Taxation– 4th Batch

1. Case Digest: Lung Center of the Philippines vs. Quezon City and Constantino RosasG.R. No. 144104 June 29, 2004

FACTS:

The Petitioner is a non-stock, non-profit entity which owns a parcel of land in Quezon City. Erected in the middle of the aforesaid lot is a hospital known as the Lung Center of the Philippines. The ground floor is being leased to a canteen, medical professionals whom use the same as their private clinics, as well as to other private parties. The right portion of the lot is being leased for commercial purposes to the Elliptical Orchids and Garden Center. The petitioner accepts paying and non-paying patients. It also renders medical services to out-patients, both paying and non-paying. Aside from its income from paying patients, the petitioner receives annual subsidies from the government.

Petitioner filed a Claim for Exemption from realty taxes amounting to about Php4.5 million, predicating its claim as a charitable institution. The city assessor denied the Claim. When appealed to the QC-Local Board of Assessment, the same was dismissed. The decision of the QC-LBAA was affirmed by the Central Board of Assessment Appeals, despite the Petitioners claim that 60% of its hospital beds are used exclusively for charity.

ISSUE:Whether or not the Petitioner is entitled to exemption from realty taxes notwithstanding the fact that it admits paying clients and leases out a portion of its property for commercial purposes.

HELD:

The Court held that the petitioner is indeed a charitable institution based on its charter and articles of incorporation. 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.

Despite this, the Court held that the portions of 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. (strictissimi juris) Moreover, P.D. No. 1823 only speaks of tax exemptions as regards to:

income and gift taxes for all donations, contributions, endowments and equipment and supplies to be imported by authorized entities or persons and by the Board of Trustees of the Lung Center of the Philippines for the actual use and benefit of the Lung Center; and taxes, charges and fees imposed by the Government or any political subdivision or instrumentality thereof with respect to equipment purchases (expression unius est exclusion alterius/expressium facit cessare tacitum).

2. American Bible Society vs. City of ManilaGR No. L-9637 | April 30, 1957

Facts: American Bible Society is a foreign, non-stock, non-profit, religious, missionary corporation duly registered and doing

business in the Philippines through its Philippine agency established in Manila in November, 1898 City of Manila is a municipal corporation with powers that are to be exercised in conformity with the provisions of

Republic Act No. 409, known as the Revised Charter of the City of Manila American Bible Society has been distributing and selling bibles and/or gospel portions throughout the Philippines and

translating the same into several Philippine dialect City Treasurer of Manila informed American Bible Society that it was violating several Ordinances for operating

without the necessary permit and license, thereby requiring the corporation to secure the permit and license fees covering the period from 4Q 1945-2Q 1953

To avoid closing of its business, American Bible Society paid the City of Manila its permit and license fees under protest American Bible filed a complaint, questioning the constitutionality and legality of the Ordinances 2529 and 3000, and

prayed for a refund of the payment made to the City of Manila. They contended:a.        They had been in the Philippines since 1899 and were not required to pay any license fee or sales taxb.       it never made any profit from the sale of its bibles

City of Manila prayed that the complaint be dismissed, reiterating the constitutionality of the Ordinances in question Trial Court dismissed the complaint American Bible Society appealed to the Court of Appeals

Issue: WON American Bible Society liable to pay sales tax for the distribution and sale of bibles

Ruling: NO Under Sec. 1 of Ordinance 3000, one of the ordinance in question, person or entity engaged in any of the

business, trades or occupation enumerated under Sec. 3 must obtain a Mayor’s permit and license from the City Treasurer. American Bible Society’s business is not among those enumerated

However, item 79 of Sec. 3 of the Ordinance provides that all other businesses, trade or occupation not mentioned, except those upon which the City is not empowered to license or to tax P5.00

Therefore, the necessity of the permit is made to depend upon the power of the City to license or tax said business, trade or occupation.

2 provisions of law that may have bearing on this case:a.        Chapter 60 of the Revised Administrative Code, the Municipal Board of the City of Manila is empowered

to tax and fix the license fees on retail dealers engaged in the sale of books   b.       Sec. 18(o) of RA 409: to tax and fix the license fee on dealers in general merchandise, including importers

and indentors, except those dealers who may be expressly subject to the payment of some other municipal tax. Further, Dealers in general merchandise shall be classified as (a) wholesale dealers and (b) retail dealers. For purposes of the tax on retail dealers, general merchandise shall be classified into four main classes: namely (1) luxury articles, (2) semi-luxury articles, (3) essential commodities, and (4) miscellaneous articles. A separate license shall be prescribed for each class but where commodities of different classes are sold in the same establishment, it shall not be compulsory for the owner to secure more than one license if he pays the higher or highest rate of tax prescribed by ordinance. Wholesale dealers shall pay the license tax as such, as may be provided by ordinance

The only difference between the 2 provisions is the limitation as to the amount of tax or license fee that a retail dealer has to pay per annum

As held in Murdock vs. Pennsylvania, The power to impose a license tax on the exercise of these freedoms provided for in the Bill of Rights, is indeed as potent as the power of censorship which this Court has repeatedly struck down. It is not a nominal fee imposed as a regulatory measure to defray the expenses of policing the activities in question. It is in no way apportioned. It is flat license tax levied and collected as a condition to the pursuit of activities whose enjoyment is guaranteed by the constitutional liberties of press and religion and inevitably tends to suppress their exercise. That is almost uniformly recognized as the inherent vice and evil of this flat license tax.

Further, the case also mentioned that the power to tax the exercise of a privilege is the power to control or suppress its enjoyment. Those who can tax the exercise of this religious practice can make its exercise so costly as to deprive it of the resources necessary for its maintenance. Those who can tax the privilege of engaging in this form of missionary evangelism can close all its doors to all those who do not have a full purse

Under Sec. 27(e) of Commonwealth Act No. 466 or the National Internal Revenue Code , Corporations or associations organized and operated exclusively for religious, charitable, . . . or educational purposes, . . .: Provided, however, That the income of whatever kind and character from any of its properties, real or personal, or from any activity conducted for profit, regardless of the disposition made of such income, shall be liable to the tax imposed under this Code shall not be taxed

The price asked for the bibles and other religious pamphlets was in some instances a little bit higher than the actual cost of the same but this cannot mean that American Bible Society was engaged in the business or occupation of selling said "merchandise" for profit

Therefore, the Ordinance cannot be applied for in doing so it would impair American Bible Society’s free exercise and enjoyment of its religious profession and worship as well as its rights of dissemination of religious beliefs.

Wherefore, and on the strength of the foregoing considerations, We hereby reverse the decision appealed from, sentencing defendant return to plaintiff the sum of P5,891.45 unduly collected from it