Respondent taxpayer, Lingayen Gulf Electric Power Co, Inc operates an electric power plant serving Binmaley and Lingyen in Panagasinan, pursuant to the municipal franchise granted it by their respective municipal councils under Resolution Nos. 14 and 25 of June 29 and July 2, 1946, respectively. Sec 10
provide that:
The said grantee in consideration of the franchise hereby granted, shall pay quarterly into the Provincial Treasury of Pangasinan, one per centum of the gross earnings obtained thru this privilege during the first twenty years and two per centum during the remaining 15 years of the life of said
franchise.
Feb 24, 1948- President approved the franchise
Nov 21, 1955- BIR assessed against and demanded them from the private respondent P19293.43 as deficiency in taxes from 1946-1954
Sept 29, 1956- private respondent requested for a reinvestigation of the case that instead of incurring a liability, it made an overpayment
The Commissioners denied the conference that the petitioner requested. Aug 21, 1962- Commissioner demanded from private respondent P3616.86 as deficiency franchise tax
Oct 5, 1962- private respondent protested the assessment and requested reconsideration but was denied Pending the hearing RA 3843 was passed on June 22, 1963, granting the private respondent, legislative franchise= 2% of the gross receipts payable quarterly
Sept 15, 1964 the respondent court ruled that the provisions of RA 3843 should apply and accordingly dismissed the claim of the CIR
ISSUES:
Whether or not: 1) the 5% tax prescribed in Sec259 of the National Internal Revenue Code assessed against private respondent realized before the affectivity of RA 3843
2) Sec 4 of RA 3843 is unconstitutional for being violative of the uniformity and equality of taxation 3)Sec 4 RA 3843 is valid, whether or not it could be given retroactive effect so as to render uncollectible the taxes in question which were assessed before its enactment
4) The taxpayer is liable for P3025.96 for Jan 1, 1946-Feb 29, 1948 DECISION:
The decision of the respondent Court of Tax Appeals is AFFIRMED. RATIO:
It is the contention of the CIR that the private respondent should have been liable for the 5% franchise tax on gross receipts prescribed in Section 259 of the Tax Code, instead of lower franchise tax because Sec 259 of the Tax Code was amended by RA 39 on Oct 1, 1946. The franchise of the respondent was existing at the time of the amendment since the franchises were accepted on March 1, 1948 after the approval of the president on Feb 24, 1948. However, RA 3843 granted the private respondent a legislative franchise in June 196r, amending, altering or even repealing the said municipal franchises, providing only a 2% tax and effective further upon the date the original franchise was grated. The private respondent was liable to pay only the 2% franchise tax, effective from the date the original
municipal franchise was granted.
The petitioner submits that the said law was unconstitutional insofar as it provides 2% tax for the respondent while other taxpayers similarly situated were subject to 5%. A tax in uniform when it operates with the same force and affect in every place where the subject of it is found. However, RA 3843transfered the petitioner’s power plant from the class provided for in Act 3636. Thus it was only effected transfer of a taxable property from one class to another. The 5% tax in Section 259 was never intended to have a universal application. The Legislature considers and makes provision for all the circumstances of a particular case, therefore holding the law constitutional.
RA 3843 specifically provided for the retroactive effect of the law for it provides that it is effective upon approval of the franchise. The private respondent therefore is only liable for the payment of percentage
and fixed tax rates as seller of light, heat and power, P3025.96. But the respondent paid the amount of P34, 184.36 which were very much more than the amount due.
CIR vs. COURT OF APPEALS (298 SRCA 683) FACTS:
This is a petition for review on certiorari of the decision of the Court of Appeals that affirmed the decision of the Court of Tax Appeals (CTA) allowing the Young Men’s Christian Association of the Philippines (YMCA) – established as a welfare, educational and charitable non-profit corporation” – to claim tax exemption on the latter’s income from the lease of its real property.
The Commissioner of Internal Revenue (CIR) issued an assessment to Private Respondent YMCA in the total amount of P415,615.01 for taxes. YMCA filed a letter regarding their protest on the assessment. CIR denied the claims of YMCA. YMCA filed a petition for review at CTA. The CTA issued a ruling in favor of YMCA. Dissatisfied with the CTA ruling, the CIR elevated the case to the Court of Appeals (CA), which initially decided in favor of CIR. YMCA asked for reconsideration and the CA reversed itself in favor of YMCA. The ruling reads: “The court cannot depart from the CTA’s findings of fact, as they are supported by evidence beyond what is considered as substantial”. CIR’s Motion for Reconsideration was denied by the CA. Hence, this petition for review.
Petitioner CIR argues that while the income received by the organizations enumerated in Sec 27 of the National Internal Revenue Code (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”. Rentals, therefore, derived by a tax exempt organization from the lease of its properties, real or personal, is not, exempt from income taxation even if such income os exclusively used for the accomplishment of its objectives.
Private respondent YMCA also invokes Art. VI Sec. 28 par. 3 of the 1987 Constitution, which exempts “charitable institutions” from the payment not only of property taxes but also of income tax from any source. It also invokes Article XIV Sec. 4 par. 3 of the Constitution, 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”.
ISSUE:
Whether or not the income derived from rentals of real property owned by YMCA is subject to income tax under Sec. 27 of the National Internal Revenue Code and Article VI Sec. 28 par. 3 and Article XIV Sec. 4 par. 3 of the Constitution.
HELD:
YES. The petition is granted. The latter decision of the Court of Appeals in reversed and set aside. The initial decision of the Court of Appeals in reinstated, insofar as it ruled that the income derived by petitioner YMCA from rentals of its real property is subject to income tax.
The exemption claimed by 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. On the constitutional issue, according to Justice Hilario Davide Jr., a former constitutional commissioner, “what is exempt is not the institution itself x x x; those exempted from real estate taxes are lands,
buildings and improvements actually, directly, and exclusively used for religious, charitable, or educational purposes”. Fr. Bernas also adhered to the same view that the exemption created by the said provision pertained only to property taxes. The Court notes that not a scintilla of evidence was submitted by YMCA to prove 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. Also, YMCA cannot be deemed one of the educational institutions within the purview of Article XIV Sec. 4 par. 3 of the Constitution because under the Education Act of 1982, the technical meaning of “educational institution” which is the school system, is synonymous with formal education. Thus, it “refers to the hierarchically structured and chronologically graded learning’s 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. The Court examined the Amended Articles of Incorporation and By- Laws of the YMCA, but found nothing in them that even hints that it is a school or an educational system. The Court finds no basis for granting YMCA exemption from income tax under the constitutional provision invoked.
SECTION 29.
1. NO MONEY SHALL BE PAID OUT OF THE TREASURY EXCEPT IN PURSUANCE
OF AN APPROPRIATION MADE BY LAW.
2. NO PUBLIC MONEY OR PROPERTY SHALL BE APPROPRIATED, APPLIED,
PAID, OR EMPLOYED, DIRECTLY OR INDIRECTLY, FOR THE USE, BENEFIT, OR
SUPPORT OF ANY SECT, CHURCH, DENOMINATION, SECTARIAN INSTITUTION,
OR SYSTEM OF RELIGION, OR OF ANY PRIEST, PREACHER, MINISTER, OTHER
RELIGIOUS TEACHER, OR DIGNITARY AS SUCH, EXCEPT WHEN SUCH PRIEST,
PREACHER, MINISTER, OR DIGNITARY IS ASSIGNED TO THE ARMED FORCES,
OR TO ANY PENAL INSTITUTION, OR GOVERNMENT ORPHANAGE OR
LEPROSARIUM.
3. ALL MONEY COLLECTED ON ANY TAX LEVIED FOR A SPECIAL PURPOSE
SHALL BE TREATED AS A SPECIAL FUND AND PAID OUT FOR SUCH PURPOSE
ONLY. IF THE PURPOSE FOR WHICH A SPECIAL FUND WAS CREATED HAS
BEEN FULFILLED OR ABANDONED, THE BALANCE, IF ANY, SHALL BE
TRANSFERRED TO THE GENERAL FUNDS OF THE GOVERNMENT.
PASCUAL VS. SECRETARY OF PUBLIC WORKS (110 PHIL 331)