G.R. No. 222548 - Delos Santos vs. Commissioner of Internal Revenue

Background of the Circular and Petitioner’s Situation
On October 31, 2012, the Commissioner of Internal Revenue (CIR) issued Revenue Memorandum Circular (RMC) No. 65-2012 clarifying the taxability of association dues, membership fees, and other charges collected by condominium corporations. The Circular declared these collections subject to income tax, Value-Added Tax (VAT), and withholding taxes, abandoning previous interpretations that considered these dues as held in trust and not income.
Fritz Bryn Anthony M. Delos Santos became a resident of Makati City in April 2013, residing in his father’s condominium unit and paying association dues to Classica Tower Condominium Association, Inc. (Classica).
Following the Circular, on November 26, 2015, Classica notified unit owners that it would no longer shoulder the VAT on association dues starting January 3, 2016. On January 4, 2016, Classica billed Delos Santos including VAT, which he paid on January 21, 2016.

Filing of the Petition and Arguments of Petitioner
Delos Santos filed a Petition for Certiorari under Rule 65 directly before the Supreme Court, challenging the Circular’s validity and constitutionality. He claimed:

He has legal standing due to direct injury from paying VAT on association dues.
The Circular violated substantive due process and lacked legal or judicial basis.
The President failed to ensure faithful execution of laws concerning the Circular.

He argued the issue was capable of repetition yet evading review and requested waiver of the hierarchy of courts doctrine.
He contended that under Section 105 of the National Internal Revenue Code (NIRC), association dues are not taxable because they are contributions for maintenance, not payments for goods or services, and that the condominium corporation holds dues in fiduciary capacity without earning income.
Delos Santos asserted that VAT is a tax on consumption and since owners do not consume goods or services from the dues, the Circular improperly imposes VAT.
He concluded that the Circular was invalid because it modified Sections 105 and 108 of the NIRC beyond the Commissioner’s authority.

Responses from Respondents and Office of Solicitor General (OSG)
On April 6, 2016, the Court required the CIR to file a comment.
Instead, the OSG filed a Manifestation and Motion arguing that while certiorari was not the proper remedy, it concurred in declaring the Circular void, emphasizing that:

The Court directed CIR to file its Comment and subsequently issued a show-cause order on CIR’s failure to comply.
On October 9, 2017, CIR filed its compliance and Comment, asserting:

The Circular was validly issued under the CIR’s quasi-legislative authority.
Petition should have been filed before the Regional Trial Court rather than the Supreme Court.
The Circular properly interpreted the NIRC provisions; management of condominiums constitutes taxable beneficial services.
Petitioner should have questioned the Circular before the Secretary of Finance first.

Petitioner’s Reply and Additional Arguments
Delos Santos filed a Reply on March 28, 2018, reiterating the invalidity of the Circular, asserting:

Rule 65 certiorari is a recognized remedy to challenge illegal administrative issuances.
The Commissioner did not observe due process by failing to give prior notice and hearing.
The TRAIN Law amendment exempted association dues from VAT, effectively revoking the Circular.
Despite potential mootness, the case warranted resolution to prevent erroneous VAT collection and future circulars imposing similar taxes.

Supreme Court’s Consideration and Related Jurisprudence
The Court noted that the Circular had been declared invalid by its First Division in G.R. Nos. 215801 and 218924 (January 15, 2020), holding that the CIR gravely abused authority because the Circular changed longstanding Bureau of Internal Revenue rules rather than merely clarifying them.
The Court reiterated prior ruling in Yamane v. BA Lepanto Condominium Corporation that a condominium corporation is not engaged in trade or business, association dues are for maintenance, not profit, and collection thereof is not subject to income tax or VAT.
The Court observed that VAT applies only to sale, barter, or services rendered for a fee, which does not include condominium dues held in trust and used solely for maintenance and administrative expenses.
The Petition was thus moot and academic given existing jurisprudence, and no exception to mootness doctrine applied to justify a ruling.

Whether Revenue Memorandum Circular No. 65-2012 validly imposes income tax, VAT, and withholding tax on association dues, membership fees, and other charges collected by condominium corporations.
Whether the petitioner, as a condominium unit owner, has legal standing to assail the Circular’s constitutionality and validity.
Whether Rule 65 Petition for Certiorari is the proper remedy to challenge the Circular.
Whether the Circular violates substantive due process and the constitutional duty of the President to ensure faithful execution of laws.
Whether the amendment under the Tax Reform for Acceleration and Inclusion (TRAIN) Law automatically revokes the Circular.
Whether the issues raised remain justiciable or are rendered moot and academic by prior Supreme Court rulings.