Perpetual Succour Hospital Inc. vs.

CIR, CTA Case 7304, 01 December 2010 Facts: Petitioner praying for the cancellation of the assessment imposing deficiency income tax, expanded withholding tax and vat. In 1961, petitioner was granted tax exemption from income tax by virtue of BIR Ruling No. 185 owing to its character as religious, charitable, non-profit and non-stock institution. On 11 Nov 2003, respondent issued Preliminary Assessment Notice assussing petitioner for deficiency income tax in the amount of P7,399,457, VAT in the amount of P7.6 million and EWT in the amount of almost P 7.5. Petitioner filed reconsideration and /or reinvestigation of the Preliminary Assessment. On 11 March 2005 a formal letter of demands with details of discrepancy and assessment notice, assessing petitioners deficiency in the amount of almost P25 million was received by the petitioner. Petitioner contested the same has failed, respondent issued Final Order. Respondent averred that petitioner, being a non-profit hospital is subject to 10% income tax pursuant to Sec 27(B), NIRC. Petitioner is also liable for not filing BIR FORM 1702-Q- Quarterly Income Tax Return for three taxable quarters. That petitioner is operating a pharmacy/drug store within the hospital premises but it filed NO PAYMENT VAT RETURNS violating Sec4 of the Revenue Regulation No. 7-95. Respondent also claimed that the decision has already become final and unappealable. ISSUE: WON petitioner is subject to 10% income tax under Sec27 (b) or exempt under Sec 30(E). SCs Ruling: While Section 27(B) of the NIRC of 1997, as amended, subjects non-profit hospitals to preferential rate of ten percent when their gross income from unrelated trade, business or other activity does not exceed fifty percent (50%) of their total gross income from all sources, Section 30(E) of the NIRC of 1997, as amended, however, exempts from income tax the income received by non-stock corporations or associations organized and operated exclusively for religious or charitable purposes, no part of the income or asset of which shall belong to or inure to the benefit of any member, organizer, officer or any specific person. On the other hand, in order that a corporation will be exempt from income tax on income received by them as such, under Section 30, it must be a (1) non-stock corporation; (2) operated exclusively for religious or charitable purpose; and (3) no part of its net income or asset shall belong to or inure to the benefit of any member, organizer, officer or any specific person. Hence, on the basis of the foregoing requirements, when a hospital is proprietary, or private, which is not for profit and its gross income from unrelated trade, business or other activity does not exceed 50%of its total gross income from all sources, it is subject to 10% tax rate. On the otherhand, when a hospital is non-stock, meaning, its capital stock is not divided into shares, and is not authorized to distribute to the holders of such shares dividends operated exclusively for religious or charitable purpose, no part of its net income or asset belong to or inure to the benefitof any specific person, then the hospital will fall under the provision of Section 130(E) ofthe NIRC of 1997, as amended. Here, petitioner is a non-stock corporation as embodied in its Incorporation Articles. It is likewise a non-profit corporation operated exclusively for religious and charitable purposes. Since petitioner PSH is a non-stock, non-profit, religious hospital, operated exclusively for charitable purpose, its income derived from operating the hospital is, therefore, exempt from income tax,

pursuant to Section 30 of the NIRC of 1997, as amended. However, the income of whatever kind and character from any of its properties, real or personal, or from any of its activities conducted for profit, regardless of the disposition made of such income, is subject to tax imposed by the NIRC of 1997, as amended (Section 30, last par, thereof).