Case Summary (G.R. No. 222548)
Subject Matter of the Petition
Delos Santos challenged Revenue Memorandum Circular No. 65-2012 issued by the Commissioner of Internal Revenue, which declared that association dues, membership fees, and other assessments or charges collected by condominium corporations are subject to Value-Added Tax (VAT), income tax, and withholding tax. The Circular rejected the prior interpretation that these dues are merely fiduciary funds held in trust, reclassifying them as gross income subject to taxation.
Facts and Application of the Circular
Delos Santos, as a unit owner of Classica Tower Condominium, was charged VAT on his association dues following Classica’s Board of Trustees’ decision not to shoulder VAT starting January 2016. He paid the dues inclusive of VAT and subsequently filed a Petition for Certiorari under Rule 65 of the Rules of Court, attacking the Circular’s validity and constitutionality.
Petitioner’s Legal Arguments
- Standing and Direct Injury: Petitioner asserted his legal standing on the grounds of direct injury caused by the payment of VAT on association dues. This created an actual case or controversy.
- Violation of Substantive Due Process: The Circular lacked any legal or judicial basis and violated substantive due process.
- Failure of Executive Oversight: The President's inadequate supervision over the Commissioner’s issuance constituted a breach of the constitutional duty to ensure faithful law execution.
- Incorrect Application of Tax Code: Petitioner argued that neither Section 105 nor Section 108 of the NIRC applies since association dues are neither payments for goods, property, nor services, but contributions held in fiduciary capacity for common expenses. Thus, condominium corporations do not earn taxable income from these dues.
- Invalid Tax Imposition: Since VAT is a consumption tax, and no consumption or production chain arises from association dues, strict construction of tax laws required invalidation of the Circular.
- TRAIN Law Amendment: The 2017 amendment exempts association dues from VAT, rendering the Circular effectively revoked, but petitioner requested judicial consideration for potential corrective guidance and prevention of future similar issuances.
Respondent’s Position (Commissioner of Internal Revenue)
- Procedural Objections: The CIR contended Rule 65 was improper as the Circular was issued under quasi-legislative authority, and that declaratory relief should be sought in Regional Trial Court; the petitioner also should have questioned the Circular through the Secretary of Finance first.
- Validity of the Circular: The CIR maintained that management of the condominium is a beneficial service and that payments for such services form part of gross income subject to VAT and income tax.
- Statutory Authority: The CIR has authority to interpret the NIRC, and the Circular merely clarified and corrected previous rulings regarding association dues.
Office of the Solicitor General’s Position
Although initially arguing for dismissal due to procedural grounds, the OSG joined petitioner’s substantive position, urging the Court to declare the Circular void. OSG agreed that condominium corporations act in a fiduciary capacity and that only excess dues (beyond maintenance and administrative expenses) may constitute gross income.
Court’s Analysis and Resolution
The Court found it unnecessary to resolve the Petition as it had been rendered moot and academic by its earlier ruling in G.R. Nos. 215801 and 218924 (January 15, 2020). In those cases, the Court declared the same Circular invalid for:
- Grave abuse of discretion: The Circular did not merely clarify but altered the long-standing rules on taxation of association dues.
- Non-trade or business nature of condominium corporations: Association dues are collected solely for the upkeep and maintenance of common areas for the benefit of unit owners, not as income-generating activities.
- Misapplication of VAT and Income Tax Provisions: The NIRC’s VAT provisions apply only to sales, barter, exchange of goods or services, or lease of properties. Association dues do not fall within these categories as no sale or service for a fee occurs.
- Trust Relationship: The condominium corporation merely holds association dues in trust, and these funds are not the corporation’s income.
Mootness an
...continue readingCase Syllabus (G.R. No. 222548)
Background and Nature of the Petition
- The case involves a Petition for Certiorari filed under Rule 65 of the Rules of Court by Fritz Bryn Anthony M. Delos Santos, directly assailing the validity of Revenue Memorandum Circular No. 65-2012 (the Circular), issued by the Commissioner of Internal Revenue.
- The Circular clarifies the taxability of association dues, membership fees, and other assessments or charges collected by condominium corporations.
- Delos Santos is a resident of Makati City who pays condominium association dues to Classica Tower Condominium Association, Inc., and challenges the imposition of Value-Added Tax (VAT) on these dues pursuant to the Circular.
- The Petition was filed following the condominium association’s decision to no longer absorb the VAT on association dues, thus passing the tax burden to unit owners starting January 2016.
- Delos Santos contends that his payment of VAT as required by the Circular causes him a direct injury, granting him legal standing to question the Circular’s constitutionality.
Contents and Implications of Revenue Memorandum Circular No. 65-2012
- The Circular, issued on October 31, 2012, clarifies that:
- Association dues, membership fees, and other charges collected by condominium corporations constitute gross income subject to income tax.
- These payments are deemed compensation for beneficial services provided by condominium corporations to their members and tenants.
- The prior understanding that such dues are merely held in trust by condominium corporations without tax implications is legally unfounded and abandoned.
- Accordingly, these dues are likewise subject to VAT, as they represent income payments for services rendered.
- Income payments to condominium corporations are subject to applicable withholding taxes.
- The Circular thus imposes duties on condominium owners and tenants to pay VAT on association dues, marking a significant shift in tax administration over such fees.
Petitioner’s Legal Arguments Against the Circular
- Delos Santos argues:
- He has legal standing to challenge the Circular due to the direct monetary injury from the VAT payment.
- The Circular violates substantive due process because the Commissioner of Internal Revenue issued it without legal or judicial basis.
- The President failed to correct the Circular’s issuance, breaching the constitutional duty to ensure faithful execution of laws.
- The issue is capable of repetition but evading review, warranting judicial intervention despite procedural technicalities such as hierarchy of courts.
- Section 105 of the National Internal Revenue Code (NIRC) does not apply to association dues since such dues are not payments for the sale, lease, or transfer of goods or services.
- Association dues are contributions solely intended to defray maintenance and administrative expenses; the condominium corporation holds these funds in a fiduciary capacity without ownership or profit motive.
- The condominium corporation earns no income from association dues as the actual income recipients are third-party employees or service providers.
- The Circular invalidly modifies provisions of the NIRC regarding income tax and VAT, exceeding the Commissioner’s authority.
- VAT, being a consumption tax, is improperly imposed because unit owners do not consume a service or goo