CIR vs. CA, CTA AND YOUNG MEN’S CHRISTIAN ASSOCIATION OF THE PHILIPPINES, INC.
G.R. No. 124043, October 14, 1998
Facts:
- 1. YMCA is a non-stock, non-profit institution, which conducts various programs and activities that are beneficial to the public, especially the young people, pursuant to its religious, educational and charitable objectives
- 2. YMCA earned, among others, an income of P676,829.80 from leasing out a portion of its premises to small shop owners, like restaurants and canteen operators, and P44,259.00 from parking fees collected from non-members.
- 3. the CIR issued an assessment in the total amount of P415,615.01 including surcharge and interest, for deficiency income tax, deficiency expanded withholding taxes on rentals and professional fees and deficiency withholding tax on wages.
Issue: Is the rental income of the YMCA from its real estate subject to tax?
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Ruling:
Taxes are the lifeblood of the nation; the Court has always applied the doctrine of strict interpretation in construing tax exemptions. Furthermore, a claim of statutory exemption from taxation should be manifest and unmistakable from the language of the law on which it is based.
The last paragraph of Section 27, the YMCA argues, should be "subject to the qualification that the income from the properties must arise from activities ‘conducted for profit’ before it may be considered taxable."
This argument is erroneous.
As previously stated, a reading of said paragraph ineludibly shows that the income from any property of exempt organizations, as well as that arising from any activity it conducts for profit, is taxable. The phrase "any of their activities conducted for profit" does not qualify the word "properties." This makes income from the property of the organization taxable, regardless of how that income is used -- whether for profit or for non-profit purposes.
Hence, Respondent Court of Appeals committed reversible error when it allowed, on reconsideration, the tax exemption claimed by YMCA on income it derived from renting out its real property, on the solitary but unconvincing ground that the said income is not collected for profit but is merely incidental to its operation. The law does not make a distinction. The rental income is taxable regardless of whence such income is derived and how it used or disposed of. Where the law does not distinguish, neither should we.
Constitutional Provisions on Taxation
Invoking not only the NIRC but also the fundamental law, private respondent submits that Article VI, Section 28 of par. 3 of the 1987 Constitution, exempts "charitable institutions" from the payment not only of property taxes but also of income tax from any source.
The Court is not persuaded.
Accordingly, Justice Hilario G. Davide, Jr what is exempted is not the institution itself; those exempted from real estate taxes are lands, buildings and improvements actually, directly and exclusively used for religious, charitable or educational purposes."
Indeed, the income tax exemption claimed by private respondent finds no basis in Article VI, Section 28, par. 3 of the Constitution.
Private respondent also invokes Article XIV, Section 4, par. 3 of the Charter, claiming that the YMCA "is a non-stock, non-profit educational institution whose revenues and assets are used actually, directly and exclusively for educational purposes so it is exempt from taxes on its properties and income."
We reiterate that private respondent is exempt from the payment of property tax, but not income tax on the rentals from its property.
The bare allegation alone that it is a non-stock, non-profit educational institution is insufficient to justify its exemption from the payment of income tax.
The YMCA to be granted the exemption it claims under the, it must prove with substantial evidence that
(1) it falls under the classification non-stock, non-profit educational institution; and
(2) the income it seeks to be exempted from taxation is used actually, directly, and exclusively for educational purposes.
Is the YMCA an educational institution within the purview of Article XIV, Section 4, par.3 of the Constitution?
We rule that it is not.
The term "educational institution" or "institution of learning" has acquired a well-known technical meaning.
Under the Education Act of 1982, such term refers to schools. The school system is synonymous with formal education, which "refers to the hierarchically structured and chronological graded learnings organized and provided by the formal school system and for which certification is required in order for the learner to progress through the grades or move to the higher levels."
The Court has examined the "Amended Articles of Incorporation" and "By-Laws" of the YMCA, but found nothing in them that even hints that it is a school or an educational institution.
Moreover, without conceding that Private Respondent YMCA is an educational institution, the Court also notes that the former did not submit proof of the proportionate amount of the subject income that was actually, directly and exclusively used for educational purposes. Article XIII, Section 5 of the YMCA by-laws, which formed part of the evidence submitted, is patently insufficient, since the same merely signified that "the net income derived from the rentals of the commercial buildings shall be apportioned to the Federation and Member Associations as the National Board may decide."
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