Professional Documents
Culture Documents
Court of Appeals
298 SCRA 83 and GR 124043
Same Case
Facts:
YMCA is a non-stock, non-profit institution, which conducts various programs and activities
that are beneficial to the public, especially the young people, pursuant to its religious,
educational and charitable objectives.
In 1980, private respondent earned, among others, an income of P676,829.80 from leasing
operations, and P44,259.00 from parking fees collected from non-members. On July 2, 1984,
the Commissioner of Internal Revenue (CIR) issued an assessment to YMCA, in the total
amount of P415,615.01 including surcharge and interest, for deficiency income tax, deficiency
expanded withholding taxes on rentals and professional fees and deficiency withholding tax on
wages. The Court of Tax Appeals ruled in favor of YMCA stating that the leasing and parking
fees are reasonably incidental and necessary for the accomplishment of YMCAs goals. The CA
reversed the CTAs decision and affirmed it after the motion was filed. CIR argues that as a
rule, exempted from the payment of tax in respect to income received by them as such, the
exemption does not apply to income derived from any if their properties, real or personal, or
from any of their activities conducted for profit, regardless, of the disposition made of such
income. Petitioner adds that rented income derived by a tax-exempt organization from the lease
of its properties, real or personal, [is] not, therefore, exempt from income taxation, even if such
income [is] exclusively used for the accomplishment of its objectives.
Issue:
YMCA exempt from paying income tax?
Held:
No, Because taxes are the lifeblood of the nation, the Court has always applied the doctrine
of strict interpretation in construing tax exemptions Furthermore, a claim of statutory exemption
from taxation should be manifest and unmistakable from the language of the law on which it is
based. Thus, the claimed exemption must expressly be granted in a statute stated in a language
too clear to be mistaken.
In the instant case, the exemption claimed by the YMCA is expressly disallowed by the very
wording of the last paragraph of then Section 27 of the NIRC which mandates that the income of
exempt organizations (such as the YMCA) from any of their properties, real or personal, be
subject to the imposed by the same Code. Because the last paragraph of said section
unequivocally subjects to tax the rent income f the YMCA from its rental property, the Court is
duty-bound to abide strictly by its literal meaning and to refrain from resorting to any convoluted
attempt at construction.
It is axiomatic that where the language of the law is clear and unambiguous, its express
terms must be applied. Parenthetically, a consideration of the question of construction must not
even begin, particularly when such question is on whether to apply a strict construction or a
literal one on statutes that grant tax exemptions to religious, charitable and educational
propert[ies] or institutions.
The last paragraph of Section 27, the YMCA argues, should be subject to the qualification
that the income from the properties must arise from activities conducted for profit before it may
be considered taxable. This argument is erroneous. As previously stated, a reading of said
paragraph ineludibly shows that the income from any property of exempt organizations, as well
as that arising from any activity it conducts for profit, is taxable. The phrase any of their activities
conducted for profit does not qualify the word properties. This makes income from the property
of the organization taxable, regardless of how that income is used -- whether for profit or for lofty
non-profit purposes.
Verba legis non est recedendum. Hence, Respondent Court of Appeals committed
reversible error when it allowed, on reconsideration, the tax exemption claimed by YMCA on
income it derived from renting out its real property, on the solitary but unconvincing ground that
the said income is not collected for profit but is merely incidental to its operation. The law does
not make a distinction. The rental income is taxable regardless of whence such income is
derived and how it used or disposed of. Where the law does not distinguish, neither should we.
Misamis Oriental Association of Coco Traders, Inc. vs. Department of Finance Secretary
Facts:
Misamis Oriental Association of Coco Traders, Inc. is a corporation whose members,
individually or collectively, are engaged in the buying and selling of copra . The petitioner alleges
that prior to the issuance of Revenue Memorandum Circular 47-91 on June 11, 1991, which
implemented VAT Ruling 190-90, copra was classified as agricultural food product under
Section 103(b) of the National Internal Revenue Code and, therefore, exempt from VAT at all
stages of production or distribution.
Under Section 103(a), as above quoted, the sale of agricultural non-food products in
their original state is exempt from VAT only if the sale is made by the primary producer or owner
of the land from which the same are produced. The sale made by any other person or entity, like
a trader or dealer, is not exempt from the tax. On the other hand, under 103(b) the sale of
agricultural food products in their original state is exempt from VAT at all stages of production or
distribution regardless of who the seller is.
On June 11, 1991, respondent Commissioner of Internal Revenue issued the circular in
question, classifying copra as an agricultural non-food product and declaring it "exempt from
VAT only if the sale is made by the primary producer pursuant to Section 103(a) of the Tax
Code, as amended. The reclassification had the effect of denying to the petitioner the exemption
it previously enjoyed when copra was classified as an agricultural food product under Section
103(b) of the NIRC.
Issue:
Did the BIR apply the law correctly?
Held:
Yes, In interpreting 103(a) and (b) of the NIRC, the Commissioner of Internal Revenue
gave it a strict construction consistent with the rule that tax exemptions must be strictly
construed against the taxpayer and liberally in favor of the state. The opinion of the Bureau of
Food and Drug was based on "the broader definition of food which includes agricultural
commodities and other components used in the manufacture/processing of food.
Moreover, as the government agency charged with the enforcement of the law, the
opinion of the Commissioner of Internal Revenue, in the absence of any showing that it is plainly
wrong, is entitled to great weight. Indeed, the ruling was made by the Commissioner of Internal
Revenue in the exercise of his power under 245 of the NIRC to "make rulings or opinions in
connection with the implementation of the provisions of internal revenue laws,including rulings
on the classification of articles for sales tax and similar purposes.
Issue:
Does the ruling of the tax court excuse the petitioner from proving its claims for refund of
alleged overpayment of customs duties?
Held:
Customs duties is the name given to taxes on the importation and exportation of
commodities, the tariff or tax assessed upon merchandise imported from, or exported to, a
foreign country.[15] Any claim for refund of customs duties, therefore, take the nature of tax
exemptions that must be construed strictissimi juris against the claimants and liberally in favor of
the taxing authority.[16] This power of taxation being a high prerogative of sovereignty, its
relinquishment is never presumed. Any reduction or diminution thereof with respect to its mode
or its rate must be strictly construed, and the same must be couched in clear and unmistakable
terms in order that it may be applied.[17]
Thus, any outright award for the refund of allegedly overpaid customs duties in favor of
petitioner on its subject sixteen (16) importations is not favored in this jurisdiction unless there is
a direct and clear finding thereon. The fact alone that the tax court, in C.T.A. Case No. 4114,
has awarded in favor of the petitioner the refund of overpaid Advance Sales Tax involving the
same sixteen (16) importations does not in any way excuse the petitioner from proving its claims
for refund of alleged overpayment of customs duties. We have scrutinized the decision rendered
by the tax court in C.T.A. Case No. 4114 and found no clear indication therein that the tax court
has ruled on petitioners claims for alleged overpayment of customs duties.
However, effective March 10, 1987, Executive Order No. 93 once again withdrew all tax
and duty incentives granted to government and private entities which had been restored under
Presidential Decree Nos. 1931 and 1955 but it gave the authority to FIRB to restore, revise the
scope and prescribe the date of effectivity of such tax and/or duty exemptions.
On June 24, 1987 the FIRB issued Resolution No. 17-87 restoring NPC's tax and duty
exemption privileges effective March 10, 1987. On October 5, 1987, the President, through
respondent Executive Secretary Macaraig, Jr., confirmed and approved FIRB Resolution No.
17-87.
The petitioner, argues that under both FIRB resolutions, only the tax and duty exemption
privileges enjoyed by the NPC under its charter, C.A. No. 120, as amended, are restored, that
is, only its direct tax exemption privilege; and that it cannot be interpreted to cover indirect taxes
under the principle that tax exemptions are construed stricissimi juris against the taxpayer and
liberally in favor of the taxing authority.
Issue:
Should tax exemptions be applied against government political subdivision or
instrumentalities?
Held:
It is noted that in the earlier law, R.A. No. 358 the exemption was worded in general
terms, as to cover "all taxes, duties, fees, imposts, charges, etc. . . ." However, the amendment
under Republic Act No. 6395 enumerated the details covered by the exemption. Subsequently,
P.D. No. 380, made even more specific the details of the exemption of NPC to cover, among
others, both direct and indirect taxes on all petroleum products used in its operation.
Presidential Decree No. 938 amended the tax exemption by simplifying the same law in general
terms. It succinctly exempts NPC from "all forms of taxes, duties, fees, imposts, as well as costs
and service fees including filing fees, appeal bonds, supersedeas bonds, in any court or
administrative proceedings."
The use of the phrase "all forms" of taxes demonstrate the intention of the law to give
NPC all the tax exemptions it has been enjoying before. The rationale for this exemption is that
being non-profit the NPC "shall devote all its returns from its capital investment as well as
excess revenues from its operation, for expansion
The preamble of P.D. No. 938 states
WHEREAS, in the application of the tax exemption provision of the Revised Charter, the
non-profit character of the NPC has not been fully utilized because of restrictive
interpretations of the taxing agencies of the government on said provisions. . . .
(Emphasis supplied.)
It is evident from the foregoing that the lawmaker did not intend that the said provisions
of P.D. No. 938 shall be construed strictly against NPC. On the contrary, the law mandates that
it should be interpreted liberally so as to enhance the tax exempt status of NPC.
Hence, petitioner cannot invoke the rule on strictissimi juris with respect to the
interpretation of statutes granting tax exemptions to NPC.
Moreover, it is a recognized principle that the rule on strict interpretation does not apply
in the case of exemptions in favor of a government political subdivision or instrumentality
In the case of property owned by the state or a city or other public corporations, the
express exemption should not be construed with the same degree of strictness that applies to
exemptions contrary to the policy of the state, since as to such property "exemption is the rule
and taxation the exception." 30
Maceda vs. Macaraig (1993) (Motion for reconsideration)
Facts:
On November 3, 1936, Commonwealth Act No. 120 was enacted creating the National
Power Corporation, a public corporation, mainly to develop hydraulic power from all water
sources in the Philippines. The law contained a provision that exempted NPC from payment of
all taxes by the Commonwealth of the Philippines, or by any authority, branch, division or
political subdivision thereof and subject to the provisions of the Act of Congress. He contends
that P.D No. 938 repealed the indirect tax exemptions granted to NPC by R.A. No. 6395, as
amended by P.D. No. 380. The said law states that The Corporation is hereby declared
exempt: (d) From all taxes, duties, fees, imposts, and all other charges imposed directly or
indirectly by the Republic of the Philippines, its provinces, cities, municipalities and other
government agencies and instrumentalities, on all petroleum products used by the Corporation
in the generation, transmission, utilization and sale of electric power.
Issue:
Whether P.D. No. 938 repealed the indirect tax exemption of NPC?
Held:
No, P.D. No. 938 provides that The Corporation shall be non-profit and shall devote all
its returns from its capital investment as well as excess revenues from its operation, for
expansion. To enable the Corporation to pay its indebtedness and obligations and in furtherance
and effective implementation of the policy enunciated in Section one of this Act, the Corporation,
including its subsidiaries, is hereby declared exempt from the payment of ALL FORMS
OF taxes, duties, fees, imposts as well as costs and service fees including filing fees, appeal
bonds, supersedeas bonds, in any court or administrative proceedings.
P.D. No. 938 lumped up 13(b), 13(c), and 13(d) into the phrase "ALL FORMS OF
TAXES, ETC.,", included 13(a) under the "as well as" clause and added PNOC subsidiaries as
qualified for tax exemptions.
A careful reading of said CB Circular No. 289 shows that the subject matters involved
therein are export products, invisibles, receipts of foreign exchange, foreign exchange
payments, new foreign ,borrowing and investments nothing by way of income tax payments.
Thus, petitioners are in error by concluding that since C.B. Circular No. 289 does not apply to
them, the par value of the peso should be the guiding rate used for income tax purpose
This basically an income tax case. For the proper resolution of these cases income may
be defined as an amount of money coming to a person or corporation within a specified time,
whether as payment for services, interest or profit from investment. Unless otherwise specified,
it means cash or its equivalent. 4 Income can also be though of as flow of the fruits of one's
labor.
The dollar earnings of petitioners are the fruits of their labors in the foreign subsidiaries
of Procter & Gamble. It was a definite amount of money which came to them within a specified
period of time of two yeas as payment for their services
The source of an income is the property, activity or service that produced the
income. For the source of income to be considered as coming from the Philippines, it is
sufficient that the income is derived from activity within the Philippines. In BOAC's case, the sale
of tickets in the Philippines is the activity that produces the income. The tickets exchanged
hands here and payments for fares were also made here in Philippine currency. The site of the
source of payments is the Philippines. The flow of wealth proceeded from, and occurred within,
Philippine territory, enjoying the protection accorded by the Philippine government. In
consideration of such protection, the flow of wealth should share the burden of supporting the
government.
The absence of flight operations to and from the Philippines is not determinative of the
source of income or the site of income taxation. Admittedly, BOAC was an off-line international
airline at the time pertinent to this case. The test of taxability is the "source"; and the source of
an income is that activity ... which produced the income. Unquestionably, the passage
documentations in these cases were sold in the Philippines and the revenue therefrom was
derived from a activity regularly pursued within the Philippines. business a And even if the
BOAC tickets sold covered the "transport of passengers and cargo to and from foreign cities", it
cannot alter the fact that income from the sale of tickets was derived from the Philippines. The
word "source" conveys one essential idea, that of origin, and the origin of the income herein is
the Philippines
Madrigal vs. Rafferty
Facts:
Vicente Madrigal and Susana Paterno were legally married prior to January 1, 1914. On
February 25, 1915, Vicente Madrigal filed sworn declaration on the prescribed form with the
Collector of Internal Revenue, showing, as his total net income for the year 1914, the sum of
P296,302.73. Subsequently Madrigal submitted the claim that the said P296,302.73 did not
represent his income for the year 1914, but was in fact the income of the conjugal partnership
existing between himself and his wife Susana Paterno and that in computing and assessing the
additional income tax provided by the Act of Congress of October 3, 1913, the income declared
by Vicente Madrigal should be divided into two equal parts, one-half to be considered the
income of Vicente Madrigal and the other half of Susana Paterno. Madrigal contends that the
taxes imposed by the Income Tax Law are as the name implies taxes upon income tax and not
upon capital and property; that the fact that Madrigal was a married man, and his marriage
contracted under the provisions governing the conjugal partnership, has no bearing on income
considered as income, and that the distinction must be drawn between the ordinary form of
commercial partnership and the conjugal partnership of spouses resulting from the relation of
marriage
Issue:
Should the additional tax be divided into two equal parts due to the conjugal
partnership?
Held:
No, Susana Paterno, wife of Vicente Madrigal, has an inchoate right in the property of
her husband Vicente Madrigal during the life of the conjugal partnership. She has an interest in
the ultimate property rights and in the ultimate ownership of property acquired as income after
such income has become capital. Susana Paterno has no absolute right to one-half the income
of the conjugal partnership. Not being seized of a separate estate, Susana Paterno cannot
make a separate return in order to receive the benefit of the exemption which would arise by
reason of the additional tax. As she has no estate and income, actually and legally vested in her
and entirely distinct from her husband's property, the income cannot properly be considered the
separate income of the wife for the purposes of the additional tax.
Income as contrasted with capital or property is to be the test. The essential difference
between capital and income is that capital is a fund; income is a flow. A fund of property existing
at an instant of time is called capital. A flow of services rendered by that capital by the payment
of money from it or any other benefit rendered by a fund of capital in relation to such fund
through a period of time is called an income. Capital is wealth, while income is the service of
wealth
International Freighting vs. CIR
Facts:
Taxpayer had an arrangement to pay certain employees bonuses in the form of common
stock of the DuPont company. Taxpayer paid over and distributed 150 shares of common stock
at a cost of $16,153.36. The market value was $24,858.75. Each of the employees paid a tax on
the stock. Taxpayer deducted $24,858.75 in its income tax return. The Commissioner reduced
the deduction to $16,153.36 arguing that the basis for determining the amount is the cost of the
property and not the fair market value. Before the Tax Court, the Commissioner argued that if
Taxpayer were entitled to a deduction in the amount of $24,858, then Taxpayer realized a gain
that should be reported as taxable profit. The Tax Court held that the Taxpayer was entitled to
the full deduction and that the profit should count as gross income.
Issue:
May the fair market value of the stock be deducted and is the gain taxable?
Held:
Circuit Judge Frank issued the opinion for the United States Sixth Court of Appeals in
affirming the order of the Tax Court and holding that the market value was the stock was
properly deductible and it was taxable gain