FACTS

ABLOLA

Good day everyone, today I will tackle the facts of the case entitled BIR VS. DLSU or GR. Number 196596.

In the year 2004, the BIR or the Bureau of Internal Revenue sent a LOA also known as the Letter of Authority to De La Salle
University. LOA number 2794 states that its revenue officers should check and look over all DLSU’s book of accounts and
other accounting records for all internal revenue taxes for the year 2003 and unverified prior years.

May 19, 2004, BIR issued a Preliminary Assessment Notice or the (PAN) to DLSU. This preliminary Assessment Notice aims
to make a communication issued by the Assessment Division, or any other concerned BIR Office, informing a Taxpayer who
has been audited of the findings of the Revenue Officer regarding its accounts.

August 18 of the same year, BIR filed the LOA that we are talking about. Prior to the notice for checking on DLSU’s book of
accounts and other accounting records, the BIR directly pointed out the following deficiency taxes of the said school. These
taxes are what you see on your screens like the (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 (DSI) on loans
and lease contracts. It is easy for us to understand the income tax and the value added tax but when it comes to DSI, for
us to fully understand the case, according to BIR it is a tax on documents, instruments, loan agreements and papers
evidencing the acceptance, assignment, sale or transfer of an obligation, right or property incident thereto.

After the checking, BIR demanded DLSU to pay a total of ₱17,303,001.12, inclusive of surcharge, interest and penalty for
taxable years 2001, 2002 and 2003.

The DLSU did not want to recognize this and asked for a petition for review on the CTA Division on August 3, 2005 after the
commissioner or the BIR fails to act on their protest.

On DLSU being a non-stock, non-profit educational institution’s petition, they directly anchored it on Article XIV, Section 4
(3) of the Constitution, which reads:

(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.

After several years, the CTA Division then partially granted DLSU’s petition and the assessment on the loan transactions
costing ₱1,1681,774.00 is hereby cancelled but they are still ordered to pay deficiency income tax, VAT and DST on its lease
contracts, plus 25% surcharge on all its transactions for the fiscal years 2001, 2002 and 2003 in the total amount of
₱18,421,363.53.

BAYONA

In this case, the petitioner argued before the CTA En Banc that DLSU's use of its revenues and assets for non-educational
or commercial purposes meant that these items should not be exempt from taxation under the Constitution.

The respondent, unhappy with the decision of the CTA Division, filed a petition for review with the CTA En Banc, citing
several reasons:

1. The respondent claimed that the entire assessment should be canceled because it was based on an invalid Letter of
Authority (LOA).

2. Even if the LOA was valid, the respondent argued that the CTA Division should still have canceled the entire assessment
because DLSU presented evidence similar to that which resulted in the cancellation of Ateneo De Manila Universitv's
(Ateneo) tax assessment in a separate case before the CTA.
3. The respondent contested the CT Division's finding that a portion of OLSU's rental income was not proven to have been
used exclusively for educational purposes.

Despite these arguments, the CTA En Banc rejected the petitioner's claims and upheld the ruling of the CTA Division. The
court determined that the respondent had indeed proven that a portion of the assessed rental income was used exclusively
for educational purposes, thus qualifying for tax exemption The CTA En Banc found DLSU's evidence satisfactory, as it
confirmed that part of its rental income had been used to repay a loan taken to build the university's Physical Education -
Sports Complex, as required by the Documentary Stamp Tax (DST) on loans and mortgages.

Moreover, the CTA En Banc established that DLSU'S DST payments had been remitted to the Bureau of Internal Revenue
(BIR), supported by the stamp on the documents produced by a DST imprinting machine, which is allowed under Section
200 (D) of the National internal Revenue Code (Tax Codel and Section 2 of Revenue Regulations (R) No. 15-2001. Finally,
the court deemed the supplemental evidence submitted by the respondent admissible, as it was formally offered only
during the reconsideration of the CTA Division's original decision. It is important to note that the law creating the CTA
specifies that proceedings before it is not strictly governed by the technical rules of evidence.

BUCATAN

the CTA En Banc ruled that the loa issued by the CIR was violative to the RMO No. 43-90 that the loa should cover only one
taxable period and the practice of including unverified prior years in the audit is prohibited. In this case, assessments for
the certain years are void due to LOA's scope but the assessment for the specific taxable year 2003 is considered valid.

DLSU claims that according to Revenue Memorandum Order (RMO) No. 43-90, it's not allowed to issue a LOA that includes
any indication of unverified prior years. They argue that an LOA issued against this rule is invalid, and consequently, any
assessment based on such a defective LOA should be considered void. DLSU emphasizes that the LOA they received covered
both the Fiscal Year Ending 2003 and Unverified Prior Years. Therefore, they assert that the Commissioner's assessment
for deficiency income tax, Value Added Tax (VAT), and Documentary Stamp Tax (DST) for the years 2001, 2002, and 2003,
should be void as well. DLSU disagrees with the CTA En Banc's decision, which declared the LOA as valid for the taxable
year 2003. They argue that if the LOA format includes both the base year and unverified prior years, as in their case, any
assessment arising from it should be entirely invalid.

ISSUES

FLORDELIS

The revenues and assets of non-stock, non-profit educational institutions proved to have been used actually, directly, and
exclusively for educational

purposes are exempt from duties and taxes.

DLSU rests it case on Article XIV, Section 4 (3) of the 1987 Constitution, which reads: 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. Upon the dissolution or cessation of the corporate existence of such institutions, their assets shall be
disposed of in the manner provided by law. Proprietary educational institutions, including those cooperatively owned, may
likewise be entitled to such exemptions subject to the limitations provided by law including restrictions on dividends and
provisions for reinvestment.

Before fully discussing the merits of the case, we observe that:

First, the constitutional provision refers to two kinds of educational institutions: (1) non-stock, non-profit educational
institutions and (2) proprietary educational institutions. Second, DLSU falls under the first category. Even the Commissioner
admits the status of DLSU as a non-stock, non-profit educational institution. Third, while DLSU's claim for tax exemption
arises from and is based on the Constitution, the Constitution, in the same provision, also imposes certain conditions to
avail of the exemption. We discuss below the import of the constitutional text vis-a-vis the Commissioner's counter-
arguments. Fourth, there is a marked distinction between the treatment of non-stock, non-profit educational institutions
and proprietary educational institutions. The tax exemption granted to non-stock, non-profit educational institutions is
conditioned only on the actual, direct and exclusive use of their revenues and assets for educational purposes. While tax
exemptions may also be granted to proprietary educational institutions, these exemptions may be subject to limitations
imposed by Congress.

MANAOG

In this issue the ruling here is that; The LOA issued to DLSU is not entirely voided. The Assessment for taxable year 2003 is
valid.

The DLSU objects to the CTA En Banc's conclusion that the LOA is valid for taxable year 2003 & insist that the entire LOA
should be voided for being contrary to the RMO No. 43-90 which reads that If tax audit includes more than taxable period
the other period shall be specifically indicated in the LOA

Is there a basis to completely nullify the LOA issued to DLSU, and consequently disregard the CTA and BIR's finding of tax
deficiency for taxable year 2003? And they answer in Negative means no

Since in the present case the LOA issued DLSU is for Fiscal Year Ending 2003 and Unverified prior years the assessment for
deficiency income tax, Value Added Tax, Documentary Stamp Tax for taxable Year 2001, 2001 has been void and the
assessment for taxable year 2003 is valid.

ACHIVAR

3. Whether the CTA correctly admitted DLSU supplemental pieces of documentary evidence.

Ruling: YES, THE CTA CORRECTLY ADMITTED THE SUPPLEMENTAL EVIDENCE FORMALLY OFFERED BY DLSU

• The Commissioner objects to the CTA Divisions admissions of DLSU’s supplemental pieces of documentary
evidences.

• To recall kasi, pormal na inoffer ng DLSU yung mga supplemental evidences upon filing its motion para sa
reconsideration w/the CTA Division. So inamin ng CTA Division na yung mga Supplemental evidences nga is nagpapatunay
na ang portion nitong rent ni DLSU was used actually, directly and exclusively for educational purposes. So dahil nga rito,
ni reduced ng CTA Division yung tax liabilities ng DLSU. The further information about sa ruling will be discussed by the
next reporter. So next,

4. Whether the CTA’s appreciation of the sufficiency of DLSU evidence may be disturbed by the court.

Ruling: NO, THE CTA’S APPRECIATION OF EVIDENCE IS GENERALLY BINDING ON THE COURT UNLESS COMPELLING REASONS
JUSTIFY OTHERS.

• Because according to what I’ve read, the parties failed to convince the Court that the CTA overlooked or failed to
consider the relevant facts.

• It is doctrinal kasi that the Court will not lightly set aside the conclusions na reached by the CTA, sa pamamagitan
na lang ng mismong katangian ng tungkulin nito na exclusive lamang sa pagresolba or sa resolution ng mga tax problems.
It has also developed of course an expertise on the subject, unless if nagkaroon nga ng abuse or improvident sa pag exercise
ng authority.

• The factual findings by the CTA have the highest respect of course. According sa nabasa ko, sa pagtuklas or pag
alam ng mga facts can only disturbed on appeal if hindi ito nasusuportahan ng mga substantial evidences, or there is
showing of biggest mistake (error ba) or even pang-aabuso sa part ng CTA. Sa absence naman of any clear and convincing
proof to the contrary, the court must presume that the CTA rendered a decision na valid in every aspect.

• So, the Court sustain the factual findings of the CTA.

• According nga sa nabanggit ko kanina, the parties failed to raise credible basis para ma disturb yung findings ng
CTA that the DLSU had used actually, directly, and exclusively for educational purposes a portion of its assessed income
and that it had remitted the DST payments through an online imprinting machine. So as for the further details about it
again, which will discuss by the next reporter. Alright, that’s all for my part. Next reporter, Thank you!

RULING

INTRODUCTION

ARCA

for the ruling on the first issue regarding the tax exemptions claimed by DLSU, I will explain both parties’ claims and
arguments. I will then elucidate the ruling and the court’s explanation on the claims or arguments of the two parties.

For DLSU, they used Article XIV, Section 4 (3) as their basis, while the Commissioner’s opposition is based on Section 30 (h)
of the tax code.

BODY

PRIETO

Now, I will present and explain DLSU’s claim based on their basis for tax exemptions, which is Article XIV, Section 4 (3). It
states that all revenues and assets of non-profit educational institutions used for educational purposes should be exempted
from taxes and duties.

Then, proprietary educational institutions may also be entitled to exemptions within the limitations set by the law.

This constitutional provision illustrates two types of education: non-profit educational institutions and proprietary
educational institutions.

DLSU falls under the first category of provisions

Now, for the Commissioner’s opposition claim, they used the Tax Code of 1997 under Section 3 (h), stating that any type
of income of an organization from the use of property or person should be subject to tax under this code.

II. BODY PART 2

PRIETO

Now, let’s move on to the court’s interpretation of the Tax Code of 1997. The court rejected this argument from the
Commissioner and referred to the YMCA case. In this case, the court explained the meaning of Article XIV, Section 4 (3),
stating that non-stock or non-profit educational institutions must prove that all their assets and revenues were used for
educational purposes. The court additionally stating that the difference of Article VI, section 28 (3) of the constitution is
that it exempts only charitable, churches or non-profit cemetery from tax only the assets while in Article XIV, section 4 (3)
exempts all revenues and assets should be exempted.

II. BODY PART 3

PRIETO

Now, let me explain the difference between educational institutions under Article XIV, Section 4 (3) of the constitution.
Let’s start with the first category: non-profit and non-stock educational institutions. If a non-stock or non-profit educational
institution actually used its revenues for educational purposes, it is exempted from income tax and local business tax. On
the other hand, if they used their assets, it is also exempted from real property tax.

The court used the Abra Valley College vs. Aquino case as additional explanation. In this case, a leased portion of the
building is subject to real property tax because the asset was used for commercial purposes, not educational purposes.
However, if the school directly and actually used the revenues for educational purposes, it is exempted from taxes.

The court also emphasized that to avail of tax exemptions, the taxpayer must prove that the revenue or income was used
for educational purposes. The court also stated that these two aspects should be considered separately, but if assets or
revenues were used for educational purposes, they are exempted from taxes.

BODY PART IV

SALUDAR

Now, let’s move on to the second category: proprietary educational institutions. The court stated that the constitution
treats non-stock differently from proprietary educational institutions. Non-stock educational institutions are
constitutionally granted and not subject to the limitations imposed by the law. Proprietary educational institutions, on the
other hand, are subject to tax but can avail themselves of exemptions

If non-stock or non-profit educational institutions are tax-exempt under Section 30 of the Tax Code, proprietary educational
institutions are covered by Section 27 on the rates of income for domestic corporations under the same code. Section 30
states that exempt organizations like non-stock or non-profit educational institutions should not be taxed on the income
received.

On the other hand, Section 27 states that proprietary educational institutions, which are not non-profit, should pay 10
percent of their taxable income if their gross income from unrelated trade or business activities exceeds 50% of their
regulated corporate income, which is taxed at 30%.

However, the Tax Code clarified that proprietary educational institutions are entitled only to a reduced rate of 10% on
corporate income tax. First, if proprietary educational institutions are non-profit, and second, if their gross income does
not exceed 50% from unrelated trade or business activities.

Consistent with Article XIV, Section 4 (3) of the constitution, these limitations do not apply to non-profit educational
institutions

As what we heard on what the Court explained on the commissioner arguments using section 30 tax code is not applicable
to non-profit and non-stock educational institutions.
III. CONCLUSION

ARCA

Therefore, the court declared the last paragraph of Section 30 of the Tax Code without force and effect because it
contradicts the constitution. The court held that the income tax and tax on non-stock educational institutions used for
educational purposes are proven. The court stated that this declaration is an exercise of their duty to uphold the primacy
of the constitution.

The court also held that non-stock and non-profit educational institutions are not part of other exempt organizations under
Section 30 of the Tax Code.

Finally, with all the explanations and reasons, the court held that DLSU’s revenue and income were proven to be used for
educational purposes and are exempt from duties and taxes.

ANTONE

It doesn't matter if the CF-CPA had other financing sources because the assessment in this case solely relates to the rental
income that DLSU unquestionably brought in as revenue in 2003. It also makes sense that the demonstrated CF-CPA money
used for educational purposes shouldn't be prorated as a portion of the entire CF-CPA disbursements in order to credit
DLSU, given there was never any assertion made that the entire amount of CF-CPA disbursements had been for educational
purposes.