CIR vs St.

Luke’s Medical Center

G.R. No. 195909, 9/26/2012

FACTS: St. Luke’s Medical Center, Inc. is a hospital organized as a non-stock and
non-profit corporation. The BIR assessed St. Luke’s deficiency taxes for 1998,
comprised of deficiency income tax, value-added tax, withholding tax on
compensation and expanded withholding tax. St. Luke’s filed an administrative
protest with the BIR against the deficiency tax assessments. The BIR did not act on
the protest within the 180-day period under Section 228 of the NIRC. Thus, St.
Luke’s appealed to the CTA.
The BIR argued before the CTA that Section 27(B) of the NIRC, which imposes a
10% preferential tax rate on the income of proprietary nonprofit hospitals, should be
applicable to St. Luke’s. According to the BIR, Section 27(B), introduced in 1997, “is
a new provision intended to amend the exemption on non-profit hospitals that were
previously categorized as non-stock, non-profit corporations under Section 26 of the
1997 Tax Code.” It is a specific provision which prevails over the general exemption
on income tax granted under Section 30(E) and (G) for non-stock, non-profit
charitable institutions and civic organizations promoting social welfare. The BIR
claimed that St. Luke’s was actually operating for profit in 1998 because only 13% of
its revenues came from charitable purposes. Moreover, the hospital’s board of
trustees, officers and employees directly benefit from its profits and assets.
St. Luke’s contended that the BIR should not consider its total revenues, because its
free services to patients was P218,187,498 or 65.20% of its 1998 operating income.
St. Luke’s also claimed that its income does not inure to the benefit of any individual.
St. Luke’s maintained that it is a non-stock and non-profit institution for charitable
and social welfare purposes under Section 30(E) and (G) of the NIRC. It argued that
the making of profit per se does not destroy its income tax exemption.
ISSUE: Whether or not St. Luke’s is liable for deficiency income tax in 1998 under
Section 27(B) of the NIRC, which imposes a preferential tax rate of 10% on the
income of proprietary non-profit hospitals.
RULING: There is no dispute that St. Luke’s is organized as a non-stock and non-
profit charitable institution. However, this does not automatically exempt St. Luke’s
from paying taxes. This only refers to the organization of St. Luke’s. Even if St.
Luke’s meets the test of charity, a charitable institution is not ipso facto tax exempt.
To be exempt from real property taxes, Section 28(3), Article VI of the Constitution
requires that a charitable institution use the property “actually, directly and
exclusively” for charitable purposes. To be exempt from income taxes, Section 30(E)
of the NIRC requires that a charitable institution must be “organized and operated
exclusively” for charitable purposes. Likewise, to be exempt from income taxes,
Section 30(G) of the NIRC requires that the institution be “operated exclusively” for
social welfare.
However, the last paragraph of Section 30 of the NIRC qualifies the words
“organized and operated exclusively.” 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 the NIRC.
In short, the last paragraph of Section 30 provides that if a tax exempt charitable
institution conducts “any” activity for profit, such activity is not tax exempt even as its
not-for-profit activities remain tax exempt. This paragraph qualifies the requirements
in Section 30(E) that the “non-stock corporation or association must be organized
and operated exclusively for charitable purposes.” It likewise qualifies the
requirement in Section 30(G) that the civic organization must be “operated
exclusively” for the promotion of social welfare.
Thus, even if the charitable institution must be “organized and operated exclusively”
for charitable purposes, it is nevertheless allowed to engage in “activities conducted
for profit” without losing its tax exempt status for its not-for-profit activities. The only
consequence is that the “income of whatever kind and character” of a charitable
institution “from any of its activities conducted for profit, regardless of the disposition
made of such income, shall be subject to tax.”
In 1998, St. Luke’s had total revenues of P1,730,367,965 from services to paying
patients. It cannot be disputed that a hospital which receives approximately P1.73
billion from paying patients is not an institution “operated exclusively” for charitable
purposes. Clearly, revenues from paying patients are income received from
“activities conducted for profit.” Services to paying patients are activities conducted
for profit. They cannot be considered any other way. There is a “purpose to make
profit over and above the cost” of services.
The Court finds that St. Luke’s is a corporation that is not “operated exclusively” for
charitable or social welfare purposes insofar as its revenues from paying patients
are concerned. This ruling is based not only on a strict interpretation of a provision
granting tax exemption, but also on the clear and plain text of Section 30(E) and (G).
Section 30(E) and (G) of the NIRC requires that an institution be “operated
exclusively” for charitable or social welfare purposes to be completely exempt from
income tax. An institution under Section 30(E) or (G) does not lose its tax exemption
if it earns income from its for-profit activities. Such income from for-profit activities,
under the last paragraph of Section 30, is merely subject to income tax, previously at
the ordinary corporate rate but now at the preferential 10% rate pursuant to Section
27(B).
Assoc. of Custom Brokers, Inc. vs Municipal Board
93 Phil 107

FACTS: The Association of Customs Brokers, Inc., which is composed of all brokers
and public service operators of motor vehicles in the City of Manila challenge the validity
Ordinance No. 3379 on the ground that (1) while it levies a so-called property tax it is in
reality a license tax which is beyond the power of the Municipal Board of the City of
Manila; (2) said ordinance offends against the rule of uniformity of taxation; and (3) it
constitutes double taxation.
The respondents contend on their part that the challenged ordinance imposes a
property tax which is within the power of the City of Manila to impose under its Revised
Charter [Section 18 (p) of Republic Act No. 409], and that the tax in question neither
violate the rule of uniformity of taxation, nor does it constitute double taxation.
ISSUE: Whether or not the ordinance is null and void
RULING: The ordinance infringes the rule of the uniformity of taxation ordained by our
Constitution. Note that the ordinance exacts the tax upon all motor vehicles operating
within the City of Manila. It does not distinguish between a motor vehicle for hire and
one which is purely for private use. Neither does it distinguish between a motor vehicle
registered in the City of Manila and one registered in another place but occasionally
comes to Manila and uses its streets and public highways. This is an inequality which
we find in the ordinance, and which renders it offensive to the Constitution.

Southern Cross Cement Corp vs Phil Cement Manufacturers Corp

G.R. No. 158540, 08/03/2005

FACTS: Petitioner Southern Cross Cement Corporation (Southern Cross) is a domestic

corporation engaged in the business of cement manufacturing, production, importation
and exportation. Private respondent Philippine Cement Manufacturers Corporation
(Philcemcor) is an association of domestic cement manufacturers. DTI accepted an
application from Philcemcor, alleging that the importation by petitioner of gray Portland
cement in increased quantities has caused declines in domestic production, capacity
utilization, market share, sales and employment; as well as caused depressed local
prices. Accordingly, Philcemcor sought the imposition of definitive safeguard measures
on the import of cement pursuant to the Safeguard Measures Act.
The Tariff Commission received a request from the DTI for a formal investigation to
determine whether or not to impose a definitive safeguard measure on imports of gray
Portland cement.
The Tariff Commission reported that the elements of serious injury and imminent threat
of serious injury not having been established, it is hereby recommended that no
definitive general safeguard measure be imposed on the importation of gray Portland
cement. After reviewing the report, then DTI Secretary Manuel Roxas II (DTI Secretary)
disagreed with the conclusion of the Tariff Commission that there was no serious injury
to the local cement industry caused by the surge of imports. In view of this
disagreement, the DTI requested an opinion from the Department of Justice (DOJ) on
the DTI Secretary’s scope of options in acting on the Commissions recommendations.
Subsequently, then DOJ Secretary Hernando Perez rendered an opinion stating that
Section 13 of the SMA precluded a review by the DTI Secretary of the Tariff
Commissions negative finding, or finding that a definitive safeguard measure should not
be imposed.
DTI then denied application for safeguard measures against the importation of gray
Portland cement.
Philcemcor received a copy of the DTI Decision on 12 April 2002. Ten days later, it filed
with the Court of Appeals a Petition for Certiorari, Prohibition and Mandamus seeking to
set aside the DTI Decision, as well as the Tariff Commissions Report. On the other
hand, Southern Cross filed its Comment arguing that the Court of Appeals had no
jurisdiction over Philcemcors Petition, for it is on the Court of Tax Appeals (CTA) that
the SMA conferred jurisdiction to review rulings of the Secretary in connection with the
imposition of a safeguard measure.
ISSUE: Whether or not the CA has jurisdiction over the case which is concerned with
imposition of safeguard measures.
RULING: CTA has jurisdiction. Under Section 29 of the SMA, there are three requisites
to enable the CTA to acquire jurisdiction over the petition for review contemplated
therein: (i) there must be a ruling by the DTI Secretary; (ii) the petition must be filed by
an interested party adversely affected by the ruling; and (iii) such ruling must be in
connection with the imposition of a safeguard measure. The first two requisites are
clearly present. The third requisite deserves closer scrutiny.
Contrary to the stance of the public respondents and Philcemcor, in this case where the
DTI Secretary decides not to impose a safeguard measure, it is the CTA which has
jurisdiction to review his decision. The reasons are as follows: first. Split jurisdiction is
abhorred. The law expressly confers on the CTA, the tribunal with the specialized
competence over tax and tariff matters, the role of judicial review without mention of any
other court that may exercise corollary or ancillary jurisdiction in relation to the SMA;
second, the interpretation of the provisions of the SMA favors vesting untrammeled
appellate jurisdiction on the CTA. A plain reading of Section 29 of the SMA reveals that
Congress did not expressly bar the CTA from reviewing a negative determination by the
DTI Secretary nor conferred on the Court of Appeals such review authority.
Respondents note, on the other hand, that neither did the law expressly grant to the
CTA the power to review a negative determination. However, under the clear text of the
law, the CTA is vested with jurisdiction to review the ruling of the DTI Secretary in
connection with the imposition of a safeguard measure. Had the law been couched
instead to incorporate the phrase the ruling imposing a safeguard measure, then
respondents claim would have indisputable merit. Undoubtedly, the phrase in
connection with not only qualifies but clarifies the succeeding phrase imposition of a
safeguard measure. As expounded later, the phrase also encompasses the opposite or
converse ruling which is the non-imposition of a safeguard measure; third, interpretatio
talis in ambiguis semper fienda est ut evitetur inconveniens et absurdum. When there
are ambiguities, a construction should be so made such that what is unsuitable and
absurd may be avoided.
Even assuming arguendo that Section 29 has not expressly granted the CTA jurisdiction
to review a negative ruling of the DTI Secretary, the Court is precluded from favoring an
interpretation that would cause inconvenience and absurdity. Adopting the respondents
position favoring the CTAs minimal jurisdiction would unnecessarily lead to illogical and
onerous results.