Case Summary (G.R. No. 215383)
Factual Background
On 22 July 2013, RMO No. 20-2013 was issued prescribing policies for the issuance of Tax Exemption Rulings to qualified non-stock, non-profit corporations and associations under Section 30 of the Tax Code. St. Paul College of Makati alleged that RMO No. 20-2013 imposed registration and approval prerequisites and required renewal of Tax Exemption Rulings every three years. The memorandum also provided that failure to file an annual information return would result in automatic loss of the income tax-exempt status. SPCM filed a civil action on 29 November 2013 seeking declaration of unconstitutionality of RMO No. 20-2013 and praying for injunctive relief.
Trial Court Proceedings
The Regional Trial Court issued a temporary restraining order on 27 December 2013, finding that noncompliance with RMO No. 20-2013 could result in loss of tax-exempt status and irreparable injury to SPCM. The RTC granted a writ of preliminary injunction on 22 January 2014 after concluding that the RMO appeared to divest non-stock, non-profit educational institutions of their constitutional tax exemption privilege. The CIR filed a motion for reconsideration which the RTC denied.
RTC Ruling
In a Decision dated 25 July 2014, the RTC declared RMO No. 20-2013 unconstitutional for violating Article XIV, Section 4, paragraph 3 of the 1987 Constitution by imposing additional prerequisites that diminished the constitutional privilege. The RTC made permanent the writ of preliminary injunction and declared null and void subsequent revenue issuances that implemented RMO No. 20-2013. The RTC later denied the CIR’s motion for reconsideration in a Joint Resolution dated 29 October 2014 and construed its decision to extend to issuance(s) that tended to implement RMO No. 20-2013.
Revenue Issuances Subsequent to the RTC Ruling
While the RTC litigation was pending, the Bureau issued RMO No. 28-2013, which amended Section 10 of RMO No. 20-2013 concerning renewal of Tax Exemption Rulings, and RMO No. 34-2014, which purportedly clarified certain provisions of RMO No. 20-2013. Thereafter, on 25 July 2016, Commissioner Caesar R. Dulay issued RMO No. 44-2016, which expressly excluded non-stock, non-profit educational institutions from the coverage of RMO No. 20-2013 and set out policies, documentary requirements, validity, and transitory provisions for tax exemption rulings of such educational institutions.
Issues Presented by the CIR
The CIR framed two principal issues: whether the RTC correctly concluded that RMO No. 20-2013 imposed a prerequisite before a non-stock, non-profit educational institution may avail of the constitutional tax exemption under Article XIV, Section 4, paragraph 3; and whether the RTC correctly concluded that RMO No. 20-2013 added requirements beyond those prescribed by Department of Finance Order No. 137-87.
Supreme Court Disposition
The Supreme Court denied the petition for review on the ground of mootness. The Court took judicial notice of RMO No. 44-2016, which excluded non-stock, non-profit educational institutions from the coverage of RMO No. 20-2013 and reiterated the doctrine that the constitutional tax exemption for such institutions depends on two requisites: (1) the institution must be non-stock and non-profit; and (2) the income must be actually, directly and exclusively used for educational purposes. The Court held that the issuance of RMO No. 44-2016 was a supervening event that rendered the controversy non-justiciable because any declaration concerning RMO No. 20-2013 would have no practical value.
Mootness Analysis and Authorities Cited
The Court explained that a moot and academic case ceases to present a justiciable controversy by virtue of supervening events so that adjudication would be of no practical value. The Court relied on precedents including Timbol v. Commission on Elections, Carpio v. Court of Appeals, Osmena III v. Social Security System of the Philippines, and Abdul v. Sandiganbayan to describe the doctrine and to support dismissal on grounds of mootness.
Legal Basis and Reasoning
The Court emphasized the constitutional source of the exemption in Article XIV, Section 4, paragraph 3 and its statutory reiteration in Section 30(H) of the Tax Code. The Court noted that RMO No. 44-2016 expressly recognized that the constitutional exemption is direct and that jurisprudence and tax rulings require only the two aforementioned requisites for its enjoyment. Because RMO No. 44-2016 excluded educational institutions from the earlier memorandum’s coverage and set forth that Tax Exemption Rulings would remain effective unless recalled for valid grounds, the Court concluded that the RTC’s declaration of unconstitutionality no longer produced any operative legal effect and that the issues raised were moot.
Disposition and Effect on Lower Court Orders
The Supreme Court denied the petition for review on the ground of mootness
...continue reading
Case Syllabus (G.R. No. 215383)
Parties and Posture
- HON. KIM S. JACINTO-HENARES, in her official capacity as Commissioner of the Bureau of Internal Revenue, filed a petition for review under Rule 45 assailing the RTC decision and joint resolution that declared RMO No. 20-2013 unconstitutional.
- St. Paul College of Makati filed the underlying civil action in RTC, Branch 143, Makati City, to declare RMO No. 20-2013 unconstitutional and prayed for injunctive relief.
- The Regional Trial Court issued a temporary restraining order and thereafter a writ of preliminary injunction, and later rendered a decision declaring RMO No. 20-2013 unconstitutional.
- The Supreme Court resolved the petition after taking judicial notice of RMO No. 44-2016 issued by the subsequent Commissioner of Internal Revenue.
Key Facts
- On 22 July 2013, the Commissioner issued RMO No. 20-2013, prescribing policies and guidelines for issuance of Tax Exemption Rulings to qualified non-stock, non-profit corporations under Section 30 of the 1997 Tax Code.
- St. Paul College of Makati alleged that RMO No. 20-2013 imposed registration and CIR-approval prerequisites, required three-year Tax Exemption Rulings subject to renewal, and caused automatic loss of exempt status for failure to file annual information returns.
- The RTC issued a TRO on 27 December 2013 and a preliminary injunction on 22 January 2014 after finding that noncompliance with RMO No. 20-2013 would result in loss of constitutional tax-exempt privilege.
- The RTC rendered judgment on the pleadings in favor of St. Paul College of Makati on 25 July 2014 and denied the CIR's motion for reconsideration in a joint resolution dated 29 October 2014.
- The Commissioner later issued RMO No. 34-2014 to clarify provisions of RMO No. 20-2013, and the Bureau subsequently issued RMO No. 44-2016 excluding non-stock, non-profit educational institutions from the coverage of RMO No. 20-2013.
Statutory Framework
- The constitutional provision at issue is Section 4(3), Article XIV of the 1987 Constitution, which exempts revenues and assets of non-stock, non-profit educational institutions actually, directly and exclusively used for educational purposes from taxes and duties.
- The statutory reiteration is Section 30 (H) of the 1997 Tax Code, as amended, which lists a non-stock, non-profit educational institution as exempt from income tax.
- The administrative rule referenced by the parties is Department of Finance Order No. 137-87, containing implementing rules for Section 4(3), Article XIV.