Case Digest (G.R. No. 263014) Core Legal Reasoning Model
Core Legal Reasoning Model
Facts:
In Commissioner of Internal Revenue v. St. Luke’s Medical Center, Inc. (G.R. Nos. 195909 & 195960, decided September 26, 2012), the Bureau of Internal Revenue (BIR) assessed St. Luke’s Medical Center, Inc., a non-stock, non-profit hospital organized under Philippine law, with P76,063,116.06 in deficiency taxes for calendar year 1998. On December 16, 2002, the BIR reduced the assessment to P63,935,351.57 before the Court of Tax Appeals (CTA). St. Luke’s filed an administrative protest on January 14, 2003 and, upon the BIR’s inaction for 180 days, elevated the matter to the CTA. The BIR argued that Section 27(B) of the 1997 National Internal Revenue Code (NIRC) imposes a 10% preferential tax rate on proprietary non-profit hospitals, thus overruling the income tax exemption under NIRC Sections 30(E) and 30(G). It further contended that only 13% of St. Luke’s revenue was devoted to charitable care and that board members benefited indirectly from hospital assets. St. Luke’s coun Case Digest (G.R. No. 263014) Expanded Legal Reasoning Model
Expanded Legal Reasoning Model
Facts:
- Organization and Corporate Purpose
- St. Luke’s Medical Center, Inc. (“St. Luke’s”) is a non-stock, non-profit corporation established to operate a charitable hospital, provide health-science education, engage in medical research, and cooperate with medical societies and agencies.
- Under its articles, no part of its net income inures to private individuals; profits must be devoted to its purposes.
- BIR Assessment and Administrative Proceedings
- On December 16, 2002, the Bureau of Internal Revenue (BIR) assessed St. Luke’s for 1998 deficiency taxes (income, VAT, withholding), initially P76 M, later reduced to P63.9 M by the CTA First Division trial.
- St. Luke’s protested administratively; the BIR failed to resolve within 180 days, prompting appeal to the Court of Tax Appeals (CTA).
- CTA Proceedings and Arguments
- The BIR argued Section 27(B) of the NIRC (1997) imposes a 10% tax on proprietary non-profit hospitals, superseding the general exemptions under Sections 30(E) and (G). It claimed St. Luke’s was operated for profit (only 13% charitable revenue) and its board benefited.
- St. Luke’s maintained:
- It spent P218 M in free services (65.2% of operating income), proving its charitable use of funds.
- Its net income did not inure to private benefit; exempt under Sections 30(E) and (G).
- CTA First Division (Feb. 23, 2009) partially granted relief: cancelled VAT but upheld P6.28 M income and withholding tax with 20% interest. CTA En Banc (Nov. 19, 2010) affirmed, holding Section 27(B) not applicable and exempting all patient service income under Sections 30(E)/(G), except “Other Income-Net.”
- Supreme Court Review
- Petitions consolidated: G.R. No. 195909 (BIR) raises a pure question of law on Sections 27(B) vs. 30(E)/(G). G.R. No. 195960 (St. Luke’s) presents factual issues (denied).
- Supreme Court limited review to legal issues; factual matters on “Other Income-Net” remain for CTA.
Issues:
- Whether Section 27(B) of the NIRC (1997) removes proprietary non-profit hospitals from income tax exemption under Sections 30(E) and (G), subjecting St. Luke’s to a 10% preferential rate on its taxable income.
- Whether St. Luke’s is entitled to complete income tax exemption under Sections 30(E) and (G) as a non-stock, non-profit charitable institution.
Ruling:
- (Subscriber-Only)
Ratio:
- (Subscriber-Only)
Doctrine:
- (Subscriber-Only)