Title
Lung Center of the Philippines vs. Quezon City
Case
G.R. No. 144104
Decision Date
Jun 29, 2004
A non-profit hospital sought tax exemption, claiming charitable status. The Supreme Court ruled portions used for hospital operations are exempt, but leased areas for commercial use are taxable.
real property taxes
assessment
patients

Case Summary (G.R. No. 144104)

Factual Background

The Lung Center of the Philippines is a non-stock, non-profit corporation established by P.D. No. 1823 to provide tertiary-level care, research, training, and health education relating to lung and pulmonary diseases. It owned Lot No. RP-3-B-3A-1-B-1, SWO-04-000495, Quezon Avenue corner Elliptical Road, Quezon City, containing 121,463 square meters and covered by TCT No. 261320. A hospital building occupied the central portion of the lot. Portions of the ground floor were leased to private canteen operators and private medical practitioners. A substantial section of the lot remained vacant, while a large corner area was leased to a private enterprise operating as Elliptical Orchids and Garden Center. The Lung Center accepted both paying and non-paying patients and received annual government subsidies; it reported rental receipts of P1,136,483.45 in 1991 and P1,679,999.28 in 1992.

Procedural History

On June 7, 1993 the City Assessor of Quezon City assessed the petitioner's land and building for real property tax and issued Tax Declaration Nos. C-021-01226 and C-021-01231. The Lung Center filed a Claim for Exemption on August 25, 1993, asserting charitable status under the Constitution. The City Assessor denied the claim. The Local Board of Assessment Appeals of Quezon City (QC-LBAA) dismissed the petition. The Central Board of Assessment Appeals (CBAA) affirmed the QC-LBAA. The Court of Appeals in CA-G.R. SP No. 57014 affirmed the CBAA in a decision dated July 17, 2000. The petitioner sought relief before the Supreme Court by Rule 45 petition.

Issues Presented

The Court stated the questions for resolution as whether the Lung Center is a charitable institution within the context of P.D. No. 1823, the 1973 and 1987 Constitutions, and Section 234(b), R.A. No. 7160; and whether its real properties are exempt from real property taxes under the Constitution and implementing law.

Contentions of the Parties

The Lung Center contended that it is a charitable institution under Section 28(3), Article VI, 1987 Constitution, that at least 60 percent of its beds were reserved for charity patients, and that it rendered services to indigent out-patients such that its properties should be tax-exempt. It argued that receipt of subsidies and income from paying patients or rentals did not defeat charitable character so long as proceeds were applied to charitable purposes. The respondents maintained that the petitioner failed to prove actual, direct and exclusive charitable use of its lands and buildings; pointed to leases to private parties and to allegations published in a newspaper about an undervalued lease to Elliptical Orchids and Garden Center; and questioned the petitioner's claims concerning the proportion of charity patients and the use of government subsidies.

Court's Findings on Charitable Status

The Court found that the Lung Center is a charitable institution within the context of the 1973 and 1987 Constitutions. The Court applied the established elements for determining charitable character, including the statute creating the enterprise, corporate purposes, by-laws, methods of administration, nature of actual work, character of services rendered, indefiniteness of beneficiaries, and use and occupation of properties. The Court examined P.D. No. 1823, the Articles of Incorporation, and the Center's stated purposes and concluded that the institution was organized to benefit an indefinite class and to promote public welfare through medical care, research, training, and dissemination of health information. The Court further held that the receipt of income from paying patients and government subsidies did not ipso facto destroy charitable character so long as funds were devoted to the charitable objects and no private inurement occurred; the petitioner showed that it applied income and subsidies to patient care and incurred net losses in 1991 and 1992.

Court's Findings on Tax Exemption

On the second issue, the Court held that not all of the petitioner's real property was exempt from real property tax. The Court explained that under Section 28(3), Article VI, 1987 Constitution and Section 234(b), R.A. No. 7160, exemption attaches only to lands, buildings, and improvements "actually, directly and exclusively" used for charitable purposes. The Court emphasized that the constitutional and statutory language imposed a burden of clear and unequivocal proof that the property itself—not merely income from it—is so used. Because significant portions of the land and parts of the hospital were leased to private individuals and to a commercial enterprise, those leased portions were not actually, directly and exclusively used for charitable purposes and thus remained subject to real property taxation. Conversely, the Court held that portions of the land occupied by the hospital and parts of the hospital actually used for patient care, whether for paying or non-paying patients, qualified for exemption.

Legal Reasoning and Authorities

The Court applied the doctrine that tax exemptions are exceptions to the rule of taxation and must be construed strictissimi juris against the taxpayer and liberally in favor of the taxing power. It relied on authorities that define charity in law and the test for charitable organizations. The Court rejected reliance on pre-1973 precedent that did not account for the constitut

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