Case Summary (G.R. No. L-25710)
Key Dates
– 1980: YMCA earns ₱676,829.80 from shop rentals and ₱44,259.00 from parking fees.
– July 2, 1984: CIR issues ₱415,615.01 assessment against YMCA for various tax deficiencies.
– October 8, 1985: YMCA supplements its formal protest.
– March 14, 1989: YMCA files petition for review with the CTA.
– CTA Decision (date unspecified): Grants YMCA exemption on rental income; sustains certain withholding taxes.
– February 16, 1994: CA reverses CTA on rental income exemption.
– September 28, 1995: CA on reconsideration affirms CTA’s full exemption ruling.
– February 29, 1996: CA denies CIR’s motion for reconsideration.
– October 14, 1998: Supreme Court issues final decision.
Applicable Law
– 1987 Constitution
• Article VI, Section 28(3): Exempts lands, buildings and improvements actually, directly, exclusively used for religious, charitable or educational purposes from taxation (property tax only).
• Article XIV, Section 4(3): Exempts revenues and assets of non-stock, non-profit educational institutions used actually, directly, exclusively for educational purposes (taxes and duties).
– National Internal Revenue Code (NIRC) of 1997, formerly Section 27(g) and (h) (now Section 26): Lists exempt organizations but taxes “income of whatever kind and character . . . from any of their properties, real or personal, or from any of their activities conducted for profit, regardless of disposition.”
Facts
YMCA, organized and operated exclusively for religious, educational and charitable purposes, leases portions of its premises to small shop-owners, restaurants and parking users. Minimal rental and parking fees cover only operating and maintenance costs. Membership dues alone are insufficient to support YMCA’s programs, so rental and parking income constitute the bulk of its operating funds.
Procedural History
- CIR assesses YMCA for deficiency income tax, expanded withholding tax on rentals, professional fees and withholding tax on wages for 1980.
- YMCA protests; CIR denies relief.
- YMCA petitions CTA (1989); CTA rules rentals/parking fees are incidental and necessary to YMCA’s objectives and thus exempt under NIRC Section 27. Certain withholding taxes are sustained.
- CIR appeals to CA (1994); CA reverses CTA as to rental income, holding the last paragraph of Section 27 unambiguously subjects property-derived income to tax.
- YMCA files motion for reconsideration; CA (1995) on second thought finds CTA factual findings binding and reinstates full exemption.
- CIR’s motion for reconsideration is denied (1996).
- CIR petitions Supreme Court under Rule 45.
Issues
- Did the CA improperly depart from the CTA’s factual findings when it first reversed the exemption ruling?
- Is YMCA’s rental and parking income taxable under the NIRC and the 1987 Constitution?
Supreme Court Majority Ruling
- Factual Findings
– CA did not disturb CTA’s factual findings; it merely interpreted and applied the law differently to those facts. Factual findings supported by substantial evidence remain binding. - Statutory Interpretation
– Tax exemptions are strictly construed. The unambiguous last paragraph of Section 27 of the NIRC clearly renders taxable “income of whatever kind and character . . . from any of their properties, real or personal,” irrespective of charitable use or incidental nature. Literal application binds the Court. - Constitutional Exemptions
– Article VI, Section 28(3) of the 1987 Constitution pertains only to property taxes, not income taxes.
– Article XIV, Section 4(3) exempts non-stock, non-profit educational institutions’ revenues and assets actually, directly, exclusively used for educational purposes. YMCA failed to prove it is a “school” or that the questioned income meets the “actual, direct and exclusive” educ
Case Syllabus (G.R. No. L-25710)
Background
- Young Men’s Christian Association of the Philippines, Inc. (YMCA) is a non-stock, non-profit corporation organized for religious, educational, and charitable purposes.
- YMCA conducts youth-oriented programs—workshops, seminars, training, sports, camps—pursuant to its objectives.
- In 1980, YMCA earned P676,829.80 from leasing portions of its premises to small shops, restaurants, canteens, and P44,259.00 from parking fees charged to non-members.
Assessment and Protest
- July 2, 1984: Commissioner of Internal Revenue (CIR) issued an assessment of P415,615.01 against YMCA covering deficiency income tax, expanded withholding taxes on rentals and professional fees, and withholding tax on wages.
- YMCA formally protested, filed a supplemental letter of protest on October 8, 1985; CIR denied the protest.
- March 14, 1989: YMCA filed a petition for review with the Court of Tax Appeals (CTA).
Court of Tax Appeals Decision
- CTA found YMCA’s leasing and parking operations “reasonably incidental to and reasonably necessary” for its objectives.
- Dismissed for lack of merit: 1980 deficiency fixed tax (P353.15), contractor’s tax (P3,129.73), and deficiency income tax (P372,578.20).
- Sustained: 1980 deficiency expanded withholding tax (P1,798.93) and withholding tax on wages (P33,058.82 plus 10% surcharge and 20% interest).
First Appeal to the Court of Appeals (February 16, 1994)
- CA applied prior rulings (Province of Abra vs. Hernando; Abra Valley College vs. Aquino) and reversed CTA’s legal conclusion on exemption.
- Held rental income and parking fees taxable under Section 27 of the NIRC; reinstated assessments for deficiency income ta