G.R. No.

L-9637 April 30, 1957

AMERICAN BIBLE SOCIETY, plaintiff-appellant,

vs.
CITY OF MANILA, defendant-appellee.

City Fiscal Eugenio Angeles and Juan Nabong for appellant.

Assistant City Fiscal Arsenio Nañawa for appellee.

FELIX, J.:

Plaintiff-appellant is a foreign, non-stock, non-profit, religious, missionary corporation duly registered

and doing business in the Philippines through its Philippine agency established in Manila in
November, 1898, with its principal office at 636 Isaac Peral in said City. The defendant appellee is a
municipal corporation with powers that are to be exercised in conformity with the provisions of
Republic Act No. 409, known as the Revised Charter of the City of Manila.

In the course of its ministry, plaintiff's Philippine agency has been distributing and selling bibles
and/or gospel portions thereof (except during the Japanese occupation) throughout the Philippines
and translating the same into several Philippine dialects. On May 29 1953, the acting City Treasurer
of the City of Manila informed plaintiff that it was conducting the business of general merchandise
since November, 1945, without providing itself with the necessary Mayor's permit and municipal
license, in violation of Ordinance No. 3000, as amended, and Ordinances Nos. 2529, 3028 and
3364, and required plaintiff to secure, within three days, the corresponding permit and license fees,
together with compromise covering the period from the 4th quarter of 1945 to the 2nd quarter of
1953, in the total sum of P5,821.45 (Annex A).

Plaintiff protested against this requirement, but the City Treasurer demanded that plaintiff deposit
and pay under protest the sum of P5,891.45, if suit was to be taken in court regarding the same
(Annex B). To avoid the closing of its business as well as further fines and penalties in the premises
on October 24, 1953, plaintiff paid to the defendant under protest the said permit and license fees in
the aforementioned amount, giving at the same time notice to the City Treasurer that suit would be
taken in court to question the legality of the ordinances under which, the said fees were being
collected (Annex C), which was done on the same date by filing the complaint that gave rise to this
action. In its complaint plaintiff prays that judgment be rendered declaring the said Municipal
Ordinance No. 3000, as amended, and Ordinances Nos. 2529, 3028 and 3364 illegal and
unconstitutional, and that the defendant be ordered to refund to the plaintiff the sum of P5,891.45
paid under protest, together with legal interest thereon, and the costs, plaintiff further praying for
such other relief and remedy as the court may deem just equitable.

Defendant answered the complaint, maintaining in turn that said ordinances were enacted by the
Municipal Board of the City of Manila by virtue of the power granted to it by section 2444, subsection
(m-2) of the Revised Administrative Code, superseded on June 18, 1949, by section 18, subsection
(1) of Republic Act No. 409, known as the Revised Charter of the City of Manila, and praying that the
complaint be dismissed, with costs against plaintiff. This answer was replied by the plaintiff
reiterating the unconstitutionality of the often-repeated ordinances.

Before trial the parties submitted the following stipulation of facts:

COME NOW the parties in the above-entitled case, thru their undersigned attorneys and
respectfully submit the following stipulation of facts:
1. That the plaintiff sold for the use of the purchasers at its principal office at 636 Isaac Peral,
Manila, Bibles, New Testaments, bible portions and bible concordance in English and other
foreign languages imported by it from the United States as well as Bibles, New Testaments
and bible portions in the local dialects imported and/or purchased locally; that from the fourth
quarter of 1945 to the first quarter of 1953 inclusive the sales made by the plaintiff were as
follows:

Quarter Amount of Sales

4th quarter 1945 P1,244.21

1st quarter 1946 2,206.85

2nd quarter 1946 1,950.38

3rd quarter 1946 2,235.99

4th quarter 1946 3,256.04

1st quarter 1947 13,241.07

2nd quarter 1947 15,774.55

3rd quarter 1947 14,654.13

4th quarter 1947 12,590.94

1st quarter 1948 11,143.90

2nd quarter 1948 14,715.26

3rd quarter 1948 38,333.83

4th quarter 1948 16,179.90

1st quarter 1949 23,975.10

2nd quarter 1949 17,802.08

3rd quarter 1949 16,640.79

4th quarter 1949 15,961.38

1st quarter 1950 18,562.46

2nd quarter 1950 21,816.32

3rd quarter 1950 25,004.55

4th quarter 1950 45,287.92

1st quarter 1951 37,841.21

2nd quarter 1951 29,103.98

 3rd quarter 1951 20,181.10

4th quarter 1951 22,968.91

1st quarter 1952 23,002.65

2nd quarter 1952 17,626.96

3rd quarter 1952 17,921.01

4th quarter 1952 24,180.72

1st quarter 1953 29,516.21

2. That the parties hereby reserve the right to present evidence of other facts not herein
stipulated.

WHEREFORE, it is respectfully prayed that this case be set for hearing so that the parties
may present further evidence on their behalf. (Record on Appeal, pp. 15-16).

When the case was set for hearing, plaintiff proved, among other things, that it has been in existence
in the Philippines since 1899, and that its parent society is in New York, United States of America;
that its, contiguous real properties located at Isaac Peral are exempt from real estate taxes; and that
it was never required to pay any municipal license fee or tax before the war, nor does the American
Bible Society in the United States pay any license fee or sales tax for the sale of bible therein.
Plaintiff further tried to establish that it never made any profit from the sale of its bibles, which are
disposed of for as low as one third of the cost, and that in order to maintain its operating cost it
obtains substantial remittances from its New York office and voluntary contributions and gifts from
certain churches, both in the United States and in the Philippines, which are interested in its
missionary work. Regarding plaintiff's contention of lack of profit in the sale of bibles, defendant
retorts that the admissions of plaintiff-appellant's lone witness who testified on cross-examination
that bibles bearing the price of 70 cents each from plaintiff-appellant's New York office are sold here
by plaintiff-appellant at P1.30 each; those bearing the price of $4.50 each are sold here at P10 each;
those bearing the price of $7 each are sold here at P15 each; and those bearing the price of $11
each are sold here at P22 each, clearly show that plaintiff's contention that it never makes any profit
from the sale of its bible, is evidently untenable.

After hearing the Court rendered judgment, the last part of which is as follows:

As may be seen from the repealed section (m-2) of the Revised Administrative Code and the
repealing portions (o) of section 18 of Republic Act No. 409, although they seemingly differ in
the way the legislative intent is expressed, yet their meaning is practically the same for the
purpose of taxing the merchandise mentioned in said legal provisions, and that the taxes to
be levied by said ordinances is in the nature of percentage graduated taxes (Sec. 3 of
Ordinance No. 3000, as amended, and Sec. 1, Group 2, of Ordinance No. 2529, as
amended by Ordinance No. 3364).

IN VIEW OF THE FOREGOING CONSIDERATIONS, this Court is of the opinion and so

holds that this case should be dismissed, as it is hereby dismissed, for lack of merits, with
costs against the plaintiff.
Not satisfied with this verdict plaintiff took up the matter to the Court of Appeals which certified the
case to Us for the reason that the errors assigned to the lower Court involved only questions of law.

Appellant contends that the lower Court erred:

1. In holding that Ordinances Nos. 2529 and 3000, as respectively amended, are not
unconstitutional;

2. In holding that subsection m-2 of Section 2444 of the Revised Administrative Code under
which Ordinances Nos. 2592 and 3000 were promulgated, was not repealed by Section 18 of
Republic Act No. 409;

3. In not holding that an ordinance providing for taxes based on gross sales or receipts, in
order to be valid under the new Charter of the City of Manila, must first be approved by the
President of the Philippines; and

4. In holding that, as the sales made by the plaintiff-appellant have assumed commercial
proportions, it cannot escape from the operation of said municipal ordinances under the
cloak of religious privilege.

The issues. — As may be seen from the proceeding statement of the case, the issues involved in
the present controversy may be reduced to the following: (1) whether or not the ordinances of the
City of Manila, Nos. 3000, as amended, and 2529, 3028 and 3364, are constitutional and valid; and
(2) whether the provisions of said ordinances are applicable or not to the case at bar.

Section 1, subsection (7) of Article III of the Constitution of the Republic of the Philippines, provides
that:

(7) No law shall be made respecting an establishment of religion, or prohibiting the free
exercise thereof, and the free exercise and enjoyment of religious profession and worship,
without discrimination or preference, shall forever be allowed. No religion test shall be
required for the exercise of civil or political rights.

Predicated on this constitutional mandate, plaintiff-appellant contends that Ordinances Nos. 2529
and 3000, as respectively amended, are unconstitutional and illegal in so far as its society is
concerned, because they provide for religious censorship and restrain the free exercise and
enjoyment of its religious profession, to wit: the distribution and sale of bibles and other religious
literature to the people of the Philippines.

Before entering into a discussion of the constitutional aspect of the case, We shall first consider the
provisions of the questioned ordinances in relation to their application to the sale of bibles, etc. by
appellant. The records, show that by letter of May 29, 1953 (Annex A), the City Treasurer required
plaintiff to secure a Mayor's permit in connection with the society's alleged business of distributing
and selling bibles, etc. and to pay permit dues in the sum of P35 for the period covered in this
litigation, plus the sum of P35 for compromise on account of plaintiff's failure to secure the permit
required by Ordinance No. 3000 of the City of Manila, as amended. This Ordinance is of general
application and not particularly directed against institutions like the plaintiff, and it does not contain
any provisions whatever prescribing religious censorship nor restraining the free exercise and
enjoyment of any religious profession. Section 1 of Ordinance No. 3000 reads as follows:
 SEC. 1. PERMITS NECESSARY. — It shall be unlawful for any person or entity to conduct
or engage in any of the businesses, trades, or occupations enumerated in Section 3 of this
Ordinance or other businesses, trades, or occupations for which a permit is required for the
proper supervision and enforcement of existing laws and ordinances governing the
sanitation, security, and welfare of the public and the health of the employees engaged in the
business specified in said section 3 hereof, WITHOUT FIRST HAVING OBTAINED A
PERMIT THEREFOR FROM THE MAYOR AND THE NECESSARY LICENSE FROM THE
CITY TREASURER.

The business, trade or occupation of the plaintiff involved in this case is not particularly mentioned in
Section 3 of the Ordinance, and the record does not show that a permit is required therefor under
existing laws and ordinances for the proper supervision and enforcement of their provisions
governing the sanitation, security and welfare of the public and the health of the employees engaged
in the business of the plaintiff. However, sections 3 of Ordinance 3000 contains item No. 79, which
reads as follows:

79. All other businesses, trades or occupations not

mentioned in this Ordinance, except those upon which the
City is not empowered to license or to tax P5.00

Therefore, the necessity of the permit is made to depend upon the power of the City to license or tax
said business, trade or occupation.

As to the license fees that the Treasurer of the City of Manila required the society to pay from the 4th
quarter of 1945 to the 1st quarter of 1953 in the sum of P5,821.45, including the sum of P50 as
compromise, Ordinance No. 2529, as amended by Ordinances Nos. 2779, 2821 and 3028
prescribes the following:

SEC. 1. FEES. — Subject to the provisions of section 578 of the Revised Ordinances of the
City of Manila, as amended, there shall be paid to the City Treasurer for engaging in any of
the businesses or occupations below enumerated, quarterly, license fees based on gross
sales or receipts realized during the preceding quarter in accordance with the rates herein
prescribed: PROVIDED, HOWEVER, That a person engaged in any businesses or
occupation for the first time shall pay the initial license fee based on the probable gross sales
or receipts for the first quarter beginning from the date of the opening of the business as
indicated herein for the corresponding business or occupation.

xxx xxx xxx

GROUP 2. — Retail dealers in new (not yet used) merchandise, which dealers are not yet
subject to the payment of any municipal tax, such as (1) retail dealers in general
merchandise; (2) retail dealers exclusively engaged in the sale of . . . books, including
stationery.

xxx xxx xxx

As may be seen, the license fees required to be paid quarterly in Section 1 of said Ordinance No.
2529, as amended, are not imposed directly upon any religious institution but upon those engaged in
any of the business or occupations therein enumerated, such as retail "dealers in general
merchandise" which, it is alleged, cover the business or occupation of selling bibles, books, etc.
Chapter 60 of the Revised Administrative Code which includes section 2444, subsection (m-2) of
said legal body, as amended by Act No. 3659, approved on December 8, 1929, empowers the
Municipal Board of the City of Manila:

(M-2) To tax and fix the license fee on (a) dealers in new automobiles or accessories or both,
and (b) retail dealers in new (not yet used) merchandise, which dealers are not yet subject to
the payment of any municipal tax.

For the purpose of taxation, these retail dealers shall be classified as (1) retail dealers in
general merchandise, and (2) retail dealers exclusively engaged in the sale of (a) textiles . . .
(e) books, including stationery, paper and office supplies, . . .: PROVIDED, HOWEVER, That
the combined total tax of any debtor or manufacturer, or both, enumerated under these
subsections (m-1) and (m-2), whether dealing in one or all of the articles mentioned herein,
SHALL NOT BE IN EXCESS OF FIVE HUNDRED PESOS PER ANNUM.

and appellee's counsel maintains that City Ordinances Nos. 2529 and 3000, as amended, were
enacted in virtue of the power that said Act No. 3669 conferred upon the City of Manila. Appellant,
however, contends that said ordinances are longer in force and effect as the law under which they
were promulgated has been expressly repealed by Section 102 of Republic Act No. 409 passed
on June 18, 1949, known as the Revised Manila Charter.

Passing upon this point the lower Court categorically stated that Republic Act No. 409 expressly
repealed the provisions of Chapter 60 of the Revised Administrative Code but in the opinion of the
trial Judge, although Section 2444 (m-2) of the former Manila Charter and section 18 (o) of the new
seemingly differ in the way the legislative intent was expressed, yet their meaning is practically the
same for the purpose of taxing the merchandise mentioned in both legal provisions and,
consequently, Ordinances Nos. 2529 and 3000, as amended, are to be considered as still in full
force and effect uninterruptedly up to the present.

Often the legislature, instead of simply amending the pre-existing statute, will repeal the old
statute in its entirety and by the same enactment re-enact all or certain portions of the
preexisting law. Of course, the problem created by this sort of legislative action involves
mainly the effect of the repeal upon rights and liabilities which accrued under the original
statute. Are those rights and liabilities destroyed or preserved? The authorities are divided as
to the effect of simultaneous repeals and re-enactments. Some adhere to the view that the
rights and liabilities accrued under the repealed act are destroyed, since the statutes from
which they sprang are actually terminated, even though for only a very short period of
time. Others, and they seem to be in the majority, refuse to accept this view of the situation,
and consequently maintain that all rights an liabilities which have accrued under the original
statute are preserved and may be enforced, since the re-enactment neutralizes the repeal,
therefore, continuing the law in force without interruption. (Crawford-Statutory Construction,
Sec. 322).

Appellant's counsel states that section 18 (o) of Republic Act No, 409 introduces a new and wider
concept of taxation and is different from the provisions of Section 2444(m-2) that the former cannot
be considered as a substantial re-enactment of the provisions of the latter. We have quoted above
the provisions of section 2444(m-2) of the Revised Administrative Code and We shall now copy
hereunder the provisions of Section 18, subdivision (o) of Republic Act No. 409, which reads as
follows:
 (o) To tax and fix the license fee on dealers in general merchandise, including importers and
indentors, except those dealers who may be expressly subject to the payment of some other
municipal tax under the provisions of this section.

Dealers in general merchandise shall be classified as (a) wholesale dealers and (b) retail
dealers. For purposes of the tax on retail dealers, general merchandise shall be classified
into four main classes: namely (1) luxury articles, (2) semi-luxury articles, (3) essential
commodities, and (4) miscellaneous articles. A separate license shall be prescribed for each
class but where commodities of different classes are sold in the same establishment, it shall
not be compulsory for the owner to secure more than one license if he pays the higher or
highest rate of tax prescribed by ordinance. Wholesale dealers shall pay the license tax as
such, as may be provided by ordinance.

For purposes of this section, the term "General merchandise" shall include poultry and
livestock, agricultural products, fish and other allied products.

The only essential difference that We find between these two provisions that may have any bearing
on the case at bar, is that, while subsection (m-2) prescribes that the combined total tax of any
dealer or manufacturer, or both, enumerated under subsections (m-1) and (m-2), whether dealing in
one or all of the articles mentioned therein, shall not be in excess of P500 per annum, the
corresponding section 18, subsection (o) of Republic Act No. 409, does not contain any limitation as
to the amount of tax or license fee that the retail dealer has to pay per annum. Hence, and in
accordance with the weight of the authorities above referred to that maintain that "all rights and
liabilities which have accrued under the original statute are preserved and may be enforced, since
the reenactment neutralizes the repeal, therefore continuing the law in force without interruption",
We hold that the questioned ordinances of the City of Manila are still in force and effect.

Plaintiff, however, argues that the questioned ordinances, to be valid, must first be approved by the
President of the Philippines as per section 18, subsection (ii) of Republic Act No. 409, which reads
as follows:

(ii) To tax, license and regulate any business, trade or occupation being conducted within the
City of Manila, not otherwise enumerated in the preceding subsections, including percentage
taxes based on gross sales or receipts, subject to the approval of the PRESIDENT, except
amusement taxes.

but this requirement of the President's approval was not contained in section 2444 of the former
Charter of the City of Manila under which Ordinance No. 2529 was promulgated. Anyway, as stated
by appellee's counsel, the business of "retail dealers in general merchandise" is expressly
enumerated in subsection (o), section 18 of Republic Act No. 409; hence, an ordinance prescribing a
municipal tax on said business does not have to be approved by the President to be effective, as it is
not among those referred to in said subsection (ii). Moreover, the questioned ordinances are still in
force, having been promulgated by the Municipal Board of the City of Manila under the authority
granted to it by law.

The question that now remains to be determined is whether said ordinances are inapplicable, invalid
or unconstitutional if applied to the alleged business of distribution and sale of bibles to the people of
the Philippines by a religious corporation like the American Bible Society, plaintiff herein.

With regard to Ordinance No. 2529, as amended by Ordinances Nos. 2779, 2821 and 3028,
appellant contends that it is unconstitutional and illegal because it restrains the free exercise and
enjoyment of the religious profession and worship of appellant.
Article III, section 1, clause (7) of the Constitution of the Philippines aforequoted, guarantees the
freedom of religious profession and worship. "Religion has been spoken of as a profession of faith to
an active power that binds and elevates man to its Creator" (Aglipay vs. Ruiz, 64 Phil., 201).It has
reference to one's views of his relations to His Creator and to the obligations they impose of
reverence to His being and character, and obedience to His Will (Davis vs. Beason, 133 U.S., 342).
The constitutional guaranty of the free exercise and enjoyment of religious profession and worship
carries with it the right to disseminate religious information. Any restraints of such right can only be
justified like other restraints of freedom of expression on the grounds that there is a clear and
present danger of any substantive evil which the State has the right to prevent". (Tañada and
Fernando on the Constitution of the Philippines, Vol. 1, 4th ed., p. 297). In the case at bar the license
fee herein involved is imposed upon appellant for its distribution and sale of bibles and other
religious literature:

In the case of Murdock vs. Pennsylvania, it was held that an ordinance requiring that a
license be obtained before a person could canvass or solicit orders for goods, paintings,
pictures, wares or merchandise cannot be made to apply to members of Jehovah's
Witnesses who went about from door to door distributing literature and soliciting people to
"purchase" certain religious books and pamphlets, all published by the Watch Tower Bible &
Tract Society. The "price" of the books was twenty-five cents each, the "price" of the
pamphlets five cents each. It was shown that in making the solicitations there was a request
for additional "contribution" of twenty-five cents each for the books and five cents each for
the pamphlets. Lesser sum were accepted, however, and books were even donated in case
interested persons were without funds.

On the above facts the Supreme Court held that it could not be said that petitioners were
engaged in commercial rather than a religious venture. Their activities could not be
described as embraced in the occupation of selling books and pamphlets. Then the Court
continued:

"We do not mean to say that religious groups and the press are free from all financial
burdens of government. See Grosjean vs. American Press Co., 297 U.S., 233, 250, 80 L. ed.
660, 668, 56 S. Ct. 444. We have here something quite different, for example, from a tax on
the income of one who engages in religious activities or a tax on property used or employed
in connection with activities. It is one thing to impose a tax on the income or property of a
preacher. It is quite another to exact a tax from him for the privilege of delivering a sermon.
The tax imposed by the City of Jeannette is a flat license tax, payment of which is a condition
of the exercise of these constitutional privileges. The power to tax the exercise of a privilege
is the power to control or suppress its enjoyment. . . . Those who can tax the exercise of this
religious practice can make its exercise so costly as to deprive it of the resources necessary
for its maintenance. Those who can tax the privilege of engaging in this form of missionary
evangelism can close all its doors to all those who do not have a full purse. Spreading
religious beliefs in this ancient and honorable manner would thus be denied the needy. . . .

It is contended however that the fact that the license tax can suppress or control this activity
is unimportant if it does not do so. But that is to disregard the nature of this tax. It is a license
tax — a flat tax imposed on the exercise of a privilege granted by the Bill of Rights . . . The
power to impose a license tax on the exercise of these freedom is indeed as potent as the
power of censorship which this Court has repeatedly struck down. . . . It is not a nominal fee
imposed as a regulatory measure to defray the expenses of policing the activities in
question. It is in no way apportioned. It is flat license tax levied and collected as a condition
to the pursuit of activities whose enjoyment is guaranteed by the constitutional liberties of
press and religion and inevitably tends to suppress their exercise. That is almost uniformly
recognized as the inherent vice and evil of this flat license tax."
 Nor could dissemination of religious information be conditioned upon the approval of an
official or manager even if the town were owned by a corporation as held in the case
of Marsh vs. State of Alabama (326 U.S. 501), or by the United States itself as held in the
case of Tucker vs. Texas (326 U.S. 517). In the former case the Supreme Court expressed
the opinion that the right to enjoy freedom of the press and religion occupies a preferred
position as against the constitutional right of property owners.

"When we balance the constitutional rights of owners of property against those of the people
to enjoy freedom of press and religion, as we must here, we remain mindful of the fact that
the latter occupy a preferred position. . . . In our view the circumstance that the property
rights to the premises where the deprivation of property here involved, took place, were held
by others than the public, is not sufficient to justify the State's permitting a corporation to
govern a community of citizens so as to restrict their fundamental liberties and the
enforcement of such restraint by the application of a State statute." (Tañada and Fernando
on the Constitution of the Philippines, Vol. 1, 4th ed., p. 304-306).

Section 27 of Commonwealth Act No. 466, otherwise known as the National Internal Revenue Code,
provides:

SEC. 27. EXEMPTIONS FROM TAX ON CORPORATIONS. — The following organizations

shall not be taxed under this Title in respect to income received by them as such —

(e) Corporations or associations organized and operated exclusively for religious, charitable,
. . . or educational purposes, . . .: Provided, however, That the income of whatever kind and
character from any of its properties, real or personal, or from any activity conducted for profit,
regardless of the disposition made of such income, shall be liable to the tax imposed under
this Code;

Appellant's counsel claims that the Collector of Internal Revenue has exempted the plaintiff from this
tax and says that such exemption clearly indicates that the act of distributing and selling bibles, etc.
is purely religious and does not fall under the above legal provisions.

It may be true that in the case at bar the price asked for the bibles and other religious pamphlets was
in some instances a little bit higher than the actual cost of the same but this cannot mean that
appellant was engaged in the business or occupation of selling said "merchandise" for profit. For this
reason We believe that the provisions of City of Manila Ordinance No. 2529, as amended, cannot be
applied to appellant, for in doing so it would impair its free exercise and enjoyment of its religious
profession and worship as well as its rights of dissemination of religious beliefs.

With respect to Ordinance No. 3000, as amended, which requires the obtention the Mayor's permit
before any person can engage in any of the businesses, trades or occupations enumerated therein,
We do not find that it imposes any charge upon the enjoyment of a right granted by the Constitution,
nor tax the exercise of religious practices. In the case of Coleman vs. City of Griffin, 189 S.E. 427,
this point was elucidated as follows:

An ordinance by the City of Griffin, declaring that the practice of distributing either by hand or
otherwise, circulars, handbooks, advertising, or literature of any kind, whether said articles
are being delivered free, or whether same are being sold within the city limits of the City of
Griffin, without first obtaining written permission from the city manager of the City of Griffin,
shall be deemed a nuisance and punishable as an offense against the City of Griffin, does
not deprive defendant of his constitutional right of the free exercise and enjoyment of
 religious profession and worship, even though it prohibits him from introducing and carrying
out a scheme or purpose which he sees fit to claim as a part of his religious system.

It seems clear, therefore, that Ordinance No. 3000 cannot be considered unconstitutional, even if
applied to plaintiff Society. But as Ordinance No. 2529 of the City of Manila, as amended, is not
applicable to plaintiff-appellant and defendant-appellee is powerless to license or tax the business of
plaintiff Society involved herein for, as stated before, it would impair plaintiff's right to the free
exercise and enjoyment of its religious profession and worship, as well as its rights of dissemination
of religious beliefs, We find that Ordinance No. 3000, as amended is also inapplicable to said
business, trade or occupation of the plaintiff.

Wherefore, and on the strength of the foregoing considerations, We hereby reverse the decision
appealed from, sentencing defendant return to plaintiff the sum of P5,891.45 unduly collected from it.
Without pronouncement as to costs. It is so ordered.

G.R. No. L-19371 February 28, 1966

HOSPITAL DE SAN JUAN DE DIOS, INC., plaintiff-appellant,

vs.
PASAY CITY, PABLO CUNETA, R. N. ASCAÑO and G. C. FUENTES, defendants-appellees.

Teodoro Padilla for the plaintiff-appellant.

R. N. Ascaño and G. C. Fuentes for the defendants-appellees.

DIZON, J.:

Appeal taken by the Hospital de San Juan de Dios, Inc. from the decision of the Court of First
Instance of Rizal in Civil Case No. 1775-P dismissing its complaint against the City of Pasay -
hereinafter referred to as the City - Pablo Cuneta, R. N. Ascano and Ceferino Fuentes, in their
capacities as Mayor, City Engineer and City Treasurer, respectively, of said city.

It is admitted that on July 24, 1954 and May 27, 1957, appellant paid, under protest, to the City the
amounts of P829.60 and P879.90, respectively, representing electrical inspection fees allegedly due
it from appellant under Section 5, Ordinance No. 7, series of 1945, as amended by Ordinance No.
22, series of 1947 and further amended by Ordinance No. 54, series of 1955, which reads as
follows:

That the City Electrician shall inspect all electric wires, poles, and other apparatus whether
electric crude oil, charcoal or gasoline installed or used for generating, containing,
conducting or measuring electricity or telephone service, issue to the owner or user thereof a
statement of the result of such inspection. . . . However, residential houses with outlets not
exceeding eight (8) in number shall be exempted from the payment of the corresponding
inspection fees. For the purpose of this ordinance, any accessoria, irrespective of the
number of doors or rooms it contains, is considered one building. Churches and such other
religious institutions and buildings housing charitable organizations, are likewise subject to
annual inspection but exempted from the payment of inspection fees.

Although appellant claimed that, as a charitable institution, it was exempt from the payment of the
inspection fees provided for in the above-quoted section, it found itself compelled to pay the
amounts mentioned heretofore by reason of the refusal of appellees Pablo Cuneta, as Mayor, and R.
N. Ascaño, as City Engineer, to issue a building permit to make additional constructions applied for
by appellant until after the full payment of the electrical inspection fees assessed against it by
appellee Ascaño. As a result, appellant commenced the present action in the Court of First Instance
of Rizal (Civil Case No. 1775-P) to recover from appellees the above-mentioned amounts it had paid
as electrical inspection fees as well as the sum of P500.00 as attorney's fees and the costs of suit.

After due trial the court rendered the appealed judgment.

The issue determinative of the present appeal is whether or not appellant is a charitable institution
and, as such exempt, under the provisions of the last sentence of Section 5 of the ordinance in
question, from the payment of the inspection fees provided for therein.

The trial court, while admitting that appellant was organized for charitable purposes, held that it "is
not actually being managed and operated as a charitable institution but one for profit" and, as such,
"is not entitled to the relief sought in the present action." This, We believe, is not correct.

It not being disputed that appellant was organized as a charitable institution, the presumption is that
it is operating as such, the burden of proof being on appellees to show that it is operating otherwise.
The record does not show that they have satisfactorily discharged this burden. 1äwphï1.ñët

But the lower court, disregarding the presumption mentioned above, claims that "plaintiff failed to
prove that it is actually engaged in charitable work" and that "No evidence whatsoever was
presented to show how it doles out charity, etc." This is also erroneous. Aside from the appellant's
Articles of Incorporation showing that it had no capital stock and that no part of its net income, if any,
could inure to the benefit of any private individual, there is Exhibit D, a ruling of June 20, 1957 of the
Workmen's Compensation Commissioner and the Undersecretary of Labor to the effect that
appellant is a charitable institution exempt from the scope of the Workmen's Compensation Act; a
written statement of appellant's cashier that the latter maintains two free wards of sixty beds each;
an admission by appellees to the effect that, in addition to the free wards just mentioned, appellant
also maintains six free beds in the Pediatrics Section (transcript of June 16, 1960, pp. 2-4).

It is not therefore correct to say that there is no evidence whatsoever showing how appellant doles
out charity.

Moreover, the question of whether or not appellant and other institutions similarly situated and
operated are charitable institutions has been decided both here and in the United States. The
American rule is summarized in 51 American Jurisprudence, p. 607, as follows:

636. Effect of Receipt of Pay from Patients.

The general rule that a charitable institution does not lose its charitable character and its
consequent exemption from taxation merely because recipients of its benefits who are able
to pay are required to do so, where funds derived in this manner are devoted to the
charitable purposes of the institution, applies to hospitals. A hospital owned and conducted
by a charitable organization, devoted for the most part to the gratuitous care of charity
patients, is exempt from taxation as a building used for "purposes purely charitable",
notwithstanding it receives and cares for pay patients, where any profit thus derived is
applied to the purposes of the institution. An institution established, maintained, and
operated for the purpose of taking care of the sick, without any profit or view to profit, but at a
loss, which is made up by benevolent contributions, the benefits of which are open to the
public generally, is a purely public charity within the meaning of a statute exempting the
 property of institutions of purely public charity from taxation; the fact that patients who are
able to pay are charged for services rendered, according to their ability, being of no
importance upon the question of the character of the institution.

On the other hand, in Jesus Sacred Heart College vs. Collector, etc., G.R. No. L-6807, May 20,
1954, We overruled the contention of the Collector of Internal Revenue to the effect that the fact that
the appellant herein had a profit or net income was sufficient to show that it was an institution "for
profit and gain" and therefore no longer exempt from income tax as follows:

To hold that an educational institution is subject to income tax wherever it is so administered

as to reasonably assure that it will not incur a deficit, is to nullify and defeat the
aforementioned exemption. Indeed, the effect, in general, of the interpretation advocated by
appellant would be to deny the exemption whenever there is a net income, contrary to the
tenor of said Section 27 (e) which positively exempts from taxation those corporations which,
otherwise, would be subject thereto, because of the existence of said net income.

Explaining our view that the making of profit does not destroy the tax exemption of a charitable,
benevolent or educational institution, We said:

Needless to say, every responsible organization must be so run as to at least, insure its
existence, by operating within the limits of its own resources, especially its regular income. In
other words, it should always strive, whenever possible, to have a surplus. Upon the other
hand, appellant's pretense, would limit the benefits of the exemption, under said Section 27
(e), to institutions which do not hope, or propose, to have such surplus. Under this view, the
exemption would apply only to schools which are on the verge of bankruptcy, for—unlike the
United States, where a substantial number of institutions of learning are dependent upon
voluntary contributions and still enjoy economic stability, such as Harvard, the trust fund of
which has been steadily increasing with the years—there are, and there have always been
very few educational enterprises in the Philippines which are supported by donations, and
those organizations usually have a very precarious existence. The final result of appellant's
contention, if adopted, would be to discourage the establishment of colleges in the
Philippines, which is precisely the opposite of the objective consistently sought by our laws.

In U.S.T. Hospital Employees Association vs. Sto. Tomas University Hospital, G.R. No. L-6988 (May
24, 1952), it was argued that the fact that the aforesaid hospital charged fees for 140 paying beds
made it lose its character of a charitable institution. We likewise rejected this view because the
paying beds aforesaid were maintained to partly finance the expenses of the free wards maintained
by the hospital. We express the same view in Collector of Internal Revenue vs. St. Paul's Hospital in
Iloilo, G.R. No. L-12127 (May 25, 1959) where We said the following:

In this connection, it should be noted that respondent therein is a corporation organized for
"charitable, educational and religious purposes"; that no part of its net income inures to the
benefit of any private individual; that it is exempt from paying income tax; that it operates a
hospital in which MEDICAL assistance is given to destitute persons free of charge; that it
maintains a pharmacy department within the premises of said hospital, to supply drugs and
medicines only to charity and paying patients confined therein; and that only the paying
patients are required to pay the medicines supplied to them, for which they are charged the
cost of the medicines, plus an additional 10% thereof, to partly offset the cost of medicines
supplied free of charge to charity patients. Under these facts, we are of the opinion, and so
hold, that the Hospital may not be regarded as engaged in "business" by reason of said sale
of medicines to its paying patients.
 xxx xxx xxx

In line with the foregoing, in U.S.T. Hospital Employees Association vs. Santo Tomas University
Hospital (G.R. No. L-6988, decided May 24, 1954), we held that the U.S.T. Hospital was not
established for profit-making purposes, despite the fact that it had 140 paying beds, because the
same were maintained only to "partly finance the expenses of the free wards", containing 203 beds
for charity patients. Although said case involved the interpretation of Republic Act No. 772, it is
patent from our decision therein that said institution was not considered engaged in "business."

It is trite to say that a tax on the limited revenue of charitable institutions of this kind tends to
hamper its operation, and accordingly, to discourage the establishment and maintenance
thereof. In the absence of a clear legal provision thereon, we must not so construe our laws
as to lead to such result. In other words, the second, third and fourth assignments of error
are untenable.

In San Juan de Dios Hospital (the same party appellant herein) vs. Metropolitan Water District, 54
Phil. 174, this Court considered said hospital as a charitable institution in spite of the fact that it
maintained paying beds. From the decision in said case, We quote the following:

A hospital (referring to the San Juan de Dios Hospital) is generally considered to be a

charitable institution. It is good public policy to encourage works of charity. What Carriedo did
in his will was to make a beneficient grant not to a hospital thought of as a building, but to a
hospital thought of as an institution. The free water was for the good of the hospital in this
large sense. Should the hospital be enlarged or rebuilt, the water concession would continue
just the same. But a hospital cannot function without personnel. And such personnel must
have a place to live, which is the reason why a home devoted exclusively to the needs of the
nurses was founded. Free water for a nurses home as an adjunct to a hospital is as
beneficial to the charitable purposes of the hospital as is free water for the hospital proper.

Finally, in Manila Sanitarium and Hospital vs. Gabuco, G.R. No. L-14331, January 31, 1963, We
held that the mere charging of medical and hospital fees from those who could afford to pay, did not
make the institution one established for profit or gain.

Upon all the foregoing, the appealed decision is reversed, and another is hereby rendered ordering
appellees to pay appellant the amount of P1,709.50, with interest at the legal rate from the date of
the filing of complaint in this case. With costs.
G.R. No. 124043 October 14, 1998

COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.
COURT OF APPEALS, COURT OF TAX APPEALS and YOUNG MEN'S CHRISTIAN
ASSOCIATION OF THE PHILIPPINES, INC., respondents.

PANGANIBAN, J.:

Is the income derived from rentals of real property owned by the Young Men's Christian Association
of the Philippines, Inc. (YMCA) — established as "a welfare, educational and charitable non-profit
corporation" — subject to income tax under the National Internal Revenue Code (NIRC) and the
Constitution?

The Case

This is the main question raised before us in this petition for review on certiorari challenging two
Resolutions issued by the Court of Appeals1 on September 28, 19952 and February 29, 19963 in
CA-GR SP No. 32007. Both Resolutions affirmed the Decision of the Court of Tax Appeals
(CTA) allowing the YMCA to claim tax exemption on the latter's income from the lease of its
real property.

The Facts

The facts are undisputed.4 Private Respondent 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 out
a portion of its premises to small shop owners, like restaurants and canteen operators, 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 private respondent, 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. Private respondent formally protested the assessment and, as a
supplement to its basic protest, filed a letter dated October 8, 1985. In reply, the CIR denied
the claims of YMCA.

Contesting the denial of its protest, the YMCA filed a petition for review at the Court of Tax
Appeals (CTA) on March 14, 1989. In due course, the CTA issued this ruling in favor of the
YMCA:

. . . [T]he leasing of [private respondent's] facilities to small shop owners, to

restaurant and canteen operators and the operation of the parking lot are
reasonably incidental to and reasonably necessary for the accomplishment of
the objectives of the [private respondents]. It appears from the testimonies of
the witnesses for the [private respondent] particularly Mr. James C. Delote,
former accountant of YMCA, that these facilities were leased to members and
that they have to service the needs of its members and their guests. The
 rentals were minimal as for example, the barbershop was only charged P300
per month. He also testified that there was actually no lot devoted for parking
space but the parking was done at the sides of the building. The parking was
primarily for members with stickers on the windshields of their cars and they
charged P.50 for non-members. The rentals and parking fees were just enough
to cover the costs of operation and maintenance only. The earning[s] from
these rentals and parking charges including those from lodging and other
charges for the use of the recreational facilities constitute [the] bulk of its
income which [is] channeled to support its many activities and attainment of
its objectives. As pointed out earlier, the membership dues are very
insufficient to support its program. We find it reasonably necessary therefore
for [private respondent] to make [the] most out [of] its existing facilities to earn
some income. It would have been different if under the circumstances, [private
respondent] will purchase a lot and convert it to a parking lot to cater to the
needs of the general public for a fee, or construct a building and lease it out to
the highest bidder or at the market rate for commercial purposes, or should it
invest its funds in the buy and sell of properties, real or personal. Under these
circumstances, we could conclude that the activities are already profit
oriented, not incidental and reasonably necessary to the pursuit of the
objectives of the association and therefore, will fall under the last paragraph of
Section 27 of the Tax Code and any income derived therefrom shall be taxable.

Considering our findings that [private respondent] was not engaged in the
business of operating or contracting [a] parking lot, we find no legal basis also
for the imposition of [a] deficiency fixed tax and [a] contractor's tax in the
amount[s] of P353.15 and P3,129.73, respectively.

xxx xxx xxx

WHEREFORE, in view of all the foregoing, the following assessments are

hereby dismissed for lack of merit:

1980 Deficiency Fixed Tax — P353,15;

1980 Deficiency Contractor's Tax — P3,129.23;

1980 Deficiency Income Tax — P372,578.20.

While the following assessments are hereby sustained:

1980 Deficiency Expanded Withholding Tax — P1,798.93;

1980 Deficiency Withholding Tax on Wages — P33,058.82

plus 10% surcharge and 20% interest per annum from July 2, 1984 until fully
paid but not to exceed three (3) years pursuant to Section 51(e)(2) & (3) of the
National Internal Revenue Code effective as of 1984. 5

Dissatisfied with the CTA ruling, the CIR elevated the case to the Court of Appeals (CA). In its
Decision of February 16, 1994, the CA6 initially decided in favor of the CIR and disposed of the
appeal in the following manner:
 Following the ruling in the afore-cited cases of Province of Abra vs.
Hernando and Abra Valley College Inc. vs. Aquino, the ruling of the respondent
Court of Tax Appeals that "the leasing of petitioner's (herein respondent's)
facilities to small shop owners, to restaurant and canteen operators and the
operation of the parking lot are reasonably incidental to and reasonably
necessary for the accomplishment of the objectives of the petitioners, and the
income derived therefrom are tax exempt, must be reversed.

WHEREFORE, the appealed decision is hereby REVERSED in so far as it

dismissed the assessment for:

1980 Deficiency Income Tax P 353.15

1980 Deficiency Contractor's Tax P 3,129.23, &

1980 Deficiency Income Tax P 372,578.20

but the same is AFFIRMED in all other respect. 7

Aggrieved, the YMCA asked for reconsideration based on the following grounds:

The findings of facts of the Public Respondent Court of Tax Appeals being
supported by substantial evidence [are] final and conclusive.

II

The conclusions of law of [p]ublic [r]espondent exempting [p]rivate

[r]espondent from the income on rentals of small shops and parking fees [are]
in accord with the applicable law and jurisprudence. 8

Finding merit in the Motion for Reconsideration filed by the YMCA, the CA reversed itself and
promulgated on September 28, 1995 its first assailed Resolution which, in part, reads:

The Court cannot depart from the CTA's findings of fact, as they are supported
by evidence beyond what is considered as substantial.

xxx xxx xxx

The second ground raised is that the respondent CTA did not err in saying that
the rental from small shops and parking fees do not result in the loss of the
exemption. Not even the petitioner would hazard the suggestion that YMCA is
designed for profit. Consequently, the little income from small shops and
parking fees help[s] to keep its head above the water, so to speak, and allow it
to continue with its laudable work.

The Court, therefore, finds the second ground of the motion to be meritorious
and in accord with law and jurisprudence.
 WHEREFORE, the motion for reconsideration is GRANTED; the respondent
CTA's decision is AFFIRMED in toto.9

The internal revenue commissioner's own Motion for Reconsideration was denied by
Respondent Court in its second assailed Resolution of February 29, 1996. Hence, this petition
for review under Rule 45 of the Rules of Court. 10

The Issues

Before us, petitioner imputes to the Court of Appeals the following errors:

In holding that it had departed from the findings of fact of Respondent Court of
Tax Appeals when it rendered its Decision dated February 16, 1994; and

II

In affirming the conclusion of Respondent Court of Tax Appeals that the

income of private respondent from rentals of small shops and parking fees [is]
exempt from taxation. 11

This Court's Ruling

The petition is meritorious.

First Issue:
Factual Findings of the CTA

Private respondent contends that the February 16, 1994 CA Decision reversed the factual
findings of the CTA. On the other hand, petitioner argues that the CA merely reversed the
"ruling of the CTA that the leasing of private respondent's facilities to small shop owners, to
restaurant and canteen operators and the operation of parking lots are reasonably incidental
to and reasonably necessary for the accomplishment of the objectives of the private
respondent and that the income derived therefrom are tax exempt." 12 Petitioner insists that
what the appellate court reversed was the legal conclusion, not the factual finding, of the
CTA. 13The commissioner has a point.

Indeed, it is a basic rule in taxation that the factual findings of the CTA, when supported by
substantial evidence, will be disturbed on appeal unless it is shown that the said court
committed gross error in the appreciation of facts. 14 In the present case, this Court finds that
the February 16, 1994 Decision of the CA did not deviate from this rule. The latter merely
applied the law to the facts as found by the CTA and ruled on the issue raised by the CIR:
"Whether or not the collection or earnings of rental income from the lease of certain premises
and income earned from parking fees shall fall under the last paragraph of Section 27 of the
National Internal Revenue Code of 1977, as amended." 15

Clearly, the CA did not alter any fact or evidence. It merely resolved the aforementioned
issue, as indeed it was expected to. That it did so in a manner different from that of the CTA
did not necessarily imply a reversal of factual findings.
The distinction between a question of law and a question of fact is clear-cut. It has been held
that "[t]here is a question of law in a given case when the doubt or difference arises as to
what the law is on a certain state of facts; there is a question of fact when the doubt or
difference arises as to the truth or falsehood of alleged facts." 16 In the present case, the CA
did not doubt, much less change, the facts narrated by the CTA. It merely applied the law to
the facts. That its interpretation or conclusion is different from that of the CTA is not irregular
or abnormal.

Second Issue:
Is the Rental Income of the YMCA Taxable?

We now come to the crucial issue: Is the rental income of the YMCA from its real estate
subject to tax? At the outset, we set forth the relevant provision of the NIRC:

Sec. 27. Exemptions from tax on corporations. — The following organizations

shall not be taxed under this Title in respect to income received by them as
such —

xxx xxx xxx

(g) Civic league or organization not organized for profit but operated
exclusively for the promotion of social welfare;

(h) Club organized and operated exclusively for pleasure, recreation, and other
non-profitable purposes, no part of the net income of which inures to the
benefit of any private stockholder or member;

xxx xxx xxx

Notwithstanding the provisions in the preceding paragraphs, the income of

whatever kind and character of the foregoing organizations from any of their
properties, real or personal, or from any of their activities conducted for profit,
regardless of the disposition made of such income, shall be subject to the tax
imposed under this Code. (as amended by Pres. Decree No. 1457)

Petitioner argues that while the income received by the organizations enumerated in Section
27 (now Section 26) of the NIRC is, 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 of 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 "rental 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." 17 We agree with the
commissioner.

Because taxes are the lifeblood of the nation, the Court has always applied the doctrine of
strict in interpretation in construing tax exemptions. 18 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." 19
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 tax imposed by the same Code. Because the last paragraph of said section
unequivocally subjects to tax the rent income of the YMCA from its real property, 20 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. 21 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 liberal one on statutes that grant tax exemptions to "religious, charitable
and educational propert[ies] or institutions." 22

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." 23This 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 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 is used or disposed of. Where the law does not distinguish, neither should
we.

Constitutional Provisions

On Taxation

Invoking not only the NIRC but also the fundamental law, private respondent submits that
Article VI, Section 28 of par. 3 of the 1987 Constitution, 24 exempts "charitable institutions"
from the payment not only of property taxes but also of income tax from any source. 25 In
support of its novel theory, it compares the use of the words "charitable institutions,"
"actually" and "directly" in the 1973 and the 1987 Constitutions, on the one hand; and in
Article VI, Section 22, par. 3 of the 1935 Constitution, on the other hand. 26

Private respondent enunciates three points. First, the present provision is divisible into two
categories: (1) "[c]haritable institutions, churches and parsonages or convents appurtenant
thereto, mosques and non-profit cemeteries," the incomes of which are, from whatever
source, all tax-exempt; 27 and (2) "[a]ll lands, buildings and improvements actually and
directly used for religious, charitable or educational purposes," which are exempt only from
property taxes. 28 Second, Lladoc v. Commissioner of Internal Revenue, 29which limited the
exemption only to the payment of property taxes, referred to the provision of the 1935
Constitution and not to its counterparts in the 1973 and the 1987 Constitutions. 30 Third, the
phrase "actually, directly and exclusively used for religious, charitable or educational
purposes" refers not only to "all lands, buildings and improvements," but also to the above-
quoted first category which includes charitable institutions like the private respondent. 31

The Court is not persuaded. The debates, interpellations and expressions of opinion of the
framers of the Constitution reveal their intent which, in turn, may have guided the people in
ratifying the Charter. 32 Such intent must be effectuated.

Accordingly, Justice Hilario G. Davide, Jr., a former constitutional commissioner, who is now
a member of this Court, stressed during the Concom debates that ". . . what is exempted is
not the institution itself . . .; those exempted from real estate taxes are lands, buildings and
improvements actually, directly and exclusively used for religious, charitable or educational
purposes." 33 Father Joaquin G. Bernas, an eminent authority on the Constitution and also a
member of the Concom, adhered to the same view that the exemption created by said
provision pertained only to property taxes. 34

In his treatise on taxation, Mr. Justice Jose C. Vitug concurs, stating that "[t]he tax exemption
coversproperty taxes only." 35 Indeed, the income tax exemption claimed by private
respondent finds no basis in Article VI, Section 26, par. 3 of the Constitution.

Private respondent also invokes Article XIV, Section 4, par. 3 of the Character, 36 claiming that
the YMCA "is a non-stock, non-profit educational institution whose revenues and assets are
used actually, directly and exclusively for educational purposes so it is exempt from taxes on
its properties and income." 37 We reiterate that private respondent is exempt from the
payment of property tax, but not income tax on the rentals from its property. The bare
allegation alone that it is a non-stock, non-profit educational institution is insufficient to
justify its exemption from the payment of income tax.

As previously discussed, laws allowing tax exemption are construed strictissimi juris. Hence,
for the YMCA to be granted the exemption it claims under the aforecited provision, it must
prove with substantial evidence that (1) it falls under the classification non-stock, non-profit
educational institution; and (2) the income it seeks to be exempted from taxation is
used actually, directly, and exclusively for educational purposes. However, the Court notes
that not a scintilla of evidence was submitted by private respondent to prove that it met the
said requisites.

Is the YMCA an educational institution within the purview of Article XIV, Section 4, par. 3 of
the Constitution? We rule that it is not. The term "educational institution" or "institution of
learning" has acquired a well-known technical meaning, of which the members of the
Constitutional Commission are deemed cognizant. 38 Under the Education Act of 1982, such
term refers to schools. 39 The school system is synonymous with formal education, 40 which
"refers to the hierarchically structured and chronologically graded learnings organized and
provided by the formal school system and for which certification is required in order for the
learner to progress through the grades or move to the higher levels." 41 The Court has
examined the "Amended Articles of Incorporation" and "By-Laws"43 of the YMCA, but found
nothing in them that even hints that it is a school or an educational institution. 44

Furthermore, under the Education Act of 1982, even non-formal education is understood to
be school-based and "private auspices such as foundations and civic-spirited organizations"
are ruled out. 45 It is settled that the term "educational institution," when used in laws granting
tax exemptions, refers to a ". . . school seminary, college or educational establishment . . .
." 46 Therefore, the private respondent cannot be deemed one of the educational institutions
covered by the constitutional provision under consideration.
 . . . Words used in the Constitution are to be taken in their ordinary
acceptation. While in its broadest and best sense education embraces all
forms and phases of instruction, improvement and development of mind and
body, and as well of religious and moral sentiments, yet in the common
understanding and application it means a place where systematic instruction
in any or all of the useful branches of learning is given by methods common to
schools and institutions of learning. That we conceive to be the true intent and
scope of the term [educational institutions,] as used in the
Constitution. 47

Moreover, without conceding that Private Respondent YMCA is an educational institution, the
Court also notes that the former did not submit proof of the proportionate amount of the
subject income that was actually, directly and exclusively used for educational purposes.
Article XIII, Section 5 of the YMCA by-laws, which formed part of the evidence submitted, is
patently insufficient, since the same merely signified that "[t]he net income derived from the
rentals of the commercial buildings shall be apportioned to the Federation and Member
Associations as the National Board may decide." 48 In sum, we find no basis for granting the
YMCA exemption from income tax under the constitutional provision invoked.

Cases Cited by Private

Respondent Inapplicable

The cases 49 relied on by private respondent do not support its cause. YMCA of Manila v.
Collector of Internal Revenue 50 and Abra Valley College, Inc. v. Aquino 51 are not applicable,
because the controversy in both cases involved exemption from the payment of property tax,
not income tax. Hospital de San Juan de Dios, Inc. v. Pasay City 52 is not in point either,
because it involves a claim for exemption from the payment of regulatory fees, specifically
electrical inspection fees, imposed by an ordinance of Pasay City — an issue not at all related
to that involved in a claimed exemption from the payment of income taxes imposed on
property leases. In Jesus Sacred Heart College v. Com. of Internal Revenue, 53 the party
therein, which claimed an exemption from the payment of income tax, was an educational
institution which submitted substantial evidence that the income subject of the controversy
had been devoted or used solely for educational purposes. On the other hand, the private
respondent in the present case has not given any proof that it is an educational institution, or
that part of its rent income is actually, directly and exclusively used for educational
purposes.

Epilogue

In deliberating on this petition, the Court expresses its sympathy with private respondent. It
appreciates the nobility of its cause. However, the Court's power and function are limited
merely to applying the law fairly and objectively. It cannot change the law or bend it to suit its
sympathies and appreciations. Otherwise, it would be overspilling its role and invading the
realm of legislation.

We concede that private respondent deserves the help and the encouragement of the
government. It needs laws that can facilitate, and not frustrate, its humanitarian tasks. But the
Court regrets that, given its limited constitutional authority, it cannot rule on the wisdom or
propriety of legislation. That prerogative belongs to the political departments of government.
Indeed, some of the members of the Court may even believe in the wisdom and prudence of
granting more tax exemptions to private respondent. But such belief, however well-meaning
and sincere, cannot bestow upon the Court the power to change or amend the law.

WHEREFORE, the petition is GRANTED. The Resolutions of the Court of Appeals dated
September 28, 1995 and February 29, 1996 are hereby REVERSED and SET ASIDE. The
Decision of the Court of Appeals dated February 16, 1995 is REINSTATED, insofar as it ruled
that the income derived by petitioner from rentals of its real property is subject to income tax.
No pronouncement as to costs.

SO ORDERED.

Davide, Jr., Vitug and Quisumbing, JJ., concur.

Bellosillo, J., Please see Dissenting Opinion.

Separate Opinions

BELLOSILLO, J., dissenting;

I vote to deny the petition. The basic rule is that the factual findings of the Court of Tax
Appeals when supported by substantial evidence will not be disturbed on appeal unless it is
shown that the court committed grave error in the appreciation of facts.1 In the instant case,
there is no dispute as to the validity of the findings of the Court of Tax Appeals that private
respondent Young Men's Christian Association (YMCA) is an association organized and
operated exclusively for the promotion of social welfare and other non-profitable purposes,
particularly the physical and character development of the youth.2 The enduring objectives of
respondent YMCA as reflected in its Constitution and By-laws are:

(a) To develop well-balanced Christian personality, mission in life, usefulness

of individuals, and the promotion of unity among Christians and understanding
among peoples of all faiths, to the end that the Brotherhood of Man under the
Fatherhood of God may be fostered in an atmosphere of mutual respect and
understanding;

(b) To promote on equal basis the physical, mental, and spiritual welfare of the
youth, with emphasis on reverence for God, social discipline, responsibility for
the common good, respect for human dignity, and the observance of the
Golden Rule;

(c) To encourage members of the Young Men's Christian Associations in the

Philippines to participate loyally in the life of their respective churches; to
bring these churches closer together; and to participate in the effort to realize
the church Universal;
 (d) To strengthen and coordinate the work of the Young Men's Christian
Associations in the Philippines and to foster the extension of the Youth Men's
Christian Associations to new areas;

(e) To help its Member Associations develop and adopt their programs to the
needs of the youth;

(f) To assist the Member Associations in developing and maintaining a high

standard of management, operation and practice; and

(g) To undertake and sponsor national and international programs and

activities in pursuance of its purposes and objectives. 3

Pursuant to these objectives, YMCA has continuously organized and undertaken throughout
the country various programs for the youth through actual workshops, seminars, training,
sports and summer camps, conferences on the cultivation of Christian moral values, drug
addiction, out-of-school youth, those with handicap and physical defects and youth
alcoholism. To fulfill these multifarious projects and attain the laudable objectives of YMCA,
fund raising has become an indispensable and integral part of the activities of the
Association. YMCA derives its funds from various sources such as membership dues,
charges on the use of facilities like bowling and billiards, lodging, interest income, parking
fees, restaurant and canteen. Since the membership dues are very minimal, the Association
derives funds from rentals of small shops, restaurant, canteen and parking fees. For the
taxable year ending December 1980, YMCA earned gross rental income of P676,829.00 and
P44,259.00 from parking fees which became the subject of the questioned assessment by
petitioner.

The majority of this Court upheld the findings of the Court of Tax Appeals that the leasing of
petitioner's facilities to small shop owners and to restaurant and canteen operators in
addition to the operation of a parking lot are reasonably necessary for and incidental to the
accomplishment of the objectives of YMCA. 4In fact, these facilities are leased to members in
order to service their needs and those of their guests. The rentals are minimal, such as, the
rent of P300.00 for the barbershop. With regard to parking space, there is no lot actually
devoted therefor and the parking is done only along the sides of the building. The parking is
primarily for members with car stickers but to non-members, parking fee is P0.50 only. The
rentals and parking fees are just enough to cover the operation and maintenance costs of
these facilities. The earnings which YMCA derives from these rentals and parking fees,
together with the charges for lodging and use of recreational facilities, constitute the bulk or
majority of its income used to support its programs and activities.

In its decision of 16 February 1994, the Court of Appeals thus committed grave error in
departing from the findings of the Court of Tax Appeals by declaring that the leasing of
YMCA's facilities to shop owners and restaurant operators and the operation of a parking lot
are used for commercial purposes or for profit, which fact takes YMCA outside the coverage
of tax exemption. In later granting the motion for reconsideration filed by respondent YMCA,
the Court of Appeals correctly reversed its earlier decision and upheld the findings of the
Court of Tax Appeals by ruling that YMCA is not designed for profit and the little income it
derives from rentals and parking fees helps maintain its noble existence for the fulfillment of
its goals for the Christian development of the youth.

Respondent YMCA is undoubtedly exempt from corporate income tax under the provisions of
Sec. 27, pars. (g) and (h), of the National Internal Revenue Code, to wit:
 Sec. 27. Exemptions from tax on corporations. — The following organizations
shall not be taxed under this Title in respect to income received by them as
such — . . . (g) civic league or organization not organized for profit but
operated exclusively for the promotion of social welfare; (h) club organized
and operated exclusively for pleasure, recreation and other non-profitable
purposes, no part of the net income of which inures to the benefit of any
private stockholder or member . . . . Notwithstanding the provisions in the
preceding paragraphs, the income of whatever kind and character of the
foregoing organizations from any of their properties, real or personal, or from
any of their activities conducted for profit, regardless of the disposition made
of such income, shall be subject to tax imposed under this Code.

The majority of the Court accepted petitioner's view that while the income of organizations
enumerated in Sec. 27 are exempt from income tax, such exemption does not however extend
to their income of whatever kind or character from any of their properties real or personal
regardless of the disposition made of such income; that based on the wording of the law
which is plain and simple and does not need any interpretation, any income of a tax exempt
entity from any of its properties is a taxable income; hence, the rental income derived by a
tax exempt organization from the lease of its properties is not therefore exempt from income
taxation even if such income is exclusively used for the accomplishment of its objectives.

Income derived from its property by a tax exempt organization is not absolutely taxable.
Taken in solitude, a word or phrase such as, in this case, "the income of whatever kind and
character . . . from any of their properties" might easily convey a meaning quite different from
the one actually intended and evident when a word or phrase is considered with those with
which it is associated. 5 It is a rule in statutory construction that every part of the statute must
be interpreted with reference to the context, that every part of the statute must be considered
together with the other parts and kept subservient to the general intent of the whole
enactment.6 A close reading of the last paragraph of Sec. 27 of the National Internal Revenue
Code, in relation to the whole section on tax exemption of the organizations enumerated
therein, shows that the phrase "conducted for profit" in the last paragraph of Sec. 27
qualifies, limits and describes "the income of whatever kind and character of the foregoing
organizations from any of their properties, real or personal, or from any of their activities" in
order to make such income taxable. It is the exception to Sec. 27 pars. (g) and (h) providing
for the tax exemptions of the income of said organizations. Hence, if such income from
property or any other property is not conducted for profit, then it is not taxable.

Even taken alone and understood according to its plain, simple and literal meaning, the word
"income" which is derived from property, real or personal, provided in the last paragraph of
Sec. 27 means the amount of money coming to a person or corporation within a specified
time as profit from investment; the return in money from one's business or capital
invested.7 Income from property also means gains and profits derived from the sale or other
disposition of capital assets; the money which any person or corporation periodically
receives either as profits from business, or as returns from investments 8 The word "income"
as used in tax statutes is to be taken in its ordinary sense as gain or profit.9

Clearly, therefore, income derived from property whether real or personal connotes profit
from business or from investment of the same. If we are to apply the ordinary meaning of
income from property as profit to the language of the last paragraph of Sec. 27 of the NIRC,
then only those profits arising from business and investment involving property are taxable.
In the instant case, there is no question that in leasing its facilities to small shop owners and
in operating parking spaces, YMCA does not engage in any profit-making business. Both the
Court of Tax Appeals, and the Court of Appeals in its resolution of 25 September 1995,
categorically found that these activities conducted on YMCA's property were aimed not only
at fulfilling the needs and requirements of its members as part of YMCA's youth program but,
more importantly, at raising funds to finance the multifarious projects of the Association.

As the Court has ruled in one case, the fact that an educational institution charges tuition
fees and other fees for the different services it renders to the students does not in itself make
the school a profit-making enterprise that would place it beyond the purview of the law
exempting it from taxation. The mere realization of profits out of its operation does not
automatically result in the loss of an educational institution's exemption from income tax as
long as no part of its profits inures to the benefit of any stockholder or individual.10 In order to
claim exemption from income tax, a corporation or association must show that it is organized
and operated exclusively for religious, charitable, scientific, athletic, cultural or educational
purposes or for the rehabilitation of veterans, and that no part of its income inures to the
benefit of any private stockholder or individual. 11 The main evidence of the purpose of a
corporation should be its articles of incorporation and by-laws, for such purpose is required
by statute to be stated in the articles of incorporation, and the by-laws outline the
administrative organization of the corporation which, in turn, is supposed to insure or
facilitate the accomplishment of said purpose. 12

The foregoing principle applies to income derived by tax exempt corporations from their
property. The criterion or test in order to make such income taxable is when it arises from
purely profit-making business. Otherwise, when the income derived from use of property is
reasonable and incidental to the charitable, benevolent, educational or religious purpose for
which the corporation or association is created, such income should be tax-exempt.

In Hospital de San Juan de Dios, Inc. v. Pasay City 13 we held —

In this connection, it should be noted that respondent therein is a corporation

organized for "charitable, educational and religious purposes"; that no part of
its net income inures to the benefit of any private individual; that it is exempt
from paying income tax; that it operates a hospital in which MEDICAL
assistance is given to destitute persons free of charge; that it maintains a
pharmacy department within the premises of said hospital, to supply drugs
and medicines only to charity and paying patients confined therein; and that
only the paying patients are required to pay the medicines supplied to them,
for which they are charged the cost of the medicines, plus an additional 10%
thereof, to partly offset the cost of medicines supplied free of charge to charity
patients. Under these facts we are of the opinion and so hold that the Hospital
may not be regarded as engaged in "business" by reason of said sale of
medicines to its paying patients . . . (W)e held that the UST Hospital was not
established for profit-making purposes, despite the fact that it had 140 paying
beds, because the same were maintained only to partly finance the expenses
of the free wards containing 203 beds for charity patients.

In YMCA of Manila v. Collector of Internal Revenue, 14 this Court explained —

It is claimed however that the institution is run as a business in that it keeps a

lodging and boarding house. It may be admitted that there are 64 persons
occupying rooms in the main building as lodgers or roomers and that they take
their meals at the restaurant below. These facts however are far from
constituting a business in the ordinary acceptation of the word. In the first
place, no profit is realized by the association in any sense. In the second place
 it is undoubted, as it is undisputed, that the purpose of the association is not
primarily to obtain the money which comes from the lodgers and boarders. The
real purpose is to keep the membership continually within the sphere of
influence of the institution; and thereby to prevent, as far as possible, the
opportunities which vice presents to young men in foreign countries who lack
home or other similar influences.

The majority, if not all, of the income of the organizations covered by the exemption provided
in Sec. 27, pars. (g) and (h), of the NIRC are derived from their properties, real or personal. If
we are to interpret the last paragraph of Sec. 27 to the effect that all income of whatever kind
from the properties of said organization, real or personal, are taxable, even if not conducted
for profit, then Sec. 27, pars. (g) and (h), would be rendered ineffective and nugatory. As this
Court elucidated in Jesus Sacred Heart College v. Collector of Internal Revenue, 15 every
responsible organization must be so run as to at least insure its existence by operating
within the limits of its own resources, especially its regular income. It should always strive
whenever possible to have a surplus. If the benefits of the exemption would be limited to
institutions which do not hope or propose to have such surplus, then the exemption would
apply only to schools which are on the verge of bankruptcy. Unlike the United States where a
substantial number of institutions of learning are dependent upon voluntary contributions
and still enjoy economic stability, such as Harvard, the trust fund of which has been steadily
increasing with the years, there are and there have always been very few educational
enterprises in the Philippines which are supported by donations, and these organizations
usually have a very precarious existence. 16

Finally, the non-taxability of all income and properties of educational institutions finds
enduring support in Art. XIV, Sec. 4, par. 3, of the 1987 Constitution —

(3) All revenues and assets of non-stock, non-profit educational institutions

used actually, directly and exclusively for educational purposes shall be
exempt from taxes and duties. Upon the dissolution or cessation of the
corporate existence of such institutions, their assets shall be disposed of in
the manner provided by law.

In YMCA of Manila v. Collector of Internal Revenue 17 this Court categorically held and found
YMCA to be an educational institution exclusively devoted to educational and charitable
purposes and not operated for profit. The purposes of the Association as set forth in its
charter and constitution are "to develop the Christian character and usefulness of its
members, to improve the spiritual, intellectual, social and physical condition of young men
and to acquire, hold, mortgage and dispose of the necessary lands, buildings and personal
property for the use of said corporation exclusively for religious, charitable and educational
purposes, and not for investment or profit." YMCA has an educational department, the aim of
which is to furnish, at much less than cost, instructions on subjects that will greatly increase
the mental efficiency and wage-earning capacity of young men, prepare them in special lines
of business and offer them special lines of study. We ruled therein that YMCA cannot be said
to be an institution used exclusively for religious purposes or an institution devoted
exclusively for charitable purposes or an institution devoted exclusively to educational
purposes, but it can be truthfully said that it is an institution used exclusively for all three
purposes and that, as such, it is entitled to be exempted from taxation.

Separate Opinions

BELLOSILLO, J., dissenting;

I vote to deny the petition. The basic rule is that the factual findings of the Court of Tax
Appeals when supported by substantial evidence will not be disturbed on appeal unless it is
shown that the court committed grave error in the appreciation of facts.1 In the instant case,
there is no dispute as to the validity of the findings of the Court of Tax Appeals that private
respondent Young Men's Christian Association (YMCA) is an association organized and
operated exclusively for the promotion of social welfare and other non-profitable purposes,
particularly the physical and character development of the youth.2 The enduring objectives of
respondent YMCA as reflected in its Constitution and By-laws are:

(a) To develop well-balanced Christian personality, mission in life, usefulness

of individuals, and the promotion of unity among Christians and understanding
among peoples of all faiths, to the end that the Brotherhood of Man under the
Fatherhood of God may be fostered in an atmosphere of mutual respect and
understanding;

(b) To promote on equal basis the physical, mental, and spiritual welfare of the
youth, with emphasis on reverence for God, social discipline, responsibility for
the common good, respect for human dignity, and the observance of the
Golden Rule;

(c) To encourage members of the Young Men's Christian Associations in the

Philippines to participate loyally in the life of their respective churches; to
bring these churches closer together; and to participate in the effort to realize
the church Universal;

(d) To strengthen and coordinate the work of the Young Men's Christian
Associations in the Philippines and to foster the extension of the Youth Men's
Christian Associations to new areas;

(e) To help its Member Associations develop and adopt their programs to the
needs of the youth;

(f) To assist the Member Associations in developing and maintaining a high

standard of management, operation and practice; and

(g) To undertake and sponsor national and international programs and

activities in pursuance of its purposes and objectives. 3

Pursuant to these objectives, YMCA has continuously organized and undertaken throughout
the country various programs for the youth through actual workshops, seminars, training,
sports and summer camps, conferences on the cultivation of Christian moral values, drug
addiction, out-of-school youth, those with handicap and physical defects and youth
alcoholism. To fulfill these multifarious projects and attain the laudable objectives of YMCA,
fund raising has become an indispensable and integral part of the activities of the
Association. YMCA derives its funds from various sources such as membership dues,
charges on the use of facilities like bowling and billiards, lodging, interest income, parking
fees, restaurant and canteen. Since the membership dues are very minimal, the Association
derives funds from rentals of small shops, restaurant, canteen and parking fees. For the
taxable year ending December 1980, YMCA earned gross rental income of P676,829.00 and
P44,259.00 from parking fees which became the subject of the questioned assessment by
petitioner.
The majority of this Court upheld the findings of the Court of Tax Appeals that the leasing of
petitioner's facilities to small shop owners and to restaurant and canteen operators in
addition to the operation of a parking lot are reasonably necessary for and incidental to the
accomplishment of the objectives of YMCA. 4In fact, these facilities are leased to members in
order to service their needs and those of their guests. The rentals are minimal, such as, the
rent of P300.00 for the barbershop. With regard to parking space, there is no lot actually
devoted therefor and the parking is done only along the sides of the building. The parking is
primarily for members with car stickers but to non-members, parking fee is P0.50 only. The
rentals and parking fees are just enough to cover the operation and maintenance costs of
these facilities. The earnings which YMCA derives from these rentals and parking fees,
together with the charges for lodging and use of recreational facilities, constitute the bulk or
majority of its income used to support its programs and activities.

In its decision of 16 February 1994, the Court of Appeals thus committed grave error in
departing from the findings of the Court of Tax Appeals by declaring that the leasing of
YMCA's facilities to shop owners and restaurant operators and the operation of a parking lot
are used for commercial purposes or for profit, which fact takes YMCA outside the coverage
of tax exemption. In later granting the motion for reconsideration filed by respondent YMCA,
the Court of Appeals correctly reversed its earlier decision and upheld the findings of the
Court of Tax Appeals by ruling that YMCA is not designed for profit and the little income it
derives from rentals and parking fees helps maintain its noble existence for the fulfillment of
its goals for the Christian development of the youth.

Respondent YMCA is undoubtedly exempt from corporate income tax under the provisions of
Sec. 27, pars. (g) and (h), of the National Internal Revenue Code, to wit:

Sec. 27. Exemptions from tax on corporations. — The following organizations

shall not be taxed under this Title in respect to income received by them as
such — . . . (g) civic league or organization not organized for profit but
operated exclusively for the promotion of social welfare; (h) club organized
and operated exclusively for pleasure, recreation and other non-profitable
purposes, no part of the net income of which inures to the benefit of any
private stockholder or member . . . . Notwithstanding the provisions in the
preceding paragraphs, the income of whatever kind and character of the
foregoing organizations from any of their properties, real or personal, or from
any of their activities conducted for profit, regardless of the disposition made
of such income, shall be subject to tax imposed under this Code.

The majority of the Court accepted petitioner's view that while the income of organizations
enumerated in Sec. 27 are exempt from income tax, such exemption does not however extend
to their income of whatever kind or character from any of their properties real or personal
regardless of the disposition made of such income; that based on the wording of the law
which is plain and simple and does not need any interpretation, any income of a tax exempt
entity from any of its properties is a taxable income; hence, the rental income derived by a
tax exempt organization from the lease of its properties is not therefore exempt from income
taxation even if such income is exclusively used for the accomplishment of its objectives.

Income derived from its property by a tax exempt organization is not absolutely taxable.
Taken in solitude, a word or phrase such as, in this case, "the income of whatever kind and
character . . . from any of their properties" might easily convey a meaning quite different from
the one actually intended and evident when a word or phrase is considered with those with
which it is associated. 5 It is a rule in statutory construction that every part of the statute must
be interpreted with reference to the context, that every part of the statute must be considered
together with the other parts and kept subservient to the general intent of the whole
enactment.6 A close reading of the last paragraph of Sec. 27 of the National Internal Revenue
Code, in relation to the whole section on tax exemption of the organizations enumerated
therein, shows that the phrase "conducted for profit" in the last paragraph of Sec. 27
qualifies, limits and describes "the income of whatever kind and character of the foregoing
organizations from any of their properties, real or personal, or from any of their activities" in
order to make such income taxable. It is the exception to Sec. 27 pars. (g) and (h) providing
for the tax exemptions of the income of said organizations. Hence, if such income from
property or any other property is not conducted for profit, then it is not taxable.

Even taken alone and understood according to its plain, simple and literal meaning, the word
"income" which is derived from property, real or personal, provided in the last paragraph of
Sec. 27 means the amount of money coming to a person or corporation within a specified
time as profit from investment; the return in money from one's business or capital
invested.7 Income from property also means gains and profits derived from the sale or other
disposition of capital assets; the money which any person or corporation periodically
receives either as profits from business, or as returns from investments 8 The word "income"
as used in tax statutes is to be taken in its ordinary sense as gain or profit.9

Clearly, therefore, income derived from property whether real or personal connotes profit
from business or from investment of the same. If we are to apply the ordinary meaning of
income from property as profit to the language of the last paragraph of Sec. 27 of the NIRC,
then only those profits arising from business and investment involving property are taxable.
In the instant case, there is no question that in leasing its facilities to small shop owners and
in operating parking spaces, YMCA does not engage in any profit-making business. Both the
Court of Tax Appeals, and the Court of Appeals in its resolution of 25 September 1995,
categorically found that these activities conducted on YMCA's property were aimed not only
at fulfilling the needs and requirements of its members as part of YMCA's youth program but,
more importantly, at raising funds to finance the multifarious projects of the Association.

As the Court has ruled in one case, the fact that an educational institution charges tuition
fees and other fees for the different services it renders to the students does not in itself make
the school a profit-making enterprise that would place it beyond the purview of the law
exempting it from taxation. The mere realization of profits out of its operation does not
automatically result in the loss of an educational institution's exemption from income tax as
long as no part of its profits inures to the benefit of any stockholder or individual.10 In order to
claim exemption from income tax, a corporation or association must show that it is organized
and operated exclusively for religious, charitable, scientific, athletic, cultural or educational
purposes or for the rehabilitation of veterans, and that no part of its income inures to the
benefit of any private stockholder or individual. 11 The main evidence of the purpose of a
corporation should be its articles of incorporation and by-laws, for such purpose is required
by statute to be stated in the articles of incorporation, and the by-laws outline the
administrative organization of the corporation which, in turn, is supposed to insure or
facilitate the accomplishment of said purpose. 12

The foregoing principle applies to income derived by tax exempt corporations from their
property. The criterion or test in order to make such income taxable is when it arises from
purely profit-making business. Otherwise, when the income derived from use of property is
reasonable and incidental to the charitable, benevolent, educational or religious purpose for
which the corporation or association is created, such income should be tax-exempt.
In Hospital de San Juan de Dios, Inc. v. Pasay City 13 we held —

In this connection, it should be noted that respondent therein is a corporation

organized for "charitable, educational and religious purposes"; that no part of
its net income inures to the benefit of any private individual; that it is exempt
from paying income tax; that it operates a hospital in which MEDICAL
assistance is given to destitute persons free of charge; that it maintains a
pharmacy department within the premises of said hospital, to supply drugs
and medicines only to charity and paying patients confined therein; and that
only the paying patients are required to pay the medicines supplied to them,
for which they are charged the cost of the medicines, plus an additional 10%
thereof, to partly offset the cost of medicines supplied free of charge to charity
patients. Under these facts we are of the opinion and so hold that the Hospital
may not be regarded as engaged in "business" by reason of said sale of
medicines to its paying patients . . . (W)e held that the UST Hospital was not
established for profit-making purposes, despite the fact that it had 140 paying
beds, because the same were maintained only to partly finance the expenses
of the free wards containing 203 beds for charity patients.

In YMCA of Manila v. Collector of Internal Revenue, 14 this Court explained —

It is claimed however that the institution is run as a business in that it keeps a

lodging and boarding house. It may be admitted that there are 64 persons
occupying rooms in the main building as lodgers or roomers and that they take
their meals at the restaurant below. These facts however are far from
constituting a business in the ordinary acceptation of the word. In the first
place, no profit is realized by the association in any sense. In the second place
it is undoubted, as it is undisputed, that the purpose of the association is not
primarily to obtain the money which comes from the lodgers and boarders. The
real purpose is to keep the membership continually within the sphere of
influence of the institution; and thereby to prevent, as far as possible, the
opportunities which vice presents to young men in foreign countries who lack
home or other similar influences.

The majority, if not all, of the income of the organizations covered by the exemption provided
in Sec. 27, pars. (g) and (h), of the NIRC are derived from their properties, real or personal. If
we are to interpret the last paragraph of Sec. 27 to the effect that all income of whatever kind
from the properties of said organization, real or personal, are taxable, even if not conducted
for profit, then Sec. 27, pars. (g) and (h), would be rendered ineffective and nugatory. As this
Court elucidated in Jesus Sacred Heart College v. Collector of Internal Revenue, 15 every
responsible organization must be so run as to at least insure its existence by operating
within the limits of its own resources, especially its regular income. It should always strive
whenever possible to have a surplus. If the benefits of the exemption would be limited to
institutions which do not hope or propose to have such surplus, then the exemption would
apply only to schools which are on the verge of bankruptcy. Unlike the United States where a
substantial number of institutions of learning are dependent upon voluntary contributions
and still enjoy economic stability, such as Harvard, the trust fund of which has been steadily
increasing with the years, there are and there have always been very few educational
enterprises in the Philippines which are supported by donations, and these organizations
usually have a very precarious existence. 16
Finally, the non-taxability of all income and properties of educational institutions finds
enduring support in Art. XIV, Sec. 4, par. 3, of the 1987 Constitution —

(3) All revenues and assets of non-stock, non-profit educational institutions

used actually, directly and exclusively for educational purposes shall be
exempt from taxes and duties. Upon the dissolution or cessation of the
corporate existence of such institutions, their assets shall be disposed of in
the manner provided by law.

In YMCA of Manila v. Collector of Internal Revenue 17 this Court categorically held and found
YMCA to be an educational institution exclusively devoted to educational and charitable
purposes and not operated for profit. The purposes of the Association as set forth in its
charter and constitution are "to develop the Christian character and usefulness of its
members, to improve the spiritual, intellectual, social and physical condition of young men
and to acquire, hold, mortgage and dispose of the necessary lands, buildings and personal
property for the use of said corporation exclusively for religious, charitable and educational
purposes, and not for investment or profit." YMCA has an educational department, the aim of
which is to furnish, at much less than cost, instructions on subjects that will greatly increase
the mental efficiency and wage-earning capacity of young men, prepare them in special lines
of business and offer them special lines of study. We ruled therein that YMCA cannot be said
to be an institution used exclusively for religious purposes or an institution devoted
exclusively for charitable purposes or an institution devoted exclusively to educational
purposes, but it can be truthfully said that it is an institution used exclusively for all three
purposes and that, as such, it is entitled to be exempted from taxation.

Footnotes