POWER OF TAXATION AS DISTINGUISHED FROM
While AUF is a tax-
POLICE POWER AND EMINENT DOMAIN
G.R. No. 189999 June 27, 2012
ANGELES UNIVERSITY FOUNDATION, Petitioner,
vs. CITY OF ANGELES, JULIET G. QUINSAAT, in her
capacity as Treasurer of Angeles City and ENGR.
DONATO N. DIZON, in his capacity as Acting Angeles
City Building Official, Respondents.
FACTS
 AUF is an educational institution converted into a
non-stock, non-profit education foundation under
R.A. No. 6055
 In 2005, AUF filed with the Office of the City
Building Official an application for a building permit
for the construction of the AUF-Medical Center.
 Said office issued a Building Permit Fee Assessment
in the amount of P126,839.20. An Order of Payment
was also issued by the City Planning and
Development Office, Zoning Administration Unit
requiring petitioner to pay the sum of P238,741.64
as Locational Clearance Fee.
 AUF sent a letter to the City Treasurer Juliet G.
Quinsaat and Acting City Building Official Donato N.
Dizon, claiming that it is exempt from the payment
of the building permit and locational clearance fees.
 The City treasurer referred the matter to the Bureau
of Local Government Finance, then to DOJ. And
eventually the DOJ declared AUF to be exempt from
the payment of building permit fees
 Invoking now the opinions of DOJ, AUF reiterated its
request to reverse the assessments. However, they
still refused to issue building permits fir the
construction of AUFMC.
 Consequently, AUF paid under protest for the
construction of AUF-MC and for the renovation of a
school building.
 In 2006, AUF requested for the refund of the fees.
However, the City Treasurer denied the claim for
refund.
 AUF then filed a complaint with the RTC for the
refund of P826,662.99 plus interest at the rate of
12% per annum and atty’s fees
 RTC = ruled in favor of AUF
 CA= revered the ruling of RTC.
free entity, it is not exempt from the payment of
regulatory fees. It is exempted only from income
tax derived from its educational activities and real
property used exclusively for educational purposes.
o Regardless of the repealing clause in
the National Building Code, the CA held that
AUF is still not exempt because a building
permit cannot be considered as the other
"charges" mentioned in Sec. 8 of R.A. No.
6055 which refers to impositions in the
nature of tax, import duties, assessments
and other collections for revenue
purposes, following the ejusdem generis
rule
ISSUE
WON the imposition of building permits is in the
exercise of power of taxation of the state? (No, it is in
the exercise of state’s police power)
Contentions
AUF’s Contentions: the primary purpose of the exaction
determines its nature. A charge of a fixed sum which
bears no relation to the cost of inspection and which is
payable into the general revenue of the state is a tax
rather than an exercise of the police power.
The standard set by law in the determination of the
amount that may be imposed as license fees is such that
is commensurate with the cost of regulation, inspection
and licensing. But in this case, the amount representing
the building permit and related fees and/or charges is
such an exorbitant amount as to warrant a valid
imposition; such amount exceeds the probable cost of
regulation.
Respondent’s Defense: a building permit is classified
under the term "fee." A fee is generally imposed to
cover the cost of regulation as activity or privilege and is
essentially derived from the exercise of police power;
on the other hand, impositions for services rendered by
the local government units or for conveniences
furnished, are referred to as "service charges"
RULING
 As to AUF’s argument that the building permit fees
collected by respondents are in reality taxes
because the primary purpose is to raise revenues
 for the local government unit, the same does not the National Building Code, revenue is incidentally
hold water. generated for the benefit of local government unit.

**Discussion with regard to what constitute charges,

 In distinguishing tax and regulation as a form of building permits and who are exempt**
police power, the determining factor is the
 R.A. No. 6055 granted tax exemptions to
purpose of the implemented measure.
educational institutions like petitioner which
 If the purpose is primarily to raise revenue, then it
converted to non-stock, non-profit educational
will be deemed a tax even though the measure
foundations
results in some form of regulation.
o SECTION 8. The Foundation shall be exempt
 On the other hand, if the purpose is primarily to
from the payment of all taxes, import
regulate, then it is deemed a regulation and an
duties, assessments, and other charges
exercise of the police power of the state, even
imposed by the Government on all income
though incidentally, revenue is generated
derived from or property, real or personal,
used exclusively for the educational
 The conservative and pivotal distinction between
activities of the Foundation
these two (2) powers rests in the purpose for which
the charge is made.
 On February 19, 1977, Presidential Decree (P.D.)
o If generation of revenue is the primary
No. 1096 was issued adopting the National Building
purpose and regulation is merely incidental,
Code of the Philippines. The said Code requires
the imposition is a tax;
every person, firm or corporation, including any
o but if regulation is the primary purpose, the
agency or instrumentality of the government to
fact that revenue is incidentally raised does
obtain a building permit for any construction,
not make the imposition a tax
alteration or repair of any building or structure.
 Building permit refers to "a document issued by the
 A charge of a fixed sum which bears no relation at
Building Official x x x to an owner/applicant to
all to the cost of inspection and regulation may be
proceed with the construction, installation,
held to be a tax rather than an exercise of the police
power. addition, alteration, renovation, conversion, repair,
moving, demolition or other work activity of a
 In this case, the Secretary of Public Works and specific project/building/structure or portions
Highways who is mandated to prescribe and fix the thereof after the accompanying principal plans,
amount of fees and other charges that the Building specifications and other pertinent documents with
Official shall collect in connection with the the duly notarized application are found satisfactory
performance of regulatory functions, has and substantially conforming with the National
promulgated and issued the Implementing Rules Building Code of the Philippines x x x and its
and Regulations which provide for the bases of Implementing Rules and Regulations (IRR).
assessment of such fee
 Exempted from the payment of building permit fees
are: (1) public buildings and (2) traditional
 AUF failed to demonstrate that the above bases of
indigenous family dwellings. Not being expressly
assessment were arbitrarily determined or
included in the enumeration of structures to which
unrelated to the activity being regulated. Neither
the building permit fees do not apply, petitioner’s
has AUF adduced evidence to show that the rates of
claim for exemption rests solely on its
building permit fees imposed and collected by the
interpretation of the term "other charges imposed
respondents were unreasonable or in excess of the
by the National Government" in the tax exemption
cost of regulation and inspection
clause of R.A. No. 6055.
 A "charge" is broadly defined as the "price of, or
 Concededly, in the case of building permit fees
rate for, something," while the word "fee" pertains
imposed by the National Government under
to a "charge fixed by law for services of public
 officers or for use of a privilege under control of property that is determinative of whether the property
government." As used in the Local Government is used for tax-exempt purposes
Code of 1991 (R.A. No. 7160), charges refers to
Petitioner failed to discharge its burden to prove that its
pecuniary liability, as rents or fees against persons
real property is actually, directly and exclusively used
or property, while fee means a charge fixed by law
for educational purposes. While there is no allegation or
or ordinance for the regulation or inspection of a
proof that petitioner leases the land to its present
business or activity
occupants, still there is no compliance with the
constitutional and statutory requirement that said real
 That "charges" in its ordinary meaning appears to
property is actually, directly and exclusively used for
be a general term which could cover a specific "fee"
educational purposes.
does not support petitioner’s position that building
permit fees are among those "other charges" from WHEREFORE, the petition is DENIED. The Decision dated
which it was expressly exempted. Note that the July 28, 2009 and Resolution dated October 12, 2009 of
"other charges" mentioned in Sec. 8 of R.A. No. the Court of Appeals in CA-G.R. CV No. 90591 are
6055 is qualified by the words "imposed by the AFFIRMED.
Government on all x x x property used exclusively
for the educational activities of the foundation."
 Building permit fees are not impositions on
property but on the activity subject of government
regulation. While it may be argued that the fees
relate to particular properties, i.e., buildings and
structures, they are actually imposed on certain
activities the owner may conduct either to build
such structures or to repair, alter, renovate or
demolish the same. This is evident from the
following provisions of the National Building Code

 Since building permit fees are not charges on

property, they are not impositions from which
petitioner is exempt.

**Discussion on the exemption from realty tax as a

charitable institution**

petitioner’s claim that it is exempted from the payment

of real property tax assessed against its real property
presently occupied by informal settlers.

In Lung Center of the Philippines v. Quezon City, this

Court held that only portions of the hospital actually,
directly and exclusively used for charitable purposes are
exempt from real property taxes, while those portions
leased to private entities and individuals are not exempt
from such taxes.

What is meant by actual, direct and exclusive use of the

property for charitable purposes is the direct and
immediate and actual application of the property itself
to the purposes for which the charitable institution is
organized. It is not the use of the income from the real
(NOTE: Lumang Digest ko na to)
(POWER OF TAXATION AS DISTINGUISHED FROM
POLICE POWER AND POWER OF EMINENT DOMAIN)
G.R. No. 166006 March 14, 2008
PLANTERS PRODUCTS, INC., Petitioner, vs. FERTIPHIL
CORPORATION, Respondent.
FACTS
 Planters Products Inc. (PPI) and Fertiphil are both
engaged in the importation and distribution of
fertilizers, pesticides and agricultural chemicals
 June 3, 1985 = Pres. Marcos issued LOI No. 1465
which provided, among others, for the imposition of
a capital recovery component (CRC) on the
domestic sale of all grades of fertilizers in the
Philippines
o The Administrator of the Fertilizer Pesticide
Authority (FPA) to include in its fertilizer
pricing formula a capital contribution
component of not less than ₱10 per bag.
This capital contribution shall be collected
until adequate capital is raised to make PPI
viable
 Pursuant to the LOI, Fertiphil paid ₱10 for every bag
of fertilizer it sold in the domestic market to FPA
 FPA then remitted the amount collected to the Far
East Bank and Trust Company, the depositary bank
of PPI
 After the 1986 Edsa Revolution, FPA voluntarily
stopped the imposition of the ₱10 levy
 Fertiphil demanded from PPI a refund of the
amounts it paid under LOI No. 1465, but PPI refused
to accede to the demand
 Fertiphil filed a complaint for collection and
damages against FPA and PPI with the RTC
o alleged that the LOI solely favored PPI, a
privately owned corporation, which used
the proceeds to maintain its monopoly of
the fertilizer industry
 RTC = rendered judgment in favor of Fertiphil
o invalidated the levy for violating the basic
principle that taxes can only be levied for
public purpose
 CA = affirmed RTC’s decision. Hence, this petition
ISSUE
WON LOI No. 1465 is a valid exercise either of the police
power or the power of taxation (Power to tax or police
power, still Unconstitutional)
RULING
PPI’s Claims: LOI No. 1465 is a valid exercise either of
the police power or the power of taxation. that the LOI
was implemented for the purpose of assuring the
fertilizer supply and distribution in the country and for
benefiting a foundation created by law to hold in trust
for millions of farmers their stock ownership in PPI
SC:
**Police power – Power of Taxation**
 RTC and the CA did not err in ruling against the
constitutionality of the LOI.
 Police power and the power of taxation are
inherent powers of the State. These powers are
distinct and have different tests for validity.
o Police power is the power of the State to
enact legislation that may interfere with
personal liberty or property in order to
promote the general welfare
o Power of taxation is the power to levy
taxes to be used for public purpose
 The main purpose of police power is the regulation
of a behavior or conduct while taxation is revenue
generation
 The "lawful subjects" and "lawful means" tests are
used to determine the validity of a law enacted
under the police power
 The power of taxation, on the other hand, is
circumscribed by inherent and constitutional
limitations
 While it is true that the power of taxation can be
used as an implement of police power, the primary
purpose of the levy is revenue generation
o If the purpose is primarily revenue, or if
revenue is, at least, one of the real and
substantial purposes, then the exaction is
properly called a tax
 IN THIS CASE, the ₱10 levy under LOI No. 1465 is
too excessive to serve a mere regulatory purpose.
 The levy, no doubt, was a big burden on the seller
or the ultimate consumer. It increased the price of a
bag of fertilizer by as much as five percent
 The LOI expressly provided that the levy was
imposed "until adequate capital is raised to make
PPI viable
 Taxes are exacted only for a public purpose. The
₱10 levy is unconstitutional because it was not for
a public purpose. The levy was imposed to give
undue benefit to PPI
**Limitation on the power of taxation**
 An inherent limitation on the power of taxation is
public purpose. Taxes are exacted only for a public
purpose
 They cannot be used for purely private purposes or
for the exclusive benefit of private persons
 The reason for this is simple. The power to tax
exists for the general welfare; hence, implicit in its
power is the limitation that it should be used only
for a public purpose
**Public Purpose**
 The term "public purpose" is not defined
 It is an elastic concept that can be hammered to fit
modern standards.
 Jurisprudence states that "public purpose" should
be given a broad interpretation
 It does not only pertain to those purposes which
are traditionally viewed as essentially government
functions, such as building roads and delivery of
basic services, but also includes those purposes
designed to promote social justice
 While the categories of what may constitute a
public purpose are continually expanding in light of
the expansion of government functions, the
inherent requirement that taxes can only be
exacted for a public purpose still stands
 Public purpose is the heart of a tax law. When a
tax law is only a mask to exact funds from the
public when its true intent is to give undue benefit
and advantage to a private enterprise, that law
will not satisfy the requirement of "public
purpose."
 The purpose of a law is evident from its text or
inferable from other secondary sources
 Here, We agree with the RTC and that CA that the
levy imposed under LOI No. 1465 was not for a
public purpose
o the LOI expressly provided that the levy be
imposed to benefit PPI, a private company
o the LOI provides that the imposition of the
₱10 levy was conditional and dependent
upon PPI becoming financially "viable."
o the levies paid under the LOI were directly
remitted and deposited by FPA to Far East
Bank and Trust Company, the depositary
bank of PPI
o the levy was used to pay the corporate
debts of PPI
 There was also a letter of understanding signed by
the minister of Finance providing that the levy was
imposed precisely to pay the corporate debts of
PPI
**LOI is still unconstitutional even if enacted under the
police power**
 Even if We consider LOI No. 1695 enacted under the
police power of the State, it would still be invalid
for failing to comply with the test of "lawful
subjects" and "lawful means.
 For the same reasons as discussed, LOI No. 1695 is
invalid because it did not promote public interest.
The law was enacted to give undue advantage to a
private corporation
WHEREFORE, the petition is DENIED. The Court of
Appeals Decision dated November 28, 2003 is
AFFIRMED. SO ORDERED.
(NOTE: Lumang Digest ko na to)
(POWER OF TAXATION AS DISTINGUISHED FROM
POLICE POWER AND POWER OF EMINENT DOMAIN)
G.R. No. 199669 April 25, 2017
SOUTHERN LUZON DRUG CORPORATION, Petitioner,
vs. THE DEPARTMENT OF SOCIAL WELFARE AND
DEVELOPMENT, THE NATIONAL COUNCIL FOR THE
WELFARE OF DISABLED PERSONS, THE DEPARTMENT
OF FINANCE, and THE BUREAU OF INTERNAL
REVENUE, Respondents
FACTS
 April 23, 1992 = R.A. No. 7432, entitled "An Act to
Maximize the Contribution of Senior Citizens to
Nation-Building, Grant Benefits and Special
Privileges and For Other Purposes," was enacted
 Under the law, a senior citizen, who must be at
least 60y/o and has an annual income of not more
than P60,000.00, may avail of the privileges
provided in Section 4 thereof, one of which is 20%
discount on the purchase of medicines
 Feb 26, 2004 = Pres. Gloria signed R.A. No. 9257
amending some provisions of R.A. No. 7432
 The new law retained the 20% discount on the
purchase of medicines but removed the annual
income ceiling thereby qualifying all senior citizens
to the privileges under the law
 Further, R.A. No. 9257 modified the tax treatment
of the discount granted to senior citizens, from tax
credit to tax deduction from gross income,
computed based on the net cost of goods sold or
services rendered
o The establishment may claim the discounts
granted under (a), (f), (g) and (h) as tax
deduction based on the net cost of the
goods sold or services
rendered: Provided, That the cost of the
discount shall be allowed as deduction from
gross income
 May 28, 2004 = DSWD issued IRR of R.A. No. 9257
o That the cost of the discount shall be
allowed as deduction from gross income for
the same taxable year that the discount is
granted
 The change in the tax treatment of the discount
given to senior citizens did not sit well with some
drug store owners and corporations, claiming it
affected the profitability of their business
 Thus, on Jan 13, 2005. Carlos Superdrug filed a
petition assailing the constitutionality of Section
4(a) of R.A. No. 9257 primarily on the ground that it
amounts to taking of private property without
payment of just compensation
 In a Decision dated June 29, 2007, the Court
upheld the constitutionality of the assailed
provision, holding that the same is a legitimate
exercise of police power
 Meanwhile, R.A. No. 7277 pertaining to
the "Magna Carta for Disabled Persons" was
enacted, which was subsequently amended by R.A.
No. 9442
o enumerates the other privileges and
incentives of PWDs, including the grant of
20% discount on the purchase of medicines
o Similar to R.A. No. 9257, covered
establishments shall claim the discounts
given to PWDs as tax deductions from the
gross income, based on the net cost of
goods sold or services rendered
 Feb 26, 2008 = SOUTHERN LUZON DRUG
CORPORATION filed a Petition seeking to declare as
unconstitutional R.A. No. 9257 and R.A. No. 9442
o these provisions only allow tax deduction
on the gross income based on the net cost
of goods sold or services rendered as
compensation to private establishments for
the 20% discount that they are required to
grant to senior citizens and PWDs
 CA = dismissed the petition, reiterating the ruling
the case of Carlos Superdrug where it was ruled
that is a valid exercise of Police Power.
ISSUE
WON the 20% discount is a valid exercise of Police
Power (YES)
RULING
CLAIMS: the change in the tax treatment of the
discount is illegal as it constitutes taking without just
compensation.
 To begin with, the issue of just compensation finds
no relevance in the instant case as it had already
been made clear in Carlos Superdrug that the
power being exercised by the State in the
imposition of senior citizen discount was its police
power
 Unlike in the exercise of the power of eminent
domain, just compensation is not required in
wielding police power
 It is in the exercise of its police power that the
Congress enacted R.A. Nos. 9257 and 9442, the laws
mandating a 20% discount on purchases of
medicines made by senior citizens and PWDs
 In the exercise of police power, "property rights of
private individuals are subjected to restraints and
burdens in order to secure the general comfort,
health, and prosperity of the State
 Even then, the State's claim of police power cannot
be arbitrary or unreasonable
 After all, the overriding purpose of the exercise of
the power is to promote general welfare, public
health and safety, among others.
 It is a measure, which by sheer necessity, the State
exercises, even to the point of interfering with
personal liberties or property rights in order to
advance common good
 To warrant such interference, two requisites must
concur:
o (a) the interests of the public generally, as
distinguished from those of a particular
class, require the interference of the State
o (b) the means employed are reasonably
necessary to the attainment of the object
sought to be accomplished and not unduly
oppressive upon individuals
 In other words, the proper exercise of the police
power requires the concurrence of a lawful subject
and a lawful method
 The SUBJECTS of R.A. Nos. 9257 and
9442, i.e., senior citizens and PWDs, are individuals
whose well-being is a recognized public duty
 The Court also entertains no doubt on the legality of
the METHOD taken by the legislature to implement
the declared policies of the subject laws, that is, to
impose discounts on the medical services and
purchases of senior citizens and PWDs and to treat
the said discounts as tax deduction rather than tax
credit
 The measure is fair and reasonable and no credible
proof was presented to prove the claim that it was
confiscatory. To be considered confiscatory, there
must be taking of property without just
compensation
 5 circumstances must be present in order to qualify
"taking" as an exercise of eminent domain
1. the expropriator must enter a private
property
2. the entrance into private property must be
for more than a momentary period
3. the entry into the property should be under
warrant or color of legal authority
4. the property must be devoted to a public
use or otherwise informally appropriated or
injuriously affected
5. the utilization of the property for public use
must be in such a way as to oust the owner
and deprive him of all beneficial enjoyment
of the property
 It is unthinkable how the petitioner could have
suffered losses due to the mandated discounts in
R.A. Nos. 9257 and 9442, when a fractional increase
in the prices of items could bring the business
standing at a balance even with the introduction of
the subject laws.
o A level adjustment in the pricing of items is
a reasonable business measure to take in
order to adapt to the contingency
 To reiterate, the subject provisions only affect the
petitioner's right to profit, and not earned profits.
Unfortunately for the petitioner, the right to profit
is not a vested right or an entitlement that has
accrued on the person or entity such that its
invasion or deprivation warrants compensation.
 The legislature may also grant rights and impose
additional burdens: It may also regulate industries,
in the exercise of police power, for the protection of
the public.
 R.A. Nos. 9257 and 9442 are akin to regulatory laws,
the issuance of which is within the ambit of police
power
 Indeed, regulatory laws are within the category of
police power measures from which affected
persons or entities cannot claim exclusion or
compensation
 In Manila Memorial Park, Inc., it was ruled that it is
within the bounds of the police power of the state
 to impose burden on private entities, even if it may
affect their profits, such as in the imposition of price
control measures.
o There is no compensable taking but only a
recognition of the fact that they are subject
to the regulation of the State and that all
personal or private interests must bow
down to the more paramount interest of
the State

WHEREFORE, in view of the foregoing disquisition,

Section 4(a) of Republic Act No. 9257 and Section 32 of
Republic Act No. 9442 are hereby
declared CONSTITUTIONAL. SO ORDERED.
(POWER OF TAXATION AS DISTINGUISHED FROM
POLICE POWER AND POWER OF EMINENT DOMAIN)
G.R. No. 175356 December 3, 2013
MANILA MEMORIAL PARK, INC. AND LA FUNERARIA
PAZ-SUCAT, INC., Petitioners,
vs. SECRETARY OF THE DEPARTMENT OF SOCIAL
WELFARE AND DEVELOPMENT and THE SECRETARY OF
THE DEPARTMENT OF FINANCE, Respondents.
FACTS
 April 23, 1992 = RA 7432 was passed into law,
granting in favor of senior citizens a 20% discount,
exemption from individual income taxes, free
medical services etc.
 That private establishments may claim the cost as
tax credit
 February 26, 2004, RA 9257 amended certain
provisions of RA 7432, it modified the tax
treatment of the discount granted to senior
citizens, from tax credit to tax deduction from
gross income
o SECTION 4. Privileges for the Senior Citizens
xxx
The establishment may claim the discounts
granted under (a), (f), (g) and (h) as tax
deduction based on the net cost of the
goods sold or services
rendered: Provided, That the cost of the
discount shall be allowed as deduction from
gross income for the same taxable year that
the discount is granted. . . . x x x
 To implement the tax provisions of RA 9257, the
Secretary of Finance issued RR No. 4-2006, and the
DSWD likewise issued its own Rules and Regulations
Implementing RA 9257
 Feeling aggrieved by the tax deduction scheme,
petitioners filed the present recourse, praying that
Section 4 of RA 7432, as amended by RA 9257, and
the implementing rules and regulations issued by
the DSWD and the DOF be declared
unconstitutional insofar as these allow business
establishments to claim the 20% discount given to
senior citizens as a tax deduction;
Petitioners’ Contentions: the tax deduction scheme
contravenes Article III, Section 9 of the Constitution,
which provides that: "private property shall not be
taken for public use without just compensation.”
Petitioners likewise seek a reversal of the ruling in
Carlos Superdrug Corporation that the tax deduction
scheme adopted by the government is justified by
police power
They assert that "although both police power and the
power of eminent domain have the general welfare for
their object, there are still traditional distinctions
between the two" and that "eminent domain cannot be
made less supreme than police power
ISSUE
WON the tax deduction scheme provided under R.A.
9257 is a valid exercise of state’s police power? (YES)
RULING
 Petitioners posit that the resolution of this case lies
in the determination of whether the legally
mandated 20% senior citizen discount is an exercise
of police power or eminent domain. If it is police
power, no just compensation is warranted. But if it
is eminent domain, the tax deduction scheme is
unconstitutional because it is not a peso for peso
reimbursement of the 20% discount given to senior
citizens. Thus, it constitutes taking of private
property without payment of just compensation
 At the outset, we note that this question has been
settled in Carlos Superdrug Corporation
 No compelling reason has been proffered to
overturn, modify or abandon the ruling in Carlos
Superdrug Corporation.
 Petitioners argue that we have previously ruled in
Central Luzon Drug Corporation that the 20%
discount is an exercise of the power of eminent
domain, thus, requiring the payment of just
compensation. They urge us to re-examine our
 ruling in Carlos Superdrug Corporation which
allegedly reversed the ruling in Central Luzon Drug
Corporation
 This, notwithstanding, we went on to rule in Carlos
Superdrug Corporation that the 20% discount and
tax deduction scheme is a valid exercise of the
police power of the State. The present case, thus,
affords an opportunity for us to clarify the above-
quoted statements in Central Luzon Drug
Corporation and Carlos Superdrug Corporation
**Police Power vs. Eminent Domain**
 Police power is the inherent power of the State to
regulate or to restrain the use of liberty and
property for public welfare
 The only limitation is that the restriction imposed
should be reasonable, not oppressive
 In other words, to be a valid exercise of police
power, it must have a lawful subject or objective
and a lawful method of accomplishing the goal
 Under the police power of the State, "property
rights of individuals may be subjected to restraints
and burdens in order to fulfill the objectives of the
government."
 The State "may interfere with personal liberty,
property, lawful businesses and occupations to
promote the general welfare [as long as] the
interference [is] reasonable and not arbitrary.
 Eminent domain, on the other hand, is the
inherent power of the State to take or appropriate
private property for public use
 The Constitution, however, requires that private
property shall not be taken without due process of
law and the payment of just compensation
 Traditional distinctions exist between police power
and eminent domain.
 In the exercise of police power, a property right is
impaired by regulation or the use of property is
merely prohibited, regulated or restricted to
promote public welfare. In such cases, there is no
compensable taking, hence, payment of just
compensation is not required
 It has, thus, been observed that, in the exercise of
police power (as distinguished from eminent
domain), although the regulation affects the right of
ownership, none of the bundle of rights which
constitute ownership is appropriated for use by or
for the benefit of the
 On the other hand, in the exercise of the power of
eminent domain, property interests are
appropriated and applied to some public purpose
which necessitates the payment of just
compensation therefor.
 Normally, the title to and possession of the
property are transferred to the expropriating
authority
 However, it is a settled rule that the acquisition of
title or total destruction of the property is not
essential for "taking" under the power of eminent
domain to be present
 In these cases, although the private property owner
is not divested of ownership or possession,
payment of just compensation is warranted
because of the burden placed on the property for
the use or benefit of the public.
**The 20% senior citizen discount is an exercise of
police power**
 to determine whether a challenged governmental
act is an exercise of police power or eminent
domain. The judicious approach, is to look at the
nature and effects of the challenged governmental
act and decide.
 The 20% discount is intended to improve the
welfare of senior citizens who, at their age, are less
likely to be gainfully employed, more prone to
illnesses and other disabilities, and, thus, in need of
subsidy in purchasing basic commodities
 It may not be amiss to mention also that the
discount serves to honor senior citizens who
presumably spent the productive years of their lives
 on contributing to the development and progress of
the nation
 This distinct cultural Filipino practice of honoring
the elderly is an integral part of this law. As to its
nature and effects, the 20% discount is a regulation
affecting the ability of private establishments to
price their products and services relative to a
special class of individuals, senior citizens, for
which the Constitution affords preferential
concern
 In turn, the subject regulation affects the pricing,
and, hence, the profitability of a private
establishment.
 However, it does not purport to appropriate or
burden specific properties, used in the operation or
conduct of the business of private establishments,
for the use or benefit of the public, or senior
citizens for that matter, but merely regulates the
pricing of goods and services relative to, and the
amount of profits or income/gross sales that such
private establishments may derive from, senior
citizens
 These laws generally regulate public utilities or
industries/enterprises imbued with public interest
in order to protect consumers from exorbitant or
unreasonable pricing as well as temper corporate
greed by controlling the rate of return on
investment of these corporations considering that
they have a monopoly over the goods or services
that they provide to the general public.
 The subject regulation differs therefrom in that (1)
the discount does not prevent the establishments
from adjusting the level of prices of their goods and
services, and (2) the discount does not apply to all
customers of a given establishment but only to the
class of senior citizens.
 On its face, therefore, the subject regulation is a
police power measure
**The 20% senior citizen discount is not unreasonable,
oppressive or confiscatory**
 No evidence, such as a financial report, to establish
the impact of the 20% discount on the overall
profitability of petitioners was presented in order to
show that they would be operating at a loss due to
the subject regulation or that the continued
implementation of the law would be
unconscionably detrimental to the business
operations of petitioners
 On its face, we find that there are at least two
conceivable bases to sustain the subject
regulation’s validity absent clear and convincing
proof that it is unreasonable, oppressive or
confiscatory
 Congress may have legitimately concluded that
business establishments have the capacity to
absorb a decrease in profits or income/gross sales
due to the 20% discount without substantially
affecting the reasonable rate of return on their
investments considering (1) not all customers of a
business establishment are senior citizens and (2)
the level of its profit margins on goods and services
offered to the general public.
 Congress may have, likewise, legitimately concluded
that the establishments, which will be required to
extend the 20% discount, have the capacity to
revise their pricing strategy so that whatever
reduction in profits or income/gross sales that they
may sustain because of sales to senior citizens, can
be recouped through higher mark-ups or from other
products not subject of discounts
 As a result, the discounts resulting from sales to
senior citizens will not be confiscatory or unduly
oppressive.
**Why the court ruled in previous cases that the 20%
discount is an exercise of the power of Eminent
Domain**
 The obiter in Central Luzon Drug
Corporation, however, describes the 20% discount
as an exercise of the power of eminent domain and
the tax credit, under the previous law, equivalent to
the amount of discount given as the just
compensation therefor.
 The reason is that (1) the discount would have
formed part of the gross sales of the establishment
were it not for the law prescribing the 20%
discount, and (2) the permanent reduction in total
 revenues is a forced subsidy corresponding to the
taking of private property for public use or benefit.

 The flaw in this reasoning is in its premise.

 It presupposes that the subject regulation, which

impacts the pricing and, hence, the profitability of a
private establishment, automatically amounts to a
deprivation of property without due process of law.
If this were so, then all price and rate of return on
investment control laws would have to be
invalidated because they impact, at some level, the
regulated establishment’s profits or income/gross
sales, yet there is no provision for payment of just
compensation

 It would also mean that government cannot set

price or rate of return on investment limits, which
reduce the profits or income/gross sales of private
establishments, if no just compensation is paid even
if the measure is not confiscatory.

 The obiter is, thus, at odds with the settled doctrine

that the State can employ police power measures to
regulate the pricing of goods and services, and,
hence, the profitability of business establishments
in order to pursue legitimate State objectives for
the common good, provided that the regulation
does not go too far as to amount to "taking."

WHEREFORE, the Petition is hereby DISMISSED for lack

of merit. SO ORDERED
(INHERENT AND CONSTITUTIONAL LIMITATIONS OF offices leading to the comfort rooms
TAXATION)
A.M. No. 10-4-19-SC March 7, 2017
RE: LETTER OF TONY Q. V ALENCIANO, HOLDING OF  In the report of the Office of the Court
RELIGIOUS RITUALS AT THE HALL OF JUSTICE BUILDING Administrator, it stated that the practical
IN QUEZON CITY inconveniences cited by Valenciano were
unfounded
FACTS
ISSUE
 Tony Q. Valenciano sent a series of letters to the
then Chief Justice Reynato S. WON constitutional prohibition against appropriation of
 In his letter, Valenciano reported that the basement public money or property for the benefit of any sect,
of the Hall of Justice of Quezon City (QC) had been church, denomination, sectarian institution, or system
converted into a Roman Catholic Chapel, complete of religion is violated by allowing them to use the hall
with offertory table, images of Catholic religious
icons, a canopy, an electric organ, and a projector.
RULING
 He believed that such practice violated the
 Section 29 (2), Article VI of the 1987 Constitution
constitutional provision on the separation of Church
provides:
and State and the constitutional prohibition against
the appropriation of public money or property for
o "No public money or property shall be
the benefit of a sect, church, denomination, or any
appropriated, applied, paid, or employed,
other system of religion
directly or indirectly, for the use, benefit, or
 He further averred that the holding of masses at the
support of any sect, church, denomination,
basement of the QC Hall of Justice showed that it
sectarian institution, or system of religion,
tended to favor Catholic litigants; that the
or of any priest, preacher, minister, or other
rehearsals of the choir caused great disturbance to
religious teacher, or dignitary as such,
other employees; that the public could no longer
except when such priest, preacher,
use the basement as resting place; that the
minister, or dignitary is assigned to the
employees and litigants of the PAO could no longer
armed forces, or to any penal institution, or
use it also
government orphanage or leprosarium."
 The issue was then referred to the Deputy Court
Administrator, and eventually to the executive
 The word "apply" means "to use or employ for a
judges of RTC and MeTC, for appropriate actions.
particular purpose." "Appropriate" means "to
prescribe a particular use for particular moneys or
to designate or destine a fund or property for a
 The Judges then in their letter informed the SC that
distinct use, or for the payment of a particular
measures have already been implemented to
demand
address Valenciano's complaints

o They shortened the masses

 the words "pay" and "employ" should be
o Masses were being held only during lunch
breaks and did not disturb the proceedings
o That the hall could still be used by the
public and court personnel were never
prevented from using the CR during mass as
there was a clear path from the public
understood to mean that what is prohibited is the
use of public money or property for the sole
purpose of benefiting or supporting any church. The
prohibition contemplates a scenario where the
appropriation is primarily intended for the
furtherance of a particular church.
 It has also been held that the aforecited
constitutional provision "does not inhibit the use of
public property for religious purposes when the
religious character of such use is merely incidental
to a temporary use which is available
indiscriminately to the public in general." Hence, a
public street may be used for a religious procession
even as it is available for a civic parade, in the same
way that a public plaza is not barred to a religious
rally if it may also be used for a political
assemblage.
 In relation thereto, the phrase "directly or
indirectly" refers to the manner of appropriation of
public money or property, not as to whether a
particular act involves a direct or a mere incidental
benefit to any church. Otherwise, the framers of the
Constitution would have placed it before "use,
benefit or support" to describe the same. Even the
exception to the same provision bolsters this
interpretation.
 The exception contemplates a situation wherein
public funds are paid to a priest, preacher, minister,
or other religious teacher, or dignitary because they
rendered service in the armed forces, or to any
penal institution, or government orphanage or
leprosarium
 That a priest belongs to a particular church and the
latter may have benefited from the money he
received is of no moment, for the purpose of the
payment of public funds is merely to compensate
the priest for services rendered and for which other
persons, who will perform the same services will
also be compensated in the same manner
 Establishment Clause, which is as clear as daylight in
stating that what is proscribed is the passage of any
law which tends to establish a religion, not merely
to accommodate the free exercise thereof.
 The Constitution even grants tax exemption to
properties actually, directly and exclusively devoted
to religious purposes. Certainly, this benefits the
religious sects for a portion of what could have
been collected for the benefit of the public is
surrendered in their favor.
 Here, the basement of the QC Hall of Justice is not
appropriated, applied or employed for the sole
purpose of supporting the Roman Catholics.
Further, it has not been converted into a Roman
Catholic chapel for the exclusive use of its faithful
contrary to the claim of Valenciana
 As reported by the Judges,
 the basement is also being used as a public waiting
area for most of the day and a meeting place for
different employee organizations.
 The use of the area for holding masses is limited to
lunch break period from twelve (12) o'clock to one
(1) o'clock in the afternoon.
 Further, the masses run for just a little over thirty
(30) minutes.
 It is, therefore, clear that no undue religious bias is
being committed when the subject basement is
allowed to be temporarily used by the Catholics to
celebrate mass, as the same area can be used by
other groups of people and for other purposes
 Thus, the basement of the QC Hall of Justice has
remained to be a public property devoted for public
use because the holding of Catholic masses therein
is a mere incidental consequence of its primary
purpose.
WHEREFORE, the Court resolves to:
1. NOTE the letter-complaints of Mr. Tony Q.
Valenciano, dated January 6, 2009, May 13, 2009, and
March 23, 2010;
2. NOTE the 1st Indorsement, dated September 21,
2010, by the Office on Halls of Justice, containing
photocopies and certified photocopies of previous
actions made relative to the complaint;
3. NOTE the Letter-Comment, dated September 9, 2010,
of Quezon City Regional Trial Court Executive Judge
Fernando T. Sagun, Jr.;
4. NOTE the undated Letter-Comment of Quezon City
Metropolitan Trial Court Executive Judge Caridad M.
Walse-Lutero;
5. DENY the prayer of Tony Q. Valenciano to prohibit
the holding of religious rituals in the QC Hall of Justice
and in all halls of justice in the country; and
6. DIRECT the Executive Judges of Quezon City
to REGULATE and CLOSELY MONITOR the holding of
masses and other religious practices within the Quezon
City Hall of Justice by ensuring, among others, that (a) it
does not disturb or interrupt court proceedings;(b) it
does not adversely affect and interrupt the delivery of
public service; and (c) it does not unduly inconvenience
the public.

In no case shall a particular part of a public building be a

permanent place for worship for the benefit of any and
all religious groups. There shall also be no permanent
display of religious icons in all halls of justice in the
country. In case of religious rituals, religious icons and
images may be displayed but their presentation is
limited only during the celebration of such activities so
as not to offend the sensibilities of members of other
religious denominations or the non-religious public.
After any religious affair, the icons and images shall be
hidden or concealed from public view.

The disposition in this administrative matter shall apply

to all halls of justice in the country. Other churches,
religious denominations or sects are entitled to the
same rights, privileges, and practices in every hall of
justice. In other buildings not owned or controlled by
the Judiciary, the Executive Judges should coordinate
and seek approval of the building
owners/administrators accommodating their courts.SO
ORDERED.
(INHERENT AND CONSTITUTIONAL LIMITATIONS OF
TAXATION)
G.R. No. 203754 June 16, 2015
FILM DEVELOPMENT COUNCIL OF THE
PHILIPPINES, Petitioner, vs. COLON HERITAGE REALTY
CORPORATION, operator of Oriente Group Theaters,
represented by ISIDORO A. CANIZARES, Respondent.
FACTS
 In 1993, Cebu City in its exercise of its power to
impose amusement taxes under the LGC, passed
City Ordinance No. LXIX otherwise known as the
"Revised Omnibus Tax Ordinance of the City of
Cebu
 Sec. 42 and 43, Chapter XI thereof require
proprietors, lessees or operators of theatres,
cinemas, concert halls, circuses, boxing stadia, and
other places of amusement, to pay an amusement
tax equivalent to thirty percent (30%) of the gross
receipts of admission fees to the Office of the City
Treasurer of Cebu City.
 Almost a decade later, Congress passed RA
9167, creating the Film Development Council of the
Philippines (FDCP)
 Secs. 13 and 14 of RA 9167 provided for the tax
treatment of certain graded films.
o (sec 13) A grade "A" or "B" film shall entitle
its producer to an incentive equivalent to
the amusement tax imposed and collected
on the graded films by cities and
municipalities in Metro Manila and other
highly urbanized and independent
component cities in the Philippines
o (sec 14) All revenue from the amusement
tax on the graded film which may otherwise
accrue to the cities and municipalities in
Metropolitan Manila and highly urbanized
and independent component cities . . . shall
be deducted and withheld by the
proprietors, operators or lessees of theaters
or cinemas and remitted. . . to the Council
which shall reward the corresponding
amusement tax to the producers of the
graded film
 According to FDCP, from the time RA 9167 took
effect up to the present, all the cities and
municipalities in Metro Manila, as well as urbanized
and independent component cities, with the sole
exception of Cebu City, have complied with the
mandate of said law.
 Accordingly, FDCP, through the Office of the
Solicitor General, sent on January 2009 demand
letters for unpaid amusement tax reward to the
cinema proprietors and operators in Cebu City:
 Cebu City then filed with the RTC for declaratory
relief with application for a writ of preliminary
injunction and sought the declaration of Secs. 13
and 14 of RA 9167 as invalid and unconstitutional
 RTC = ruled in favor of Cebu City
FDCP’s Contentions:
RA 9167 was enacted for a public purpose, that is, the
promotion and support of the "development and
growth of the local film industry as a medium for the
upliftment of aesthetic, cultural, and social values for
the better understanding and appreciation of the
Filipino identity" as well as the "encouragement of the
production of quality films that will promote the growth
and development' of the local film industry.
That Sec. 5, Article X of the Constitution does not
change the doctrine that municipal corporations only
possess delegated, not inherent, powers of taxation and
that the power to tax is still primarily vested in the
Congress. Thus, wielding its power to impose limitations
on this delegated power, Congress further restricted the
LGU's power to impose amusement taxes via Secs. 13
and 14 of RA 9167-an express and real intention of
Congress to further contain the LGU's delegated taxing
power
ISSUE
WON Secs. 13 and 14 of RA 9167 invalid for being
unconstitutional for being violative of the Fiscal
Autonomy of the LGUs? (YES)
RULING
** Local fiscal autonomy and the constitutionally-
delegated power to tax**
 The power of taxation, being an essential and
inherent attribute of sovereignty, belongs, as a
matter of right, to every independent government,
and needs no express conferment by the people
before it can be exercised.
 It is purely legislative and, thus, cannot be
delegated to the executive and judicial branches of
government without running afoul to the theory of
separation of powers.
 It, however, can be delegated to municipal
corporations, consistent with the principle that
legislative powers may be delegated to local
governments in respect of matters of local concern.
 The authority of provinces, cities, and municipalities
to create their own sources of revenue and to levy
taxes, therefore, is not inherent and may be
exercised only to the extent that such power might
be delegated to them either by the basic law or by
statute
 Material to the case at bar is the concept and scope
of local fiscal autonomy.
 In Pimentel v. Aguirre, fiscal autonomy was defined
as "the power [of LGUs] to create their own sources
of revenue in addition to their equitable share in
the national taxes released by the national
government, as well as the power to allocate their
resources in accordance with their own priorities. It
extends to the preparation of their budgets, and
local officials in tum have to work within the
constraints thereof."
 Accordingly, under the present Constitution,
where there is neither a grant nor a prohibition by
statute, the tax power of municipal corporations
must be deemed to exist although Congress may
provide statutory limitations and guidelines
 The basic rationale for the current rule on local
fiscal autonomy is the strengthening of LGUs and
the safeguarding of their viability and self-
sufficiency through a direct grant of general and
broad tax powers
 Nevertheless, the fundamental law did not intend
the delegation to be absolute and unconditional.
The legislature must still see to it that (a) the
taxpayer will not be over-burdened or saddled
with multiple and unreasonable impositions; (b)
each LGU will have its fair share of available
resources; ( c) the resources of the national
government will not be unduly disturbed; and ( d)
local taxation will be fair, uniform, and just
 In conformity to the dictate of the fundamental law
for the legislature to "enact a local government
code which shall provide for a more responsive and
accountable local government structure instituted
through a system of decentralization," consistent
with the basic policy of local autonomy, Congress
enacted the LGC, Book II of which governs local
taxation and fiscal matters and sets forth the
guidelines and limitations for the exercise of this
power.
 It is in the application of the adverted fourth rule,
that is-all revenue collected pursuant to the
provisions of the LGC shall inure solely to the
benefit of, and be subject to the disposition by, the
LGU levying the tax, fee, charge or other
imposition unless otherwise specifically provided
by the LGC-upon which the present controversy
grew
**RA 9167 violates local fiscal autonomy**
 It is beyond cavil that the City of Cebu had the
authority to issue its City Ordinance No. LXIX and
impose an amusement tax on cinemas pursuant to
Sec. 140 in relation to Sec. 151 of the LGC.
 In enacting R.A. 9167, LGUs were deprived of the
income which they will otherwise be collecting
should they impose amusement taxes,
 In other words, per RA 9167, covered LGUs still
have the power to levy amusement taxes, albeit at
the end of the day, they will derive no revenue
therefrom.
 As a matter of fact, it is only through the exercise by
the LGU of said power that the funds to be used for
the amusement tax reward can be raised. Without
said imposition, the producers of graded films will
receive nothing from the owners, proprietors and
lessees of cinemas operating within the territory of
the covered LGU.
 Through the application and enforcement of Sec. 14
of RA 9167, the income from the amusement taxes
levied by the covered LGUs did not and will under
no circumstance accrue to them, not even partially,
despite being the taxing authority therefor.
 Congress, therefore, clearly overstepped its
plenary legislative power, the amendment being
violative of the fundamental law's guarantee on
local autonomy, as echoed in Sec. 130(d) of the
LGC
 By earmarking the income on amusement taxes
imposed by the LGUs in favor of FDCP and the
producers of graded films, the legislature
appropriated and distributed the LGUs' funds-as
though it were legally within its control-under the
guise of setting a limitation on the LGUs' exercise
of their delegated taxing power. This,
undoubtedly, is a usurpation of the latter's
exclusive prerogative to apportion their funds, an
impermissible intrusion into the LGUs'
constitutionally-protected domain which puts to
naught the guarantee of fiscal autonomy to
municipal corporations enshrined in our basic law.
**Doctrine of Operative Fact**
 It is a well-settled rule that an unconstitutional act is
not a law; it . confers no rights; it imposes no duties;
it affords no protection; it creates no office; it is
inoperative as if it has not been passed at all.
 Applying this principle, the logical conclusion would
be to order the return of all the amounts remitted
to FDCP and given to the producers of graded films,
by all of the covered cities, which actually amounts
to hundreds of millions, if not billions.
 An exception to the above rule, however, is the
doctrine of operative fact, which applies as a matter
of equity and fair play.
 This doctrine nullifies the effects of an
unconstitutional law or an executive act by
recognizing that the existence of a statute prior to a
determination of unconstitutionality is an operative
fact and may have consequences that cannot
always be ignored.
 It applies when a declaration of unconstitutionality
will impose an undue burden on those who have
relied on the invalid law.
 Here, to order FDCP and the producers of graded
films which may have already received the
amusement tax incentive reward pursuant to the
questioned provisions of RA 9167, to return the
amounts received to the respective taxing
authorities would certainly impose a heavy, and
possibly crippling, financial burden upon them who
merely, and presumably in good faith, complied
with the legislative fiat subject of this case
 For these reasons, We are of the considered view
that the application of the doctrine of operative
facts in the case at bar is proper.
WHEREFORE, in view of all the foregoing, Judgment is
hereby rendered in favor of Colon Heritage Realty Corp.
and against the Film Development council of the
Philippines, as follows: 1. Declaring Sections 13 and 14
of Republic Act No. 9167 otherwise known as an Act
Creating the Film Development Council of the
Philippines, Defining its Powers and Functions,
Appropriating Funds therefor arid for other purposes, as
invalid and unconstitutional;
...xxx
WHEREFORE, in view of all the disquisitions, judgment
is rendered in favor of the City of Cebu against the Film
development Council of the Philippines, as follows:
1. Declaring Sections 13 and 14 of Republic Act No. 9167
otherwise known as an Act Creating the Film
Development Council of the Philippines, Defining its
Powers and Functions, Appropriating Funds therefor
and for other purposes, void and unconstitutional;
2. Declaring that the Film Development Council of the
Philippines cannot collect under Sections 13 and 14 of
R.A. 9167 as of the finality of this Decision;
3. Declaring that Intervenor SM Cinema Corporation has
the obligation to remit the amusement taxes, withheld
on graded cinema films to respondent FDCP under
Sections 13 and 14 of R.A. 9167 for taxes due prior to
the finality of this Decision, without surcharges;
4. Declaring that after the finality of this Decision, all
amusement taxes withheld and those which may be
collected by Intervenor SM on graded films shown in
SM Cinemas in Cebu City shall be remitted to petitioner
Cebu City pursuant to City Ordinance LXIX, Chapter XI,
Section 42.
As to the sum of PhP 76,836,807.08 remitted by the
Intervenor SM to petitioner City of Cebu, said amount
shall be remitted by the City of Cebu to petitioner FDCP
within thirty (30) days from finality of this decision in
G.R. Nos. 203754 and 204418 without interests and
surcharges. Since Sections 13 and 14 of Republic Act No.
9167 were declared void and unconstitutional, all
remittances of amusement taxes pursuant to said
Sections 13 and 14 of said law prior to the date of
finality of this Decision shall remain valid and legal.
Cinema proprietors who failed to remit said amusement
taxes to petitioner FDCP prior to the date of finality of
this Decision are obliged to remit the same, without
surcharges, to petitioner FDCP under the doctrine of
operative fact.
SO ORDERED.
(INHERENT AND CONSTITUTIONAL LIMITATIONS OF
TAXATION)
G.R. No. 188550 August 19, 2013
DEUTSCHE BANK AG MANILA BRANCH, petitioner, vs.
COMMISSIONER OF INTERNAL REVENUE, respondent.
FACTS
 In accordance with Section 28(A)(5) of the NIRC,
Deutsche Bank AG Manila Branch withheld and
remitted to CIR the amount of PHP 67,688,553.51,
which represented the 15% branch profit
remittance tax (BPRT) on its regular banking unit
(RBU) net income remitted to Deutsche Bank
Germany (DB Germany) for 2002 and prior taxable
years
 Under Section 28(A)(5) of the NIRC, any profit
remitted to its head office shall be subject to a tax
of 15% based on the total profits applied for or
earmarked for remittance without any deduction of
the tax component
 However, paragraph 6, Article 10 of the RP-
Germany Tax Treaty, which provides that where a
resident of the Federal Republic of Germany has a
branch in the Republic of the Philippines, this
branch may be subjected to the branch profits
remittance tax withheld at source in accordance
with Philippine law but shall not exceed 10% of the
gross amount of the profits remitted by that branch
to the head office
 Believing that it made an overpayment of the BPRT,
DB Manila filed with the BIR an administrative claim
for refund or issuance of its tax credit certificate.
(based from a treaty)
 On the same date, DB Manila requested from the
International Tax Affairs Division (ITAD) a
confirmation of its entitlement to the preferential
tax rate of 10% under the RP-Germany Tax Treaty
 Alleging the inaction of the BIR on its administrative
claim, DB Manila a Petition for Review with the CTA
 CTA denied DB Manila’s claim for a refund on the
ground that the application for a tax treaty relief
was not filed with ITAD prior to the payment by the
former of its BPRT and actual remittance of its
branch profits to DB Germany, or prior to its
availment of the preferential rate of ten percent
(10%) under the RP-Germany Tax Treaty provision
(based on RMO No. 1-2000)
 CTA En Banc affirmed. Hence this appeal
CONTENTIONS:
DB Manila: under Article 10 of the RP-Germany Tax
Treaty, the filing of a tax treaty relief application is not a
condition precedent to the availment of a preferential
tax rate
CIR: under RMO No. 1-2000 the requirement of prior
application is mandatory in character
ISSUE procedure, these may be remedied through other
system management processes, e.g., the imposition
WON the failure to strictly comply with RMO No. 1-2000 of a fine or penalty. But we cannot totally deprive
will deprive persons or corporations of the benefit of a those who are entitled to the benefit of a treaty for
tax treaty (NO) failure to strictly comply with an administrative
issuance requiring prior application for tax treaty
RULING relief.

 Our Constitution provides for adherence to the **Prior Application vs. Claim for Refund**
general principles of international law as part of the
 RMO No. 1-2000 was implemented to obviate any
law of the land
erroneous interpretation and/or application of the
 The time-honored international principle of pacta
treaty provisions. The objective of the BIR is to
sunt servanda demands the performance in good
forestall assessments against corporations who
faith of treaty obligations on the part of the states
erroneously availed themselves of the benefits of
that enter into the agreement. Every treaty in force
the tax treaty but are not legally entitled thereto, as
is binding upon the parties, and obligations under
well as to save such investors from the tedious
the treaty must be performed by them in good faith
process of claims for a refund due to an inaccurate
application of the tax treaty provisions
 Tax treaties are entered into "to reconcile the
 However, noncompliance with the 15-day period
national fiscal legislations of the contracting parties
for prior application should not operate to
and, in turn, help the taxpayer avoid simultaneous
automatically divest entitlement to the tax treaty
taxations in two different jurisdictions
relief especially in claims for refund
 Simply put, tax treaties are entered into to
minimize, if not eliminate the harshness of
 The underlying principle of prior application with
international juridical double taxation, which is why
the BIR becomes moot in refund cases, such as the
they are also known as double tax treaty or double
present case, where the very basis of the claim is
tax agreements
erroneous or there is excessive payment arising
from non-availment of a tax treaty relief at the first
 "A state that has contracted valid international
instance
obligations is bound to make in its legislations those
modifications that may be necessary to ensure the
 In this case, petitioner should not be faulted for not
fulfillment of the obligations undertaken."
complying with RMO No. 1-2000 prior to the
 Thus, laws and issuances must ensure that the
transaction. It could not have applied for a tax
reliefs granted under tax treaties are accorded to
treaty relief within the period prescribed, or 15 days
the parties entitled thereto.
prior to the payment of its BPRT, precisely because
 The BIR must not impose additional requirements
it erroneously paid the BPRT not on the basis of the
that would negate the availment of the reliefs
preferential tax rate under the RP-Germany Tax
provided for under international agreements.
Treaty, but on the regular rate as prescribed by the
More so, when the RP-Germany Tax Treaty does not
NIRC.
provide for any pre-requisite for the availment of
 Hence, the prior application requirement becomes
the benefits under said agreement.
illogical. Therefore, the fact that petitioner
invoked the provisions of the RP-Germany Tax
 The obligation to comply with a tax treaty must take
Treaty when it requested for a confirmation from
precedence over the objective of RMO No. 1-2000.
the ITAD before filing an administrative claim for a
 Logically, noncompliance with tax treaties has
refund should be deemed substantial compliance
negative implications on international relations, and
with RMO No. 1-2000.
unduly discourages foreign investors.
 While the consequences sought to be prevented by
RMO No. 1-2000 involve an administrative
Clearly, there is no reason to deprive petitioner of the
benefit of a preferential tax rate of 10% BPRT in
accordance with the RP-Germany Tax Treaty.

Petitioner is liable to pay only the amount of PHP

45,125,702.34 on its RBU net income amounting to PHP
451,257,023.29 for 2002 and prior taxable years,
applying the 10% BPRT. Thus, it is proper to grant
petitioner a refund ofthe difference between the PHP
67,688,553.51 (15% BPRT) and PHP 45,125,702.34 (10%
BPRT) or a total of PHP 22,562,851.17.

WHEREFORE, premises considered, the instant Petition

is GRANTED. Accordingly, the Court of Tax Appeals En
Banc Decision dated 29 May 2009 and Resolution dated
1 July 2009 are REVERSED and SET ASIDE. A new one is
hereby entered ordering respondent Commissioner of
Internal Revenue to refund or issue a tax credit
certificate in favor of petitioner Deutsche Bank AG
Manila Branch the amount of TWENTY TWO MILLION
FIVE HUNDRED SIXTY TWO THOUSAND EIGHT HUNDRED
FIFTY ONE PESOS AND SEVENTEEN CENTAVOS (PHP
22,562,851.17), Philippine currency, representing the
erroneously paid BPRT for 2002 and prior taxable years.

SO ORDERED.
(INHERENT AND CONSTITUTIONAL LIMITATIONS OF
TAXATION)
G.R. No. 211299 June 28, 2022
LIGHT RAIL TRANSIT AUTHORITY, petitioner, versus
CITY OF PASAY, Represented by the CITY TREASURER
and the CITY ASSESSOR, respondent.
FACTS
 From 1985 to 2001, the City of Pasay assessed the
Light Rail Transit Authority (LRTA) of real estate
taxes on its properties consisting of lands, buildings,
machineries, carriageways, and passenger terminal
stations
 LRTA admitted its tax liabilities and proposed to pay
them on installment basis. However, LRTA failed to
settle its outstanding obligations despite repeated
demands from the City, which later issued a notice
of delinquency with warrants of levy.
 Aggrieved, LRTA filed a Petition for Certiorari,
Prohibition and Mandamus against the City,
questioning its assessments before the RTC
 Citing the 2006 case of Manila International Airport
Authority v. Court of Appeals (MIAA Case) – LRTA
claimed that it is a government instrumentality
exempt from local taxation
o It is operating the light rail transit system
for the Republic of the Philippines, which is
the true owner of the subject real
properties
 RTC = dismissed for being an improper remedy
 CA = affirmed RTC, finding that LRTA has not
exhausted all administrative remedies. And that it
should not be extended a similar tax exemption
accorded to the Manila International Airport
Authority (MIAA) in the 2006 MIAA Case
ISSUE
WON LRTA should be considered a government
instrumentality that is exempted from local taxation?
(YES)
RULING
 The 2006 MIAA Case is significant as it explained
and delineated the difference between government
instrumentalities from government-owned and
controlled corporations (GOCCs), particularly with
regard to how their respective real properties are
treated for local real property tax purposes.
 In the 2006 MIAA Case, it was held that:
o A government-owned or controlled
corporation must be "organized as a stock
or non-stock corporation." MIAA is not
organized as a stock or non-stock
corporation. MIAA is not a stock
corporation because it has no capital stock
divided into shares
o Since MIAA is neither a stock nor a non-
stock corporation, MIAA does not qualify as
a government-owned or controlled
corporation. What then is the legal status of
MIAA within the National Government?
o MIAA is a government instrumentality
vested with corporate powers to perform
efficiently its governmental functions
o When the law vests in a government
instrumentality corporate power, the
instrumentality does not become a
corporation. Unless the government
instrumentality is organized as a stock or
non-stock corporation, it remains a
government instrumentality exercising not
only governmental but also corporate
powers
 As explained in the 2006 MIAA Case, the primary
test in determining whether an entity is a GOCC is
how it was organized. In other words, the 2006
MIAA Case provides that unless a government
instrumentality was organized as a stock or non-
stock corporation, then it must not be considered as
a GOCC as defined in the Administrative Code
 A cursory perusal of the LRTA charter would reveal
that it was not organized as a stock corporation
because it has no capital stock divided into shares.
In fact, the LRTA has no stockholders or voting
shares.
 Since the LRTA is neither a stock nor a non-stock
corporation, LRTA does not qualify as a GOCC
 the following elements in order to qualify as a
government instrumentality with corporate powers
 (GICP) or government corporate entity (GCE) can be
distilled, to wit:
a) agency of the government;
b) neither a corporation nor agency integrated
within the departmental framework;
c) vested by law with special functions or
jurisdiction;
d) endowed with some if not all corporate
powers;
e) administering special funds; and
f) enjoying operational autonomy usually
through a charter.
 As applied in this case, LRTA still clearly qualifies as
a GICP/GCE under the definition provided in
Section 3(n) of the GOCC Governance Act of 2011.
** The LRTA, being an instrumentality of the national
government, cannot be taxed by local governments**
 Section 133(o) of the LGC recognizes the basic
principle that local governments cannot tax the
national government, as the former' s power to tax
is, historically, merely delegated by the latter.
 While the 1987 Constitution now includes taxation
as one of the powers of local governments, local
governments may only exercise such power
"subject to such guidelines and limitations as the
Congress may provide
We reiterate our ruling in the 2006 MIAA Case, which
succinctly explains the rule on the local governments'
power to tax:
 When local governments invoke the power to tax
on national government instrumentalities, such
power is construed strictly against local
governments.
 The rule is that a tax is never presumed and there
must be clear language in the law imposing the tax.
Any doubt whether a person, article or activity is
taxable is resolved against taxation.
 This rule applies with greater force when local
governments seek to tax national government
instrumentalities.
 Another rule is that a tax exemption is strictly
construed against the taxpayer claiming the
exemption. However, when Congress grants an
exemption to a national government
instrumentality from local taxation, such exemption
is construed liberally in favor of the national
government instrumentality
 There is also no reason for local governments to tax
national government instrumentalities for rendering
essential public services to inhabitants of local
governments.
 The only exception is when the legislature clearly
intended to tax government instrumentalities for
the delivery of essential public services for sound
and compelling policy considerations.
 Clearly, the general rule that tax exemption is
strictly construed against the taxpayer claiming the
exemption does not apply in the instant case, as the
legislature itself created an exemption to national
government instrumentalities from local taxation.
 Thus, such exemption is construed liberally in favor
of national government instrumentalities, which
includes LRTA.
WHEREFORE, the Petition is GRANTED. The October 8,
2013 Decision and the January 29, 2014 Resolution of
the Court of Appeals in CAG. R. SP No. 129922, are
REVERSED and SET ASIDE. Accordingly, We DECLARE:
1. Petitioner Light Rail Transit Authority properties that
are actually, solely and exclusively devoted for public
use, consisting of the LRT rail roads and terminals, and
the lots on which they are situated, EXEMPT from real
property tax imposed by the City of Pasay.
Consequentially, the City of Pasay is PROHIBITED from
imposing any further similar tax.
2. VOID all the real property tax assessments, as well as
the warrants of levy, issued by the City of Pasay, on
petitioner's properties, except the assessment covering
the portions that petitioner has leased to private
parties, who are liable to pay the corresponding real
property tax.
3. VOID the subsequent public auction over any of
petitioner's exempt properties, and any act of
disposition made by the City of Pasay of such exempt
properties. We likewise declare VOID the corresponding
Certificates of Sale or Conveyance issued by the City of
Pasay. SO ORDERED.
(INHERENT AND CONSTITUTIONAL LIMITATIONS OF
TAXATION)
G.R. No. 225409, March 11, 2020
PHILIPPINE HEART CENTER petitioner, V. THE LOCAL
GOVERNMENT OF QUEZON CITY, CITY MAYOR OF
QUEZON CITY, CITY TREASURER OF QUEZON CITY AND
CITY ASSESSOR OF QUEZON CITY respondent.
FACTS
 Philippine Heart Center (PHC) established under
P.D. 673, is specialty hospital mandated to provide
expert comprehensive cardiovascular care to the
general public, especially the poor and less
fortunate in life
 To enable the PHC to perform its mandate, the
national government provided the initial land,
building, equipment and facilities needed for its
establishment.
 More, it exempted the PHC from "the payment of
all taxes, charges, fees imposed by the Government
or any political subdivision or instrumentality
thereof" for a period of 10 years
 In 1985, then President Ferdinand E. Marcos issued
Letter of Instruction (LOI) 1455 extending the tax
exemption "without interruption."
 In 2004 Quezon City Government issued 3 final
Notices of Delinquency for unpaid real property
taxes, pertaining to the 11 properties of the PHC
 Aggrieved, the PHC wrote then President Gloria M.
Macapagal-Arroyo for condonation or reduction of
the taxes assessed on its properties.
 But since its letter was not acted upon, the PHC
entered into a Memorandum of Agreement (MOA)
with the Quezon City Government as a means to
settle its tax liabilities
 Under this MOA, the PHC agreed to provide free
medical services to qualified residents of Quezon
City until the accumulated monetary value of these
services was sufficient to cover the real property
taxes it owed
 In August 22, 2006, the Office of the Government
Corporate Counsel (OGCC) informed the PHC of the
Court's ruling in Manila International Airport
Authority v. Court of Appeals (MIAA), where it was
declared that government entities are exempt from
taxes, fees or charges of any kind that may be
imposed by any local government unit
 Subsequently, PHC suspended the implementation
of the second MOA and reiterated its exemption
from payment of taxes
 The Quezon City Government, nonetheless, stood
firm on its position that the PHC was and still
remained liable for real property taxes since a
major portion of its properties were being leased
to private individuals. Thus, it issued two (2) Final
Notices of Tax Delinquency to the PHC
 Thereafter, Quezon City Treasurer issued a Warrant
of Levy for the PHC 's failure to pay real property
taxes despite due notice and all the properties were
sold to the Quezon City Government
 PHC filed a petition for certiorari before the CA,
claiming that Quezon City Government gravely
abused their discretion when they assessed, levied
and sold its properties
 CA dismissed the case. Hence this petition
ISSUE
WON PHC is exempt from paying real property taxes on
its 11 properties in Quezon City (YES)
RULING
**The PHC is a government instrumentality with
corporate powers exempt from local taxes**
 Local government units are empowered to create
their own sources of revenues and to levy taxes,
 fees, and charges subject to guidelines and
limitations as Congress may provide
 On this score, Section 232 of RA 7160 (LGC)
recognizes the power of the local government units
to tax real property not otherwise exempt
 One of the limitations to this power is embodied in
Section 133(o)
o SEC. 133. Common Limitations on the
Taxing Powers of Local Government Units. -
Unless otherwise provided herein, the
exercise of the taxing powers
of provinces, cities, municipalities, and
barangays shall not extend to the levy of
the following:
(o) Taxes, fees or charges of any kind on the
National Government, its agencies and
instrumentalities and local government
units
 MIAA (case) elucidated on the rationale behind the
exemption from local taxes of the national
government and its agencies and instrumentalities,
thus:
o Section 133(o) recognizes the basic
principle that local governments cannot tax
the national government, which
historically merely delegated to local
governments the power to tax. While the
1987 Constitution now includes taxation as
one of the powers of local governments,
local governments may only exercise such
power "subject to such guidelines and
limitations as the Congress may provide.
 Section 234(a) of RA 7160 further exempts real
property owned by the Republic from real
property taxes
 Indeed, real properties owned by the Republic,
whether titled in the name of the Republic itself or
in the name of agencies or instrumentalities of the
national government, are exempt from real
property tax
Question: whether the PHC is a government
instrumentality covered by this tax exemption.
 In the MIAA Case it was held that when the law
vests in a government instrumentality corporate
power, the instrumentality does not become a
corporation. Unless the government instrumentality
is organized as a stock or non-stock corporation, it
remains a government instrumentality exercising
not only governmental but also corporate powers x
x x x Likewise, when the law makes a government
instrumentality operationally autonomous, the
instrumentality remains part of the National
Government machinery although not integrated
with the department framework x x x x
 On December 29, 2006, EO 596 was enacted,
acknowledging this new category described
in MIAA and placing it under the jurisdiction of the
OGCC
 Subsequently, in 2011, RA 10149, the GOCC
Governance Act of 2011, further formalized the
creation of this new category
 Hence, in addition to government-owned and
controlled corporations (GOCCs) and
instrumentalities, a third category of government
agencies under the jurisdiction of the OGCC is now
recognized -- government instrumentalities vested
with corporate powers or government corporate
entities.
 These entities remain government instrumentalities
because they are not integrated within the
department framework and are vested with special
functions to carry out a declared policy of the
national government
 An agency will be classified as a government
instrumentality vested with corporate powers when
the following elements concur:
o a) it performs governmental functions, and
o b) it enjoys operational autonomy.
 The PHC passes these twin criteria.
 o Although not integrated in the department 3. The July 7, 2011 sale at public auction of the
framework, the PHC is under supervision of prope1iies of the Philippine Heart Center, as
the DOH and carries out government well as the purchase of these properties by the
policies in pursuit of its objectives Quezon City Government, are VOID.

o Too, the PHC is vested with corporate SO ORDERED.

powers under Section 5 of PD 673

 The PHC therefore bears the essential

characteristics of a government instrumentality
vested with corporate powers, exempt from real
property taxes

 Indeed, the PHC's corporate status does not divest

itself of its character as a government
instrumentality

 These are not polar opposites. For despite its

corporate status, it is really the resources and
reputation of the Republic that are at stake in the
capitalization and operations of the government
entity

 The properties of the PHC are properties of public

dominion devoted to public use and welfare and,
therefore, exempt from real property taxes and
levy, without prejudice to the liability of taxable
persons to whom the beneficial use of any of these
properties has been granted

ACCORDINGLY, the petition is GRANTED. The Court of

Appeals' Decision dated March 15, 2016 and Resolution
dated June 23, 2016 in CA G.R. SP No. 121019
are REVERSED and SET ASIDE.

The Court further DECLARES:

1. The Philippine Heart Center and its properties

utilized in relation to the establishment,
operation, and maintenance a specialty hospital
in the country are EXEMPT from the real
property taxes of the Quezon City Government;

2. All the real property tax assessments, as well

as the final notices of real property tax
delinquencies, and the warrant of levy issued by
the Quezon City government on the Philippine
Heart Center and its properties, are VOID; and
(INHERENT AND CONSTITUTIONAL LIMITATIONS OF
TAXATION)
G.R. No. 202792 February 27, 2019
LA SALLIAN EDUCATIONAL INNOVATORS FOUNDATION
(DE LA SALLE UNIVERSITYCOLLEGE OF ST. BENILDE)
INC., Petitioner vs. COMMISIONER OF INTERNAL
REVENUE, Respondent
FACTS
 La Sallian Educational Innovators Foundation, Inc.
is a non-stock, non-profit domestic corporation duly
organized and existing under the laws of the
Philippines
 June 17, 2005 = CIR issued two (2) Assessment
Notices, which have demand letters against
petitioner Foundation for deficiency income tax
and VAT
 To contest the deficiency taxes assessed, petitioner
Foundation filed a Protest or Request for
Reconsideration to CIR.
 In view of CIR’s inaction, the petitioner Foundation
filed a Petition for Review before the CTA
 petitioner Foundation argued that it enjoys a tax-
exempt status from all taxes as a non-stock, non-
profit educational institution as expressly provided
under Paragraph 4, Section 4, Article XIV of the
1987 Constitution
 Respondent CIR alleged that the petitioner
Foundation has already lost its tax-exempt status,
making it liable to deficiency income tax
o The foundation may be a non-stock entity
but it is definitely a profit-oriented
organization wherein majority of its
revenue-operating activities are generating
huge amount of profit
o During the school year the foundations [sic]
has a total cash receipts of approximately
1.222 Billion out of which only 77 Million
goes to the revolving fund.
o Based on the Cash Flow of the foundation
activities the taxpayer has used 583 Million
for operating activities, 54 Million
interest/settlement of loan and 203 Million
for investing activities or 70% of
foundation's earnings goes to the
administrative purposes and improvement
of the school to increase number of its
enrollees and increase further its profit and
not to further its charitable purposes
 CTA division = ruling in favor of petitioner
Foundation, and cancelling Assessment Notice
 CTA En Banc = reversed the decision, emphasizing
that petitioner Foundation's tax-exempt status has
been impliedly revoked due to its excessive profit-
earning activities
ISSUE
WON petitioner Foundation tax-exempt status has been
impliedly revoked due to its excessive profit-earning
activities (NO)
RULING
 the 1987 Constitution expressly exempt all revenues
and assets of non-stock, non-profit educational
institutions from taxes provided that they are
actually, directly and exclusively used for
educational purposes.
 Clearly, non-stock, non-profit educational
institutions are not required to pay taxes on all their
revenues and assets if they are used actually,
directly and exclusively for educational purposes.
 Based on jurisprudence and tax rulings, a taxpayer
shall be granted with this tax exemption after
proving that:
o (1) it falls under the classification of non-
stock, non-profit educational
institution; and
o (2) the income it seeks to be exempted
from taxation is used actually, directly and
exclusively for educational purposes
 Petitioner Foundation has fulfilled both of the
abovementioned requirements
 For the first requirement, there is no contest as
both the parties have stipulated that petitioner
Foundation is a non-stock, non-profit educational
institution
 Nonetheless, the Petitioner Foundation's primary
and secondary purposes in its Amended Articles of
 Incorporation clearly provide that it is a non-stock,
non-profit educational entity
 Moreover, petitioner Foundation has no capital
divided into shares. No part of its income can be
distributed as dividends to its members, trustees
and officers. The members of the Board of Trustees
do not receive any compensation for the
performance of their duties, including attendance in
meetings
 in BIR Ruling No. 176-88 dated August 23, 1988, the
BIR already declared that petitioner Foundation is a
non-stock, non-profit educational institution that is
exempt from certain taxes
 petitioner Foundation was accused of operating
contrary to the nature of a non-profit educational
institution by generating massive profits. However,
these allegations were completely unsupported by
facts and evidence
 In several cases, this Court has ruled that a non-
profit institution will not be considered profit driven
simply because of generating profits. To hold that
an educational Institution is subject to income tax
whenever it is so administered as to reasonably
assure that it will not incur in deficit, is to nullify and
defeat the aforementioned exemption
 Needless to say, every responsible organization
must be so run as to, at least insure its existence
by operating within the limits of its own resources,
especially its regular income. In other words, it
should always strive, whenever possible, to have a
surplus
 Considering the clear explanation of the nature of
the money involved, it is evident that all of
petitioner Foundation's income is actually, directly
and exclusively used or earmarked for promoting its
educational purpose
 To reiterate, respondent never argued that the
income of petitioner Foundation was used in any
manner other than for promoting its purpose as a
non-stock, non-profit educational institution, hi
fact, there is not even a single argument or
evidence presented to cast a doubt in the proper
usage of petitioner Foundation's income
 Furthermore, a simple reading of the Constitution
would show that Article XIV, Section 4 (3) does not
require that the revenues and income must have
also been earned 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
 In the instant case, petitioner Foundation firmly and
adequately argued that none of its income inured to
the benefit of any officer or entity. Instead, its
income has been actually, exclusively and directly
used for performing its purpose as an educational
institution. Undoubtedly, petitioner Foundation has
also proven this second requisite.
 Thus, the tax-exempt status of petitioner
Foundation under the 1987 Constitution is clear
WHEREFORE, premises considered, the petition
is GRANTED. The assailed Decision dated April 19, 2012
and Resolution promulgated on July 17, 2012 of the
Court of Tax Appeals En Banc in C.T.A. EB Case No. 703
are ANULLED and SET ASIDE. Assessment Notice No.
33-FY 05-31-02 for fiscal year ending May 31, 2002
against petitioner La Sallian Educational Innovators
Foundation (De La Salle University-College of St.
Benilde), Inc. for deficiency income tax in the amount
of ONE HUNDRED TWENTY-TWO MILLION FOUR
HUNDRED FOURTEEN THOUSAND FIVE HUNDRED
TENTY-ONE PESOS & 70/100 (P122,414,521.70) is
hereby CANCELLED.
SO ORDERED.
(INHERENT AND CONSTITUTIONAL LIMITATIONS OF
TAXATION)
G.R. No. 215383 March 8, 2017
HON. KIM S. JACINTO-HENARES, in her official capacity
as COMMISSIONER OF THE BUREAU OF INTERNAL
REVENUE, Petitioner vs ST. PAUL COLLEGE OF MAKATI,
Respondent
FACTS
 July 22, 2013 = Kim S. Jacinto-Henares then
Commissioner of Internal Revenue issued Revenue
Memorandum Order (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."
 Nov 29, 2013 = St. Paul College of Makati (SPCM), a
non-stock, non-profit educational institution filed a
Civil Action to Declare Unconstitutional 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
o they submit an application for tax
exemption to the BIR subject to approval by
CIR in the form of a Tax Exemption Ruling
which is valid for a period of 3 years and
subject to renewal
o 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
 RTC = ruled in favor of SPCM and declared RMO No.
20-2013 unconstitutional, Hence, this appeal
ISSUE
WON RMO No. 20-2013 unconstitutional (Yes, but it is
moot already)
RULING
 We deny the petition on the ground of mootness.
 We take judicial notice that on 25 July 2016, the
present CIR Caesar R. Dulay issued RMO No. 44-
2016, which exclude non-stock, non-profit
educational institutions from the coverage of
Revenue Memorandum Order No. 20-2013
 SECTION 1. Nature of Tax Exemption. The tax
exemption of non-stock, non-profit educational
institutions is directly conferred by paragraph 3,
Section 4, Article XIV of the 1987 Constitution
 This constitutional exemption is reiterated in
Section 30 (H) of the 1997 Tax Code
 It is clear and unmistakable from the aforequoted
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
 This constitutional exemption gives the non-stock,
non-profit educational institutions a distinct
character.
 And for the constitutional exemption to be enjoyed,
jurisprudence and tax rulings affirm the doctrinal
rule that there are only two requisites:
o (1) The school must be non-stock and non-
profit; and
o (2) The income is actually, directly and
exclusively used for educational purposes.
There are no other conditions and
limitations
 In this light, the constitutional conferral of tax
exemption upon non-stock and non-profit
educational institutions should not be implemented
or interpreted in such a manner that will defeat or
diminish the intent and language of the
Constitution.
 With the issuance of RMO No. 44-2016, a
supervening event has transpired that rendered this
petition moot and academic, and subject to denial.
WHEREFORE, we DENY the petition on the ground of
mootness. We SET ASIDE the Decision dated 25 July
2014 and Joint Resolution dated 29 October 2014 of the
Regional Trial Court, Branch 143, Makati City, declaring
Revenue Memorandum Order No. 20-2013 tax exemption under the constitution and the law
unconstitutional. The writ of preliminary injunction is
superseded by this Resolution.  CA = affirmed the decision of the CBAA’s decision.
Hence, this petition.
(INHERENT AND CONSTITUTIONAL LIMITATIONS OF
TAXATION) CONTENTIONS
G.R. No. 144104 June 29, 2004
LUNG CENTER OF THE PHILIPPINES, petitioner, Lung Center: it is a charitable institution within the
vs. QUEZON CITY and CONSTANTINO P. ROSAS, in his context of Section 28(3), Article VI of the 1987
capacity as City Assessor of Quezon City, respondents Constitution. It asserts that its character as a charitable
institution is not altered by the fact that it admits
FACTS paying patients and renders medical services to them,
leases portions of the land to private parties, and rents
 Lung Center of the Philippines is a non-stock and out portions of the hospital to private medical
non-profit entity established by virtue of P.D. 1823. practitioners from which it derives income to be used
 It owns a parcel of land in Quezon City where the for operational expenses
hospital is built at its center.
 A big space at the ground floor is being leased to Quezon City: Lung Center’s real property is not exempt
private parties, for canteen and small store spaces, from the payment of real estate taxes because it failed
and to medical or professional practitioners who to prove that it is a charitable institution and that the
use the same as their private clinics for their said property is actually, directly and exclusively used
patients whom they charge for their professional for charitable purposes.
services.
 Almost one-half of the entire area on the left side of ISSUES
the building along Quezon Avenue is vacant and
idle, while a big portion on the right side, at the WON Lung Center is a charitable institution. Thus, its
corner of Quezon Avenue and Elliptical Road, is real properties are exempt from RPT? (YES, but its
being leased for commercial purposes properties not used actually, directly and exclusively
for charitable purposes are not exempt)
 Lung Center accepts paying and non-paying
patients. It also renders medical services to out-
RULING
patients, both paying and non-paying. Aside from its
income from paying patients, the petitioner
**Lung Center is a Charitable institution**
receives annual subsidies from the government.
 To determine whether an enterprise is a charitable
 June 7, 1993 = the land and the hospital building of
institution/entity or not, the elements which should
the Lung Center were assessed for real property
be considered include the statute creating the
taxes
enterprise, its corporate purposes, its constitution
 Lung Center then filed a Claim of Exemption from
and by-laws, the methods of administration, the
real property taxes with the City Assessor,
nature of the actual work performed, the character
predicated on its claim that it is a charitable
of the services rendered, the indefiniteness of the
institution, but was denied.
beneficiaries, and the use and occupation of the
properties
 Lung Center filed before the Local Board of
Assessment Appeals of Quezon City (QC-LBAA) for
 The test whether an enterprise is charitable or not
the reversal, but the decission of the city assessor
is whether it exists to carry out a purpose
was just affirmed
reorganized in law as charitable or whether it is
 QC-LBAA’s decision was likewise affirmed by Central
maintained for gain, profit, or private advantage
Board of Assessment Appeals of Quezon City (CBAA)
and held that Lung Center was not a charitable
 Under P.D. No. 1823, the Lung Center is a non-profit
institution and that its real properties were not
and non-stock corporation which, subject to the
actually, directly and exclusively used for charitable
provisions of the decree, is to be administered by
purposes; hence, it was not entitled to real property
 the Office of the President of the Philippines 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, the medical services of the Lung Center are
to be rendered to the public in general in any and
all walks of life including those who are poor and
the 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 the persons
managing or operating the institution
 The money received by the petitioner becomes a
part of the trust fund and must be devoted to public
trust purposes and cannot be diverted to private
profit or benefit
 In this case, the petitioner adduced substantial
evidence that it spent its income, including the
subsidies from the government for 1991 and 1992
for its patients and for the operation of the hospital.
It even incurred a net loss in 1991 and 1992 from its
operations
**Exemption from taxes**
 Even as we find that the petitioner is a charitable
institution, we hold, that those portions of its real
property that are leased to private entities are not
exempt from real property taxes as these are not
actually, directly and exclusively used for
charitable purposes
 Under the 1973 and 1987 Constitutions and Rep.
Act No. 7160 in order to be entitled to the
exemption, the petitioner is burdened to prove, by
clear and unequivocal proof, that (a) it is a
charitable institution; and (b) its real properties
are ACTUALLY, DIRECTLY and EXCLUSIVELY used for
charitable purposes
 "Exclusive" is defined as possessed and enjoyed to
the exclusion of others; debarred from participation
or enjoyment; and "exclusively" is defined, "in a
manner to exclude; as enjoying a privilege
exclusively."
 "Exclusive" is defined as possessed and enjoyed to
the exclusion of others; debarred from participation
or enjoyment; and "exclusively" is defined, "in a
manner to exclude; as enjoying a privilege
exclusively."
 The words "dominant use" or "principal use" cannot
be substituted for the words "used exclusively"
without doing violence to the Constitutions and the
law
 What is meant by actual, direct and exclusive use
of the property for charitable purposes is the
direct and immediate and actual application of the
property itself to the purposes for which the
charitable institution is organized. It is not the use
of the income from the real property that is
determinative of whether the property is used for
tax-exempt purposes
Accordingly, we hold that the portions of the land
leased to private entities as well as those parts of the
hospital leased to private individuals are not exempt
from such taxes. On the other hand, the portions of the
land occupied by the hospital and portions of the
hospital used for its patients, whether paying or non-
paying, are exempt from real property taxes.
IN LIGHT OF ALL THE FOREGOING, the petition
is PARTIALLY GRANTED. The respondent Quezon City
Assessor is hereby DIRECTED to determine, after due
hearing, the precise portions of the land and the area
thereof which are leased to private persons, and to
compute the real property taxes due thereon as
provided for by law.
SO ORDERED.
(INHERENT AND CONSTITUTIONAL LIMITATIONS OF
TAXATION)
G.R. No. 203514 February 13, 2017
COMMISSIONER OF INTERNAL REVENUE, Petitioner vs.
ST. LUKE’S MEDICAL CENTER, INC., Respondent
FACTS
 Dec 14, 2007 = St. Luke’s Medical Center, Inc.
(SLMC) received from BIR, Audit
Results/Assessment Notice
assessing SLMC deficiency income tax for taxable
year 2005 and 2006
 Jan 14, 2008 = SLMC filed with CIR an administrative
protest assailing the assessments, claiming that as a
non-stock, non-profit charitable and social welfare
organization it is exempt from paying income tax
 April 25, 2008 = SLMC received CIR’s Final Decision
on the Disputed Assessment increasing the
deficiency income
 Aggrieved, SLMC elevated the matter to the
CTA via a Petition for Review
 CTA division = found SLMC not liable for deficiency
income tax
 CTA En Banc = affirmed the cancellation and setting
aside of the Audit Results/Assessment Notices.
Hence, this petition.
 Meanwhile, on September 26, 2012, the Court
rendered a Decision in Commissioner of Internal
Revenue v. St. Luke's Medical Center, Inc., finding
SLMC not entitled to the tax exemption under
Section 30(E) and (G) of the NIRC of 1997 as it does
not operate exclusively for charitable or social
welfare purposes insofar as its revenues from
paying patients are concerned
(G.R. Nos. 195909 and 195960)
 SLMC, now begs the indulgence of the Court to
revisit its ruling in G.R. Nos. 195909 and 195960,
positing that earning a profit by a charitable,
benevolent hospital or educational institution does
not result in the withdrawal of its tax-exempt
privilege
ISSUE
WON SLMC is exempt from income tax? (NO)
RULING
**SLMC is liable for income tax under Section 27(B) of
the 1997 NIRC insofar as its revenues from paying
patients are concerned**
 This has been settled in G.R. Nos. 195909 and
195960 where the court ruled that:
 The effect of the introduction of Section 27(B) of
the NIRC is to subject the taxable income of two
specific institutions, namely, proprietary non-profit
educational institutions and proprietary non-profit
hospitals, among the institutions covered by
Section 30, to the 10% preferential rate under
Section 27(B) instead of the ordinary 30% corporate
rate
 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.
 o 'Non-profit' does not necessarily mean
'charitable.'
 To be a charitable institution, however, an
organization must meet the substantive test of
charity in Lung Center Case. 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
 Charitable institutions, however, are not ipso
facto entitled to a tax exemption. The requirements
for a tax exemption are specified by the law
granting it. The power of Congress to tax implies the
power to exempt from tax.
 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
 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.
 Thus, both the organization and operations of the
charitable institution must be devoted 'exclusively'
for charitable purposes
 There is no dispute that St. Luke's is organized as a
non-stock and non-profit charitable institution.
However, this does not automatically exempt St.
Luke's from paying taxes
 This only refers to the organization of St. Luke's.
Even if St. Luke's meets the test of charity, a
charitable institution is not ipso facto tax exempt
 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 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%.
 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

 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

WHEREFORE, the Petition is hereby DISMISSED. SO

ORDERED.