifting of the warrant of levy. After due trial, the CA
declared the Province of Bulacan to be without legal authority to impose and assess taxes
on quarry resources extracted by RCC from private lands.
ISSUE/s of the CASE
Whether the provincial government could impose taxes on stones, sand, gravel, earth and
other quarry resources extracted from private lands
ACTION/S OF THE COURT
RTC: ruled that declaratory relief was improper
CA: declared petitioner to be without authority to impose and assess taxes on quarry
resources extracted by RCC from private lands
COURT RATIONALE ON THE ABOVE CASE
A province has no authority to impose taxes on stones, sand, gravel, earth and other
quarry resources extracted from private lands.The pertinent provisions of the Local
Government Code are as follows:
Sec. 134. Scope of Taxing Powers.—Except as otherwise provided in this Code, the
province may levy only the taxes, fees, and charges as provided in this Article.
Sec. 138. Tax on Sand, Gravel and Other Quarry Resources.—The province may levy
and collect not more than ten percent (10%) of fair market value in the locality per cubic
meter of ordinary stones, sand, gravel, earth, and other quarry resources, as defined
under the National Internal Revenue Code, as amended, extracted from public lands or
from the beds of seas, lakes, rivers, streams, creeks, and other public waters within its
territorial jurisdiction.
The appellate court, on the basis of Section 134, ruled that a province was empowered to
impose taxes only on sand, gravel, and other quarry resources extracted from public
lands, its authority to tax being limited by said provision only to those taxes, fees and
charges provided in Article One, Chapter 2, Title One of Book II of the Local
Government Code. The Court of Appeals erred in ruling that a province can impose only
the taxes specifically mentioned under the Local Government Code. As correctly pointed
out by petitioners, Section 186 allows a province to levy taxes other than those
specifically enumerated under the Code, subject to the conditions specified therein. This
finding, nevertheless, affords cold comfort to petitioners as they are still prohibited from
imposing taxes on stones, sand, gravel, earth and other quarry resources extracted from
private lands.The tax imposed by the Province of Bulacan is an excise tax, being a tax
upon the performance, carrying on, or exercise of an activity.
A province may not, therefore, levy excise taxes on articles already taxed by the National
Internal Revenue Code.Unfortunately for petitioners, the National Internal Revenue
Code provides:
Section 151.—Mineral Products.—
(A) Rates of Tax.—There shall be levied, assessed and collected on minerals, mineral
products and quarry resources, excise tax as follows:
xxx xxx xxx
(2) On all nonmetallic minerals and quarry resources, a tax of two percent (2%) based on
the actual market value of the gross output thereof at the time of removal, in case of
those locally extracted or produced; or the values used by the Bureau of Customs in
determining tariff and customs duties, net of excise tax and value-added tax, in the case
of importation. x x x xxx
It is clearly apparent from the above provision that the National Internal Revenue Code
levies a tax on all quarry resources, regardless of origin, whether extracted from public
or private land. Thus, a province may not ordinarily impose taxes on stones, sand, gravel,
earth and other quarry resources, as the same are already taxed under the National
Internal Revenue Code. The province can, however, impose a tax on stones, sand, gravel,
earth and other quarry resources extracted from public land because it is expressly
empowered to do so under the Local Government Code. As to stones, sand, gravel, earth

and other quarry resources extracted from private land, however, it may not do so,
because of the limitation provided by Section 133 of the Code in relation to Section 151
of the National Internal Revenue Code.

SUPREME COURT RULING

WHEREFORE, premises considered, the instant petition is DISMISSED for lack of

merit and the decision of the Court of Appeals is hereby AFFIRMED in toto. Costs
against petitioner.

SO ORDERED.