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CIR v. CA

FACTS:

The case involves the Young Men's Christian Association of the Philippines, Inc. (YMCA), a non-profit institution engaged in various programs and activities. In 1980, YMCA earned income from leasing a portion of its premises to small shop owners and collecting parking fees. The Commissioner of Internal Revenue issued an assessment to YMCA for deficiency taxes, which YMCA protested but was denied. YMCA filed a petition for review with the Court of Tax Appeals (CTA), which ruled in favor of YMCA, deeming the income derived from leasing and parking activities tax-exempt. Dissatisfied, the commissioner appealed the case to the Court of Appeals (CA). Initially, the CA ruled in favor of the commissioner but later reversed its decision and upheld the CTA ruling.

The CIR filed a petition for review under Rule 45 of the Rules of Court against the CA and YMCA. The CA partially reversed and modified the CTA's decision, subjecting YMCA's rental income and parking fees to tax. YMCA filed a motion for reconsideration, which the CA granted, affirming the CTA's decision in its entirety. The CIR filed its own motion for reconsideration, which the CA denied. Hence, this petition for review. The issues raised by the CIR are whether the CA reversed the factual findings of the CTA and whether YMCA's rental income is subject to tax.

ISSUES:

  1. Did the Court of Appeals (CA) reverse the factual findings of the Court of Tax Appeals (CTA) in its decision?

  2. Is the rental income of the YMCA taxable?

  3. Whether the income of charitable institutions like the private respondent is exempt from income tax under Article VI, Section 28, paragraph 3 of the Constitution.

  4. Whether the YMCA is an educational institution within the purview of Article XIV, Section 4, paragraph 3 of the Constitution.

  5. Whether the cases cited by the private respondent are applicable to the present case involving exemption from the payment of income tax.

RULING:

  1. The CA did not reverse the factual findings of the CTA. It merely applied the law to the facts. That its interpretation or conclusion is different from that of the CTA is not irregular or abnormal.

  2. The rental income of the YMCA is taxable. The last paragraph of Section 27 of the National Internal Revenue Code (NIRC) mandates that the income of exempt organizations from any of their properties, real or personal, be subject to the tax imposed by the same Code. The phrase "any of their activities conducted for profit" does not qualify the word "properties." Therefore, income from the property of the organization is taxable, regardless of how that income is used.

  3. The income tax exemption under Article VI, Section 28, paragraph 3 of the Constitution only applies to property taxes and not income taxes. Therefore, the income of charitable institutions is not exempt from income tax.

  4. The YMCA is not considered an educational institution within the meaning of Article XIV, Section 4, paragraph 3 of the Constitution. To be considered an educational institution, a place of systematic instruction in any or all of the useful branches of learning must be provided by methods common to schools and institutions of learning. The YMCA, as shown in its articles of incorporation and by-laws, does not provide such systematic instruction and cannot be deemed an educational institution.

  5. The cases cited by the private respondent are not applicable to the present case. The cases cited by the private respondent involved exemption from the payment of property tax and regulatory fees, not income tax. Furthermore, the private respondent failed to provide substantial evidence that it is an educational institution and that its rental income is actually, directly, and exclusively used for educational purposes. Therefore, the petition is granted and the Resolutions of the Court of Appeals are reversed and set aside. The Decision of the Court of Appeals is reinstated.

PRINCIPLES:

  • A question of law arises when there is doubt or difference as to what the law is on a certain state of facts, while a question of fact arises when there is doubt or difference as to the truth or falsehood of alleged facts.

  • Taxes are the lifeblood of the nation, thus tax exemptions are strictly construed.

  • A claim of statutory exemption from taxation must be manifest and unmistakable from the language of the law on which it is based, and it must be expressly granted in a statute stated in a language too clear to be mistaken.

  • When the language of the law is clear and unambiguous, its express terms must be applied.

  • Verba legis non est recedendum – where the law does not distinguish, neither should we.

  • Article VI, Section 28(3) of the 1987 Constitution exempts charitable institutions from property taxes but does not exempt them from income tax from any source.

  • Tax exemptions are strictly construed and must be based on substantial evidence.

  • The term "educational institution" refers to schools or institutions of learning that provide systematic instruction in useful branches of learning.

  • Non-formal education provided by private organizations is not considered educational institutions under the Education Act of 1982.

  • Words used in the Constitution are to be taken in their ordinary acceptation.

  • The Court's power and function are limited to applying the law fairly and objectively.

  • The Court cannot change the law or bend it to suit its sympathies and appreciations, as that would exceed its role and invade the realm of legislation.

  • The Court's limited constitutional authority prevents it from ruling on the wisdom or propriety of legislation, which is within the prerogative of the political departments of government.

  • The Court cannot grant tax exemptions without proper legal basis and evidence.

  • The government should provide laws that facilitate, rather than frustrate, humanitarian tasks, but it is not within the Court's power to amend or change the law based on its beliefs or sympathies.